JUDGMENT MORTGAGES: A TRAP RATHER THAN A SECURITY?

The following is the text of Flor’s article which appeared in the July 2011 edition of the Irish Law Society Gazette.  We acted for the successful second named defendant in the High Court and Supreme Court cases referred to in the Article.  A PDF version of the published article is also available here:

“This case is testimony that sufficient wisdom has not yet accumulated to obviate another judgment creditor being impaled on the chevaux de frise of the regulation of judgment mortgages.”

Laffoy J in Irwin v Deasy

The position of creditors holding judgment mortgages over co-owned land has been fraught with uncertainty since January 2006. The Supreme Court decision in Irwin v Deasy delivered on 13th May 2011 finally provides certainty for all involved. But in an era in which the laws governing all aspects of debt in our society are under urgent review, should we be persisting with the judgment mortgage model?

The background and facts of the case.

The plaintiff in the case was the Collector General of the Revenue Commissioners. The plaintiff was owed money in respect of taxes by the first defendant. The first defendant was joint owner with his spouse of freehold land registered in the Land Registry (now the Property Registration Authority). The plaintiff had secured judgments in 2000 and 2002 in respect of the monies owed which it had registered in the Land Registry as judgment mortgages against the first defendant’s interest in the land. The plaintiff initially issued proceedings against the first defendant only, seeking an order that the judgments were well charged on the lands together with an order for sale in lieu of partition of those lands.

The matter first came before the High Court on 1st March 2004 when Ms Justice Finlay Geoghegan joined the first defendant’s spouse to the proceedings and, in doing so, held that where there were two co-owners of a property the subject of an application for an order for sale in lieu of partition, the other owner should, unless unavailable, be joined so as to ensure that the constitutional principles of fair procedures are observed and that the individual circumstances of all the interested parties could be taken into account by the court.

The substantive matter then came before Ms Justice Laffoy on 31st January 2006 . The issue identified by counsel for the second defendant in the proceedings was that in cases involving registered land a judgment creditor did not have sufficient locus standi to seek an order for partition or, by extension, an order for sale in lieu of partition in order to satisfy the judgment debt and that the court had no jurisdiction to make such an order in cases of co-owned registered land.

The distinction between registered and unregistered land arose from the manner in which a judgment mortgage operates in each title system. In the case of unregistered land the judgment mortgage operates in the same way as a mortgage created by deed; the relevant legal estate which has been mortgaged vests in the mortgagee (in this case the judgment creditor) which provides that creditor with sufficient interest in the land to seek partition. However, in the case of registered land under the Registration of Title Act, 1964 the registration of a judgment mortgage did not give the creditor any interest in the land and the judgment creditor’s rights were limited to those contained in section 71 (4) of that Act.

The court held that it did not have any jurisdiction to order a sale in lieu of partition other than by the statutory jurisdiction conferred on it by the Partition Act, 1868 and that a judgment mortgagee in cases of registered land did not have sufficient interest in the land to seek the benefit of that Act. The court held that it did not have any inherent jurisdiction to grant a sale in lieu of partition and that the Registration of Title Act, 1964 itself did not provide any such specific remedy to a judgment creditor.

The underlying debt the subject of the proceedings was settled following the outcome in the High Court. However, the legal point was a matter of some considerable importance to the plaintiff and had implications for a large number of similar cases. Therefore, the plaintiff wished to appeal the decision to Supreme Court . The first point that fell to be considered by the Supreme Court was whether such an appeal could proceed where the underlying matters in contention had been resolved. It was submitted on behalf of the plaintiff that the point of law in this instance was not one limited to past events particular to this matter and was a matter of such public importance as to warrant determination in this case. The Supreme Court allowed the appeal to proceed on the basis that the legal representatives for the second defendant would act as legitimate contradictor in the matter.

The matter was heard before a division of the Supreme Court comprising Macken J, Finnegan J and O’Donnell J on 29th July 2010. Finegan J delivered judgment in the matter on 13th May 2011 .

The Supreme Court found that Laffoy J had been correct in the High Court in holding that she did not have jurisdiction under sections 3 and 4 of the Partition Act, 1868 to make an order for sale in lieu of partition in respect of registered land on the application of a judgment mortgagee. The Supreme Court held that in cases of registered land the relief available to a judgment mortgagee was limited to that contained in section 71 (4) of the Registration of Title Act, 1964 which did not go so far as to give the court power to treat a judgment mortgagee of registered land as having the rights of a judgment mortgagee of unregistered land. It found that the 1964 Act clearly distinguishes between a charge created by a registered owner, which has the effect of a mortgage, and a judgment mortgage, which does not have that effect.

The Supreme Court found that the reason for not assimilating the position of a judgment mortgagee in unregistered land in cases involving registered land made sense when viewed in the context of the intention of the legislators in enacting the Registration of Title Act, 1964, i.e. the policy of ultimate compulsory registration of all land in the State which by co-incidence was finally extended to all counties and cities in the State on 1st June 2011.

Developments in relation to judgment mortgages in the meantime.

The Land and Conveyancing Law Reform Act 2009 came into force on 1st December 2009 and largely cured this problem.

Section 117 (1) of the 2009 Act states that registration of a judgment mortgage operates to charge the judgment debtor’s estate or interest in the land with the judgment debt and entitles to the judgment mortgagee to apply to the court for an order under section 117 or section 31 of that Act.

Section 31 (1) of the 2009 Act states that any person having an estate or interest in land which is co-owned may apply to the court for an order under that section including an order under section 31 (2) (c) for sale of the land and distribution of the proceeds of sale as the court directs. Section 31 (4) (a) states that a person having an estate or interest in land includes a judgment mortgagee.

The case therefore provides certainty on the position in relation to judgment mortgages registered prior to 1st December 2009 and creates two clear classes of instrument: those registered in the Land Registry (Property Registration Authority) and those registered in the Registry of Deeds. The holders of judgment mortgages registered on land with Registry of Deeds title have rights as mortgagees and have sufficient interest in co-owned land to seek a sale in lieu of partition. The holders of judgment mortgages registered on land with Land Registry title have a charge on the land only and do not have sufficient interest to seek either partition of co-owned land or a sale in lieu of partition.

The clarity on the position for judgment mortgages registered prior to 1st December 2009 is more than of mere academic interest at this stage. It was stated to the court in this case that there were a large number of known cases involving similar circumstances which were directly depending on a determination on this point. It is reasonable to assume that there are a large number of other creditors out there with judgment mortgages registered prior to 1st December 2009 with a very real interest in the implications of the outcome of this decision.

But are judgment mortgages the right way of ensuring creditors get paid?

The Land and Conveyancing Law Reform Act 2009 has cured the anomaly in relation to co-owned land which was first given judicial recognition in this case. However, it preserves the system of judgment mortgages, albeit in a much improved and simplified form.

The experience of creditors holding judgment mortgages over registered land registered prior to 1st December 2009 is reflective of a general malaise experienced by many of those forced to engage with the Irish legal system in an effort to get paid what is legitimately due and owing to them. All too often creditors experience a costly and ineffective system fraught with delay which undermines the credibility of the legal process as a meaningful means of recovery.

Debt reform is a very topical and necessary subject in our society today. But hand in hand with reform of the way in which those in debt are treated by the law, there is a need for root-and-branch reform of the means by which legitimate creditors can get paid what they are owed in a timely manner.

In her High Court judgment Laffoy J quoted Glover writing 73 years previously on the judgment mortgage in the context of registered land:

“Over 50 years ago a Royal Commission, composed for the most part of leading real property lawyers of the day, described a judgment mortgage as a ‘trap rather than a security’. It recommended that the system of registering judgments as mortgages should be discontinued, that a judgment creditor should be at liberty to enforce his judgment by proceeding summarily… for the sale of the lands of his debtor….It is proposed that this simple and effective procedure to get rid of the chevaux de frise of tedious, trivial and expensive formalities that the Judgment Mortgage (Ir.) Act, 1850 raises between a judgment creditor and his debt.”

The tortuous experience of judgment creditors in cases such as this confirms that our debt collection system needs to be looked at from scratch, as has been advocated for over 128 years.