knowledge 23 February 2023 |

Lis pendens – the need for speed

In Fay v Promontoria,¹ the plaintiffs challenged the validity of the appointment of the defendant as receiver over certain property mortgaged by the plaintiffs as security for loans made to them.

The plaintiffs had registered a lis pendens in respect of the action.² However, three years had passed since the plaintiffs’ statement of claim and the defendant applied under s123 of the Land and Conveyancing Law Reform Act 2009 to vacate that registration. Section 123 allows the court to do so in certain circumstances, including where it is satisfied that there has been an “unreasonable delay” in prosecuting an action.³

However, during the three-year period, the defendant had failed to file a defence. The issue for Butler J was whether to accept the defendant’s argument that its lengthy failure to take a required step to advance the litigation could be characterised as the plaintiffs’ unreasonable delay in prosecuting the action, as the plaintiffs had failed to take positive steps to compel the defendant to act.

Consensus in the case law

Butler J reviewed the relevant case law. She said that there was consensus here on a number of matters. First, it recognised the chilling effect that the registration of a lis pendens could have on a defendant’s ability to deal with the affected property and characterised the plaintiffs’ obligation to prosecute proceedings without unreasonable delay as a legislative counterbalance to an otherwise untrammelled ability to register a lis pendens.

Secondly, and because of this, the obligation to act expeditiously went beyond the general obligation on litigants to comply with the time limits in the court rules. Time taken which might otherwise be tolerated or excusable in the conduct of an action was not permissible by a party who had registered a lis pendens.

Thirdly, notwithstanding the similarity between this application and one to dismiss proceedings for delay in prosecuting them, the more general Primor jurisprudence was not applicable here.⁴ This meant that less extensive delay could justify an order to vacate a lis pendens. Further, while the court would consider the reasons for the delay, no balance of justice exercise was required so that the defendant did not have to establish certain factors such as prejudice, in order to succeed.

Delay caused by settlement negotiations

The plaintiff raised a number of arguments to justify its failure to press the defendant on. This included an argument that settlement negotiations had led to delay.

Here Butler J noted that she had previously held in Primor-type cases that where the costs of litigation outweighed the value of the dispute, it might be reasonable for a party not to take steps in the legal proceedings, which would add to the costs while settlement proposals were under consideration.⁵

However, she did not think that this necessarily applied when one of the parties had registered a lis pendens. In those circumstances, there was an independent obligation to prosecute the proceedings expeditiously, which could not be disregarded in the hope that, from the plaintiffs’ perspective, a more cost-effective solution might be achieved.⁶

Assessment of parties’ delay

Butler J said that the defendant had not explained its failure to deliver a defence. However, as the focus of s123 was on the plaintiffs’ conduct, it was not clear that this was of crucial relevance. Certainly, the lack of an explanation here would not convert a plaintiff’s otherwise unreasonable delay into a reasonable one.

She said that s123 required the court to scrutinise in greater detail the conduct of the plaintiff who had registered a lis pendens as opposed to that of the defendant against whose interest it had been registered. Equal weight was not attached to delay on both sides.

However, there was a valid distinction between a plaintiff’s active and inactive delay here. A failure to proactively require a defendant to take steps was not automatically an unreasonable delay in prosecuting the action. Nevertheless, it might become so, where it persisted over an extended period, or where a plaintiff offered no justification for its continued failure to act.

The question of whether the period that had been allowed to elapse without plaintiff intervention was excessive and whether any excuses proffered were sufficient would vary depending on the facts of each case. It was important for the court to bear in mind when looking at those facts that it did so through the prism of a specific legislative obligation on one side as opposed, more generally, to the balance of justice as between the parties.

Finally, even if a plaintiff’s delay was unreasonable, the court had a residual discretion not to make the order sought in “very limited and exceptional” circumstances.⁷

Decision of the court

Butler J concluded that on the one hand, the plaintiffs’ 3-year inactive delay could arguably shift its otherwise reasonable conduct in awaiting the filing of a defence into unreasonable conduct in failing to provoke the taking of that step. The plaintiffs’ proffered excuses did not preclude them from being more proactive.

On the other hand, the court had no evidence whether the defendant, as receiver, had received ongoing rents from the relevant property or whether any steps, apart from the motion to vacate the lis pendens, had been taken towards its sale. There was no information as to the extent to which the receivership, in the absence of a sale, could make meaningful inroads into the plaintiffs’ indebtedness.

These factors could go to the plaintiffs’ understanding of the defendant’s intentions as regards the proceedings and, by extension, to the reasonableness of the plaintiffs’ actions. In the absence of such evidence, and with some hesitation Butler J said that she was reluctant to characterise the plaintiffs’ failure to proactively chase the defendants as unreasonable.

In all of the circumstances, the delay was not so lengthy as to make it unreasonable for the plaintiffs to assume that the defendant was not going to comply with the obligation to file a defence without the plaintiffs’ positive intervention.

However, the plaintiffs’ delay would certainly have warranted the vacation of the lis pendens had it been a period of active delay. Butler J pointed out that procedurally, the defendant was obliged to take the next step and had it done so, could have required the plaintiff to act and to act expeditiously.

Finally, she said that even if she was incorrect on the delay point, she would still have declined to vacate the lis pendens on discretionary grounds given the defendant’s delay. While its  obligation to act where a lis pendens had been registered against it was by no means as onerous as that of the plaintiffs, there was still some obligation to engage meaningfully with the litigation.

Comment

This is an interesting decision, which may take certain plaintiffs by surprise. Some may feel that adhering to time limits set out in court rules or unilaterally pressing pause to probe the possibility of settlement, should provide cover against a finding of unreasonable delay. Clearly, this is not necessarily true in the context of s123.

Defendants and others affected by a lis pendens may welcome the clear statement of the law set out in relation to a plaintiff’s obligations here but should also note the need to put their best foot forward in any application to vacate.