Roache and Another v Start Mortgages DAC

• Jurisdiction: Ireland
• Court: High Court
• Judge: Mr Justice Liam Kennedy
• Judgment Date: 20 November 2024
• Neutral Citation: [2024] IEHC 666
• Docket Number: [Record No. 2023/324SP]

In the Matter of An Application for a Determination Pursuant to Order 3(7) of the Rules of the Superior Courts

Between

Mark Roache and Amanda Roache

Plaintiffs

and

Start Mortgages Designated Activity Company

Defendant

[2024] IEHC 666

[Record No. 2023/324SP]

THE HIGH COURT

Personal insolvency arrangements – Clawbacks – Statutory interpretation – Plaintiff contending that clawback must be calculated by reference to the sum borrowed – Whether a clawback entitlement would be triggered by the plaintiffs’ proposed refinancing

Facts: Two personal insolvency arrangements (the PIA) effectively wrote down the secured debt of the plaintiffs, Mr and Ms Roache, to the defendant, Start Mortgages DAC, virtually to the mortgaged property’s then market value (the PIA Value). Since the PIA Value was significantly less than the figure outstanding on the loan, the effect was to virtually write off €100,084 of the debt to the defendant by downgrading that sum to unsecured debt in the PIA. The plaintiffs wished to re-finance their mortgage (as restructured in the PIA) with another lender. Section 103(3) of the Personal Insolvency Act 2012 provides for an additional payment (the clawback) if, within a prescribed period, the mortgaged property is sold or disposed of “for an amount or at a value greater than the value attributed to” it in the PIA. Section 103(4) provides in effect that, subject to subsections (5) to (13), the clawback shall be the lesser of: (a) the difference between “the value of the property on disposition” and the PIA Value; and (b) the amount by which the principal sum due on the mortgage loan was written down in the PIA. The defendant said that a clawback entitlement of €85,000 would arise, being the difference between the PIA Value and the property’s market value at the time of refinancing. The Plaintiffs disagreed, arguing that a clawback would only arise if the sum borrowed on the re-financing exceeded the PIA Value. Therefore, the issue for the High Court was whether an increase in the property’s value affected the clawback figure on a refinancing even if the amount borrowed was less than the PIA Value.

Held by Kennedy J that in terms of the plain language of s. 103(3), it is the concept of value, rather than amount, which is relevant in the context of a refinancing and the reference to the amount for which the asset is disposed of is accordingly inapplicable. Furthermore, it seemed to him that the concept of value refers to the value of the asset disposed of rather than the amount borrowed. Accordingly, he held that the words of s. 103(3) favoured the defendant’s interpretation. His conclusion was reinforced by the terms of s. 103(4). He considered that the two subsections, read together, are consistent and complementary; however, in the event of any inconsistency, s. 103(4) is the governing provision because, while providing for the clawback provision, s. 103(3) stipulates that s. 103(4) governs the determination of any clawback figure. He held that s. 103(4) determines the formula for determining clawback exposure by reference to “the value of the property on disposition” which must be a reference to the property’s objective or market value. As a matter of ordinary usage, he struggled to characterise the amount borrowed on a refinancing as the “value of the property on disposition”, particularly as the plaintiffs’ loan application confirmed that its then value was €380,000. His conclusion as to s. 103(4) impacted his conclusion in respect of s. 103(3) because the Oireachtas was unlikely to have intended the term “value” to have different meanings in the two interlocking subsections.

Kennedy J held that the plaintiffs were not entitled to the reliefs sought in the Special Summons.

Relief refused.

JUDGMENT of Mr Justice Liam Kennedy delivered on the 20th day of November 2024 .

1 . Personal insolvency arrangements (“PIAs”) were one of the novel arrangements for insolvent natural persons introduced by the Personal Insolvency Act 2012 (“the 2012 Act”). As appears from decisions such as Re JD [2017] IEHC 119, the 2012 Act advances the social and common good by offering debtors an opportunity to restructure their debts and, inter alia, to maintain their continued occupation of their principal private residence, providing an alternative to bankruptcy and possession proceedings. This Court is asked to resolve a question of law concerning such two such PIAs (which I will refer to as “the PIA” as they are interconnected and in the same terms). which effectively wrote down the Plaintiffs' secured debt to the Defendant (their main creditor) virtually to the mortgaged property's then market value, which I will call the PIA Value. Since the PIA Value was significantly less than the figure outstanding on the loan, the effect was to virtually write off €100,084 of the debt to the Defendant by downgrading that sum to unsecured debt in the PIA (which, as amended, provided for a 99% write off of such debt). The effect of the relevant provisions is that such PIAs may effectively “wipe the slate” on “negative mortgage equity” as at the date of the PIA.

2 . However, values rise as well as fall, and the 2012 Act (and PIA) provided protections for secured creditors (such as the Defendant) whose debts are written down. In particular, they may claim what the parties called a “claw back” if the property is sold or otherwise disposed of within a specified period at a value in excess of the PIA Value. In that scenario, the effect of s.103 is that the secured creditor who suffered the write down in the PIA because of the fall in the asset's value may claim a payment to reflect its subsequent uplift in value prior to its disposal. Otherwise, the borrower would benefit at the lender's expense, from both the asset's fall in value, and its subsequent recovery.

3 . I need to determine whether such a clawback entitlement would be triggered by the Plaintiffs' proposed refinancing. They wish to re-finance their mortgage (as restructured in the PIA) with another lender. Whether this triggers a clawback (and, if so, the basis for its calculation) depends on s.103. The 2012 Act will be considered further below, but, in short, s.103(3) provides for an additional payment (the “clawback”) if, within a prescribed period, the mortgaged property is sold or disposed of “ for an amount or at a value greater than the value attributed to” it in the PIA. s.103 (4) provides in effect that, subject to subsections (5) to (13), the clawback shall be the lesser of: (a) the difference between “the value of the property on disposition” and the PIA Value, and (b) the amount by which the principal sum due on the mortgage loan was written down in the PIA.

4 . The Defendant says that a clawback entitlement of €85,000 would arise, being the difference between the PIA Value and the property's market value at the time of refinancing. The Plaintiffs disagree, arguing that a clawback would only arise if the sum borrowed on the re-financing exceeded the PIA Value. Therefore, the issue is whether an increase in the Property's value affects the clawback figure on a refinancing even if the amount borrowed is less than the PIA Value.

5 . The facts are common ground. The Plaintiffs' mortgage from Permanent TSB was assigned to the Defendant. The Plaintiffs' financial difficulties led them to retain a personal insolvency practitioner (“PIP”). The High Court ultimately approved a PIA which was subsequently. The relevant terms of the varied PIA were as follows:

• a. the Plaintiffs owed the Defendant €350,084. A market value of €240,000 was attributed to the Plaintiffs' principal private residence. It was in “negative equity”.

• b. The PIA provided for; (i) the reduction of the secured debt owed to the Defendant by €100,084 to €250,000, (the PIA Value); (ii) a 12-month interest-only period (during the PIA term, following which the mortgage would be repaid over an extended 372 month term (i.e. a circa 7 year extension); (iii) interest was set at 3% above the prevailing European Central Bank rate.

• c. The Plaintiffs' unsecured debts were duly discharged upon the completion of the 12-month PIA term in November 2021 (at 1 cent in the euro) ending, subject to any clawback, any liability for the €100,084 “written down” mortgage debt. The mortgage loan to the Defendant otherwise continues on the PIA terms.

• d. The PIAs contained — as mandated by s.103 — a clause, clause 37, effectively providing for clawback if the Property was sold or disposed of for an amount or at a value greater than the PIA Value. Clause 37 expressly incorporated the provisions of s.103(4) and s.103(13) and is in the following terms:

  “If the Arrangement includes terms involving:

  • (a) retention by a Secured Creditor of the security held by that Secured Creditor, and

  • (b) a reduction of the principal sum due in respect of the Secured Debt due to that Secured Creditor to a specified amount,

  then, unless the relevant Secured Creditor agrees otherwise in Part IV, any such reduction of the principal sum is subject to the condition that, subject to sections 103 (4) to 103 (13), where the property the subject of security is sold or otherwise disposed of for an amount or at a value greater than the value attributed to the security in accordance with section 105, the Debtor shall pay to the Secured Creditor an amount additional to the reduced principal sum calculated in accordance with section 103 (4) or such greater amount as is provided for under Part IV of the Arrangement.”

• e. In 2023, interest rates rose, substantially increasing the greater than the value attributed to the security Plaintiffs' monthly repayments (from €1,054.00 to €1,468.88).

• f. In April 2023, Bank of Ireland offered the Plaintiffs more advantageous mortgage terms (a 20-year mortgage loan of €250,000 with a rate fixed at 3.5% for five years, reverting to a variable...