Court dismisses appeal where deed of charge excludes advances from loan definition, requiring prior demand for possession.

THE SUPREME COURT

Record No. 342/00

Keane C.J.

McGuinness J.

Fennelly J.

BETWEEN

THE WISE FINANCE COMPANY LIMITED

Plaintiff/Appellant

and

JOHN LANIGAN

Defendant/Respondent

JUDGMENT delivered on the 21st day of January, 2004 by FENNELLY J.

The Plaintiff/Appellant (hereinafter “the appellant”), in a Special Summons issued in May 2000, claimed possession, pursuant to

section 62(7) of the Registration of Title Act, 1964, of certain lands at Jerpoint, County Kilkenny. This followed default in repayment

of monies advanced by the appellant to the Defendant/Respondent (hereinafter “the respondent”). By a registered indenture of

charge (hereinafter “the deed of charge”), dated 25th February 1997, the Respondent had charged the lands with “secured monies”

due to the appellant. McCracken J dismissed the application on the ground of two discrepancies between the terms of the deed of

charge and references to the underlying loan transaction under which the advances had been made. The relevant statutory provision

is as follows:

“62(7) When repayment of the principal money secured by the instrument of charge has become due, the registered owner of

the charge or his personal representative may apply to the court in a summary manner for possession of the land or any part

of the land, and on the application the court may, if it so thinks proper, order possession of the land or the said part thereof

to be delivered to the applicant, and the applicant, upon obtaining possession of the land or the said part thereof, shall be

deemed to be a mortgagee in possession.”

Before referring to the terms of the deed of charge, it will help to refer to the underlying financial transaction giving rise to the deed

of charge and in turn to the present claim. On 6th February 1997 the appellant addressed a letter of commitment to the respondent,

accepted by him in writing on 10th February. The terms of the offer were summarised on page one of the letter as follows:

“1. Amount of credit advanced : £21,250.00

2. Period of Agreement : 3 calendar months

3. Number of Repayment Instalments : No instalments due

4. Amount of each instalment : Optional repayment prior to due date

5. Total amount repayable : £25,000.00

6. Cost of this Credit : £3,750.00

7.APR : 26.7%”

It will be noted that there is no indication as to whether the amounts of £25,000, £21,250 and £3,750 are denominated in Irish

pounds or pounds sterling. The interest rate was stated to be 2% per month, but this was to become 3% per month in the event of

the loan not being repaid within three months. The letter also permitted the appellant, at its sole discretion, to advance the funds “in

Irish Punts or Sterling,” the respondent being bound to repay in the currency of the advance. The deed of charge was executed on

25th February 1997. The appellant availed of the option to make the advance in sterling. On 28th February 1997, it advanced the sum

of £21,250 in pounds sterling divided into two cheques, respectively for £20,627.43 to the respondent’s solicitors and £622.57 to

another firm of solicitors relating to the stamping and registration of the charge.

The amount of the advance was not repaid within the three-month term. By early 2000, the appellant contended that a sum of

£60,898.47 was due and that this sum would have to be paid in order to redeem the mortgage or charge. By a letter of 18th February

2000 from its solicitors, the appellant formally wrote to the respondent demanding possession of the lands within seven days. The

letter continued: “In the alternative, you may pay the said sum of Stg£60,898.47 to our client within the said period of seven days.”

I now turn to the terms of the deed of charge. Clause 9 of the deed provides that respondent charges the lands “with payment to

[the appellant] of the secured monies.” This latter term is defined to mean “all monies and liability which [the Respondent]

covenants to pay to [the appellant] ...” (emphasis added in each case). The covenants, therefore, form the essential link between

the security effected and the monies advanced.

The appellant, in order to succeed in his claim, must, therefore, show that the respondent had covenanted to pay the particular sums

claimed to be “secured monies.”

Two covenants are relevant. Firstly, under paragraph 1(a), the respondent covenanted to “repay to [the appellant] the loan with

interest thereon at the appropriate rate from the commencement date by the agreed instalments……………the first of such

payments having been made or to be made on the initial specified day and subsequent payments having been made and/or to be

made at regular successive intervals of one month during the term ….”(emphasis added). This covenant relates to the repayment of

a specific loan, which I will shortly explain. There is, however, a second possibly relevant covenant. The respondent separately

covenanted, by Clause 1(d), to “pay to [the appellant] and discharge on demand………the general indebtedness and liability.”

It is next necessary to refer to the definitions respectively of “loan” and “general indebtedness.”

The deed of charge defines “the loan” as meaning “the principal sum specified in B in the Schedule hereto being the loan which has

already been advanced or which on the execution of these presents will be advanced ……in accordance with the terms of the loan

agreement.” It defines “the loan agreement” by reference to an agreement between the parties “short particulars are specified at A

in the Schedule hereto.”

The difficulty for the appellant is that, while item B in the Schedule to the deed of charge mentions the “offer of loan dated the 6th

day of February 1997 which was accepted by Respondent,” item B unambiguously describes the loan as being for IR£25,000, i.e., not

pounds sterling. As already noted, the loan was, by the exercise of the appellant’s discretion, made in pounds sterling. Furthermore,

the loan agreement provided for a period of agreement of three months, with “no instalments” whereas, under the deed of charge

Respondent covenanted to repay by “agreed instalments.”

McCracken J rejected the appellant’s claim, insofar as it was based on the contention that the loan, as defined, came within the

scope of “secured monies.” Having analysed the terms of the deed of charge, particularly those of the covenant to repay “the loan,”

he said that “in Clause 1(a) of the deed the primary covenant to repay is stated to be a covenant to repay IR£25,000 by monthly

instalments until the entire loan is repaid.” He considered the deed of charge to be quite clear: “it charges the lands with the sum of

IR£25,000 not that sum in sterling, by the monthly instalments set out in the commitment letter”. The concluding phrase does not,

it should be noted, appear at point B in the Schedule, which contains no reference to monthly instalments or to the commitment

letter. The learned judge held:

“The charge, which is the only document which will allow them [the appellant] to obtain possession of the lands, is a charge in

respect of an advance made in Irish currency payable by instalments. No advance was made in Irish currency, and no

provision was made for payment by instalments.”

He went on, in addition, to reject the alternative argument that the advance actually made came within the covenant to repay the

“general indebtedness ...” In this respect, he said:

“…the definition of ‘the general indebtedness and liability’……excludes loan and loan interest payable under the commitment

letter, and I have no doubt that the monies which were advanced were intended to be advanced as part of the loan under the

commitment letter. Accordingly, these monies would not appear to be caught by the phrase ‘the general indebtedness and

liability’.”

While the appellant has appealed against both of these aspects of the High Court judgment, and both are covered by written

submissions, counsel, at the hearing, limited the appeal to the second aspect. Put at its simplest, the appellant’s contention is that,

assuming that the advance does not come within the definition of “the loan,” for the purposes of the covenant related to repayment

of the loan, it cannot, at the same time, come within that definition for the purpose of including it within the exception to the

definition of “general indebtedness.” The appellant submits that it was the denomination of “the loan” in Irish currency which, on the

view taken by the learned High Court judge, took the advance actually made outside the definition of that term. Accordingly, it is

submitted, that denomination must equally prevent it from falling within that definition insofar as it forms an exception to the

definition of “general indebtedness.”

The respondent supports the reasoning of the learned High Court judge, saying that the deed of charge should be construed strictly

against the appellant, the party responsible for it. This is the rule that a document should be construed contra proferentem. It is not

clear, however, what particular strict construction of any particular terms of the document would operate so as to prevent the

advance being included within the scope of “general indebtedness.” In addition, the respondent submits that the respondent

covenanted to pay and discharge the “general indebtedness” on demand. There had not, it was contended, been any such demand.

The appellant responds that the letter of 18th February, 2000 constituted a sufficient demand to satisfy the terms of the deed of

charge.

Conclusion

The Court is not invited to reconsider the conclusion reached by the learned High Court judge to the effect that the misdescription of

the loan prevents the appellant from relying on Clause 1(a), the covenant for repayment of “the loan.” For the purposes of the appeal

the appellant accepts, as a hypothesis, that this conclusion was correct.

There is no doubt about the meaning of the alternative covenant to “pay…and discharge on demand …the general indebtedness.” If

the advance falls within the definition of “general indebtedness,” the covenant is clear and effective. This suffices to bring the

advance within the “secured monies” and, by the same token, the scope of the charge. The only question is whether the advance,

while not qualifying as “the loan,” for the purpose of Clause 1(a), nonetheless falls within the exception for “the loan and interest

thereon at the appropriate rate.”

It is difficult, at first sight, to see how the advance can be “the loan” for one of the purposes of the deed of charge but not of

another. The deed contains a single definition of the term, “the loan.” The term is used both in the Clause 1(a) covenant and in the

exception to the definition of “general indebtedness,” which is the basis for the Clause 1(d) covenant. The advance should not be

both “the loan” and not “the loan.” McCracken J dismissed the attempt to rely on Clause 1(d) because the relevant definition

“expressly excludes loan and interest payable under the commitment letter.” This is not, however, what the exception in Clause 12

actually says. It simply excludes “the loan and interest thereon at the appropriate rate.” The loan, as already stated, is defined by

reference to the sum specified at B in the Schedule, namely the sum of IR£25,000 and not the sterling advance. It was this fact

which persuaded the learned judge that the primary covenant was to repay that sum and that that was the sum charged.

Insofar as the learned judge stated that he had no doubt that “the monies which were advanced were intended to be advanced as

part of the loan under the commitment letter,” he is undoubtedly correct. However, it is clear that, in excluding the advance from

the definition of “the loan,” for the purposes of Clause 1(a), he relied on the language used and not on intention.

I am satisfied that the learned judge was mistaken in this conclusion. In my view, the deed of charge was drafted so as to include

either “the loan” as defined or any other defined indebtedness other than the loan. If the advance did not qualify as the loan, then it

fell within “general indebtedness.”

That conclusion would normally suffice to enable to the appellant to succeed on the appeal. There remains, however, the point made

by the Respondent about the absence of a demand. The appellant accepts that the covenant to pay “general indebtedness” and,

hence, the inclusion of such sums within the scope of the charge depends on a demand being made.

The appellant says that a sufficient demand was made in the letter demanding vacant possession of the charged lands. That demand

was followed by the sentence quoted earlier indicating that the respondent might as an alternative “pay the said sum of

Stg£60,898.47 to our client within the said period of seven days.”

That letter, in its own terms purported to rely on a right conferred by the deed of charge to enter into possession of the property “in

the event of default by you in respect of the repayments due by you…” Insofar as the advance came within the scope of “general

indebtedness,” the covenant to pay came into effect only on demand being made. The present case concerns a claim for possession,

not pursuant to any express terms conferring a right to possession, but upon the exercise by the Court of its power to grant an order

for possession “where repayment of the money secured by the instrument of charge has become due.” That, in turn, depends on

the appellant being able to show that the general indebtedness has become due. I am satisfied that the appellant could not apply to

the court for an order pursuant to section 62(7) of the Act on the basis of general indebtedness without proof of prior demand for

payment, since the covenant applied only upon demand for payment. A suggestion that the respondent might avoid the demand for

possession by making a specified payment does not constitute a demand for payment.

On this ground, therefore, I believe that the appellant’s claim must fail. I would dismiss the appeal.