GALLIGAN JOHNSTON INVOLVED IN LANDMARK DECISION IN RELATION TO PRIORITY OF CHARGES

Galligan Johnston have recently acted for the successful party in a widely reported case that has provided clarity on the priority of charges. We represented Cascade Estates Limited, the notice party in the case of Larianov Foundation v Leo Prendergast and Sons (Engineering) [2017] IEHC 192.

The matter before the court was initially the plaintiff’s application for a well-charging order in the amount of €438,876 as against the defendant, however in reality (as noted by Judge Keane) the case centred on a dispute between the Plaintiff and Cascade Estates in respect of both the validity and priority of these parties’ respective charges over property in Kildare.  The matters for determination were in fact whether a charge on the lands concerned that were executed in favour of our client, the notice party, in 2004 but not registered on the folio until 30th August 2012 was in fact valid, and if so did it take priority over the plaintiff’s judgment mortgage registered on the folio on the 9th January 2012.  Galligan Johnston did not act in the original charging of the property in favour of our client.

In determining the validity of our client’s charge Judge Keane rejected arguments by the plaintiff that our client’s mortgage deed was invalid, thereby bringing the court’s attention to the central point of whether the charge took validity over the plaintiff’s judgment mortgage. Although registered prior to our client’s charge, our client’s charge existed first in time.

The relevant piece of legislation being considered by the court was section 117(3) of the Land and Conveyancing Law Reform Act 2009 (as amended) which states that

 ‘The judgment mortgage is subject to any right or incumbrance affecting the judgment debtor’s land, whether registered or not, at the time of its registration.’

 Section 117(3) of the 2009 Act has the effect that any judgment mortgage takes subject to any prior right or encumbrance whether or not they have been registered and crucially, whether or not the judgment mortgagee has notice of such security.  The Plaintiff sought to rely on section 74 of the Registration of Title Act 1964, which provides that in respect of registered burdens over property, if such burdens would rank in priority according to date of creation (if not registered), they shall rank according to entry onto the register and not according to the order of creation.  Judge Keane noted that this has been described in previous cases as a “possible inherent contradiction” but noted that the specific provisions of Section 71 (4) of the 1964 Act (as is largely re-enacted in the 2009 Act) provide for judgment mortgages taking subject to all pre-existing unregistered rights.

Judge Keane went further in his considered judgment and proposed that any possible contradiction could be overcome by applying the legal maxim “generalia specialibus non derogant” – that the general does not prevail over the specific.  For all of these reasons, our clients’ charge was found to have priority over the Larianov Foundation’s judgment mortgage.

If you are concerned over the validity or priority of any security you have in respect of property, please contact Sam Saarsteiner, Partner and head of our Litigation Department, to discuss further.