About this case:

• Citation:
  [2022] IEHC 526
• Judgment:
  External link
• Court:
  High Court
• Judge:
  Mr Justice Garrett Simons

The plaintiff had sought to distinguish the Fox judgment by arguing that the borrower had expressly agreed to deposit the land certificate as security for present and future loans which was sufficient to create an equitable mortgage.

However, the court did not accept this submission, stating that the contractual intention of the parties could not prevail over the amended statutory scheme under the Registration of Title Act 2006.

Background

The defendant had previously entered into a loan agreeement with Ulster Bank Ireland Limited, in which the defendant was registered as full owner of lands in County Roscommon. A lien was registered in favour of the bank as a burden on the land on 31 December 2009 and it was assumed that the land certificate had previously been deposited with the bank. The loans were later assigned by the bank to the plaintiff, Promontoria (Oyster) DAC in 2016.

Due to the operation of the Registration of Title Act 2006, no new equitable mortgages could be created after 31 December 2009 by way of the deposit of a land certificate. Further, all existing liens which were not registered were extinguished from this date.

In February 2012, Ulster Bank granted three loan facilities to the defendant totalling €450,000. The defendant did not keep up repayments and demand letters were sent in 2017 and 2018. Promontoria later issued well-charging proceedings against the defendant on foot of the 2012 facilities and the registered lien.

In a modular hearing, the parties made submissions to the High Court on whether the proceedings were governed by the judgment in Fox, where it was held that a registered lien could not be relied on as security for loans advanced after 31 December 2009.

The plaintiff attempted to distinguish Fox on the basis that the defendant had expressly agreed to deposit the land certificate as security in respect of present and future loans. As such, it was said that the security covered the loans from 2012 due to this contractual promise. Further, it was submitted that an equitable mortgage could be created by an agreement to provide security, as occurred in this case.

Further, the plaintiff submitted that, prior to the commencement of the 2006 Act, the bank would have the benefit to avail of “tacking”. Tacking was a principle where a mortgagee who makes further advances to a borrower after a mortgage was created is entitled to rely on the date of the initial mortgage to establish priority over another mortgage created in favour of a third party. It was submitted that the court was obliged to avoid an interpretation of the Act which would result in the loss of this benefit under the double construction rule.

High Court

Considering whether a contractual promise or pledge for the lien to cover future loans, the court accepted that the factual position was different from Fox insofar as the deposit of the land certificate was expressly intended to cover future advances. However, the court held that this was not relevant to the legal analysis.

In Fox, the court held that contractual intention could not prevail over the statutory scheme of ending the informal mechanism of creating security via a deposit of a land certificate. It was held that the present submissions were “simply another version of the argument rejected in Fox” and the present case was therefore governed by that decision. The equitable mortgage in this case had been extinguished by the 2006 Act and the 2012 loan facilities were governed by the new statutory regime, the court held.

On the double construction rule, the court noted that an Act or legislative provision would not be declared to be invalid where it was possible to construe it in accordance with the Constitution of Ireland (East Donegal Co-Operative Livestock Mart Ltd v. Attorney General [1970] I.R. 317). The court also noted that the plaintiff relied on the possibility of tacking, but there were in fact no further advances or intervening charges in the case. Rather, the plaintiff referred to the potential to rely on tacking and claimed that it would be an unjust attack on a valuable property right if the plaintiff could not avail of tacking.

The court held: “The fallacy underlying these submissions is that they seek to equate the discontinuance of a potential benefit under the previous legal regime with the expropriation of an existing or vested property right.” It could not be said that the bank had acquired a property right prior to the legislative amendments.

The fact that that amendments which governed future lending might be less favourable than the previous regime did not result in unconstitutionality. New legislation frequently altered the legal positions of parties, the court said. Further, existing lending was safeguarded by section 73 of the 2006 Act which allowed for the conversion of an equitable interest.

Conclusion

The court held that the present case was indistinguishable from the Fox judgment and refused the application for well-charging relief.

Promontoria (Oyster) DAC v. Kean [2022] IEHC 526