The recent case of Allied Irish Banks PLC v Counihan & Anor1, concerned an application by Allied Irish Banks (“AIB”) to summarily enforce a loan agreement of 5 February 2009. The loan agreement appears to have been for a refinancing of previous borrowings that were extended to enable Mr and Mrs Counihan (“the Defendants”) to buy additional frontage to their existing farmstead.
The Defendants contested AIB’s application on the following grounds:
- That certain terms of the loan agreement were unfair and thus breached their rights as Consumers pursuant to the European Communities (Unfair Terms in Consumer Regulations) 1995 (“the 1995 Regulations”); and
- Promissory Estoppel.
Overview of the 1995 Regulations
Where a bank’s customer is a consumer, the applicable banker-customer relationship falls to be construed, inter alia, by reference to the 1995 Regulations. They apply, “to any term in a contract concluded between a seller of goods or supplier of services and a consumer which has not been individually negotiated”2. A “consumer”, according to the 1995 Regulations is “a natural person who is acting for purposes which are outside his business”3.
The 1995 Regulations also provide that a term shall always be regarded as having not been individually negotiated where it has been drafted in advance and the consumer has not therefore been able to influence its substance, particularly in the context of a pre-formulated contract4. Furthermore, an unfair term in a contract concluded by a seller of goods or supplier of services with a consumer is not binding on the consumer5. However, a contract containing an unfair term continues to bind the parties thereto if it is capable of continuing in existence without the unfair term6.
The term “services” is not defined in the 1995 Regulations. However, notwithstanding the fact that AIB did not deny they were providing services to customers, given their retail deposit-taking and lending activities, Mr Justice Barrett said that he finds it difficult to see how credit institutions could contend that they are not providing services to their customers within the meaning of the 1995 Regulations.
In deciding whether the Defendants’ loan agreement contained unfair terms the Court considered the Aziz case, where it was found that if the consumer is in a weaker position – such as through bargaining power or level of knowledge – an unfair term was not binding on the consumer. The Court further noted that a summary application for debt afforded a “classic example of proceedings in which the potentially ruinous consequences of the Court’s judgement on the basis of a relatively limited argument requires assessment of unfairness by the Court if consumers are to be protected in the manner contemplated by the regulations”.
Notwithstanding this, the Court did not find any terms within the Defendants’ loan agreement that constituted a breach of the Regulations.
The Defendants argued they were advised by management level employees of AIB that the debt would not be enforced against them and that they relied on such representations. They further argued that a promissory, High Trees House – style estoppel existed between them and AIB which prevents AIB from asserting its full contractual rights against them. While Mr Justice Barrett dismissed their argument in relation to unfair terms he did find that the Defendants had an arguable defence by virtue of promissory estoppel. In doing so, he referred the application to plenary hearing on the grounds that he felt the following low threshold as set out in Aer Rianta8 had been satisfied;
“A fundamental question to be posed on an application such as this remains: Is it very clear that the Defendant has no case? Is there no issue to be tried or only issues which are simple and easily determined? Does the Defendant’s Affidavit fail to disclose even an arguable defence?”
This decision is the first reported by the Irish High Court on the Unfair Terms Regulations in a banking enforcement case. While the Court did not find that any of the terms of the contract in question were unfair, and the case was transferred to plenary hearing on a different ground, the decision is an indication of the evaluation process that will be applied by the High Court when assessing whether a term in a consumer contract is unfair. While the Regulations are likely to be relied on by borrowers defending proceedings issued by financial institutions it remains to be seen if any such challenges will be successful.