by Jeremy Erwin April-08-2015 in Banking & Financial Services, Litigation & Dispute Resolution, Insolvency & Restructuring
Summary of Recent Case Law re Central Bank Regulatory Codes
- Stepstone v Fitzell (2012)/ AIB v Duff (2013)
- Zurich Bank v McConnon (2011)
- ACC v Deacon (2013)
- Ryan v Danske Bank(2014)
- Freeman v Bank of Scotland (2014)
- ACC v Quinn (2014)
- Conclusion
1. Stepstone v Fitzell (2012)/ AIB v Duff (2013)
Background: Both of these cases (relating to registered land / unregistered land respectively) arose on foot of applications for possession of the principal residence by the Bank.
The borrowers raised the fact of non-compliance / partial non-compliance with the Central Bank Code of Conduct on Mortgage Arrears.
Decision: The Judges in both cases refused to make orders for possession on the basis that the CCMA had not been complied with. In Stepstone, Judge Laffoy stated: “I find it impossible to agree with the proposition that, in proceedings for possession of a primary residence by way of enforcement of a mortgage or charge to which the current code applies…the plaintiff does not have to demonstrate to the Court compliance with the current code…surely a court which is being asked to make an order which will, in all probability, result in a person being evicted from his or her home, is entitled to know that the requirement in provision 47, which has been imposed pursuant to statutory authority, is complied with.”
Judgment of Mr. Justice Birmingham delivered on 4 March 2011
Background: application for summary judgment for €32m. It was not denied that the loan facilities were entered into, that the funds were drawn down, and that the loans had not been repaid. The defendant raised a number of defences which if successful, he argued, would result in the invalidity of the loan facilities and therefore there was no obligation on the defendant to repay the monies due and owing to the Bank.
The defendant raised two arguments on foot of the Consumer Protection Code. 1. The Code formed an implied term of the loan contract and that term was breached. 2. The defendant was entitled to expect that the terms of the Code would be complied with.
Decision: Mr. Justice Birmingham held in relation to the sanctions under the Code: “Entirely lacking is any suggestion that a breach of the Code renders the contract null and void or otherwise exempts a borrower from the liability to repay.” There was no method by which the Code could be implied into the contract and therefore the Judge concluded“…I can see no basis for suggesting that any alleged breach of the Code exempts the borrower from repaying his loan”.
Comment: There is an argument to the effect that the Judge erred in his classification of the defendant as ‘not a consumer’ within the meaning of the Code. However, this is unlikely to affect the above ruling.
Judgment of Mr Justice Ryan dated 28 June 2013
Background: application for summary judgment on foot of 6 loan facilities totalling €3.5m. The defendants raised a number of defences including fraud, mis-selling, lack of proper documentation, and breach of obligations to the Central Bank and statutory consumer codes.
It was submitted by the defendant that the Central Bank’s statutory codes must be incorporated into any contract with the Bank, and the Bank did not comply with a Central Bank code in respect of SME’s and a Consumer Credit Code. Moreover, the defendant argued that he was a consumer within the Consumer Credit Act 1995 and the Consumer Protection Act 2007. The only specific breach alleged is that the Bank did not conduct annual reviews of the accounts.
Decision: Mr Justice Ryan held that: “It seems clear that the compliance with the SME code is not a prerequisite of establishing liability – failure to comply with the code does not wipe out the loan or furnish a defence.” The Judge distinguished the cases of Stepstone v Fitzell and AIB v Duff on the basis that the beach of the code in both of those cases related to the possession of the family home and the Code of Conduct on Mortgage Arrears.
Judgment of Ms Justice Baker dated 29 April 2014
Background: the plaintiff sought various declarations and injunctions to the effect that the appointment of receivers over the secured properties were void and seeking orders restraining the receiver from taking any steps as receiver over the secured premises.
Judge Baker engaged on a detailed examination of the effect of the Consumer Protection Code 2012 and a review of the previous cases on point. The plaintiff was held to be a personal consumer within the Code.
Decision: Ms Justice Baker stated: “The Central Bank codes of conduct…may inform a court exercising its discretionary powers… and [in applications for possession of any premises] will take into account the regulatory requirements imposed by the relevant code.”… “An element of discretion does not however become, without more, a ground on which a plaintiff may mount a claim for relief whether in the form of injunctive relief, declaratory relief or damages. The discretion is that of the court, not one…that is imported into the contractual nexus, or one which can itself found a cause of action.”
“In my view the codes issued by the Central Bank cannot be said to have the effect that the obligations created on licensed banks are justiciable by borrowers. The requirements of compliance are ones to which the court will have regard in the exercise of its discretionary power…”. “Non-compliance with a relevant code may at best offer a defence to a borrower in an individual case” but it does not render the loan facility null and void.”
5. Freeman v Bank of Scotland (2014)
Judgment of Mr Justice McGovern dated 29 May 2014
Background: The plaintiffs issued proceedings against the Bank. The Bank brought a strike out application on the basis that the proceedings were frivolous, vexatious and were bound to fail. The judge hearing that motion permitted the plaintiff to proceed to full hearing in relation to alleged non-compliance with Central Bank codes, and struck out the remainder of the claim.
Judge McGovern at the trial of the action relating to the Central Bank code on the transfer of mortgages held that:
“It is clear, therefore, that non-compliance with a statutory code does not relieve a borrower from his obligations under a loan to repay the lender, nor does it deprive the lender of its rights and powers under the loan agreement. If that is the case so far as statutory codes of conduct are concerned, then, a fortiori, the plaintiffs in this action cannot make the case that they are relieved from their obligations under the loan or that the bank is deprived of its rights under the loan agreements, if there has been a breach by the bank of what is a voluntary code . . . In any event, the plaintiffs have failed to establish any breach by the bank of the voluntary code in this case.”
Judgment of Mr Justice White dated 25 March 2014.
Background: Defendant moved into residential investment property and sought to impose High Court possession proceedings on grounds that he was entitled to benefit of CCMA which allegedly had not been complied with by ACC. The case also involved an assertion by the borrower’s wife that arising from the Family Home Protection Act 1976 an order for possession should not be made.
Decision: Mr Justice White ruled against the various defences asserted by the borrower. In relation to the CCMA the Court held as follows: “I am satisfied that the defendant is not entitled to have the code applied in this case as he drew down a commercial mortgage for the purposes of purchasing a residential investment property. The Plaintiff considered the projected rent from the property in assessing the viability of the lending. The fact that the defendant decided to use the property as his primary residence for periods of time, without any written notice to the plaintiff, does not entitle him to have the code applied.”
Note however the following statement by the Court: “There may be situations where a lender acquiesces in the use of a property as a primary residence, which has been mortgaged for commercial purposes, and which was not intended to be the primary residence of the borrower. In that case the code would apply. For that to arise there would have to be cogent evidence advanced that the lender had notice that the property was being used as the primary residence of the borrower.”
In relation to allegations by the borrower’s wife re the Family Home Protection Act, the Court held as follows:
“Her rights pursuant to the Family Home Protection Act 1976 have been respected. Those rights do not preclude the court from granting a possession order.”
Note also the following re seeking orders for possession by way of the High Court special summons procedure in circumstances where a receiver has also been appointed to a property: “The appointment of a receiver does not preclude the Plaintiff [ie ACC] seeking possession pursuant to the Deed of Charge.”
As is clear from the above, the Courts have discretion where there has been non-compliance with a relevant code by a regulated financial institution. In cases of repossession of a family home, the Court will refuse an order if there has been non-compliance / partial non-compliance. In the case of an order for possession of other premises, the Court will exercise its discretion as it sees fit. The fact of a breach of a relevant code does not invalidate the loan facility nor does it permit the borrower to avoid repayment. Furthermore, it does not ground a cause of action or a defence but is a factor the Court may take into account.
For further information please contact Jeremy Erwin jerwin@hayes-solicitors.ie at Hayes solicitors.
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About the Author
Jeremy Erwin
Jeremy specialises in insolvency, commercial litigation and dispute resolution, acting for a variety of companies and financial institutions in contract law cases, enforcement and recovery actions and in high value complex Commercial Court proceedings. Jeremy also specialises in intellectual property matters, including advising on registration and protection of trade marks and related rights and on trade mark disputes.