knowledge | 7 November 2018 |

Loan Sales: Court Clears the Way for Possession Proceedings Against Debtor

The Court of Appeal has dismissed technical arguments challenging the entitlement of the purchaser of a portfolio of secured loans to bring summary proceedings seeking possession of property against a defaulting debtor.

Background

In Tanager DAC v Kane,1  Bank of Scotland (Ireland) Ltd (“BOSI”) had been the registered owner of a charge over the defendant mortgagor’s home in the Land Registry (the "register"). In 2010, all the assets and liabilities of BOSI were transferred to Bank of Scotland plc (“BOS”) following a cross-border merger pursuant to the European Communities (Cross-Border Mergers Regulations) 2008 and related UK legislation.  Following the merger, BOSI was automatically dissolved by operation of law.  Later, BOS having taken over all the assets and liabilities of BOSI, sold a portfolio of secured loans to the plaintiff, Tanager, which included security over the defendant’s home. Tanager was subsequently registered as owner of that charge. However, prior to the transfer to Tanager, BOS had not been registered as owner of the charge (it remained registered in the name of the now-dissolved BOSI).

Issue for the court

Tanager, as registered chargeholder, sued the defendant seeking possession against him as he had ceased repaying his mortgage and fallen into significant arrears.  The defendant challenged Tanager’s entitlement to rely on its registered ownership of the charge because BOS had not been, but had only applied to be, the registered owner. The defendant alleged that because BOS had not been registered as owner, it could not sell or transfer its right to become the registered chargeholder.  If that were correct, Tanager never acquired title to the charge and so was not entitled, as registered chargeholder to enforce against the defendant.  The defendant also alleged that insofar as the Property Registration Authority (“PRA”) had registered Tanager’s title, this had been wrong in law and the entry in the register was an error. 

Case stated to the Court of Appeal

Recognising the important questions of law arising, Noonan J in the High Court stated a case to the Court of Appeal, posing a number of questions. That court has now given judgment in the matter.

Noonan J asked the Court of Appeal to confirm whether the defendant was entitled to challenge the registration of Tanager as owner of the charge, having regard to the conclusiveness of the register.  The Court of Appeal said the defendant was not so entitled. It pointed to the conclusiveness of the register under section 31 of the Registration of Title Act 1964 (the “1964 Act”). 

Giving judgment, Baker J said that while there were mechanisms available in certain limited cases to challenge the content of the register; in summary proceedings for possession brought pursuant to statute, the court could not be asked to go behind the register and consider whether a registration was defective in some way. The court must accept the correctness of the particulars of registration as they appeared, because the statutory basis for the action for possession was registration. This was one consequence of the conclusiveness of the register according to statute and of the statutory limits to rectification. 

The Court of Appeal also confirmed that given that a court would not look behind the register in this type of proceedings for possession, it was not appropriate to join the PRA as a party to the proceedings and in addition, the court was not entitled to have regard to the circumstances in which Tanager became the registered owner of the charge.

The case stated to the Court of Appeal also asked whether it was open to the defendant to argue that the registration was a "mistake" within the meaning of section 31 of the 1964 Act thus opening up one of the potential grounds for rectification of the register. The Court of Appeal reiterated that insofar as this involved looking behind the register, this argument was not available in the context of proceedings for possession. However, Baker J said that a court hearing such proceedings had an inherent jurisdiction, in a suitable case, to adjourn the proceedings, to stay the enforcement or implementation of an order for possession, or to postpone the date of delivery of possession, pending the determination of rectification proceedings, if it considered that those proceedings were reasonably likely to offer a defence to the claim for possession.

Tanager entitled to be registered as owner

Finally, the Court of Appeal held that Tanager had been entitled to be registered as owner of the charge as the provisions of section 90 of the 1964 Act applied to that registration.

Section 64(2) of the 1964 Act is the starting point of what is a complex legal analysis.  Section 64 creates the means by which title to a charge is transferred by the registered owner and it provides for the rights which the chargeholder has following registration.  The question arose as to whether someone who was entitled to be registered as chargeholder, but who was not yet actually registered, could validly transfer what is essentially the right to be registered.  This arose because BOS, following the cross-border merger, was entitled to be registered, but before registration was completed BOS sold its rights in the charge to Tanager.

Section 90 of the 1964 Act seeks to address what would otherwise be a gap in the registration process that might arise between the sale of an interest in a registered charge and the registration of the instrument of transfer. Section 90 entitles a person to whom it applies to deal with their interest in a charge, before the registration process is complete. This dealing pending registration can subsequently be recognised in the actual registration of ownership.

The Court of Appeal said that section 90 can apply to a number of classes of persons entitled to be registered as owners of a charge, including a person on whom the right to be registered had devolved on the “defeasance” of the owner’s interest, namely a transfer of ownership other than by a written instrument of transfer.  Section 90 permits, in defined circumstances, that person to pass an interest in a registered charge in the same manner and with the same effect as if that person was registered as the owner of the charge.

Under section 60 of the 1964 Act “defeasance” of the interest of a registered owner of a charge can occur “under any enactment”. This was the case here following the BOS/BOSI cross-border merger as the Irish statutory instrument pursuant to which it was effected could be properly classified as an “enactment”. This being so, BOS was therefore entitled to deal in the charge by virtue of section 90 and the PRA was entitled to register a transferee from BOS as owner of the charge without first requiring that BOS be registered as owner. 

Comment

While the background facts giving rise to this case (particularly the cross-border merger) are relatively unusual, the principles arrived at by the Court of Appeal will be of wider interest to those seeking to enforce against defaulting debtors. It is clear that in the immediate context of summary proceedings for possession, arguments that the court should go behind the register are very unlikely to be successful. However, in a suitable (likely rare) case, the court will not simply dismiss these arguments out of hand as it will retain the discretion to take account of matters ongoing or pending in another forum.


  1. Court of Appeal, 31 October 2018

This briefing is 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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