Well Charging Order and Order for Sale, Implications of the recent High Court Decision in Ulster Bank Ireland DAC v Rattigan and ors. [2023] IEHC 284
By way of background a Well Charging Order and Order for Sale are effectively a combined remedy available to mortgagees which can be made by the Court in the event of an unsatisfied debt. A Well Charging Order is an order confirming that the security (such as a mortgage, guarantee, lien etc.) is validly in place. Proceedings commence with a mortgagee’s declaration confirming that the debt plus interest and costs is “well charged”.
Provided this remedy is granted, the Courts will then direct that the property be sold. It is common practice for the Court to give the defendant time to pay the amount due to the plaintiff before the Order for Sale becomes effective. In addition to a declaration that the debt is in fact “well charged” and the direction for the property to be sold, the Court will usually make a direction that the Examiner appointed to oversee the sale takes account of all incumbrances and make an inquiry into their respective priorities.
The recent High Court case, Ulster Bank Ireland DAC (UB) v Rattigan and ors. (the Defendants) [2023] IEHC 284, involved an application by UB for a Well Charging Order and an Order for Sale on two basis, namely a debt pursuant to a guarantee and a judgment mortgage. Both remedies were awarded by Simons J. on the following basis:
(i) Section 73(3) of the Registration of Deeds and Title Act 2006 (the Act);
(ii) The test laid out in the recent judgment of Collins J. in Promontoria (Oyster) DAC v Green [2021] IECA 93; and
(iii) The absence of an agreement between UB and the Defendants despite the Defendants claiming that an agreement was in place.
Background
The Defendants executed a guarantee in favour of UB in relation to company debts in 2004. The following year they created an equitable mortgage, in favour of UB, over various lands (Lands) in County Meath by means of an undertaking by the Defendants’ solicitor to hold the relevant land certificate in trust for Ulster Bank. The wording of the equitable mortgage was broad enough to include debts under the original guarantee as it was described as security for “all liabilities to UB howsoever arising”.
The Defendants did not meet the demand for payment issued by UB. This resulted in UB ultimately obtaining a judgment in default of appearance which remained unsatisfied. In accordance with Section 73(3) of the Act, UB’s interest was converted into a registered lien in 2009.
Defence and Discourse
The examination of the facts also disclosed an apartment (Apartment) in County Mayo which was subject to a charge in favour of UB which was registered as a burden on the folio title for the Apartment since September 2004. It was unclear if the Apartment had been purchased with the proceeds from the UB loan. However, it was deemed that this debt was separate from the guarantee.
The Defendants sought to resist the application on three grounds. Firstly, they alleged that an agreement had existed between them and UB through various email correspondence presented to the court. The email correspondence indicated that the Defendants were willing to surrender the Apartment and that the net proceeds from the sale would be applied to discharge the sums due under the guarantee. In their replies, UB did appear to accept the proposal on two conditions; namely that vacant possession and a deed of surrender were provided. However, UB did not receive a response to their conditions and no deed of surrender was ever executed. The benefit of the charge was subsequently transferred to Promontoria Scariff DAC (Promontoria) and the Apartment has since been sold.
Secondly, the Defendants stated that they were never notified of the transfer of the debt to Promontoria. This was held to be irrelevant to the proceedings.
Finally, they raised a general complaint that it had been envisaged under a loan agreement that the equitable mortgage over the Apartment was to be released once the equitable mortgage over the Lands was created. This was also deemed irrelevant as there was nothing in any documentation suggesting that the equitable mortgage in respect of the Lands was to be released.
Reasoning
In adopting a common-sense approach, Simons J. held that the equitable mortgage had been granted and extended liability under the guarantee which had since been converted into a registered lien. The debt under the guarantee came within the scope of the liabilities secured by the lien. This was also deemed to satisfy the test set out in Promontoria v Greene [2021] IECA 93, namely that (i) the monies were due and owing and (ii) the monies were secured by the registered lien.
A Well Charging Order and Order for Sale in favour of UB were made. Each party bore its own costs.
Takeaway points
The Promontoria Test is gaining momentum and would appear to be on its way to becoming the standard approach taken by the courts in applications relating to debts or equitable mortgages. Mortgagors/guarantors should be cognisant of this test.
Caution is important when drafting undertakings for equitable mortgages to ensure that the mortgagor’s/guarantor’s liability is limited.
The importance of having a clear written contract in place is paramount to the facts in this judgment. Mere correspondence with proposals is simply not enough unless it is accompanied by action on the part of one or both parties. When proposals are agreed in principle, it is in the interests of all parties that immediate action is taken to ensure that proposals are documented in writing such that they are valid and legally binding.
This Moran & Ryan LLP material is not intended to provide, and does not constitute or comprise, legal advice on any particular matter and is provided for general information purposes only. You should not act or refrain from acting on the basis of any information contained in this material, without seeking appropriate legal or other professional advice.
Matthew Carroll
Associate
T: + 353 1 8725622
E: matthewcarroll@moranryan.com
