Courts Consider “Unfair Contract Terms” Arguments in Loan Cases

The issue of unfair contract terms in loan contracts, and the extent of the obligation on a Court to examine this issue without it being raised by the parties, is continuing to be a feature in financial litigation. 

In Cronin v Dublin City Sheriff & anor [2017] IEHC 685, Ní Raifeartaigh J, 17 October 2017 the High Court refused to set aside a repossession order in respect of a family home on the grounds that the courts granting the order had not assessed the mortgage contract under the European Communities (Unfair Terms in Consumer Contracts) Regulations 1995 (the Unfair Terms Regulations) and the Directive 93/13 (the Unfair Terms Directive) which deal with unfair terms in consumer contracts. The High Court held that the proceedings constituted an abuse of process in circumstances where Mr Cronin had not made those arguments in the various proceedings dealing with the repossession order. Interestingly, the Court specifically noted that it was not deciding on the extent of any obligation placed on the Irish courts by the Directive and referred to the  comments by Barrett J in AIB v Counihan to the effect that the Courts were obliged by their own motion to consider the terms of the Directive as "apparently obiter".

The issue also arose in Bank of Ireland v McMahon [2017] IEHC 600, High Court, Noonan J, 24 October 2017 where Noonan J dismissed the borrowers' argument that the terms of their mortgage contract were unfair as the borrowers had not identified any particular term as being unfair, and he had not been able to identify any unfair term.  However, in EBS v Kenehan, [2017] IEHC 604, High Court, Barrett J, 24 October 2017, Barrett J refused to let a Circuit Court order for possession stand because EBS had not placed all of the contractual documents before the Court to enable the Court to "discharge its Aziz-Counihan obligations".

Furthermore, Advocate General Sharpston has given an opinion in the CJEU case in Karel de Grote v Kuipers C-147/216 where he stated that a national court has the power and obligation to examine of its own motion whether a contract comes within the scope of the Unfair Terms Directive, even where it has not been specifically requested to do, including where the consumer has not taken part in the proceedings.

The issue arose most recently in Bank of Ireland Mortgage Bank v Martin & anor [2017] IEHC 707, High Court, Noonan J, 24 November, 2017 where the Court ordered summary judgment, and in so doing noted that it had examined the terms of the loan documentation and found nothing which in its view amounted to an unfair contract term within the meaning of the European Communities (Unfair Terms in Consumer Contracts) Regulations, 1995.

Comment

Given the recent emphasis by borrowers on arguments relating to unfair contract terms and the fact that this issue is gaining some traction before the courts, financial institutions should ensure that they have considered the fairness of the particular terms of the contract and are in a position to address the issue in any proceedings to recover monies.

For further information please contact Paula Mullooly.

Date published: 13 February 2018