Allied Irish Banks Plc v Siobhan Fahy

• Jurisdiction: Ireland
• Judge: Ms. Justice Iseult O'Malley
• Judgment Date: 02 May 2014
• Neutral Citation: [2014] IEHC 244
• Court: High Court
• Date: 02 May 2014

[2014] IEHC 244

THE HIGH COURT

Record no. 618S/2011

Allied Irish Banks Plc v Fahy

No Redaction Needed

Between/

ALLIED IRISH BANKS PLC.

PLAINTIFF

AND

SIOBHAN FAHY

DEFENDANT

DATA PROTECTION ACT 1988

CONSUMER CREDIT ACT 1995 S30

CONSUMER CREDIT ACT 1995 S2

CENTRAL BANK & FINANCIAL SERVICES AUTHORITY OF IRELAND ACT 2004 SCHED 3 PART 12

ALLIED IRISH BANK PLC v HIGGINS & ORS UNREP KELLY 3.6.2010 2010/2/422 2010 IEHC 219

STANDARD BANK LONDON LTD v APOSTOLAKIS 2002 CLC 933 2000 IL PR 766

EEC DIR 102/87

EEC DIR 80/90

INTERPRETATION ACT 2005 S18

BENINCASA v DENTALKIT SRL 1998 AER (EC) 135 1997 ETMR 447 1997 IL PR 559 1997 ECR I-3767 CASE C-269/95

GRUBER v BAY WA AG 2006 QB 204 2006 2 WLR 205 2005 IL PR 12 2005 ECR I-439 CASE C-464/01

ACC BANK v FRIENDS FIRST MANAGED PENSIONS FUNDS LTD UNREP FINLAY GEOGHEGAN 26.10.2012 2012 IEHC 435

Loan Agreement - Consumer Credit Act 1995 – Surcharge – Interest – Recognition as Consumer – Commercial Loan – Consumer Contracts

The facts of this involve a loan agreement dispute. The plaintiff (Allied Irish Banks), being heard in front of O”Malley J. in the high court, sought liberty to enter final judgment in the sum of approximately €1.6m on foot of a loan of €1.3m. The defendant contested the plaintiff”s claims that when she entered the loan agreement she was a consumer and that the terms of the Consumer Credit Act, 1995 were not complied with. Additionally the defendant requested that any surcharge interest imposed be dropped. The plaintiff summited that it was a commercial loan to which the Act did not apply and additionally contended that any surcharge interest charged was justified by reference to the terms and conditions of the loan.

O”Malley J carefully considered all of the contractual negotiations and relevant statutory provisions in order to determine a just outcome. Considering whether the defendant should be recognized as a consumer or not O”Malley analyzed the various authorities on the consumer credit issue such as Allied Irish Bank Plc v Higgins [2010] IEHC 219. O”Malley J decided that the loan agreements were for business purposes, and in making the application the defendant was acting in the course of business. O”Malley rejected the defendant”s claim that she should be recognized as a consumer but added that the defendant would not in any way disadvantaged by not being treated as a consumer and not being able to therefore rely on the consumer credit act. In relation to the surcharge rate imposed by the plaintiff O”Malley J decided that any surcharge cost is unenforceable due to lack of evidence, O”Malley did not consider that the level of 12% imposed by plaintiff can be seen as a genuine pre-estimate of loss and there was little evidence to suggest this was an acceptable surcharge rate. O”Malley J held that plaintiff is entitled to judgment in the amount claimed, less any element related to surcharge interest.

Introduction

1 In this case the plaintiff seeks liberty to enter final judgment in the sum of approximately €1.6m on foot of a loan of €1.3m made to the defendant on the 30 ^th June, 2006. The defendant, who is a solicitor, makes the case that in her dealings with the plaintiff in relation to this loan she was a consumer and that the terms of the Consumer Credit Act, 1995 were not complied with. As a separate issue she contends that certain sums included in the overall figure represent surcharge interest which, she says, is not recoverable in her case.

2 The plaintiff says that it was a commercial loan to which the Act did not apply. It also contends that any surcharge interest charged was justified by reference to the terms and conditions of the loan.

Summary of facts

3 Before dealing with the circumstances of the 2006 loan, it is necessary to set out something of the previous history between the parties.

4 Prior to 2006 the defendant had banked with the plaintiff for some time and had taken out a number of loans. Her relationship manager from 2003 until 2008 was a Ms. Carmel Hayes, who dealt with both her personal and business banking. In late 2004 or early 2005 the defendant also brought the banking business of her practice to the plaintiff.

5 Apart from the ordinary business of her practice (principally litigation and conveyancing), the defendant had also, in 2004, established a business called Home Law Direct. This involved the franchising of a fixed- price conveyancing service to other solicitors. Franchisees paid a stipulated sum to join and also paid 10% of their conveyancing fees plus €600 per month to a separate company called Home Law Direct Marketing Ireland.

6 Separately, the defendant was the beneficial owner of two property development companies called Trezglen Holdings Limited ("Trezglen") and SPF Corporate International Limited ("SPF").

7 In 2005 the defendant had four mortgages on her family home in County Limerick, with a total outstanding balance of about €643,000. Ms. Hayes has said that she believes that about €275,000 of the sums thus borrowed and secured on the home had been related to business and property investment. This was denied by the defendant, who says that the "vast majority" of the money related to personal spending. Neither side has produced any documentation relating to these mortgages. The defendant paid interest on the loans at the bank's normal home loan rate.

8 In June of that year she entered into an agreement to borrow the sum of €950,000 from the plaintiff. According to the plaintiff, it was understood that the purposes of the loan was to clear the four mortgages and to invest the remainder in the expansion of Home Law Direct.

9 The defendant does not accept that it was intended that any substantial portion of this loan was to be used for business purposes. Her evidence is that, in addition to clearing the mortgages, she required €270,000 to repay loans from family members, made in connection with the completion of a purchase of lands in Ballysimon, Co. Limerick. She asserts that she had spent about €40,000 on Home Law Direct and that, because of its business model, it did not require much more capital. She says that the bank was aware of this and of the necessity to repay the family loans.

10 The period of the loan was agreed to be 15 years. Monthly repayments were €5,686. The cost of the credit was €73,501.60. The security was the assignment of various insurance policies and legal charges over the offices of the defendant's practice and an investment property owned by the defendant in Castletroy, Limerick. The defendant's home was not part of the security.

11 At the request of the defendant, the loan account was to be set off against her client account. So long as there were sufficient funds in the client account to cover the loan - i.e. €950,000 - the interest on the loan account would be 1 per cent. If the funds in the client account fell below that figure, the interest rate on the loan would be 1 per cent of whatever figure was to the credit of that account, with the rate on the difference rising to the bank's Prime rate plus 1.5 per cent.

12 In applying for this facility on behalf of the defendant, her bookkeeper described what was being sought as a commercial loan, secured against the office building. The purpose of the loan was to clear the current liabilities on the defendant's home, stated to be approximately €650,000

"and the balance for Siobhan & Homelawdirect project."

13 The letter also says that if it would be quicker to process the additional €300,000 first, and leave the mortgage as it was for the time being, that option would be preferred.

14 In making the agreement the plaintiff decided to treat the defendant as a consumer within the meaning of the Consumer Credit Act, 1995. The agreement is clearly drawn up as a consumer contract, with provision for an optional 10- day "cooling off" period. Ms. Hayes's evidence is that this approach was taken because home mortgages were being cleared and she did not want "any ambiguity around it later on."

15 This loan was drawn down on the 27th July, 2005. On the same day €643,000 was applied to clearing the defendant's home loans and the sum of €307,193.65 was lodged to the Home Law Direct account. However, a payment of €270,000 was then immediately made out of the latter account to Denis McDwyer & Co., a solicitor's firm. According to the defendant, this represented the repayment of the family loans relating to the purchase of the lands at Ballysimon. The remaining sum of just under €40,000 was left in the Home Law Direct account for "ongoing administration costs".

16 The defendant says that this was effectively a personal loan and that is the reason why she was treated as a consumer.

17 Payments were made by the defendant in accordance with the terms of this loan agreement and the balance had been reduced to €900,000 before the next relevant development.

The 2006 facility

18 On the 28 ^th March, 2006 the defendant's accountants wrote to Ms. Hayes, advising her that the defendant intended to liquidate Trezglen and SPF. For this purpose it would be necessary to put the companies in funds in the amount of €400,000 to repay sums owed by the defendant to SPF and to deal with capital gains tax liabilities. It was anticipated that this would eventually result in a distribution of €200,000 to the defendant.

19 It was not suggested by the plaintiff that the €200,000 was to be used to repay any part of the loan but Ms. Hayes says that she believed that this money would be reinvested in the defendant's business. She accepts, however, that she was not told that by the defendant. Mr. Kieran O'Regan, the Head of Business Banking at the time, has said in evidence that he believes that he did have a meeting with the defendant in June, 2006. On the basis of his notes of the meeting he says that he...