Dublin couple lose appeal against €4 million Bank of Scotland debt

A couple have lost their Supreme Court appeal against a decision that Bank of Scotland Plc was entitled to recover some €4 million from them arising from unpaid loans made for property development purposes and to appoint a receiver over certain properties.

Patrick and Roseann McLaughlin, of Foxrock, Dublin, had, in their appeal, argued the 2010 cross-border merger between Bank of Scotland (BOS) and Bank of Scotland (Ireland) (BOSI) did not involve the transfer of any securities held by BOSI to BOS.

Their appeal was given a priority hearing by the Supreme Court because, if that argument was upheld, it would have what Mr Justice Frank Clarke described as a "profound" effect on the position of BOS and would also potentially impact other cross-border mergers.

In unanimous judgments yesterday, the three-judge Supreme Court dismissed the McLaughlins’ argument. It ruled that the security held by BOSI over the McLaughlins’ properties was an “asset” of BOSI within the meaning of the relevant 2005 EC Directive on cross-border mergers, which had passed to BOS on the coming into effect of the relevant merger.

The court also refused as unnecessary the couple's application to have issues, including the meaning of the word "assets" in the 2005 EC Directive, referred to the European Court of Justice for determination.

Decision upheld

Based on that and other findings, the court upheld a High Court decision BOS was entitled to recover some €4.06 million from the couple arising from the loans dating from 2008 and had validly appointed Tom Kavanagh receiver over certain properties on which various loan facilities were secured

In their appeal, the couple also claimed they had had an arrangement with BOSI that it would not call in the relevant loans until their residence, “Latona”, Torquay Road, Foxrock, had been sold. They said that they intended to move to smaller accommodation and took out a bridging loan to buy another property at Kerrymount Rise, Foxrock.

Dismissing that point, Mr Justice Clarke said if the evidence was that there may have been “some sort of vague understanding or acceptance” by the parties some latitude might be given to the couple if there was difficulty selling Latona.

However, the judge said there was no evidence to establish a legal obligation on the part of the bank to refrain from calling in the loan until Latona was sold.

The judge also said there was also no evidence to suggest BOSI/BOS ever agreed, as the couple claimed, to forego any entitlement to recover any shortfall if the property was sold for a sum insufficient to clear the loans.

The judge said that the issue was not whether it might or might not have made business sense for the lender to wait, as “it probably did”. The issue was rather whether the lender was “legally obliged” to wait, and it was not.

The court said another issue, also of potentially wider significance, was whether the failure to specifically register BOS as the new registered owner of charges originally executed in favour of BOSI meant, at least where registered lands were affected, neither BOS nor the receiver could enforce the charge.

In her judgment specifically addressing that point, Ms Justice Mary Laffoy said she was satisfied, as a matter of contract, BOS had power independent of the provisions of the 1964 Registration of Title Act to appoint the receiver under the terms of a 2006 charge between the couple and BOSI.

Ms Justice Laffoy held that although BOS was not registered as owner of the 2006 charge, the receiver was validly appointed.