AIB Mortgage Bank v Hayes

JudgeMs. Justice Baker
Judgment Date06 May 2016
Neutral Citation[2016] IEHC 280
CourtHigh Court
Docket Number[2013 No. 3806 P]
Date06 May 2016



[2016] IEHC 280

[2013 No. 3806 P]


Banking & Finance – Non-payment of loan – Summary Judgment – Mode of demand of loan – Parol evidence rule – Construction of contract

Facts: The plaintiff/bank sought an order for summary judgment against the defendants for non-payment of loan on the basis of a loan facility agreement. The defendants, while admitting their liability to pay the loan, contended that the plaintiff had demanded the payment of the loan in contravention of an implied term that the loan would be repayable on an interest-only basis for a period of ten years from the date of agreement, and thus, the said demand was unlawful

Ms. Justice Baker granted an order for summary judgment in favour of the plaintiff. The Court, after scrutinising the documents, as per the parol evidence rule, which prohibited a party from adducing extrinsic evidence for the purpose of defeating the contract that was reduced to writing, held that it was necessary to look into the internal documentation in the present case. The Court found that the loan offer and the emails made the loan available initially on a five-year interest-only basis and subject to review at that stage. The Court observed that the statement used by the Bank official ‘all things being equal there wouldn't be any issue in extending at that stage for a further five years,’ conveyed that the Bank would extend the interest-only arrangement for a further period of five years, absent some change in the financial circumstances. The Court held that since there was a change of circumstances after five years, the Bank was entitled to refuse to extend the interest-only period, and thus, there was no breach of contract. The Court opined that the modern principles of contractual interpretation required that in order to understand the meaning of words used in a document, regards should be had to the background against which the said words were intended to be used.

JUDGMENT of Ms. Justice Baker delivered on the 6th day of May, 2016.

AIB Mortgage Bank (‘the Bank’) seeks judgment against the defendants on foot of a loan facility of the 2nd June, 2005, by which they borrowed the sum of €4 million, repayable over the term of 20 years and subject to the conditions therein contained.


The defendants do not deny that they borrowed the money, and that the loan monies remain outstanding. They defend the proceedings on the grounds that the Bank made its demand for payment other than in accordance with the terms of the agreement, and assert that the loan was subject to a provision that, for the first ten years of its term, repayments would be of interest only at the agreed rate, and that the Bank unlawfully and in breach of contract demanded repayment prematurely.


The Bank denies that the loan contract was subject to a term that repayment be on an interest only basis for ten years, and says that the interest only repayments were agreed for a period of five years, whereafter the monies became repayable on an annuity basis, i.e. by payment of interest and capital.


The loan was secured on 22 residential units, and no issue arises in these proceedings with regard to the security, although the defendants have issued proceedings against the Bank and the receiver appointed by the Bank over certain of the secured properties. It was agreed at the commencement of the trial that those proceedings would stand adjourned pending the determination of the judgment proceedings.


The first named defendant, Patrick Hayes, is a civil engineer and was a successful property developer and builder. He retained units from many of his developments over the years and has a significant and valuable property portfolio.


The second named defendant is the wife, or former wife, of the first named defendant and was a joint borrower and owner of some or all of the secured properties. Mrs. Hayes took no part in these proceedings.


The amount currently said to be due and owing on foot of the loan is the sum of €3,987,139.94, being the aggregate amount of principal and interest since the 8th November, 2012, the date on which the loan was called in. There is no dispute with regard to the interest rate, agreed as a tracker rate of 1% above ECB rates.


This judgment is given primarily on the matters raised in the defence and counterclaim of the defendants, and I now set out the matters pleaded in the counterclaim.

The counterclaim

The counterclaim seeks damages for breach of contract, misrepresentation, negligence and breach of duty and a declaration that the plaintiff is estopped from seeking repayment of the loan arising from an alleged breach of representation and/or breach of contract.


In particular the following is pleaded:

(a) That there was express and/or implied term that the loan would be repayable on an interest only basis for a period of ten years from the date of the agreement.

(b) That the plaintiff through itself or its servants or agent represented that the loan would be available on a ten-year interest only basis, for the purposes of inducing the defendants to enter into the agreement, and on which they relied.

(c) That the making of demand for repayment after five years was in breach of that implied and/or express term and/or in breach of the representation so alleged to have been made.

The evidence

The first named defendant gave evidence that a contractual provision by which the loan would be repayable on an interest only basis for ten years was of central importance to him, having regard to a number of factors. The primary factor he identified was anticipated expenditure on his children who were still at school or university. He also gave evidence that he was seeking what he described as ‘safe harbour’ for his assets in the light of what he perceived to be an overheating of the property market, and because he considered it prudent to protect his assets from the vagaries of a cyclical property market. I will return later to these propositions.


His evidence was that he had a long and successful banking relationship with the Bank and had dealt primarily with its branch at South Mall in Cork. Much of the subject borrowings related to pre-existing loans, and at the time the loan was negotiated his overall liability to the Bank stood at approximately €3.5 million. He sought the further capital sum of €500,000 to tide him over his anticipated expenditure, to consolidate existing loans and securities and in the light of his long term financial objectives.


He had commenced negotiations with AIB through Denis Dudley in early 2005, but that he had also engaged in negotiation with Bank of Ireland with a view to obtaining more favourable loan conditions from that bank. He accepted in evidence that his preferred option was to stay with AIB, partly as a result of loyalty, but also because a certain amount of expense and inconvenience would result from a transfer of his loans and the securities supporting those loans to the other financial institution, and because he would suffer a penalty were he to break some fixed term loan agreements.


The Bank does not deny the making of certain pre-contract statements but does deny that they have the alleged effect whether as matter of contract or in tort. The Bank accepts that the agreement between it and the defendants was that after the expiration of the initial period of five years, during which it was agreed that repayments would be on an interest only basis, the loan facility would be reviewed, but asserts that at the date of renewal, in or around May, 2010 that the financial circumstances of the defendants has altered considerably. The Bank pleads in those circumstances that it was contractually entitled to, and did then, refuse to extend the interest only facility for a further period of five years.


Having reviewed the evidence and arguments, I consider that the following matters fall to be determined:

i. Was the loan document dated the 5th May, 2005, and executed by the defendants on the 2nd June, 2005 intended to, and did it in fact, comprise the entire contract between the parties?

ii. Was the loan between the Bank and the defendants subject to an agreement that the Bank would review the interest only repayment facility on the expiration of the five-year period?

iii. If so, was there an agreement that at that review the interest only facility would automatically be renewed for a further five years?

iv. If not, what were the factors that might have influenced the Bank in agreeing to extend the interest only facility for a further period, whether of five years or a lesser period?

v. Did the Bank make a representation that the interest only facility would automatically be renewed after five years, and if so, did the representation operate as a preliminary or collateral contract or warranty?

vi. If there was an agreement that the loan facility be reviewed after five years, did the Bank breach that agreement?

vii. Did Mr. and Mrs. Hayes rely on the representation such that a claim in tort arises?

The e-mails

The pre-contract negotiations were conducted to some extent face to face, but the primary evidence of those discussions is contained in a series of eleven e-mails between Mr. Hayes and Denis Dudley of AIB. The e-mails are helpfully clear in their sequence and they show that Mr. Hayes was pressing the Bank to facilitate him with a ten-year interest only period, and that he had secured an offer of such a facility from Bank of Ireland. The e-mails show that the Bank did agree that at the end of the five-year period, the facility would be reviewed with a view to offering a further five-year period. Mr. Hayes sought clarification, and...

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5 cases
  • Connell v Danske Bank
    • Ireland
    • High Court
    • 14 December 2017
    ...resolve at this juncture and does not need to resolve in order to decide this matter. The defendant relies on AIB Mortgage Bank v. Hayes [2016] IEHC 280 as a statement on how the parol evidence rule is to be applied. 9 With regard to the Court's inherent jurisdiction to strike out these pr......
  • Promontoria (Arrow) Ltd v Burke
    • Ireland
    • High Court
    • 19 December 2018
    ...committee. A similar conclusion was reached (although this time following a plenary hearing) by Baker J. in AIB Mortgage Bank v. Hayes [2016] IEHC 280 (‘ Hayes’). Having referred in that case, to several of the earlier authorities including Galvin, Deane and Tennants, Baker J. accepted that......
  • Allied Irish Bank Plc v Cuddy
    • Ireland
    • Court of Appeal (Ireland)
    • 30 July 2020
    ...test for granting summary judgment or giving leave to defend. 3 57 The decision of the High Court (Baker J) in AIB Mortgage Bank v Hayes [2016] IEHC 280 was also given after a full hearing of the action. The facts need not detain us. For present purposes, the importance of Baker J's judgmen......
  • AIB v O'Toole
    • Ireland
    • Court of Appeal (Ireland)
    • 22 March 2018
    ...the main contract, and but for which the main contract would not have been entered into. In her judgment in AIB Mortgage Bank v. Hayes [2016] IEHC 280, Baker J. considered that judgment and others opened to her, such as that of McGovern J. in Ulster Bank v. Deane [2012] IEHC 248, and of Hog......
  • Request a trial to view additional results

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