30 03 2021 Insights Litigation & Dispute Resolution

Court of Appeal confirms law on substitution applications post loan sales

1617139072356 Fourcourts

By Darryl Broderick and Charlene Walsh
31 March 2021

In the recent Court of Appeal decision of Pepper Finance Corporation (Ireland) Ltd -v- Macken and Watson[1], handed down on 25 January 2021, the first named defendant’s appeal against an order substituting the plaintiff in the proceedings was dismissed.

High Court

Possession proceedings were initially issued by Danske Bank A/S trading as Danske Bank (“Danske Bank”). Danske Bank subsequently sold the loan, the subject matter of the proceedings. Pursuant to a loan portfolio sale between Danske Bank and Proteus Funding DAC (“Proteus”) and a subsequent deed of assignment, the beneficial interest of the purchased assets was transferred to Proteus and the legal interest of the purchased assets was transferred to Pepper Finance Corporation (Ireland) DAC (“Pepper”), to be held on trust for Proteus.

Pepper then made an application to be substituted for Danske Bank as plaintiff and their grounding affidavit detailed the transactional history of the transfer. The first named defendant challenged almost every aspect of the evidence adduced by Pepper in support of its application to be substituted as plaintiff in place of Danske Bank, and in particular alleged the following:

(i) Pepper did not have locus standi and if they had they did not show any evidence of such standing as ‘purported Trustees’;

(ii) Pepper had averred that they were the purchasers of the loan and security;

(iii) Pepper was not the purported purchaser of the loans and securities and, in fact, it was more likely to be ‘a mere Bare Trustee’ and that the evidence Pepper had adduced merely established that they were ‘merely Bare Trustees and nominees on behalf of Proteus’.

(iv) Pepper had exhibited no documentation or supporting evidence of the Trust or their powers under the trust.

However, the court relied on Irish Bank Resolution Corporation –v- Comer[2] and emphasised that it is not a matter for the court to make an adjudication upon the validity of the loan sale documentation. Instead, the court had to be satisfied whether there was “prima facie evidence” of the sale and assignment having occurred and if the borrowers had been notified of same. The court determined that this threshold had been meet and made an order substituting Pepper as plaintiff.

Court of Appeal

The decision was appealed and the first named defendant filed an affidavit disclosing additional information regarding the transfer of the loans and securities, which he submitted was publicly available. Whilst Pepper did not accept the first named defendant’s interpretation of the legal effect of the transfers it did not dispute that some additional elements to the transfer had occurred, which resulted in Proteus Funding DAC divesting its interest to another Proteus entity ‘Proteus RMBS DAC’, and a subsequent conversion of that interest to loan notes.

Pepper filed a replying affidavit confirming that it remained the legal title holder and was such at the date of the substitution applications. Pepper also submitted that there was no deliberate attempt to mislead the court and that the subsequent transfers were described as a “securitisation transaction” and were not “in focus” at the time of the application.

The Law

The court reiterated the High Court’s positon that Irish Bank Resolution Corporation –v- Comer was the applicable test for the substitution of parties after a transmission of interests has occurred. The court must be satisfied that there is “prima facie evidence” of the transfer of interests having occurred and does not require an “elaborate argument”.

The jurisdictional basis for the making of a substitution order was clarified in Irish Bank Resolution Corporation –v- Lavelle[3],where it was held that where there is a change or transmission of interests of the plaintiff in loan facilities, the order should be made pursuant to Order 17, Rule 4, Rules of the Superior Courts but the central test remained as prima facie evidence.


The Court of Appeal held that in an application of this type, it was not the function of the court to undertake an exhaustive and detailed analysis of the transactions and instead the threshold was whether the applicant had provided sufficient evidence of its prima facie entitlement to be substituted as plaintiff in the proceedings. Even if Pepper was a “bare trustee” as alleged, the Court held that such a trustee retains a legal interest in the assets in question and there is at the very least a prima facie case that it is entitled to be joined to the proceedings.

The court determined that the requisite threshold had been meet and the first named defendant’s appeal was dismissed.


While the appeal was dismissed, the court was not entirely happy with the manner in which the transactional history of the loan sale had been detailed. The court appreciated that in the course of preparing affidavits, details may be omitted in an attempt to provide a clear explanation of complex transactions. However, the court felt that in applications such as this “a partial explanation of a transaction, however complex, should never be tendered and the court should be advised properly of all key elements thereof”. In the circumstances the court made, inter alia, an order that Pepper discharge the first named defendant’s costs and expenses incurred in connection with the appeal.

To conclude, parties making substitution applications should be cognisant of the comments made by the court and ensure that the affidavits grounding the application detail the entirety of the transactional history.

For more information on the content of this Insight, please contact:
Darryl Broderick, Partner | E: darryl.broderick@rdj.ie | T: +353 21 4802767
Charlene Walsh, Solicitor | E: charlene.walsh@rdj.ie | T: +353 91 895314

[1] [2021] IECA 15

[2] [2014] IEHC 671

[3] [2015] IEHC 321

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