Court of Appeal decision limits the ability of Borrowers to challenge loan owners

By Darryl Broderick, Stephanie Coughlan and Charlene Walsh
9 November, 2018

The recent Court of Appeal decision handed down by Ms. Justice Baker on 31 October 2018 in the case of Tanager DAC v Rolf Kane and PRA (Amicus Curiae) and Bank of Scotland (Notice Party), Appeal no. 2018/29 limits the ability of property owners to challenge the validity of charges over their property where the ownership of a charge has been transferred.

Background

• Bank of Scotland (Ireland) Ltd (“BOSI”) provided a loan to Mr. Kane in 2006 and became the registered owner of a charge over Mr. Kane’s family home in March 2006.
• In December 2010, pursuant to the European Communities (Cross-Border Mergers) Regulations 2008 of Ireland and the Companies (Cross-Border Mergers) Regulations 2007 of the United Kingdom, all the assets and liabilities of BOSI (including the mortgage and charge in these proceedings) transferred to Bank of Scotland Plc (“BOS”) and BOSI was then dissolved without going into liquidation. However, BOS never registered its ownership of the charge with the Property Registration Authority (“PRA”).
• In late 2013/early 2014, BOS then sold a portfolio of securities to Tanager DAC (“Tanager”) which included Mr. Kane’s mortgage.
• Tanager thereafter became registered as the new owner of the charge with the PRA.
• Mr. Kane fell into arrears on his mortgage repayments and as a result, Circuit Court possession proceedings issued in January 2015.

The Circuit Court
In the Circuit Court, Mr. Kane argued that since BOS never registered itself as owner of the charge it was not entitled to transfer or assign the charge to Tanager and further, that the PRA erred in registering Tanager as the owner of the charge, with the consequence that Tanager had no entitlement to enforce the charge against him.

Tanager relied on Section 31 of the Registration of Title Act 1964 (“1964 Act”) which provides that the ‘Register’ is conclusive evidence and Mr. Kane was not entitled to challenge its title.

However, the Circuit Court refused to grant Tanager an order for possession and Tanager appealed the matter to the High Court.

The High Court
The central issue on appeal was whether BOS were entitled to transfer the charge to Tanager without first being registered as owner of the charge itself. Similar arguments were made by Tanager and by Mr. Kane, as were previously made in the Circuit Court.

Judge Noonan, in handing down an interim ruling on 22 November 2017, pointed out that Section 31 of the 1964 Act expressly preserves the jurisdiction of the court to rectify the register on grounds of actual fraud or mistake. He further pointed out that an order for rectification could not be made within the scope of the possession proceedings but that given that the decision of the High Court would not be appealable, he suggested that a case be stated to the Court of Appeal and he invited the parties to seek a reference.

The matter came back before Judge Noonan on 20 December 2017 and it was agreed that a case should be stated to the Court of Appeal. The PRA and BOS were added as Amicus Curiae and Notice Party respectively in January 2018.

The Court of Appeal
The case stated came before the Court of Appeal on 20 June 2018. The panel comprised Peart J (presiding), Whelan J and Baker J.

The Court heard submissions from Counsel on behalf of Tanager, the PRA, BOS and Mr. Kane who was representing himself. The Court reserved its decision and judgment was only recently handed down on 31 October 2018 by Baker J, with whom Peart J and Whelan J agreed.

The Court of Appeal found as follows:

• Mr. Kane did not have an entitlement to challenge the registration of Tanager as owner of the charge on the folio having regard to the conclusiveness of the Register pursuant to S31 of the 1964 Act.
• In possession proceedings, the court may not be asked to go behind the Register and consider whether the registration is defective or hear argument that the registration was wrongly made. The court must accept the correctness of the particulars of registration as they appear on the folio and cannot join the PRA as a notice party to hear further argument on the issue.
• The register is conclusive subject to the court’s jurisdiction to correct the register in cases of actual fraud or mistake but this can only be determined in separate equity proceedings. However, the court has jurisdiction to adjourn possession proceedings or stay enforcement of an order for possession pending determination of any rectification proceedings if it considers those proceedings are reasonably likely to offer a defence to the claim for possession.
• The registration of Tanager as owner of the charge is valid. BOS was entitled under S90 of the 1964 Act, to transfer its interest to Tanager and the PRA was entitled to register Tanager as owner of the legal charge without first requiring BOS to become so registered.

The possession proceedings have now been remitted to the High Court for determination on the application for possession.

Conclusion
This is a positive outcome for Tanager given the large amount of cases that could have potentially been affected. It is also a positive outcome for loan owners who acquired portfolios insofar as it reiterates the conclusiveness of the Property Registration Authority’s Register and confirms that it is not open to a court, during the course of possession proceedings, to look behind the Register or hear argument on whether the current loan owner is entitled to be registered as owner of a charge on a folio.

For more information on the content of this insight please contact:
Darryl Broderick, Partner, darryl.broderick@rdj.ie, +353 21 4802767
Stephanie Coughlan, Solicitor, stephanie.coughlan@rdj.ie, +353 91 895331