COVID-19: Update on the deferral of enforcement actions by Financial Institutions
21 May 2020
Similar to the financial crisis of 2009, the COVID-19 pandemic will inevitably lead to a significant increase in the number of non-performing loans and a subsequent raft of enforcement actions coming before the Courts.
In order for financial institutions to be in a position to progress to the enforcement stage once the current moratorium periods end, it is important to be aware of the implications of some recent decisions of the Irish Courts relating to enforcement proceedings, in particular, the evidential proofs required to successfully obtain the orders sought.
A series of measures to assist both business and personal customers impacted by the COVID-19 pandemic, were introduced by agreement between the Banking and Payments Federation Ireland (“BPFI”), the Central Bank of Ireland (“CBI”), the Irish Government and Ireland’s five retail banks (AIB, Bank of Ireland, KBC, Permanent TSB and Ulster Bank) on 18 March 2020.
- a three month payment moratorium on mortgages, personal loans and business loans for business and personal customers experiencing financial difficulties due to COVID-19. Since 30 April 2020 this payment moratorium has been extended to 6 months.
- the deferral by the regulated financial institutions of all enforcement proceedings before the Courts, to include summary judgment and possession proceedings, against distressed borrowers for a period of three months.
The CBI advised that lenders were working through the practical operation of these measures and that they expected all regulated firms, including banks, credit unions, retail credit and credit serving firms to take a consumer focused approach and to act in their customers best interests.
However, while the regulated firms agreed to a three month deferral of enforcement proceedings on 18 March 2020, that three month period does not appear to have been extended by the latest announcement on 30 April 2020. Further, none of these measures apply to unregulated lenders.
Therefore, as matters currently stand the regulated entities will be entitled to recommence all enforcement actions, to include summary judgment and possession proceedings, at the end of the initial three month period.
In planning for the resumption of business, after the lifting of moratoriums, it is important that financial institutions are aware of and comply with the requirements set out in the following recent decisions of the Irish Courts to ensure they avoid encountering difficulties in enforcement.
Havbell DAC v Harris  IEHC147
As discussed in a previous article in the case of Bank of Ireland v O’Malley, the Supreme Court held that specific details of a debt being claimed, such as the manner in which the debt is calculated, must be set out in the originating Summons and that a statement of account providing sufficient particularisation of the debt claimed must also be produced.
As a result of the O’Malley decision, it will be necessary for many financial institutions to apply to the Courts to amend their existing pleadings to comply with the requirements of the O’Malley decision and to adequately particularise the debt being claimed.
In a recent decision in the case of Havbell v Harris, the High Court allowed the Plaintiff’s application to amend the Summary Summons in order to adequately particularise the debt claimed in line with the O’Malley decision, although it made an order for the costs of the amendment application in favour of the Defendant.
The High Court also clarified the 4 stage test to be met in order for summary judgment to be granted, as follows;
- The Plaintiff’s claim must be sufficiently pleaded and particularised;
- The Plaintiff must adduce evidence establishing a prima facie case;
- The Court must enquire whether there is a fair and reasonable probability of the Defendant having a real or bona fide defence;
- The Defendant must show that this goes beyond mere assertion and is supported by evidence.
Although the High Court allowed the amendment application, it ultimately refused to grant summary judgment in favour of the Plaintiff on the basis they had failed to comply with stage 1 of the 4 stage test. In this regard, the High Court found that the claim in the amended Summary Summons was insufficiently particularised, as it failed to identify either directly or indirectly how the amount claimed, to include the interest accrued since drawdown, was calculated. Humphries J. held that “the jurisprudence is clear that the amount claimed must be explained and indeed explained precisely”. The High Court subsequently transferred the matter for a full plenary hearing.
In Promontoria (Aran) Limited v Burns  IECA87, the Court of Appeal considered the second stage of the 4 stage test set out in Havbell v Harris; i.e. whether the Plaintiff had adduced sufficient evidence to establish a prima facie case.
The Court of Appeal held that affidavit evidence sworn on behalf of the Plaintiff by a debt servicing agent was inadmissible as hearsay as the debt servicing agent was not involved in the original loan transaction and did not have access to the original books and records relating to the loan.
In this case, the Plaintiff was not the original lender and had acquired its’ interest in the loan from Ulster Bank. The affidavit evidence sworn on behalf of the Plaintiff was sworn by a senior asset manager employed by a debt servicing agent acting on behalf of the Plaintiff. The deponent failed to swear that he had access to the books and record of the Plaintiff. In an attempt to address the evidential deficiencies of the grounding affidavit, a supplemental affidavit was sworn confirming that the deponent had access to the books and records of the Plaintiff which were of relevance to the proceedings. However, the supplemental affidavit failed to clarify the type of records to which the deponent had access, other than the exhibits, and if the deponent had access to the records of the original lender, Ulster Bank.
As the Plaintiff was not a bank it could not rely on the statutory exemption to the rule against hearsay in the Bankers Book Evidence Act, 1879 – 1959. It instead relied on a common law exception based on a course of dealing between the Defendants and the Plaintiff or its predecessor in title.
The Court of Appeal held that unless it could be demonstrated that the deponent had access to the original books and records of the loan and that there was sufficient evidence of a true ongoing course of dealing between the parties that any such evidence was inadmissible as hearsay.
The Court of Appeal concluded that the Affidavit evidence in this case did no more than confirm what the Plaintiff had been told by the original lender of what amount was due by the borrower at the time the loan was acquired and the amount that had accrued since then. The Court of Appeal held that the affidavit evidence amounted to “classic hearsay, a statement of what the Deponent was told by someone else.”
The decision in Havbell v Harris clearly summarises the criteria to be met in order to successfully obtain summary judgment. It is also informative of how the Courts will approach applications to amend a summary summons necessitated by the requirements laid out in the O’Malley decision.
As a result, it is vital to ensure that all new and existing claims are sufficiently pleaded and particularised and when seeking to amend the summary summons that the amendments clearly identify how the amount claimed was calculated, to include all interest accrued since drawdown, otherwise there is a risk that the claim will be refused.
The Promontoria decision highlights the importance of ensuring that the grounding affidavits are sworn by an appropriately authorised person on behalf of the financial institution and that that person has access to the books and records of the loans in question.