Recent High Court judgment presents further obstacle for lenders and funds in enforcing security
22 July 2020
The High Court has dismissed an application for a well charging order and order for sale where the Plaintiff fund did not put evidence of the creation of an equitable mortgage before the Court.
In Promontoria (Oyster) DAC v McKenna1 the Defendant and his wife took a loan with Ulster Bank in 2005. The Plaintiff fund then acquired the underlying loan from Ulster Bank by way of a larger loan sale transaction.
The loan was secured as an equitable mortgage, the deposit of a land certificate. Prior to 2006, security by way of an equitable mortgage could be enforced by applying for a well charging order and an order for sale. A necessary proof for such an application was to establish that the land certificate had been deposited as security for the loan.
Following the Registration of Deeds and Title Act 2006, land certificates are no longer issued by the Property Registration Authority. Therefore, the creation of an equitable mortgage over registered land in this way is no longer possible. Lenders already holding security by way of deposit of a land certificate were given a 3-year period within which to register their security as a lien to protect their position. Ulster Bank did so in this case and relied upon the equitable mortgage to register a lien as a burden against the title of the lands in 2009. The Registration of Deeds and Title Act did not provide an express remedy for enforcing such registered liens so where the holder of a registered lien wishes to enforce their security, they must apply in line with the jurisdiction of the Court for a well charging order and an order for sale. This is what the Plaintiff did in this case.
The following proofs were put before the Court by the Plaintiff fund:
- An extract from the deed of transfer to show that the Plaintiff had succeeded to the mortgagee’s interest in an equitable mortgage and the letter setting out the terms and conditions of the loan agreement, signed as accepted by the Defendant.
- The updated folio which noted the Plaintiff’s interest in the lien.
The Plaintiff was therefore in a position to establish its interest in the lien. However, the question that then arose was whether this was sufficient.
In the judgment delivered electronically on 14 July 2020, Justice Garrett Simons held that a lien is merely an administrative instrument and that proof of the registration of a lien on its own is not proof of the date of creation of the equitable mortgage or the existence of the equitable mortgage itself. It is necessary to “go further” and provide evidence as to the creation of the equitable mortgage at the time of the deposit of the land certificate. This date is significant in that it determines priority between any competing mortgages. The Plaintiff fund was not in a position to put evidence as to the deposit of the land certificate before the Court, not having been involved at the time and not having obtained any such evidence from Ulster Bank.
Simons J. therefore dismissed the Plaintiff’s application for a well charging order and order for sale and awarded the Defendant his expenses.
This judgment is in line with an earlier written judgment delivered by Simons J. in Promontoria (Oyster) DAC v Greene2 in February 2020, where Simons J. dismissed a similar application brought by the Plaintiff. That application was dismissed on the basis that limited evidence had been put before the Court in relation to the deposit of the land certificate which resulted in ambiguity as to the date on which the land certificate was deposited.
These judgments present a further obstacle for lenders and funds who have acquired loan books, in particular, in enforcing equitable mortgages. Where available, evidence of the date of creation of the equitable mortgage must be put before the Court. Funds need to be mindful, when purchasing loans which were secured by equitable mortgages, to collect all relevant information, to include the land certificate. For those funds who do not hold this information, they will certainly face an uphill battle in enforcing their security.
The full judgment is available here
1 Promontoria (Oyster) DAC v Kieran McKenna  IEHC 337
2 Promontoria (Oyster) DAC v Desmond Greene  IEHC 85