Court of Appeal: Appeal in mortgage dispute allowed despite inadequate proofs

About this case:

• Citation:
  [2023] IECA 237
• Judgment:
  External link
• Court:
  Court of Appeal
• Judge:
  Mr Justice Senan Allen

Delivering judgment for the Court of Appeal, Mr Justice Senan Allen commented that in circumstances where the property sought to be charged was co-owned by the defendant and his wife, but where only the defendant was party to the proceedings, “there was a gaping hole in the proofs offered to the High Court”.

Background

The appellant was an assignee of the defendant’s borrowings and related security from Ulster Bank Ireland Limited. Although the property sought to be charged was co-owned by the defendant and his wife, the defendant’s wife was not joined to the proceedings and there was no suggestion by the appellant that the property was an investment property.

The appellant issued proceedings on 14 March 2019 seeking a well-charging order and an order for the sale of the mortgaged property.

The proceedings were grounded on the affidavit of a director of the appellant, which contained an averment that it was a term of the loan agreements that the loan facilities advanced would be secured in part by an equitable deposit of the title deeds to the mortgaged property.

The proceedings identified two loan agreements — the first facility letter provided for 11 loan facilities amounting to €4,983,300, and a second facility letter provided for an additional loan facility of €6,250,000 to restructure then-existing balances.

Whilst the first facility letter sought an equitable deposit of the title deeds to the mortgaged property as security, the second facility letter required a first legal mortgage and a number of conditions precedent, which is not satisfied by a certain date would cause the facility to lapse.

The proceedings were adjourned due to the Covid-19 pandemic, and on 20 July 2022, an affidavit was filed on behalf of the appellant by a manager of BCMGlobal ASI. The deponent averred that BCMGlobal ASI had accepted delivery from the bank of documents pertaining to the defendant’s loans and security, including the title deeds to the mortgaged property.

The High Court

When the proceedings came on for hearing, the High Court queried a provision in the second loan facility letter which stated that the letter superseded all prior agreements including the first facility letter, wondering how the appellant could plead that both loan agreements were secured by an actual deposit of title deeds, when the second loan agreement superseded the first and did not provide for the same.

Counsel for the appellant made several submissions, including that the defendant’s agreement to provide a first legal mortgage in the second loan agreement itself gave rise to an equitable mortgage, and that the equitable deposit predated the first facility letter and so was not dependent on that letter for its existence.

The Court found that the second facility letter showed that the parties intended to create a legal mortgage, and that the appellant failed to establish an ongoing intention that the bank would hold the title deeds to create an equitable mortgage in relation to the second loan agreement.

After the High Court had pronounced its judgment and its intention to dismiss the application, the appellant’s counsel asked whether the court would give liberty to bring a motion to amend the proceedings based on what the court had said. The court refused as it had already ruled on the matter.

The appellant appealed, contending that the judge erred in concluding that the second facility letter ended the equitable mortgage, by not giving due weight to creation of an equitable mortgage via the promise of the defendant to secure the second loan agreement with a legal mortgage, and in refusing to grant leave to amend the pleadings.

The Court of Appeal

Observing that the primary argument in the written submissions was that the High Court should have made the orders sought, Mr Justice Allen noted that it was now “accepted that the substantive orders could not be made without notice to Mrs. Gilroy and so more or less conceded that the judge was right not to have made the orders sought…”

Mr Justice Allen remarked that “it would be an understatement to say that the case pleaded and the evidence adduced before the High Court was less than ideal”.

Finding that the second loan agreement was subject to conditions precedent which if not satisfied would cause it to lapse, Mr Justice Allen continued that, “that argument was not unequivocally advanced, either in the High Court or on the appeal”.

Mr Justice Allen disagreed with the finding of the High Court that the defendant’s promise to procure a first legal charge destroyed the equitable mortgage, considering that the practical effect of that construction would have been “if the legal charge had been provided – that the Bank’s priority might have been in jeopardy; and otherwise, that if Mr. Gilroy had called for the redelivery of the title deeds, the Bank would have had to rely on the later unfulfilled contract for a legal charge rather than the previous deposit by way of equitable mortgage”.

The court noted that whilst there was no direct evidence that the conditions precedent in the second loan agreement were met, “the inference is irresistible from the fact that Promontoria is relying on the equitable mortgage by deposit that it does not have a legal mortgage”.

Determining that the High Court erred in concluding that the agreement between the parties to upgrade the security held changed the basis upon which the title deeds were held, Mr Justice Allen highlighted that “it does not automatically follow that the appeal should be allowed” and that “the fact that Mrs. Gilroy was not party to the proceedings might by itself have warranted or even required that the action be dismissed”.

Noting that the court’s decision was not without some misgivings, Mr Justice Allen found that “the practical effect of dismissing the appeal would be to put the property — or at least Mr. Gilroy’s interest in the property — forever beyond the reach of Promontoria”.

Conclusion

Allowing the appeal against so much of the judgment as refused the application by reference to the terms of the second facility letter, the Court of Appeal confirmed that in circumstances where the defendant took no part in the proceedings and where costs were not ordered as against him, the defendant would not be prejudiced by the appellant’s omission to join the co-owner as a party to the proceedings.

Remitting the matter to the High Court, the court noted that it would “decline to make any order in relation to the further progress of the proceedings in the High Court. When the summons is restored to the High Court list, it will be a matter for the High Court judge to determine how – if at all – the proceedings are to be progressed.”

Promontoria (Aran) Limited v. Gilroy [2023] IECA 237