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High Court rules that bank notice of transfer of a loan must be given to the borrower.

High Court ruling on bank notices

A High Court judge has refused to revisit or provide further clarification to a judgement, on foot of an application by AIB Mortgage Bank (the “Bank”),seeking clarification of the judge’s findings in the recent High Court case.

The Bank had concerns that the findings had the potential to cause “immense” damage and create uncertainty on the ability of Irish banks to enforce billions of euro worth of loans which have transferred to them under section 58 of the Asset Covered Securities Act, 2001 (the “2001 Act”). 

Background

The Bank sought summary judgment against Nadine Thompson (the “Borrower”) in relation to an investment property in Dublin.  The Borrower had obtained a 25 year loan in 2003 from another bank, AIB (the “Original Bank”), which is within the same banking group as the Bank, to purchase the property in question. 

The loan was subsequently transferred in 2006 from the Original Bank to the Bank under section 58 of the 2001 Act. The Borrower maintained there was non-compliance with section 28(6) of the Supreme Court of Judicature (Ireland) Act, 1877 (the “1877 Act”), as no express notice of the assignment of the loan was given to the Borrower, as required by the 1877 Act.

The Bank sought to rely on the provision in the loan agreement between the Original Bank and the Borrower which provided that the loan could be assigned without her consent.  The Bank also argued that notice had validity and effectively been given by virtue of (1) an account statement containing a note to customers that the Original Bank had transferred substantially all of its mortgage business to the Bank and (2) that the demand letter sent on the Original Bank’s headed paper, set out that the Bank was entitled to the benefit of the loan. 

Court Findings

The judge found that the two documents relied on by the Bank were not sufficient to constitute express notice of the assignment, as required under the 1877 Act.

However, the judge agreed that the consent provision within the loan agreement between the Original Bank and the Borrower did provide for an assignment of the loan to the Bank without her consent and that there was a valid equitable assignment of the debt from the Original Bank to the Bank, for which a notice to the Borrower was not required.

Nonetheless, the Court found that the Bank could not sue the Borrower at common law without showing that she was expressly notified of the assignment in accordance with the 1877 Act. 

Bank Clarification Sought on Judge’s Findings

As a result of the Court’s findings the Bank made a post judgement application seeking clarification of the judge’s decision.  The Bank argued that if the findings are interpreted as to mean that only an equitable assignment of the loans has taken place, that the Court’s findings in this case will potentially have major ramifications and ambiguity for a substantial volume of similar cases involving transfers under Section 58 of the 2001 Act.

The judge dismissed the Bank’s application for clarification of the original decision and reiterated the Court’s original findings that express notice is required by virtue of the 1877 Act.

The Court’s findings will be of great concern and interest, respectively, to banks and borrowers, and will undoubtedly have potentially significant repercussions for other cases where a transferee under the 2001 Act seeks to bring proceedings in its own name against a borrower.

 

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