The Courts continue to deal with the financial fallout from the recession and the indebtedness in which many individuals and businesses find themselves. In the course of various cases, the Courts have been asked to determine whether somebody who borrowed money for the purpose of investing (usually in property) was a consumer or was acting in the course of business.
It is an important distinction because at law, consumers are generally afforded far greater protection than those entering into transactions in the course of business.
The leading decision was in a case called AIB v Higgins in 2010. In that case, AIB sought judgment in the sum of approximately €6 million against the borrowers, who raised a number of defences, including that they were consumers under the Consumer Credit Act, 1995 (“the Act”). Having reviewed the provisions of the Act, the underlying EU Directive, and the decision of the European Court of Justice in Benincasa, the High Court held that:
“Only contracts concluded for the purpose of satisfying an individual’s needs in terms of private consumption are protected by the Directive.”
The Court held also:
“These defendants acted as partners in a partnership which borrowed money from AIB. They did so with a view to investing in property and its development for profit. In so doing, they engaged in business and the Act had no application to them.”
In a number of subsequent cases, the High Court appeared to adopt a broader interpretation of the definition of a consumer for the purpose of the Consumer Credit Act. In Ulster Bank v Healy, the Court suggested that Mr Healy, in using borrowed money to invest for the purpose of his retirement, could be seen as satisfying his “needs in terms of private consumption”.
However, two recent decisions of the High Court - being McCambridge v Anglo Irish Bank and Hogan v Deloitte - have followed the leading case of Higgins. In Hogan (delivered in November 2017), the High Court held that there was no question that the money was drawn down for private consumption – it was an investment loan relating to a residential investment property. In addition Mr Hogan had collected rent from the property which had been mortgaged to secure his borrowings. As such, the Court was satisfied that he was not a consumer because at no point was the money borrowed used for private consumption.
While every case is decided on its own facts, the recent endorsements of the Higgins decision suggest that borrowers raising the ‘consumer’ defence in proceedings involving investment loans are likely to be unsuccessful.