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Court’s finding could cause ‘immense’ damage to lenders

AIB worried ruling could raise doubt about transfer of €17.8bn debt to mortgage bank unit

In an unusual application, AIBMB has urged Ms Justice Marie Baker, before making final orders in the relevant case, to “amplify” the reasons for her findings. Photograph: Aidan Crawley

AIB is concerned 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 the bank’s transfer of some €17.8 billion debt to its mortgage bank unit.

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

The 2001 law allowed banks set up separate units to hold the loans and finance them in the capital markets through the sale of asset-backed bonds. In AIB’s case, the group set up AIB Mortgage Bank (AIBMB). Bank of Ireland and EBS, which is now part of AIB, had similar bond programmes.

In an unusual application, 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”.

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.

Date of transfer

The 25-year mortgage, made to purchase an investment property in Portobello, was transferred by AIB to AIBMB in 2006 under section 58, which provides that 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.

The judge ruled that under these circumstances AIBMB was entitled to summary judgment for €244,591.

Time consuming

However, legal experts said on Monday the fact that the judge ruled in favour of the bank on equity – or fairness – grounds, rather than issue a common-law ruling, could make it more difficult, and time consuming, for AIBMB to pursue similar cases. They also said that outcomes of cases could vary widely.

AIBMB said the effective operation of loan transfers made under the ACS Act was “of great importance” and any uncertainty about the efficacy of loan transfers had the potential to impact generally on the market in asset covered securities “in an adverse way”.

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

Reverse findings

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

Louis McEntagart SC, for Ms Thompson, said AIB was 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 would rule later on the application.

In her earlier judgment, she 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.