Lien on me! – Purchaser's Proofs Held Inadequate
Locations
Simons J recently delivered a judgment in the case of Promontoria (Oyster) DAC ("Promontoria") v Kieran McKenna [2020] IEHC 337, in which he considered the proofs required for an application for a well charging order and order for sale and in particular whether it was necessary for a plaintiff to provide evidence as to the creation of an equitable mortgage.
Facts
The Defendant and his wife entered into a loan agreement with Ulster Bank Ireland Limited in March 2005. The security for the loan was by way of an equitable mortgage, namely the deposit of a land certificate. Promontoria exhibited a folio indicating that a lien was registered as a burden against Mr McKenna's interests in the land in 2009. The loan and equitable mortgage were subsequently transferred to Promontoria as part of a larger loan sale and the original entry on the folio was updated to reflect Promontoria's interest.
Judgment
The evidence before the court established that Promontoria has an interest in a lien registered as a burden against Mr McKenna's interest in the relevant lands. Mr McKenna did not seek to dispute the correctness of the folio. The question that arose was whether it is necessary for the plaintiff to go further, and to provide evidence as to the creation of the equitable mortgage in the first instance.
In determining the position, the court considered what the legal position would have been prior to the expiration of the three-year transitional period under the Registration of Deeds and Title Act 2006 (the "2006 Act"), and prior to the coming into force and effect of the Land and Conveyancing Law Reform Act 2009, as this was the period relevant to the equitable mortgage the subject matter of these proceedings.
Prior to the 2006 Act, it was possible to create an equitable mortgage over registered land by depositing a land certificate. The court stated that the procedure for enforcing an equitable mortgage was to apply for a well charging order and an order for sale and as part of the proofs it was necessary to establish that the land certificate had been deposited as security for the relevant debt. Subsequent to the 2006 Act, land certificates are no longer issued and therefore it is no longer possible to create a lien by depositing a land certificate. However, the holders of existing security were given a three-year period to register the security as a lien. In the absence of registration, the deposit of a land certificate cannot now be relied upon as security over the lands concerned. In this case, a lien was registered in time as a burden against the defendant’s interest in the lands.
Simons J pointed out that the 2006 Act does not provide an express statutory remedy for enforcing registered liens, therefore if the holder of a registered lien wished to enforce their security, they must issue proceedings seeking a well charging order and an order for sale pursuant to the inherent jurisdiction of the court. The court considered the "essential proofs" required to obtain such an order and found that as a precondition to the making of such an application that the principal monies be due and owing. Simons J noted:
"It seems to me that, … a plaintiff must lead evidence in respect of the deposit of the land certificate. This is the event which is relied upon as creating the equitable mortgage. In particular, the plaintiff must provide evidence as to the date upon which the equitable mortgage was first created, as this date will be crucial in determining priority between any competing mortgages."
Promontoria failed to prove the necessary evidence. The only reference to a deposit of the land certificate was in the letter of offer, but this was deemed hearsay.
Simons J noted that Promontoria sought to attach too great a significance to the registration of the lien by the Property Registration Authority (the "PRA"). He held that the registration of a lien is merely an administrative function and there can be no suggestion that the PRA has adjudicated upon the question of whether monies have been well charged against the lands, this is a function reserved solely for the court.
Comment
Whilst this decision does not negate the validity of an equitable mortgage created by a deposit of land certificate, if it was registered as a lien within the relevant time period, lenders may have cause for serious concern if they do not have the requisite information on their file proving the date of the creation of the equitable mortgage.
It is imperative that prospective loan purchasers take note of this judgment to ensure that they identify any loans secured by way of deposit of land certificate to make sure that they acquire all of the relevant information as part of the loan transfer.
Simons J. handed down a similar judgment in the case of Promontoria (Oyster) DAC v Greene [2020]IEHC 85 on the same date. Links to both judgments can be found below.
Written by Noreen McGovern and Rosie Callan
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