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Various Codes of Conduct on Mortgage Arrears have been in place in different forms since 2010. These Codes form part of the law and aim to regulate how financial institutions deal with mortgagors facing mortgage arrears.
The conventional interpretation of the Codes has been that a lending institution was not entitled to an order for possession of charged property where the provisions of the applicable Code were not observed (see the case of Stepstone – v – Fitzell).
Mark Woodcock, Partner and Jack Cronolly, Associate of the firm’s Insolvency and Restructuring Unit examine the recent decision in the case of Irish Life and Permanent Plc – v – Dunne, which challenges previous interpretations.
Recent judgment
In the case of Irish Life and Permanent Plc – v – Dunne, the Supreme Court was asked to consider whether:
“In the absence of any statutory indication that failure to comply with the applicable code of conduct on mortgage arrears as promulgated under Section 117 of the Central Bank Act, 1989 as amended (“the Code”) affects the ability of the lender to secure an order of possession of premises covered by the Code, does non-compliance of the Code affect, as a matter of law, the lender’s entitlement to obtain an order for possession”.
The Supreme Court accepted that as a matter of regulation, a financial institution would be answerable to the Regulator for any failure to comply with the relevant Code. However the Court had to consider whether the Code might be held to affect the private law and contractual rights and obligations of a financial institution and a borrower.
The Supreme Court held that there is nothing in the Central Bank Act, 1989 (which empowers the Central Bank to impose binding codes upon lending institutions) suggesting that the Oireachtas intended the Courts to have a role in assessing the compliance or otherwise by a regulated financial institution with the applicable Code.
The Court held that the only issue which it should be concerned about was whether the moratorium on issuing proceedings which is contained in the Code was observed or not. The Court held that it must be satisfied that either the moratorium does not apply or that it has expired, otherwise by entertaining an application for possession in breach of the moratorium, the Court would be participating in an illegal act.
The Supreme Court concluded that until appropriate legislation is passed, the Court has no role in assessing a bank’s compliance with the various provisions of the Codes other than observing the moratorium, and a bank can demonstrate this by simple averment on affidavit.
Implications for banks
While this decision relieves banks of the often onerous obligation of drafting lengthy affidavits demonstrating compliance with the relevant Code, it does not affect the bank’s duties to demonstrate such compliance to the Regulator.
It should also be remembered that detailed affidavits setting out the bank’s efforts to facilitate borrowers are often persuasive in applications for possession in any event, and in those circumstances, although no longer a strict requirement, banks should be mindful that compliance with the Codes may still prove useful in bolstering their applications for orders for possession.
Remember that this article is for information purposes only and does not constitute legal advice. Specific advice should always be taken in given situations.