High Court considers the role of the Financial Regulator’s Code of Conduct in re-possession proceedings

The High Court in ICS Building Society -v- Lambert [2014] IEHC 581 has made clear that while the Financial Regulator's Code of Conduct on Mortgage Arrears (the Code) confers a discretion on the court in dealing with an application for possession the absence of co-operation by a borrower will mean that it will generally not be possible to assess the reasonableness of any proposal made. 

The Court was dealing with an appeal from a Circuit Court order of possession where the secured property was originally a residential investment property but the appellant had taken up residence in June 2012.

ICS lent the appellant, a solicitor, the sum of €450,000 secured on a residential investment property. The appellant fell into arrears and in late 2008 ICS demanded full repayment.  In October 2010, ICS issued proceedings which were heard in November 2012 and a possession order granted.

At the time of the loan application, the appellant had represented that the property was an investment and in September, 2010 he told ICS that he had secured a tenant for the property.  In June 2012, once ICS became aware that the appellant was residing in the property they sent him quarterly review letters in compliance with the Code. 

ICS argued that it had waited considerably more than the 12 months required by the Code before seeking repossession and it rejected the appellant's contention that it should have waited for a year after June 2012 before bringing repossession proceedings.

The appellant complained that ICS did not demonstrate a willingness to engage with him and had failed to consider a proposal based on legal fees due to him.

The judge considered the case law on the legal status of the Code and noted that it created an area of discretion for the court, not to defeat a lawful claim by a lender but to adjourn the matter for the purpose of providing to the borrower an opportunity that should have been provided under the Code.

In determining whether the exercise of such a discretion would be appropriate, the judge found that the starting point was a consideration of the purpose of the Code which is to protect a borrower’s dwelling, not commercial investments. She noted that while the defendant did not originally come within the terms of the Code, ICS applied the appropriate provisions once they became aware that the appellant had taken up residence in the property.

She also noted that while a lender is obliged to make all reasonable efforts to reach a solution, the absence of co-operation by a borrower including full financial disclosure means that it will generally not be possible to assess the reasonableness of any proposal made by either party. In relation to the appellant's proposal in respect of legal fees the judge held that it was not unreasonable for a commercial entity such as ICS to decline such a proposal.

The judge rejected the argument that ICS was obliged in June 2012 to impose a 12-month moratorium on proceedings already initiated which had been lawfully and properly brought as to hold otherwise would be to facilitate abuses of the Code.

The judge was of the view that ICS had maintained contact with the borrower, the proceedings were not processed with undue haste and the appellant was culpable in repeatedly failing to give to ICS a full picture of his financial situation. 

Accordingly the court refused to exercise its limited discretion in favour of the appellant.

For more information please contact Paula Mullooly, pmullooly@algoodbody.com or your usual contact in A&L Goodbody solicitors.

Date Published: 13 January 2015