Substituting a Plaintiff: “No” to Portfolio Applications Outside the High Court

In recent briefings, we have highlighted the views expressed by the High Court1 and Court of Appeal2 that the substitution of a bona fide assignee of a borrower’s commitment which was already the subject of litigation at the time of assignment should be straightforward where the assignment has been properly notified.

The trading in Ireland of lenders’ rights against borrowers escalated sharply after the financial crisis and has continued. This has significantly increased applications by the purchaser of a borrower’s commitment to be substituted as the plaintiff in litigation against that borrower which had begun before the commitment was sold. However, the High Court has in a recent judgment3 refused an application to globally substitute the assignee in all pending cases in the Circuit Court arising from the sale of a portfolio of loans.

The applicant had recently acquired a portfolio of loans and sought in a single application to be substituted as plaintiff in 583 cases pending in the Circuit Court. The Circuit Court is a court of limited and local jurisdiction with registries in each county.

The Circuit Court Rules permit substitution where “…by reason of the death, or bankruptcy, or any other event occurring after the commencement of an action… causing a change or transmission of interest or liability…. it becomes necessary or desirable that any person not already a party should be made a party….. an order that the proceedings shall be carried on between the continuing parties, and such new party or parties, may be obtained ex parte on application to the court .”

The President of the Circuit Court refused the portfolio application and the moving party appealed to the High Court, which upheld the Circuit Court’s refusal. Portfolio substitution orders have previously been made in respect of groups of proceedings pending in the High Court4,with the defendants being put on notice and subject to the assignee demonstrating at each relevant trial its entitlement to sue on the assigned commitments and to succeed at trial, and noting that the decision to permit substitution did not concern the validity of the underlying sale agreement, the assignment effected or notice of the assignment.

Both the Circuit and High Courts accepted that there was prima facie evidence of assignment compliant with the applicable legal requirements in this case. However, in the previous High Court cases, there was a clear argument of administrative convenience being supported by a portfolio order, because the High Court is a unitary court, with a single registry and the centralised administration of the High Court readily facilitated the administrative court work necessitated by a portfolio order. There was also a high possibility of standard documents being used in all relevant cases and lead cases being advanced so that points of principle can quickly be decided which are likely to be followed in all other relevant cases.

In contrast, the Circuit Court is a court of limited and local jurisdiction, with multiple registries, and different listing arrangements countrywide, and decisions in one circuit are not binding in another. Therefore, it was considered doubtful that substitution was in the interests of justice or whether it was necessary or desirable. While the applicant might save costs, the impact of a portfolio order would be much more difficult to manage in the Circuit Court and for the hundreds of defendants who would be affected by the making of the order without notice.

The High Court also noted that spot checks in the 26 Circuit Court offices concluded that details initially provided in the application of a small number of cases were not entirely reliable. Therefore, while superficially attractive, a portfolio order in respect of Circuit Court proceedings would have the potential to confuse or disrupt the orderly local administration of each case in court or the court office concerned and it was therefore safer that each of the cases be seen to be dealt with individually in its proper local jurisdiction. The same logic would also apply to proceedings in the District Court, though most secured property lending cases begin the in the High or Circuit Courts.

While this judgment will undoubtedly involve some frustration for loan portfolio acquirers, it does not, as has been suggested in some media, require them to recommence the relevant proceedings; they can make the relevant applications individually within the relevant cases, including at trial if necessary.

  3. Irish Bank Resolution Corporation Limited v Kennedy and another [2016] IEHC 395, judgment of 6 July 2016, McDermott J
  4. Irish Bank Resolution Corporation v Comer [2014] IEHC 671, per Kelly J, followed in IBRC (in special liquidation) v McCaughey [2014] IEHC 517; IBRC (in special liquidation) v Morrissey [2014] IEHC 527, and Lombard Ireland Limited v Kevin Devlin Transport Limited [2014] IEHC 653

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.