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Litigation After a Loan Sale – The Substitution of Plaintiffs Following a Loan Portfolio Acquisition
The recent Court of Appeal decision in Stapleford Finance Limited v Lavelle(1) has confirmed that, where the underlying loan has been acquired, the substitution of the purchaser as plaintiff in existing proceedings relating to the loan is permissible. This will be of comfort to the purchasers of loan portfolios from financial institutions, a practice that has increased significantly in the Irish Banking sector in recent times.
Matheson acted for Stapleford Finance Limited (“Stapleford”) who purchased loans from Irish Bank Resolution Corporation (In Special Liquidation) (“IBRC”), including those of the Defendant, Mr Lavelle. Stapleford wished to be substituted in as sole plaintiff in place of IBRC in proceedings IBRC had issued against the defendant prior to the loan sale.
In the High Court, Baker J held that the Rules of the Superior Courts (the “Rules”) allowed the substitution of Stapleford for IBRC. The decision was appealed by the defendant to the Court of Appeal.
On appeal, the defendant argued that the Rules should be given a narrow interpretation and that substitution should be confined to circumstances where the “event” involved extraneous circumstances, such as death or bankruptcy, and not merely the commercial transfer of a debt. The defendant claimed that if a purchaser of a loan wishes to assume the position of plaintiff, it must bring new proceedings.
Costello J, delivering the Court of Appeal judgment, held that the defendant had provided no justification for interpreting the Rules so narrowly and that the transfer of a loan book was enough to qualify as an “event” for the purposes of the Rules (Order 17, Rule 4 of the Rules requires the occurrence of an “event” which gives rise to a “change or transmission of interest or liability”). If substitution was not permitted it would defeat the legislative intent of certain enactments and lead to injustice. Furthermore, Costello J noted that having to bring fresh proceedings would lead to many claims being potentially statute-barred, which would be unjust and undesirable. Finally, the Court of Appeal also noted that the Rules were intended to be facilitative and the defendant’s interpretation would lead to a waste of time, effort and expense.
This is an important judgment which confirms that purchasers and sellers of loans can exchange places in litigation which travels with a loan sale.
1.  IECA 104