Lis pendens mechanism open to abuse as means to block legitimate property sales

Author: Grainne Loughnane and Thomas O'Malley

August 29, 2018

What is a Lis Pendens?

A lis pendens (or “litigation pending” to explain the Latin term) is a burden registered against property in circumstances where there is ongoing Circuit or High Court proceedings. Section 69 (1) (i) of the Registration of Title Act 1964 provides that a lis pendens may be registered as a burden affecting registered land.

A burden is registered against title to a property and typically limits or restricts the title of the registered owner in some way. Examples include a right of way across property, a right of residence or maintenance, or a charge (mortgage).

To secure the registration of a lis pendens proceedings do not need to be served only issued. Issuing proceedings is a relatively straight forward process involving the completion of a writ / summons by inserting information to identify the parties and the property in question. It does not require the provision of detailed information as to the nature of the dispute or the claim against the property in question. The cost of issuing proceeds can be limited to paying the requisite stamp duty (currently €190 to lodge summons in the High Court, €130 to lodge a Civil Bill in the Circuit Court and €25 to register lis pendens in register of the High Court) if no input from lawyers is sought. Once proceedings have issued, it is open to a party to register a lis pendens over a property by completing the relevant forms and paying the relevant registration fees of €40.

A lis pendens may be registered against a property pursuant to Section 121 of the Land and Conveyancing Law Reform Act 2009 (the “2009 Act”) which states that the following is registerable as a lis pendens;

  • Any action in the Circuit Court or the High Court in which a claim is made to an estate or interest in land (including such an estate or interest which a person receives, whether in whole or in part, by an order made in the action) whether by way of claim or counterclaim in the action; and
  • Any proceedings to have a conveyance of an estate or interest in land declared void.

A register of lis pendens is retained in the Central Office of the High Court. Where land is registered land the lis pendens may also be registered as a burden on the folio to ensure that it will bind a future purchaser.

Why register a lis pendens?

It is often used as a mechanism to hinder/prevent an owner of a property from disposing of his interest in a property by putting potential purchasers on notice of a dispute affecting the property.

A lis pendens is also used as a mechanism by a lay litigant to obstruct a receiver /or lender from dealing with a charged property and exercising a power of sale over a property.

If there is a genuine bona fide dispute between parties which affects a property the registration of the lis pendens is a cost effective preliminary step of putting third parties on notice that there are issues with a property. Ultimately any rights claimed would have to be established by an order of a court following a full court hearing and a determination on the facts of a case.

Its registration may result in the parties in dispute arriving at a negotiated settlement without the necessity of going to hearing.

A lis pendens cannot be registered if the claim is for personal injury or for liquidated amounts/ damages.

What is the impact of registration?

A registered lis pendens will put a potential purchaser on notice of the fact that there is pending litigation against a property that could potentially impact negatively on the use / value of a property. In practical terms a lis pendens will make it extremely difficult for a property to be sold / mortgaged until the action has been heard or the lis pendens has been removed as a burden.

Removing a lis pendens

A lis pendens can only be removed by a court order on consent or by way of Notice of Motion. Section 122 and 123 of the 2009 Act set out the provisions for removal of a lis pendens, An application to remove a lis pendens can be made under section 123 of the 2009 Act under the following terms;

  • There has been unreasonable delay in prosecuting the action; and/ or
  • The action is not being prosecuted in good faith.

The registration of a lis pendens can occur without any court intervention and is a purely administrative process which can be completed with little or no input from a legal advisor. In contrast however, the procedure to vacate a lis pendens is onerous and protracted with significant cost implications involved (unless the party who registered it consents to its removal).

From a conveyancing perspective, if the sale of a property proceeds where a lis pendens has been registered as a burden against that property, the lis pendens will remain as a burden registered against the property until such time as an application to remove the lis pendens has been made under the 2009 Act. However if a lender sells a property as mortgagee and it holds a first ranking charge over a property, once the transfer by a lender as mortgagee is registered in the Land Registry, the transfer will overreach the lis pendens and it will be cancelled by the Land Registry. A subsequent purchaser cannot be bound by the outcome of proceedings where the lis pendens burden is cancelled from the folio.

Disparity between registration / removal of a lis pendens

As already outlined the registration of a lis pendens is a relatively straight forward, inexpensive administrative procedure with no court involvement.

Given the higher threshold to vacate a lis pendens to that of registering a lis pendens, there is a significant frustration on the part of owners, charge holders and receivers in dealing with such properties. It is often the case that when a party is successful in removing a lis pendens from a property, the applicant will proceed to issue a fresh set of proceedings so that a fresh lis pendens can be registered against the property in an attempt to frustrate the sale of a property. The practical effect of a lis pendens is similar to that of an injunction in preventing the sale of a property proceeding.

What the courts say

In the recent Supreme Court decision of Kelly and O’Kelly v IBRC Limited[1] a motion was brought by the defendant seeking to have a lis pendens registered against a property by the plaintiff struck out as an abuse of process. The property was mortgaged by Irish Nationwide Building Society, Irish Bank Resolution Corporations (“IBRC”) took over the loans. IBRC obtained possession of the property and the plaintiff subsequently issued summary proceedings against IBRC for trespass. In this particular case, the plaintiff did not serve the summary proceedings on IBRC or give notice to IBRC of the registration of the lis pendens. IBRC alleged that the proceedings were instituted specifically for the purpose of frustrating the sale of the property and were not bona fides. The High Court held that where a party registers a lis pendens there must be a genuine claim to an interest in land. Mr Justice Ryan held that;

“The proceedings [instituted by Kelly and O’Kelly, insofar as they assert an interest in land such that would justify the registration of a lis pendens, constitute an abuse of process. The fact that the plaintiffs are unable, even when faced with this motion, to suggest any detail or even any basis for advancing a claim as to an interest in land, is very telling and in my view is quite fatal to their claim and confirms the absence of bona fides in doing so…..There is nothing in the materials put before the court or in any submission made by Counsel to suggest any legitimate basis for registering the lis pendens. It would be a clear injustice to permit the processes of the Court to be employed for the purpose of frustrating the exercise of legitimate rights. That would be the case here if the lis pendens were permitted to remain. I propose accordingly to order that it be vacated”

The above decision was appealed by the plaintiff however the decision was upheld by the Supreme Court.

Abuse of process

Given the imbalance in the requirements for registering and removing a lis pendens, parties frequently use the registration of a lis pendens as a means to frustrate a sale of property notwithstanding there may not be a bona fide dispute.

Giving the judgment of the Supreme Court in McCauley a minor v McDermott and McCauley [1997] 2 I.L.R.M. 486, Keane J. held where proceedings are not bona fides and are solely issued as a basis to secure a lis pendens, it amounts to an abuse of process.

In the very recent decision of O’Connor v Cotter & Another[2] the Supreme Court upheld the decision of the High Court in finding that the proceedings relating to a lis pendens were an abuse of process and accordingly dismissed the appeal.  The plaintiff had previously issued proceedings in 2012 which were dismissed and resulted in the vacating of a lis pendens. The plaintiff subsequently issued separate proceedings in 2015 against a receiver. The Supreme Court held that the issue has already been raised in the 2012 proceedings and accordingly dismissed the appeal. The Supreme Court referenced the rule in Henderson v Henderson[3] which states that a party to litigation must make its whole case when the matter is before the court for adjudication and will not afterwards be permitted to reopen the matter to advance new grounds or new arguments which could have been advanced at the time.

The Court concluded that the High Court had correctly applied the rule in Henderson v. Henderson in finding that the 2015 proceedings were an abuse of process. This decision has been welcomed by receivers in circumstances where proceedings with unsustainable grounds were being used for the specific purposes of registering a lis pendens to frustrate receiver sales.

The High Court in the case of Tola Capital Management LLC v Joseph Linders and Patrick Linders[4] sets out the grounds a party seeking to register a lis pendens must establish;

  1. The plaintiff is claiming a proprietary interest in land;
  2. The defendant has an estate or interest in the land in which the plaintiff is claiming an estate or interest; and
  3. The proceedings themselves make a claim to a proprietary ownership or interest in the said lands.

The High Court held that if the proceedings relating to the lis pendens had not been instituted by the plaintiff bona fides a court should grant an order to vacate the lis pendens. Cregan J held that a court could make an order to vacate a lis pendens if;

“the court 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 fides manner”.

In this particular case the plaintiff could not establish that they had a proprietary interest in the lands or that the defendant had an estate or interest in those lands.

Conclusion

The bar for registering a lis pendens is currently too low while in contrast the steps to remove it are onerous, take much longer and are costly. There is no adjudication on the merits at the registration stage of a lis pendens and this can result in abuses of this remedy. If an applicant had to lodge a sworn affidavit setting out the basis of their claim this would deter those who seek to use it as a blocking mechanism.

A necessary reform would appear to be the requirement for the criteria stipulated for the registration of the lis pendens under 2009 Act to be considered at the time of the application and not when application has to be made to court to vacate the lis pendens. If a court order was required as part of the grounds to register a lis pendens it would deter spurious applications.

While a lis pendens is an effective preliminary step in a genuine dispute affecting property, it is apparent that controls need to be implemented to deter claims which are not bona fides and to prevent abuses of the court system.

[1] [2012] IEHC 401

[2] [2017] IECA 25

[3] [1843] 3 HARE 100

[4] [2014]IEHC 316

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