The Court of Appeal has issued an important judgment which clarifies the potential conflict in the rules relating to the priority of a judgment mortgage (i.e. a judgement of the Court for the payment of a sum of money) and the rules of priority of burdens registered in the Land Registry.

On the one hand, the legislation states that a judgment mortgage is subject to all pre-existing unregistered rights at the time of its registration. On the other hand, the legislation also provides that burdens on the register rank according to the date that they are entered on the register and not the date that they are created. This case involved the question of priority between a judgment mortgage registered in the Land Registry and a deed of mortgage registered at a later date.

Facts of the case

In 2002, Larianov Foundation (Larianov) provided a loan of €350,000 to Leo Prendergast & Sons Engineering Limited (Prendergast) to be secured by a charge over Prendergast’s lands. No mortgage deed was ever signed. When the loan was not repaid, in January 2012, Larianov registered a judgment mortgage in the Land Registry against Prendergast’s lands.

Between 2004 and 2006, Prendergast obtained three loans from Cascade Estates Limited (Cascade). A mortgage deed was signed in March 2004 and registered in the Companies Registration Office in April 2004. The charge was not registered in the Land Registry until August 2012.

The question before the Court was which charge took priority – Larianov’s judgment mortgage registered as a burden in the Land Registry in January 2012 or Cascade’s mortgage registered as burden in August 2012.

Priority of a judgement mortgage – applicable Law

Section 117(3) of the Land and Conveyancing Law Reform Act 2009 (the 2009 Act) provides that a judgment mortgage is

“subject to any right or incumbrance affecting the judgment debtors lands, whether registered or not, at the time of registration.”

Section 71(2) of the Registration of Title Act 1964 (the 1964 Act) as substituted by Section 130 of the 2009 Act provides that registration of a judgment mortgage in the Land Registry is subject to all unregistered rights at the time of registration.

Based on the above rules, when Larianov registered the judgment mortgage in January 2012, Cascade had a prior unregistered right affecting the same lands. On the face of it, it appeared that Cascade’s unregistered charge should take priority even though it was not registered until August 2012.

Priority of registered burdens – applicable law

However, Larianov argued that the Court should also consider the rules relating to priority of registered burdens. Section 74 of the 1964 Act provides:

“.. burdens which are registered…., and which, if unregistered would rank in priority according to the date of their creation, shall, if created or arising since the first registration of the land, rank according to the order in which they are entered on the register and not according to the order in which they are created or arise….”

Larianov argued that that as their judgement mortgage had been registered in the Land Registry before Cascade’s mortgage deed that it should have priority. They also claimed that the fact that they had lent the monies to Prendergast before Cascade should also be taken into account.

Decision of the Court of Appeal

The Court of Appeal rejected Larianov’s argument and found that Cascade’s mortgage deed took priority over the judgment mortgage.

Keane J acknowledged that there seems to be a contradiction in the rules relating to priority of burdens and judgment mortgages. He noted that Section 74 of the 1964 Act deals with the priority of registered burdens generally. However judgement mortgages are dealt with separately under Section 71(2) of the 1964 Act (as substituted by Section 130 of the 2009 Act) which specifically states that judgement mortgages are subject to existing rights or incumbrances. Therefore, the rules relating to priority under Section 74 could not be deemed to apply to judgement mortgages as there are separate and specific rules dealing with their priority under the same Act. In applying these rules, Cascade’s charge, while unregistered at the time of registration of the judgement mortgage was a valid unregistered charge which took priority.

What does this mean for lenders?

This case is a reminder to all lenders of the importance of documenting and registering all loan agreements to ensure they can be enforced in the future.

Larianov Foundation v Leo Prendergast and Sons (Engineering) Ltd [2017] 3 JIC 2407