Recent High Court restatement of the law relating to Lis Pendens

ByrneWallace recently acted in successfully defending an application to have a lis pendens vacated.

What is a Lis Pendens? 

A lis pendens (literally “litigation pending") is a registered note indicating that litigation is pending in relation to an interest or estate in certain lands. It is a mechanism used by a party to a dispute to protect that party’s interest in the property pending the determination of the dispute. Third parties, including prospective purchasers of the lands, are put on notice of the dispute and consequently the lands are unlikely to be disposed of until the Court adjudicates on the dispute. 

Secured creditors and receivers are likely to encounter lites pendentes in the context of enforcement of security and debt recovery and associated applications. Recent examples include contested receiverships where lites pendentes have been used by mortgagors to frustrate the receiver in the exercise of his/her legitimate rights. The mechanism has also been used by creditors in applications seeking to set aside apparently fraudulent dispositions to prevent further transfers. 

Procedure for registration

Where a dispute which affects a party’s interest in lands has arisen, that party may seek to register a lis pendens, effectively sterilising the property pending the hearing of the trial. A lis pendens can therefore have the same effect as an interlocutory injunction restraining the disposal of land until the hearing of the action, but without the applicant having to satisfy the court that an injunction is appropriate or give an undertaking as to damages.  

The procedure for the registration of a lis pendens is purely administrative, with no oversight by the Courts. Once the proceedings are in being, the party wishing to register the lis pendens must simply complete the necessary form, endorse it with the relevant courts stamp duty (currently €25.00) and lodge it for registration in the Central Office of the High Court along with a copy of the originating summons. 

Scope for abuse and application for vacate

In contrast to the straightforward registration procedure (which requires no judicial oversight), the procedure for having a lis pendens vacated (unless on consent) is relatively onerous, involving a court application. Because of this imbalance, the lis pendens mechanism can be open to abuse by a party issuing a frivolous action solely for the purpose of grounding a lis pendens and frustrating a sale of the property. 

Where the parties cannot agree to the vacate of a lis pendens, the aggrieved party can apply to the Court for orders under Section 123 of the Land and Conveyancing Law Reform Act 2009 (the “Act”). The applicant must establish that inter alia the lis pendens was not properly registerable and/or that “there has been an unreasonable delay in prosecuting the action or the action is not being prosecuted bona fide”.

“Properly Registerable”

Only those matters that fall within the terms of Section 121(2) of the Act can be validly registered as lis pendens.

In Tola Capital Management LLC –v- Joseph Linders and Patrick Linders (No.2) [2014] IEHC 324, Cregan J. expressed the view that: 

“In order to come within the statutory definition … a party seeking to register a lis pendens has to establish 
(a) that the plaintiff is claiming a proprietary interest in land 
(b) that the defendant has an estate or interest in the land in which the plaintiff is claiming an estate or interest 
(c) that the proceedings themselves make a claim to a proprietary estate or interest in the said lands" 

In Tola, the plaintiff could not establish that it claimed a proprietary interest in the lands the subject of the dispute, or that the defendants had an estate or interest in those lands. It followed that the lis pendens had been invalidly registered. Where the proceedings could not be “prosecuted bona fide” within the meaning of Section 123 of the Act, orders directing the vacate of the lis pendens followed. 

“Doomed to Failure”

Section 123(b) (ii) of the Act affords the Court a discretion to make orders vacating a lis pendens where the court is satisfied that inter alia “the action is not being prosecuted bona fide”. 

In Tola Cregan J. considered that the section should be interpreted as meaning that a Court could make an order vacating a lis pendens if “it is satisfied that the action as a whole is not being prosecuted in a bona fide manner or if particular steps in the prosecution of the action are not being taken in a bona fide manner.” 

In Gannon -v- Young [2009] IEHC 511, Laffoy J. considered that the test on an application to vacate a lis pendens was “whether the plaintiffs…. are prosecuting the plenary proceedings in relation to the lands bona fide. That involves showing that no issue of facts remain between the parties”. In Laffoy J.’s view if the plaintiff’s claim is “doomed to failure”, it is not being prosecuted bona fide. 

In Kenmare Property Finance Limited –v- Mark McGuinness Unreported, 15 September 2015 (in which ByrneWallace acted for the plaintiff and respondent to the application to vacate its' lis pendens) Faherty J refused to make orders vacating the lis pendens. In Faherty J's view proceedings will be "doomed to failure if no issues of fact remain between the parties”.  In McGuinness “the factual matrix upon which the plaintiff relies was disputed by the defendant. Thus it could not be said that there were no issues of fact arising". On that basis Judge Faherty was not satisfied that the defendant had established that the action was not being prosecuted bona fide and refused the application. 

For further information, please contact John Fitzgerald or Eoin Mullowney of our Corporate Restructuring and Insolvency Department.

(c) Byrne Wallace