Start Mortgages DAC v John Keating

JurisdictionIreland
JudgeMr. Justice Garrett Simons
Judgment Date11 May 2021
Neutral Citation[2021] IEHC 286
Docket Number2016 No. 278 CA
CourtHigh Court
Date11 May 2021
Between
Start Mortgages DAC
Plaintiff
and
John Keating
Gertrude Keating
Defendants

[2021] IEHC 286

2016 No. 278 CA

THE HIGH COURT

CIRCUIT APPEAL

Practice and procedure – Loan agreement – Order for possession – Defendants seeking remittal of proceedings to plenary hearing – Whether the issues arising were capable of summary adjudication

Facts: The plaintiff, Start Mortgages DAC (the lender), and the defendants, Mr and Ms Keating (the borrowers), entered into a loan agreement. The debt under the loan agreement was secured by way of a mortgage against the borrowers’ family home. The dispute between the parties centred on the determination of the appropriate rate of interest under the loan agreement. The proceedings came before the High Court by way of an appeal against an order for possession granted by the Circuit Court. The order had been granted in aid of the lender’s power of sale under the mortgage. The parties were in disagreement as to the appropriate procedure to be adopted by the High Court in determining the appeal. The borrowers contended that the proceedings should not be disposed of summarily, and should, instead, be remitted to plenary hearing. The borrowers also objected that there had been a failure on the part of the lender to comply with an earlier order for discovery made by the High Court. Conversely, the lender submitted that the issues arising were capable of summary adjudication. The lender applied for leave to file a supplemental affidavit to address one specific issue arising, namely the fluctuations in EURIBOR over the relevant period.

Held by Simons J that the meaning and effect of special condition 402 could not be determined on a standalone basis, by reference solely to the wording of the condition; rather, it would be necessary to apply the “text in context” approach to interpretation. He held that there was a factual controversy as to whether the interest rate had been calculated by the application of a fixed margin to EURIBOR. He noted that the borrowers had obtained, by way of discovery, an audio recording which, on one understanding at least, might appear to confirm that this is the approach adopted. He held that this factual controversy could only be resolved by way of oral evidence and cross-examination. He held that the proceedings presented a difficult question of law in relation to the interpretation of a key contractual provision, namely that governing the calculation of the appropriate rate of interest. It seemed to him that such a difficult question of law would benefit from an exchange of pleadings, wherein the parties could clearly identify precisely what they say is the correct interpretation of, and the legal implications of, the disputed contractual provision. He held that the very fact that the High Court had already granted an order directing the making of discovery tends to confirm that the issues arising were not ones which could be dealt with in a summary manner.

Simons J held that the appeal proceedings were to be adjourned for plenary hearing, pursuant to Order 5B, rule 8 of the Circuit Court Rules. He held that the plenary hearing would be before the High Court, in accordance with Bank of Ireland Mortgage Bank v Cody [2021] IESC 26. He held that the borrowers were also to be permitted to pursue the question of whether the lender had complied with the earlier order for discovery.

Appeal adjourned.

Appearances

Andrew Walker for the plaintiff instructed by BHSM LLP Solicitors

Shaula Connaughton-Deeny for the defendants instructed by Dodd & Company Solicitors (Dublin)

JUDGMENT of Mr. Justice Garrett Simons delivered on 11 May 2021

INTRODUCTION
1

These proceedings concern a loan agreement entered into between the plaintiff (“ the lender”) and the defendants (“ the borrowers”). The debt under the loan agreement is secured by way of a mortgage against the borrowers' family home.

2

The dispute between the parties centres on the determination of the appropriate rate of interest under the loan agreement. The borrowers contend that the interest rate must be calculated by reference to the Euro Interbank Offered Rate (“EURIBOR”). On the borrowers' analysis, they have been overcharged interest for many years. It is said that had the correct rate of interest been applied, then they would not, in fact, be in arrears under the loan agreement. Conversely, the lender's position is that the determination of the rate of interest is, largely, a matter within its discretion as lender. The lender does accept, however, that it is required to pass on to the borrowers, to some extent, a fall in EURIBOR. It is accepted that there must be a correlation between the two interest rates. This requirement is said to be distinguishable from a contractual obligation that there be a strict mathematical relationship between the rates.

3

The resolution of the dispute between the parties turns on the correct interpretation of the contractual clause governing the rate of interest, and, in particular, on the meaning and effect of the proviso that the interest rate will be directly affected by the rise and fall of the Euro Interbank Offer Rate.

4

This present judgment is confined to a number of procedural issues. The proceedings have come before the High Court by way of an appeal against an order for possession granted by the Circuit Court. The order had been granted in aid of the lender's power of sale under the mortgage.

5

The parties are in disagreement as to the appropriate procedure to be adopted by the High Court in determining the appeal. The borrowers contend that the proceedings should not be disposed of summarily, and should, instead, be remitted to plenary hearing. The borrowers also object that there has been a failure on the part of the lender to comply with an earlier order for discovery made by the High Court. Conversely, the lender submits that the issues arising are capable of summary adjudication. The lender has, however, applied for leave to file a supplemental affidavit to address one specific issue arising, namely the fluctuations in EURIBOR over the relevant period.

6

For the reasons set out hereinafter, the proceedings are to be adjourned to plenary hearing, pursuant to Order 5B of the Circuit Court Rules. The plenary hearing will be before the High Court ( Bank of Ireland Mortgage Bank v. Cody [2021] IESC 26). The borrowers are also to be permitted to pursue the question of whether the lender has complied with the earlier order for discovery.

LOAN AGREEMENT
7

These proceedings arise out of a loan agreement entered into between the lender and the borrowers on 7 November 2007 (“ the loan agreement”). The debt under the loan agreement is secured by a mortgage against the borrowers' family home. The mortgage is also dated 7 November 2007. The borrowers have accepted, on affidavit, that they entered into the loan agreement and the mortgage. The dispute between the parties centres instead on the determination of the appropriate rate of interest under the loan agreement.

8

The loan agreement is for a term of 24 years. The structure of the loan agreement is that, over the course of its term, interest only payments were to be made on a monthly basis. The principal sum would then be payable at the expiry of the term (special condition 1001). This is subject to the possibility of the lender demanding repayment of the principal monies earlier, in certain specified circumstances. One such circumstance is where there has been default on behalf of the borrowers in making the monthly interest only payments.

9

Under the heading “ Statutory Loan Details”, the loan agreement is identified as having an annual percentage rate of charge of 7.5%. Under the heading “ Additional Loan Details”, it is stated that the interest rate is 7.25%. The type of interest rate is identified as a “Standard Variable Rate”.

10

The loan agreement consists of a number of what are described as special conditions, followed by general loan conditions. Special condition 402 reads as follows:

“CONDITION 402 – VARIABLE RATE

The rate of interest applicable to this loan will vary in line with market interest rates. It will be directly affected by the rise and fall of the Euro Interbank Offer Rate.”

11

The rate of interest is also addressed in the general loan conditions as follows:

“4. The rate of interest specified in the Particulars is the rate of interest charged by the Lender on the relevant category of home loans as of the date of the Letter of Offer. While this interest rate prevails the advance and interest (in the case of annuity mortgages) and the interest accruing on the advance (in the case of interest only mortgages) will be payable by the monthly instalments specified in the Particulars the first of such payments to be made on the specified date of the calendar month immediately following the month in which the advance to the Borrower's Solicitor was issued and each subsequent payment to be made on each subsequent calendar month thereafter unless otherwise directed by the lender. However, this rate may vary before the advance is drawn down and will be subject to variation throughout the term. The amount of the monthly instalments will fluctuate in accordance with changes in the applicable interest rate. Payment of the monthly repayments must be made by Direct Debit.

The Loan shall bear interest at the current rate of the Lender for the relative account and be computed on a day to day basis and compoundable with monthly rests before as well as after Judgment. A certificate signed by an officer, at the date of the Certificate, of the Lender stating the current rate of interest applicable to the said account from time to time shall be prima facia evidence against the Borrower of the rate of interest applicable to the relative account from time to time. The Mortgage will be one for securing the payment of all monies for the...

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