Summary execution

Summary judgments just got harder! The ever-increasing evidential burden of proof in summary proceedings has serious implications for creditors and banks in their dealings with defaulting borrowers.

The burden of proof required to obtain summary judgment has been significantly raised in the past six months.

Three recent cases – Bank of Ireland Mortgage Bank v O’Malley; Havbell DAC v David Harris and Rita Harris; and Promontoria (Aran) Ltd v Burns – 
will have serious implications for creditors generally, and particularly for banks in their dealings with defaulting borrowers.

O’Malley

In October 2008, Mr O’Malley took out a loan facility for €225,000 from the bank and, by November 2011, he had defaulted on the repayments due. In January 2014, a summary summons was issued, and summary judgment was thereafter sought against him.

After considering conflicting legal argument about the appropriate level of detail in a summary claim, the High Court granted judgment in favour of the bank.

On appeal, a more onerous test was imposed by the Supreme Court, with reference to order 4, rule 4 of the Rules of the Superior Courts. The test established the required level of detail in an indorsement of claim.

 

The Supreme Court held that the defendant to a summary summons is entitled to have sufficient particulars of the debt to enable him to “satisfy his mind whether he ought to pay or resist”. In order to make such a decision, a defendant must be given sufficient detail of the debt so that he understands how the figure was arrived at in the first place.

However, the court held that, if the indorsement of claim sets out the liquidated sum due and states that the calculation was contained in an identified document previously sent to the debtor, this is sufficient information for the purposes of particularity, provided the documents relied on contain the necessary detail.

The court noted that the terms of the loan, its acceptance, and the subsequent failure to repay were explained in the indorsement of claim. There was, however, a “bald reference” to the amount sought, and no detail as to how this sum was arrived at. This was not sufficient to meet the ‘particularisation requirement’.

Evidence of calculation

In debt-enforcement procedures, the statement of account of a debtor specifies the initial loan amount, records the monthly instalments, records the failure to pay the monthly instalments, and is intended to give a “very clear picture” as to why there are arrears.

It was held that financial institutions must specify “at least a straightforward account of how the amount said to be due is calculated, and whether it includes surcharges and/or penalties as well as interest”. This must be seen in the special indorsement of claim and the evidence presented.

The system that generated the statement of account must have some “inbuilt methodology” for calculating the closing balance, which must be clear from the document or any other evidence.

There was no indication in the statement of account in O’Malley as to what interest rate was being applied, and whether the sum claimed included penalties and interest. This was particularly problematic, as the loan agreement made it clear the interest rate could be varied.

Accordingly, the court held that it was not obvious to a reasonable person as to how the sum claimed was arrived at.

Decision summary

The Supreme Court found that there was little detail as to how the sum claimed came to be due. Furthermore, there was no calculation shown as to how the figure sought was arrived at and what it was made up of.

This meant that the debt was not sufficiently particularised, and the appeal was allowed. The case was sent back to the High Court for amendment of the proceedings to be considered.

The decision of the Supreme Court in this case came as a surprise to legal practitioners and banks, in that it set a higher burden of proof than had been acceptable previously in summary judgment proceedings.

Many special indorsements of claim were amended in the wake of the decision. One such case, involving an application to amend the summary summons, was Havbell. The judgment in this case set out the factors to be considered in an application to amend a summary summons and whether or not to grant summary judgment.

Havbell

The defendant borrower took out an interest-only loan facility on 30 November 2004 from Permanent TSB. The loan was restructured in 2013 to require repayment of the principal as well as interest. The rights under the loan were subsequently sold to Havbell Ltd on 19 June 2015.

On 1 November 2017, a demand issued for €113,778.04, and a summary summons followed on 16 January 2018. In light of the decision of the Supreme Court in O’Malley (delivered on 29 November 2019), the plaintiff issued a motion on 13 February 2020 to amend the summary summons. The proposed amendment listed the opening balance, interest, credits, and total due.

The High Court considered two main issues: whether the amendment should be allowed, and whether summary judgment should be granted.

Amendment test

The court considered whether the proposed amendment was in the interests of justice and would ensure that the real issues in controversy were addressed.

In deciding whether this overarching test was met, the court considered BW v Refugee Appeals Tribunal, a case that approved a threefold test for amendments generally – arguability, explanation, and irremediable prejudice.

The court found that the three strands of the test were met, and the amendment was allowed.

In deciding whether summary judgment should be granted, the High Court then laid down the following test:

a) The plaintiff’s claim must be sufficiently pleaded and particularised,
b) The plaintiff must adduce evidence establishing a prima facie case,
c) If so, the court must inquire as to whether there is a fair and reasonable probability of the defendant having a real or bona fide defence, and
d) If so, the defendant must show this goes beyond mere assertion and be supported by evidence.

Looking at each of these requirements in more detail:

a) Particularisation – under this heading, O’Malley was considered, and it was reiterated that particularisation may be indirect by referring to another identified document that provides the necessary information. Some clarity was provided in Havbell as to such reference to other documents in the summons. It was held that the statement “the defendants have been regularly supplied with statements of account” does not constitute reference to an ‘identified’ document. It was further noted that particularisation is not just an evidential matter. There must be specification as to how the interest was calculated from time to time, either directly in the summons or indirectly. In Havbell, the court found that the case of Bank of Scotland v Fergus provided some guidance on particularisation. In Fergus, it was held that “a reference to putting a debtor in a position to know whether interest may have been overcharged implies that the interest rate as it varies from time to time has to be specified, together with the periods involved”. Each figure in the summons must be accompanied by an explanation. In Havbell, there was no explanation as to how the opening balance was arrived at, and the High Court held that “the jurisprudence is clear that the amount claimed must be explained and, indeed, explained precisely”.

b) Plaintiff must also have a prima facie case supported by evidence – O’Malley was again cited under this heading. Given the issues discussed under separate headings, it was held that the court would adjourn the matter to plenary hearing on this ground also.

c) Fair or reasonable probability of defence – the defendants’ claim that the agreement had been unilaterally restructured was considered under this requirement. As this counterclaim was so tied up in the agreement on foot of which the plaintiff was proceeding, it was held that the matter would be adjourned to plenary hearing on this ground as well.

d) Is the defence supported by evidence? The affidavits submitted by the defendants were considered to be adequate evidence for the purposes of this requirement to transfer the case from summary to plenary hearing.

Although it was held that the amendment was allowed, the costs of the application to do so were awarded in favour of the defendants. Furthermore, as the test for summary judg-ment failed on various grounds, the matter
was sent to plenary hearing.

Burns

This case involved an application for summary judgment that was issued by Ulster Bank; however, the title of the proceedings was later amended following the purchase of the debt by Promontoria. The grounding affidavit was sworn by a senior asset manager at Link ASI Limited, which administers debt collection of behalf of Promontoria.

In both the High Court and the Court of Appeal, it was held that, as Promontoria was not a bank, it could not rely on the exception to the hearsay rule contained in the Bankers’ Books Evidence Act 1879. It was therefore found that the evidence provided by the asset manager was hearsay and, thus, inadmissible in court.

The global deed of assignment was not inadmissible, however. It was held that Promontoria must prove “that moneys were advanced on foot of certain agreements for repayment and subject to certain conditions, including a condition providing for the payment of interest, and that the moneys fall due for payment”.

It was held that letters illustrating that a demand was made illustrate only that a demand had been made – but not that funds were owed, the total owed, and by whom it was owed.

The court held that neither Promontoria nor the servicer were in a position to offer averments to prove the debt, and they could not rely on the 1879 act to overcome the difficulties faced as a result of the hearsay evidence rule. It was further noted by the court that the law in this area is in an unsatisfactory state.

We believe that this recent assessment of the law in this area will cause difficulties for venture capital funds who may not possess the documentation required to obtain summary judgment or a means of exhibiting them in a manner that does not breach the hearsay evidence rule.

Further clarity

Although Havbell does not appear to ease the requirements regarding particularisation put forward in O’Malley for summary judgment, it does provide further clarity as to what the legal requirements are in order to proceed by way of plenary hearing.

Particularisation, evidence, and any possible defences are key factors that practitioners must consider when preparing a summary summons.

The Havbell decision also provides some comfort to banks and practitioners who have not sufficiently particularised debt. An application to amend the proceedings may be successful only if both the three-step test for amendment and the requirements for summary proceedings are met.

Also, meeting the three-step test for amendment is no guarantee that the matter will continue to be heard summarily, as the test for summary judgment must also be met.

Finally, parties should also be conscious of the hearsay evidence rule when particularising the debt on affidavit. As Burns demonstrates, the rule can be a significant hurdle for venture capital funds and debt service providers to overcome in order to obtain summary judgment.

What is clear over the past six months is that it has become much more difficult for banks – and especially venture capital funds – to obtain summary judgments. Unfortunately, while the judgments are well meaning, their practical effect will be to significantly increase the cost of litigation for banks and borrowers alike.