High Court: AIB application for summary judgment refused due to EU rules on unfair contracts

About this case:

• Judgment:
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Delivering the judgment, Mr Justice Max Barrett stated EU rules on unfair contracts imposed a duty on the Court to assess whether a contractual term falling within the scope of directive was unfair; in the circumstances it was necessary for the case to proceed to a plenary hearing.

Background

In the High Court, AIB sought to enforce summarily a loan agreement of 5th February 2009, that was executed between it and Mr Peter Counihan and Ms Mary Counihan.

The loan agreement involved a refinancing of previous borrowings that were extended to enable the Counihans to buy additional frontage to their existing farmstead, and in the proceedings it was contended by the Counihans that each of them was acting as a consumer within the meaning of the Consumer Credit Act 1995 when they executed the loan agreement.

The Consumer Credit Act

The loan agreement between AIB and the Counihans was documented as a business loan. Notwithstanding that it was executed with two parties, Mr and Ms Counihan claimed to be consumers within the meaning of the Consumer Credit Act 1995, however the loan agreement did not purport to comply with the requirements of that Act.

Notwithstanding that the loan agreement appeared on the face of it to be a ‘housing loan’ within the meaning of the Consumer Credit Act 1995, the statement of important information required under s.129 and the Third Schedule of the Act was entirely absent.

Justice Barrett explained that such a breach, if arising, may have consequences for AIB under s.12 of the Act - However, it does not appear that any direct consequences flow under the Consumer Credit Act 1995 as regards the enforceability of the loan consequent upon such a breach, if such a breach arises.

Unfair Terms in Consumer Contract Regulations

Where a bank’s customer is a consumer, the provisions of the applicable banker-customer relationship fall to be construed, inter alia, by reference to the European Communities (Unfair Terms in Consumer Contracts Regulations) 1995, as amended.

These Regulations were adopted in the first instance to implement into Irish law Council Directive 93/13/EEC of 5th April 1993 on unfair terms in consumer contracts (O.J. L95/29, 21.4.1993); and apply, per reg. 3(2), “to any term in a contract concluded between a seller of goods or supplier of services and a consumer which has not been individually negotiated”.

A “consumer”, per reg. 2 of the Regulations of 1995 is “a natural person who is acting for purposes which are outside his business”, the term “business” being further defined, again in reg. 2, as including “a trade or profession”.

After considering Aziz v. Caixa d’Estalvis de Catalunya, Tarragona i Manresa (Catalunyacaixa) (Case C-415/11, Judgment of 14th March 2013), Justice Barrett deduced that Aziz established general principles whereby the Court has a duty to assess whether a contractual term falling within the scope of directive is unfair.

Taking this into account, Justice Barrett was satisfied that a summary application for debt was a classic example of proceedings in which the potentially ruinous consequences for a consumer on the basis of relatively limited argument, require that such an assessment be undertaken if consumers are to be protected in the manner contemplated by Directive 93/13/EEC.

In the circumstances of the case, Mr and Ms Counihan indicated that “the effect of judgment against them at this time would render them all but destitute”.

Estoppel

in his affidavit, Mr Counihan averred that AIB were estopped from enforcing the loan against him; maintaining that “he was advised by certain management-level employees of AIB that the full debt owing by himself and his wife would not be enforced, specifically that AIB would not seek to enforce such security as it enjoys over the Counihans’ family home”.

Mr Counihan maintained that “he and his wife relied on these representations in their dealings with AIB”, and sought to “argue that a promissory, High Trees House-style estoppel now exists between AIB and him that prevents AIB from asserting its full contractual rights against him”.

Justice Barrett was satisfied that this claim to estoppel was not “some wild flight of fancy”, and considering Aer Rianta cpt v Ryanair Limited 4 IR 607, the Court could not say that Mr and Ms Counihan did not have even an arguable defence by virtue of the alleged promissory estoppel arising.

Conclusion

Having due regard to the principles identified in Aer Rianta and Harrisrange Ltd v Duncan 4 IR 1 which summarised the test for granting a summary judgment, Justice Barrett was satisfied the application ought to go to plenary hearing.

As a result, the court declined to grant the reliefs sought by AIB.