The recent Supreme Court decision given by Ms. Justice Laffoy in the case of Tom Kavanagh and Bank of Scotland Plc v Patrick McLaughlin and Roseann McLaughlin (the “McLaughlins”) delivered on the 19th of March 2015 again casts into doubt the enforceability of certain mortgages.  Bank and Receivership Solicitors have to take note.  This paper deals with the practical  consequences of this decision having particular regard to charges over land registry lands granted in favour of Bank of Scotland (Ireland) Limited (“BOSI”), prior to its merger by absorption by Bank of Scotland Plc. (“BOS”).


At this stage it is worth reminding the reader that pursuant to European Communities (Cross-Border Mergers) Regulations 2008 (S.I. No. 157 of 2008) in Ireland and the Companies (Cross-Border Mergers) Regulations 2007 in the United Kingdom approved by the High Court (Kelly J.) of Ireland on the 22nd October, 2010 and approved by the Court of Sessions on 10th December, 2010, all assets and liabilities of BOSI were transferred to BOS at 23.59 hours on the 31st December, 2010 and BOS was then dissolved and ceased to exist.


In the McLaughlin case a number of issues were considered by the Supreme Court arising out of the appeal by the McLaughlins of the unreported decision of Mr. Justice Bermingham given on the 30th of September 2013.  The case centred around the enforceability of loans issued by BOSI to the McLaughlins and the enforceability of the security granted by the McLaughlins for these loans.


The McLaughlins argued, inter alia, that the failure by BOS to register the transfer of the mortgage and charge granted by the McLaughlins in favour of BOSI with the Property Registration Authority (the “PRA”) precluded BOS from enforcing that charge, including the appointment of a receiver.  In the High Court case Mr. Justice Bermingham did not accept this argument and in his decision he put particular emphasis on the interpretation by the PRA of the European Communities (Cross-Border Mergers) Regulations 2008 which implemented the relevant EU directives on cross border mergers.


After an exhaustive consideration of a number of legislative provisions including the European Communities (Cross-Border Mergers) Regulations 2008, the United Kingdom, Companies (Cross-Border Mergers) Regulations 2007, the Registration of Title Act 1964, the Central Bank Act, 1971, the Trustee Savings Banks Act, 1989 and the National Asset Management Agency Act, 2009, Ms Justice Laffoy came to a different conclusion.


While she did accept that the appointment of the receiver was a valid appointment; she did so on the basis of the contractual power to appoint a receiver contained in the charge.  She went on however to determine that if BOS wished to avail of the statutory rights conferred by Section 62 of the Registration of Title Act, 1964 to enforce the charge, it must firstly comply with the requirement that it be registered as the owner of the charge.  In other words, in the absence of registration, it may not rely on the statutory right to appoint a receiver or to sell the charged property as mortgagee in possession.


Since this judgement was delivered the PRA has changed its legal notice number 2 of 2014.  This notice relates to how the PRA will deal with charges over land registry titles created in favour of BOSI and The Governor and Company of the Bank of Scotland (‘GCBS’) and any enforcement steps taken pursuant to these charges.


Paragraph 5 of this notice now states that:


“In any case where BOS intend to realise their security, in respect of a charge registered in the name of BOSI or GCBS, either by receiver’s sale or by exercising the power of sale of a mortgagee in possession, it should apply for registration as owner of such charge prior to lodgement of the transfer of the transfer on sale of the property in realisation of the security.  BOS must be registered owner of a charge to exercise the powers of enforcing such a charge”.


We are of the view that the amended notice issued by the PRA does not properly take account of the judgement of Laffoy in the present case.  We will return to this issue at a later date.  As it stands however it would seem that the PRA will not register a deed of assurance executed by a receiver appointed pursuant to a BOSI or GCBS charge or a deed of assurance executed by BOS (as the owner of a BOSI or GCBS charge) as mortgagee in possession unless BOS has registered the transfer of the charge with the PRA in advance.  Solicitors acting for Banks and Receivers need to be aware of this.


Having regard to the foregoing we are of the view that where a receiver is appointed pursuant to a BOSI charge over land registry title which charge has transferred to BOS, it would be prudent for any such receiver to ensure that BOS take steps to register their ownership of the charge with the PRA in advance of completing the sale of the charged property either by BOS as mortgagee in possession or, given the PRA’s interpretation of Ms Justice Laffoy’s decision, by the receiver as agent and attorney of the chargor.  In the absence of registration the PRA are likely to refuse to register the deed and to reject the dealing.  Notwithstanding the terms of the contract it is likely that, in the absence of registration, a purchaser’s solicitor will refuse to complete the purchase of a property from a receiver appointed pursuant to a BOSI charge and this will lead to inevitable delays in completing sales.


Of greater concern is the liability a receiver may be exposed to in the event that he/she completed the sale of a charged property in circumstances where it is subsequently determined that the receiver did not have a valid power of sale.  While we as Bank and Receivership Solicitors are of the view that Laffoy’s judgement does not impugn the contractual power of sale contained in most charges and that the position adopted by the PRA in the amendment it has made to its legal notice goes beyond what the learned judge determined, the PRA’s revised legal notice now provides that it will require prior registration before it recognises the power of a receiver or BOS to enforce the security.



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