The judgment of Ms Justice Eileen Creedon in the Walsh v The Governor and the Company of Bank of Ireland has provided clarity to banks and other mortgagees in respect of their duties when dealing with surplus sales proceeds. In this matter Bank of Ireland exercised their power of sale over a property as mortgagee in possession. This property was sold successfully and the proceeds of said sale were over and above that owed to the Bank. Surplus funds were due to the next creditor in priority. The question considered by Creedon J was how far a bank’s responsibility stretches in order to determine the next creditor in priority.

In the cited case there were a number of judgment mortgages registered on the property, seven in total. All but one of the registered charges were over 12 years old and therefore prima facie statute barred. The Plaintiff argued that, given the other creditors could not enforce their judgment mortgages due to the presumption that they were statute barred, the Bank was not obliged to withhold the surplus money from the Plaintiff on account of the existence of the judgment mortgages. The Plaintiff argued that the Bank withholding the surplus money resulted in a settlement the Plaintiff had negotiated with the one remaining creditor falling through due to a missed deadline.

The Bank argued that they were a trustee of the surplus money and as such had an obligation to ensure that the next in priority received said surplus money. The Bank accepted that the majority of the judgement mortgages were statute barred but argued that they had to undertake due diligence to ensure that no acknowledgement or part payment of the debt had occurred and no proceedings had been issued, all of which would impact on the treatment of time periods under the statute of limitations. The Bank argued that in order to comply with its due diligence it had to put each creditor on notice and give them the opportunity to make any case regarding the limitation period in respect of their judgment debt being extended or restarted. The Bank further argued that even once the relevant response was received by the Bank from the statute barred creditors, the Bank still would not be in a position to give the surplus sales proceeds to the Plaintiff because the one remaining creditor, with whom the Plaintiff was negotiating with, was next in priority and hence entitled to receive the entire surplus to apply in discharge of the debt due to it and subsequently to hold any surplus monies as trustee for any subsequent creditor.

Creedon J:

  • agreed with the Bank’s interpretation of the law;
  • stated that in order to discharge its duty as a trustee the Bank is “obliged and entitled to make reasonable efforts to ascertain the subsequent encumbrances in order that it can properly discharge its duty of trustee”; and
  • set out that if the next in priority (or remaining) creditor agrees to accept a sum lesser than the surplus monies as payment of the debt owed to it then the Bank would also have to agree to pay this lesser sum and assume the duty of distributing the remaining proceeds to the next person in priority in order for this to be acceptable and otherwise all of the surplus monies should be given to the next in priority (or remaining creditor).