Eamon de Valera and Jennifer Halpin

Following a recent High Court decision, holders of registered liens over Land Registry property will need to check what that lien is expected to secure. If monies were loaned following registration of the lien, these may not be secured by the lien.

Background

In Promontoria (Oyster) DAC v Fox [2022] IEHC 97, the High Court was asked to consider whether Promontoria was entitled to a well-charging order over a Land Registry property in relation to which it had acquired a registered lien (pursuant to an earlier loan sale).

The original lender had lent monies to the defendant on the security of an equitable deposit of the land certificate to the property.  At the time this was a common informal method of creating security. Subsequently, this method of creating security was abolished (pursuant to the Registration of Deeds and Title Act 2006). To protect the interests of existing lenders with such security, the 2006 Act provided a mechanism allowing lenders to register a lien over the relevant property’s Folio in the Land Registry.

In this case the original lender registered such a lien. However, it also subsequently advanced new monies on foot of further loan agreements. Promontoria argued that those new loans (which it had acquired and was seeking to enforce) were validly secured by the existing registered lien.  The defendant argued that the lien could only secure debts in existence at the time of its registration.

Question considered by High Court

The High Court, drawing on prior judgments – Promontoria (Oyster) DAC v Hannon [2019] IESC 49 and Promontoria (Oyster) DAC v Greene [2021] IECA 93 – and its own analysis of applicable legislation, reduced the various arguments made to the following key question: 

Simons J held that, in the absence of an express statutory prescription of the characteristics of a registered lien, it was necessary to look at the legislative intent by reference to the overall scheme of the 2006 Act.  Applying that interpretative approach, Simons J held that:

• the fact that security created by a deposit of a land certificate was converted to a “lien” rather than a “charge”, indicated that the lien was not intended to operate in the same way as a charge (being the prescribed method for creating security over real property for present and future advances);

• the introduction of a registered lien as part of the transitional provisions under the 2006 Act was not intended to displace the primacy of the charge;

• the right to register a lien had been put in place to protect the existing property rights of the holders of liens by deposit of land certificates;

• when the equitable mortgage created by deposit of the land certificate (which could have secured future advances) was converted by statute into a registered lien, the equitable interest was extinguished and replaced by a different interest (namely a registered lien).

In light of the above reasoning and the more limited nature of a registered lien (vs the equitable mortgage it replaced), Simons J held that Promontoria was not entitled to a well-charging order on foot of its registered lien in relation to monies advanced under loan agreements entered into after the date of the lien’s registration.

Interestingly, Simons J also addressed the question of whether his conclusion would have been the same if Promontoria had argued that the parties had intended the equitable mortgage created by the deposit of the land certificate to secure future advances.  Simons J observed that, even if Promontoria had proved this was the case, the registered lien would still not have been effective security as (i) the intention of the 2006 Act was to bring an end to the informal mechanism of creating security by deposit of land certificate, and (ii) a contractual intention cannot override a statutory scheme.  As this issue does not appear to have been actually argued those observations may be considered obiter rather than binding precedent.

Conclusion

Given the outcome of this judgment, lenders, loan portfolio purchasers and credit servicing firms should assess whether they are relying on registered liens as security over Land Registry property.  If so it would be advisable to make a further assessment to check whether any of the debt intended to be secured post-dates the registration of the lien.  While unlikely to be the case in practice, it would also be important to ensure that existing lending practices do not allow for new monies to be advanced on foot of registered liens.

• Eamon de Valera and Jennifer Halpin are partners at McCann FitzGerald.