Larianov Foundation v Leo Prendergast and Sons (Engineering) Ltd [2017] IEHC 192

The facts in brief

In 2002 the plaintiff advanced €350,000 to the defendant company on a two-year term. The defendant promised to hold title deeds to certain property on trust for the plaintiff pending the completion of a legal mortgage. That legal mortgage was never completed, and the equitable security created in the meantime was not registered as a charge in the Companies Registration Office as the Companies Acts required.

Between 2004 and 2006 a notice party advanced credit to the same defendant totalling €1.3 million. That lending was secured by a deed of mortgage over the disputed property executed in March 2004. The deed was duly registered in the Companies Registration Office, but it was not registered in the Land Registry until August 2012.

The defendant defaulted on the plaintiff's loan. The plaintiff demanded payment in 2006, instituted proceedings in 2008 and obtained judgment in April 2011 in the sum of €438,876.00. It registered a judgment mortgage against the disputed property in January 2012 — almost eight years after the notice party's mortgage deed was executed, and some seven months before that deed reached the Land Registry.

What the court decided

Keane J held that the notice party's deed of mortgage took priority over the plaintiff's judgment mortgage. At the moment the judgment mortgage was registered, the defendant company's lands already carried an existing encumbrance in the form of the notice party's mortgage deed, and the company held those lands subject to it.

The plaintiff's argument was the obvious one: its judgment mortgage reached the register first, so it should rank first. That argument failed. A judgment creditor is a volunteer. It advances nothing for the security and takes no risk in exchange for it; it simply converts a money judgment it already holds into a charge on whatever interest the debtor actually has.

A judgment mortgagee therefore cannot improve on the debtor's own position. The charge attaches to the interest as burdened, and it makes no difference that the earlier burden was not on any register at that date.

The ratio

A judgment mortgage charges only the estate or interest the judgment debtor actually holds at the date of registration, and it takes subject to any right or encumbrance already affecting that land at that date. Registration of the competing interest is not the test. Priority as between a judgment mortgage and an earlier mortgage deed therefore turns on when the earlier interest was created, not on the order in which the two entries appear on the title.

The treatment of the plaintiff's failed equitable security explains only how it came to be an unsecured creditor. That is background to the priority contest rather than part of the ratio on it.

Statutory basis

Part 11 of the Land and Conveyancing Law Reform Act 2009 replaced the Judgment Mortgage (Ireland) Acts 1850 and 1858. Section 116 of the Land and Conveyancing Law Reform Act 2009 allows a creditor who has obtained a judgment to apply to the Property Registration Authority to register a judgment mortgage against that person's estate or interest in land, in the Registry of Deeds or the Land Registry as appropriate.

Section 117(1) provides that registration operates to charge the judgment debtor's estate or interest in the land with the judgment debt, and entitles the judgment mortgagee to apply to the court for an order under that section or under section 31. Section 117(2) sets out what the court may order: an account of other encumbrances and inquiries as to priorities, a sale with distribution of the proceeds, or such other enforcement order as it thinks appropriate.

Section 117(3) is the provision this decision illustrates. The judgment mortgage is subject to any right or encumbrance affecting the judgment debtor's land, whether registered or not, at the time of its registration. That is the statutory form of the volunteer principle, and it is why the date of the notice party's Land Registry entry did not matter.

Two neighbouring provisions complete the picture. Section 30(3) provides that registration of a judgment mortgage against a joint tenant's estate or interest no longer severs the joint tenancy, and that if the joint tenancy remains unsevered the judgment mortgage is extinguished on the judgment debtor's death. Section 117(5) applies section 74 to a voluntary conveyance made by the judgment debtor before the creditor registers, treating the creditor as a purchaser for that purpose.

What it is authority for

• A judgment mortgagee takes subject to every right or encumbrance already affecting the debtor's land at the date of registration, including one that is not then registered anywhere.
• A judgment creditor is a volunteer, and acquires no priority by being first onto the register.

It is not authority for a general proposition that an unregistered mortgage prevails over later interests. The point is confined to the volunteer status of a judgment creditor, and a purchaser for value without notice stands in a very different position. Nor is it authority on how the court should exercise its discretion at the enforcement stage under s.117(2): priority and discretion are separate questions, answered in that order. It decides nothing about the intention test under s.74.

Where it sits against later cases

The decision sits comfortably with the High Court's insistence that the judgment mortgage is a creature of statute. In Barrett v Leahy [2015] IEHC 734 IE · High Court Baker J refused to vacate a judgment mortgage on equitable grounds, holding that registration creates a statutory charge and that no general equitable jurisdiction exists to interfere with it. At Supreme Court level, Charleton J in ACC Bank plc v Lynn [2015] IESC 100 IE · Supreme Court described a judgment mortgage as an order in execution.

Two later High Court decisions mark the boundaries of what registration achieves. Goodbody Pensioneer Trustees Ltd v Hevac Limited [2019] IEHC 114 IE · High Court confirms that the debtor must actually hold an estate or interest in the land for anything to be charged at all. A.D.M. Mersey Plc v Bergin [2020] IEHC 3 IE · High Court holds that although registration no longer severs a joint tenancy, it does not prevent the co-owners from severing it themselves.

The enforcement cases address a different stage. Muintir Skibbereen Credit Union Ltd v Crowley [2015] IEHC 107; [2016] IECA 213 IE · Court of Appeal and The Provost, Fellows and Scholars of the University of Dublin, Trinity College v Kenny [2010] IEHC 20; [2020] IESC 77 IE · Supreme Court both concern whether a sale should be ordered once the charge is established, not whether the charge ranks ahead of anything.

Key authorities

• Larianov Foundation v Leo Prendergast and Sons (Engineering) Ltd [2017] IEHC 192 IE · High Court — a mortgage deed executed years before the judgment mortgage was registered took priority over it, even though it reached the Land Registry months later. The judgment creditor was a volunteer and took the land as it stood.
• Barrett v Leahy [2015] IEHC 734 IE · High Court — Baker J held that the judgment mortgage is wholly statutory in origin and effect, and that the court has no general equitable jurisdiction to order it vacated outside the circumstances the Act provides for.
• ACC Bank plc v Lynn [2015] IESC 100 IE · Supreme Court — Charleton J characterised the judgment mortgage as an order in execution. A Supreme Court statement of the nature of the security, and binding on lower courts.
• Goodbody Pensioneer Trustees Ltd v Hevac Limited [2019] IEHC 114 IE · High Court — registration charges nothing unless the judgment debtor in fact holds an estate or interest in the land against which the affidavit is registered.
• Muintir Skibbereen Credit Union Ltd v Crowley [2015] IEHC 107; [2016] IECA 213 IE · Court of Appeal — a well charging order was granted but the order for sale refused, because the non-consenting spouses' share of the proceeds would not have rehoused them. Discretion, not priority.
• Keegan Quarries Ltd v McGuinness [2011] IEHC 453 IE · High Court — Finlay Geoghegan J applied the necessary or probable consequences approach of In Re Moroney (1887) 21 LR Ir 27 IE · pre-1922 to s.74(3), and held that a person from whom a claim is contemplated falls within the class of other persons protected by it.
• Quinns of Baltinglass Ltd v Smith [2017] IEHC 460 IE · High Court — Keane J applied the same approach and set aside a transfer made to frustrate a creditor, a useful contrast with the priority analysis in Larianov.

How it is examined

The cue in a problem question is a debtor whose land is already burdened when the judgment creditor registers — an earlier mortgage deed, a trust, a co-owner's interest — and a creditor who argues that being first onto the register settles it. The case is also set on its own as a case note question, and has been paired in the same question with the intention element of s.74.

Order of attack: confirm the debtor held an estate or interest at the date of registration; check the affidavit and the registration formalities; identify every right or encumbrance affecting the land at that date, registered or not; apply s.117(3) and the volunteer principle to rank them; and only then turn to the court's discretion under s.117(2) and section 31.

For a case note carrying roughly half the marks in a two-part question, use five short blocks: the chronology in four or five lines, the competing claims, the holding, the statutory hook in s.117(3), and two or three sentences placing the decision beside Barrett v Leahy and the discretion cases. A note that recites the dates and stops there will not score: the chronology is only the vehicle for the volunteer principle.

Related Land Law notes: judgment mortgages and fraudulent dispositions · Muintir Skibbereen Credit Union Ltd v Crowley · Keegan Quarries Ltd v McGuinness · all free Land Law notes.