Court allows substitution of plaintiff after assignment of debts, deferring substantive validity to trial.

Neutral Citation: [2014] IEHC 517

THE HIGH COURT

COMMERCIAL

[2013/2346S]

BETWEEN

IRISH BANK RESOLUTION CORPORATION LIMITED (IN SPECIAL LIQUIDATION)

PLAINTIFF

AND

GERARD MCCAUGHEY

DEFENDANT

JUDGMENT of Ms. Justice Costello delivered the 7th day of November, 2014

1. This is an application brought pursuant to O.17, r.4 of the Rules of the Superior Courts to substitute “Deutsche Bank AG” as

plaintiff in place of Irish Bank Resolution Corporation Limited (In Special Liquidation). The plaintiff sued the defendant for monies due

pursuant to a series of credit agreements and facility letters. Part of the claim has been disposed of and the remainder of the claim in

excess of 2 million euro has been remitted to plenary hearing by order of Mr. Justice Kelly on 25th June 2014. The date for trial has

been fixed as 9th December, 2014.

2. This application arises as the debts and other obligations the subject of the proceedings have been assigned by the plaintiff, the

Vendor, to the Purchaser, Deutsche Bank AG. The affidavit granting the application is sworn by Clive Bull on 30th June, 2014. He

avers as follows:-

“The within application for substitution of the vendor (the plaintiff) to the purchaser (Deutsche Bank AG) as plaintiff

arises in circumstances where the debts and other obligations the subject to the within proceedings have been assigned

to the Purchaser --- As further appears beneath, the said assignment was effected by instrument in writing and notice

of the assignment was furnished in writing to the defendant. In the premises, a legal assignment of the debts the

subject of the present proceedings has taken place and it is appropriate that purchaser, as legal assignee of the said

debts, be substituted as plaintiff.”

3. He points out that the application is made with the full consent of the vendor (plaintiff) and a letter to that effect dated 23 June

2014 from the special liquidators of the plaintiff is exhibited. He describes the transaction as follows:-

“By loan sale deed in relation to a portfolio of assets dated 28 March 2014 (the Loan Sale Deed) the Vendor and the

Purchaser agreed to the sale and purchase of certain assets and related rights and collateral as more particularly set

out therein, I say that certain terms of the Loan Sale Deed are confidential and commercially sensitive to the Vendor

and Purchaser…Terms which are confidential and commercially sensitive and/ or are considered to be irrelevant to

within the application have be redacted”.

4. The sale of the asset set out in the Loan Sale Deed was completed by the Deed of Transfer between the Vendor as Transferor and

the Purchaser as Transferee on the 23 May 2014. Terms which were confidential and commercially sensitive and or which were

considered to be irrelevant to this application were redacted from the exhibited copies of the Loan Sale Deed and the Deed of

Transfer.

5. It is undoubtedly the case that a considerable portion of both the Loan Sale Deed and the Deed of Transfer were heavily redacted.

There was no order of the court authorising this redaction. The plaintiff argued that all the operative parts of the deeds remained un-

redacted and that the court had sufficient evidence before it to conclude that a case had been made out for the relief sought in the

notice of motion. Reliance was placed both on the averments in the affidavit of Clive Bull and Mark Traynor and also on the exhibited

redacted documents.

6. In addition to the averment of Mr. Bull quoted above, reliance was placed on paragraph 27 of Mr. Bull’s affidavit to the following

effect:-

“The facilities the subject of the present proceedings have been absolutely assigned by writing under the hand of the

Vendor in circumstances in which expressed notice in writing has been given to the defendant, as debtor. In such

circumstances where the Deed of Transfer has become wholly effective as from the Completion Date, and where notice

thereof has been given to the debtor in writing, I say and am advised that the said assignment of the facilities is subject

of the present proceedings has become and is deemed to be effectual in law.

7. In reviewing the Loan Sale Deed exhibited by Mr. Bull it clearly was dated 28 March 2014 and identified the parties to that deed.

The recitals provided:

“The Vendor has agreed to sell the Assets to the Purchaser and the Purchaser has agreed to purchase the Assets on and

subject to all the terms of this Deed. For the avoidance of doubt, no assets other than the Assets are being sold by the

Vendor to the Purchaser pursuant to this Deed. The Purchaser is identified as Deutsche Bank AG and the Vendor is

identified as Irish Bank Resolution Corporation Limited (In Special Liquidation).”

8. “Assets” is defined to mean

“all of the rights, title, interest and benefits in and to (or only such rights, title, interest, and benefits as the vendor may

have):

(a) all Facilities

(b) all Related Security…

(f) all Ancillary Rights and Claims

In respect of each Connection provided and the Assets shall not include:

(i) Any other assets or rights of the vendor, or

(ii) Any Excluded Assets and the term Assets means any one of such Assets”

9. Connections and Assets are identified in the schedule to the loan sale deed. On pages 72 and 73 there is a table which shows the

connection ID 9510145, the connection name being the plaintiff, the borrower ID 5910099, the borrower name being that of the

plaintiff and then the account numbers of seven different accounts. These are the accounts the subject of these proceedings. It is

thus argued that the loans of the plaintiff constitute assets within the meaning of the Loan Sale Deed.

10. The term Borrower is defined in the deed and clearly encompasses the plaintiff and Facilities are defined as meaning:-

“All principal amounts, accrued interest, including capitalised interest and any other amounts outstanding and/or owing

under or in connection with all loans, facilities, credit, accommodation, advances, commitments, leasing, hire purchase,

mortgages or other contracts or agreements, as applicable and all other amounts payable by the Borrower… under, in

connection with or related to the Finance Agreements which loans, facilities, credit, accommodation, advances,

commitments, leasing, hire purchase, mortgages or other contracts or agreements and all other amounts are to be

purchased by the Purchaser pursuant to this Deed”

Under the heading Sale and Purchase of the Assets / Assumption of Obligations clause 2.1 is redacted and a clause 2.2 provides

“Subject to and in accordance with the terms of this Deed, the Vendor hereby agrees to sell, assign, transfer, convey

and deliver the Assets to the purchaser subject to the subsisting rights of redemption of the Obligors and the Purchaser

hereby agrees to purchase or pursuant to Clause 17.1 nominate one or more Nominated Purchasers to purchase, the

Assets and assume the Assumed Obligations with effect from the completion date.”

11. In Clause 9.6 is headed Transfer of Title to the Assets and provides as follows:

“At completion the following shall occur

9.6.1 upon receipt by the Vendor of the Initial Consideration from the Purchaser and subject to the purchaser

satisfying its obligations pursuant to Clause 9.3 the Assets [redaction]…shall transfer under the relevant Transfer

Documents to the Purchaser (and for the avoidance of doubt, transfer of the Assets (or, where applicable, the

economic benefit and obligations under and respect of the Assets) shall be deemed to have occurred upon receipt

of the said Initial Consideration and upon the satisfaction of each of the Purchasers obligations under clause 9.3);

9.6.2 the Purchaser shall be deemed to have assumed, and shall perform and comply with all of the Assumed

Obligations as if the Purchaser was originally named as a party to the Finance Agreements…and the Vendor shall

be released from the relevant Assumed Obligations, in each case, on and with effect of the Completion Date.”

12. Pages 117 and 118 are completely un-redacted and are the execution pages for the deed. They clearly show that the deed was

executed by the parties thereto.

13. The deed of transfer is undated but Mr. Bull confirms that it was executed on 23 May 2014. Clause of 4.1 provides

“Subject to the terms of Clauses 4.2-4.6 below the Assignor [the plaintiff] unconditionally, irrevocably and absolutely

transfers, conveys and assigns to the Assignee all such rights, title, interests and benefits as the Assignor may have in

and to the Assets relating to the Specified Connections (subject to and with the benefit in each case of the related

Finance Agreement) and assumes the Assumed Obligations relating to the Specified Connections in each case with effect

from the Completion Date.”

14. Schedule 3 to the deed of transfer is very heavily redacted but it does show the following in tabular form

9510145 Mr. Garry McCaughey 9510099 Mr. Gerard McCaughey

No issue was taken at the hearing of this motion in relation to the first name of Mr. McCaughey in the first column of schedule 3.

Therefore, for the purposes of this application it is taken that the transfer included Mr. McCaughey as a Specified Connection.

Paragraph 4.6 of the deed of transfer provides:-

“Any transfer made under Clause 4.1 shall take effect as a transfer, assignment and conveyance of the Assignor’s rights,

title, interests and benefits in respect of the relevant Assets and an assumption by the Assignee of the Assumed

Obligations relating to such Assets and shall not take effect as transfer by way of novation,”

The execution pages are complete at the end of the deed of transfer and show that the deed was executed by the parties thereto.

15. By letter dated 30 May 2014, after the execution of the Deed of Transfer the plaintiff wrote to the defendant as follows:

“9510099

Your commercial loan facilities with Irish Bank Resolution Corporation Limited (In Special Liquidation) (“IBRC”) under the

account numbers set out below;

2463609, 2447267, 2447264, 2441168, 2438984, 2434471, 2429521 (“your Facilities”)

Dear Customer,

On 28 March 2014 (the Sale Date), IBRC agreed to sell amounts owing to it respect of your Facilities and the, facility

letter(s), guarantee(s) security and all other rights (including any judgments) and obligations relating to your Facilities

with IRBC (“the Facility Documents”) to Deutsche Bank AG London Branch (“the Purchaser”) in accordance with the

Facility Documents (“the Sale”). The Transfer of your Facilities took effect on 23 May (“the Transfer Date”). From the

Sale Date, amounts and obligations owing in respect of your Facilities are owed to the Purchaser.”

16. Thus the issue to be determined on this motion is whether the plaintiff has satisfied the onus of proof required of it to obtain the

relief sought on the basis of the matters set out above. The defendant argues that the order should not be made. He argues that the

widespread redaction of the crucial documents is constitutionally impermissible. He argues that the use of the heavily redacted

documents in the circumstances amounts to unfair procedures in that it does not afford him equality of arms.

17. In order to assess these arguments it is important to consider what is actually at issue in this motion. The court is not required to

rule upon the efficacy or validity of the assignment. This is clear from the decision of Kelly J in Irish Bank Resolution Corporation v.

Comer (unreported – Kelly J July 2014). It is also clear from the case of Long v. Crossley [1877] Chancery 388 where Fry J dealing

with a similar application under the rules then existing stated:

“The object of the provisions of the rules was, not that a party’s case should be so framed as to succeed but that it

should be so framed that it can be adjudicated upon by the court, whether in his favour or against him”

18. The Court has a limited function in respect of this application. It is not ruling on the validity or effectiveness of the assignment of

the defendant’s loans. That issue is for another day. The court must be satisfied on a prima facie basis that there are grounds for

making the order sought. I am satisfied that there are. Prima facie the plaintiff has established that it assigned the benefit and

interest in the loans of the defendant the subject of these proceedings to the purchaser, Deutsche Bank AG, by virtue of the

provisions of the Loan Sale Deed and the Deed of Transfer cited above.

19. Section 28(6) of the Supreme Court Judicature (Ireland) Act 1877 sets out the requirement that the assignor must notify a debtor

of the assignment of the debt, in order that the assignment may be effective as follows:

“Any absolute assignment, by writing under hand, of the assignor (not purporting to be by way of charge only), of any

debt or any other legal chose in action, of which expressed notice in writing shall have been given to the debtor, trustee

or other person from whom the assignor would be entitled to receive or claim such debt or chose in action, shall be and

deemed to have been effectual in law (subject to all equities which would have been entitled to priority over the right of

the assignee if this Act had not been passed,) to pass and transfer the legal right to such debt or chose in action from

the date of such notice, and all legal and other remedies for the same, and the power to give a good discharge, for

same, without the concurrence of the assignor.”

20. Notice of assignment has been given to the defendant by the letter of 30 May 2014 in respect of the seven facilities set out in

the schedule to the Loan Sale Deed and which are the subject of these proceedings. Thus prima facie there is evidence that notice

of the assignment has been given in accordance with the requirements of s. 28(6). It therefore follows that there is evidence before

the court which establishes on a prima facie basis that the plaintiff is no longer entitled to sue on foot of the facilities the subject of

these proceedings and that the proposed substituted plaintiff, Deutsche Bank AG, is now entitled to sue and to maintain these

proceedings. In the words of Fry J quoted above, is it necessary that Deutsche Bank AG should be substituted as plaintiff so that the

case can be adjudicated upon by the court whether in its favour or against it? In my opinion the answer to this question must be yes.

21. This is borne out by the decision of Kelly J. IBRC v. Comer referred to above. Having considered a similar transaction which

contained clauses identical to Clause 2.2 of the Loan Sale Deed and Clause 4.1 of the Deed of Transfer quoted above and a letter

from the special liquidators for on behalf of Irish Bank Resolution Corporation Limited (In Special Liquidation) to the debtor defendant

in that case, he was satisfied that evidence had been adduced which would justify the substitution of the existing plaintiff by the

party to whom it was alleged the loans in question had been assigned at paragraphs 43-44 he said:-

“In my view, the onus of proof on procedural motion of this sort is very different from the onus of proof which is

required at the trial. I do not believe that it would be either appropriate or indeed in the interests of justice that on a

procedural motion of this sort, that far reaching decisions concerning the efficacy and validity of the underlying sale

agreement or the assignment, of a notice of that assignment should be made. That would turn a procedural motion

which, even under the rules is contemplated as one which can be made ex parte, into a sort of mini trial of the action.

That is not what is envisaged by the rules of the court and is certainly not envisaged under rules of Commercial Division

of the court.”

22. The question for this court therefore is whether the arguments advanced by the defendant are such as would justify a departure

from the decision of Mr. Justice Kelly in Comer. The defendant argues that it was constitutionally impermissible for the plaintiff to

proceed on the basis of the documents as redacted. He relied in particular upon in Re R Limited [1989] I.R 126. This case concerned

proceedings brought pursuant to s. 205 of the Companies Act 1963 and in particular s. 205(7) which allowed for the hearing of certain

proceedings in camera. Walsh J held at page 134 as follows:

“The issue before this court touches a fundamental principal of the administration of justice in a democratic state,

namely the administration of justice in public. Article 34 of the Constitution provides that justice shall be administered in

courts established by law and shall be administered in public saving in such special and limited cases as may be

prescribed by law. The actual presence of the public is never necessary but the administration of justice in public does

require that the doors of the courts must be open so that members of the general public may come and see for

themselves that justice is done. It is in no way necessary that the members of the public to whom the courts are open

should themselves have any particular interest in the case or that they should have had any business in the courts.

Justice is administered in public on behalf of all of the inhabitants of the state”.

23. And at page 136:

“all evidence in proceedings before a court must be taken in public save where otherwise expressly permitted in

accordance with the terms of Article 34 of the Constitution.”

24. There is no question of the trial of this case being heard otherwise than in public and at the trial of the action the documents

relied upon will have to be proved in the normal way. In Re R Limited it is not authority for the proposition that redacted documents

may not be relied upon in a procedural motion such as the one at issue.

25. The defendant placed reliance upon a number of cases concerning the withholding of confidential information in the context of

discovery. This clearly is not relevant to the issues in this case. If discovery is subsequently sought in this case then these

authorities may become relevant. They certainly are not authority for the proposition that documents redacted on the basis of

concealing confidential and commercially sensitive information cannot be relied upon in a procedural motion such as currently at issue.

26. It is further argued that the documents have been so heavily redacted that the defendant is unable to follow the documents and

cannot receive legal advice as to their meaning and effect. It is argued that therefore this breaches the principal of “equality of arms”

and places the defendant at an unfair disadvantage. I do not accept that this is a valid submission in the context of this application.

All that is at stake here, is whether the existing plaintiff will cease to have any interest in these proceedings and whether the new

intended plaintiff ought to be substituted in order that the court may truly try the issues between the parties. As was pointed out by

Mr. Justice Kelly in IBRC v. Comer at paragraph 47:-

“The effect of [the substitution of the plaintiff] is to take out of the picture completely Irish Bank Resolution Corporation

Limited. It is now foregoing its right of action and conferring on Launceston [the substituted plaintiff] the entitlement to

continue these proceedings. But that is subject to Launceston demonstrating at trial that they have such an

entitlement. Launceston will have to demonstrate to the trial judge that it is entitled to bring this action on foot of the

documents which are exhibited before me albeit in their redacted form. The defendants at trial will be perfectly free to

raise whatever issues they think are appropriate in relation to any alleged imperfections or invalidity as they see them in

any of the documents which underscore the bringing of the application and the substitution order which I now make.”

27. It will be a matter for the plaintiff at the trial of this action to establish its case. If Deutsche Bank AG is substituted as the

plaintiff, in additional to the usual proofs, that will involve proving that there has been a valid and effective assignment of the

defendant’s loans to it. If there be defects in the documentation as the defendant contends, this is a matter which he can raise at

trial and may indeed afford him a defence if his case his correct. The substitution of the proposed plaintiff will not detract in any way

from any of his rights, including his constitutional rights. A motion of this sort is not the proper forum to determine the issues raised

by the defendant in opposing this motion. I therefore make the order sought and substitute Deutsche Bank AG as plaintiff in the place

of Irish Bank Resolution Corporation Limited (In Special Liquidation).