Doubt has been cast on the recent approach of the High Court in Ulster Bank Ireland Limited v Healy [2014] IEHC 96, by a contrary approach taken in the case of ACC Bank v Quinn, High Court, White Michael J, 25 March 2014.  In Quinn ACC sought repossession of two properties owned by the defendant which were purchased by him as residential investment properties.  The defendant raised a number of defences to the proceedings including an argument that the Consumer Codes on Mortgage Arrears applied.  The court rejected this contention stating:-

"The first two codes applied to consumers only.  The defendant although asserting otherwise was not a consumer, because the loan sanctions he signed precluded him from being treated as such."

In Healy, which was decided a month earlier, the judge found that it was, at least arguable, that a customer who borrowed to invest in property while retaining another profession or trade was a consumer for the purposes of the Consumer Credit Act 1995 despite the fact that he may have been described at all times as a commercial customer and dealt with by commercial banking personnel.  In that case the bank sought summary judgment for a sum of €600,000 against the defendant, an accountant, for monies he had borrowed to purchase investment properties in the UK.  The court found that for the defendant to be a consumer he must have been acting outside his business, trade or profession.  While the court recognised that individuals engage in property and other investment to provide for retirement, it found that this did not necessarily mean that they became a person whose business, trade or profession is that of professional investor or property investor and thus no longer a consumer for the purposes of the Consumer Credit Act.  The Court had regard to the scale of the borrowings and the ventures engaged in by the defendant and held that it was arguable that the defendant was not "a consumer" saying:-

"It seems to the court that it could be argued that a good example of a person satisfying their individual needs in terms of private consumption is a man such as Mr. Healy engaging in personal investments, using either saved or borrowed monies, so as to meet the retirement or other future requirements of himself or his family".

The decision of Barrett J in Healy has caused controversy for a number of reasons.  Firstly, if this approach is to be adopted where does one draw the line? The same argument could apply to someone borrowing €6 million or €60 million.  In all cases, the borrower is borrowing a substantial sum from a bank to buy property from which to make (hopefully) a large profit. If borrowing of this nature is "satisfying personal needs in terms of private consumption", like borrowing to buy a car or a house or to fund a holiday, then any borrowing for investment purposes by a high net worth individual has the potential to be regarded as the action of a "consumer" which could leave Irish banks in a difficult position.

Secondly the decision does not refer to previous High Court authorities on the subject including:

  1. ACC Bank Plc v McEllin & ors [2013] IEHC 454.  In that case the first named defendant (the son) persuaded the second and third named defendants (the parents), into joining him in a property development venture. ACC Bank advanced the monies totaling €1.15 million to facilitate the development and when the defendants defaulted on their repayments an application was brought by ACC Bank for summary judgment.

It was argued that the parents were consumers and were not treated as such for the purposes of the Consumer Credit Act 1995. However, the Court (Birmingham J) pointed out that in the loan documentation the borrowers represented and warranted that in entering into the loan agreement that they were not acting as a consumer. The Court was also of the opinion that the suggestion that the borrowers were consumers would, even absent the repeated warranties and representations to the contrary, have been surprising as the transaction bore all the hallmarks of a commercial transaction. This was so notwithstanding that the parents were never involved in property development previously.

The Court found:- "…it is beyond argument that the second and third named defendants and indeed the first named defendant, when entering into this manifestly commercial transaction were not consumers, and accordingly no arguable case is made out that the defendants were consumers and that the provisions of the Consumer Credit Act were not complied with rendering the agreement unenforceable."   

  1. Zurich Bank v Jim Mc Connon [2011] IEHC 75. In that case the Bank sought and was granted summary judgment for a sum in excess of €31 million which the defendant had borrowed to fund a property development adjacent to his supermarket/hardware business.  The Court (Birmingham J) held quite firmly, (following the 2010 case of Allied Irish Banks v Brian Higgins and Others, Kelly J, 3 June 2010 and the European Court of Justice case of Benincasa v Dentakit (Case C-269/95) [1997] ECR 1-3767), that the concept of "consumer" was confined to a person acting in a private capacity and not engaged in trade or professional activities, and that only contracts concluded for the purpose of satisfying an individual's needs in terms of private consumption were protected.

Barrett J in Healy had distinguished the decision in Higgins on the basis that the loans involved in that case were qualitatively and quantitatively different to the case before him.

The recent decision in Quinn has re-stated the well-established principle which existed prior to Healy that commercial investors are not consumers.  The decision is particularly helpful where, like Healy, the sums involved and the scale of the investment, namely €1.25 million and two residential investment properties are on the smaller end of the investment scale.

However, in Ryan v Danske Bank [2014] IEHC 236 which was delivered on 29 April 2014, Baker J, following Healy accepted it was arguable that the plaintiff was a consumer in an action concerning the appointment of a receiver to two commercial properties.  The judge did go on to say that breach of the consumer code did not in her view offer a borrower a substantive basis on which relief may be sought.  She also rejected the contention that there was a fiduciary or special relationship between the Bank and the plaintiff.  She stated:-

"The contract between the plaintiff and the Bank was a contract made in the course of normal banking customer relations and there is nothing in that relationship that might import additional duties beyond those found in such relationship;"

In AIB v Fahy [2014] IEHC 244 which was delivered on 2 May 2014 the issue as to whether the defendant was a consumer was again dealt with by the High Court.  In this case the defendant was a solicitor who had obtained a consumer facility in 2005 for €950k.  She used €650k to pay off mortgages on her principal private residence and the balance for commercial purposes.  The defendant required funds for her business in 2006 and applied for a new facility for €1.3m to discharge the 900k owing on the 2005 facility with the balance going to her business.  The 2006 facility was not a consumer facility.  The Bank sought judgment for the monies owing.  The defendant argued that as the 2006 loan had been used to pay the 2005 facility which had paid off the mortgages on her principal private residence this should clearly have been a consumer facility and, as it was not, it was in breach of the Consumer Credit Act and unenforceable.  The judge took the view that the application for the 2006 facility was made for"unquestionably business purposes" and "in making the application she was acting in the course of business".  The court in granting judgment to the Bank found that the defendant was not in any way disadvantaged by not being treated as a consumer – any rights that she had in that capacity had been full respected in the 2005 transaction, and she was not taking on any new liabilities in respect of any consumer in the 2006 loan.