Jersey Unreported Judgments

[2007]JRC167

royal court

(Samedi Division)

5^th September 2007 

Before     :

M. C. St. J. Birt, Esq., Deputy Bailiff, sitting alone.

 

Advocate J. Harvey-Hills for the Representor.

Advocate M. J. Thompson for the first and second Respondents.

judgment

the deputy bailiff:

1.        This representation brought by HSBC Bank PLC ("HSBC") raises the issue of whether, when a lender who has the benefit of a judicial hypothec, subsequently takes a judgment condemning the borrower to repay the amount in question and chooses to register that latter judgment in the Public Registry, the effect is to destroy the original hypothec.

The facts

2.        The facts are not in dispute.  By a loan agreement the terms of which were set out in a facility letter dated 12th November, 2002 Ansbacher (Channel Islands) Limited ("Ansbacher") agreed to lend up to £700,000 to Mr and Mrs Mark Burby ("the Borrowers") for the purposes of assisting in the purchase in their joint names of a property known as Mon Plaisir, St Brelade ("the Property").  It was a term of the agreement that the loan was to be secured by a 'first registered charge'.

3.        On 22nd November 2002 the requisite acknowledgement of debt was registered in the Public Registry with the result that Ansbacher acquired a judicial hypothec over the Property on that date in the sum of £700,000 ("the 2002 Ansbacher hypothec").

4.        On 28th April 2006 the Borrowers executed a promissory note in favour of HSBC in the sum of £360,000, acknowledgement of which was duly registered in the Public Registry on the same date.  Accordingly HSBC obtained a judicial hypothec over the Property on that date ("the HSBC hypothec").

5.        On 26th May 2006 Mrs Jennifer Lesslie obtained judgment (arising out of a breach of contract) against the Borrowers jointly and severally for the sum of £170,166.30.  The judgment was registered in the Public Registry on 31st May 2006 with the consequence that Mrs Lesslie obtained a judicial hypothec over the Property ("Mrs Lesslie's hypothec").

6.        The Borrowers defaulted on their obligation towards Ansbacher pursuant to the loan agreement and, on 4th October 2006, Ansbacher obtained judgment against the Borrowers jointly and severally in the sum of £706,762.44, being the outstanding capital and interest at that time.  This judgment was registered in the Public Registry and accordingly Ansbacher obtained a further judicial hypothec in the above sum on that date ("the second Ansbacher hypothec").

7.        In summary, the Public Registry at present shows four judicial hypothecs over the Property as follows (in chronological order):-

8.        The Borrowers have not paid any of these sums.  Accordingly Ansbacher subsequently obtained an order vicomte chargé d'écrire pursuant to Rule 11/1 of the Royal Court Rules 2004.  The Borrowers still did not pay and accordingly, following a further application by Ansbacher, the Court ordered that the moveable and immoveable property of the Borrowers be adjudged renounced and that a degrévèment be held in respect of the immoveable property.   Advocate Thompson and Advocate Bertram were appointed as attournés.

9.        Subsequently HSBC raised the point that the registration by Ansbacher of the second Ansbacher hypothec had destroyed the 2002 Ansbacher hypothec.  This was not accepted by the Attournés and accordingly, on 1st June 2007, HSBC issued a representation seeking a ruling from this Court.  The degrévèment has been adjourned pending the outcome of this hearing.

10.      The result will have important practical consequences.  I was informed that the value of the Property is insufficient to pay off all three creditors.  On a degrévèment, secured creditors are of course called in reverse order.  Thus, if the 2002 Ansbacher hypothec remains valid, Ansbacher will be repaid in full (assuming the Property to be worth more than Ansbacher is owed) by whoever of HSBC or Mrs Lesslie takes the Property.  If, on the other hand, Ansbacher's only valid hypothec is the second one, Ansbacher will only make any financial recovery of the amount owed to them to the extent (if at all) that the value of the Property exceeds the combined value of the amounts owed to HSBC and Mrs Lesslie.

The Law

11.      The outcome depends upon the correct interpretation of certain provisions of the Loi (1880) sur la propriété foncière ("the 1880 Law").  The relevant provisions were the subject of amendment in 2000 but, as that pre-dates the first hypothec in this case, it is the amended provisions which are applicable.

12.      Nevertheless both parties have referred to Article 13 of the 1880 Law as originally enacted and I propose therefore to refer to it::-

"Sauf dans le cas prévu par l'Article 52 tous actes et jugements de la Cour Royale rendus contradictoirement ou par défaut dans une action pour le paiement ou la reconnaissance d'une obligation, compte ou autre dette, ou pour le règlement de comptes, donneront à la personne qui les obtiendra, pour le montant qui sera définitivement reconnu lui être dû, une hypothèque judiciaire sur les biens-fonds de son débiteur, pourvu que l'acte ou jugement, s'il n'y en a qu'un seul dans la procédure ou, s'il y en a plusieurs, un des actes ou jugements, ait été enregistré dans le Registre Public de cette Ile.  L'hypothèque aura la même date que l'acte ou jugement enregistré, pourvu qu'il ait été remis à l'Enregistreur, dans les quinze jours de son obtention, y compris le jour de cette obtention.  Si l'acte ou jugement n'a pas été remis à L'Enregistreur dans ce délai, l'hypothèque datera du jour de la remise.  L'Enregistreur sera tenu de noter sous son seing, tant au pied des actes et jugements qui lui seront remis, qu'au bas de l'inscription qu'il en fera dans le Registre Public, la date de la remise, afin que la date de l'hypothèque puisse être réglé en conséquence.  Ces dispositions sont sans préjudice à l'Article 11, en ce qui touche l'hypothèque légale sur les biens d'un débiteur décédé.  Dans les actions contenant une demande arbitraire en dédommagement ou indemnité pour un tort prétendu, le premier jugement de la Cour statuant le montant du dédommagement ou indemnité et les actes ou jugements subséquents dans la même action, seront seuls susceptibles de donner, par leur enregistrement, une hypothèque sur les biens du débiteur pour ledit dédommagement ou indemnité.  Dans le cas de l'enregistrement de plusieurs actes ou jugements rendus dans la même procédure l'hypothèque aura la date de la dernière inscription".  (emphasis added)

13.      As already mentioned, Article 13 was amended in 2000 by the Loi (2000) (Amendement No 4) sur la propriété foncière.  The main purpose of the amendment was to make it clear that individual properties owned by a debtor could be charged by judicial hypothec and to remove any doubt as to whether guarantee obligations or floating overdrafts could be secured by judicial hypothec.   The Article was also separated into six separate paragraphs in an attempt to render it more readily comprehensible.  I would quote the following two articles of the 1880 Law in its current form.

"Article 13

(1) Tout acte ou jugement soit de la Cour Royale soit de la Cour pour le Recouvrement de Menues Dettes rendu contradictoirement ou par défaut dans une action pour le paiement ou la reconnaissance d'une obligation actuelle ou contingent, compte ou autre dette, ou pour le règlement d'un compte, ou statuant le montant des dommages-intérêts, donne, sous réserve des dispositions de cet Article, à la personne qui l'obtienne pour le montant qui est déterminé par la Cour ou reconnu par le défendeur lui être dû ou, en cas d'une caution ou autre obligation contingente, reconnu lui être dû potentiellement, étant une ou plusieurs sommes, avec ou sans intérêts, une hypothèque judiciaire soit sur tous les biens-fonds du défendeur soit sur un ou plusieurs des biens-fonds du défendeur (ou sur toute partie d'iceux) spécifiés dans l'acte ou jugement.

(2)L'acte ou jugement visé à l'alinéa (1) de cet Article, s'il n'y a qu'un seul dans la procédure (ou, s'il y en a plusieurs, une des actes ou jugements) doit être enregistré dans le Registre Public afin que l'hypothèque y résultant puisse prendre effet.

(3)L'hypothéque judiciaire aura la même date que l'acte ou jugement enregistré, pourvu qu'il ait été remis au Greffier Judiciaire dans les quinze jours de son obtention, y compris le jour de cette obtention.

(4)Si l'acte ou jugement n'a pas été remis au Greffier Judiciaire dans le délai visé à l'alinéa (3) de cet Article, l'hypothèque y résultant datera du jour de la remise.

(5)Le Greffier Judiciaire notera sur les actes et jugements qui lui seront remis en vertu de l'alinéa (4) de cet Article la date de la remise.

(6)Les dispositions de cet Article ne préjudicent  point L'Article 11 de la présente Loi en ce qui touche l'hypothèque légale sur les biens d'un débiteur décédé.

Article 16

(1)Lorsqu'une créance ou une autre réclamation, emportant une hypothèque légale ou judiciaire, deviendra éteinte par n'importe quelle cause, ou que l'hypothèque résultant de l'enregistrement d'un acte ou d'un jugement soit de la Cour Royale soit de la Cour pour le Recouvrement de Menues Dettes rendu dans une procédure aura perdu sa date, en conséquence de l'inscription au Registre Public d'un acte ou jugement dans la même procédure ayant une date subséquent, la personne ayant droit à l'hypothèque sera tenue de la faire rayer du Registre Public dans le délai d'un mois du jour de l'extinction de la créance, réclamation, ou hypothèque.

(2)A cet effet, elle produira au Greffier Judiciaire l'acte ou le jugement inscrit, sur lequel celui-ci avait constaté la date de la remise pour enregistrement.  Si elle ne peut produire ledit acte, elle devra produire au Greffier Judiciaire un affidavit ou déclaration solennelle, passé devant un des jurés justiciers, constatant la cause pour laquelle l'acte n'a pu être produit, et l'affirmation que ledit acte n'a point été transféré à une autre personne.

(3)Le Greffier Judiciaire, sur la production de cette pièce, fera ladite radiation : à laquelle ledit créancier devra apposer sa signature.

(4)Si la créance ou la réclamation a été éteinte en considération d'un paiement fait au créancier hypothécaire, celui-ci pourra exiger du débiteur la remise de cette somme, avant de lui donner un acquit.

(5)Tout créancier hypothécaire qui négligerait d'effectuer ladite radiation pourra, sur une simple action à la Cour pour le Recouvrement de Menues Dettes, être condamné à l'effectuer."

The submissions

14.      The dispute between the parties can be shortly stated and turns upon the proper construction of Article 16(1).  Both parties are agreed that the effect of that provision is that a judicial hypothec is extinguished by the subsequent registration of a later act or judgment if - but only if - the latter is rendered "dans la meme procedure".  But there agreement ends.  Mr Harvey-Hills argues that the second Ansbacher hypothec was in the same "procedure" because it was in respect of the same underlying debt.  Mr Thompson on the other hand, submits that an acknowledgement is quite different from a judgment for a sum which is owed and they are not in the same "procedure".

15.      Mr Harvey-Hills argued that, in context, the expression "procedure" must include where the underlying cause of action is the same.  In this case there was only one debt due to Ansbacher. This arose out of the loan agreement of 2002 but the only debt due was that reflected in the judgment of 4th October 2006 which was the subject of the second Ansbacher hypothec.  A hypothec was a "droit réel accessoire" i.e. it was a collateral right attaching to some other right.  It could not exist alone.  As there was only one substantive right in issue here, namely the amount owed to Ansbacher, it could not be correct that there could be two hypothecs in existence.

16.      This was, he submitted, consistent with the clear intention behind Article 16(1). That was in turn consistent with the emphasised wording of the original Article 13.  Furthermore one had to have regard to the practical consequences.  If Mr Thompson was right, the Public Registry would give an erroneous impression.  It would suggest that a debtor was more indebted and a property was more encumbered than in truth was the case.

17.      In support, Mr Harvey-Hills referred to Consultation Paper No 8 issued by the Jersey Law Commission in May 2006 on the subject of 'security on immovable property'.  He referred to two passages, both of which are worth quoting in full:-

"7.13 When a debt secured by hypothéque judiciaire becomes "eteinte par n'importe quelle cause", Article 16 of the 1880 law requires the creditor to attend at the Public Registry to cancel the registration of the act of Court and thus discharge the hypothec.  This provision is also stated to apply to hypothéques légales, meaning presumably those obtained by unsecured creditors who sue the estate of a deceased debtor within a year of his death (above,7.2.1), as this is the only hypothéque légale that involves the registration of an act of Court.  After some debate in the past, 'extinct for whatever reason' is now considered to cover not only repayment in the ordinary way but also extinction by confusion or by satisfaction, for example after the creditor has taken over a property in a dégrévement.  The procedure must also be followed if the registration of a judgment has 'lost its date' by virtue of the subsequent registration of a further act in respect of the same debt.  The creditor (who is usually represented by an advocate or solicitor) must produce the original act of Court or, if this cannot be produced, an affidavit stating why.  Should the creditor neglect to have the registration cancelled, he may be condemned to do so by the Court on a simple action by the debtor".  (Emphasis added)

"17.7 Sometimes, when a creditor sues for repayment of a mortgage or other secured debt, the judgment condemning the debtor to repay is itself registered in the Public Registry at the creditor's instance.  Presumably the reason for doing this is to secure the accrued interest, but it seems likely (the point does not appear to have been judicially tested) that registering the judgment has the effect of destroying the hypothec obtained by the original registration.  Article 13 of the 1880 law, as originally enacted, provided that if two or more acts or judgments "rendus dans la même procédure" were registered, the hypothec took the date of the latest registration.  Though this provision was omitted from the article as amended in 2000, it survives by implication in Article 16 which still requires a registration to be cancelled when superseded in this way.  It might be debated academically whether the action to acknowledge the debt and the subsequent action for its repayment are part of the same 'procédure', but it seems unnatural that a creditor should have two hypothecs against his debtor in respect of the same debt.  With the securing of arrears of interest covered specifically in the new law (below, 19.9), there will be no reason for the creditor to register his judgment for repayment and we think the law should make clear that to do so will destroy the hypothec obtained by the original registration." (Emphasis added)

18.      He further submitted that the most direct translation for 'procédure' was 'proceedings'.  In this context he referred to the case of Heerema v Heerema [1985-86] JLR 293 and in particular the passage at page 297 where it is stated :-

"the term "proceedings" has a very wide meaning which differs according to the context in which it is used and also according to the statutes in which it occurs."

19.      Finally, he submitted that the position under the 1880 Law (as he submitted it to be) was consistent with the pre-existing customary law.  In this connection he referred to Le Gros, Droit Coutumier de L'Ile de Jersey at 437 where the case of La Cloche v Durrell (13th November, 1701) is summarised and from which Le Gros draws the conclusion:-

 " Lorsque deux faits obligatoires portent des dates différentes le plus récent annule le plus ancien à moins que  le prêteur n'ait réservé ses droits au premier par une disposition expresse contenue dans le deuxiéme".

This was said by Le Gros also to be consistent with Le Geyt Constitution, Les Lois et les Usages de L'Ile de Jersey, Volume 1 at Page 156 dealing with novations:-

"On est fort rigoureux dans l'isle en fait d'obligations et cédules pour argent presté.  La derniére détruit la premiére, si elle n'est réserve, et l'on pratique en cela le premier droit Romain :cette régle n'auroit pourtant pas lieu dans le négoce, entre marchands, mais elle peut bien estre observée en d'autres affaires, quand le second acte procéde d'une même source : au lieu que si le fonds et le titre des Contrats sont différens, le dernier n'anéantit pas l'autre, si du moins l'intention des parties n'y est pas manifeste pour la novation ".

20.      Mr Thompson, on the other hand, submitted that the 1880 Law could not possibly have been intended to work in such a manner.  The loan agreement in this case specifically provided that Ansbacher should have a first charge.  It would be nonsensical if that agreed first hypothec was destroyed simply by reason of the fact that Ansbacher had had to take judgment for an amount due and unpaid under the loan agreement.  Ansbacher had to obtain judgment if it was to proceed in due course to a dégrèvement because Rule 11/1 RCR required there to be a judgment before an order vicomte chargé d'écrire could be obtained.

21.      The word 'procedure' should not be widely construed.  The nearest English equivalent was "proceedings".  The 2002 Ansbacher hypothec was not a judgment.  It was merely a 'reconnaissance' i.e. an acknowledgement of an obligation.  That was the end of that "procedure".  The security had been created.  An action to obtain judgment because of the default in payment was a new "procédure" or 'proceeding'.  Obtaining a judgment following a failure to honour a note of hand or other obligation which has previously been registered so as to create a hypothec is not the same "procedure".  The former is creating security in respect of an indebtedness; the latter is obtaining a judgment to enforce repayment of the indebtedness. 

22.      He submitted that the difficulty with Mr Harvey-Hills' submissions was that they equated "procedure" with the underlying debt.  A "procedure" was not an obligation; it was a process.  One could have two "procedures" or 'proceedings' in respect of the same underlying obligation.  The Law Commission had simply assumed that the two were the same.  As to the extracts from Le Gros and Le Geyt, these were of no assistance as they dealt with the situation prior to enactment of the 1880 Law.  The present position was governed entirely by that statute.

23.      He conceded that his interpretation could lead to undesirable practical difficulties in the sense that it could lead to confusion in the minds of third parties who inspect the Public Registry, for the reasons given by Mr Harvey-Hills.  However this did not enable the Court to construe "procedure" as the underlying obligation.  He accepted that it was a situation which cried out for reform in the manner suggested by the Law Commission at para 17.7 of their Consultation Paper, but submitted that this was a matter for the legislature, not for the Court.

Decision

24.      In my judgment Mr Harvey-Hills' submissions are to be preferred to those of Mr Thompson.  I would summarize my reasons for so holding as follows:-

(i)        I do not find any assistance in the observations of Le Gros and Le Geyt.  They relate to a period well before the enactment of the 1880 Law.  The position is now governed by that Law and my task is to construe it.

(ii)       It is clear from the original Article 13 and from Article 16 that, where there is more than one act or judgment rendered "dans la même procédure", the hypothec will take the date of the latest registration and the earlier hypothec is extinguished.  Although the final words of the original Article 13 were for some reason not retained in the amended Article 13 as introduced in 2000, it is clear from Article 16 that the position in this respect has not been altered; and indeed neither of the parties disputed this proposition.

(iii)      So the question is, what is meant by "dans la même procedure"?  Mr Harvey-Hills argued that the word "procedure" should be translated as 'proceedings' and that that expression should be given a wide interpretation.  I do not think it is right to seek a translation and then concentrate on the meaning of the translated expression, which may well not be exact.  In my judgment I must concentrate on the wording used in the statute and construe that wording in the context of the statute as a whole.

(iv)      Article 13 envisages two categories of judicial hypothec.  The relevant wording provides "tout acte ou jugement ...... pour le paiement ou la reconnaissance d'une obligation...........".  Thus a hypothec may arise in respect of a judgment (which will presumably usually be for payment) or by reason of an act for the acknowledgement of an obligation.  I agree with Mr Thompson that the 2002 Ansbacher hypothec comes within the second category; it was an acknowledgement of an obligation.  However I consider that, read in context, a judgment taken subsequently for monies owed in respect of that same obligation is in the same "procédure".  This is because the judgment is in respect of the same underlying obligation.  This is not to equate the word "procedure" with the word 'obligation'.  It is merely to recognise that if two acts or judgments relate to the same underlying obligation, they are properly to be considered as being in the same "procedure" for the purposes of Article 16.

(v)       Such a construction gives proper effect, in my judgment, to the nature of a hypothec.  I was referred to the well known lecture on 'Hypothecation and Guarantee' given by Advocate Philip Le Couteur on 6th December 1955 to an audience of bankers.  In my respectful opinion, he correctly describes a hypothec in the following words:- "a hypothec is a droit réel accessoire.  The word accessoire indicates that a hypothec cannot exist alone.  It is only a collateral or dependant right guaranteeing a debt". If a hypothec is only an accessory right and cannot exist alone, it is difficult to see how one can have two separate hypothecs in respect of only one obligation. 

(vi)      The consequences of Ansbacher's interpretation suggests that it could not have been intended by the 1880 Law.  If Mr Thompson is right, a person searching the Public Registry would not be able necessarily to assess accurately the extent to which a property was encumbered.  Take the present case.  A person (unlikely as this may be) wishing to lend to the Borrowers at present could be forgiven for concluding from a search of the Public Registry that a total of over £1.9m is secured on the Property.  In fact, the amount secured is just over £1.2m because Ansbacher's debt of some £700,000 is counted twice in the former figure.  It is true that in some cases a careful scrutiny of the underlying documentation may disclose that two apparent hypothecs are in fact in respect of the same obligation but, as Mr Thompson conceded, this would not always be the case.  There is therefore real scope for potential lenders being misled if Mr Thompson's argument is correct.

(vii)     That cannot have been intended.  It was surely the intention of the legislation that the Public Registry should give a fair and accurate picture and enable a potential lender to assess with certainty the extent to which any property is charged and accordingly the scope for any further lending having regard to the value of the property.

(viii)    Ansbacher's interpretation would also have unsatisfactory consequences in relation to the conduct of a dégrèvement.  In the first place, the unsecured creditors or a later secured creditor might be misled into thinking that there were greater amounts secured against the property than in fact there were.  So, for example, in the present case such a person might easily think that there was £1.9m rather than £1.2m secured against the Property.  On the particular facts of this case that would probably not make any difference, but in other cases it might affect a decision as to whether or not to take the property as 'tenant après dégrèvement'.  Secondly, it effectively gives a person in Ansbacher's position a choice as to which hypothec to rely upon.  Thus, in this case, if there were some equity in the Property, Ansbacher would no doubt take pursuant to the later hypothec and pay off those ahead of it; if on the other hand there were no equity, it would presumably refuse to take the Property when called in respect of its second hypothec and rely solely upon the first hypothec.  There is no suggestion anywhere else in the 1880 Law that this might arise and, in my judgment, it was probably one of the consequences which Articles 13 (in its original form) and 16 were designed to avoid.  Mr Thompson argued that these consequences could be avoided by the Greffier putting Ansbacher to its election by insisting that it must surrender the benefit of one or other hypothec prior to the dégrèvement; but there is nothing in the 1880 Law to allow for this or to suggest that it is a course which is open to the Greffier.

(ix)      Mr Thompson argued that the result of the interpretation which I prefer would be to work great hardship against Ansbacher.  It was always intended that Ansbacher should have the first charge whereas the result now will be that it comes behind both HSBC and Mrs Lesslie, simply because it has taken judgment against the Borrowers in order to begin the process towards a dégrèvement.  The fallacy in this argument is that it is not the 1880 Law which has this effect; it is the decision of Ansbacher to register its judgment in 2006 in the Public Registry.  I accept fully that it was necessary for Ansbacher to obtain judgment following the Borrowers' default in order to proceed to an order Vicomte chargé d'écrive and then to dégrèvement.  But it was not necessary to register that judgment in the Public Registry.  That was Ansbacher's error.  Rule 11/1 requires a judgment to have been obtained but does not require that judgment to be registered.  If Ansbacher had not registered the judgment, it would still have the benefit of the 2002 hypothec and would therefore remain first in line.  It was the registration of that judgment in the Public Registry (and nothing else) which has caused the 2002 Ansbacher hypothec to be extinguished.

(x)       I am comforted by the fact that a body of lawyers as experienced in matters of property law as those listed on page 70 of the Consultation Paper of the Jersey Law Commission are of the same opinion (in paras 7.13 and 17.7 of the Paper) as that which I have reached and, as can be seen, I agree with the reasoning in that latter paragraph.

25.      For the reasons I have given, I hold that, pursuant to Article 16 of the 1880 Law, the 2002 Ansbacher hypothec has been extinguished by reason of the registration in the Public Registry of the second Ansbacher hypothec, which is in respect of the same underlying obligation and is "dans la meme procedure".  Accordingly the dégrèvement should be conducted by the Greffier on the basis that Ansbacher has only one hypothec, namely that created in October 2006.

Authorities

Loi (1880) sur la propriété foncière.

Loi (2000) (Amendement No 4) sur la propriété foncière.

Consultation Paper No 8, Jersey Law Commission May 2006.

Heerema v Heerema [1985-86] JLR 293.

Le Gros, Droit Coutumier de L'Ile de Jersey.

La Cloche v Durrell (13th November, 1701).

Le Geyt Constitution, Les Lois et les Usages de L'Ile de Jersey, Volume 1.

'Hypothecation and Guarantee' Philip Le Couteur, 6th December 1955.