A key concern for any secured lender is the priority of its security against any other claims, in particular other secured claims. A recent High Court decision has provided helpful clarification and discussion of the status of a competing judgment mortgage vis a vis an executed charge that was registered later in time in the Land Registry.
In form, the case involved Larianov Foundation (“Larianov”) seeking a well-charging order over real estate in Kildare (the “Property”) belonging to the defendant. In reality, however, the dispute was between Larianov and Cascade Estates Limited (“Cascade”), a notice party to the case. Each of the parties had lent money to the defendant and now sought to recoup what they could from the sale of the Property, which they each argued they were entitled to priority over.
In 2002, Larianov lent money to the defendant company (“Prendergast”) on the understanding that Prendergast would provide a legal charge over the Property. For presumably innocent reasons, Prendergast never executed the charge. However, in January 2003 the directors of Prendergast confirmed in a letter that they held the title deeds to the Property on trust for Larianov pending execution of the charge. Unfortunately for Larianov, it neglected to make the required filing in the Companies Registration Office (“CRO”), thus rendering this equitable charge useless against Cascade, a competing secured creditor. Larianov sued Prendergast in 2008 and, having restored it to the CRO register, obtained a judgment mortgage over the Property in 2011. The judgment mortgage was registered in both the CRO and on the relevant Land Registry Folios.
Between 2004 and 2006, Cascade provided Prendergast with three separate loans. Unlike Larianov, Cascade did obtain an executed charge over the Property from Prendergast in March 2004 (albeit that the charge included a number of potentially material errors). Though the charge was not registered on the relevant Land Registry Folios, it was registered in the CRO within the required time-frame (and consequently remained enforceable against Larianov and other creditors).
While the court looked at a number of arguments raised by Larianov, the key question was whether Larianov’s 2012 judgment mortgage should take priority over Cascade’s 2004 charge. Larianov’s core points were (i) that it had loaned monies to Prendergast earlier than Cascade (2002 vs 2004) and (ii) that its judgment mortgage (registered 9 January 2012) had been registered in the Land Registry earlier than Cascade’s 2004 charge (registered 30 August 2012). Larianov argued, on the basis of earlier case law2 , that these factors combined to provide its security with priority.
The court based its decision primarily on section 117(3) of the Land and Conveyancing Law Reform Act 2009, which provides that a “…judgment mortgage is subject to any right or encumbrance affecting… the land, whether registered or not, at the time of its registration.”. While the court acknowledged that an argument could be made for a contradiction between certain of the general priority provisions set out in the Registration of Title Act 1964 (which it was argued should give Larianov’s judgment mortgage priority) and section 117(3), it did not accept that these arguments, even if successful, could ever give a judgment mortgage priority over an executed charge. The court noted that, to the extent there was any contradiction, it would be resolved by applying the maxim “the general does not derogate from the specific” and, consequently, the specific provisions relating to judgment mortgages, which expressly state that they are subject to existing rights and encumbrances (whether registered or not) would be given effect to.
The decision provides both a welcome confirmation for secured creditors of the primacy of a charge over a judgment mortgage and also a salutary reminder of the need to ensure that the lending process is carefully managed so that an executed charge is available on draw-down of the loan and all security registrations are attended to within the requisite timelimits. From the perspective of a judgment creditor, it is also a useful prompt to ensure due enquiry (such as a search of the CRO register) is carried out before embarking on potentially costly and fruitless litigation.