Ireland: The Good Wife: Security For Loans And The Rights Of Spouses

In Goodbody Stockbrokers v Allied Irish Banks and Patterson¹ Goodbody stockbrokers sought to resolve a situation where it was facing competing claims for a share portfolio account it held. On one hand, AIB had a letter of pledge from the account holder committing the account as security for a loan which was not performing, and which AIB was seeking to enforce. On the other hand, the account-holder’s wife argued that the portfolio account was 50% beneficially owned by her, and so her portion or the whole account could not be lawfully liquidated to the bank’s order and benefit.

The Decision

The account-holder, Mr Patterson, held a share portfolio account with the plaintiff stockbrokers for many years and did so before meeting and marrying Mrs Patterson. Mrs Patterson’s evidence was that before marrying Mr Patterson, they agreed that they would jointly own the share portfolio account. She argued that when Mr Patterson purported to pledge this account to the bank, this was ineffective, either in whole or in part, as at least half the account belonged to, or was held in trust for, Mrs Patterson, and that her interest superseded any the bank may have.

The bank argued that Mrs Patterson had never contributed to the account and so had no beneficial interest in it. Furthermore the bank took the charge over the account from Mr Patterson in good faith and without notice of any claim of Mrs Patterson. The bank also argued that Mrs Patterson waived her right to complain about the charge because an excessive amount of time (five years) had passed without her protesting about it in any way.

Birmingham J held in favour of the bank on the basis that Mrs Patterson did not hold an interest in the account that prevented her husband from validly pledging it to bank. That Mrs Patterson did not contribute to the account was “highly relevant”. The judge found that the bank accepted the security in good faith without notice of any interest of Mrs Patterson.

Moreover, Mrs Patterson had never protested or asserted any sort of right over the account at the time the security in favour of the bank was created, nor when it was later renewed or subsequently extended; and so “the fact that no steps were taken to regularise the situation, as seen from her perspective, militates against the cause that she is advancing.” These factors, when taken in totality, defeated Mrs Patterson’s claim.

Comment

Whilst the case was decided on its own facts, it does highlight the issues of notice and acquiescence which are recurring themes in cases where a spouse argues that security given by another is subject to a prior right in their favour. Best practice for lenders is of course to procure spousal consent coupled with declarations of beneficial ownership from the party giving security.

Footnote

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.