Jersey Unreported Judgments

[2007]JCA228

COURT OF APPEAL

4^th December 2007

Before     :		Sir Philip Bailhache, Kt. Bailiff, President; D. A. J. Vaughan, Esq., C.B.E., Q.C., and; G. C. Vos, Esq., Q.C.
Between	Ansbacher (Channel Islands) Limited (Ansbacher)		Appellant
And	HSBC Bank PLC		Respondent

In the matter of the Representation of HSBC Bank PLC (HSBC) in respect of the Degrevement of Mark and Selina Burby.

Appeal from the Judgment delivered by the Deputy Bailiff, sitting alone as a Judge of the Royal Court, where he ruled in favour of a representation brought by HSBC Bank PLC.

Advocate M. J. Thompson for the Appellant.

Advocate J. Harvey-Hills for the Respondent.

JUDGMENT

VOS JA:

Introduction

1.        The Deputy Bailiff held that a lender, who obtains a judicial hypothec by registering the acknowledgment (reconnaissance) of a debt at the Public Registry, and later obtains a further judicial hypothec by registering a judgment for the repayment of the same debt, loses the benefit of the first hypothec, and thereby loses priority for his debt over the holders of intervening registered hypothecs.

2.        The case raises two issues:  first, the proper construction of Articles 13 and 16 of the Loi (1880) sur la propriété foncière (the "1880 Law"), as amended; and secondly, the practical effects of the possible constructions of these Articles.  It appears that these questions have never before been the subject of judicial decision in the Jersey Courts.

3.        The question of construction is primarily concerned with the proper meaning of the, apparently simple, words "procédure", and "dans la même procédure":-

(i)        as they are used in Article 16 of the Loi (1880) sur la propriété foncière (the "1880 Law"), as it was amended by the Loi (2005)(Amendement No 5) sur la propriété foncière, and

(ii)       as they were used in Article 13 of the 1880 Law before it was amended by the Loi (2000)(Amendement No 4) sur la propriété foncière.

4.        It is not really disputed that the understanding of Jersey lawyers down the ages - and   certainly since the enactment of the 1880 Law - has been that it was not possible to hold two judicial hypothecs in respect of the same debt although it is fair to say at the outset that it has always been known that this was a moot point.

5.        Equally, the adverse effects of the Deputy Bailiff's construction on the lender, can easily be ameliorated if the lender holding the original judicial hypothec, who obtains judgment in respect of his debt, refrains from registering his judgment for payment of the debt at the Public Registry, and moves directly to an enforcement procedure such a dégrèvement (translated cumbersomely as "discumberment").

Hypothecs generally

6.        A hypothec in Jersey law is a "droit réel accessoire", being an accessory right in rem attaching to a debt or obligation.  As the Jersey Law Commission's consultation paper of May 2006 put the matter: "Though a debt or obligation can exist without having a hypothec attached to it, no hypothec can exist independently of an obligation or continue to exist once the obligation is paid off".

7.        We are concerned in this case only with hypothèques judiciaries (or judicial hypothecs), which are dealt with in articles 12-16 of the 1880 Law.  The judgment or act underlying a judicial hypothec may be of two kinds.  It may either be for reconnaissance (acknowledgment) of a debt, or for the payment of a debt.  This case concerns the registration of judicial hypothecs following both underlying acts, namely a reconnaissance and a judgment on a debt.

8.        There are, however, two other kinds of hypothec under the 1880 Law, namely hypothèques légales (legal hypothecs) and hypothèques conventionnelles (conventional hypothecs).  Conventional hypothecs (dealt with in articles 17-29 of the 1880 Law) can be hypothèques simples, which are created by an agreement between the parties and can, in theory, but not commonly in recent practice, be used to secure the borrowing for the purchase of real property.  Legal hypothecs are dealt with in articles 6-11 of the 1880 Law.

9.        Article 2 of the 1880 Law provides:

"L'Hypothèque, aux fins de la présente Loi, est un droit réel attaché à une rente ou autre réclamation, en vertu duquel un ou plusiers biens-fonds appurtenant au débiteur sont spécialement affectés á l'acquittement de cette rente ou réclamation, et qui confère à son possession les avantages suivants, savoir..."

The advantages conferred by a hypothec are then listed in Article 2 as:-

(i)        Preferential payment in the debtor's insolvency according to "l'ordre de collocation de son hypothèque".

(ii)       The right to take a tenancy of the hypothecated property in a décret or dégrèvement.

(iii)      The right to follow the property into the hands of a third party in the case of a deficiency of assets.

The facts

10.      I gratefully adopt the description of the facts succinctly set out by the Deputy Bailiff in his judgment at paragraphs 2 to 10, as follows:

"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 provisions to be construed

11.      It is common ground that Article 16 of the 1880 Law (as amended) must be construed in the light of article 13 as it stood when it was enacted.   It has since been amended to remove the words "dans la même procédure", as can be seen from the following extracts.

12.      Article 12 provides simply that a judicial hypothec results from a judgment or act of the Court:

"L'hypothèque judiciare est celle qui résulte des actes et des jugements soit de la Cour Royale soit de la Cour pour le Recouvrement de Meunes Dettes, porvu que les dispositions de la présente Loi aient été remplies".

13.      Article 13 deals with acts or judgments creating judicial hypothecs over either all immovable property (or a specified property) of the debtor.  It originally provided as follows:-

"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) 

14.      Article 13 (as amended in 2000) provides as follows:-

"(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".

15.      Article 16 (as amended in 2005) deals with priority.  It is interesting to note that it has always referred to both judicial and legal hypothecs, but not conventional hypothecs.  In essence, it provides that when a debt is extinguished, or when a hypothec loses its date by the registration of a subsequent act or judgment, as follows:

"(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" (emphasis added).

Arguments as to construction

16.      Thus, Article 16 of the 1880 Law explains the circumstances in which the holder of a hypothec must cause it to be removed from the Public Register.  Two circumstances are set out:  first, the extinction of the debt; secondly, the registration of a subsequent act or judgment.  But the subsequent act or judgment will only necessitate the removal of the earlier hypothec if it is "dans la même procédure".

17.      Advocate Thompson, for Ansbacher, argued that these words should be construed as meaning "in the same suit" or "in the same action" or "in the same proceedings", and that the 2002 Ansbacher hypothec did not arise in the same suit, action or proceedings as the second Ansbacher hypothec.  Support for this contention can be gained from the fact that in various English language translations of the 1880 Law "procédure" has been translated as "suit" or "proceedings".  It is, of course, common ground that the action for the recovery of the debt in 2006 was indeed a different suit from the one in which the acknowledgment of the debt was given resulting in the 2002 Ansbacher hypothec.

18.      If he is wrong in his first submission, Advocate Thompson points out that judicial hypothecs can be created in two ways: by an act or judgment or by a "reconnaissance", and he submits that the registration of a later judgment cannot be "dans la même procédure" as an earlier reconnaissance.

19.      Advocate Thompson at first conceded that a bank, which lends £100,000 to customer secured by a judicial hypothec, and then lends a further £50,000 secured by an acknowledgment of £150,000, must remove the earlier hypothec, because the later hypothec is a variation of the original acknowledgment of indebtedness, and therefore all part of the same procedure and process. For the purposes of his first submission, however, he later withdraw that concession, realising that it made his preferred construction of the words "dans la même procédure" almost impossible.

20.      At the end of oral submissions, the Court asked for written submissions on the provenance of the word "procédure" as it was used in the 1880 Law.  This arose because it appeared from an endnote to Sir Robert Marrett's Lettre Explicative of 23 January 1878 that Articles 13 and 16 of the 1880 Law were based on la "Loi de 1832 sur les Décrets" (the "1832 Law").   Advocate Thompson contended in his written submissions that the word  "procédure" in Articles 13 and 16 was based on its use in Article 24 of the 1832 Law, and meant the same there as he had submitted it meant in the 1880 Law.

21.      Advocate Harvey-Hills, for HSBC, started his oral argument by suggesting that "procédure" should be construed as meaning the "whole process of recovering the debt".  Under inquiry from the Court, however, he agreed that "Whole judicial process associated with the debt" might be a more precise formulation.

The proper construction

22.      The Dictionnaire de Ferriere Nouvelle Edition, Tome Seconde, of 1787 defines "procédures" as meaning "les actes, les expéditions & instructions d'un procès".  This definition seems to indicate a procédure is an entire process from beginning to end.

23.      In my judgment, however, the key to the correct meaning of the word "procédure" is to be found in the original Article 13, rather than in Article 16.  Article 13 refers first to an "action" when it says that all acts or judgments rendered in any "action" for the recovery or acknowledgment of any bond, claim or other debt shall confer on the party obtaining it a judicial hypothec. 

24.      Article 13 then has a proviso, which is crucial to an understanding of the way in which the word "procédure" is used in the 1880 Law. The proviso reads: "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".  So, such act or judgment, if there is only one in the "procédure", must be registered.  And if there is more than one, one of them must be registered.

25.      If the legislature had intended that "procédure" should mean "action", it would surely have used that word as it did a few lines before when describing how judicial hypothecs arise.  It is far more likely, in my judgment, that the legislature was referring to the whole judicial process beginning with the act or judgment of the Court creating or acknowledging the existence of an obligation or debt, and ending with the extinction of that obligation or debt.  A hypothec, it is to be recalled, is an accessory right which must attach to an obligation or debt and the "procédure" must relate to that obligation or debt.

26.      In Article 13, this construction is made even more probable by the fact that the proviso alludes to the possibility of two hypothecs arising in the same "procédure".  Such a possibility would only have been realistic in 1880 if it were referring to the whole judicial process rather than a single court proceeding, action or suit.

27.      When one then comes to Article 16, with the benefit of a proper understanding of Article 13, the meaning is transparent.  There, the legislature is simply saying that, when a hypothec has lost its date by reason of extinction of the debt or by reason of the registration of another act or judgment in the same "procédure", the first hypothec must be removed.  "Procédure" is there referring to the whole judicial process affecting the debt or obligation in question.

28.      In effect, if there is a single underlying obligation or debt, the law provides that there can be only one judicial hypothec securing such a debt or obligation, because the earlier hypothec loses its effectiveness upon the registration of the later act or judgment given within that judicial process.

29.      In the result, I am not persuaded that the use of the word "procédure" in Article 24 of the 1832 Law sheds any light on its later usage in Articles 13 and 16.  In the 1832 Law, the word was being used in a somewhat different context, albeit that it may, as Advocate Harvey-Hills submitted in his written submissions, even there, have had the meaning that I have ascribed to it.

30.      My preferred construction has, as I have said, the benefit of according with the long-standing understanding of Jersey lawyers.  The importance of such long-standing understanding in a field such as the present, which affects title, can be seen, for example, in Re Barker [1985-6] JLR 196 per Hoffman JA at page 191.  It is also supported by the Jersey Law Commission's May 2006 consultation paper on "Security on Immoveable Property", which reports at paragraph 17.7 that:-

"[I]t seems likely" that registering a subsequent judgment for the debt "has the effect of destroying the hypothec obtained by the original registration", and

"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".

31.      Advocate Thompson argued that the procedure for acknowledgment of an obligation in Rule 18/4 of the Royal Court Rules, introduced in May 1985, supported his construction.  He submitted that Rule 18(4) provides the "procédure" for the original judicial hypothec to be rendered or given, but not the "procédure" for any subsequent judgment, which cannot, therefore be, "dans la même procédure".  In my judgment, this argument fails to address the true meaning of "procédure", simply assuming that it means the same as the English word "procedure" or "proceeding".

32.      In addition, it takes no account of the provisions of Rule 18/4(7), which provides that a debt acknowledged in the manner provided for by Rule 18/4(3) shall be deemed to be without prejudice to any other indebtedness of the debtor secured by hypothec.   This reinforces the fact that the hypothec is attached to a specific debt, and seems at least to imply, as HSBC submitted, that the registration of a judgment in respect of the same debt secured by an earlier hypothec might affect that earlier hypothec.

The practical considerations

33.      There was a strong contest between the parties as to whether or not it made more practical sense for the 1880 Law to be construed as allowing two hypothecs to be registered in respect of the same debt.

34.      In my judgment, the practical consequences could not outweigh the proper meaning of the 1880 Law construed on normal principles.  But there is, nonetheless, much force in the Deputy Bailiff's finding that the Public Registry must have been intended to give a fair and accurate picture of the indebtedness secured against the property of the debtor, and that the existence of two hypothecs for the same date could mislead both current and potential lenders.  It is not an answer for Advocate Thompson to say that lenders can make further enquiries to ascertain that the debt secured by the two hypothecs was one and the same.  First, when the 1880 Law was enacted, such enquiries would have been far less easy, so the integrity of the register might have been expected to have been regarded as far more important.  Secondly, the fact that further enquiries might clear up any confusion caused by the registration of two hypothecs attached to one debt, does not explain why the legislature might have thought such a situation desirable.  Indeed, in my view, the thrust of the legislation, seen as a whole, is, as the Law Commission suggested, that one would only expect one judicial hypothec in respect of one debt.

35.      The Deputy Bailiff held that Ansbacher's construction would interfere with the intended operation of a dégrèvement, because it gave the creditor two opportunities (rather than one) to take the property.  In a dégrèvement, the holders of hypothecs are called in reverse order, and they have to choose whether or not to pay off earlier hypothecs and take the property.  Many factors may affect that decision. These may in different cases include the level of earlier debts secured by hypothec and attaching to the property, possibly even the value of other properties to which the hypothec attaches, and the value of the debtor's immoveable property generally.  The dégrèvement process is carefully balanced so as to provide as equitable a solution as possible to all creditors.  The existence of two hypothecs in respect of the same debt seems to me to provide the possibility that this process will be disrupted in unpredictable and unexpected ways.  There is nothing in the 1880 Law which suggests that such disruption was expected or intended.  Advocate Thompson's speculations as to whether and when a dégrèvement would be appropriate, and as to the choice between a désastre, a remise de biens and a dégrèvement do not seem to me to overcome these hurdles.

36.      Ansbacher's main practical argument, of course, is that HSBC's construction of the 1880 Law works injustice, because the creditor entitled to a first security is displaced by the removal of his earlier hypothec.  In my judgement, neither the rules nor the principles applicable to mortgages in English law can be transplanted into the regime established for hypothecs under the 1880 Law.  The priority arrangements are wholly different in both principle and practice.  Whilst it might seem unjust to an English lawyer that the holder of a first registered charge should have his charge displaced by the subsequent registration of a judgment for the self-same debt, there is in fact no such injustice in Jersey law, because a hypothec is quite different in juridical principle from a mortgage, and is enforced by quite different procedures.  As the Deputy Bailiff rightly acknowledged, it is not the proper construction of the 1880 Law that has removed Ansbacher's priority, it is Ansbacher's own mistaken decision to register its judgment in the Public Registry. This was unnecessary and inappropriate, and not required to enable Ansbacher to proceed to a Vicomte chargé d'écrire, and thence to a dégrèvement.

Conclusion

37.      I, therefore, hold that the 2002 Ansbacher hypothec has lost its date and, therefore, its priority, by Ansbacher's registration of the later judgment in respect of the same debt.  That later judgment was given "dans la même procédure" within the proper construction of Article 16 (as amended) of the 1880 Law.  In consequence, Ansbacher was required under the provisions of Article 16 to cause the 2002 Ansbacher hypothec to be cancelled in the Public Registry within one month of the judgment.

38.      Accordingly, I would dismiss this appeal.

Authorities

Loi (1832) sur les Décrets

Loi (1880) sur la propriété foncière.

Loi (2005)(Amendement No 5) sur la propriété foncière.

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

Jersey Law Commission's consultation paper of May 2006, "Security on Immoveable Property".

HSBC v Ansbacher (CI) Ltd [2007] JRC 167.

Dictionnaire de Ferriere Nouvelle Edition, Tome Seconde, of 1787.

Re Barker [1985-6] JLR 196.

Royal Court Rules 1985.