Ireland: EBS Limited v Gillespie - Further Clarification Of Issues Arising From Start Mortgages Judgment

The judgment in the case of EBS Limited v Gillespie provides welcome clarification of the concerns which arose as a result of the controversial Start Mortgages judgment.  The question of what triggers the accrual of a mortgagee's statutory rights is a matter for interpretation of the relevant mortgage or charge in each case and does not necessarily turn on whether a demand was made prior to 1 December 2009 (being the date on which the Land and Conveyancing Law Reform Act 2009 Act came into force).

Backdrop

Following the Start Mortgages case ¹, mortgagees by deeds entered into under the Conveyancing Acts 1881 – 1911 were concerned that, unless they had issued demands prior to the repeal of the 1881 Act on 1 December 2009, there was a risk their rights under the 1881 Act had not yet "accrued" and that, therefore, they could no longer rely on the 1881 Act for the power of sale, the power to appoint a receiver or the right to "overreach" subsequent encumbrances on title.

S 27 of the Interpretation Act 2005 provides that any right which has been acquired or has accrued prior to the repeal of a legislative provision cannot be affected by the repeal. This is of critical relevance where mortgagees need to rely on certain provisions of the 1881 Act or the Registration of Title Act 1964 which were repealed by the Land and Conveyancing Law Reform Act 2009, as the 2009 Act only applies to mortgages entered into after 1 December 2009.

The subsequent decision of Ms Justice Laffoy in the Lynch case ², tempered, to a certain extent, the potential ramifications of the Start Mortgages case. In this case Ms Justice Laffoy found that where certain statutory powers, in force at the time a mortgage or charge was entered into, are incorporated by reference into a mortgage or charge, such powers became contractual in nature thereby surviving the repeal of the relevant statute. Therefore mortgagees, pursuant to well-drafted mortgages, could rely on a contractual power of sale and power to appoint a receiver.

However, even if Lynch remains the settled law, the issue of "overreaching" can still present a problem in circumstances where the right to overreach is purely statutory in nature and cannot be overcome by agreement between the parties to the mortgage or charge. 

The recent judgment of Ms Justice Laffoy in the case of EBS Limited v Gillespie ³ provides further comfort to mortgagees in this regard. In this case, Ms Justice Laffoy held that the provisions of the mortgage or charge which determine when the mortgagee's rights have "accrued", and that a demand, contrary to the suggestion in Start Mortgages, may not be the only relevant "trigger" in this regard.

Facts

In the EBS case, the plaintiff mortgagee, sought possession of lands ⁴ secured by way of a charge dated 16 April 2002 (the "Charge"). A demand for payment of the principal monies secured by the Charge had been made prior to 1 December 2009.

The defendant argued that the demand was either not valid or had been vitiated by subsequent agreements between the parties and that the plaintiff's rights to avail of s 62(7) of the Registration of Title Act 1964 had not therefore "accrued" prior to 1 December 2009.

Decision

Ms Justice Laffoy considered that the "crucial question" was whether the plaintiff could establish that it had acquired the statutory right to seek possession of the property before 1 December 2009. She thought it easiest in this case to look at the matter from a historic perspective and consider whether the plaintiff had a right to seek an order for possession prior to 1 December 2009, but made it clear that she did not consider this to be the only approach to take when answering the "crucial question".

For the plaintiff to show that it could rely on s 62(7) prior to 1 December 2009, it would have to establish: (a) that it was the registered owner of the Charge (which was not disputed in this case as the Charge was registered on 17 May 2002); and (b) that repayment of the principal monies had become due by that date

She did not consider that the question of whether the repayment of the principal monies had become due by that date necessarily turned on whether a demand had been made. She held that the position as of 1 December 2009 in this case was as follows:

(1) That, arising out of the wording in the Charge, all of the monies secured had become immediately payable and the security immediately enforceable because the defendant had defaulted in making payments due under the Charge (whether or not a demand had been made) ⁵.

(2) That, arising out of the wording of the Charge, the plaintiff's contractual power to enter upon and take possession of the secured property was exercisable because the security had become enforceable ⁶.

(3) That the plaintiff's statutory power of sale had arisen because it was expressly stated in the Charge that, for the purposes of any sale, the legal date for redemption occurred immediately after the execution of the Charge ⁷.

(4) That as security had become enforceable prior to 1 December 2009, and as the mortgage money had become due by virtue of the terms of the Charge, the statutory power of sale as mortgagee had become exercisable.

Ms Justice Laffoy was therefore satisfied on the facts that repayment of the principal money secured by the Charge had become due prior to 1 December 2009, and that neither the power of the plaintiff to enforce the security by entering into possession with a view to a sale, nor the exercise of the power of sale, required the issue of a prior demand or notice to the defendant (whether before of after 1 December 2009). 

Accordingly, it was held that the plaintiff retained the right to apply for an order for possession under s 62(7) of the 1964 Act, notwithstanding that this section was repealed by the 2009 Act. 

Conclusion

This judgment is to be welcomed in terms of providing further clarification of the issues arising from the Start Mortgages judgment. In particular, the Court did not consider that the question of whether the principal monies had become due by 1 December 2009 necessarily turned on whether a demand had been made.

Many security documents drafted prior to the 2009 Act contain a provision along the following lines:  "For the purposes of all powers implied by statute but not further or otherwise, the Secured Liabilities are deemed to have become due on the date [or the date x weeks from the date] of this Mortgage."  Ms Justice Laffoy held that such a provision was effective to allow the statutory rights to have accrued to the mortgagee and to be thereby preserved by the Interpretation Act, notwithstanding the repeal of the relavent statutory provisions by the 2009 Act.

On the basis of this decision, the presence of such a clause in a mortgage drafted prior to the 2009 Act should allow mortgagees to avail of s 21 of the 1881 Act which gives a mortgagee, exercising a power of sale under the 1881 Act, the power to "overreach" and sell secured property free from subsequent encumbrances. S 19 of the 1881 Act provides that the statutory power of sale arises when the mortgage money has become due. 

The question of whether the mortgage money has become due prior to 1 December 2009 is a matter of contractual interpretation of the mortgage or charge in question. It remains important, therefore, to consider closely the terms of every security document to assess whether the rights of the mortgagee have "accrued" or been "acquired" prior to 1 December 2009 and whether the mortgagee is therefore entitled to rely on any particular provision of the 1881 Act or 1964 Act which has since been repealed by the 2009 Act.

Footnotes

 1 Start Mortgages Ltd & Ors V Gunn & Ors [2011] IEHC 275

 2 Tom Kavanagh and Fergus Lowe -v- Jeremiah Lynch and St. Angela's Student Residences Limited, Unapproved judgment of Ms. Justice Laffoy delivered on 31 August 2011

 3 2012 IEHC 243, judgment delivered on 21 June 2012 [TBC: approved on 9 July 2012]

4 Pursuant to s 62(7) of the Registration of Title Act, 1964.  This was the same provision which was considered in the Start Mortgages case and in respect of which Ms Justice Dunne found, on the facts before her, that as a demand had not been served by the chargee / mortgagee prior to 1 December 2009, the chargee / mortgagee had not acquired any rights under the section prior to its repeal on 1 December 2009.  

5 Clause 5.01(a) of the Charge provided that all monies secured by the Charge would become immediately payable and the security immediately enforceable if the borrower fails to pay on the due date any money payable or interest due by it from time to time.

6 Clause 9.01 of the Charge provided that at any time after the security shall have become enforceable, the plaintiff may at its discretion enter upon or take possession of the mortgaged property or any part thereof and may sell it.

7 Clause 9.07 of the Charge provided that the statutory power of sale conferred on mortgagees by the 1881 Act, as amended, shall apply to the security without the restrictions therein contained as to giving notice or otherwise, and then stipulated a deemed legal date for redemption by providing that for the purpose of any sale under such power, "the monies hereby secured shall be deemed to have become due immediately after the execution of these presents although no demand shall have been made".

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.