Freeman & Anor v Bank of Scotland PLC & Ors

Factual and Procedural Background

The Plaintiffs, a married couple, purchased six investment properties between 1996 and 2006, initially financed by a building society. In 2006, they refinanced these properties with Company A, borrowing approximately €1,406,000 secured by mortgages on the properties. The loans were interest-only for a twenty-year term. In 2010, Company A merged with Company B, transferring all assets and liabilities to Company B, the first named Defendant. The Defendants appointed the second named Defendant as receiver over the Plaintiffs' properties in November 2011, and the third named Defendant to manage the sale of certain assets.

The Plaintiffs defaulted on the loans and initiated proceedings seeking, among other reliefs, to invalidate the appointment of the receiver. The Defendants applied to dismiss the claim as frivolous and vexatious. A prior judgment dismissed most claims except those related to securitisation and alleged non-compliance with Central Bank Codes. The Plaintiffs amended their statement of claim accordingly, raising four main issues for trial.

Legal Issues Presented

1. The validity and effect of securitisation on the Bank's entitlement to enforce the loans and appoint a receiver.
2. Whether the Defendants breached the Central Bank Codes of Practice, affecting their rights under the loan agreements.
3. The effect of sections 64 and 90 of the Registration of Title Act 1964 on the appointment of the receiver and the registration of charges following the cross-border merger.
4. Whether an error in interest calculation and consequent overcharging caused or contributed to the Plaintiffs' default on the loans.

Arguments of the Parties

Plaintiffs' Arguments

• The Plaintiffs argued that the Bank was not entitled to enforce loans that had been securitised and thus could not validly appoint a receiver over the secured properties.
• They claimed breaches of Central Bank Codes of Practice, alleging these breaches affected the Bank's rights under the loan agreements.
• They contended that under the Registration of Title Act 1964 and related EU regulations, the Bank was not properly registered as the owner of the charges following the merger, rendering the appointment of the receiver invalid.
• The Plaintiffs asserted that an error in interest calculation by the Bank led to overcharging, which caused or contributed to their default on the loans.

Defendants' Arguments

• The Defendants contended that the cross-border merger resulted in the Bank standing in the shoes of Company A, inheriting all rights, including enforcement and appointment of a receiver.
• They argued that securitisation did not affect the Bank's legal title or its entitlement to enforce the loans, as legal title remained with the originating bank until repurchase of the securitised loans.
• The Defendants maintained that the Central Bank Codes relied upon were voluntary and non-statutory, and even statutory codes do not exempt borrowers from repayment obligations or deprive lenders of enforcement rights.
• They submitted that registration requirements under the Registration of Title Act 1964 did not apply due to the transfer of rights by operation of law under the merger regulations, supported by the practice of the Property Registration Authority.
• The Bank acknowledged and corrected the interest calculation error, refunded the overcharged amounts with interest, and argued that the Plaintiffs’ financial conduct negated claims that the overcharging caused default.
• The Defendants asserted the receiver acted prudently and reasonably in managing and selling the properties.

Table of Precedents Cited

Court's Reasoning and Analysis

The court analysed each of the four main issues systematically. Regarding securitisation, it accepted the definition and practice whereby legal title remains with the originating bank despite equitable assignment to a Special Purpose Vehicle. The Plaintiffs had consented to securitisation in their loan agreements, and the Bank retained legal title and servicing obligations. The cross-border merger transferred all rights and obligations from Company A to the Bank by operation of law, supported by applicable EU directives and national regulations. The court found no merit in the Plaintiffs' argument that securitisation or the merger impaired the Bank's rights to enforce the loans or appoint a receiver.

On the Central Bank Codes, the court distinguished between statutory and voluntary codes. It held that non-compliance with statutory codes does not relieve borrowers of repayment obligations, and a fortiori, breaches of voluntary codes do not affect the Bank’s contractual rights. The Plaintiffs failed to establish any breach of the voluntary codes relied upon, and the Bank demonstrated reasonable efforts to engage with the Plaintiffs regarding arrears.

Concerning the Registration of Title Act 1964, the court found that the transfer of rights to the Bank occurred by operation of law under the cross-border merger regulations, not by instrument of transfer. Therefore, sections 64 and 90 of the Act, which govern transfers by instrument, did not apply. The court gave weight to the practice of the Property Registration Authority, which treated the Bank as standing in the shoes of Company A, supporting the validity of the receiver’s appointment.

Regarding the interest calculation error, the court acknowledged the Bank’s admission and correction of the overcharge with interest paid to the Plaintiffs. However, the court found that the Plaintiffs’ financial conduct, including the availability of substantial surplus funds and spending choices, undermined their claim that the overcharging caused their default. The Plaintiffs failed to prove causation between the error and their default.

Finally, the court assessed the conduct of the receiver in managing and selling the properties. It preferred the receiver’s evidence over that of the Plaintiffs’ valuer, finding the receiver acted prudently, sought the best available market prices, and balanced costs appropriately given the market conditions. The Plaintiffs’ claims against the receiver were dismissed.

Holding and Implications

The court DISMISSED the Plaintiffs' claim in its entirety.

The holding confirms that securitisation, properly consented to by borrowers, does not affect a lender’s legal title or enforcement rights. The cross-border merger transferred all rights from Company A to the Bank by operation of law, including the power to appoint a receiver, notwithstanding registration technicalities. Breaches of voluntary Central Bank Codes do not affect loan obligations or enforcement rights. An interest calculation error, once corrected, does not excuse default where borrowers had available funds but chose not to apply them to loan reduction. The receiver acted reasonably and prudently in managing and selling the properties.

There are no broader legal implications or new precedents established beyond affirming existing principles on securitisation, cross-border mergers, Central Bank Codes, and receivership under contractual powers. The decision directly resolves the parties’ dispute by upholding the Defendants’ rights and dismissing the Plaintiffs’ challenges.