In the recent High Court decision of AIB Plc –v- Sean Buckley [2019] IEHC 97 (Mr Justice Garrett Simmons) the Court Ruled that the Code of Conduct on Mortgage Arrears (the “Code”) applied to the commercial loan which formed the subject matter of the proceedings. The Code provides a number of administrative protections to borrowers in arrears such as the Mortgage Arears Resolution Process. In this case the Court held that the Code applied as the Defendant’s primary residence was used as security for the loan and AIB sought possession of lands on which the Defendant’s primary residence was located.

Background facts

The loan in this matter was for a commercial purpose, namely farming. However, the Defendant’s primary residence was used as security for the loan.  The Defendant fell into arrears and AIB sought possession of the land on which the Defendant’s primary residence was located but not the primary residence itself.  Crucially AIB issued a Special Summons which sought possession of the entire folio on which the Defendant’s primary residence was located although AIB clarified in its grounding affidavit that it only sought possession of the land rather than the residence itself.  The Defendant argued that in circumstances where his primary residence was located on the land, the Code applied to the loan and the Mortgage Arrears Resolution Process, which provides for a moratorium on re-possession proceedings, should have been followed by AIB.

Reasoning of the Court

The Court examined the Code (2013 version) which was issued by the Central Bank pursuant to Section 117 of the Central Bank Act 1989.  The introductory chapter of the Code states that the Code applies to a mortgage loan to a borrower which is secured by his/her primary residence.  The Court focused on provision 56 of the Code which refers to “legal proceedings for repossession of a borrower’s primary residence”.  The Court held that this provision has the possibly unintended consequence that a bank will have to follow the Code when enforcing a commercial loan secured by property which includes a primary residence, but only in relation to the primary residence itself and not any other secured property.

The Court found that the language of provision 56 focused on the target of the possession proceedings. The Court ruled that as the Special Summons was issued for possession of the entire folio on which the primary residence was located the Code should have been followed, regardless of the fact that AIB clarified in its contemporaneous grounding affidavit that it was only seeking possession of the land surrounding the residence, rather than the residence itself.

Implications

This judgment confirms that a bank seeking possession of a primary residence will have to apply the Code regardless of whether the underlying loans were for a commercial purpose.  Further, if a bank wishes to take possession of lands surrounding a primary residence, but not the residence itself (for example if it wished to simplify possession proceedings by avoiding the protections afforded under the Code or the Consumer Credit Act 1995), the exact portion of land of which it is seeking possession of should be carefully set out in the initiating Summons.