Court’s finding could cast doubt on €17.8bn AIB debt transfer

Allied Irish Banks is concerned that a High Court judge’s findings that notice was required to be given to a borrower of the transfer of her loan could raise doubt about some €17.8 billion debt transfers by the bank under a 2001 Act.

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

In an unusual application, AIB Mortgage Bank (AIBMB) has urged the judge, 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”.

Case

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

The 25 year mortgage loan, made to purchase an investment property in Portobello, was transferred by AIB to AIBMB in 2006 under Section 58, which provides a loan transferee assumes the rights and obligations of the transferor on the date of transfer.

Ms Justice Baker found , because the mortgage was transferred under Section 58 without express written notice to Ms Thompson as provided for under Section 28.6 of the Supreme Court of Judicature (Ireland) Act 1877, 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.

The judgment, by focussing on Section 28.6 and referring to Section 58 without addressing whether the transfer effected under Section 58 required notice in writing, is “liable to be misinterpreted” and relied upon in other litigation as requiring a written notice for Section 58 transfers, it says.

It says the effective operation of loan transfers made under the ACS 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.

Notice

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.

Louis McEntagart SC, for Ms Thompson, said AIB is essentially trying to get over a problem created by its own failure to give express written notice to debtors whose loans have been transferred under Section 58.

Having heard submissions on Friday from Mr McEntagart and Paul Gallagher SC, for the bank, 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.