Subrogation – and liens, charges, and other securities – after Promontoria (Oyster) DAC v Kean [2023] IECA 181 (17 July 2023)

Oysters and GuinnessThe regular reader (thank you!) of this blog will know that I like to add an image at the start of most posts. Sometimes, it takes a while to find something appropriate. When searching for a suitable image for Promontoria (Oyster) DAC v Kean [2023] IECA 181 (17 July 2023), I was reminded that oysters and a pint or two of guinness are a perfect combination. Hence today’s image. As to the case that inspired it, in Promontoria (Oyster) DAC v Kean (noted here), [Kean], Pilkington J in the Court of Appeal, (Costello and Butler JJ concurring), held that the abolition of the creation of security over registered lands by the deposit of a land certificate did not abolish other forms of equitable security.

The time-honoured practice by which security over registered lands could be created by the deposit of a land certificate had been given statutory recognition by section 81 of the Local Registration of Title (Ireland) Act, 1891 and section 105 of the Registration of Title Act, 1964 (also here). However, section 73 of the Registration of Deeds and Title Act 2006 (also here) abolished this practice with effect from 31 December 2009. Any lien by means of holding a land certificate ceased to exist after that date (Promontoria (Oyster) DAC v Hannon [2020] 1 IR 364, [2019] IESC 49 (04 June 2019) confirmed the end of the lien), unless – pursuant to the transitional provision in section 73(3) of the 2006 Act – it was registered as a burden pursuant to section 69 of the 1964 Act (also here). A lien so registered could thereafter be relied upon as security for further loan agreements entered into after 31 December 2009 (Promontoria (Oyster) DAC v Fox [2023] IECA 76 (31 March 2023) (noted here, here, and here)).

In Kean, a borrower deposited a land certificate as security by way of lien. On foot of the transitional provision in section 73(3) of the 2006 Act, on 31 December 2009, the lender registered that lien as a burden. In 2012, the borrower obtained three further loans. Approving and following Fox, the Court of Appeal here held that the lien registered in 2009 could be used as security for the 2012 loans. The Court further held that equitable securities other than the lien abolished by section 73 could also arise and be enforced, and that this was not precluded by the terms of section 73. To the extent that Simons J in the court below had held otherwise ([2022] IEHC 526 (30 September 2022)), the Court of Appeal overruled him. In particular, the Court held that, in principle, an equitable charge could arise by any contractual mechanism distinct from the registered lien. In Hannon ([14]), Dunne J held that certain equitable interests may remain in existence notwithstanding section 73. In Kean ([67]), Pilkington J extended this recognition to the concept of an equitable charge. The lender had raised the question of whether, in principle, the lien covered the entirety of the 2012 loans, and the Court held that it would be a matter for the trial judge whether any shortfall could be covered by another lien, charge, or other security.

This must be right. Liens, charges, and other securities, arise in a great many ways other than by deposit of a land certificate. They may arise by agreement, or by operation of law when certain facts arise – if a land certificate had been deposited on foot of an agreement, the the lien would have been of the former kind; but where it was deposited as part of a less formal transaction, if there was no express agreement, then the lien would certainly have been of the latter kind. But many other kinds of agreement can create various liens, charges, and securities; and, at law, in equity, and pursuant to statute, many other sets of facts give rise to various liens, charges, and securities, by operation of law. Given that liens arise in so many ways other than by deposit of a land certificate, it would have taken the clearest of words for section 73 to abolish them, and the section contains nothing of the sort.

In Bank of Ireland Finance v Daly Ltd [1978] IR 79, McMahon J (following In re Henry, ex parte Crossfield (1840) 3 Ir Eq Rep 67) held that an agreement to lodge the title was sufficient in itself to create an equitable charge; and Pilkington J approved and followed this in Kean. In Daly, McMahon J held that this charge did not preclude subrogation to an upaid vendor’s lien, but rather was additional to it; and this was approved by Blayney J in the Supreme Court in Highland Finance (Ireland) Ltd v Sacred Heart College of Agriculture [1998] 2 IR 180; [1997] 2 ILRM 87. The unpaid vendor’s lien and the doctrine of subrogation that were at issue in these cases provide other examples of the various liens, charges, and securities that can arise by operation of law that were not abolished by section 73.

By means of the doctrine of subrogation, one person is substituted for another in the exercise of that other’s rights against a third person. It is a doctrine which admits of many possible explanations. First, it can arise by contract, especially in the context of insurance (see, eg, Caledonia North Sea Limited v British Telecommunications plc (Scotland) 2002 SC (HL) 117, 2002 SLT 278, [2002] UKHL 4 (7 February 2002)). Second, it can arise under statute (see, eg, the approach of Fennelly J to the claim in Bell Lines v Waterford Multiport Ltd [2010] IESC 15 (18 March 2010) noted here and here). Third, it can arise by operation of law: (i) on settled principles, in defined circumstances, in well-recognised categories of case (see, eg, Bofinger v Kingsway (2009) 239 CLR 269, [2009] HCA 44 (13 October 2009), noted here, here, and here); (ii) on the basis of the actual or presumed intentions of the parties (this is probably the best account of the approach of Blayney J in Highland Finance, though there are traces of the other explanations of subrogation in his judgment as well); (iii) to reverse the unjust enrichment of the defendant (see, eg, Banque Financière de la Cité v Parc (Battersea) Ltd [1999] 1 AC 221, [1998] UKHL 7 (26 February 1998); this may explain the approach of Dunne J at first instance in Bell Lines [2006] IEHC 188 (28 April 2006)); (iv) when reason and justice demand that it should be (see, eg, Orakpo v Manson Investments [1978] AC 95 (Lord Salmon); (v) at the discretion of the court (see, eg, In re Downer Enterprises [1974] 1 WLR 1460).

Though, at first blush, these five explantations of when subrogation arises as a matter of law may seem very different, in truth they are not competing principles. The great majority of cases will fall into one of the established categories. But many, if not most, of the categories can be explained as turning on the actual or presumed intentions of the parties, and that principle may be relied upon the extend the doctrine to new or developing categories of case. Some, at least, of the cases may be explained as reversing the unjust enrichment of the defendant; this is a further category of case not explained by, and by way of an alternative to, the intention explanation; and that principle against unjust enrichment may also be relied upon the extend the doctrine of subrogation to new or developing categories of case. Starting with the categories, and working out first to the actual or presumed intentions of the parties, and then – in the alternative – to restitution for unjust enrichment, defines both when reason and justice demand that subrogation should arise and when the discretion of the court should be exercised in its favour. In this way, the various formulæ may be reconciled to operate, not in competition, but in collaboration with each other.

LienThere are deep waters in the various doctrines by which liens, charges, and securities may arise. The principles underpinning the doctrine of subrogation provide just one example. A similar pattern of contract, statute, and complementary doctrines at law and in equity can be postulated to explain when various other liens, charges, and securities may arise. But these explanations are not always straightforward. For the sake of a quiet life, the generations of students and lawyers who have grappled with these complexities may very well have welcomed their abolition by statute. But they perform very important functions in practice, and the Court of Appeal in Kean is entirely correct to hold that section 73 has not abolished them, so we must continue to grapple with them as best we can. To ease the tribulation, I’m off to find a good plate of oysters and nice pint or two of guinness. Cheers!