The Court of Appeal has overturned a High Court judgment from last year that had erased the security held by banks and funds in “hundreds” of lending cases.
A legal source estimated there were “probably hundreds” of affected loans and tens of millions of euro in debt that lenders would have had to write off based on the original judgment from March 2022. “Basically, none of these cases involve anyone’s house. This is a kind of security that banks used to accept over parcels of farmland, scrub or something else non-residential,” the source said.
The matter centred on two separate actions taken by Promontoria Oyster, a subsidiary of vulture fund Cerberus, against two unconnected borrowers to force them to sell properties over which the fund held a charge.
On Friday last Ms Justice Teresa Pilkington found that loans made after 2009 could be validly secured on land using a registered lien, reversing the High Court’s determination in the two cases that such liens were only valid in relation to loans issued before that date.
Changes to the law in 2006 phased out the system of land certificates, which allowed borrowers to give security over their land by depositing the certificate with their lender. Considered a less formal type of security than a typical loan charge, these deposits were known as liens and lenders could use them to apply to court for sale of the property if borrowers did not repay.
Before the change in the law,it was possible to secure future advances of money with existing liens of this type, created by the deposit of land certificates.
The loans at the centre of the two High Court actions were initially granted by Ulster Bank and were secured against lands in Co Westmeath, as set out in loan facility letters from 2010 and 2014. They were subsequently acquired by the Cerberus subsidiary in 2016 as part of Project Oyster, a €2.5 billion portfolio of non-performing loans, mostly business related but also buy-to-let mortgages and some owner-occupier loans.
In the High Court last year the lender accepted that, after 2009, the only way to create security was by way of a charge since it was no longer possible to create a new lien. However, Promontoria’s barrister Eoghan Casey, instructed by O’Brien Lynam Solicitors, argued that it did not follow that existing liens could not secure new loans made after 2009.
The wording of the legislation meant that a lender who took the precaution of handing in the land certificate to the Property Registration Authority and registering their lien retained the same security and interest in the land as before. The High Court had initially rejected this argument, insisting that the development of the “system of land registration” required the “primacy of the charge”.
Joined by Andrew Fitzpatrick SC, for the appeal, Promontoria’s legal team made the same argument in the Court of Appeal. Accepting their analysis of statutory interpretation, Ms Justice Pilkington found, among other things, that the High Court had too narrow a view of the idea of a transitional period and that the system of land registration was adequately advanced by the changes all parties agreed had been made, without having to go further as the judge of the High Court had done.
Ms Justice Pilkington expressed the view that lawmakers considering any significant changes in land law and in particular the entitlements of creditors and debtors in creating or realising security should be “as far as possible, clearly specified within any legislative amendments”.
