Allied Irish Banks Plc v Liam Fahey and Others

JurisdictionIreland
JudgeMs. Justice Iseult O'Malley
Judgment Date21 May 2015
Neutral Citation[2015] IEHC 334
CourtHigh Court
Date21 May 2015
Allied Irish Banks Plc v Fahey & Ors
No Redaction Needed
BETWEEN/
ALLIED IRISH BANKS PLC
PLAINTIFF

AND

LIAM FAHEY, GERALD PAUL, BERNARD CROWLEY, CLAIRE KEELAN and BRIAN KEOHANE
DEFENDANTS

[2015] IEHC 334

[Record No. 3237S/2010]

THE HIGH COURT

Banking and Finance – Contract – Repayment of loan – Consumer Credit Act 1995 – Whether general terms and conditions apply for demand of repayment of loan

Facts: The plaintiff claimed a certain amount of money along with interest owing to a joint loan facility drawn down by defendants. The first named defendant contended that since he borrowed the money incidental to the business of the plaintiff, and not for business purposes, he was not a consumer.

Ms. Justice Iseult O'Malley held that the plaintiff was entitled to the claimed amount of money along with interest for a certain period. The Court held that financial arrangement would be governed by the general terms and conditions and each of the defendants were jointly and severally liable. The Court found that the first name defendant being engaged in commercial development could not be held to say that he was a consumer within the meaning of the Consumer Credit Act.

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JUDGMENT of Ms. Justice Iseult O'Malley delivered the 21st day of May 2015

Introduction
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1. In these proceedings the plaintiff claims the sum of €10, 676,158.76 and continuing interest on foot of a joint loan facility drawn down by the defendants. As of the date of the hearing the amount claimed including interest is €12,059,522.06

The contract documents and correspondence
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2. The plaintiff relies on a letter of loan sanction dated the 22 nd December, 2006, ("the December 2006 letter"). The key provisions relating to the details of the agreement were as follows:

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· The sanction was for two loans, Facility 1 and Facility 2.

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· The amount of the loan for Facility 1 was stated to be €10, 640,000.

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· The purpose of Facility 1 was to assist in the purchase of about 15 acres of land at Ballyleary, Co. Cork. These lands, which were priced at €13.3m, had full planning permission for the development of 167 residential units plus a crèche.

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· Interest on the loan was expressed to be at prime rate varying, plus 1%, per annum, "currently 5.25 %".

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· Repayment was provided for in the following terms:

"Interest only to be repaid on facility pending clearance in full from site fines of €91,000 per residential unit sold. Any residual balance will be repayable at the end of the repayment period."

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· There was no definition of the term "repayment period".

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· Facility 2 was for the sum of €6m, which was stated to be for the purpose of development finance towards construction of the buildings already referred to. Repayment was to be

"Interest to be rolled up within the facility for a period of twelve months pending clearance from site fines of Eur 51,000.00 per residential unit sold. Any residual balance will be repayable at the end of the repayment period."

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· The letter provided that all facilities were subject to review by the 30 th September, 2007.

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· The security for the facilities was to be legal charges over both the Ballyleary lands and another site ("Marinegate"), which was intended to be developed by the same defendants (with the exception of Claire Keenan), plus limited recourse collateral mortgages over both properties from the then owners/vendors of the two sites.

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3. The letter stated that the facilities were subject to the terms and conditions set out in the letter and also to the plaintiff's general terms and conditions. Of the latter, the clauses of relevance in the case are the following.

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· Clause 1.1.1, which, in describing the various facilities offered by the bank, referred to loan accounts as being

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"usually medium to long-term facilities" with "customised repayment options".

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· Clause 1.1.2, which stated as follows:

"Other specific terms and conditions may apply to facilities in accordance with the relevant letter of sanction or other agreement in writing between the bank and the borrower and to the extent, if any, that the specific terms and conditions conflict with the general terms and conditions set out in this booklet, then the specific terms and conditions will apply."

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· Clause 3.1.1, which provided that loan account facilities were repayable on demand but also stated:

"However, in normal circumstances the bank expects that the loan will be available as stated in the letter of sanction."

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· Clause 3.1.2, which stated that without prejudice to the plaintiff's right to demand repayment at any time, the happening of any event specified in clause 4.2 might lead the plaintiff to make demand for payment without notice to the borrower.

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· Clause 4.2, which set out various "events of default", including "a material change" relevant to the borrower, which, in the opinion of the plaintiff, was prejudicial to the plaintiff's interest.

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· Clause 7.4, which provided that each party to a facility on a joint account was jointly and severally liable to the bank for repayment of the facility and was subject to all of the applicable terms and conditions.

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4. There was no review in 2007 but the December 2006 letter was subsequently the subject of what is described by the bank as a "variation" or "renewal" of the facility by letter of loan sanction dated the 23 rdApril, 2009 ("the April 2009 letter"). This letter referred only to Facility 1 and there was no mention of a facility for development finance. The terms of the offer were identical to the December, 2006 offer so far as the amount, purpose and security for the loan were concerned, and in stating that the offer was subject to the terms and conditions set out in the letter and also to the bank's general terms and conditions. However, the interest rate was now

"Base lending rate varying, plus 2% per annum, currently 3.863% per annum."

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5. There was also a special condition noting that the above interest rate included a funding premium of 0.5%.

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6. Under the heading "Repayment" it was provided that

"Facility is subject to review/refinance by 30/ 4/2010. In the interim interest to be provided as it falls due. Any residual balance will be repayable at the end of the repayment period."

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7. There was no reference in this letter to repayment being made out of sales of the units.

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8. In conclusion it was stated that this letter of sanction was in substitution of and not in addition to any previous facility letters.

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9. The April 2009 letter was signed by all of the defendants but only a faxed copy of the signed document was returned to the bank. The original has never been produced.

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10. On the 17 th December, 2009, a further letter of sanction was issued. Again, the offer was subject to the terms and conditions set out in the letter and the bank's general terms and conditions. The amount, purpose and security of Facility 1 were unchanged from the 2006 offer. Facility 2 was not referred to. The interest rate was base lending rate plus 2%, at that time 2.743% per annum. The facility was to be subject to review/refinance by 30/ 4/2010. In the interim interest was to be paid as it fell due and any residual balance was to be repayable at the end of the repayment period.

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11. In a separate letter, dated the 18 th December, the borrowers were told that the new letter of offer would, following their acceptances, replace

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"the existing letter of offer dated 13/04/2006."

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12. It is common case that this date was an error and that what was intended was a reference to the letter of December, 2006.

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13. The borrowers were also told that, pending receipt of their acceptances, the facility was to continue to be governed by the terms and conditions of the existing letter of offer

"which terms are hereby extended for a further period ending on (a) 31/01/2010 or (b) the date of receipt of the New Letter of Offer duly accepted by you, whichever is the earlier…"

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…Please note that this letter is supplemental to and not in replacement of the existing letter of offer and save as varied by the terms of this supplemental letter, all other terms and conditions applicable to the facility remain unchanged pending acceptance of the new letter of offer."

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14. The letter warned that surcharge interest could be charged if the borrowers defaulted.

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15. This letter of sanction was returned to the bank, by letter dated 28 th January, 2010, by Mr. Brendan Cunningham of McNulty Boylan & Partners, who expressed themselves to be acting on behalf of "Liam Fahey, Gerald Paul, Bernard Crowley & Ors." The covering letter read as follows:

"We are returning the Letter of Sanction, which has been signed by our Clients."

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We have been instructed and so believe, that our Clients have paid interest on this loan as it came due, and that it is their intention to continue to do so in the future.

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However, whilst we are returning the documentation duly completed, it is incumbent on us to register in the strongest possible terms, our concern and dismay at the changes in terms that are being unilaterally imposed on our Clients, by the Bank, and in particular the following:-

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1. Originally our Clients borrowed at a Rate of prime plus 1%, now they are being asked to pay base plus 2%.

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2. Our clients had applied for, and been furnished with, Development Finance to enable the property to be developed. Without discussion that Development Finance has been withdrawn, which had the immediate result of seriously damaging our Client's ability to bring this development to fruition.

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These, and other changes, have led to fundamental changes in the terms which are not being offered, but are effectively being imposed on...

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2 cases
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    ...the CJEU in Benincasa and Gruber and the decision of Kelly J. in the Higgins case, were applied by O'Malley J. in AIB plc v. Fahey & Ors [2015] IEHC 334. In the course of her judgment, the learned judge noted that in Higgins, Kelly J. had rejected the proposition that a person could only ha......
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