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McEnery v Sheahan judgment provides further comfort to mortgagees

AUTHOR(S): Tony O’Grady, Julie Murphy-O’Connor, Niamh Counihan
PRACTICE AREA GROUP: Corporate Restructuring and Insolvency
DATE: 20.07.2012

Following fast on the heels of the judgment in EBS v Gillespie, the (unapproved) judgment in McEnery v Sheahan provides further comfort in relation to mortgages created under the Conveyancing Act 1881 (the “1881 Act”) before its repeal by the Land and Conveyancing Law Reform Act 2009 (the "2009 Act").

In this case, Mr Justice Feeney held that a mortgagee, pursuant to a mortgage by deed created before 1 December 2009, acquired the right under the 1881 Act to appoint a receiver “at the time the mortgage was created”, and that such right survives the repeal of the 1881 Act. Mr Justice Feeney distinguished his decision from the decision in the Start Mortgages case, on the basis that the right of a mortgagee to apply for possession of registered land in a summary manner, as was in issue in Start Mortgages, is a procedural right, whereas the right to appoint a receiver is a substantive right.

Background

The defendant entered into a mortgage with a Bank on 26 October 2007 as security for all sums due by the defendant to the Bank. Further to a facility letter dated 9 December 2010, the Bank advanced certain additional facilities to the defendant.  The defendant defaulted in relation to the facilities and the Bank issued a demand for repayment on 11 April 2011. A receiver, the plaintiff, was appointed by the Bank on 12 April 2011. Although the mortgage had been lodged for registration on 15 June 2009, it was not registered as at the date of appointment of the receiver.
 
The defendant refused to give up possession of the mortgaged property to the receiver, on the grounds that the Bank had no right to appoint a receiver as (i) the mortgage had not been registered and, therefore, did not affect the mortgaged property; and (ii) that the repeal of the 1881 Act resulted in a situation where the mortgagee in this case no longer had a statutory power to appoint a receiver to the mortgaged property. 

In essence, the dispute between the parties was whether the Bank’s right to appoint a receiver was unaffected by the repeal of the 1881 Act by the 2009 Act because the Bank had, prior to the repeal, acquired or accrued the right to make the appointment. (The point in relation to registration became moot, as the charge was ultimately registered before the case was heard and was deemed to have been effective since the date of lodging.)
 
Distinguishing Start Mortgages

Mr Justice Feeney considered the judgment in the Start Mortgages case. In Start Mortgages, Ms Justice Dunne held that the right of a mortgagee to apply for possession of registered land in a summary manner, under S 62(7) of the Registration of Title Act 1964 (the “1964 Act”), had not been acquired prior to the repeal of S 62(7) by the 2009 Act, as no demand had been made prior to the date of repeal (ie 1 December 2009). Ms Justice Dunne had expressly limited her decision to the facts before her.

In relation to the case before him, Mr Justice Feeney held that there is a clear distinction between the entitlement under S 62(7) of the 1964 Act; namely to apply for possession of registered land in a summary manner; and the entitlement to appoint a receiver by reference to the 1881 Act. The repeal of S 62(7) resulted in the loss of a procedural right only, whereas the loss of the right to appoint a receiver under the 1881 Act would be the loss of a substantive right.

Mr Justice Feeney held that, in this case, on the date the mortgage was created, the Bank had acquired a statutory right under the 1881 Act (which was in force on that date) to appoint a receiver, even though the right could only be exercised in certain circumstances. As S 27(1)(c) of the Interpretation Act 2005 (the “2005 Act”) provides that a statutory right acquired prior to the repeal of the relevant statutory provision is not affected by the repeal, the repeal of the 1881 Act by the 2009 Act did not affect the Bank’s right to appoint a receiver.  

Conclusion

This is a welcome decision for a number of reasons.

The decision in Start Mortgages has been distinguished as having concerned the repeal of a procedural right only, and having no application with regard to substantive rights, such as the power to appoint a receiver or the power of sale. 

In addition, on the basis of Mr Justice Feeney’s judgment in McEnery, the fact that a statutory right may not have been capable of being exercised prior to the date of repeal of the relevant statute, does not mean that the right could not have been acquired prior to the repeal – provided that the circumstances in which such a right may be exercised have been identified as at that date. 

By analogy, it seems likely, if this decision remains the settled law on the subject, that a mortgagee, pursuant to a pre 1 December 2009 mortgage, will be entitled to rely on section 21 of the 1881 Act which gives a mortgagee, exercising a power of sale under the 1881 Act, the power to “overreach” and sell secured property free from subsequent encumbrances.

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