The High Court recently held that the Central Bank's Code of Conduct on Mortgage Arrears 2013 (Code of Conduct) applies to commercial loans where part of the security for the loan includes a Principal Private Residence (PPR).
Proceedings by Allied Irish Bank plc (AIB) were dismissed due to its failure to show sufficient evidence of compliance with the Code of Conduct and its subsequent failure to identify in its pleadings the specific parcel of land over which possession was being sought.
Mr. Buckley was the registered owner of land in Tipperary and granted two charges in favour of AIB. Following default by Mr. Buckley, AIB sought possession of the land. Mr. Buckley contested the proceedings on the basis that the lands comprised his PPR and AIB had failed to comply with the Code of Conduct which is triggered when possession proceedings include a PPR.
AIB argued that compliance with the Code of Conduct did not need to be demonstrated where possession of a PPR was not being sought. However, the special summons issued by AIB failed to expressly differentiate between the part of the lands on which Mr. Buckley's PPR is located and the part of the lands in respect of which possession was being sought.
The Court focused on two key issues:
- Whether AIB had taken steps in relation to initiating legal proceedings without adhering to the Code of Conduct; and
- Whether AIB was seeking possession of Mr. Buckley's PPR.
AIB argued that the loan provided to Mr. Buckley was a commercial loan and not for the purchase of his PPR even though part of the security provided by him included his PPR.
Mr. Buckley sought to rely on the introduction to the Code of Conduct which states "the code applies to the mortgage loan of a borrower which is secured by his/her primary residence". Mr. Buckley argued that the wording of this focuses on the loan rather than the nature of the property which is the target of repossession proceedings. The Code of Conduct could be invoked where a PPR is included as part of the security held.
Section 56 of the Code of Conduct provides that a regulated bank must wait until the expiration of certain time periods before it can initiate legal proceedings for repossession of the borrowers PPR. The importance of the language contained within Section 56 was noted in the judgment and the Court reaffirmed that where proceedings are connected to a PPR, any the relevant time periods must be observed before a financial institution may instigate proceedings. However, a financial institution would be able to proceed at any time against other property held as security even if the loan is also secured against the PPR.
The Court looked to the legal status of the Code of Conduct as explained in Mr Justice Clarke's judgement in Irish Life and Permanent plc v Dunne  IESC 46, where the Court concluded that there is a distinction to be drawn between the provisions of the Code of Conduct which regulate possession proceedings and other aspects of the Code, e.g. in terms of the provision of information, communication with borrowers etc.
The Court placed strong emphasis on its review of the special summons issued by AIB. Mr Justice Simons noted that if AIB was seeking relief only against part of the lands contained within the folio, then this should have been expressly specified in the summons rather than reference to the entire folio. Had AIB wished to confine the relief sought to part only of the folio lands then this should have been clearly pleaded in the special summons.
Mr Justice Simons held that AIB was obliged to comply with the Code of Conduct prior to the institution of proceedings and, as AIB did not dispute lack of compliance with the Code of Conduct, its application for possession was refused and the proceedings dismissed.