AIB & The Registration of Title Act

• Jurisdiction: Ireland
• Judge: Mr. Justice Henry Abbott
• Judgment Date: 20 October 2006
• Neutral Citation: [2006] IEHC 463
• Court: High Court
• Date: 20 October 2006

IN THE MATTER OF A REFERENCE TO COURT UNDER SECTION 19(2) OF THE REGISTRATION OF TITLE ACT, 1964

AND IN THE MATTER OF AN APPLICATION BY ALLIED IRISH BANKS PLC AND ALLIED IRISH MORTGAGE BANK FOR THE REGISTRATION OF THE CHARGE DATED 12TH APRIL 2006, PENDING UNDER DEALING NO D2006 DNO 24363H, AND FOR THEIR REGISTRATION AS OWNERS OF THE CHARGE AS TENANTS IN COMMON OF THEIR RESPECTIVE SHARES

[2006] IEHC 463

Abbott J.

THE HIGH COURT

Land & Conveyancing - Mortgage assets - S.19(2) of the Registration of Title Act, 1964 ('the 1964 Act') - Registrar - Protection of purchasers

Facts: In the present case, the Registrar of Titles ('Registrar) formulated questions before the Court pursuant to s. 19(2) of the Registration of Title Act, 1964 seeking the Court's assistance on the issue of registration of ownership of fluctuating share in property (which is the 'charge' in the present case). The application, before the Court, comprised of two applications from a much larger series of applications that had been made for the registration of charges created in favour of Allied Irish Banks plc and AIB Mortgage Bank.

Mr. Justice Henry Abbott answered the questions stated by the Registrar. The Court held that the ownership of a fluctuating share in property was an interest, which might be registered on a Register maintained under the Registration of Title Act, 1964; but only in case of charge. The Court also held that the description of nature of such a share satisfied the requirement in Rule 48 in which the Registrar ascertained the share of each tenant in common owner. The Court also stated that the description of the nature of such a share in the Register would comply with the requirement of Rule 48 and s. 91(1) of the 1964 Act that the Registrar enter in the Register the share of each tenant in common. The Court answered the last question in the negative.

Judgment of Mr. Justice Henry Abbott delivered on the 20th day of October 2006.

This is a reference by the Registrar of Titles to the High Court pursuant to the Registration of Title Act 1964.

Section 19, para. 2 of the Registration of Title Act 1964, provides:

'...

(2) Whenever the Registrar entertains a doubt as to any question of law or of fact arising in the course of registration under this Act, he may make an order referring the question to the court.'

Counsel for the Bank and also counsel for the Registrar of Titles submitted written submissions to the court and in terms of introducing the factual background of the case it is useful to set out 'the résumé of the background set out in the written submission of counsel for the Bank as follows:

'1. These submissions set out the response of Allied Irish Banks plc and AIB Mortgage Bank to the questions raised. However, before dealing with that response, it is important to explain the background to the applications for registration which are before the court. The applications before the court comprise just two applications from a much larger series of applications which have been made for registration of charges created in favour of Allied Irish Banks plc and AIB Mortgage Bank since 13 February 2006. All of these charges are created by a new standard form mortgage introduced by the Allied Irish Banks group under which borrowers create simultaneously a mortgage in favour both of Allied Irish Banks plc and AIB Mortgage Bank.

2 The latter (namely AIB Mortgage Bank) is a new entity having been created on 13 February 2006. The purpose of setting up AIB Mortgage Bank was to enable the Allied Irish Banks group (and its customers) to take advantage of the Asset Covered Securities Act, 2001 ('the 2001 Act'). The 2001 Act was enacted to allow credit institutions in Ireland to create a new form of security over their assets with the same characteristics as a security familiar to German law known as ' Pfandbriefe' bonds. This form of security allows German credit institutions to obtain favourable rates of interest on the international money markets. German credit institutions are in turn in a position to pass these favourable rates of interest onwards to their customers.

3 Under these ' asset covered' securities, credit institutions are in a position to provide a very attractive form of security to lenders on the international money markets over their underlying mortgage assets and a "limited category of other highly secured assets. The holders of such securities (i.e. the international lenders) are given the status of 'preferred creditors' in that they are given exclusive recourse against the borrowing banks mortgage assets the subject of the security. In an insolvency, no other creditors are given any right against those assets until the 'asset covered' security claims are satisfied. This makes these securities very attractive to international lenders. In return, the lenders on the international money markets are prepared to give the 'asset covered' credit institutions more favourable rates of interest than would be available to traditional banking companies. Prior to the enactment of the 2001 Act in Ireland, Irish banks and credit institutions were not empowered to offer this form of security to their lenders on international money markets - with the result that they were not able to obtain as favourable rates of interest as the German credit institutions. The 2001 Act has put in place a mechanism under which Irish credit institutions will be able, subject to certain conditions, to offer security of this type to international lenders on terms that give the lenders the preferred status described above. Under the 2001 Act, such security can now be granted by certain specific types of credit institutions incorporated and authorised in Ireland - provided those credit institutions confine their activities, namely:

(a) to the provision of lending secured over real property; or

(b) lending to the public sector.

Such credit institutions may be registered under the 2001 Act as designated credit institutions entitled to carry on 'asset covered securities business'.

4 In order to avail of the 2001 Act, it is therefore necessary that the entity to be registered thereunder carries on one of the specific types of business identified in paragraph 2(a) or 2(b) above. The Allied Irish Banks group wished to avail of the 2001 Act in order to cut the costs to it of borrowing on international money markets. This was important not only to the Allied Irish Banks group but to its customers in that the cost of credit to a bank's customer is related to the cost of borrowing incurred by banks in the international money markets. However, in order to avail of the 2001 Act, it was necessary to set up a specific entity which would be involved solely in the provision of lending over real property. This was why AIB Mortgage Bank was established.

5 The creation of AIB Mortgage Bank means that henceforth, home loans within the Allied Irish Bank group will be issued by AIB Mortgage Bank on the security over a. mortgage of tire property to be acquired. However, the grant of a loan to purchase property is only one of many transactions which a customer may wish to enter into with his (or her) bank. For that reason, bank customers will still wish to continue to deal with their existing bank branch (i.e. the branch of Allied Irish Banks plc). They will also wish to be free to use the property mortgaged to AIB Mortgage Bank for the purposes of securing loans granted by Allied Irish Banks plc in respect of other transactions carried out with the latter (such as personal loans, car loans, and possibly business loans).

6 With rising property values, there is a strong appetite on the part of bank customers to continue to use their equity in their property for the purposes of securing additional loans (over and above the home loan granted by AIB Mortgage Bank) for a whole range of different purposes. However, if a mortgage has already been granted by that customer to AIB Mortgage Bank, then the customer would have to take out a second mortgage in favour of Allied Irish Banks plc for the purposes of securing these additional loans against the customer's equity in the property. This would mean that customers would have to execute two mortgages. This would be unacceptable from a costs point of view for the customer. It would also increase the costs to the Allied Irish Bank group in that it would be necessary to process twice the number of mortgages. In turn, this would have an adverse impact on the Banks' ability to offer the lowest possible rates to its customers.

7 It is in these circumstances that Allied Irish Banks group decided that it would be preferable - both from the Banks' perspective and from the customers' perspective to have a single mortgage executed in favour of AIB Mortgage Bank and Allied Irish Banks plc. The intention of this single mortgage is that it will secure all debts due to each of the Banks in respect of any loans or credits of any nature made, by then: to the mortgagors both present and future and that it will cove:; both registered and unregistered land. The Banks believe that the use of this single mortgage is clearly in the best interest both of the Banks themselves and their customers. The single mortgage should greatly simplify customers' dealings with the Banks. Prior to the inception of the single mortgage, a plethora of different mortgage forms were used within the Allied Irish Banks group. The AIB Home Mortgage Department use two different forms of mortgage. In addition, the AIB Finance Limited mortgage was also in a different form. The adoption of this new single form of mortgage will also assist in ongoing discussions between the different credit institutions in Ireland with a view to adopting an industry wide single form simple residential mortgage. This will facilitate customers in switching mortgage loans from one lender to...