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Sale of loans: A naked trustee can enforce a loan on his own?

Recently, the High Court has reviewed who must be a party to foreclosure procedures when the juridical and economic interest in a loan has been divided between two different entities. At Pepper Finance Corporation (Ireland) DAC v Jenkins,1 the claimant ("Pepper") applied for an order to own the defendant's home after they were in arrears with a 2008 secured home loan.

Meanwhile, this hypothecary was incorporated into a loan sales and alienated to a third person ('windmill') who now owned the economic interest in the assets. As trustees for the windmill, Mr Pfapper retains the right to ownership. Respondents objected to the request for ownership on the grounds that, although Pepper kept the right to the loan and the associated collateral of the Respondent, it was either intended that Windmill (as the exclusive economic owner) should have become a co-plaintiff in the proceeding or, as an alternative, that it should have made it clear that it would issue a proceeding on Windmill's account as a mere fiduciary.

Windmill claimed that this was an important condition for a plaintiff's claim to success against the respondents so that the respondents were not subject to the risks of being taken by Windmill for the same claim alone. Whilst the Tribunal stated that it was clear that the mere right to a loan could be enforced by the owner, the more differentiated issue of how to formulate the procedure had not yet been examined by the Irish judicial authorities.

"Is it permissible for the proprietor of a loan and the associated securities, who has separated himself from the overall economic interest in that loan and the associated securities and whose interest is no more than that of a mere fiduciary, to institute on his own account legal proceedings brought against the borrower for the collection of the claim and/or the holding of the assets guaranteed for that claim, without even referring in the procedure to his position as fiduciary on account of a third person?

Binchy J.'s ruling on this matter stated that a naked fiduciary of the claim could do so and based his ruling on the matter of termination. Said that if a borrower had obtained an assignation and, in particular, had been instructed to make payment to the transferee (windmill), the transferee must necessarily be a party to the procedure, as otherwise the borrower would be in danger of the transferee initiating a special procedure.

However, such a communication would normally result in the transfer of the right to the transferee and the cedant rendering the procedure unsustainable by the transferor. If, however, no such communication was made, as was the case here, the same reasoning did not arise. Without prior notification, the obligors were required to make further payments to Pepper (the plaintiff) and Windmill (the economic owner) could not assert any claims against them (at least not without stating that Pepper had the title).