Automatic Statutory Substitution under Section 41 of the Central Bank Act 1971: No Court Order Required; Collateral Challenges Struck Out and Injunction Undertakings Discharged

Introduction

This commentary analyzes the High Court of Ireland’s judgment in KBC Bank NV (acting through KBC Bank NV Dublin) v Smith, Hussey, Gilroy and Persons Unknown Occupying 37 Hamlet Avenue, Balbriggan, Co. Dublin [2025] IEHC 481 (Cahill J., 2 September 2025).

The proceedings trace back to a 2016 Circuit Court order granting possession of the property to KBC Bank Ireland plc (KBCI). Following an initial Sheriff execution and a forcible re-entry by occupants, KBCI obtained interim and interlocutory injunctions in 2018 (with undertakings as to damages), took possession, and sold the property in January 2019. Years later, KBCI exited the Irish market: the Minister for Finance approved a statutory transfer scheme to KBC Bank NV with effect from 1 December 2023 (S.I. No. 447/2023), and KBCI had earlier sold its interest in the underlying loan to Cabot Financial (Ireland) Limited (September 2023).

Two motions were before the Court:

• A substitution motion to reflect the statutory transfer and name KBC Bank NV (through its Dublin Branch) as plaintiff.
• A strike-out motion seeking either final injunctive orders or, alternatively, to strike out the Defence and discharge the plaintiff’s undertaking as to damages given in 2018.

The defendants opposed, advancing wide-ranging challenges that included securitisation and “true sale” arguments, allegations of fraud and concealment, and various collateral complaints. Mr Gilroy did not attend and had no residual interest in the issues.

Summary of the Judgment

• Substitution: The Court held that section 41 of the Central Bank Act 1971 effects automatic substitution of the transferee bank in pending proceedings upon the transfer date approved by the Minister. No court order is necessary or appropriate; the Rules of the Superior Courts (RSC) and inherent jurisdiction are supplanted by statute. The proceedings’ title stands amended to “KBC Bank NV acting through KBC Bank NV Dublin.”
• Final relief: Given the property was sold in 2019 and the plaintiff had no continuing proprietary interest, the Court refused to grant the substantive injunctive relief originally pleaded.
• Undertakings as to damages: Because undertakings were given in 2018 to secure interim and interlocutory injunctions, the Court assessed whether the Defence disclosed a viable arguable defence that might keep an inquiry into damages alive. It held the Defence (and proposed amendments) disclosed no reasonable defence, were bound to fail, and were an abuse of process—chiefly because they constituted impermissible collateral attacks on a final, unappealed possession order and raised meritless securitisation points. The Defence was struck out and the plaintiff was released from the undertakings as to damages.
• Evidence: Objections to the bank’s affidavit evidence were rejected. The Bankers’ Books of Evidence Acts and the 2020 business-records regime applied.
• Costs and endgame: Provisional view—no order as to costs on the substitution motion; costs to the plaintiff on the strike-out motion against the first and second defendants. The Court will hear the parties on discontinuance and costs finalization.

Analysis

Precedents Cited and Their Influence

• First Active PLC v Cunningham [2018] 2 IR 300 (SC):
  The Supreme Court confirmed that section 41 substitutions occur automatically and do not require a court application under the RSC. Cahill J. applies this orthodox position, emphasizing that statute cannot be subordinated to procedural rules. This underpins the refusal to make any substitution order: s.41 “does the work” once the Minister has approved the transfer scheme and the transfer date has arrived.
• Ulster Bank Ireland Ltd v Dermody [2014] IEHC 140:
  O’Malley J.’s analysis supports treating bank deponents as “officers” for the Bankers’ Books of Evidence Acts. This neutralizes hearsay objections to the bank’s affidavits.
• Civil Law and Criminal Law (Miscellaneous Provisions) Act 2020, Part 3, Ch. 3:
  Confirms admissibility of business records. The Court invoked this to admit documentary evidence relied upon by the bank.
• Wellstead v Judge Michael White [2011] IEHC 438; applied in Pepper Finance Corporation (Ireland) DAC v Egan [2025] IEHC 31:
  A consistent line of authority that securitisation or assignment of the beneficial interest does not, as a general proposition, deprive the holder of legal title of enforcement rights. The Court relied on this to reject the defendants’ “true sale” versus “synthetic securitisation” thesis as a defence to enforcement.
• Mullaney v Ireland [2023] IECA 195; Hosford v Minister for Employment Affairs and Social Protection [2024] IEHC 154:
  Restate that it is an abuse of process to launch collateral attacks on valid, final orders. The Court used these to characterize the Defence as abusive where it sought to revisit a 2016 possession order that was neither appealed nor successfully judicially reviewed.
• Henderson v Henderson (1843) 3 Hare 100:
  The classic rule precluding parties from raising, in later proceedings, points that could and should have been raised earlier. The judgment applies Henderson to bar belated challenges to entitlement to possession and alleged Family Home Act issues that could have been raised before the possession order.
• Fulham v Chadwicks Ltd [2021] IECA 72; McAndrew v Launceston Finance Property DAC [2023] IECA 43:
  Cited for the proposition that proposed amendments can occasionally “save” a pleading from strike out. The Court nevertheless found that even the 37-page proposed amended defence would itself be abusive and bound to fail.
• Canada Square v Potter [2023] UKSC 41; Mohan v Revenue Commissioners [2025] IEHC 63; Cave Projects Ltd v Gilhooley [2025] IESC 3:
  Raised by the defendant but held inapposite. The UKSC’s analysis of concealment in the context of limitation had no bearing on the finality of a 2016 possession order and the bank’s legal title to enforce.

Legal Reasoning

A. Substitution: Section 41 Central Bank Act 1971 is self-executing

The Court anchored its analysis in Part III of the Central Bank Act 1971. Section 33 sets out the Minister-approved transfer scheme mechanism. Crucially:

• The Minister’s transfer order can include incidental and consequential provisions and takes effect notwithstanding duties to any person or any rule requiring notice or consent.
• Section 41 then provides that where legal proceedings are pending to which the transferor is a party and they have reference to the transferred business, “the name of the transferee shall on the transfer date be substituted” and the proceedings “shall not abate.”

The Minister approved the KBCI–KBC Bank NV transfer scheme by S.I. No. 447/2023 with a transfer date of 1 December 2023. The scheme explicitly provided that references to KBCI should be read as references to KBC Bank NV post-transfer and that s.41 would operate. Accordingly:

• Substitution occurred automatically on 1 December 2023.
• No order under RSC O.15 or O.17 was needed; indeed, none was appropriate because statute supplants the rules.
• The Court simply regularized the title of the proceedings in the judgment to reflect the legal reality already in place.

B. Evidence objections rejected

The defendants’ hearsay and admissibility objections failed for two reasons:

• Affidavits were sworn by employees/officers of the bank (within the Bankers’ Books regime).
• Documents were admissible as business records under the 2020 Act.

C. Relief sought and residual live issue: undertakings as to damages

The property was sold in January 2019; the plaintiff no longer had an interest in the property or the loan (the latter having been sold to Cabot). Substantive injunctive relief therefore no longer addressed a live controversy and was refused.

However, the plaintiff had given undertakings as to damages when obtaining interim and interlocutory injunctions in 2018. Whether an inquiry could ever arise required the Court to assess whether the Defence disclosed any reasonable defence. If not, the undertakings should be discharged because no actionable wrong could flow from injunctions properly granted in aid of a valid claim.

D. Strike out of the Defence: res judicata and abuse of process

The Court found:

• The 2016 possession order was final and unappealed; a judicial review challenge failed; a 2018 Court of Appeal judgment recorded the defendants’ election not to contest the bank’s entitlement. The right to possession was thus res judicata.
• The Defence attempted to re-litigate entitlement to possession by collateral means (securitisation, alleged fraud, challenges to the Sheriff, pseudo-legal arguments about status and residence). This was an abuse of process per Mullaney and Henderson.
• Complaints about the Sheriff’s role were irrelevant given possession was ultimately taken after contempt was purged and the property was later sold.
• Allegations about the Family Home Protection Act could and should have been raised in the possession proceedings and did not constitute a defence now.
• Pseudo-legal contentions (e.g., “people of eire,” dwelling/residence semantics) were dismissed as nonsense.

E. Securitisation and “true sale” arguments

The Court engaged the defendants’ principal “net issue”: that legal and equitable title had been transferred to a Phoenix Funding entity via a 2008 mortgage sale agreement, such that KBCI lacked standing to enforce and obtained orders by deception.

• As a threshold matter, any attack on entitlement to possession was a forbidden collateral assault on the 2016 order and, therefore, abusive.
• On the merits, Irish authority is clear: assignment of the beneficial interest typically does not deprive the holder of legal title of the right to enforce. Wellstead and Pepper Finance v Egan were reaffirmed.
• Evidence from the bank demonstrated that legal title did not transfer because the contract required a specific notice for legal title transfer, which was never served; legal title remained with the bank, held on trust for the issuer, until 2021. The defendants’ contrary assertions were speculative and insufficient to ground fraud.

The 37-page proposed amended defence and new counterclaims (against six additional parties) were, if anything, more abusive—seeking to re-write the case and re-open final orders, peppered with scandalous allegations (e.g., “attempted murder”). Even if considered independently, the Court held the proposed amendments would be struck out as bound to fail.

F. Consequences: Undertakings discharged; discontinuance and costs

• Because the Defence was struck out as disclosing no reasonable defence and being abusive, there was no basis for any inquiry into damages under the 2018 undertakings. The undertakings were released.
• The Court envisaged discontinuance under RSC O.21 r.1 (to be confirmed after hearing the parties).
• Costs: provisional no order on the substitution motion; costs to the plaintiff on the strike-out motion against the first and second defendants, subject to short costs submissions.

Impact and Significance

The judgment delivers important clarifications across three fronts.

• Statutory substitution under s.41, Central Bank Act 1971:
  • Confirms that once a Ministerial transfer order takes effect, substitution of the transferee in all pending proceedings is automatic and immediate. Courts should not be asked to “make” such substitution; at most, titles can be administratively corrected.
  • Practical effect: Reduces procedural satellite litigation post-bank transfers and ensures continuity in litigation without delay or duplication.
• Finality and collateral attacks:
  • Reaffirms that unappealed possession orders cannot be attacked indirectly in later proceedings, including via securitisation arguments, fraud allegations unsupported by cogent evidence, or pseudo-legal contentions.
  • Practitioners should anticipate robust use of Henderson and abuse-of-process principles to prevent serial relitigation after repossession litigation is concluded.
• Injunction undertakings in “spent” cases:
  • Even when the substantive controversy is spent (e.g., property sold), undertakings as to damages can persist. The Court may assess whether any arguable defence exists that could ground an inquiry into damages. If not, undertakings will be discharged.
  • Practical pointer: Plaintiffs should address undertakings explicitly when closing out long-running possession-related proceedings; defendants cannot rely on abusive pleadings to keep undertakings alive.
• Securitisation in enforcement:
  • Continues a steady Irish judicial approach: a beneficial assignment/securitisation does not negate enforcement rights of the legal title holder; absent proof of legal title transfer, enforcement by the original lender/servicer remains orthodox.
  • Defendants face a high evidential bar to re-open possession outcomes on securitisation theories.
• Evidence and banking records:
  • Confirms the twin pillars commonly relied upon in banking litigation: Bankers’ Books of Evidence Acts for officer affidavits and the 2020 Act business records regime for documentary exhibits.

Complex Concepts Simplified

• Section 41 substitution:
  When a bank’s business is transferred under a Minister-approved scheme, the transferee automatically “steps into the shoes” of the transferor in any pending proceedings as of the transfer date. The court does not “grant” substitution; statute does it.
• Ministerial transfer order (Part III, 1971 Act):
  A statutory mechanism permitting the Minister (after consultation with the Central Bank) to approve a scheme transferring assets and liabilities between licensed entities. The order can override ordinary consent/notice requirements and includes consequential provisions.
• Undertaking as to damages:
  A promise by the party seeking an interim injunction to compensate the other side if it later turns out the injunction should not have been granted and caused loss. It remains live unless the court releases it or there is no arguable basis for damages.
• Res judicata and Henderson v Henderson:
  Res judicata means a matter already adjudicated cannot be re-litigated. Henderson extends this by preventing parties from raising in later proceedings issues they could and should have raised earlier.
• Collateral attack:
  An indirect attempt to undermine a final order in new proceedings rather than through appeal or proper review channels. Courts treat this as an abuse of process.
• Securitisation (“true sale” vs “synthetic”):
  In a “true sale,” legal and equitable title to loans may be transferred to a special purpose vehicle (SPV); in a “synthetic” securitisation, the originator may retain legal title but transfer risk via derivatives/credit protection. Irish courts have consistently held that where legal title remains with the lender (often by contract unless specific notices are served), the lender may enforce notwithstanding a beneficial assignment.
• Bankers’ Books of Evidence Acts and 2020 business records regime:
  Statutory frameworks enabling bank officers’ affidavits and ordinary business records to be admitted as evidence without the strictures of traditional hearsay rules.
• Strike-out under RSC O.19 r.28:
  The court may strike out a pleading that discloses no reasonable cause of action or defence, is frivolous or vexatious, or constitutes an abuse of process.

Conclusion

KBC Bank NV v Smith & Ors delivers a crisp restatement of three significant principles. First, section 41 of the Central Bank Act 1971 effects automatic substitution in litigation when a Minister-approved transfer scheme takes effect; no court order is required and procedural rules must yield to statute. Second, the judgment reaffirms the primacy of finality in litigation: attempts to re-open unappealed possession orders via securitisation theories, alleged concealment, or pseudo-legal tropes will be struck out as abusive. Third, it clarifies the treatment of undertakings after the controversy has become moot: where the defence is bound to fail, undertakings as to damages will be discharged.

For banks and transferee institutions, the decision streamlines procedural housekeeping following transfer orders and reduces unnecessary motions practice. For litigants and practitioners, it underscores the need to raise all defences at the appropriate time in possession proceedings and the futility of collateral attacks years later. In the securitisation context, it consolidates a consistent Irish approach: beneficial assignments do not oust the enforcement rights of the legal title holder absent an effective transfer of legal title.

The case thus stands as a modern touchstone on statutory substitution, abuse-of-process controls in enforcement litigation, and the principled winding down of injunction undertakings once the underlying dispute has been resolved in substance.