On 14 June 2016, the High Court determined that Start Mortgages Limited had not commenced enforcement proceedings in accordance with the terms of the loan agreement as they had failed to serve a letter of demand correctly and, as a result, enforcement has been delayed pending a plenary hearing.

This case [1] involved an appeal by Mr Shane Hanley (the “Defendant”) against a High Court judgement. This had been granted against him for failing to repay monies borrowed by him from Start Mortgages Limited (the “Plaintiff”). The Defendant's appeal was grounded on the basis that he claimed he never received the demand for payment which led to the proceedings before the High Court. Instead, the notice had been sent to a different Mr Hanley, who had no connection to the Defendant, and the Court accepted that this had occurred. As a result of this, the Plaintiff claimed that he was denied the “period of continuing and heightened negotiation that would typically flow after the issue of a demand” and matters had instead progressed to judgment being obtained against him.

The Defendant submitted a number of defences including that:

1. It was not required to issue a demand under the terms of the loan agreement

The Court examined the relevant provision of the loan agreement which stated that following a default

…. The Lender may demand payment thereof on giving seven days’ notice in writing to the Borrower…”.

The Plaintiff argued that this wording meant that they were not obliged to issue a demand. The Court rejected this argument and determined that the effect of this clause was that a repayment of the loan could only be demanded upon the giving of seven days’ notice.

2. If such notice of demand was required, that the proceedings commenced were a sufficient notice

The Court dismissed this argument also, and the Judge noted in particular that general banking practice recognised that there was a significant difference between issuing a letter of demand and commencing court proceedings to recover monies owed.

3. It was permitted to commence proceedings at any time after a default under the terms of the loan agreement

The Court also considered another clause of the loan agreement which the Plaintiff argued negated the requirement for them to issue a demand letter but that the Defendant contended was an unfair contract term under the European Communities (Unfair Terms in Consumer Contracts) Regulations 1995 (the “Regulations”). If it was found to be an unfair term the clause would be struck out and the Defendant would be in the same position and entitled to have a notice of demand served on him.

4. It should not be delayed any further in enforcing the Defendant’s liability to it

The Court also dismissed this argument on the basis that the Plaintiff could have re-started the recovery process at any time by re-issue of the letter of demand rather than issuing court proceedings.

The Court, therefore, determined that the Defendant had an arguable defence to his claim, that is, that the Plaintiff had not proceeded in accordance with the requirements of the loan agreement to serve a letter of demand. The Court referred the matter for plenary hearing.

Comment

This case demonstrates that the courts will infer that a demand must be correctly served even where enforcement provisions are, arguably, ambiguous. It also suggested that where parties have negotiated ‘no demand’ enforcement provisions the Code of Conduct on Mortgage Arrears and the Regulations will take precedence where the borrower is an individual, as in this case.