A recent High Court decision has further demonstrated that failure to comply with the Code of Conduct of Mortgage Arrears (the “Code”) is likely to result in the court refusing to grant an order for possession.

Summary

In the case of Irish Life & Permanent (Bank) v Duff & Anor, the Bank sought to recover possession of the Defendants’ family home due to their failure to meet mortgage repayments. The Bank had successfully obtained an order for possession in the Circuit Court. However a stay of 12 months was placed on the order and the Defendants appealed the decision to the High Court. Hogan J in the High Court refused to grant possession to the Bank, while acknowledging that his judgment may have implications for the relationships between mortgage lenders and borrowers.

Failure to comply with Code

One of the central aspects of the defence was that the Bank had failed to make “every reasonable effort”, pursuant to clause 6 of the Code, to agree an alternative repayment agreement. Hogan J placed particular emphasis on the fact that the Bank had refused to accept interest-only payments which was offered by the Defendants. The Defendants also disputed that they were non-cooperating borrowers throughout the process and Hogan J agreed with this.

Analysis

Hogan J acknowledged that the precise legal status of the codes of conduct issued by the Central Bank is a troublesome issue. This is evident from the fact that two recent High Court judgments differed in their approach towards the effect of non-compliance with codes of conduct issued by the Central Bank.

  • In Zurich v McConnon Birmingham J refused to accept that a failure by a bank to comply with the Consumer Protection Code negated its ability to enforce its security over a commercial premises.
  • However in the subsequent decision of Stepstone Mortgage Funding Limited v Fitzell Laffoy J stressed that, given the serious consequences which flow from repossession of a primary residence, the lender must show that it has complied with the Code in order for her to exercise her discretion to grant an order for possession. 

Hogan J further acknowledged the difficulty associated with determining what constitutes "every reasonable effort" on the part of the Bank. However, he felt that he was bound by the more recent Fitzell decision and, given that he was not satisfied that the Bank had demonstrated compliance with the Code, he exercised his discretion not to grant the order for possession sought.

Conclusion

Pursuant to the cases of Fitzell and Duff, it is imperative that a lender can demonstrate to the Court that it has engaged fully with a borrower in accordance with the Code, and has made all reasonable efforts to negotiate an alternative repayment agreement in order to ensure to obtain an order for possession.