A number of observations by the court in this recent judgment, in relation to defences commonly sought to be deployed by borrowers in proceedings for the recovery of loans, will be of interest to financial institutions in particular.

The court, in dealing with a claim for judgment on a summary basis, following the Supreme Court's decisions in Aer Rianta CPT v Ryanair Limited [2001] 4IR 607 and Danske Bank a/s Trading as National Irish Bank v Durkan Homes and Others IESC 22 (Unrep 22 April 2010), confirmed that while the jurisdiction to refuse leave to defend exists, it is a jurisdiction which should be exercised sparingly. In this case, however, the court saw no arguable basis whatever for suggesting that the borrower could be absolved from liability to repay the loan, and accordingly held that the plaintiff was entitled to summary judgment.

Some interesting issues arose in the course of the court’s analysis of the various heads of defence put forward, which can be summarised as follows: -

  • The court confirmed that a breach of the Consumer Protection Code is regulatory matter which does not invalidate the loan or exempt the borrower from repaying the loan.
  • The court found that the defendant in this case was not a "consumer" within the meaning of the Code. The court followed the case of Allied Irish Banks v Brian Higgins and Others IEHC 219 (unrep 3 June 2010), and the ECJ case of Benincasa v Dentakit (Case C-269/95) [1997] ECR 1-3767, which held 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 are protected.
  • The court rejected that the provisions of the Consumer Protection Code would form an implied term of the loan agreement.
  • The court rejected the borrower's defence that the loan was unenforceable on the basis that bank was obliged, pursuant to a precondition of the loan agreement, to satisfy itself as to the form and content of an independent valuation in respect of the secured lands and had not done so (the particular valuer having been initially engaged by the borrower and which valuation the borrower alleged was "so far off the mark as to be derisory"). In this context, the court commented that even if there was any doubt about this, which it did not think there was, it would be entirely removed by the clause in the loan agreement which said “the Bank has the right to waive any and all of the conditions precedent”.
  • The court rejected the borrower's defence that the plaintiff was estopped from enforcing its loan on the basis of the terms of a standstill agreement, which allowed the borrower to put forward proposals to the bank, but where the bank had not then agreed to a restructuring of the loan, but had rejected the proposals. Mr Justice Birmingham said that what the bank offered was limited to offering a standstill period, no more and no less, and that he could see no arguable basis for suggesting that an equitable remedy would involve extinguishing the right of a bank that has lent a very large sum of money for a commercial development to be repaid.
  • The court rejected the borrower's submissions that the loan agreement had been "frustrated" by virtue of the dramatic collapse in property values.

Of further interest are the comments of Mr Justice Birmingham at the final paragraph of the judgment. While the court was of the view that the decision to advance funds was "extraordinary indeed bordering on bizarre … this was not a question of a bank forcing funds on a reluctant, but gullible, borrower". The court was of the view that it must have been apparent to the parties that "this was not a project free of risk". Also of interest are the courts comments to the effect that “there is no basis whatever for suggesting that the parties had agreed to enter into a risk sharing partnership”.