Is a mortgage between a lender and a consumer outside the scope of the Unfair Terms in Consumer Contracts Regulations? A recent decision of the Irish High Court suggests that it is, however, this is not consistent with other recent Irish judgments on the point.
Unfair Terms Regulations raised more frequently in enforcement actions
The Irish Courts have increased their focus on the Unfair Terms in Consumer Contracts Regulations (the Regulations) over the last two years. Compliance (or otherwise) with the Regulations is being raised with increasing frequency by borrowers as a defence to enforcement action. For further detail, read our earlier briefing: Should the Courts consider whether mortgage terms are "unfair", even if not asked to do so?
Bank of Ireland v McMahon – Is a Mortgage outside the scope of the Regulations?
In his recent judgment in The Governor and Company of the Bank of Ireland v McMahon & anor, Binchy J in the Irish High Court considered, among other matters, whether the obligation in the Regulations to ensure that a contract is drafted in “plain, intelligible language” extends to the mortgage which secures the obligations of the borrower under the loan agreement between the borrower and the lender.
Somewhat surprisingly, Binchy J concluded that the Regulations do not apply to mortgages at all, but only apply to the loan agreements to which the mortgages relate. He observed that to suggest otherwise would be “an absurd proposition which…might very well undermine the domestic mortgage market”.
In reaching his decision on this point, Binchy J also observed that, in practice, it is not possible for a borrower (presumably referring to a “consumer” borrower) to draw down a loan secured by a mortgage without the benefit of independent legal advice.
A different approach to other recent decisions
Binchy J’s approach is particularly interesting in that, in other 2018 judgments relating to the Regulations, the Irish High Court has not treated a mortgage as outside the Regulations’ scope altogether.
While, in Ulster Bank Ireland Limited v Costelloe & anor, Faherty J held that none of the key terms of the relevant mortgage deed could be deemed to be unfair because the borrowers had received independent legal advice, she did not treat the mortgage deed itself as being outside of the scope of the Regulations.
Faherty J took a similar approach in her subsequent decision in Permanent TSB Plc formerly Irish Life & Permanent Plc v Fox & anor. In that case, the borrowers claimed that a provision in the mortgage conditions which stated that the secured debt became repayable if there was a twomonth default in making repayments was unfair. Faherty J held that she could not find “any particular unfairness” – she was satisfied that the borrowers should have been aware of this clause from the outset, and noted that the borrowers had confirmed in writing that their solicitor had fully explained the terms and conditions of the loan to them. Again, Faherty J did not treat the mortgage deed as being outside of the scope of the Regulations; instead, she did not view the impugned term as unfair, in particular in light of the independent legal advice provided to the borrowers before they entered into the loan agreement and related mortgage.
Given the differences in approach outlined above regarding the treatment of a mortgage deed where the Regulations are invoked by a borrower, it will be interesting to see what approach is taken in future decisions of the Irish High Court on this point. We will publish further updates as developments occur.