Overview
This article reviews the Court of Appeal decision in the case of Bank of Ireland Mortgage Bank U.C. v Hade [2023] IECA 293
Background
In a 2022 judgment, the High court awarded exemplary damages in the sum of €550,000 against a receiver in circumstances where the receiver had taken possession of and sold certain properties without obtaining orders under Sections 97 and 100 of the Land and Conveyancing Law Reform Act 2009 (the 2009 Act) which regulates the enforcement of mortgages entered into after 1 December 2009.
The 2009 Act
Section 97 of the 2009 Act provides that a mortgagee shall not take possession of a mortgaged property secured by a Housing Loan Mortgage without a court order unless the mortgagor consents in writing not more than seven days prior to the mortgagee taking possession.
Section 100 (2) of the 2009 Act provides that a mortgagee's power of sale in respect of a property secured by a Housing Loan Mortgage shall not be exercisable without a court order unless the mortgagor consents in writing to such exercise not more than seven days prior to such exercise. In simple terms, a "Housing Loan Mortgage" is a mortgage provided as security for a facility advanced to a borrower for the purposes of purchasing, refinancing or improving a house to be used as the borrower's principal residence or that of their dependents.
Section 96 of the 2009 Act provided that the parties to a Housing Loan Mortgage cannot contract out of the restrictions imposed by Sections 97 and 100 of the 2009 Act.
The 2022 Judgment
In the 2022 judgment the High Court determined that notwithstanding that the borrowers were not consumers and the mortgaged properties at issue were investment properties and the loans did not come within the definition of Housing Loans, the loans and mortgages were to be treated as Housing Loans and Housing Loan Mortgages due to certain provisions included in the loan and mortgage documentation which provided that the powers of the mortgagee and receiver were "subject to compliance with" the 2009 Act. Accordingly, it was determined that the restrictions on enforcement introduced by the 2009 Act in regard to Housing Loan Mortgages were to apply.
While the 2009 Act did not expressly provide that the restrictions on taking possession and sale applied to receivers, the court determined that the mortgages were deemed to be Housing Loan Mortgages, and court orders should have been obtained under the 2009 Act by the receiver in advance of taking possession and selling the properties. The court awarded the borrowers €550,000 in exemplary damages to mark the court's displeasure at the receiver's actions.
The 2023 Appeal
The 2022 judgment was appealed to the Court of Appeal by the receiver. The Court of Appeal determined that there was no agreement between the borrowers and bank to treat the mortgages as Housing Loan Mortgages. The court went on to find that as Section 97 of the 2009 Act referred exclusively to a mortgagee taking possession, it had no application to a receiver's power to take possession and thus there is no requirement for a receiver to obtain an order under Section 97 of the 2009 Act in advance of taking possession of a mortgaged property. Accordingly, even if the mortgages were Housing Loan Mortgages the receiver did not act unlawfully by taking possession of the properties at issue without a court order.
In the Court of Appeal, the receiver did not challenge the conclusion that the receiver was required to obtain a court order in advance of a sale by a receiver of the properties, accordingly the Court of Appeal did not consider the requirement to obtain an order under section 100 (2) of the 2009 Act in so far as it applies to receivers for Housing Loan Mortgages.
Apart from the foregoing, the Court of Appeal determined that the receiver was not liable for exemplary damages for the following reasons:
1. The borrowers did not include a claim for exemplary damages in their pleadings and as such there was a lack of fair procedures as the receiver was not afforded the opportunity of addressing the court in this regard. The fact that the borrowers were lay litigants does not dispense with the requirement for fair procedures.
2. The court took the view that there was no loss to the borrowers as the properties were not sold at undervalue.
3. The receiver acted on the basis of legal advice.
Conclusion
The Court of Appeal decision confirmed the test to be applied in considering receivers liability for exemplary damages and brought some clarity to the effect of the restrictions imposed by the 2009 Act on the exercise of receivers' powers as regards taking possession of distressed assets. The decision confirmed that the courts will consider the purpose of the underlying loan rather than rely on the form of the loan and mortgage documentation to determine whether a mortgage is deemed to be a Housing Loan Mortgage.
However, a question remains as to whether a receiver is required to obtain a court order in advance of a sale of a property secured by a Housing Loan Mortgage and crucially what position will be adopted by Tailte Eireann for registration purposes. Prior to the Hade High Court judgment, a view was expressed by Tailte Eireann that where a receiver is exercising a power of sale as agent or attorney of a borrower, a court order or consent would not be required but where the power of sale was delegated to a receiver from a mortgagee, then a court order or borrower consent would be sought.
