Larianov Foundation v Leo Prendergast and Sons (Engineering) Ltd

• Jurisdiction: Ireland
• Judge: Mr. Justice David Keane
• Judgment Date: 24 March 2017
• Neutral Citation: [2017] IEHC 192
• Court: High Court
• Docket Number: [2014 No. 149 SP]
• Date: 24 March 2017

[2017] IEHC 192

THE HIGH COURT

Keane J.

[2014 No. 149 SP]

BETWEEN

LARIANOV FOUNDATION

PLAINTIFF

AND

LEO PRENDERGAST AND SONS (ENGINEERING) LIMITED

DEFENDANT

AND

CASCADE ESTATES LIMITED

NOTICE PARTY

Land & Conveyancing – Effect of charge on lands held by judgment mortgagor – Validity of mortgage deed – S. 116 (3) of the Land and Conveyancing Law Reform Act 2009 – S. 71 (registration of judgment mortgages) of the Registration of Title Act 1964 – Generalia Specialibus Non Derogant

Facts: The issue in the present judgment concerned as to who held the charge over certain lands of the defendant/company. The plaintiff had obtained judgment against the company for certain sum. The plaintiff now sought a well-charging order against the company. The notice party claimed that since it had executed a deed of mortgage and the charge of the said lands with the company, the notice party had priority over the plaintiff's judgment mortgage. The plaintiff objected to the validity of the mortgage deed. The plaintiff claimed that since its judgment mortgage was registered as a burden on the said lands prior in time of the notice party's registration of the deed of mortgage, the plaintiff's charges had priority.

Mr. Justice David Keane held that the deed of mortgage entered into between the notice party and the company was valid and it took priority over the plaintiff's judgment mortgage. The Court held that under s. 71 of the 1964 Act, it was stated that the registration of a judgment mortgage should operate to charge the estate of judgment debtor subject to the burdens, though unregistered, that estate was subject to by virtue of s. 72 or all unregistered rights subject to which, the judgment debtor held the estate at the time of registration. The Court found that at the time of registration of the plaintiff's judgment mortgage, the company's lands had an existing encumbrance in the form of the notice party's mortgage deed, subject to which, the company held those lands.

JUDGMENT of Mr. Justice David Keane delivered on the 24th day of March 2016.

Introduction

1 In form, the plaintiff seeks a well-charging order in the sum of €438,876 over certain lands of the defendant in County Kildare. In substance, the real controversy at trial was one between the plaintiff and the notice party on two issues. The first is whether a charge on those lands executed in favour of the notice party in 2004, though not registered on the folios concerned until 30 August 2012, is valid. The second issue, contingent upon the validity of that charge, is whether it holds priority over a judgment mortgage of those lands in favour of the plaintiff that was registered against those folios on 9 January 2012.

Background

2 The plaintiff (“Larianov”) is a Liechtenstein-registered private foundation.

3 The defendant (“Prendergast”) is an Irish-registered limited liability company. It is the owner of a leasehold interest in the lands comprised in both Folio 4225L and Folio 3675L in the Register of Ownership of Leasehold Interest, County Kildare (“the lands”). The lands are held under a 999-year lease running from 1 October 1975.

4 Prendergast has not entered an appearance in the proceedings and has not participated in them.

5 During the trial, reference was made to a document purporting to be an affidavit sworn in his own interest in the proceedings on 29 May 2014 by one Leo Shanahan Prendergast. As that affidavit was not sworn on behalf of any party to the proceedings and as Mr Shanahan Prendergast is not himself a party, I ruled that it could not be received in evidence.

6 The notice party (“Cascade”) is a limited liability company registered in the British Virgin Islands (“BVI”).

7 While there has been an extensive exchange of affidavits between Larianov and Cascade, the facts are not really in issue.

8 In or about late 2002, Larianov entered into an agreement with Prendergast to provide it with a loan of €350,000 for two years at an interest rate of 8% per annum to be secured by a first legal charge over the lands. By the end of February 2003, the sum of €250,000 had been drawn down under that loan agreement. Despite repeated requests from Larianov and repeated assurances by Prendergast, no charge or mortgage was executed over the lands in respect of that loan.

9 In a letter dated 27 January 2003, the directors of Prendergast indicated to Larianov that Prendergast was holding the title deeds of the lands in trust to enable Larianov to have the proposed mortgage secured as a first legal charge over the lands. However, no such mortgage was ever executed. Larianov submits, on the authority of Bank of Ireland Finance v Daly Limited [1978] 1 IR 79, that the said letter amounted to a memorandum of agreement by Prendergast to hold the title deeds of the lands in trust for Larianov pending the execution of a mortgage deed, which agreement was sufficient, without the subsequent execution of any such deed, to create an equitable charge over those lands. However, Larianov concedes that it did not register the equitable charge contended for in accordance with the requirements of Part IV of the Companies Act 1963, as amended, and that its failure to do so prevents that charge from obtaining priority against a third party, such as Cascade.

10 Larianov made demands for the repayment of the loan in 2006 but Prendergast did not repay it.

11 A summary summons issued on 2 December 2008 in High Court proceedings entitled “ Larianov Foundation v Leo Prendergast & Sons Engineering Ltd, Record No. 2008/3419S.” In the course of those proceedings, it became necessary to apply to have Prendergast restored to the Register of Companies. Ultimately, Larianov obtained judgment against Prendergast on 4 April 2011 in the sum of €438,876, to include interest, together with an order for its legal costs of those proceedings. On 9 January 2012, the Property Registration Authority registered that judgment mortgage as a burden on the lands. On 11 January 2012, the Registrar of Companies issued a certificate of registration of that judgment mortgage as a charge on the lands in Folio 3675L, pursuant to s. 104 of the Companies Act 1963, as amended. On 16 March 2012, a similar certificate issued in respect of the lands in Folio 4225L. Despite Larianov's prior and subsequent letters of demand, Prendergast's judgment debt to it of €438,876 remains due and owing.

12 Larianov issued these proceedings, seeking a well-charging order against Prendergast together with other relief, on 11 April 2014.

13 Between 2004 and 2006, Cascade provided Prendergast with three loans of €600,000, €250,000 and €450,000 respectively, amounting to an aggregate loan of €1.3 million. On 24 March 2004, Prendergast executed a deed of mortgage and charge over the lands in favour of Cascade for present and future advances with interest (“the mortgage deed”). The mortgage deed was registered as a charge over the lands in the Companies Registration Office on 1 April 2004, in accordance with the requirements of Part IV of the Companies Act 1963, although it was not registered in the Land Registry as a burden on the lands until 30 August 2012.

The validity of the mortgage deed

14 Larianov points to three features of the mortgage deed, which – it argues – render it invalid and, hence, ineligible for priority over Larianov's judgment mortgage.

15 First, the mortgage deed describes Cascade as having its registered office at an address on the island of Jersey in the Channel Islands, whereas it is common case that the registered office of Cascade is in the BVI.

16 Second, the mortgage deed contains a recital (or “certificate”) that Cascade is “a bank named in the Third Schedule to the Central Bank Act 1942”, whereas it is common case that Cascade is not a bank.

17 Third, while the mortgage deed is endorsed with the common seal of Prendergast and the signatures of two directors of Prendergast, it has not been executed by or on behalf of Cascade.

18 Peter Zajac, a director of Cascade, swore an affidavit on 5 March 2012. In it, he avers that at the material time Cascade's administrative office was at the address in Jersey identified and that it was recorded on the mortgage deed as Cascade's registered office due to an error on the part of the solicitors who were then acting for Cascade. Mr Zajac further avers that the recital that Cascade is a bank, registered as such with the Central Bank, was included in error by the firm of solicitors then acting on behalf of Cascade and is an obvious error. Mr Zajac goes on to aver that at no time did Cascade “actively hold itself out as being a bank nor was [Prendergast] lead to understand that [Cascade] was a bank.”

19 Cascade has not applied to rectify the terms of the mortgage deed.

The validity of the mortgage deed –discussion and conclusion

20 The relevant principles concerning the construction of deeds are not in dispute.

21 In Moorview Developments Ltd. v First Active Plc &Ors [2010] IEHC 275, one of the issues that the High Court had to consider was the proper construction of a personal guarantee where the company that had secured the relevant credit was wrongly named in that document. The company named in the document was “Moorview Properties Limited” (“Properties”), whereas the name of the borrower involved was actually “Moorview Developments Limited” (“Developments”). The evidence in that case was that all of the letters and contractual documents passing between the parties at or about the time of the execution of the guarantee at issue referred to “Developments” as the borrower, and that the lender was unaware of any relevant entity called “Properties.” All of the relevant loans were with “Developments” and a search of the Companies Register had established that there was no company with the name “Moorview Properties Limited.” Based on that...