Tuesday 11 December 2018

High Court’s finding 'could raise doubt' on €17.8bn AIB debt transfers

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Tim Healy

A requirement that a bank should have notified a woman it was transferring her investment mortgage debt could raise doubt about billions in debt transfers under a 2001 law, it has been claimed in the High Court.

Allied Irish Banks (AIB) has expressed the concern following a High Court judge’s findings that notice was required to Nadine Thompson who is facing summary judgment proceedings over a €224,000 debt.

The findings have potential to cause legal uncertainty and “immense” damage not just to AIB but other financial institutions who have transferred billions worth of loans under Section 58 of the Asset Covered Securities Act 2001, Ms Justice Marie Baker was told.

Ms Thompson's 25-year mortgage loan, made to purchase an investment property in Portobello, Dublin, was transferred by AIB to AIB Mortgage Bank (AIBMB) in 2006 under  Section 58, which provides a loan transferee assumes the rights and obligations of the transferor on the date of transfer.

In an unusual application, AIBMB has urged Ms Justice Baker, before making final orders in the relevant case, to “amplify” the reasons for her findings and/or clarify the position before making final orders so as to avoid “legal uncertainty”.

The judge made her findings in a case initiated by AIBMB in May 2016 seeking summary judgment for €244,591 against Ms Thompson, Rathdown Park, Terenure, Dublin, over alleged default on a loan made to her by AIB in 2003.

Ms Justice Baker found , because the mortgage was transferred under Section 58 without express written notice to Ms Thompson, as provided for under the 1877 Supreme Court of Judicature (Ireland) Act, the debt was not actionable in common law by AIBMB.

However, she also found there was a valid equitable assignment of the debt to AIBMB,  for which notice is not required , and that AIBMB had proven default.

In the circumstances, she held AIBMB was entitled to summary judgment for €244,591.

In its post-judgment application seeking “amplification” of her findings, AIBMB says, if the findings are interpreted as meaning there was only an equitable assignment by AIB of the loan to AIBMB, that would potentially have “very significant” repercussions for other cases where a transferee under the 2001 Act brings proceedings in its own name.  AIB has made some €17.8bn in debt transfers.

The judgment is “liable to be misinterpreted” and relied upon in other litigation as requiring a written notice for Section 58 transfers, AIBMB says.

It says the effective operation of loan transfers made under the 2001 Act is “of great importance” and any uncertainty about the efficacy of loan transfers has the potential to impact generally on the market in asset covered securities “in an adverse way” .

It is “desirable” and in the interests of justice that the matter be clarified, it maintains. 

However, lawyers for Ms Thompson argue the bank is essentially trying to persuade the judge to reverse her findings on notice requirements and they dispute the bank’s claim that the court has jurisdiction to do that.

Having heard submissions from both sides, Ms Justice Baker said she will rule later on the application.

In her earlier judgment, the judge had rejected AIBMB’s arguments the combined effect of two documents sent to Ms Thompson – known as “hello” and “goodbye” letters - amounted to notice as required by Section 28.6.

 The first document was a letter sent by AIBMB to Ms Thompson in late 2006 which stated AIB had transferred substantially all of its mortgage business to AIBMB, that repayment obligations remained the same and “no action by you is required”.

The second document was a letter of January 2015, sent on AIB plc headed paper, demanding repayment. That letter involved a claim by AIBMB to the benefit of the loan agreement but did not constitute a notice within the meaning of Section 28.6, the judge held.

She also dismissed arguments that a clause in Ms Thompson’s loan contract, which provided her debt could be transferred without notice to her, assisted the AIBMB case.

The contract meant the debtor could not object to the assignment of their debt but the position remains an assignee cannot sue them without showing the required notice was given under Section 28.6, she said.

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