IRISH LIFE AND PERMANENT PLC V DUNNE and IRISH LIFE AND PERMANENT PLC v DUNPHY
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THE CODE OF CONDUCT ON MORTGAGE ARREARS
BACKGROUND
Those involved with the area of residential mortgages and in particular residential mortgage arrears in the last 5/6 years will be aware of the Code of Conduct on Mortgage Arrears (the “Code”) and the Mortgage Arrears Resolution Process (“MARP”), which forms part of the Code. They will also be acutely aware of the growth in the importance of evidencing compliance with the Code when seeking an Order for Possession by the Courts. Increasingly compliance with the Code has become one of the main “proofs” before a Court would grant an Order for Possession of a Principal Dwelling House (“PDH”).
The Code has evolved since it was first introduced in 2009, however the current version of the Code came into effect in July 2013. It is now a detailed document setting out requirements on matters such as the provision of information to borrowers and provisions on what steps the MARP should consist of, namely communication with borrowers, financial information, assessment, resolution and appeals. There are also provisions relating to repossessions, and further provisions outlining the necessity to demonstrate to the Central Bank of Ireland compliance with the requirements of the Code.
The practice had developed whereby the Court would not grant an Order for Possession until such time as the lending institution could show it had complied with the CCMA/MARP as it applied to the particular borrower. This approach was copper fastened by two decision of the High Court, firstly that of Stepstone Mortgage Funding Ltd v. Fitzell [2012] IEHC 142 where Judge Laffoy stated at paragraph 29:-
“…I find it impossible to agree with the proposition that, in proceedings for possession of a primary residence by way of enforcement of a mortgage or charge to which the current code applies, which comes before the court for hearing after the current code came into force, the plaintiff does not have to demonstrate to the court compliance with the current code.”
This position of the High Court was further supported by the ruling of Judge Hogan in Irish Life and Permanent plc v. Duff [2013] IEHC 43 where the Court again declined an Order for Possession on the basis that there was a lack of evidence to demonstrate compliance with the relevant Code at that time. Judge Hogan largely made this decision on the basis that the Fitzell case had only recently considered the issue of compliance of the Code. As such, and according to the principle of stare decisis at High Court level, he was bound by the earlier decision.
However, Judge Hogan did raise some doubt about the status of the Code and its position when he stated at paragraph 68:-
“If, moreover, non-compliance with the Code resulted in the courts declining to make orders for possession to which (as here) the lenders were otherwise apparently justified in seeking and obtaining, there would be a risk that by promulgating the Code and giving it a status that it did not otherwise legally merit, the courts would, in effect, be permitting the Central Bank unconstitutionally to change the law in this fashion. Likewise, the argument advanced by Birmingham J. in McConnon regarding the absence of any statutory indication that failure to comply with the Code would affect the ability of the lender to secure relief may be thought to be a forceful one.”
Thus, there appeared to be some judicial reservations in respect of the Courts role in enforcing the Code.
ILP plc v Dunne and ILP plc Dunphy Cases
We now come to the most recent decision on this point, which was delivered by the Supreme Court on 15 May 2015. Judge Clarke succinctly summarised the issue when he stated at paragraph 5.11:-
“In other words the Court must ask itself whether, applying the principles identified in Quinn, a financial institution must be regarded as being legally debarred from seeking to exercise a right to possession, which it would otherwise enjoy, by reason of a breach of the Code.”
Essentially, should the Court be concerned with whether a financial institution complied with the Code in the context of possession proceedings.
The Court came to the conclusion that it is not within its remit to consider compliance with the Code when granting or denying orders for possession. It based this decision on the following points:-
- There is nothing in legislation to suggest the Courts should be given a role in determining whether any proposal in respect of arrears should be accepted.
- There is nothing in legislation to suggest the Courts should be given a role in determining whether a financial institution was acting reasonably when making its decisions on arrears proposals, formulating policies in that regard and applying those policies.
- It cannot be said that it was the policy of legislation that the Courts be required to assess in detail the compliance or otherwise by a financial institution with the Code.
- Finally, if the Oireachtas had intended for the Courts to have such roles then this would surely require detailed and express legislation setting out the criteria for Court intervention.
- The Courts’ only role in respect of applications for an Order for Possession is to determine whether as a matter of law and on the evidence presented to it, that the relevant conditions exist so as to entitle a financial institution to an Order for Possession. Such conditions stem from the ordinary legal rights and obligations as between a financial institution and a borrower. That is to say current legislation and the mortgage contracts.
The Judge did also comment at paragraph 5.21 of the decision that at present the Courts did not in fact have the resources to carry out such an analysis of the merits or lack thereof of debt resolution procedures and proposals in every repossession case.
However, the Court did not go as far as saying that the Code had no impact whatsoever in respect of applications for an Order for Possession. The only aspect of the Code which the Court deemed appropriate for it to consider in the granting of an Order for Possession was whether or not such proceedings were initiated before the expiry of the moratorium contained in the relevant Code in respect of legal proceedings. It was the view of the Court that a Court could not consider an application for an Order for Possession where there was a breach of the moratorium.
IMPLICATIONS
The impact of this decision is that Defendants cannot now rely on the often used “defence” of lack of engagement or non-compliance with the Code by the financial institution as bar on obtaining an Order for Possession. The Court did note in its decision that a Court may adjourn cases from time to time to afford parties an opportunity to come to some arrangement. However, this is not beyond the normal practice of the Courts in any form of dispute, in preferring settlements between parties to be achieved rather than the Court making a final determination.
The Court did also set out what impact the Code does have on repossession cases. Namely, a financial institution should show it has not initiated proceedings in breach of the moratorium set out in the Code.
The following are the moratorium periods as set out in the various Codes:-
1. 27 February 2009
Provision 4 (d) – The lender must wait at least 6 months from the time arrears first arose before issuing Court proceedings.
2. 17 February 2010
Provision 4 (d) – This extended the above. The lender must wait at least 12 months from the time arrears first arose before issuing Court proceedings.
3. 1 January 2011
The Code became a far more detailed document through this inception.
Provision 47 states that a financial institution should not initiate proceedings for at least 12 months from when the borrowers have been deemed to fall within MARP and where the borrowers are co-operating. This is effectively 13 months given the clock does not commence until 31 days after the arrears first accrued. There also event which stop the clock:-
- When a borrowers is complying with the terms of an alternative repayments arrangement (“ARA”).
- Where an appeal has been lodged and is being processed.
- The time allowed for an appeal to a borrower to consider lodging an appeal.
- Where a complaint has been lodged and is being processed by the FSO.
- Any pre-arrears time periods.
Provision 48 permits the commencement of legal action during the 12 month moratorium where a borrower is not co-operating, there is a case of fraud and other breach of contract other than arrears.
Provision 40 also permits legal action within the 12 month moratorium in circumstances where a borrower declines an ARA offered by the financial institution and does not appeal the decision.
4. 1 July 2013 – The Current Code
Under the current code proceedings may only be issued once the time lines set out on Provision 45 (d) and 47 (d) have expired, or where a borrower has been deemed to be not co-operating. The current code relaxed the time periods set out under the previous Code.
Provision 45 (d) states that where a borrower has been assessed but not offered an ARA legal proceedings may only commence three months from the date the letter of decline is issued or eight months from the date the arrears arose, whichever is latest
Provision 47 (d) sets out the same time lines in circumstances where a borrower is not willing to enter into an ARA which has been offered.
Provision 29 sets out the criteria for the classification of a borrower as not co-operating. Once completed, and any appeals period expired, legal proceedings can immediately commence.
GOING FORWARD
As is clear from what is set out above, the Supreme Court has decided that a financial institution is not required to prove to the Court compliance with the Code when seeking an Order for Possession of a PDH. They are however required to show they have not breached any relevant moratorium period.
The Supreme Court stated that it was the remit of each Court to determine whether the evidence of such compliance with the moratorium has been shown. However, the Court did also go on to suggest it would be sufficient to include a simple averment in the appropriate affidavit stating that proceedings were commenced outside the moratorium period. Further, there should also be an explanation of why any moratorium period does not apply in the circumstances.
CONCLUSIONS
The Supreme Court has given a clear decision that it is not the role of the Courts to determine whether the Code of Conduct on Mortgage Arrears has been complied with. In concluding this the Court was of the opinion that it had not been given any role in respect of same and until such time as the Oireachtas introduces clear legislation to that effect, it would not be appropriate for it to be involved in assessing compliance of the Code. Notably, this is a role which the Court does not believe it has the capacity/resources to take on.
The Court stated that the appropriate forum for such matters is the office of the Financial Services Ombudsman (“FSO”) whose role in such matters is well established.
Further, nothing within the ruling should be taken as to suggest a financial institution is no longer required to fully comply with the Code and it remains in its current format as an obligation imposed on financial institutions. But this ruling of the Supreme Court confirms that the compliance with the Code and examining and determining such compliance is not a matter for the Courts.
Given the express conclusion that the Courts should be satisfied that the moratorium periods must be complied with before proceedings issue, it is essential that a financial institution is satisfied they have not breached a moratorium period before issuing instructions to their solicitors to:
- issue a letter of demand; and/or
- issue legal proceedings.
It is increasingly evident that the volume of cases passing primarily through the Circuit Court relating to possession proceedings is placing an unmanageable burden on the court system, and inordinate delays are becoming widespread as a consequence. The fact that this decision of the Supreme Court removes a significant burden and area of consideration for the courts should assist in allowing the Courts in now focusing their attention on the “legal proofs” and other general considerations when dealing with mortgage litigation cases. This should assist in the earlier conclusion of mortgage litigation proceedings, in a more cost effective manner.
For more information please contact OSM Partners
DISCLAIMER: This document is for information purposes only and does not purport to represent legal advice. If you have any queries or would like further information relating to any of the above matters, please refer to Geoffrey Rooney.
