When are Borrowers Consumers?
The High Court recently considered two cases involving arguments as to whether loans should be deemed consumer loans and the application of the Code of Conduct on Mortgage Arrears.
ACC Loan Management Ltd v Sean Browne and Gerald Browne  IEHC 722
In this case the Defendants claimed, in a summary judgement application, that the loan was unenforceable as certain provisions of the Consumer Credit Act 1995 (the Act) were not complied with. The Bank denied that the Defendants were consumers or, if they were to be so classed, the loan was a housing loan.
The loan was made in 2008 (the 2008 Loan) to the Defendants jointly and severally, for the purpose of refinancing an existing loan and to finance renovations to the borrowers’ primary dwelling-house. The Defendants did not dispute that the monies were advanced, nor that they defaulted and that the Bank had made a demand for repayment.
Was it a Consumer Loan?
Approximately one third of the 2008 Loan was to repay an existing 2006 loan which the first Defendant, SB, had borrowed for a deposit on premises which ultimately became his primary residence. The Bank asserted that the 2006 loan was a commercial loan for the stated purpose of the purchase of a residential investment property and that SB had expressly warranted that he was not acting as consumer in respect of that loan. However, SB argued that the 2006 loan was to facilitate the purchase of a property which was now his primary residence. The Judge noted that internal bank credit documentation did identify that the property was intended to be used by SB as his “PDH”.
Baker J held on the facts that it was arguable that the 2006 loan was a consumer loan. Baker J further regarded it as significant that no warranty was given by either borrower that they were not acting as consumers in respect of the 2008 Loan. Accordingly, Baker J was of the view that SB had made out an arguable case that he was a consumer in respect of the 2008 Loan for the purposes of the Act.
The question then arose whether the second Defendant, GB could be described as a consumer for the purposes of the 2008 Loan when that loan was not used nor intended to be used to further any private purposes of his.
Baker J accepted the argument that the default position of the legislation is that all natural persons are consumers unless it can be shown they are acting for the purposes of business. She noted that the needs of GB, insofar as they related to the 2008 Loan, were allied to the needs of the SB, and GB was a borrower primarily, if not entirely, because he was a co-owner of the lands which were to be the security for the 2008 Loan.
The Judge therefore concluded that both borrowers had made out an arguable case that they were consumers for the purpose of the 2008 Loan.
Was it a Housing Loan?
The Bank argued that, even if the Defendants could be classed as consumers, the 2008 Loan was a housing loan as it was secured against lands upon which there was a house. If this argument were accepted the protective provisions of the Act would not apply. The Defendants argued the house was derelict, had no roof and the walls had collapsed. Baker J considered that a house must be a building which offers some degree of enclosure or shelter and held that the ruin was not a building, and no evidence had been shown of any intention to construct a house on the land. Therefore, the 2008 Loan was not a housing loan, and the provisions protective of the borrowers as consumers applied.
Breaches of the Consumer Act 1995
The Defendants claimed a breach of Section 30 of the Act which requires that a consumer credit agreement contain a statement of the names and address of all the parties to the agreement. The facility letter was addressed to both Defendants at an address of SB. Baker J held that the Act is clear that the loan agreement must contain a statement of the names and address of all parties to the agreement, not just of one of the parties. She considered that the address for SB was adequate to meet the requirements of the Act in respect of SB only but that the loan documentation was faulty in that it did not contain the address of GB.
The Defendants also claimed that the Bank had failed to provide a copy of the agreement to the each of them as borrowers and as is required by Section 30 of the Act. The Bank asserted that the agreement was delivered or sent to each borrower (at SB's address) within ten days of the making of the agreement and that a copy of the agreement was also sent to the Defendants' solicitors. Baker J did not believe that the Act could be interpreted as meaning that correspondence sent to a solicitor or other agent was sufficient for the purpose of compliance with the Act.
The Defendants also claimed that the Bank failed to serve a proper notice before enforcement action in breach of Section 54 of the Act. The letter of demand sought payment of the full redemption amount, when in fact it should have identified the arrears of instalments and not the full amount owed. Furthermore, insufficient notice was given – 21 days from the date of the letter rather than 21 days from the date of service of the notice. While Baker J accepted that while the failure to comply with the requirements of this provision did not make a loan unenforceable, the error was sufficient to refuse summary judgment.
The Bank claimed that the Defendants were estopped from denying the validity and/or enforceability of the credit agreement on the basis that the Bank used the same addresses for the Defendants in respect of a prior facility without complaint but Baker J did not consider that an estoppel could arise by virtue of a course of dealings between the parties as the provisions of the Act were in many cases mandatory.
The Defendants also raised arguments in relation to estoppel, non est factum, lack of consideration and unconscionable bargain but all of these were rejected by the Court.
In the circumstances, summary judgment was refused.
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Ken Fennell v Con Creedon and Pamela Creedon  IEHC 711
This case concerned a dispute over a property which was the subject of a commercial mortgage between the Defendants and EBS Limited (the Bank). The Plaintiff (who is acting as receiver) was seeking an injunction restraining the defendants from interfering with his exercise of powers as receiver.
The Bank advanced a loan of €4,510,000 (the Loan) to the Defendants in 2004 for the purpose of acquiring and refurbishing properties in Sandymount known as 129 and 131 Tritonville Road and the rear of 127 Tritonville Road. Four years later, the defendants decided to move into one of the properties (No. 131 Tritonville Road) and notified the Bank of this new arrangement. The terms of the Loan were amended over the years but due to non-compliance, the Bank wrote to the defendants in 2011 under the MARP process. The Bank later classified the Defendants as a "not co-operating" borrower under the Code of Conduct on Mortgage Arrears (the Code). The Bank issued a demand in December 2013 and again in February 2014 for full repayment of the Loan. The Plaintiff was then appointed as a receiver.
Was the Loan a commercial loan?
The Court was satisfied that the Loan was a commercial loan and the fact that the Defendants had notified the Bank of their taking up residence in No. 131 Tritonville Road did not alter the underlying contractual conditions.
The Court noted that the conduct of the parties in relation to the Loan indicated at all times that the Loan was being treated as a commercial arrangement. In addition, the Court noted that the Defendants had consented to the matter being heard in the Commercial Court and to a judgment being registered in that court against them.
Did the Code apply to the Loan?
The Court was not persuaded that the Code applied to the Loan. The Code is specified to apply to the mortgage loan of a borrower which is secured on his/her primary residence. In this case, the Loan was not secured on a property which was the primary residence of the Defendants.
However, the Court stated that it was clear that the Bank considered that the Code applied to No 131 Tritonville Road as records of their dealings with the Defendants proved i.e. writing to the defendants under the MARP process and classifying the defendants as a "not co-operating" borrower.
Is the Receiver entitled to rely on the loan agreement and mortgage provisions to obtain possession of the Properties?
Under the terms of the mortgage deed, the Bank was entitled to appoint a receiver once the "monies hereby secured become payable" and/or upon the occurrence of an event of default.
The Plaintiff submitted that as he was not a licence holder or a person supervised by the Central Bank of Ireland, the Code did not apply to him and that his rights under the mortgage deed were clear property rights that could not be interfered with by statute or otherwise.
In support of his arguments, the Plaintiff referred to the decision in Irish Life & Permanent V Dunphy  which stated that Code did not apply to receivers as it only has legal force insofar as it applies to financial services providers authorised, registered or licensed by the Central Bank or in another EU or EEA member state.
On that basis, the Plaintiff argued that the mortgage deed provided separately for a receiver's right to possession and a lender's right to possession with only the lender's right being limited by the Code.
The Defendants argued that it would be an absurdity if a lender was allowed to appoint a receiver to take possession of a property thereby circumventing the provisions of the Code. The Defendants further argued that the right of a financial institution to take possession on foot of mortgage arrears is only possible through formal possession proceedings.
The Judge determined that the Defendant's argument that every MARP application must result in a formal application for possession is unsustainable as the Code itself envisages that a lender can take possession of a property in many ways e.g. by way of voluntary agreement, by way of abandonment by the borrower or court order. Therefore, if there is a failure to resolve the issues between the parties under the MARP process, the Court must look to the original contract between the parties to resolve the issue.
Under the terms of the mortgage deed executed in 2004, the Defendants had transferred their ownership in the property to the Bank and, upon the occurrence of a default, the Bank had the right to appoint a receiver.
The Judge noted that, as established in Irish Life & Permanent v Dunphy, the only aspect of MARP that the Court must have regard to is the operation of the moratorium under the Code. In this case, the moratorium period was complied with and the Court had no power to prescribe the manner in which the Bank can enforce its security.
On that basis, the Judge determined that the Bank was entitled to appoint the Plaintiff as receiver of the property at 131 Tritonville Road.
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Date Published: 8 December 2015