Core Terms
Cases
Trustee Savings Bank v. Maughan
Costello J.
[1992] IR 490
H.C.
8th October, 1991
On the 15th June, 1987, the Trustee Savings Bank Dublin instituted proceedings by summary summons claiming £17,624.17 and continuing interest against the defendant, Mr. Maughan, in respect of money lent by way of overdraft facility on a current account opened in August, 1983. I will refer to these proceedings as “the first proceedings”. The bank’s application for summary judgment was successfully resisted and the proceedings were adjourned for plenary hearing. Mr. Maughan filed a defence which contained formal denials, a specific denial that the rate of interest charged by the bank was an agreed rate, and a claim to set-off, against any sum awarded to the bank, the damages to be awarded to him in the second proceedings.
The bank’s claim has escalated dramatically. The overdraft facility granted to Mr. Maughan in 1983 was £7,000. At the date of the hearing (in July of this year) the bank’s claim on foot of this account amounted to £32,906.01. The evidence established that the bank had compounded interest annually and that in addition had charged a default rate of interest at 6% over its normal rates for overdrawn current accounts. The issues in these proceedings are whether it was entitled
(a) to compound interest on the outstanding debt, and
(b) to charge default rates of interest; to these issues I will now turn.
Mr. Maughan was a new customer with the bank in the month of August, 1983. He had met its assistant general manager (banking), Mr. Carroll, socially and arranged to call into his office on the 11th August. At that meeting it was agreed that the bank would lend to Mr. Maughan £5,000 to enable him to purchase shares in an exploration company then much in the news, Aran Energy Limited. The defendant signed an application form which stated:
“I hereby apply to open a Current Account in the Trustee Savings Bank Dublin subject to the Rules and Regulations of the Bank.
I declare that the account will not be operated either wholly or partly as a business account.
I understand that charges may be made on this account, at a scale that the bank may from time to time decide.”
This application was accepted by the bank and I think a contractual relationship was thereby established. On the same day the plaintiff was given a cheque book.
There were no further immediate discussions or communications relating to the terms of the parties’ contract. It is important and relevant to note what steps the defendant took after the 11th August. On the following day he went to a firm of stockbrokers and bought 10,000 Aran Energy Shares at 91p per share. He became liable to pay a sum of £9,318.05 but immediate payment was not required.
This investment proved to be a most unfortunate one and on the 19th August he sold half of his holding at a price of 76p per share (which produced £3,734.30). He settled his account with the brokers by selling some other shares he held and by drawing a cheque on the 22nd August on the bank for £4,228.44. This cheque was debited to his account on the 25th August, 1983.
On the same day on which he had drawn the cheque the bank wrote him a letter which would not have reached him until, at the earliest, the 23rd August. This letter advised him that a facility had been sanctioned subject to the “conditions as set out hereunder”. This was followed by a paragraph which read:
“£5,000 in the way of overdraft on the usual terms and conditions including interest repayable on demand. The current rate of interest is 19%, and the facility extends until the 17th August, 1984, at which time it will be reviewed.”
I do not think that this letter was effective to impose any new terms into the original loan agreement of the 11th August which had been largely performed on the day of the letter’s receipt. So, I must turn to that contract to see what rights were conferred by it on the bank and in particular whether under the original contract it obtained the right to compound interest and to interest at a default rate.
The parties’ original contract was partly oral and partly written. Mr. Carroll agreed with Mr. Maughan that the bank would lend him £5,000 to enable him to purchase shares and that the loan would be by way of an overdraft facility on a current account. Mr. Maughan signed the application form to which I have referred. Neither in the oral contract nor the application form was any express reference made to the payment of interest or the rate of interest. By signing the form Mr. Maughan agreed to be bound by the bank’s “Rules and Regulations” but these have nothing to say about interest payment. By signing the form he acknowledged that “charges may be made on this account at a scale that the bank may from time to time decide”, but the evidence from the bank supports the conclusion to be drawn from the ordinary meaning of these wordsthis sentence refers to bank “charges” and not to interest which might be payable on outstanding loans.
When a customer borrows from a bank he knows that he will have to pay interest on any outstanding balance and there must be a term implied in the parties’ original contract that the defendant would pay interest on any sum overdrawn on the account to be opened at the bank’s prevailing rate on overdrafts on current accounts. But I can find no justification for implying a term into the original contract entitling the bank to capitalise any outstanding interest either annually or at any other interval of time. Nor do I think that a term is to be implied that the bank could charge a higher rate of interest to be determined by it at its discretion in the event of default in repayment of the sums due on the current account. As far as the original loan of £5,000 is concerned, therefore the bank is only entitled to charge simple interest on any outstanding balance at its current rates.
Mr. Maughan’s relations with the bank did not stop with the loan enabling him to purchase the Aran Energy shares. In September, 1983, he approached Mr. Carroll again for a further loan of £2,000 to enable him to purchase shares in an exploration company quoted on the English stock exchange called Flair Resources Ltd., and Mr. Carroll agreed to extend the overdraft facilities to £7,000. On the 16th September, 1983, Mr. Maughan bought 2,000 shares in this company and on the 22nd September, 1983, drew a cheque for £2,497.63 on his account to pay for this transaction. This transaction was also an unprofitable one and the defendant later sold these shares at a loss, lodging the net proceeds (£1,629.62) in his account on the 29th December, 1983.
This second loan was made after the bank had sent to Mr. Maughan its letter of the 22nd August, 1983. So when he applied for a further loan he must be taken to have agreed to be bound by its terms. This means that two-sevenths of the sum advanced by the bank are subject to the contractual terms contained in that letter and so a question arises as to whether by virtue of those terms the bank is entitled (a) to compound interest annually, and (b) to charge a default interest rate on part of the outstanding sums due to it.
I construe the letter of the 22nd August as follows:
(a) that the loan of £5,000 by way of overdraft facilities on a current account with the bank was to be extended to the 17th August, 1984;
(b) that on the 17th August, 1984, the situation would be”reviewed” by the bank, which meant that it could, at its discretion, extend the period of the loan and that if it did not do so any sums then outstanding on the account would be immediately repayable;
(c) that interest would be payable on all sums outstanding on the account. The rate could vary from time to time. The rate current at the date of the transaction was 19%.
There is nothing in these terms which would entitle the bank to charge compound interest or interest at a specially high default rate. And I cannot agree that entitlement to do so arises from the reference in the letter to the loan being “on the usual terms and conditions”. I think the test to be applied is what a customer receiving this letter would reasonably understand it to mean. In view of the fact that a review of the facility was to take place in a year’s time which might or might not mean that the loan would then be called in I do not think that this letter could reasonably be understood as entitling the bank (a) to compound outstanding interest at the end of the year, or (b) to charge interest at higher rates if default in payment was made should the facility be extended.
At the end of a year the situation was to be reviewed. This means that new terms might or might not be negotiated, but it cannot mean that the customer was agreeing that the terms on which reliance is now placed would be included in the contract should the facility be extended. In the event the bank extended the facility without any express agreement to do so, and no new terms were agreed to by the parties when that was done.
There is an additional reason why I should conclude that the contract does not contain a term relating to compound interest. Even if it was the bank’s current practice to compound interest annually this did not entitle the bank to do so under the contract I am considering. Parties may expressly agree that compound interest should be paid on an outstanding loan, or such an agreement can be implied, or in some cases it can be shown that it is payable by virtue of a custom of the trade. In this case a trade custom is not relied on nor is it suggested that an agreement to pay compound interest is to be implied. What is claimed is that the terms of the letter of the 22nd August, when accepted, entitled the bank to compound interest. In this connection a passage from Paget’s Law of Banking (10th ed.) at p. 247 is relevant. After observing that as a general principle the law leans against compound interest the author points out that a clear manifestation to charge such interest is required by the law of mortgages. The principle that such interest cannot be charged in the absence of special agreement was, it is pointed out, recently applied by the Court of Appeal in Bank of Credit and Commerce International S.A. v. Blattner (Unreported, Court of Appeal, (England), 20th November, 1986) when holding that a mortgage under which the mortgagor consented to pay to a mortgagee bank all monies due “so that interest shall be computed according to agreement or failing agreement at the usual mode of the bank” did not entitle the bank to compound interest, notwithstanding evidence that it was the bank’s practice to charge compound interest. I think that principle can properly be applied to a loan by a bank other than a loan secured by a mortgage. This means that when a contract is concluded which states that it is subject to the bank’s “usual terms and conditions”an entitlement to compound interest does not arise even if a practice exists to charge such interest unless the term relating to such interest is brought to the customer’s attention and accepted either expressly or impliedly by him. As this was not done in this case the claim for compound interest must fail.
And there is an additional reason why the claim to interest at a default rate must also fail. A term in a contract that a bank is entitled to charge a higher rate of interest in the event of default may be void as being a penalty. It can be justified, however, if such a term is a genuine pre-estimate of the bank’s loss in the event of default made by the parties. The agreement to pay a default rate of interest must therefore be an express one, and an attempt to incorporate such a term by reference to “usual terms and conditions” which are not brought to the customer’s attention cannot be successful because no genuine mutually agreed pre-estimate would have been made.
The letter of the 22nd August did not confer, therefore, any entitlement on the bank to either compound interest or interest at default rates. It follows therefore that no part of the bank’s debt carried interest other than simple interest at the bank’s current rates. On this basis the bank’s claim at the date of the hearing is £21,313.14.
Allied Irish Banks PLC -v- Ivan Yates
[2012] IEHC 360 (21 August 2012)
JUDGMENT of Ms. Justice Dunne delivered the 21st day of August 2012
The respondent herein was served with a bankruptcy summons issued on the 14th May, 2012. He has now sought to have that bankruptcy summons dismissed.
Background
The bankruptcy summons was issued in respect of the respondent ( hereinafter referred to as “the debtor”) herein on the 14th May, 2012, in respect of the sum of €3,692,852.13 being the sum claimed by the applicant on foot of particulars of demand served on the debtor in or around the 6th April, 2012. The said sum is stated to be due on foot of a guarantee dated the 13th April, 2010, and made between the debtor of the one part and the applicant of the other part, whereby the debtor agreed to pay on demand all the liabilities due and owing by Celtic Bookmakers Limited (now in liquidation) to the applicant herein, including those liabilities due pursuant to a letter of sanction dated the 26th February, 2010, issued by the applicant and addressed to the borrower as supplemented and replaced by a letter of sanction dated the 23rd November, 2010 subject to the principle limit of €6,769,000 together with interest thereon from time to time. The bankruptcy summons herein was served on the debtor on the 14th June, 2012, by ordinary prepaid post pursuant to an order for substituted service granted on the 6th June, 2012. By notice of motion dated the 25th June, 2012, the debtor sought to have the bankruptcy summons issued on behalf of the applicant dismissed on a number of grounds.
The Grounds for Seeking the Dismissal of the Summons
Six grounds were relied on by the debtor in seeking the dismissal of the summons namely,
(i) That he did not owe any amount to the applicant.
(ii) That in the event that he owed any sum, the sum due is lower than the sum of €3,392,852.13 specified in the summons.
(iii) That the debtor was not served with a valid four day demand notice prior to applying for the issue of the summons as required by statute.
(iv) That the bank did not demand payment of the debt claimed on more than one occasion prior to applying for the issue ofthe summons.
(v) That prior to applying for the issue of the summons the applicant did not lodge with the proper office of the court, bills, notes, guarantees, contracts, judgments or orders referred to in the affidavit on foot of which the summons was issued and
(vi) That the applicant failed to serve a true copy of the affidavit on foot of which the summons was issued on the debtor.
The Law
There are a number of provisions on the Bankruptcy Act 1988, (hereinafter referred to as “the Act”) which are of relevance. Firstly, s. 7(1)(g) provides as follows:-
“An individual (in this Act called a “debtor”) commits an act of bankruptcy…
(g) if the creditor presenting a petition has served upon the debtor in the prescribed manner a bankruptcy summons, and he does not within fourteen days after service of the summons pay the sum referred to in the summons or secure or compound for it to the satisfaction of the creditor.”
Section 8(5) provides:-
“(5) A debtor served with a bankruptcy summons may apply to the Court in the prescribed manner and within the prescribed time to dismiss the summons.
(6) The Court
(a) may dismiss the summons with or without costs, and
(b) shall dismiss the summons if satisfied that an issue would arise for trial.”
It would also be helpful to refer to the provisions of O. 76, r. 11 of the Rules of the Superior Courts. It provides as follows:-
“r. 11(1) A creditor desirous that a bankruptcy summons may be granted shall, not earlier than four clear days after he shall have served a notice in the Form No.4, file in the proper office a copy of such notice, together with an affidavit in the Fonn No.5 of the truth of his debt made by himself or by any other person who can swear positively to the facts verifying the truth of his debt, and that no form of execution has issued in respect of such debt and remains to be proceeded upon, and shall lodge with the proper officer any bills, notes, guarantees, contracts, judgments or orders referred to in his affidavit together with the summons which it is proposed to issue.”
The Issues
The first issue raised on behalf of the debtor was to the effect that he did not owe the amount alleged to be due. That point was expanded upon by him in his affidavit grounding this application and the point made was that he had signed a number of documents at various times in his capacity as a director of the company Celtic Bookmakers Limited and that the copy guarantee purported to have been signed by him was a poor and indistinct photocopy and for that reason he was unable to assess whether he had signed that guarantee. At the hearing of the application before me, it was accepted on behalf of the debtor that the document relied on by the petitioner had indeed been signed by the debtor and was authentic. Accordingly that issue was not pursued.
The second issue raised by the debtor relates to what is alleged to be an overstatement of the amount actually due. This arises in a number of ways. The first of these is stated to be an overpayment to the receiver of the company in the sum of €162,000 as a result of an excess of fees charged by a receiver over the assets of the company. A decision was made on the 2nd December, 2010, to appoint a receiver and it is stated by the debtor that the receiver, Neil Hughes had indicated that the costs of the receivership would not be more than €100,000. In fact, the sum of €312,000 approximately was paid in respect of receiver’s fees and receiver’s legal fees arising out of the sale of the assets of the company. Reference was made in this context to what was described as a “kicker payment” as part of the contract for sale in respect of the Lombard Street, Dublin premises to a third party. It is not necessary to set out all the details in relation to this issue save to say that it was contended that a minimum sum of €162,000 was wrongfully paid by the petitioner to the receiver in respect of fees. Mr. Hughes swore an affidavit in response to this issue on the 13th July, 2012 on behalf of the applicant and disputed very much the contention that there was an agreement to the effect that the costs of the receivership would be a maximum of €100,000. The applicant has also disputed the allegation that the sum alleged to be due has been overstated by the sum of €162,000 and Paul Dowling in his affidavit sworn herein on behalf of the applicant made the point that there was no agreement between the applicant and the debtor as to the level of the receivers fees. In addition it was pointed out that the receiver was appointed pursuant to a deed of charge and as is usual the deed of charge contained a provision to the effect that the receiver acted as agent of the company.
Other matters were referred to on behalf of the debtor as giving rise to the question as to whether the amount claimed was correct or not. One of these related to the fact that the bank apparently continued to apply charges for items such as night safe lodgements in respect of outlets no longer trading. No figure was given in respect of this item and no evidence was put before the court to substantiate this claim and for that reason, I cannot rely on this allegation as demonstrating that the sum said to be due has been overstated. The second matter is an issue in relation to the question of interest which was dealt with by the debtor at para. 14 of his affidavit sworn herein on the 23rd June, 2012. He stated that it was represented to him at the commencement of the receivership by the bank and by Neil Hughes that the interest running on the debts owed by the company would be frozen as of the date of the company entering receivership in January 2011. He brought the fact that those interest charges continued to arise to the bank’s attention in 2011. He said that at a meeting held in May 2011, he was told by Barry Tierney and Philip McDermott of the applicant that these were “suspense interest charges” and mere “bookkeeping procedures by the bank” and further that “these would not be pursued”. Nevertheless those charges have been pursued and a sum of €240,000 is claimed to have accrued since that date on the figures given in the bankruptcy summons. Mr. Dowling on behalf of the applicant stated at para. 16 of his affidavit sworn on the 13th July, 2012, that no agreement was reached between the bank and the debtor that the bank would suspend interest payments on the company’s liabilities to the bank. He noted that a request was made on behalf of the debtor that the bank would agree not to charge any further interest on the company’s liabilities in the course of the receivership process. In support of that contention, he relied on a document which came from Mr. Somers who was advising the debtor dated the 26th May, 2011, headed “Debt restructuring proposal/settlement” in which it was stated in the final section headed “Settlement proposal”:
“Ivan and Deirdre have noted that AIB continues to charge interest after the 4th January, 2011, on the company’s debts and they request, as a helpful gesture, that AIB would agree not to charge any further interest during the receivership process. An indication from AIB, perhaps by the end of June, as to their response to this settlement proposal would be appreciated”.
Mr. Dowling in his affidavit, while he referred to the Debt restructuring proposals/settlement document did not deal with the points made by the debtor as to the meeting held in May 2011, attended by two representatives of the applicant. I note that the meeting is stated to be a meeting held in May 2011, and the date of the debt restructuring proposal/settlement is stated to be the 26th May, 2011. There is an issue as to whether or not Mr. Tierney and Mr. McDermott did in fact indicate to the debtor that the interest running on the debts would not be pursued.
Counsel on behalf of the debtor having referred to the decision in the case of O’Maoileoin v. Official Assignee [1989] I.R. 647, In Re Sherlock [1995] 2 I.L.R.M. 493 and to the decision in the case of the Minister for Communications, Energy and Natural Resources and M O ‘C. v. M W and R. W. [201OJ 3 I.R. 1, noted that, given the dispute on the basis that the sum claimed was excessive because of the fees charged by the receiver to the company and the alleged overcharging of interest, the applicant sought to rely on a provision of the guarantee which provides as follows:-
“In consideration of the bank agreeing at my/our request to give time to make continued advances or otherwise give credit … the guarantor hereby agrees to pay and satisfy to the bank on demand all sums of money which are now or shall at any time hereafter be owing to the bank anywhere on any account whatsoever whether from the borrowers solely or from the borrowers jointly …”
The guarantee continues as follows:-
“A certificate by an officer of the bank as to the amount for the time being due from the borrower to the bank or where the amount so due exceeds the amount up to which the guarantee may be enforced a certificate to that effect but without specifying the amount so due by the borrower and as to interest after demand from time to time payable hereunder shall be conclusive evidence for all purposes against the guarantor.”
The point was made on behalf of the applicant that there was no dispute about the accuracy of the figures claimed in the proceedings. On the contrary, the point is made by the debtor that the sum claimed is excessive for the reasons explained above. On that basis, the applicant has sought to distinguish the authorities referred to above, namely, 0’Maoileoin v. Official Assignee [1989] I.R. 647, In Re Sherlock [1995] 2 I.1.R.M. 493 and the Minister for Communications, Energy and Natural Resources and M.O’C. v. M Wand R.W. [2010] 3 IR 1.
I propose to refer to a number of passages from those judgments. The issue in 0’Maoileoin focused on the appointment of a receiver by way of equitable execution and whether that amounted to a stay of execution in respect of the portion of the debt payable to the receiver. Hamilton P. as he then was reviewed the case law extensively and having done so, stated:
“These cases clearly establish that the bankruptcy code, having regard to the consequences which flow from an adjudication of bankruptcy, is penal in nature and that the requirements of the statutes must be complied with strictly; that the debtor’s summons to be served within the provisions of s. 21 of the Bankruptcy Ireland (Amendment) Act, 1872, must be served in the prescribed manner and the amount due in accordance with a judgment, when a judgment is relied upon, must be accurate and that a claim for an amount in excess of the amount due in accordance with such judgment would render the notice defective and a subsequent adjudication void.”
In the case of In Re Sherlock, Murphy J. held that where the amount said to be due on foot of the notice requiring payment and on the bankruptcy summons is in excess of the amount actually owed, this constitutes a substantial defect rendering the notice and the summons defective. Therefore, failure to respond to the summons could not constitute an act of bankruptcy with the result that the subsequent adjudication was void. That was a case in which it emerged that on foot of a garnishee order a sum in addition to that which was anticipated to be recovered on foot of the garnishee order, in respect of interest, was also paid to the creditor. Murphy J. noted in the course of his judgment as follows:-
“Whilst it seems that this payment in respect of interest was not foreseen by the consent order of the 19th March, 1993, it is clear that the defendants in the proceedings, including the applicant, Gerard Sherlock, are entitled to credit for the interest which accumulated between the 11th January, 1993 and the making of the order in March of that year as against the principal sum of £167,506.92. In other words he is and was entitled to a credit of something in excess of £1,000 against the amount of the principal sum. I have no doubt whatever that the failure to give credit for this sum was due to an oversight. Furthermore, there can be no doubt that, on any computation, the amount due by the bankrupt far exceeds the minimum sum required to found an order for adjudication. Nevertheless, the question remains whether this error invalidates the bankruptcy summons and in turn the order for adjudication based on it.”
Murphy J. went on to consider the decision in the case of 0’Maoileoin referred to above and referred to a number of the authorities cited by Hamilton P. in the course of that case. He concluded by stating:-
“It seems to me that in applying those principles to the present case where I have accepted that the sum demanded of the debtor exceeded the amount due by more than £1,000, it follows that the cause shown must be allowed and the adjudication set aside.”
Finally I will refer very briefly to the decision in the case of Minister for Communications v. M W In that case McGovern J. referred to the decision in 0’Maoileoin v. Official Assignee and also to the decision In Re Sherlock. He considered in that case that an issue arose as to whether or not interest on foot of a judgment could be claimed for a period in excess of six years and if not, whether the sum claimed was correct, given that an issue was raised, he was satisfied that the issue in question was one which necessitated the dismissal of the summons.
The applicant in considering these authorities sought to rely on the certificate in relation to the amount due and specifically on a decision in a case, Bache and Company v. Banque Vernes [1973] L.L.R. 437, to the effect that a conclusive evidence clause was binding according to its terms. I will return to a consideration of that judgment at a later stage. The applicant also submitted that even if the debtor was entitled to challenge the certificate, this was a case in which there was an undisputed sum in excess of €1,900 and it was contended that that being so, that the summons cannot be challenged unless no sum whatsoever is due or if a sum less than €1,900 was due. This was based on the wording contained in the bankruptcy summons to the effect that “unless you shall within the time aforesaid apply to the court to dismiss a summons on the ground that you are not indebted to the said Allied Irish Banks plc in any sum or that you are only indebted to Allied Irish Banks plc in a sum less than €1 ,900 …” Reference was also made to the proviso on the second page of the bankruptcy summons which states:-
“If, however, you are not indebted to the said Allied Irish Banks plc in any sum or are only indebted to Allied Irish Banks plc in a sum less than €1,900 you must make application to the court within fourteen days after service hereof, to dismiss the summons, by filing in the Examiners Office, Four Courts, Dublin, an affidavit in the prescribed form, stating that you are not so indebted, or only so to a lesser amount than €1,900 …”
It was contended on behalf of the applicant that the inference to be drawn from the bankruptcy summons is that a challenge to the summons could only be made if no sum whatsoever was due or if a sum less than €1,900 is due. It may be that on one view such an inference is open to be drawn from the wording of the bankruptcy summons but such an inference flies in the face of the long and well established authorities to which reference has already been made. Indeed, the judgment of Murphy J. in In re Sherlock and the authorities cited by Hamilton P. in the decision in O’Maoileoin such as that in Re. Collier [1891] 64 L.T. 742 and in Re. Debtor, ex parte a debtor [1908] 2 K.B. 684 have made this clear. In the latter of those cases, Cozens-Hardy M.R. stated as follows:-
“This appeal, though it relates only to a small amount, undoubtedly raises a point of importance. The petitioning creditors obtained a final judgment against the debtor. Certain sums were either paid or allowed by way of set-off so that the amount of the judgment debt was reduced. A bankruptcy notice was served on the debtor, and in the margin of that notice there are inserted certain figures which bring out the result that a sum of £984. 7 s. 1d. is the balance of the amount due on the final judgment. The bankruptcy notice proceeds in the usual form requiring payment and stating that a non compliance with the bankruptcy notice will involve the consequences, which to some extent are penal consequences, of bankruptcy. The amount claimed in the bankruptcy notice was not due. There was a mistake in the calculation of interest. For the present purpose I care not what the precise amount of the mistake was. It was, I believe, between one and two pounds. But putting aside the question of amount, this was a bankruptcy notice which said ‘If you do not pay a judgment debt which is due and also a further sum which is not due you are liable to be made bankrupt’. It is said that is a formal defect which can be set right under s. 143, subs. (1), of the Bankruptcy Act, 1883, and that we ought to disregard it or treat it as formal and amend the bankruptcy notice and allow the bankruptcy proceedings to go on. On principle I am not prepared to accede to that argument. I cannot regard it as a mere formal defect that you claim payment from a man of that which never was due from him. It is not necessary to say that there was any attempt on the part of the petitioning creditors wilfully to exact payment of that which they knew was not due. My judgment does not depend upon that. It seems to me that a defect of this kind is substantial, that it is not formal, and does not fall within the language ofs. 143. So much in point of principle.”
Thus, I think it is clear beyond doubt that if the amount claimed on foot of the bankruptcy summons is in excess of that which is actually due, then in those circumstances there is no obligation to pay the amount claimed on foot of the bankruptcy summons and a failure to pay on foot of that summons will not constitute an act of bankruptcy. Therefore, I disagree with and do not accept the submission on behalf of the applicant to the effect that the application to dismiss the summons can only be brought if there is in fact no sum due at all or alternatively a sum less than €1,900.
The view I have just expressed leaves open the question as to the status of the certificate relied upon by the applicant in relation to the amount said to be due. If the conclusive evidence clause is binding on the debtor, then, in those circumstances, the applicant contends that no issue can be raised by the debtor in relation to the amount due on foot of the certificate. Accordingly, it is necessary to consider the arguments in relation to the certificate in this case. I have had the benefit of helpful written submissions in regard to this issue from both sides. Those furnished on behalf of the debtor made a number of points, namely, that the certificate was undated, that whilst the amount due is said to be due as of the 6th April, 2012, the certificate was never made available to the debtor prior to the service of the affidavit in which it is exhibited and he was not previously aware of its existence, the certificate is unsealed and finally, it was noted that, contrary to the express requirements of the guarantee, no officer of the bank is named in the certificate or avers on affidavit to having prepared the certificate. Instead the certificate purports to emanate from the bank as a corporation and is signed by two authorised signatories on behalf of the bank.
Accordingly, it was submitted on behalf of the debtor that:
(a) That there was at least an arguable case as to whether reliance on such a clause is invalid as contrary to public policy and/or the Constitution particularly in the context of a penal process such as bankruptcy.
(b) It is well established that such clauses should be construed strictly against the bank, meaning that the failure to identify the officers of the bank certifying the liability on the face of the certificate must be fatal.
(c) It should not be possible to rely on such a certificate so as to exclude a deduction from the amount claimed arising from a mistake oflaw or an equitable set off.
(d) In light of the strict construction given to such clauses and guarantees generally, the language used in the guarantee must be interpreted to mean that the debtor has agreed only to reply the amount actually due and owing from the company and not the amount certified.
I now want to consider the decision in the case of Bache and Company v. Banque Vernes [1973] L.L.R. 437 in more detail. In that case, the plaintiffs were commodity brokers on the London Commodity Exchange and they demanded a bank guarantee before entering into buying and selling transactions on behalf of their customer, a French trading company. The defendants, who were the trading company’s bankers, gave the guarantee which contained a conclusive evidence clause. The plaintiffs carried out various transactions for the trading company and subsequently there was alleged to be a balance due to the plaintiffs. The trading company failed to pay and a notice of default was served on the defendants on the 25th July, 1972. On the 28th July, 1972, the plaintiffs issued proceedings against the defendants claiming £60,000 under the guarantee. Judgment was given for the amount claimed and the defendants appealed on the grounds that the amount claimed was not correct and the conclusive evidence clause was contrary to public policy and invalid because (i) it attempted to oust the jurisdiction of the courts and (ii) made the brokers judges in their own cause. Denning M.R. in the course of his judgment noted that a claim in relation to the validity of a conclusive evidence clause had not come before the courts previously but he noted that a similar clause appeared in the Encyclopaedia of Forms and Precedents. He continued at p. 439:-
“The question is whether that conclusive evidence clause is conclusive against the party who signs the guarantee. Is he compelled to pay under it, even though he alleges that the accounts are erroneous? As a matter of principle I should think the clause is binding according to its terms. In Halsbury’s Laws of England, Vol. 15 at p. 278, it is said that:-
‘The tendering of evidence which by statute or by agreement of the parties is declared to be conclusive, precludes evidence to the contrary, which is inadmissible, unless the evidence adduced is inaccurate on the face of it or fraud is shown …”‘
Denning M.R. then went on to refer to a decision of the High Court of Australia, Dobbs v National Bank of Australasia Limited [1935] 53 C.L.R. 643. That case concerned a guarantee given to a bank which contained a similar clause. Denning M.R. continued as follows:-
“It was argued before the High Court of Australia that that claim was contrary to public policy as tending to oust the jurisdiction of the court. But the court rejected that submission, saying at p. 654:-
‘It is a mistake to suppose that the policy of the law exemplified in the rule against ousting the jurisdiction of the court prevents parties giving a contractual conclusiveness to a third person certificate as some matter upon which the rights a obligations may depend … there are many familiar kinds of contracts containing provisions which make the certificate of some person, or the issue of some document, conclusive of some possible question.”‘
The principle in that case was accepted by counsel appearing on behalf of the French bank, but it was sought to be distinguished because the certificate was to be given by the manager or officer of the branch at which the customer kept his account. It was argued that such a person was comparable to a named architect or an engineer but the argument was that as there was no definite or nominated person in the case before the court and that it was the brokers themselves who gave the certificate for their own benefit, that the authority of that decision should be distinguished. Denning refused to accept that distinction. He stated:-
“The brokers must act by a manager in the office, just as a bank does. So, here it seems to me the notice of default given by the English brokers is perfectly good. There is no public policy against it. On the contrary the public policy is in favour of enforcing it. … This does not lead to any injustice because if the figure should be erroneous, it is always open to the French trading company to have it corrected by instituting proceedings against the brokers, in England or in France, to get it corrected as between them.”
He went on to state:-
“I would only add this: this commercial practice (of inserting conclusive evidence clauses) is only acceptable because the bankers or brokers who insert them are known to be honest and reliable men of business who are most unlikely to make a mistake. Their standing is so high that their word is to be trusted. So much so, that a notice of default given by a bank or a broker must be honoured. It ranks as equivalent to, if not higher than, the certificate of an arbitrator or engineer in a building contract. As we have repeatedly held, such a certificate must be honoured, leaving any cross claims to be settled later by an arbitrator. So, if a banker or broker gives a notice of default in pursuance of a conclusive evidence clause, the guarantor must honour it, leaving any cross claims by the customer to be adjusted in separate proceedings.”
It was submitted on behalf of the debtor that one could not stand over the reasoning adopted in that passage in the Ireland of today having regard to the economic crisis which has been contributed to by what was described as “unreliable and dishonest actions on the part of senior bankers”.
It will be noted from the passages cited above that Denning M.R. in the course of his judgment made reference to the decision in the case of Dobbs v. National Bank of Australasia Limited and in that case some useful comments were made in relation to the nature of such certificates. Having cited the particular clause in that case, the court stated:-
“This clause does not purport to impose upon the bank the necessity of obtaining the certificate it prescribes. It is not a qualification of the undertaking to pay contained in the first clause. It does not make a certificate a condition precedent to recovery. The promise remains a promise to pay the amount owning; it does not become a promise to pay the amount owing if certified or a promise to pay only what is certified as owing. The bank could recover without the production of a certificate if, by ordinary legal evidence, it proved the actual indebtedness of the customer. But the clause, if valid, enables the bank by producing a certificate to dispense with such proof. It means that for the purpose of fixing the liability of a surety, the customer’s indebtness may be ascertained conclusively by a certificate. It was contended, however for the appellant that upon its true construction, the clause did not make the certificate conclusive of the legal existence of the debt but only of the amount. It is not easy to see how the amount can be certified unless the certifier forms some conclusion as to what items ought to be taken into account, and such a conclusion goes to the existence of the indebtedness. Perhaps such a clause should not be interpreted as covering all grounds which go to the validity of a debt; for instance, illegality, a matter considered in Swan v. Blair. But the manifest object of the clause was to provide a ready means of establishing the existence and amount of the guaranteed debt and avoiding an inquiry upon legal evidence into the debits going to make up the indebtedness. But the manifest object of the clause was to provide a ready means of establishing the existence and amount of the guaranteed debt and avoiding an inquiry upon legal evidence into the debits going to make up the indebtedness. The clause means what it says, that a certificate of the balance due to the bank by the customer shall be conclusive evidence of his indebtedness to the bank. Upon this construction the appellant contends that the clause is void. The contention is based upon the view that it attempts to oust the jurisdiction of the court upon an issue essential to the guarantor’s liability and to substitute for the judgment of the court the determination or opinion of an officer of the bank. This argument appears to us to involve a misunderstanding of the principle upon which it professes to rely. It confuses two different things. A clear distinction has always been maintained between negative restrictions upon the right to invoke the jurisdiction of the courts and positive provisions giving efficacy to the award of an arbitrator when made or to some analogous definition or ascertainment of private rights upon which otherwise the courts might have been required to adjudicate. It has never been the policy of the law to discourage the latter. The former have always been invalid. No contractual provision which attempts to disable a party from resorting to the courts of law was ever recognised as valid. It is not possible for a contract to create rights and at the same time to deny to the other party in whom they vest the right to invoke the jurisdiction of the courts to enforce them. The parties may agree in the sense of arriving at a common intention as to their future action but, because they do not contemplate legal relations, avoid the creation of rights and thus preclude resort to the courts (See Rose and Frank Company v. J.R. Compton Brothers Limited; Cohen v. Cohen).”
The passage above cited is a useful explanation of the nature and purpose of such certificates. Thus, it seems to be clear that the conclusive evidence clause can be relied on by a bank against a surety in a case such as this. The reliance on such a clause does not oust the jurisdiction of the courts – it simplifies the proofs in respect of the amount alleged to be due. It is also clear that in certain cases the certificate can be challenged, for example, in circumstances involving illegality or fraud. No such issue has been raised in the present case. Nonetheless, that decision left open the possibility of challenging the validity of the underlying debt referred to in the certificate.
Reference was made on behalf of the debtor in the course of the submissions to a number of statutory provisions granting conclusive evidential status to either a certificate or statement made by named individuals. In that context, I was referred to the decisions in the case of Maher v. A.G. [1973] I.R. 140 and The State (MacEldowney) v. Kelleher [1983] I.R. 289. Those decisions relate to conclusive evidence clauses incorporated into statutory provisions and it seems to me that the fact that such statutory provisions were found to be unconstitutional does not avail the debtor in this case. A unilateral statutory provision conferring such status on either a certificate of statement made by a specific individual is entirely different from the situation in which two parties mutually agree how they will determine certain issues that may give rise to disputes between them. I do not think that the situations are analogous.
I would also observe in relation to the certificate at issue herein that the existence of or furnishing of the certificate referred to in the guarantee is not a prerequisite to claiming judgment from a debtor. As was noted from in the decision in Dobbs v. National Bank of Australasia Limited referred to above, the bank can recover without the production of a certificate if by ordinary legal evidence it proves the actual indebtedness of the customer. The clause, assuming it is valid, enables the bank by producing a certificate to dispense with proof of the amount of the indebtedness.
That gives rise to the question as to whether or not the certificate in this case could be said to be valid. It was argued on behalf of the debtor that on a strict construction of clause 5 of the guarantee, that the certificate herein did not comply with the terms of the clause. Reference was made in this context to Lewison on The Interpretation of Contracts and in particular to a passage at para. 13.06 in which it was stated: “A certificate need not be in any particular form, but it must be clear and readily understandable and must be given by the person named or described in the contract”. The certificate in this case is in the following terms: “Allied Irish Banks, plc hereby certifies that at 6th April, 2012, the sum of money specified below is and remains owing to Allied Irish Banks, plc by the party specified below on the account specified below”. A sum is then given, the borrower is identified and the accounts are also identified. After that it is stated that the common seal of the bank was affixed in the presence of two authorised signatories. The certificate therefore appears to be a certificate of the bank itself as opposed to an officer of the bank as referred to in the guarantee. Lewison in the paragraph referred to said:-
“However some contracts also prescribe fonnal conditions of validity for a certificate or determination; and in such cases the court may adopt a relatively strict approach to the question of whether the form of the certificate satisfies the contractual requirements. Thus in order to be valid the certificate must be given by the person named or described in the contract.”
Having referred to a number of authorities Lewison went on to state:-
“In Equitable Trust Company of New York v. Dawson Partners Limited, a contract required a certificate to be issued ‘by experts who are sworn brokers’. A certificate by a single broker was held to be bad. Lord Sumner said:-
‘There is no room for documents which are almost the same, or which will do just as well. Business could not proceed securely on any other lines’.”
Thus it was contended on behalf of the debtor that there was no evidence either in the certificate or before the court that the certificate at issue here was prepared by an officer of the bank. On the contrary, the certificate is stated to be from the bank as a corporate entity. It was submitted that, as the basis of a court deferring to such a certificate is the purported reliability of the certifying party and that in circumstances where no such party can be identified, the certificate could not stand.
The further question was raised as to whether the certificate could be regarded as conclusive if an issue arose as to a question of law or the right to an equitable set off. Reference was made to the decision of the Supreme Court of New South Wales in the case of Shomat Pty Limited v. Rubenstein, an unreported judgment of the Supreme Court of New South Wales Equity Division, 4th December 1995, in which Young J. made a number of pertinent observations. In dealing with a conclusive evidence clause, he stated at p. 12:-
“In National Australia Bank Limited v. Samson, 9th September, 1991, unreported, I said that clauses such as 6(e) ‘providing for certificates of this nature must be strictly construed’. The reason is that parties who have agreed to forego their rights to dispute the quantum claimed by the other party to the financial transaction expect that the certificate will be given fairly and in proper form. Again, in the instant case it is clear that the certificate does not, as clause 6(c) says it should, indicates the date upon which the amount set out in the certificate is due and owing.
Mr. Newlinds says that it is too great a requirement of form to say that the certificate must on its face indicate that it is given by a duly authorised person. As there are so many defects in the form of the statement/certificate, this point is not decisive, but I would respectfully disagree with the submission. It is usual where there is a precondition to a certificate being effective that the certificate should show on the face of it that the preconditions have been fulfilled; …
Mr. Black then goes further. He says that clause 6(c) requires for good reason that the certificate states that the amount is secured by the mortgage. Again, this is not said in the certificate/statement. I would agree with this submission also.
For completeness I should note that it was also argued that a certificate under a clause such as 6(c) cannot affect questions of law (Hall v. Westpac Bank Corp. Limited, Waddell J. 18th July, 1986, unreported (the Court of Appeal dismissed an appeal from this decision without dealing with this point). Nor is such a clause effective to deny equitable set off: Long Leys Company Pty Limited v. Soapdale Pty Limited [1991] 5 B.P.R. 11512. However, it is not necessary to discuss these matters further except to say that I respectfully agree with both statements.”That decision was relied on to argue that the certificate could not defeat a question of law or deny an equitable set off.
It was argued that the latter part of that decision was consistent with the decisions of Clarke J. in the case of Moohan v. S. & R. Motors [2008] 3 IR 650 and Murphy J. in Hegarty and Sons v. Royal Liver Friendly Society [1985] I.R. 24. Those cases involved the interpretation of building contracts as to whether an equitable set off could be invoked so as to reduce the amount due pursuant to a certificate expressed to be conclusive as to the amount due and owing. In the Moohan case, Clarke J. stated at p. 660:-
“The default position is that a party is entitled to a set off in equity in relation to any cross-claim arising out of the same contract. Thus if a builder is owed money on foot of a construction contract, the employer is prima facie entitled to a set off in equity, in principle, in respect of any defective works. The question which arises is as to whether that prima facie position has been displaced by the terms of the contract. There is no doubt but that the parties are free to agree that there will be no set off. The question is whether they have in fact done so. I am not satisfied that the balance of the authorities favours the view that the current standard form RIAl template does give rise to an agreement to exclude a set off, at least, and this is the only issue relevant in this case, in circumstances where the contract is completed to the stage of a certificate of practical completion having been issued by the architect and where, therefore, any entitlement to arbitration on the part of the employer is immediate. It is, of course, the case that Finlay P. in John Sisk and Son Ltd. v. Lawter Products B. V. [1976-1977] I.L.R.M. 204, had significant regard to the fact that, in the case then under consideration, there was no immediate right to arbitration as the contract was ongoing.
In those circumstances I am satisfied that, as a matter of construction of the contract in this case, the defendant is prima facie entitled to a set off in respect of any cross-claim which it can maintain. However, that set off arises in equity and is, as I have previously noted, subject to the defendant itself having done equity.”
A right to a set off in this case is said to be due to the bank’s overpayment of the receiver out of company monies in breach of an alleged prior agreement; the bank’s failure to stop accruing interest on the account in breach of an alleged prior agreement; and the bank’s continued charging of bank charges in circumstances where none should have arisen after the date upon which the company went into liquidation although as I have said earlier, the debtor cannot rely on this point in my view.
Much of the argument in this case centred on the role of the conclusive evidence clause. I think it can be seen from the authorities referred to, that the use of a conclusive evidence clause is something which contracting parties are free to provide for in a contract of guarantee. The fact that such a clause may be used does not in my view preclude a party from raising an equitable set off or counterclaim in respect of the sum claimed against them. That much is clear from such cases as Moohan referred to above. It is also clear, I think, that if such a clause is to be used, a certificate provided on foot of such a clause must comply strictly with the terms provided for in the particular contract. Thus, in this case there is an argument as to whether the certificate in this case complies with the requirement that it be a certificate of an officer of the bank. As has been seen from some of the authorities referred to in Lewison, referred to above, if a certificate calls for completion by “brokers” it is not sufficient for a certificate to be furnished by a broker. Therefore, there is undoubtedly an argument to be made as to the validity of the certificate in this case. It seems to me that in this regard, the debtor has raised an issue which, to paraphrase the words of McGovern J. in Minister for Communications v. M.W cited above, is a real and substantial issue and one which is, at least, arguable and which has some prospect of success. (See p. 9 of the judgment in that case).
I think it is also clear from the authorities that such a certificate cannot be relied on to affect any question of law that might arise between the parties (see, for example, Shomat referred to above). I think there can be no arguing with the proposition that such a certificate could not be relied on in the event of illegality or fraud.
I would add one further note of caution as to the use of such certificates. Reference was made in the course of the decision in the case of Bache and Company referred to above, to the fact that a certificate of a bank or a broker must be honoured as it ranks “as equivalent to, if not higher than, the certificate of an arbitrator or engineer in a building contract”.
Some misgivings were voiced by counsel on behalf of the debtor as to the standing of banks in the light of the current economic crisis. I do not think it is necessary for me to express any view on that particular argument but I would say this – I do not think that the position of a bank or a broker or someone in a similar position is entirely analogous with the position of an arbitrator, an engineer, or an architect in a building contract case for this reason- an arbitrator or an engineer or an architect is an independent third party who is not affected by the giving of the certificate in any way and does not benefit from the giving of the certificate. If one looks at the position of an architect in a standard building contract case, one would see that the architect is an independent person employed by the customer who pays the architect’s fees, the architect certifies the sums due to the contractor; the customer is then obliged to pay the contractor and obviously, the architect derives no benefit from the certificate issued in respect of the funds due to the contractor. The position of a bank issuing its own certificate either through a manager or officer or other designated person employed by the bank is different and as such one may have to be somewhat more circumspect in accepting that such certificates are unlikely to be mistaken. I do not think one could be as sanguine as Denning M. R. in giving such certificates the status “as equivalent to, if not higher than, the certificate of an arbitrator or engineer in a building contract”.
It is clear from the authorities to which I have referred above that an error on the face of a certificate can clearly be challenged. But it seems to me there must also be an argument in an appropriate case for a challenge to be made to a conclusive evidence certificate in the event that it could be demonstrated that there was a significant error in the figures certified, whether that error appeared on its face or otherwise. I derive some support from a very recent decision of the Court of Appeal in the case of North Shore Ventures Limited v. Anstead Holdings Inc and Others [2012] 1 Ch. 31 and to a number of passages commencing at para. 45 of the judgment, to which I was referred. It is stated therein by Sir Andrew Morritt C. at para. 46 as follows:-
“46. It is necessary to consider these rival submissions in stages. I start with the proposition, which was not disputed, that conclusive evidence clauses are to be strictly construed with any ambiguity being resolved in favour of the guarantor: see British Linen Asset Finance Ltd v Ridgeway [1999] G.W.D. 2- 78. The first step must be to ascertain what it is that the Guarantors agreed to pay. In my view it is clear that they agreed to pay as primary obligors the actual indebtedness of Anstead to North Shore. This is clear from the definition of indebtedness in clause 1.2 which, by clause 2, the Guarantors agreed to pay. They did not agree to pay the indebtedness as certified, rather the entitlement to certify was limited to the indebtedness for the time being.
47. It follows that the decision of this court in I.I. G. Capital L.L. C. v. Van Der Merwe [2008] 2 All ER (Comm) 1173 is distinguishable because in that case the terms of the guarantee were materially different. As indicated by Waller LJ in para 31 the definition of ‘guaranteed moneys’ which the guarantors agreed to pay included those ‘expressed to be due, owing or payable, to the Lender from or by the Borrower’. He considered that this provision, with others, showed that the guarantors were undertaking more than a secondary obligation, thereby approximating a performance bond; see, by way of contrast, the decisions on such questions of construction of Blair J in Carey Value Added SL v Grupo Urvasco SA [2010] 132 Con L.R. 15 and Sir William Blackbume in Vossloh AG v Alpha Trains (UK) Ltd [2010] 132 Con L.R. 32.
48. The second step must be to ascertain of what the certificate was conclusive evidence. Both the terms of clause 3.4 and of the certificate show that it was the amount for the time being of the indebtedness and/or the amounts due to North Shore, namely quantum. I have great difficulty in seeing how a certificate as to ‘amount’ due could be conclusive as to either the fact of the variation or its legal effect. The former would seem to be outside any reasonable limit as to what is meant by ‘amount’, the latter is a question of law which is not a matter for evidence whether conclusive or otherwise. It would follow that in those respects the certificate is not conclusive: see, for example, Jones v Sherwood Computer Services plc [1992] 1 W.L.R. 277, 284- 287 and Mercury Communications Ltd v Director General of Telecommunications [1996] 1 WLR 48, 58.
49. In that connection we were referred to the decision of this court in Bache & Co (London) Ltd v Banque Vernes et Commerciale de Paris SA [1973] 2 Lloyd’s Rep. 437. There a conclusive evidence clause was upheld as effective in accordance with its terms and not contrary to public policy. The dispute was as to the amount of the liability. The ground relied on by Lord Denning M.R. was that if the certificate was erroneous the surety could recover the excess paid by him to the creditor from the debtor. There was no such issue as arises in this case. Further I cannot see any basis on which the guarantors could recover any excess from either North Shore or Anstead. North Shore would contend that the sum paid was properly due by the guarantors as primary obligors under the guarantee; the latter would say that the amount of the excess was not due by Anstead to North Shore because of the variation so that there was no basis on which it could be obliged to refund the guarantors the amount of any excess.”
In para. 50 of the judgment Sir Andrew Morritt referred to the passage quoted from the judgment of Lord Denning M.R. as to the commercial practice being acceptable because bankers or brokers are known to be honest and reliable men of business who are most unlikely to make a mistake. He then commented as follows:-
“Whatever the force of that statement in 2011 it cannot apply to North Shore. Megaw L.J. recognised that such a certificate would not be conclusive in cases of fraud or mistake on the face of the certificate. Scarman L.J. relied on the fact that there was nothing to preclude a subsequent adjustment between debtor and creditor. For my part I do not consider that the decision in the Bache case precludes a conclusion in this case that the certificate does not prevent the Guarantors relying on the November variation to the Loan Agreement as a partial defence to the claim from North Shore. However in view of the dictum of the High Court of Australia in Dobbs v National Bank of Australasia Ltd [1935] 53 C.L.R. 643, 651 to which Tomlinson L.J. has referred and my conclusion in relation to the third of the steps to which I have referred, and to which I now tum, I would not determine this part of the appeal on the ground that the certificate cannot be conclusive as to the existence and effect of the variation.”
He then went on to consider whether there was, as it was contended on the behalf of the guarantors a manifest error in the case of the certificate used in that case.
That case is a useful summary of the limits as to the extent to which such a certificate can be relied on although that was not the basis of the decision. Summarising the position in this case, there are a number of issues that have arisen relating to the fees due to the receiver and to the question of the charging of interest on the amount of the debt due by Celtic Bookmakers Limited to the applicant. The certificate relied on by the applicant does not preclude the debtor from challenging the amount said to be due either on the basis that the sum demanded is overstated as alleged or on the basis that the debtor is entitled to a set off in respect of the alleged overpayments. In this case, I am satisfied that having regard to the decision of McGovern J. to which I have referred, who in turn relied on the well known ex tempore decision of the Supreme Court in the case of St. Kevin’s Company against a Debtor (unrep., Supreme Court 27th January, 1995) that so far as the amount due by the debtor to the applicant is concerned, the debtor has raised issues which have to be litigated separately outside the bankruptcy process. The issues raised are real and substantial and have some prospect of success. For that reason, I would indicate at this stage that I will dismiss the bankruptcy summons.
A number of other issues were raised by the debtor in seeking to challenge the validity of the summons. One of those related to the question as to whether or a valid four day notice was served prior to applying for the issue of the summons. Given that I have decided to dismiss the bankruptcy summons it is not necessary to decide that issue. Having said that, the issue that arises relates to a time period during the period when the petitioner and the debtor were in negotiation with a view to trying to resolve the issues between them. There was indeed a formal demand on the 13th March, 2012, which sought payment by the 13th May, 2012, and undoubtedly that was in the context of the discussions taking place. Subsequently the reasons that have been described previously for the bankruptcy demands were subsequently sent by the petitioner on the 6th April, 2012, and complaint was made that no explanation was given at that time for the demand given the letter of the 13th March, 2012, which requested monies to be paid by the 13th May, 2012. I have some doubts in respect of the argument put forward by the debtor that in the circumstances, the letters of the 6th April, 2012, were not valid demands, but having said that it is as I have pointed out not necessary for me to decide that issue.
The fourth issue relates to an alleged to demand payment of the debt more than once. In regard to that issue I note that McGovern J. in the course of the judgment in Minister for Communications v. M W. at p. 8 made the following observation:-
“In my mind, there is some uncertainty as to whether it is necessary to make a demand more than once. But I am quite satisfied that in this case, a claim for the costs in some form has been made of the applicants on more than one occasion.”
In the present case, I think it is equally clear that demand has been made of the debtor on more than one occasion. There was the letter of the 13th March, 2012, and subsequently there was a demand made on the 6th April, 2012. There was a previous demand on the 4th April, 2012, which was withdrawn at the debtor’s request. In all the circumstances I am satisfied that there was a demand on more than one occasion, whether or not that is strictly necessary.
The fifth issue raised, relates to the provisions of O. 76, r. 11(1) and the requirement contained therein to lodge “bills, notes, guarantees, contracts, judgments or orders”. The applicant argued that this issue was now moot as the court had granted liberty to issue the summons. In the affidavit sworn on behalf of the applicant in respect of the application for the issue of a bankruptcy summons reference was made to the guarantee in this case and it was duly exhibited in that affidavit. It is manifestly clear that the applicant relied on the guarantee as the basis for the application for the issue of the bankruptcy summons. Reference was also made to a number of other documents, namely a mortgage dated the 24th January, 2006, between the debtor and the petitioner, a mortgage debenture from the borrower and two assignments of Key Man life policies from the borrower. The latter documents were not lodged prior to the application to issue the bankruptcy summons.
Notwithstanding, the bankruptcy summons was issued and in such circumstances it seems to me that it would be open to the court to consider an application to permit the late lodgement of those documents in an appropriate case or to deal with the matter pursuant to the provisions of the Rules of the Superior Courts in regard to non compliance with the Rules. This is not a case in which there is any suggestion of any prejudice occasioned to the debtor by virtue of the failure. I do not think that this gives rise to a basis for the dismissal of the bankruptcy summons.
The final issued raised on behalf of the debtor was an apparent failure to serve the debtor with a true copy of the affidavit on foot of which the summons was issued. The applicant is unable to confirm whether this is so nor not. As mentioned previously, the bankruptcy summons in this case was served by ordinary prepaid post on foot of an order of the court, the applicant having been unable to serve the debtor personally. It is thought by the bank that if the debtor is correct in saying that the affidavit was not served that it may have been that the affidavit in respect of the debtor’s wife was placed in the envelope with the summons for the debtor in this case. The affidavit in each case is, in substance, identical and it is submitted on behalf of the bank that it is difficult to see what, if any prejudice could have been suffered by the debtor if in fact the position is that the affidavits were mixed up in the posting of the bankruptcy summons and the affidavits. Obviously, it goes without saying that a bankruptcy summons should be served with the correct affidavit. In the context of this case, it is clear that no prejudice has been suffered by the debtor by any error in the service of the affidavit. There is a conflict on the affidavits in relation to this issue but the bank has put forward a possible explanation for an error if such an error occurred. I do not think it is necessary for me to resolve this conflict, given the fact that I have already decided to dismiss the bankruptcy summons herein.
In conclusion, for the reasons already outlined in relation to the matters referred to above, I am obliged to dismiss the bankruptcy summons herein having regard to the provisions of s. 8 (6) (b) of the Act.
AIB Mortgage Bank & anor -v- O’Brien & anor
[2018] IEHC 408 (09 July 2018)
JUDGMENT of Mr. Justice Binchy delivered on the 8th day of June, 2018
1. In these proceedings the plaintiffs seek summary judgment in the sum of €2,621,702.19 in respect of sums which they claim they advanced to the defendants pursuant to letters of loan offer dated 23rd September, 2010 and 29th October, 2010 (“the 2010 facilities”). The background to those advances however starts some years earlier. It should be explained from the outset that the 2010 facilities and earlier facilities to which I refer below were advanced by the first named plaintiff to the defendants. However, the plaintiffs entered into an outsourcing and agency agreement with each other on 8th February, 2006, and arising out of that agreement, the second named plaintiff undertook certain functions on behalf of the first named plaintiff in connection with the 2010 facilities. It is for that reason that the second named plaintiff joins in these proceedings as plaintiff.
2. In 2006 the defendants were residing at No. 23 Clonfadda Wood, Mount Merrion Avenue, Blackrock, Co. Dublin (“no. 23”). That premises was held in the sole name of the second named defendant (Mrs. O’Brien”), and at the time was subject to borrowings of approximately €80,000,00, which were secured over the property to the Bank of Ireland. Both defendants were approximately 55 years of age at the time with four young children in their care, one of whom is their own daughter who was at the time still a dependant of the defendants, and the other three of whom are foster children of the defendants, and are younger than their daughter. The first named defendant (“Mr. O’Brien”) is a solicitor, Mrs. O’Brien is a housewife and homemaker.
3. During the course of 2006, the premises next door to that of the defendants, No. 24 Clonfadda Wood (“no. 24”), came on the market for sale. Although the houses were of a similar character, Mr. O’Brien considered that no. 24 was suitable for an extension of a kind which could not be undertaken at no. 23 and that, if extended, would be more suitable for the purposes of the defendants. In her first replying affidavit in response to this application, Mrs. O’Brien avers that she was apprehensive about the defendants incurring any debt at this particular stage in their lives. They were fortunate to be living in comfortable circumstances with modest borrowings attaching to their family home and Mr. O’Brien was due to retire aged 60. According to Mrs. O’Brien, she allowed herself to be persuaded by her husband, against her better judgment, that they should acquire no. 24, extend it and then sell no. 23 and apply the proceeds of sale of the latter towards the cost of the acquisition and extension of the former. Mrs. O’Brien avers that she knew little of the detail of any of this and was not involved in any way in the decision making process. She was not made aware by Mr. O’Brien of the amount of the purchase price or how much would have to be borrowed to fund the purchase. She says that having been informed by Mr. O’Brien that he had purchased no. 24, she was later presented with documentation, at home, by Mr. O’Brien, and signed such documents as she was requested by him to sign. She claims that at the time she was under extreme pressure as a result of issues concerning the children, and she was also struggling to manage medical conditions from which she suffered.
4. Mr. O’Brien says that by oral agreement made with an unidentified representative of the first named plaintiff, that the plaintiff agreed to advance 100% of the purchase price for no. 24 to the defendants. As part of this arrangement however, it was agreed that no. 23 would be sold, with the sale proceeds to be applied in reduction of the funds advanced by the first named plaintiff to purchase no. 24. More specifically, Mr. O’Brien claims that the first named plaintiff gave him an informal approval to purchase no. 24 for up to €3 million and promised that if necessary it would also advance additional funds in respect of the stamp duty payable and an unspecified amount in connection with the construction of the extension. In the event, Mr. O’Brien attended the auction and purchased no. 24 for the sum of €2,500,000.00. This was in March, 2006. Shortly thereafter, by letter dated 28th March, 2006, the second named plaintiff requested a solicitor’s undertaking in relation to the funds advanced and this was completed and returned to the first named plaintiff by letter dated 27th June, 2006. The completion of the purchase of no. 24 took place on 9th August, 2006. On the same date, the defendants accepted an offer of mortgage loan from the first named plaintiff, and on 11th August, 2006 both defendants executed a Deed of Mortgage over no. 24 in favour of the first named plaintiff. The loan offer of 9th August was an interest only loan, for a term of twelve months.
5. Mr. O’Brien then set about getting planning permission in connection with the extension to no. 24. He clearly wasted no time about this because a final grant of planning permission for the extension was granted by the planning authority on 25th January, 2007. In the meantime, the defendants also let no. 24 to tenants to assist in servicing the interest repayments at the time..
6. According to the Mr. O’Brien, following the grant of planning permission, he approached the plaintiffs with a view to borrowing an additional €350,000.00 to fund the anticipated construction costs of the extension for which the planning permission had been obtained. To his great surprise, this request for facilities was declined. Mr. O’Brien claims that the plaintiffs then suggested that the defendants should consider a smaller extension, and that for that purpose they would be willing to advance additional funding up to €150,000.000. Mr. O’Brien claims that he felt he had no choice but to take this course and proceeded to have plans drawn up for a scaled down version of the extension, in respect of which planning permission was not required. He says that he was acutely aware of the need to move forward quickly in order to be able to move into no. 24, and sell no. 23, and thereby reduce his borrowings and the cost of servicing the same significantly. He therefore proceeded as quickly as possible and the smaller extension was eventually constructed and the defendants moved into no. 24 in December, 2007. He avers however that when he went back to the plaintiffs for the promised funding in relation to the smaller extension, that they reneged on their commitment to advance €150,000.00 towards the cost of the same, and he was obliged to raise the funds for that extension through a loan from his firm, and from friends and relations.
7. Before moving into no. 24, the defendants had placed no. 23 on the market for sale. It was placed for sale in an auction on 26th September, 2007, together with four other residential properties, but not a single bidder turned up to the auction. It is not very difficult to guess in general terms what followed. There was a significant delay in achieving a sale of no. 23 and when it was eventually sold, in 2012, it was sold at the very bottom of the property market for a sum of €762,000.00. Thus, the defendants were left with an enormous shortfall in the anticipated sale price for no. 23, and it is that shortfall that has given rise to these proceedings.
8. Between 2008 and 2012 the defendants let no. 23 and applied the rental income towards their indebtedness to the plaintiffs. According to Mr. O’Brien, an offer of €1 million was received in early 2008 for no. 23. He claims that he sought the consent of the plaintiffs to dispose of the property at that price, such consent being necessary because no. 23 was subject to a mortgage in favour of the first named plaintiff . This mortgage had been completed pursuant to a loan facility advanced by the first named plaintiff to the defendants in June, 2008, and the mortgage itself was completed on 16th September, 2008. In any case Mr. O’Brien asserts that the plaintiffs refused consent to the sale of no. 23 at this price, insisting that it was “a vulture price” which should be rejected. For their part, the plaintiffs deny that they refused consent, and claim that they did no more than point out that a sale at that price would result in the defendants owing a very significant amount to the plaintiffs. This is borne out by an email from a Mr. Michael Deegan of the plaintiffs to Mr. O’Brien dated 18th March 2009, in which it is stated:-
“Kevin, as no. 23 forms part of the security for your facilities, you will need to revert to the bank prior to agreeing a sale. As you will be aware, a sale at €1m euro would represent a significant shortfall on the previously estimated value and would have a significant impact on the residual gearing and your repayment capacity”.
9. The loan facility referred to in the last preceding paragraph was one of two letters of loan sanction issued to the defendants by the first named plaintiff on 13th June, 2008. These facilities were offered to both defendants jointly. The first loan was in the sum of €2,500,000.00 and the second was in the sum of €760,000.00. The letters of offer do not specify the purposes of these loans. However, it is clear that the facility in the sum of €2,500,000.00 related to the funds that had already been advanced in connection with the purchase of no. 24. The facility in the sum of €760,000.00 related to other existing indebtedness, the bulk of which was held solely in the name of Mr. O’Brien, and at least some of which had been incurred in connection with the acquisition of a holiday home in Wexford and also an apartment in Venice. However, it appears that about €70,000 of this facility was required to clear the existing mortgage over no. 23, which was presumably in the name of Mrs. O’Brien. The latter loan sanction required that no. 23 should be secured to the first named plaintiff. It will be recalled that up to this point in time, that property had been secured in favour of bank of Ireland for the relatively modest balance then due to that Bank, which by this time had reduced to €70,000 approximately. In a letter sent by email on 21st November, 2008 to the solicitor acting on behalf of the defendants (a Mr. Dario di Murro, of Kilroys solicitors, the firm in which Mr. O’Brien is a partner) a Mr. Emmet Molloy of the first named plaintiff sets out how the proceeds of the second loan of €760,000 are to be applied. Firstly the Bank of Ireland mortgage was to be discharged. The balance was to be paid into specified accounts, which it appears were loan accounts in the sole name of Mr. O’Brien. Ultimately, as mentioned above, no. 23 was sold in 2012 for the sum of €762,000.00, and the proceeds of sale thereof were applied in reduction of the facility of 29th October, 2010, which by this time had effectively replaced the 2008 loan facility in the sum of €760,000.
10. Following further engagement between the parties, the first named plaintiff issued the 2010 facilities to the defendants. The defendants, however, failed to adhere to the repayment terms required by the 2010 facilities. Following a period of further engagement between the parties, the second named plaintiff, by letters dated 4th September, 2014, on behalf of the first named plaintiff, demanded repayment of the sums then claimed to be due and owing by the plaintiffs pursuant to the 2010 facilities, being the sums of €2,614,719.86 and €6,982.33 respectively.
11. The application for summary judgment is grounded upon the affidavit of Mr. David Nolan, an employee of the first named plaintiff, dated 2nd February, 2015. The defendants are separately represented in these proceedings, and Mr. O’Brien delivered replying affidavits dated 16th April, 2015 and 19th May, 2015, and Mrs. O’Brien delivered a replying affidavit on 8th May, 2015. Mr. Nolan swore another affidavit on 24th July, 2015, which gave rise to two further replying affidavits on the part of Mr. O’ Brien dated 16th October, 2015 and 2nd November, 2015, as well as a second replying affidavit from Mrs. O’Brien on 28th June, 2016. Mr. Nolan swore a further affidavit dated 25th January, 2017. Affidavits in support of the cases of the defendants were also sworn by a Mr. Anthony Layng, a solicitor of Kilroys solicitors on behalf of Mr. O’Brien, and Ms. Patricia Heavy of Patrick F. O’Reilly solicitors on behalf of Mrs. O’Brien.
12. In the course of his affidavits, Mr. O’Brien raised no less than twelve different points in opposition to this application. At the hearing of the application however these were reduced to three core points as follows:-
(1) The facilities offered by the plaintiffs to the defendants in 2010 were no more than an internal banking exercise and did not give rise to any actual advance of funds by the plaintiffs to the defendants. Accordingly, those loan agreements are void for want of consideration or on the grounds that the consideration moving between the parties was past consideration.
(2) Mr. O’Brien relied upon his oral agreement with the first named plaintiff that it would advance funds to him to construct an extension at no. 24. The failure on the part of the first named plaintiff to honour this oral agreement caused the defendants a delay in constructing an extension. In turn, this caused a delay in placing no. 23 on the market for sale and as a result of this delay the defendants, instead of selling no. 23 at the top of the property market, were ultimately forced to sell that dwelling house at the very bottom of the market. If these proceedings are remitted to a full plenary hearing, it is the intention of the defendants to counterclaim for what they say is the resulting loss.
(3) The plaintiffs failed to comply with the code of conduct of mortgage arrears in circumstances where the defendants made every effort to co-operate with the plaintiffs, including by signing the very agreements relied upon by the plaintiffs in support of this application. By seeking summary judgment, the first named plaintiff seeks to avoid determination of any issues in relation to the code of conduct on mortgage arrears.
13. Mr. O’Brien acknowledges having received a loan from the plaintiffs to purchase no. 24. Somewhat confusingly, at para. 36 of his affidavit of 16th October, 2015, he avers:-
“I admit for the purposes of the proceedings herein, and not otherwise, that I am indebted to the first named plaintiff in respect of sums advanced to me in August 2006 in order to complete the purchase of 24 Clonfadda Wood. I do not accept that the said sums are due and owing at the present time. I say that the sums advanced to me and drawn down and paid over by bank draft to the vendor’s solicitors for 24 Clonfadda Wood totalled the sum of €2.5 million. Critically, I say that the last advances of the mortgage loan to me by the plaintiffs were in August 2006 and that no further or other funds were advanced by the plaintiffs to me thereafter. I say that from 2006 onwards the actions taken by the plaintiffs were with a view to protecting only their own positions and not providing me with any financial payments, consideration or benefits.”
14. I think that the apparent contradiction on the part of Mr. O’Brien in acknowledging that he is indebted to the first named plaintiff for the sums advanced in 2006 but at the same time stating that no sums are due and owing at the present time, is probably explained by reference to the counterclaim that he maintains that the defendants have against the first named plaintiff on account of its failure honour the agreement that Mr. O’Brien alleges that he had with the first named plaintiff in relation to the funding of the extension at no. 24.
15. It is submitted on behalf of Mr. O’Brien that this matter should be sent to a full plenary hearing in order that evidence can be adduced as to the oral agreement that Mr. O’Brien alleges he reached with the representatives of the first named plaintiff. It is also submitted that it is necessary to adduce evidence from expert witnesses pertaining to the depreciation in the value of houses during the period concerned and furthermore that discovery of documents will be required in relation to all the issues raised by the defendants.
16. It is further submitted on behalf of Mr. O’ Brien that it is necessary to remit the dispute to a plenary hearing due both to issues of law and issues of fact. The issue of law is whether or not the delay that Mr. O’Brien alleges the plaintiffs caused in the disposal of no. 23 is one for which the plaintiffs are liable in law to the defendants and if so, whether that operates so as to prevent the plaintiffs from demanding repayment of the 2006 loan in full or at all. Mr. O’Brien relies upon the case of theLeopardstown Club Ltd. v. Templeville Developments Ltd. [2006] IEHC 133 where the Court held at pp. 10-11 that the defendant had raised untested points of law which could only be determined by way of plenary hearing.
17. Similarly, it is submitted on behalf of Mr. O’Brien that the case should be remitted to plenary hearing to determine issues of fact which are disputed. I was referred to a number of cases in this regard including the well-known authorities ofHarrisgrange Ltd. v. Duncan[2003] 4 IR 1 andChadwicks Ltd. v. P. Byrne Roofing Ltd.[2005] IEHC 47. In the former case McKechnie J. said, as regards the summary judgment procedure:-
“where however, there are issues of fact which, in themselves, are material to success or failure, then their resolution is unsuitable for this procedure”.
18. This was developed further by Clarke J. InChadwicksClarke J. stated:
“where the facts are in dispute the court should only grant summary judgment where either:-
(a) Even on the facts asserted by the defendant no defence would arise; or
(b) The facts asserted by the defendant amount to a mere assertion of a defence where there is no credible evidence for the defence which the defendant seeks to assert …
Finally it may be observed that the defence may amount to a mixed question of law and fact in which case the court must exercise a judgment as to whether the factual matters in respect of which a credible dispute has been established combined with any legal issues which are not capable of being resolved on a summary judgment motion give rise to a fair or reasonable probability of the defendant having a real orbona fidedefence.”
19. It is submitted that the plaintiffs have relied exclusively upon the 2010 facility letters without any qualification, and that the plaintiffs have not contested the contents of Mr. O’Brien’s s affidavits in relation to the background leading up to the 2010 facilities and in particular the fact that the monies owing by the defendants to the first named plaintiff were advanced in 2006. Mr. O’Brien maintains that he at all times tried to co-operate with the plaintiffs in arriving at a resolution in relation to the repayment of the loans. He says that he has offered to pay all of the interest payable under the loan facilities which at the time he made the offer would have come to €43,000.00 per annum, together with an additional €7,000.00 per annum towards the capital. He says that he should not have been deemed to be a non-cooperating borrower for the purpose of the Mortgage Arrears Resolution Process (MARP), but he acknowledged that when he was so designated by the plaintiffs, he failed to appeal that decision within the permitted time. He says that he completed all necessary forms as regards the provision of financial information and had numerous meetings with representatives of the plaintiffs. He further says that he has used his best endeavours to apply as much of his earned income and rental income to the plaintiffs in discharge of the entirety of the interest due together with a limited and modest repayment towards capital.
20. Mrs. O’Brien resists this application for judgment on two grounds. The first is on the ground ofnon est factum. Secondly, she maintains that she was subjected to duress and undue influence in relation to the loan transactions. She advances thenon est factumdefence on two bases. Firstly, she said that at all times she entrusted the management of the financial and business affairs of the household to her husband. She did not receive any independent legal advice in connection with the transactions with the plaintiffs and she did not have any direct contact of any kind with the plaintiffs until February, 2012. She avers that she was never made aware of the true nature and extent of the financial arrangements that were put in place in 2006, 2008 and 2010. She deposes as to the discussions that she had with Mr. O’Brien in 2006 in relation to the proposed acquisition of no. 24 and the intended sale of no. 23. She says that she expressed very grave reservations to her husband in relation to these proposals, having regard to their ages at the time, their various responsibilities to their children and the fact that she owned no. 23 which was subject to a modest loan at the time. She avers that she would have been happy to remain in no. 23 for these reasons, and while she understood the reasons advanced by her husband for moving house, she did not agree that those reasons merited making the move, having regard to the increased indebtedness that would be incurred. She acknowledges that she was informed of the decision but she says that she was not in any way involved in the decision-making process. She was not made aware of the purchase price of no. 24 or how much would have to be borrowed to fund the purchase and costs of construction of the extension thereto. She was unaware that she had signed a loan facility in 2006, but she did recall signing documentation presented to her at home by her husband and she signed that documentation on his request. However, she says that at that time she was labouring under extreme personal pressures.
21. In her second affidavit she exhibits a report from a Dr. Niall Pender, Principal Clinical Neuro Phycologist at Beaumont Hospital. This report was obtained during the course of these proceedings for the purpose of providing an opinion as to the capacity of Mrs. O’Brien at the time of the 2006, 2008 and 2010 transactions. The report contains a lot of personal information and it is unnecessary to summarise it in any detail here. Dr. Pender concludes by saying that he cannot say definitively that Mrs. O’Brien did not have the capacity to manage her financial affairs between 2006-2011, but he opines that during this period she was very vulnerable emotionally, and having regard to this and also to chronic pain and migraine and also to the demands of her children, in his opinion she did not have any “spare capacity” to engage with her finances.
22. Mrs. O’Brien says that she felt she was presented with afait accompliby her husband in 2006, he having bid for and purchased no. 24 at auction. She says however that she never wanted to embark upon the purchase of no. 24 and that her objections and reservations where not listened to by her husband. She asserts that the plaintiffs should have met with her as part of their duty to her as a customer. She says that in 2008 she was approached by Mr. O’Brien who asked her to sign mortgage deeds. He said that this was at the insistence of the plaintiffs. She says that she felt entirely in the dark as to why documentation was being put in place in 2008 when the property had been purchased in 2006. She was completely unaware that loan facilities were being made available to Mr. O’Brien in relation to borrowings that were unrelated to no. 24, which borrowings were personal to Mr. O’Brien and in respect of which the plaintiffs had no security at the time.
23. In relation to the 2010 loan facilities, Mrs. O’Brien agrees with Mr. O’Brien that no new advances were made to the defendants and that what occurred at this time was merely a restructuring of existing facilities. She claims that Mr. O’Brien exerted considerable pressure on her to enter into these transactions, on the basis that he was being put under pressure by the plaintiffs to do so.
24. The above is the factual background against which Mrs. O’Brien claims to have available to her the defence ofnon est factum. In support of her defence under this heading, the she relies upon a number of authorities, but most particularly the cases ofFriends First Finance Ltd. v. Charlotte Lavelle & Anor[2013] IEHC 201 and the decision of Clarke J. inUlster Bank (Ireland) Ltd. v. Roche & Buttimer[2012] 1 I.R. 765. InLavelle, Mrs. Lavelle and her husband were being pursued by the plaintiffs for the sum of €1.75 million. Mrs. Lavelle was being pursued in her capacity as principal borrower, and her husband was being pursued on the basis of a guarantee that he had signed in respect of the liabilities of his wife. However, Mrs. Lavelle claimed that she relied entirely upon her husband in connection with all financial matters and that she had not borrowed the monies claimed by the plaintiffs. She accepted that she had signed the documentation relied upon by the plaintiffs, but she claimed that she thought that these documents were of a character that she had previously signed in relation to a family trust. The plaintiff accepted that it did not know the circumstances in which Mrs. Lavelle had signed any of the relevant documents. No representative of the plaintiff had ever met Mrs. Lavelle and none of the plaintiff’s personnel knew whether she received any letters in relation to the borrowing that was in her name. Somewhat unusually, such correspondence had issued from a third party namely Quinlan Private Investments. Charleton J. found this to be a radical departure from the procedures of the plaintiff financial institution.
25. Charleton J. considered the very strict criteria that must normally be met before a court will make a finding ofnon est factumand having cited the relevant authorities, he referred to the three criteria that must be established:-
“(a) That there was a radical or fundamental difference between what [the person relying on the defence] signed and what he/she thought he/she was signing;
(b) That the mistake was as to the general character of the document as opposed to the legal effect; and
(c) That there was a lack of negligence i.e. that he/she took all reasonable precautions in the circumstances to find out what the document was.”
26. Having regard to the particular background in the case, Charleton J. was of the view that there was no lack of care on the part of Mrs. Lavelle. He also considered that there had been an abrogation of duty on the part of the plaintiff “in arranging a loan for someone whom they had never met and in circumstances where the relevant contract, which is supposed to be a meeting of minds, was entrusted through other parties, namely, her husband Peter Lavelle and Quinlan Private Investments”. He stated:-
“In terms of finding want of care, the balance comes down firmly against the plaintiff financial institution”
27. Charleton J. went further and stated:-
“Even if the relevant defence ofnon est factumwere not to succeed in this case, I would regard it as repellent that a financial institution could hold someone to a bargain in the borrowing of a huge amount of money when there was never any meeting of mind, never mind any meeting in person, whereby that individual could truly be called a borrower as a matter of contract.”
28. In these proceedings, it is contended that a clear analogy can be drawn between the facts as presented in this case and those as described by Charleton J. inLavelle. It is submitted that there has been a total abrogation of duty by the plaintiff financial institution, as inLavellein that Mrs. O’Brien had no contact whatsoever with the plaintiffs and was not a party to the negotiations that ultimately lead to the 2006 loan facility. Nor did the plaintiffs discuss any aspect of the 2008 loan facility with her, and nor did they at any time consult with Mrs. O’Brien at any stage in 2010 in relation to the agreements signed by the defendants in 2010, even though the plaintiffs are relying on those agreements. The plaintiffs were at all times satisfied to allow Mr. O’Brien to communicate on their behalf with Mrs. O’Brien and to present all loan documentation and mortgage documentation to her for signature. It is not disputed that the first meeting between the plaintiffs’ representatives and Mrs. O’Brien occurred in February, 2012.
29. As inLavelle, Mrs. O’Brien relied entirely on her husband to manage the financial affairs of the family and had no previous experience of dealing with financial matters. Any suggestion that she herself was negligent must be seen in the light of the particular pressures to which she was subject at the time by reasons of issues relating to her children and her own medical condition. These are not mere assertions, but are assertions of fact supported by the evidence of Professor Pender. It is further submitted that, on the basis of the authority ofLavelle, there must be an arguable defence ofnon est factumon the grounds that there was no meeting of minds and therefore no agreement between the plaintiffs and Mrs. O’Brien at all.
30. It is further submitted on behalf of Mrs. O’Brien that she was subjected to considerable pressure by Mr. O’Brien to sign loan documentation. Mr. O’Brien indicated to her that the plaintiffs were putting pressure upon him to complete the documentation, especially the 2010 facility letters relied upon by the plaintiffs. In this regard, reliance is placed upon the case ofUlster Bank (Ireland) Ltd. v. Louis Roche & Buttimer. In that case, the second named defendant, who was in a personal relationship with the first named defendant, was also a director of a company owned by the first named defendant, but she had no role nor gained any benefit from the business of that company. Clarke J. held that in certain circumstances, a financial institution is placed on inquiry where it is aware of the facts that would suggest a non-commercial element to a guarantee upon which it intends to rely. He held that a court, in considering the issue, should first establish whether or not the person giving the guarantee was under the undue influence of the person benefiting from the same. If this question is answered in the affirmative, the court may then consider whether there are sufficient circumstances to set aside the guarantee. Having found that Ms. Buttimer was indeed under the undue influence of Mr. Roche, the Court accepted that the plaintiff had no actual knowledge of that undue influence. Nonetheless, Clarke J. was satisfied that as a general principle, a bank taking a guarantee is placed on enquiry where it is aware of facts which suggest, or ought to suggest, that there may be a non-commercial element to a guarantee. He said:-
“That general principle, at a minimum, goes far enough to cover the facts of this case where the bank was, for reasons set out, aware of the personal relationship between Ms. Buttimer and Mr. Roche and was also aware that Ms. Buttimer had no direct interest in the company (other than being a director) and was, indeed, in those circumstances, in a less secure position than a spouse or, in the modern context, a civil partner who has at least certain potential legal rights in the assets or income of the other spouse or partner. The potential for undue influence against a partner, such as Ms. Buttimer, who has very limited legal rights indeed and who has no interest in the company whose debts it is sought that she should guarantee, seems to me to be well on the side of whatever threshold might ultimately be fixed for determining the point at which a bank is placed on inquiry.”
Having found that the bank was placed on inquiry in that case, and that in failing to take any steps to ensure that the second named defendant was entering into the guarantee freely and of her own will, Clarke J. held that the bank was not entitled to rely on the guarantee.
31. Counsel for Mrs. O’Brien accepted that in order to be able to rely on the authority ofUlster Bank (Ireland) Ltd. v. Roche & Buttimer, it is first necessary for the Court to determine whether or not Mrs. O’Brien was acting under the undue influence of her husband. It is submitted that there is sufficient evidence of such undue influence to send this question forward for determination at a full plenary hearing. While acknowledging that there are some significant factual difficulties between this case andUlster Bank (Ireland) Ltd. v. Roche & Buttimer, it is further submitted that in circumstances where Mrs. O’Brien was at the relevant time the sole owner of no. 23, there was a manifest divergence of interests between Mr. and Mrs. O’Brien in particular insofar as certain loan facilities, unrelated to the acquisition of no. 24, were in the sole name of Mr. O’Brien and were then secured, at the behest of the plaintiffs, over no. 23, a property of which Mrs. O’Brien was the sole owner. This factual matrix should have placed the bank on inquiry to determine that Mrs. O’Brien fully understood the implications of the security that she was being asked to give to the first named plaintiff. This, it is submitted, is sufficient to meet the low threshold to refer the matter to plenary hearing.
Plaintiffs’ Submissions
In response to arguments of Mr. O’Brien
32. In response to the argument that Mr. O’Brien makes that he received no funds pursuant to the 2010 loan sanctions, the plaintiffs point to the fact that it is clear from both correspondence received from Mr. O’Brien’s solicitors and from bank statements at the time that this is not so. In a letter sent by e mail on 22nd December, 2010, Mr. di Murro, the solicitor in Kilroys who was handling the transaction on behalf of the defendants wrote in the following terms to the first named plaintiff :-
“Please now drawdown the funds available under the new loan facilities and lodge them in clearance of our clients’ existence home loan facilities”.
33. In reply to this letter, the first named plaintiff, on 24th December, 2010 wrote to the defendants as follows:-
“Mortgage Loan
Dear Mr. and Mrs. O’Brien,
Property: 24 Clonfadda Wood, Mount Merrion Avenue, Blackrock, Co. Dublin
Mortgage Loan Account No.: 67032346
Loan Amount: €2,563,000.00
I would like to take this opportunity to thank you for your business and wish to confirm that, as instructed by you, funds of €2,563,000.00 in respect of a full/final payment have been drawn down from your loan account … The details of your total mortgage now drawn (€2,563,000.00) are as follows:-
34. Bank statements at the time show a credit for the amount drawn down which is applied to discharge the amount then due on the housing loan account of the defendants, and a new loan account is opened with a corresponding debit. It is submitted that all of this makes it clear that, contrary to what is asserted by Mr. O’Brien, funds were drawn down and applied to the credit of the defendants and, therefore, there was consideration for the acceptance by the defendants of the 2010 loan offers.
35. Furthermore, following upon that it is apparent that the defendants made payments to the first named plaintiff, and Mr. O’Brien repeatedly makes reference in his affidavits in response to this application to his efforts to repay the loan drawn down. All of this is inconsistent with the proposition that no loan was drawn down in 2010, as asserted by Mr. O’Brien. The plaintiffs also place reliance upon the admission by Mr. O’Brien, referred to above, that for the purposes of these proceedings, and not otherwise, he is indebted to the first named plaintiff in respect of sums advanced to him in 2006 in order to complete the purchase of no. 24.
36. It is further submitted that the consideration advanced by the plaintiffs in respect of the 2010 facilities was the extension of supplemental loan facilities as recorded and accepted in writing by the defendants.
37. The plaintiffs also rely on the fact that the statement of account exhibited by Mr. Nolan in his affidavit of 24th July 2015, relating to the facility 23rd September, 2010 records twelve interest only payments of €5,343.51 made between January, 2011 and December, 2011 pursuant to and as required by that facility.
38. The plaintiffs rely upon averments made by Mr. O’Brien himself in relation to repayment of the first facility. For example, at para. 14 of his second affidavit he states:-
“I say that as further evidence of my determination and my ability to contribute substantially to my mortgage that I made on 15th February, 2015 a payment of €19,666.22 on my home loan mortgage account.”
39. In relation to the argument that the defendants have a counterclaim to the plaintiffs’ claim, the plaintiffs firstly submit that that could not amount to a defence to the plaintiffs’ claim and could only arise as an issue in the context of considering whether such a counterclaim might give rise to a stay on judgment pending the determination of the counterclaim. The plaintiffs rely on the decision of Clarke J. inMoohan v. S. & R. Motors (Donegal) Ltd.[2008] 3 IR 650, in which case Clarke J. affirmed the application of the principles set out by the Supreme Court in the earlier case ofPrendergast v. Biddle,(Unreported, Supreme Court, 31st July, 1957), in which Kingsmill Moore J. said:-
“It seems to me that a judge in exercising his discretion may take into account the apparent strength of the counterclaim and the answer suggested to it, the conduct of the parties and the promptitude with which they have asserted their claims, the nature of their claims and also the financial position of the parties.”
40. The plaintiffs submit that if the Court considers there is any merit in Mr. O’Brien’s assertion of a counterclaim, the appropriate course to take is to grant judgment and put a stay on that judgment for an appropriate period, pending determination of the counterclaim.
41. On the substantive issue of a counterclaim, the plaintiffs submit that Mr. O’Brien does not assert that he concluded an agreement with the plaintiffs. The furthest he goes is to say that he was given to understand that the plaintiffs would advance funds to construct an extension. Mr. O’Brien also presumed that, having been given oral approval to expend up to €3 million in the acquisition of no. 24, and having bought the property for €2,500,000.00, he would have the “balance” of €500,000.00 to apply towards stamp duty and the construction of the extension. However, all of this falls significantly short of an agreement on the part of the first named plaintiff to advance a loan to fund the cost of the extension. Accordingly, it is submitted that Mr. O’Brien’s case in this regard amounts to no more than a bare assertion that there was an agreement that the plaintiffs would advance funds to enable the defendants construct an extension, and it is well established that such assertions, unsupported by evidence, are insufficient for the purposes of resisting an application for summary judgment. The plaintiffs rely on the decision of Clarke J. inIrish Bank Resolution Corporation (in special liquidation) v. Gerard McCaughey[2014] IESC 44 where he held at para. 6.5.5:-
“Insofar as facts are put forward, then, subject to a very narrow limitation, the Court will be required, for the purposes of the summary judgment application, to accept that facts of which the defendant gives evidence, or facts in respect of which the defendant puts forward a credible basis for believing that evidence may be forthcoming, are as the defendant asserts them to be. The sort of factual assertions, which may not provide an arguable defence are facts which amount to a mere assertion unsupported either by evidence or by any realistic suggestion that evidence might be available, or facts which are in themselves contradictory and inconsistent with uncontested documentation or other similar circumstances such as those analysed by Hardiman J. inAer Rianta.It needs to be emphasised again that it is no function of the court on a summary judgment motion to form any general view as to the credibility of the evidence put forward by the defendant.”
42. The plaintiffs point out that Mr. O’Brien refers to an oral agreement with unidentified representatives of the second named plaintiff, specifically. This, it is submitted, gives rise to two problems for Mr. O’Brien. The first is that the loan facilities were advanced to the defendants by the first named plaintiff and so any promises that might have been made by the second named plaintiff could not impact upon liabilities owed to the first named plaintiff. Secondly, Mr. O’Brien’s claim in this regard amounted to no more than mere assertions unsupported either by evidence or by any realistic suggestion that evidence to this effect might be available. It is submitted on behalf of the plaintiffs that the counterclaim suggested by Mr. O’Brien suffers from a number of insuperable obstacles, namely:-
“(i) There is no duty of care known to law of the type asserted by Mr. O’Brien;
(ii) The refusal of loan facilities for the purpose of building a bigger extension to no. 24 than that original planned by the defendants can only have reduced the period of time which no. 23 could be placed on the market;
(iii) Having entered into a five month lease of no. 24 on 13th September, 2006 the defendants could not have sold or marketed that property prior to 13th February, 2007; and
(iv) The agreement between the defendants and the first named plaintiff specifically provides that:-
“All sums payable by the customer under this agreement shall be made to the bank in full in such manner as the bank may direct, free of any present or future taxes, levies, imposts, duties, charges, fees or withholdings and without set off or counterclaim or any restrictions, conditions or deduction whatsoever.””
43. The plaintiffs deny that there has been any failure on their part to abide by the terms of the code of conduct on mortgage arrears, and submit that the evidence demonstrates a protracted period of engagement on the part of the plaintiffs in keeping with the requirements of the CCMA (“CCMA”). But even if the plaintiffs are wrong about this, it is submitted that it is well established that failure to comply with a banking code of conduct issued by the Central Bank, does not affect the validity of a mortgage loan or the right to enforce the security attaching to same. These principles were applied in the case ofHarrold v. Nua Mortgages Ltd. [2015] IEHC 15, in which the court quoted with approval the following passage from the judgment of McGovern J. in Freeman v. Bank of Scotland (Ireland)[2014] IEHC 284:-
“It is clear therefore, that non-compliance with a statutory code does not relieve a borrower from his obligations under a loan to repay the lender, nor does it deprive the lender of its rights and powers under the loan agreement.”
44. This principle was developed further by Clarke J. in Irish Life and Permanent v. Dunne[2015] IESC 46 where Clarke J. said at para. 5.24:-
“It does not seem to me, therefore, that the statutory policy of the 1989 Act and the Code-making powers contained therein is such that same is intended to, as it were, by the backdoor, create a whole new jurisdiction for the courts in which the court would be required to assess in some detail the type of engagement entered into between a financial institution and a borrower who is in sufficient arrears to enable that financial institution, as a matter of law, to seek possession.”
Having reached that conclusion, Clarke J. went on to say, at para. 5.27:-
“In conclusion on this issue I should say that in those circumstances I am satisfied that, in the limited cases of a breach of the moratorium, but in no other cases unless and until appropriate legislation is passed, a court should decline to make an order for possession.”
45. The plaintiffs also say that the defendants were deemed to be non-cooperating borrowers for good reason, namely the failure to furnish financial information in relation to their repayment capacity. The defendants were also informed of this decision, and of their right to appeal it, but did not exercise their right of appeal. Accordingly, it is submitted that there is no defence available to the defendants on any grounds associated with failure to comply with the CCMA or the MARP.
Submissions of Plaintiffs in response Mrs. O’Brien’s Case
46. Firstly, it is submitted that even on Mrs. O’Brien’s own case, she was not at any time operating under the duress or undue influence of her husband. She does not even assert this herself; the furthest that she puts it is that she expressed grave concerns to her husband regarding the proposed purchase of no. 24, and that she was content to remain at no. 23. Notwithstanding her concerns however, her husband went ahead with the purchase of no. 24. She says that she was then later presented, by her husband, with documentation for her signature, and that when she signed the documents at that time she was under “extreme pressure” as a result of issues concerning the children of the defendants. None of this, it is submitted, is indicative of undue influence or duress. The same applies in relation to documentation signed for the purpose of both the 2008 facilities and the 2010 facilities. It is submitted that the plaintiffs, in reply to the first affidavit of Mrs. O’Brien, specifically put in issue the question of undue influence, by stating:-
“Based on the averments in her affidavit it does not appear to be the case that the second defendant alleges any wrongful pressure, duress or undue influence on the part of the first named defendant.”
Although Mrs. O’Brien subsequently swore another affidavit in the proceedings, she did not take the opportunity to expand upon what she had said previously to make any allegation of wrongful pressure, duress or undue influence.
47. For these reasons, it is submitted that Mrs. O’Brien could not possibly succeed with a case based on undue influence or wrongful pressure on the part of her husband. Moreover, it is submitted that there is no authority to suggest that pressure of the kind that Mrs. O’Brien describes in her affidavits could provide a defence to the plaintiffs’ claim, not least in circumstances where whatever pressure she was under was not generated by the financial institutions seeking judgment. For these reasons alone, the case ofUlster Bank (Ireland)Ltd. v. Roche & Buttimeris not of any assistance to Mrs. O’Brien. But even if the Court were to find that she was under undue influence, that case would still not assist her, because this is not a case in which Mrs. O’Brien gave financial assistance without obtaining a benefit. In this case, it is submitted, the defendants jointly received loan facilities in order to purchase a family home in their joint names.
48. Moreover, it is submitted that there is nothing at all in Mrs. O’Brien’s affidavits to indicate that she believed that she was signing anything other than the documentation that she did sign, or that she did not understand the nature of the documentation that she was signing. On the contrary, it is clear that she understood the nature of the documentation and the commitments undertaken in particular by executed deeds of mortgage. This, it is submitted, distinguishes this case fromLavelle.
49. The fact that the property market collapsed, with such terrible consequences for so many including the defendants, does not mean that Mrs. O’Brien did not get a benefit from the transaction at the time. She and her husband were intending to acquire and did acquire and extend a new family home more suitable for their family needs. The fact that ultimately things worked out for the worse does not mean that this was a transaction of the kind entered into either by Mrs. Lavelle or Ms. Buttimer.
Discussion and Conclusions
50. It is an undisputed fact that the first named plaintiff advanced to the defendants jointly the sum of €2,500,000.00 for the acquisition of no. 24, in 2006. While Mr. O’Brien thought that that entire transaction was pursuant to an oral agreement, and while both defendants averred that there was no loan agreement signed at the time, it is not disputed now that a loan agreement governing the advance was in fact signed by the defendants on 9th August, 2006, and a mortgage over no. 24 securing the same was granted by the defendants in favour of the plaintiffs on 11th August, 2006. That agreement however was for a period of twelve months only and the plaintiffs do not rely on it in these proceedings. Instead they rely on the 2010 loan facilities in making this application for summary judgment.
51. Mr. O’Brien resists this application on three grounds. The first of these is that no funds were in fact drawn down in 2010 and there is an absence of consideration in respect of 2010 loan facility. This argument is also put forward on behalf of Mrs. O’Brien. In reply to this, the plaintiffs say that the correspondence between the defendants’ solicitor and the plaintiffs at the time clearly shows a request for drawdown of funds and, subsequently, the confirmation of drawdown of funds. They argue that the loans are also evidenced by the relevant accounts, in which in one account a credit in the sums drawn down can be seen, and in another account a debit in the corresponding amount may be seen. The defendants however categorised all of this activity as merely an internal bank exercise. The plaintiffs also rely on the payments made by the defendants subsequent to the acceptance of the 2010 facilities by the defendants.
52. The exercise in which the plaintiffs and the defendants were engaged in 2010 became very common practice in the years following the onset of the financial crisis. There are a number of reasons why this practice developed and the reasons for it will vary from case to case. In this case, the reasons were not put forward by the plaintiffs, and in these proceedings the transactions were characterised by the defendants in the manner described above, i.e. that the provision of the 2010 facilities by the plaintiffs amounted to no more than an internal bank exercise.Prima faciehowever, the underlying point made by the defendants is not an unreasonable one; while the plaintiffs may point to credits and debits on paper, the fact is that no new funds were advanced to the defendants by the plaintiffs. It is true that the defendants’ own solicitor requested a “drawdown” of funds but this was all part of the very same exercise which the defendants describe as an internal bank exercise, and with which they were, in effect, obliged to co-operate. It may well be that the plaintiffs took this course as an act of forbearance rather than call in repayment of the monies due pursuant to the 2008 facility, and that that would represent consideration for the 2010 facilities, but the plaintiffs have not pleaded such an argument. They have relied exclusively on the documentation associated with the 2010 facilities, but this ignores the substantive reality that the plaintiffs did not in fact advance any additional funds to the defendants at this time, other than the €70,000 approximately to clear the Bank of Ireland loan over no. 23, to which I refer below.; they simply credited some loan accounts (which were then closed) and opened new loan accounts which were debited the amounts owing on the former accounts. Another way of looking at this is to ask the question: ignoring other transactions in the course of its business, would the first named plaintiff’s accounts, if drawn up immediately after the acceptance of the 2010 letters of offer by the defendants, have disclosed any additional lending on the part of the first named plaintiff? It seems highly unlikely, other than the €70,000 approximately advanced to clear the Bank of Ireland mortgage over no. 23. But this was clearly advanced so that the plaintiffs could take security over no. 23, and is arguably not consideration given to the defendants, but a facility provided to benefit the plaintiffs so that they could take that security.
53. For these reasons it cannot in my view be said that there is not some substance in the argument that there was an absence of consideration provided by the plaintiffs to the defendants in connection with the 2010 facilities. Or, to put it in the words of Hardiman J inAer Rianta c.p.t. v. Ryanair Ltd[2001] 4 IR 607, it cannot be said, under this heading, that the defendants affidavits “fail to disclose even an arguable defence”. This does not mean that, even if they are successful with such a defence, the defendants are not indebted to the plaintiffs, whether pursuant to the original advance in 2006, or pursuant to the 2008 facility letters. But the exact amount due may vary depending on which loan facility is applicable to the debt, and the interest rate payable thereunder. But it is no function of the Court, on this application, to anticipate such matters. For this reason alone, I consider it appropriate to send the proceedings forward for plenary hearing.
54. The question then arises as to whether it is necessary or desirable to consider the other points raised by the defendants, with a view to deciding whether or not they should be entitled to raise at the hearing all or some only of the issues raised by them on this application. Having considered the matter, it seems to me that having succeeded in establishing their entitlement to a full plenary hearing, it would not be appropriate in this case to restrict the defendants as to the matters they may wish to raise in their defence, other than to restrict them to the matters that they have already raised on this application, as set out above in this judgment.
Miller v Nugent
Exchequer Division.
21 February 1878
[1878] 12 I.L.T.R 112
Palles C.B., Fitzgerald, Dowse BB.
Per Palles, C.B.—The plaintiff was entitled to recover only nominal damages, because the effect of the plaintiff’s want of care in watching and attending to the vessel was to sever from the negligent act of the defendant, in not using due care to provide a sufficient mooring-post, the damage which resulted to the vessel by reason of her leaving her moorings, and as the damage sued for would not have happened but for the plaintiff’s want of care, it could not be deemed the natural and necessary result of the defendant’s breach of contract, as that contract did not contemplate loss by the plaintiff’s negligence, and insure him against its consequences.
Per Fitzgerald, B.—The plaintiff was entitled to recover £500 (the value of the vessel, after deducting the amount received on the sale of the wreck), because there was no obligation imposed on the plaintiff to use reasonable care to provide against a breach of contract by the defendant, and the getting adrift of the vessel was the direct consequence of the defendant’s breach of contract, of which the plaintiff had notice only on such getting adrift. If there were, subsequent to such notice, any want of reasonable care or skill on the plaintiff’s part, by which the stranding or loss of the vessel could have been to any extent prevented, the damages in respect of such stranding or loss should be diminished, and might be nominal. A plaintiff cannot enhance the damages arising from a breach of contract or injury by omitting to use reasonable care to prevent the consequences of such breach of contract or injury.
Per Dowse, B.—The plaintiff was entitled to recover at least nominal damages for the defendant’s breach of contract. He would not be entitled to substantial damages *112 if by his own act he caused the loss of the vessel, and thus severed the substantial damages from the breach of contract; and the defendant would be entitled to claim in mitigation, though not in answer to the action, that the plaintiff should have kept a sufficient crew on board to have protected the vessel against the ordinary perils which a competent seaman would have provided against, such as the strain which forced her from her moorings. But, the proper questions governing the case on this subject had not been left to the jury.
Quære, whether, in the event of the jury finding that there was no default on the part of the plaintiff, the burning of the vessel, which caused all the loss, would not be too remote to be made the subject of damages?
Wilson v. The Newport Docks Co. (L. R. 1 Ex. 177), and Burrows v. The March Gas Co. (L. R. 5 Ex. 67), discussed and distinguished. Tuff v. Warman (5 C. B. N. S. 585), Jones v. Boyce (1 Stark, 493), and The Excelsior (2 Ad. & Ecc. 272), applied.
This was an action by the owner of a coasting schooner, the “Mary Anne,” against the defendant, Colonel Andrew Nugent, owner of a certain harbour at Portaferry, for damages sustained by the vessel of the plaintiff, caused by her drifting away from the quay of Portaferry, owing to the post to which she was moored giving way. The case was tried at the Downpatrick summer assizes, 1877, before Mr. Justice Barry and a special jury. The first count of the summons and plaint alleged that, in consideration that the plaintiff would make use of one of the mooring-posts situated on the quay at Portaferry for the purpose of mooring his vessel, the “Mary Anne,” thereto, for reward to the defendant in that behalf, the defendant promised the plaintiff that the said mooring-post was then reasonably sufficient for the purpose of mooring his said vessel, the “Mary Anne,” thereto, and the plaintiff did moor his said vessel, the “Mary Anne,” to the said mooring-post on the terms aforesaid. Yet the said mooring-post was not then reasonably sufficient for the purpose of the said vessel being moored thereto, and by reason of the said mooring-post not being reasonably sufficient for the said purpose the said mooring-post broke while the plaintiff’s said vessel, the “Mary Anne,” was moored thereto, and the said vessel was wrecked.
The second count alleged that, in consideration that the plaintiff would trade to and use the said harbour of Portaferry, and the said quay or pier and mooring-posts, with a certain vessel of the plaintiff, called the “Mary Anne,” and would pay to the defendant the harbour dues, payable in respect of the said vessel, under the regulations in force in the said harbour, the defendant promised the plaintiff he would take reasonable care to keep and maintain the said mooring-posts on the said quay or pier in a fit state to be used by the said vessel from time to time, when the said vessel would require to use the same; and proceeded to state a breach of this contract.
The third count alleged that, in consideration that the plaintiff would agree to pay to the defendant the harbour dues payable in respect of any vessels of the plaintiff using the said harbour, pier, quay, or mooring-posts, under the regulations in force in and for the said harbour, the defendant promised the plaintiff that he would take reasonable care to keep and maintain the said mooring-posts in a fit state to be used by the plaintiff’s vessels; and proceeded to state a breach.
The last count alleged that, before and at the time of the committing of the grievances hereinafter mentioned, the plaintiff was the owner of a certain vessel called the “Mary Anne,” and the defendant was the owner of the harbour of Portaferry, and of a certain quay or pier, in and forming part of the said harbour, and the plaintiff’s said vessel was at the said time lawfully in and using the said harbour, and was then a vessel liable, under the regulations of the said harbour, to pay to the defendant anchorage, quayage, and harbour dues; and, thereupon, the said vessel became and was under and subject to the control, guidance, and superintendence in the said harbour of the defendant, and of the harbour master, then wrongfully, carelessly, and negligently caused the said vessel to be moored and placed in the said harbour in a berth and place, which berth and place was then, as the said defendant and the said harbour master well knew, an unsafe and improper berth or place for the said vessel to be placed and moored in, and by reason of the said vessel being so placed in the said berth or place as aforesaid, the said vessel was greatly damaged and injured, and became and was wholly lost to the plaintiff.
The defendant traversed the several contracts alleged in the summons and plaint, that bad and insufficient care was taken of the mooring-posts, and carelessness or negligence on his part; and pleaded (fourthly) that the loss of the vessel was solely due to the want of proper skill and care in mooring the vessel, and contributory negligence.
The evidence given at the trial was in effect as follows:—The plaintiff was the owner of a vessel, the “Mary Anne.” On the night of the 19th February, the vessel was in the port of Portaferry, and moored to the quay by a double rope from her bows, attached to a wooden post or pawl on the quay, and a chain from her stern, attached to another post to leeward. In the course of the night a gale sprung up. The master, who was the only person on board, came ashore for assistance, having left a lighted candle on the cabin table. Before he returned the vessel had drifted from the quay, owing to the post to which her cable was attached having broken across. The chain also became detached from the vessel when the strain came upon it. It was deposed to by the plaintiff’s witnesses and not denied by those of the defendant that this post was rotten; but one of the defendant’s witnesses swore that if the chain had been fast on board it would have held the vessel. After drifting from the quay the vessel stranded at the opposite side of the harbour and took fire, admittedly from the candle which had been left on board. More than one-third was burned. One of the plaintiff’s witnesses admitted that if she was not burned there would have been no damage.
It was admitted by the plaintiff that the count for negligence was unsustainable, and by the defendant that the defence alleging that the accident occurred solely by the plaintiff’s negligence was not sustainable. As regards the contract as to the sufficiency of the posts (relied on by the plaintiff), and the alleged term as to duly watching the vessel (relied on by the defendant in the defence of contributory negligence) it was agreed on both sides that the questions—Was there such a contract? and was the alleged term part of it? (whether those questions were to depend on inferences of law or fact, or both)—were more proper for the determination of the Court than the jury, and that, therefore, these questions should be reserved for the Court, which was accordingly done, the defendant being at liberty to contend on the evidence that he did not contract as alleged, and the plaintiff to be at liberty to contend on the evidence that there was no such term in the contract, as alleged by the defendant, the Court to be at at liberty to draw inferences of fact. The learned *113 Judge left to the jury certain questions which, with the answers given, were as follow:—(1) “Did Colonel Nugent use reasonable care to have a sufficient post?” Answer—“We believe Colonel Nugent did not use reasonable care to have a sufficient post.” (2) “Was the post reasonably sufficient for its purpose?” Answer—“The post was not reasonably sufficient for its purpose.” (3) “Did the plaintiff or his servants use due and proper skill and care and use all proper and necessary means and appliances in mooring the vessel and in watching and attending to her?” Answer—“We believe the vessel was properly moored, but we believe she was not sufficiently watched or attended to, and that had there been a greater number of hands on board the accident would not have happened” (the jury explained this answer as meaning that the plaintiff or his servants did not use due and proper skill and care in watching and attending to the vessel). (4) “If not, did the plaintiff by the want of such care and negligence directly contribute to the occurrence, and but for such want of care and negligence on the plaintiff’s part would the occurrence have happened?” Answer—“We believe that the plaintiff did by such want of care and negligence directly contribute to the occurrence, and but for such want of care and negligence on the plaintiff’s part the occurrence would not have happened.” (5) “Was it, under the circumstances, negligent on the part of the master to leave the candle lighted as he did?” Answer—“Under the circumstances, we think it was not negligent of the captain to leave the candle lighted as he did.” They, also, found the value of the vessel (deducting price realized by sale) to be £500. On those findings the learned Judge directed a verdict to be entered for the defendant on the question of contributory negligence, reserving leave for the plaintiff to move non obstante veredicto to change the verdict into a verdict for the full amount of damages for him, if the Court should be of opinion that a verdict should have been directed or entered for the plaintiff on the defences of contributory negligence, or to move to have judgment for that amount non obstante veredicto; and reserving leave for the defendant to have the verdict entered for him on the issues of contract or not, and on the issues of want of sufficient care, if the Court should be of opinion that the verdict should have been so directed; and, further, to move that if a verdict should be entered for the plaintiff or the plaintiff should have judgment non obstante veredicto, that such judgment would be for nominal damages only. At neither side was any measure of damages suggested other than the value of the ship or a nominal sum. A conditional order having been obtained on behalf of the plaintiff accordingly, to change the verdict into one for the plaintiff, or for a new trial:—
Palles, C.B.
[I never heard of contributory negligence being pleaded in an action on contract before.]
It is not settled law that contributory negligence should not be pleaded in tort founded on contract: Webb v. Page, 6 M. & G. 196.
They, also, cited Martin v. The Great Northern Ry. Co., 16 C. B. 179; Hobbs v. The London and South Western Ry. Co., L. R. 10 Q. B. 111; Tuff v. Warman, 5 C. B. N. S. 573; Hamlin v. Great Northern Ry. Co., 1 H. & N. 408; Woodger v. Great Western Ry. Co., L. R. 2 C. P. 318; Burton v. Pinkerton, L. R. 2 Ex. 340; The Excelsior, 2 Ad. & Ecc. 272, 37 L. J. Ad. 54; Talley v. The Great Western Ry. Co., L. R. 6 C. P. 44.
Porter, Q.C., and Monroe, Q.C., for the plaintiff, in support of the conditional order, cited Davies v. Garratt, 6 Bing. 716; Flannery v. The Waterford and Limerick Ry. Co., 11 Ir. L. T. Rep. 36; Scott v. London and St. Catherine Docks Co., 3 H. & C. 596; Carpue v. London and Brighton Ry. Co., 5 Q. B. 747; Lee v. Riley, 18 C. B. N. S. 722; Powell v. Salisbury, 2 Y. & J. 391; Laurence v. Jenkins, L. R. 8 Q. B. 274; Sneesby v. Lancashire and Yorkshire Ry. Co., L. R. 9 Q. B. 263; Jones v. Boyce, 1 Starkie 493; Wilson v. Newport Docks Co., L. R. 1 Ex. 177; Burrows v. The March Gas Co., L. R. 5 Ex. 67, L. R. 7 Ex. 96.
Palles, C.B.
Upon none of the questions which have been argued, save that as to the amount of damages, is there any difference amongst the members of the Court. We all agree that the contract implied by law was that the defendant should use reasonable care to provide sufficient posts, and that there was no absolute warranty of their fitness or sufficiency. We, also, agree that there was evidence of the breach of this contract. This evidence is to be found not alone in the fact that the post gave way—which possibly, under the circumstances, might not be sufficient—but in the proof that the stump of the post was completely rotten, and the absence of any examination of the post, or of evidence of any impossibility or difficulty in discerning by such examination its actual state.
I. also, agree with the other members of the Court that the verdict ought to have been directed for the plaintiff upon the fourth plea. I think that there was no implied contract by the plaintiff with the defendant to take due care of his ship as alleged in the plea. No doubt, there was such an implied contract that he would take such due care of his ship that by the want of the same the defendant’s pier would not be injured. But this obligation is in no sense correlative to the obligation the subject of the action. If it be not the contract relied on, the contract alleged in the plea is not proved. If, on the other hand, it be the contract relied on (as a breach of that contract would be no answer to the count), the plea is bad, and every allegation in it should have been proved to entitle the defendant to a verdict upon it. One of the allegations of negligence contained in it has been found against the defendant, and this, in my mind, entitled the plaintiff to a direction upon the plea.
Upon the only remaining question I am of opinion that the plaintiff is upon the findings of the jury entitled to recover only nominal damages. The findings, as explained by the jury, are, that the plaintiff or his servants did not use due care in watching and attending to the vessel; and that the plaintiff by such want of care directly contributed to the accident; and that but for such want of care on the plaintiff’s part the occurrence would not have happened. By “the occurrence” in those findings I understand the jury to mean the vessel leaving its moorings.
The first question is, was there evidence to support these findings? It was proved that the vessel was moored by three ropes, of which one—that which passed from the middle of the vessel—was fastened to the defective post. The chain at the shore end of one other of the ropes had no stud, and in consequence was not securely fastened to the vessel, and parted. There was evidence that if this chain had been fastened on board the vessel it would have held her, and that if there had been men on board they would have fastened a rope from the middle of the vessel to another post.
All this, in my opinion, contributed evidence sufficient to sustain the finding in question. Mr. Porter has argued that as the question in hand is in relation to the injury to the vessel, not to the pier, the plaintiff owed no duty to the defendant to use due care, and that, therefore, absence of *114 care by his servants in watching the vessel could not amount in law to negligence.
As I have already stated, I concur in the view that there was no duty due by the plaintiff to the defendant to use due care in watching the ship, and if, to constitute what we generally (but I think somewhat inaccurately) style “contributory negligence,” it be necessary to show a breach of such a duty, Mr. Porter’s contention would be correct.
I am, however, clearly of opinion that the act of the plaintiff intervening between the negligence of the defendant and the injury complained of, and which constitutes a defence of it, so contributing to that injury that but for it such injury would not have happened, need not be the breach of a duty due by the plaintiff to the defendant. Take the most ordinary case of the application of the doctrine of contributory negligence:—A passenger is carried in a railway carriage which stops at some unusual place or in some unusual manner. The passenger, without using ordinary care, descends from the carriage, and is injured. It is quite clear that for this injury he cannot recover damages from the company. But he has been guilty of no breach of duty towards them; had he been, not only would the company have a defence to his action, but they would be entitled to maintain an action against him for his breach of duty—a result I look upon as absurd. In truth, the effect of this want of care by the plaintiff, which constitutes a defence, is no more than to sever the injury sued for from the negligence the subject of the action. If there be such a want of ordinary care it is necessarily the proximate cause, or contributory to the proximate cause, and it thus prevents the negligence of the defendants being, that which to sustain the action it is essential it should be, the sole proximate cause of the injury. The question in every such case is one of causation only.
It seems clear that the question of an intervening act, in preventing the relation of proximate cause and effect existing between two other acts, must logically be the same whether that intervening act be or be not a breach of duty. Such a question in no sense involves anything in relation to the legal liability for the acts in question. If authority for this doctrine be required, I think it can be found in any of the numerous cases on the subject of contributory negligence. Take, for instance, the leading case of Tuff v. Warman (5 C. B. N. S. 585), in the Exchequer Chamber. There the proper question for the jury in cases of this description is stated to be, “Whether the damage was occasioned entirely by the negligence or improper conduct of the defendant, or whether the plaintiff himself so far contributed to the misfortune by his own negligence, or want of ordinary and common care and caution, that, but for such negligence or want of ordinary care or caution on his part, the misfortune would not have happened.” These words include not only a want of care which there is a duty to use—which alone is in strictness negligence—but, also, that want of care which a man of ordinary prudence takes of himself and of his own property, although he owes no legal duty to anyone to do so.
It may, however, be said that this doctrine cannot be correct, as, if it were, it would be immaterial whether the intervening act of the plaintiff were or were not characterised by an absence of care, which clearly is not law. In my opinion, this result does not follow. I think that the reason why the intervening act of the plaintiff must (to disentitle him to recover for the antecedent negligent act of the defendant) be an act of negligence, or want of due care, arises from the necessity of that intervening act being one in law independent from and not induced by the negligence of the defendant. The person who is guilty of an act of negligence is, as a general rule, answerable for all the consequences that in the ordinary and natural course of events ensue from that act. If, then, the effect of his negligence is to put the plaintiff in such a situation as to oblige him to adopt one of several alternatives, then if his choice be one which would be adopted by a reasonable man under such circumstances, or, in other words, be characterised by ordinary care and caution, the defendant is answerable for the consequences: Jones v. Boyce, 1 Starkie, 493. In such a case, although the act is in one sense voluntary on the part of the plaintiff, the law assumes it to be not only involuntary but one to which the plaintiff was compelled by the negligence of the defendant. Being then in law the act not of the plaintiff but of the defendant, and being an ordinary consequence of the negligent act sued for, it loses the character of an independent act of the plaintiff which is essential to enable it to work a severance between the defendant’s negligence and the consequential injury. There being, then, in my opinion, evidence of a want of care in watching and attending to the plaintiff’s vessel, and that but for such want of care she would not have left her mooring, the next question is, what is the effect in law of these findings? If I be right in what I have already said, the necessary effect must be to sever from the negligent act of the defendant, in not using due care to provide a sufficient post, the damage which resulted to the ship by reason of its leaving its moorings. If the action, instead of being on the implied contract to use due care, had been for the injury caused to the vessel and alleged to be consequential on the defendant’s negligence, the plaintiff’s want of care would have been an answer to the action, and would have been such an answer solely because it would have disconnected such consequential damage (which in that form of suit would have been the gist of the action) from the negligence of the defendant. And so, also, although the form of the present action is upon a contract to use due care to provide proper mooring posts—a contract which was broken the moment the improper mooring post was assigned to and accepted by the plaintiff—although the contract has been broken, damages cannot be recovered which did not naturally and necessarily result from that breach of contract. It appears to me that where the damage sued for would not have happened but for the negligence of the plaintiff, it cannot be deemed a natural and necessary result of the defendant’s breach of contract, unless that contract contemplated loss by the negligence of the plaintiff and insured him against the consequences of that negligence—a state of facts which does not exist here. I cannot understand how a plaintiff, suing upon the implied contract as in the present case, can be permitted by his own negligent act to increase the burden to be borne by the defendant.
I am, therefore, of opinion that, although the verdict should be entered for the plaintiff on the second count, it should be for nominal damages only.
It will, of course, be understood that in arriving at this opinion I assume that there was no substantial injury to the vessel before the vessel finally left the mooring post—that is, until the plaintiff’s want of care had become a causa causans. This is not proved by Captain M’Ferran, but is, I think, admitted by the parties by the form of the reservation, upon which the only question as to the amount of damages is whether they should be nominal or the full amount of the loss.
As both my learned brothers take views different from mine, the verdict cannot be entered as I suggest. I, therefore, agree with my brother Dowse that there should be a new trial.
Fitzgerald, B.
I may, I believe, assume that we are agreed in thinking that there was sufficient evidence of the contract or duty stated in the second count of the plaint; that there was sufficient evidence of the breach of that contract on the part of the defendant; and that the only other contested plea to that count was not supported in evidence by the defendant. On that count, then, the only remaining subject of discussion would be the amount of damages to which the plaintiff is entitled.
On this subject there were but two suggestions made at the trial—one, that the damages ought to be nominal only; the other, that the amount ought to be the actual loss sustained, that is to say, the value of the ship wrecked, diminished by the sum received by the plaintiff on the sale of the wreck. This sum was ascertained by the jury, and we are authorised by the reservations of the judge to enter a verdict either for nominal damages or for the amount so ascertained. *115
If a verdict for nominal damages ought not to be entered, then, in strictness, the result would be—what I am of opinion it ought to be—that a verdict should be entered for the sum ascertained by the jury.
It has, however, been suggested in argument that even if the verdict cannot be entered for nominal damages, still the amount so ascertained might or ought to be reduced by deducting so much as fairly may be attributed to negligence or failure of duty on the plaintiff’s part directly contributing to the loss actually sustained.
In substance, the breach of duty or contract complained of in the second count is the failure on the part of the defendant to provide a fit and proper post for the mooring thereto of the plaintiff’s ship. So far as I know, we are agreed that the letting of the ship adrift was a direct consequence of this breach of contract; it followed (followed, I mean, in the then state of things ) from the giving way of the post to which the vessel was moored.
The vessel, after drifting for a time, was stranded or thrown on her side. When so stranded she took fire; and, according to the evidence, the principal damage done to the vessel was owing to the fire.
As regards, however, the state of things at the time she was let adrift, the jury have found as matter of fact that, though the vessel was properly moored by the plaintiff, she was not sufficiently watched or attended to by the plaintiff, and that had there been a greater number of hands on board the accident would not have happened, which they explained to mean that the plaintiff or his servants did not use due or proper care or skill in attending to the vessel. “The accident” is in another part of their finding called “the occurrence.” It is not very clear whether it means the letting of the vessel adrift, or all or some of its consequences—probably the latter—as the jury have found that the vessel was properly moored so far as the plaintiff was concerned.
In fact, the vessel when moored was left with only one hand (the master) on board. A gale of wind subsequently arose, and at the time she actually got adrift there was no one aboard. The master, having observed that the ship knocked in the storm against the quay, had some short time before gone to call the owner and a carpenter, leaving a lighted candle in the vessel. He and the owner came to the quay almost at the moment that she got adrift. There seems no pretence for saying that if there had been no breach of contract on the defendant’s part the vessel would have got adrift, or that it would have taken fire unless it had got adrift.
It seems clear from the evidence that the first notice which the plaintiff or the master had of the defendant’s breach of contract was by the giving way of the post and the getting adrift of the vessel. I cannot find any evidence—nor do I think that the jury have found—that there was, subsequent to such notice, any want of reasonable care or skill on the plaintiff’s part by which the stranding or loss of the vessel could have been to any extent prevented. If there were, then I am disposed to think that so far as the consequences of the getting adrift of the vessel—that is to say, the stranding and loss—would be fairly attributed to such want of care or skill, the damages ought to be diminished and might be nominal. A plaintiff cannot enhance the damages arising from a breach of contract or injury by omitting to use reasonable care to prevent the consequences of such breach of contract or injury.1
What I understand the jury to have found is, that if the state of things on board the vessel had been different from what it actually was at the time when the post gave way, all or some of the consequences would not have happened, and that the actual state of things was owing to negligence on the plaintiff’s part. This in argument has been pressed to the extent that there was some negligence or want of care on the plaintiff’s part antecedent to the notice of the breach of contract, and operating at the time of notice, but for which the vessel’s getting adrift would not have happened—or but for which (though this seems inconsistent with a finding of the jury) the burning of the vessel might not have happened.
Now, I agree that, if it could be shown that the vessel’s getting adrift was not the direct consequence of the defendant’s breach of contract, the plaintiff cannot recover damages for what resulted from such getting adrift, because the damages recoverable must be in respect of a direct consequence of the breach of contract; but the mistake seems to me to consist in supposing that there is any obligation of reasonable care to provide or guard against a breach of contract. For this purpose a breach of contract unknown is the same as a breach of contract not existing, and therefore there was, as regards the matter in hand, no want of reasonable care existing at the time of notice so as to be in operation then.
I am wholly unable to see how in this case it can be said that the getting adrift of the vessel was not the direct consequence of the defendant’s breach of contract; and that being so, I fail to see how the negligence or want of care suggested can be applied to reduce the damages consequential or rather resulting on the getting adrift of the vessel.
The measure of special damage seems to me in this action the same as it would be in an action of tort founded on the contract or duty, and alleging the setting adrift of the vessel as the injury. In this latter action the question of damages would not arise at all until it was established that the injury was a direct consequence of the breach of duty; but then the measure would be the whole consequence of the vessel’s being set adrift. In such an action there could not be even nominal damages unless the injury was shown to be the direct consequence of the breach of duty.
We must be careful not to confound negligence or failure of duty on the plaintiff’s part, which may affect his right of action, or which might, if attended with damage to the defendant, give him a cause of action against the plaintiff, with negligence or failure of duty affecting the amount of damages recoverable by the plaintiff.
Dowse, B.
I do not consider it necessary to go through the pleadings in detail in this case. I am of opinion that there was abundant evidence that the defendant contracted that the mooring-post was reasonably sufficient for mooring the plaintiff’s vessel, and that the mooring-post was not reasonably sufficient for the purpose of the vessel being moored thereto. I have no doubt, therefore, if there was nothing else in the case, that the plaintiff at the least would be entitled to nominal damages, and this irrespective of whether in consequence of the insufficiency of the mooring-post the vessel broke from her moorings and sustained an injury. One of the mooring-posts to which the vessel was fastened was rotten, and the moment the harbour-master, acting for the defendant, allotted that post to the plaintiff, and he moored his vessel to it, the contract the plaintiff had entered into with the defendant was broken, and a cause of action had accrued to him. I am of opinion that the plea pleaded to the first, second, and third counts, stating a new term of the contract, and relying *116 upon contributory negligence was not proved, and that the learned Judge ought so to have ruled at the trial. This being so, in the events that have happened, the case at the trial should have narrowed itself solely to a question of damages. I think there is a great distinction between an action of contract and one of tort, even though they both arise out of the same state of facts, so far as damages are concerned. In an action of contract, such as we have here, the cause of action arises, as I have said above, once the contract is broken, and no defence of contributory negligence is open as an answer to the action which complains of the breach of the contract. On the other hand, if the action is brought for a tort, even though the tort originates in the breach of a contract, the cause of complaint is not the breach of a contract but the injury the plaintiff has sustained by the wrongful act of the defendant, and if the plaintiff has contributed to that injury himself, so far that, except for his own neglect, no injury would have been sustained by him at all, a plea of contributory negligence would be a good answer to the action. A plea of contributory negligence amounts to nothing more than that there is no actionable negligence in the case, and as the plaintiff’s case is based on actionable negligence, it must, therefore, fail. In this case, so far as we have to deal with the summons and plaint, the causes of complaint are based on the contract, and the action is one substantially for the breach of that contract in all its counts. The plea to which I have referred is consequently a bad plea, inasmuch as it is pleaded in bar to an action of contract. Therefore, it is necessary for the defendant to prove the whole of his plea. This he has not done; and for this reason, also, his plea fails.
If the case stood thus, the plaintiff would be entitled to a verdict, and the duty of the jury would be to assess the damages; but this case does not end here. The defendant is entitled to say, in mitigation of damages, though not in answer to the action, that once the vessel was moored at an apparently safe, though, in reality, an unsafe post, the captain and owner, or either of them, did not receive a dispensation absolving him from the exercise of the care and diligence which his position as captain imposed upon him. He ought to have kept a sufficient crew on board to have protected his ship against the ordinary incidents of peril, which a competent seaman would have foreseen and provided against; and I have no hesitation in saying that the strain which arose and forced this vessel from her moorings may be placed in that category; and this, too, though a jury might have come to the conclusion that it was not likely the vessel would have broken loose had the post been a good one. I think that there was evidence from which a jury might infer that, had there been a sufficient crew on board, the accident would not have happened—either the vessel would not have broken loose at all, or, if she did break loose, she would have been brought up again, or would have been navigated to a place of safety in the harbour. I thought all through the argument that an obligation to this extent was imposed upon the master of the vessel. I am of opinion there was evidence from which a jury might reasonably infer that the master did not act the part of a prudent man in leaving his vessel without a sufficient crew, and if the loss of this vessel was owing to his conduct in this respect, the damages occasioned by that loss were severed from those flowing from the defendant’s breach of contract, and inasmuch as the efficient cause of the loss of the vessel would thus be the master’s own fault, the plaintiff should not recover substantial damages. I have said already the damages must be nominal if the contract is broken, and the contract was broken once the vessel was moored to this rotten post. This obligation upon the master is no answer to the action, and could not have been so pleaded. To be a good plea it should be pleaded as a part of the contract, and, so pleaded, there would have been no evidence to support it. It may, indeed, be said, if any use is to be made of this obligation imposed on the captain, it should go this length—that the defendant only promises to supply a sufficient post, and to be liable for the non-performance of his promise if the captain has a sufficient crew on board to look after the vessel. Such a contract is possible and lawful. I do not think it is to be implied. What is implied is—a contract on the part of the defendant to supply a proper post; at the same time, the law saying that the plaintiff is not to get substantial damages if by his own act he causes the loss of the ship, and thus severs the substantial damages from the breach of the contract. The case of The Excelsior (2 Ad. & Ecc. 272), decided by Sir Robert Philimore, is, in my opinion, a distinct authority for imposing this obligation on the captain. The case of Talley v. The Great Western Railway Co. (L. R. 6 C. P. 44) has been cited. I do not think there is much information to be gained from that case for our guidance. It is said if a passenger is allowed to have his luggage in his own care he should take such reasonable care of his own property as a prudent man ought to do. In this case it is not too much to say that (without any contract) an obligation to that extent is imposed on the captain of this vessel if he seeks damages for her loss; and, if that obligation can be only fulfilled by having a sufficient crew on board, it is hard to say a man has adequately fulfilled it by leaving his vessel in the charge of a lighted candle, even though it is in a loaded candlestick, and on a cabin table. The case of Wilson v. The Newport Docks Co. (L. R. 1 Ex. 177) differs from this case in a very important particular; the contract was broken by the Dock Company before any question arose as to the obligation imposed on the ship-master. The jury found the master did the best he could, and was guilty of no negligence. The jury differed as to whether there was any place of safety the vessel could have been taken to. This is what is called in England a Hibernian finding, for I cannot see how, if there was a place of safety to which the vessel could have been taken, the jury could have come to the conclusion that the master had done the best he could. Baron Martin, and I am inclined think he was right, thought the verdict ought to be for the plaintiff. The other members of the Court, being probably more inclined to make allowances for the state of mind the jury was evidently in, thought there ought to be a new trial, the majority of the Court saying if the storm was the efficient cause of the loss, the defendants were not liable. Thus even nominal damages would be excluded. If the Court are right in this, the captain’s conduct here, in not having a sufficient crew, if this was the efficient cause of the loss, should disentitle the plaintiff to any damages. It is manifest from what I have already said that I am not of this opinion. The case of Burrows v. The March Gas Co. (L. R. 5 Ex. 67) has also been cited in this case. There was a leakage of gas through the negligence of the defendants; a stranger brought in a candle and caused an explosion. The explosion was the direct cause of the injury complained of. The Court held the defendants liable because the man who brought in the candle was a stranger. Baron Martin thought if the man who brought the candle was a servant of the plaintiff’s it would not have excused the defendants. “It is not,” he says, “because a man’s servant is negligent another man who has contracted to do a particular thing and has not done it is to be exonerated from loss, far less if from the act of a stranger.” As this case stands it is no authority against the plaintiff here, especially as Kelly, C.B., said if the act was one of a servant of the plaintiff there would be contributory negligence. This is more plain when we refer to the same case on appeal (L. R. 7 Ex. p. 96), where Cockburn, C.J., says the man who brought the candle was an independent tradesman. I should add, in this case the cause of complaint was treated as one of contract and not of tort. Is the result that I have arrived at this:—The verdict is to be for the plaintiff for nominal damages? No; I think there must be a new trial. I am not satisfied that the questions which, in my opinion, govern the case were satisfactorily placed before the jury. The case was tried upon a plea on which there ought to have been a direction, and I cannot come to the conclusion that the proper questions were in substance dealt with by the judge and the jury. I do not think it would be fair to the plaintiff to do this, and to hold him bound by a finding on questions raised by *117 a plea that had no evidence to support it. I am not satisfied with the finding of the jury about the candle, and in my mind this detracts very much from the value of the other findings. An important question remains behind it—it is this: Whether, in the event of the jury finding there was no default on the part of the plaintiff, the burning of the vessel, which caused all the loss, is not too remote to be made the subject of damages?2 All I shall say of that at present is, as Baron Channel said in Wilson v. The Newport Docks Co., this point is not ripe for discussion. If it should ever become so, and if it is brought here, I shall deal with it as best I can.
Speaking for myself, I think there should be a new trial; and I am inclined to think that the costs of the former trial and of this argument should abide the result.
New trial ordered, costs of both parties costs in the cause.
Cheldon Property Finance DAC -v- Hale & anor
[2017] IEHC 432 (04 July 2017)
JUDGMENT of Mr. Justice Brian J. McGovern delivered on the 4th day of July, 2017.
1. The plaintiff has applied for summary judgment against the defendants in the sum of €1,930,393.86, arising out of a loan made on 21st November, 2005, by Permanent TSB (“the bank”) to the defendants in the sum of €1,901,000.00. The bank transferred the loan to the plaintiff on 14th October, 2013.
2. The loan facility was subject to the terms and conditions set out in the facility letter including the bank’s General Terms and Condition for Commercial Loans. The term of the loan facility was 240 months repayable by way of monthly instalments. The loan facility was repayable on demand. The defendants accepted the terms and conditions applicable to the loan facility by signing the facility letter on 24th November, 2005, and subsequently drew down the full amount of €1,901,000.00 and have had the benefit of that sum to their own use. The purpose of the loan facility was to fund renovations on a crèche premises owned by the defendants.
3. On 8th July, 2015, the bank exercised its contractual entitlement to sell the loan facility to the plaintiff. A deed of transfer was executed on 14th October, 2015.
4. On the date of transfer, there were arrears of €390,439.14, on the loan facility. These arrears continued to accumulate until 25th January, 2016, when the plaintiff demanded repayment of the sum then outstanding of €1,882,561.94. Although some negotiations took place between the parties with a view to settling the indebtedness of the defendants, no agreement was reached and the plaintiff commenced these proceedings on 26th January, 2017.
5. The matter was entered into the Commercial List. The defendants filed an affidavit setting out the basis of their defence and a hearing date was fixed for an application for summary judgment.
6. The defendants raised three grounds of defence to the application for summary judgment, namely:-
(a) they allege that the court ought to imply a term into the loan facility to the effect that the bank was precluded from transferring the loan facility to the plaintiffs;
(b) they assert that an incorrect interest rate was charged by the bank during the currency of the loan facility; and,
(c) they contend that the application of default interest (at a rate of 2%) by the plaintiff is unlawful.
7. In the course of the summary judgment hearing, the plaintiff informed the court that it was prepared to waive its claim for default interest so it is not necessary for the court to consider any arguments raised on that ground.
8. The legal test to be applied by the courts in an application for summary judgment is well established and can be found in First National Commercial Bank plc. v. Anglin [1996] 1 IR 75; Banque de Paris v. de Naray [1984] 1 Lloyds Law Rep. 21; Harrisrange Ltd. v. Duncan [2003] 4 IR 1; McGrath v. O’Driscoll [2007] 1 ILRM 203; and Aer Rianta cpt. v. Ryanair Ltd. [2001] 4 IR 607. As the law on this topic is now so well established, it is unnecessary to set out in any great detail the principles arising from these cases. I will set out some of these principles which are relevant to this case,
9. The starting point is that, in applications of this kind, the power to grant summary judgment should be exercised with discernible caution. Where there are no real issues or the issues are simply disposed of and easily determinable then this procedure can be used. The court has to consider whether the defendants have satisfied the court that they have a fair or reasonable probability of having a real or bona fide defence. Having considered the evidence, is it clear that the defendants have no defence? The mere assertion in an affidavit of a situation said to give rise to a defence does not of itself provide leave to defend. The court has to look at the whole situation to see whether such an assertion is backed up by credible evidence so that it can be said that the defendants have satisfied the court that there was a fair or reasonable probability of the defendants having a bona fide defence. In approaching the issues that arise in this application for summary judgment, I have applied the test set out in the decisions which I have referred to above.
Transfer of Loan Issue
10. Clause 18 of the bank’s General Terms and Conditions for Commercial Loans states:-
“The Bank may, without the consent of the Borrowers, grant a participation in or assign or transfer or otherwise dispose of the whole or any part or parts of its rights, benefits and obligations in respect of the Facility. The expression the ‘Bank’ wherever used herein shall to the extent of its interests for the time being herein, include every successor in title, participant, assignee, transferee or party to whom a disposal is made as aforesaid who shall, to the extent of its interest for the time being herein, be entitled to enforce and proceed upon this Facility Letter and exercise all rights, powers and discretions of the Bank hereunder as if named herein in place of the Bank.”
The wording of the clause is clear and unambiguous and formed part of the loan facility agreement which was accepted by the defendants as evidenced by their respective signatures on 24th November, 2005.
11. The defendants invite the court to imply a term into the loan facility to the effect that the bank would not transfer the loan to “an unregulated or unauthorised entity”. The loan is serviced by Pepper Assets Servicing which is a credit servicing firm within the meaning of the Consumer Protection (Regulation of Credit Servicing) Act 2015 and is regulated by the Central Bank of Ireland. The regulatory authority has made no issue of the fact that the loan is serviced in this way.
12. In Flynn v. Breccia [2017] IECA 74, the Court of Appeal considered the test for implying terms into a contract. The Court found that the trial judge had correctly applied the law on that issue. The appeal court adopted the decision of the Supreme Court in Sweeney v. Duggan [1997] 2 I.R. 531 which included an affirmation of the views expressed by Lord Wilberforce in Liverpool C.C. v. Irwin [1977] AC 239 wherein he stated:-
“…Whether a term is implied pursuant to the presumed intention of the parties or as a legal incident of a definable category of contract it must be not merely reasonable but also necessary. Clearly it cannot be implied if it is inconsistent with the express wording of the contract…”
13. In the Breccia case, the trial judge drew together the various strands emerging from jurisprudence in this State and in England and Wales on the subject of incorporating implied terms and from these authorities he held that the following principles emerge:-
“[B]efore a term can be implied…:
(1) it must be reasonable and equitable;
(2) it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it;
(3) it must be so obvious that ‘it goes without saying’;
(4) it must be capable of clear expression;
(5) it must not contradict any express term of the contract…”
14. The terms which the defendants seek to have implied in the loan facility do not meet the above tests and would have the effect of contradicting an express term of the contract. As a matter of law, such a claim is bound to fail. Accordingly, this is an issue capable of being determined in an application for summary judgment. There is no warrant for implying such a term and I decline to do so.
15. In O’Rourke v. Considine and Ors. [2011] IEHC 191 at para. 18, Finlay Geoghegan J. addressed the requirements of s. 28(6) of the Supreme Court of Judicature (Ireland) Act 1877, which created a statutory mechanism for affecting the legal assignment of debts. She held that a creditor seeking to prove the assignment of a debt has to show that:-
“(a) The assignment was of a debt or other legal chose in action.
(b) The assignment was absolute and was not by way of charge only.
(c) It was in writing under the hand of the assignor.
(d) Express notice in writing thereof was given to the debtors.”
16. Where these conditions have been satisfied, the Act provides that the assignment would have certain legal effects and the assignment “shall be and be deemed to have been effectual in law…to pass and transfer the legal right to such debt”. In addition, the assignment is deemed to transfer “all legal and other remedies” for the debt, and to transfer, “the power to give a good discharge” for the debt. The assignee does not require the “concurrence of the assignor” to exercise these rights. It takes effect from the date of the notice given to the debtor and operates “subject to all equities which would have been entitled to priority over the right of the assignee if [the] Act had not passed”.
The Interest Rate Issue
17. The facility letter makes provision for the charging of interest as follows:-
“Interest on this facility shall be charged at an aggregate of the bank’s A rate and a margin of -0.8%.
The interest rate currently applicable to this facility is 3.65% per annum.”
18. During the course of the hearing, counsel on behalf of the defendants conceded that the interest rate charged by the plaintiff was that provided for in the loan facility and was the bank’s interest rate as varied from time to time.
19. The defendants relied on a report of Mr. Eddie Fitzpatrick of BANKCheck. Although he was introduced as an expert, no evidence was given as to his qualifications or competence to offer an expert opinion. Be that as it may, he challenged the interest charged by the plaintiff on the basis that it purported to unilaterally apply a rate of Euribor one month rate plus 6.5% which is different to that set out in the 2005 loan agreement. In fact, the loan interest was not linked to Euribor. It is perhaps understandable that Mr. Fitzpatrick thought that the interest was linked to Euribor because the plaintiff’s agent had mistakenly referred to it as such. But eventually it was agreed by counsel for the defendants that the rate of interest, in fact, charged was the bank’s rate of interest as provided for in the loan facility. This was the rate that also appeared on the bank statements which were issued from time to time to the defendants.
20. Nevertheless, an alleged discrepancy of €14,761.18 was identified by Mr. Fitzpatrick based on the actual rates charged. While the plaintiff did not accept that there was a discrepancy, it accepted that this was an issue raised by Mr. Fitzpatrick and it waived any claim to that sum for the purpose of this application for summary judgment. Therefore, no further issue arises on that point between the parties.
21. Counsel for the defendants relied on the case of Paragon Finance plc. v. Nash [2001] EWCA Civ 1466 to argue that a term will be implied that the rates of interest would not be set dishonestly, for an improper purpose, capriciously or arbitrarily and that the bank would not exercise its discretion in an unreasonable way. But the defendants did not offer a shred of evidence to suggest that any of these considerations arose in the present case. The transcript shows that counsel for the defendants stated:-
“The rates did change but I am introducing an argument that they shouldn’t have changed in the way they did because of the need to explore whether the implied term, which is inherent in the setting of a bank’s variable rate, was breached in terms that the variable rate set was either capricious or dishonest or unreasonable.” (Page 41 lines 18-24)
22. This does not meet the test required of the defendants to show an arguable defence on that issue. It does not even go so far as to amount to a “mere assertion” which in itself would be insufficient. It merely suggests that this is something which needs to be explored. In my view, that is not a credible basis for establishing a defence in an application for summary judgment.
23. Another issue raised on behalf of the defendants is that the plaintiff could not continue to charge the Permanent TSB rate because that rate remains with Permanent TSB. I must confess I did not understand that argument. Once the plaintiff bought the loan it took over the loan with all the rights and obligations of the bank. That meant that the only interest that it was lawfully entitled to charge was that agreed between the defendants and the bank. It is accepted by counsel for the defendants that that is the rate which was in fact charged. The plaintiff became “the bank” so far as its relationship with the defendants was concerned.
24. The defendants also claimed that the notice of the interest rate changes were insufficient because they were given retrospectively through the bank statements. But the loan facility and general conditions provided for notice to be given in this way. In any event, the defendants did not claim any prejudice on this account or explain to the court how this would in any way affect their indebtedness to the plaintiff. This point is of no significance and is not an answer to the application for summary judgment.
25. The application for summary judgment was heard on 26th April, 2017. Sometime thereafter, an application was made to admit further evidence from Mr. Fitzpatrick. An affidavit was sworn by the defendants’ solicitor Mr. David Turner in which he exhibited a report which he says he received on 2nd May, 2017, which seemed to touch on the question of the interest charged on the loan. The affidavit suggested that Mr. Fitzpatrick recollected other clients of his with Permanent TSB being written to and given the Permanent TSB rate on particular dates which, it is contended, were different to the rates exhibited in the bank statements of the defendants in these proceedings. The affidavit of Mr. Turner exhibited a letter from Mr. Fitzpatrick which suggested that further information had come to light of which he felt the defendants should be made aware. He invited the defendants to discuss the matter if they wished to do so.
26. Mr. Fitzpatrick also swore an affidavit on 8th May, 2017, in which he explained why he had performed a set of calculations based on Euribor when the defendants’ position was first presented to the court. His affidavit explained how sometime around 28th April, 2017, he had cause to check some files to see whether he had any historical letters from Permanent TSB to clients setting out what the Permanent TSB A rate was at a point in time. He says that he found two letters which were given to him by clients of Permanent TSB and he exhibited those letters. The letters were redacted so that the names of the Permanent TSB clients and their account numbers are not visible. Quite what this correspondence was intended to show is not clear.
27. Whether Permanent TSB had some other arrangement with other clients involving different rates of interest is irrelevant to this case. This is particularly so in light of the fact that counsel for the defendants on several occasions agreed that the rate of interest charged was the rate provided for in the facility letter. This Court must base its decision on the agreement between the bank and the defendants and not on any other terms that may have been agreed with other clients of the bank.
28. While the plaintiff submitted that the court should not entertain this further evidence it seemed to me that I should consider it for what it was worth since this is an application for summary judgment. If a plenary hearing had concluded and additional evidence was sought to be adduced the position might be different. It is quite clear from the affidavit of Mr. Fitzpatrick and the correspondence exhibited by him that this was correspondence and information available to him before the hearing on 26th April, 2017. In those circumstances it is not new evidence. But, in any event, as this is an application for summary judgment I took the view that it was appropriate for me to consider it. Having done so, it adds nothing to the case and has no bearing on the issues between the plaintiff and the defendants.
Conclusion
29. Of the three grounds of defence raised by the defendants and referred to in para. 6 of this judgment only two remain for consideration since the plaintiff has waived any claim to default interest. The two remaining issues are whether or not the court ought to imply a term into the loan facility to the effect that the bank was precluded from transferring the loan facility to the plaintiff and whether the correct interest was charged by the bank (and the plaintiff). I have already held that the terms sought to be implied cannot be implied for the reasons set out in para. 14 above. I am satisfied that the interest charged was on the basis agreed in the facility letter.
30. The sum claimed in the summary summons is €1,930,393.86. BANKCheck identified a discrepancy in the calculations of €14,761.18. While the plaintiff does not agree that there was such a discrepancy it has informed the court that it is prepared to waive that claim so that it is not an issue that requires to be remitted to plenary hearing. The plaintiff has also waived its claim to default interest in the sum of €12,084.48 so this is not an issue that the court needs to consider. Deducting these two sums leaves a balance of €1,903,548.20.
31. Having concluded that the transfer of the loan was valid and that the interest charged was at a rate contracted for, I am satisfied that the plaintiff is entitled to summary judgment. The defendants have not challenged the plaintiff’s evidence that they received the monies on foot of the facility letter and that there are substantial sums in default. They have not met even the very low threshold required to have this matter remitted for plenary hearing. The plaintiff is entitled to judgment in the sum €1,903,548.20.
Trustee Savings Bank Dublin, (suing by its Trustees for the time being) v. David Maughan
[1987 No. 1019]
[1992] IR 488
High Court 8th October 1991
BCostello J.
8th October, 1991
On the 15th June, 1987, the Trustee Savings Bank Dublin instituted proceedings by summary summons claiming £17,624.17 and continuing interest against the defendant, Mr. Maughan, in respect of money lent by way of overdraft facility on a current account opened in August, 1983. I will refer to these proceedings as “the first proceedings”. The bank’s application for summary judgment was successfully resisted and the proceedings were adjourned for plenary hearing. Mr. Maughan filed a defence which contained formal denials, a specific denial that the rate of interest charged by the bank was an agreed rate, and a claim to set-off, against any sum awarded to the bank, the damages to be awarded to him in the second proceedings.
The bank’s claim has escalated dramatically. The overdraft facility granted to Mr. Maughan in 1983 was £7,000. At the date of the hearing (in July of this year) the bank’s claim on foot of this account amounted to £32,906.01. The evidence established that the bank had compounded interest annually and that in addition had charged a default rate of interest at 6% over its normal rates for overdrawn current accounts. The issues in these proceedings are whether it was entitled
(a) to compound interest on the outstanding debt, and
(b) to charge default rates of interest; to these issues I will now turn.
Mr. Maughan was a new customer with the bank in the month of August, 1983. He had met its assistant general manager (banking), Mr. Carroll, socially and arranged to call into his office on the 11th August. At that meeting it was agreed that the bank would lend to Mr. Maughan £5,000 to enable him to purchase shares in an exploration company then much in the news, Aran Energy Limited. The defendant signed an application form which stated:
“I hereby apply to open a Current Account in the Trustee Savings Bank Dublin subject to the Rules and Regulations of the Bank.
[1992]
1 I.R. Trustee Savings Bank v. Maughan
Costello J. 491
H.C.
I declare that the account will not be operated either wholly or partly as a business account.
I understand that charges may be made on this account, at a scale that the bank may from time to time decide.”
This application was accepted by the bank and I think a contractual relationship was thereby established. On the same day the plaintiff was given a cheque book.
There were no further immediate discussions or communications relating to the terms of the parties’ contract. It is important and relevant to note what steps the defendant took after the 11th August. On the following day he went to a firm of stockbrokers and bought 10,000 Aran Energy Shares at 91p per share. He became liable to pay a sum of £9,318.05 but immediate payment was not required.
This investment proved to be a most unfortunate one and on the 19th August he sold half of his holding at a price of 76p per share (which produced £3,734.30). He settled his account with the brokers by selling some other shares he held and by drawing a cheque on the 22nd August on the bank for £4,228.44. This cheque was debited to his account on the 25th August, 1983.
On the same day on which he had drawn the cheque the bank wrote him a letter which would not have reached him until, at the earliest, the 23rd August. This letter advised him that a facility had been sanctioned subject to the “conditions as set out hereunder”. This was followed by a paragraph which read:
“£5,000 in the way of overdraft on the usual terms and conditions including interest repayable on demand. The current rate of interest is 19%, and the facility extends until the 17th August, 1984, at which time it will be reviewed.”
I do not think that this letter was effective to impose any new terms into the original loan agreement of the 11th August which had been largely performed on the day of the letter’s receipt. So, I must turn to that contract to see what rights were conferred by it on the bank and in particular whether under the original contract it obtained the right to compound interest and to interest at a default rate.
The parties’ original contract was partly oral and partly written. Mr. Carroll agreed with Mr. Maughan that the bank would lend him £5,000 to enable him to purchase shares and that the loan would be by way of an overdraft facility on a current account. Mr. Maughan signed the application form to which I have referred. Neither in the oral contract nor the application form was any express reference made to the payment
[1992]
1 I.R. Trustee Savings Bank v. Maughan
Costello J. 492
H.C.
of interest or the rate of interest. By signing the form Mr. Maughan agreed to be bound by the bank’s “Rules and Regulations” but these have nothing to say about interest payment. By signing the form he acknowledged that “charges may be made on this account at a scale that the bank may from time to time decide”, but the evidence from the bank supports the conclusion to be drawn from the ordinary meaning of these wordsthis sentence refers to bank “charges” and not to interest which might be payable on outstanding loans.
When a customer borrows from a bank he knows that he will have to pay interest on any outstanding balance and there must be a term implied in the parties’ original contract that the defendant would pay interest on any sum overdrawn on the account to be opened at the bank’s prevailing rate on overdrafts on current accounts. But I can find no justification for implying a term into the original contract entitling the bank to capitalise any outstanding interest either annually or at any other interval of time. Nor do I think that a term is to be implied that the bank could charge a higher rate of interest to be determined by it at its discretion in the event of default in repayment of the sums due on the current account. As far as the original loan of £5,000 is concerned, therefore the bank is only entitled to charge simple interest on any outstanding balance at its current rates.
Mr. Maughan’s relations with the bank did not stop with the loan enabling him to purchase the Aran Energy shares. In September, 1983, he approached Mr. Carroll again for a further loan of £2,000 to enable him to purchase shares in an exploration company quoted on the English stock exchange called Flair Resources Ltd., and Mr. Carroll agreed to extend the overdraft facilities to £7,000. On the 16th September, 1983, Mr. Maughan bought 2,000 shares in this company and on the 22nd September, 1983, drew a cheque for £2,497.63 on his account to pay for this transaction. This transaction was also an unprofitable one and the defendant later sold these shares at a loss, lodging the net proceeds (£1,629.62) in his account on the 29th December, 1983.
This second loan was made after the bank had sent to Mr. Maughan its letter of the 22nd August, 1983. So when he applied for a further loan he must be taken to have agreed to be bound by its terms. This means that two-sevenths of the sum advanced by the bank are subject to the contractual terms contained in that letter and so a question arises as to whether by virtue of those terms the bank is entitled (a) to compound interest annually, and (b) to charge a default interest rate on part of the outstanding sums due to it.
I construe the letter of the 22nd August as follows:
(a) that the loan of £5,000 by way of overdraft facilities on a current account with the bank was to be extended to the 17th August, 1984;
(b) that on the 17th August, 1984, the situation would be”reviewed” by the bank, which meant that it could, at its discretion, extend the period of the loan and that if it did not do so any sums then outstanding on the account would be immediately repayable;
(c) that interest would be payable on all sums outstanding on the account. The rate could vary from time to time. The rate current at the date of the transaction was 19%.
There is nothing in these terms which would entitle the bank to charge compound interest or interest at a specially high default rate. And I cannot agree that entitlement to do so arises from the reference in the letter to the loan being “on the usual terms and conditions”. I think the test to be applied is what a customer receiving this letter would reasonably understand it to mean. In view of the fact that a review of the facility was to take place in a year’s time which might or might not mean that the loan would then be called in I do not think that this letter could reasonably be understood as entitling the bank (a) to compound outstanding interest at the end of the year, or (b) to charge interest at higher rates if default in payment was made should the facility be extended.
At the end of a year the situation was to be reviewed. This means that new terms might or might not be negotiated, but it cannot mean that the customer was agreeing that the terms on which reliance is now placed would be included in the contract should the facility be extended. In the event the bank extended the facility without any express agreement to do so, and no new terms were agreed to by the parties when that was done.
There is an additional reason why I should conclude that the contract does not contain a term relating to compound interest. Even if it was the bank’s current practice to compound interest annually this did not entitle the bank to do so under the contract I am considering. Parties may expressly agree that compound interest should be paid on an outstanding loan, or such an agreement can be implied, or in some cases it can be shown that it is payable by virtue of a custom of the trade. In this case a trade custom is not relied on nor is it suggested that an agreement to pay compound interest is to be implied. What is claimed is that the terms of the letter of the 22nd August, when accepted, entitled the bank to compound interest. In this connection a passage from Paget’s Law of Banking (10th ed.) at p. 247 is relevant. After observing that as a general principle the law leans against compound interest the author points out that a clear manifestation to charge such interest is required by the law of mortgages. The principle that such interest cannot be charged in the absence of special agreement was, it is pointed out, recently applied by the Court of Appeal in Bank of Credit and Commerce International S.A. v. Blattner (Unreported, Court of Appeal, (England), 20th November, 1986) when holding that a mortgage under which the mortgagor consented to pay to a mortgagee bank all monies due “so that interest shall be computed according to agreement or failing agreement at the usual mode of the bank” did not entitle the bank to compound interest, notwithstanding evidence that it was the bank’s practice to charge compound interest. I think that principle can properly be applied to a loan by a bank other than a loan secured by a mortgage. This means that when a contract is concluded which states that it is subject to the bank’s “usual terms and conditions”an entitlement to compound interest does not arise even if a practice exists to charge such interest unless the term relating to such interest is brought to the customer’s attention and accepted either expressly or impliedly by him. As this was not done in this case the claim for compound interest must fail.
And there is an additional reason why the claim to interest at a default rate must also fail. A term in a contract that a bank is entitled to charge a higher rate of interest in the event of default may be void as being a penalty. It can be justified, however, if such a term is a genuine pre-estimate of the bank’s loss in the event of default made by the parties. The agreement to pay a default rate of interest must therefore be an express one, and an attempt to incorporate such a term by reference to “usual terms and conditions” which are not brought to the customer’s attention cannot be successful because no genuine mutually agreed pre-estimate would have been made.
The letter of the 22nd August did not confer, therefore, any entitlement on the bank to either compound interest or interest at default rates. It follows therefore that no part of the bank’s debt carried interest other than simple interest at the bank’s current rates. On this basis the bank’s claim at the date of the hearing is £21,313.14.