Debt Proceedings Struck Out where Bank Delayed to Allow Economic Recovery
The High Court has recently struck out proceedings against a defaulting debtor where the bank made a unilateral commercial decision to delay to allow her co-debtor to recover financially so increasing its prospect of recovery.
In Bank of Ireland v Wilson,1 the bank commenced summary proceedings against the defaulting debtors in 2012. The debtors, who were jointly and severally liable on the debt, had been in a relationship but were now estranged.
The bank had delayed in progressing these proceedings as it had decided to allow the first defendant time to put his financial affairs in order, in the hope that he would be able to discharge his overall larger indebtedness to the bank. The second defendant now applied to strike out the bank’s claim against her on the grounds of this delay.2
The Debtor’s Submissions
The second defendant told the court that the defendants had separated in 2004. The debt was incurred in 2006 for the purchase of a home for her following that separation. She alleged that the defendants had agreed that she was to receive this property free from any encumbrance. This was disputed by the first defendant. That dispute had been incorporated into the present proceedings as the second defendant had served a notice of indemnity or contribution on the first defendant. This claimed that on foot of the defendants’ prior agreement, if she was found liable to the bank, she was entitled to an indemnity from the first defendant in respect of that indebtedness.
On the delay issue, the second defendant submitted that she had been unaware that the bank had made a unilateral decision to postpone these proceedings and its reason for doing so. She had never consented to that postponement. On the contrary, she was anxious to have the matter heard so that her claim against the first defendant could be determined. She had never acquiesced to the action going into abeyance but in correspondence had threatened the bank with a strike out application. She said that the bank’s decision to delay was motivated by its own commercial interests as the first defendant had other outstanding liabilities to it. She submitted that it was impermissible at law for a plaintiff to make a unilateral decision to put an action into abeyance, pending the outcome of separate proceedings or events. She said that the court could also have regard to the fact that these were summary proceedings which should be progressed swiftly.
The second defendant also pointed to prejudice caused by the delay. She said that in consideration of the transfer of the unencumbered property, she had agreed to release her interest in other properties. The first defendant had diminished his equity in one of these properties by executing a mortgage in favour of his new partner. He had since married that partner and that property was now a family home enjoying statutory protection under the Family Home Protection Act 1976. The second defendant had therefore suffered a significant diminution in her opportunity to recover payment from the first defendant on foot of her claim against him.
Further, the first defendant had stopped repayments on the loan in default. Therefore, increased interest had continued to accrue on that loan due to the bank’s delay in progressing these proceedings. That in turn had worsened the second defendant’s overall liability on foot of that loan.
She submitted that this was not a case that would rely only on documentary evidence. Instead, oral evidence would be required in relation to the defendants’ prior agreement, on which the second defendant’s notice of indemnity and contribution was based. In such circumstances, she had been prejudiced by the bank’s delay because the resolution of those issues would depend on the recollection of witnesses of events that had taken place over fourteen years ago.
The Bank’s Submissions
For its part, the bank argued that the delay was excusable. It pointed to negotiations between the parties to resolve the matter at various stages as well as difficulties with the security which had to be resolved. It said that it had been anxious to allow the defendants time to resolve their difficulties from the breakup of their relationship. It had allowed the first defendant time to get his business back up and running following the financial crash, to give him an opportunity to reduce his overall indebtedness to the bank, including on foot of this loan. In effect, he had been the sole breadwinner in the family. There was no reality to the second defendant repaying the loan so it was entirely reasonable and sensible for the bank to give the first defendant time to see if he could reduce the joint and several indebtedness of the defendants. As it transpired, the first defendant had now sold his business and had funds. This was to the second defendant’s advantage.
The bank also said that if the proceedings continued the second defendant would also be able to resolve her claim against the first defendant at the same time. It submitted that it could explore other avenues of recourse and if those proved unsuccessful, could continue with its primary action against the defendants. The bank also argued that a strike out order would be futile as it was open to it to commence fresh proceedings against the second defendant.
Decision of the Court
The court granted the strike out application on the grounds of inordinate and inexcusable delay.
Barr J said that while it might be reasonable to allow parties to a family dispute some time to sort matters out, here the loan was taken out two years after the defendants separated and proceedings only instituted six years after that.
While allowing the first defendant to get his business back on his feet was reasonable from a commercial point of view and in particular having regard to the commercial interests of the bank, it could not justify the delay as it was well settled that a party could not make a unilateral decision to suspend litigation while it pursued other avenues of redress, or awaited the outcome of other events, without at the very least securing the acquiescence of the defendants in that course of action being taken. The second defendant was not informed of the bank’s decision and did not consent or acquiesce to it. Nor did the bank seek the directions of the High Court to permit it to postpone the action.
In addition, the bank elected to pursue summary proceedings in respect of the recovery of this debt. Once it decided to adopt that procedure, it was obliged to progress the litigation in a timely manner, as envisaged under the Rules of the Superior Courts.
The court also pointed to the obligations of the State under the European Convention on Human Rights to ensure that parties to litigation receive a fair hearing from an independent tribunal within a reasonable period of time.
On the facts, the court also did not accept that a second attempt to resolve the proceedings under the MARP process in 2016 could justify the delay. The bank’s submissions around justifiable delay arising from difficulties relating to the security for the loan were also rejected by the court.
Barr J pointed to the prejudice suffered by the second defendant as a result of the delay and said that the balance of justice lay in favour of dismissing the proceedings for want of prosecution.
This decision will be of interest to retail banks as well as loan sale purchasers and credit servicers. It demonstrates that in making decisions around delay, the court will have regard to all of the circumstances of the case, not just those arising in immediate connection with the litigation. It will also have regard to the wider circumstances of the relationship or interaction between the parties.
-  IEHC 646.
- For a variety of reasons, the period of relevant delay in this case was assessed by the High Court as three years and two months.
This document has been prepared by McCann FitzGerald LLP for general guidance only and should not be regarded as a substitute for professional advice. Such advice should always be taken before acting on any of the matters discussed.
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