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THE SUPREME COURT
[Supreme Court Appeal No: 120/2018]
O’Donnell J.
McKechnie J.
MacMenamin J.
Dunne J.
O’Malley J.
BETWEEN:
PEPPER FINANCE CORPORATION (IRELAND) DAC
RESPONDENT/PLAINTIFF
AND
BRIAN CANNON AND CHRISTINA CANNON
APPELLANTS/DEFENDANTS
JUDGMENT of Ms. Justice O’Malley delivered on the 4th day of February 2020
Introduction
1. In granting leave to appeal in this case, the Court observed that it raised a similar issue
to that in Seniors Money Mortgages v. McGovern (in which judgment is also delivered
today). This issue concerns the factors that an appellate court should take into account in
exercising its discretion whether or not to extend time to appeal in circumstances where
an appellant may meet some but not all of the criteria identified in Éire Continental
Trading Co. Ltd. v. Clonmel Foods Ltd. [1955] I.R. 170. In this case the appellants were
almost nine months out of time in lodging an appeal against an order made by the County
Registrar for possession of their family home. The Circuit Court judge refused to extend
time, and her decision was upheld in the High Court.
2. The substantive issue sought to be argued in an appeal, if time is extended, is that the
County Registrar failed to carry out an assessment of the fairness of the terms of the
mortgage, as required under Council Directive 93/13/EC on Unfair Contract Terms in
Consumer Contracts (implemented in this State by the European Communities (Unfair
Terms in Consumer Contracts) Regulations 1995 (S.I. 27/1995)).
3. That very brief synopsis of the background demonstrates that there is a distinct issue in
the case which must be resolved before the applicability of the Éire Continental test is
considered, concerning the jurisdiction of this Court having regard to the 33rd
Amendment to the Constitution. The appeal is against a decision of the High Court made
on appeal from the Circuit Court. There is no doubt but that under the previous
constitutional regime such appeals were barred by virtue of s.39 of the Courts of Justice
Act 1936, which continues to provide that the decision of the High Court (or the High
Court on Circuit) on an appeal under that part of the Act shall be “final and conclusive and
not appealable”. It is therefore necessary to determine whether an appeal lies under the
new constitutional jurisdiction of this Court. On this aspect, the Court requested oral and
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written submissions from the Attorney General, as well as from the parties. The Court is
grateful for the assistance received.
The jurisdictional issue
The 33rd Amendment to the Constitution
4. Prior to the 33rd Amendment, Article 34.4.3º of the Constitution provided that the
Supreme Court should have appellate jurisdiction from “all” decisions of the High Court
“with such exceptions and subject to such regulations as may be prescribed by law”.
There was no doubt that a provision such as s.39 of the Act of 1936 constituted an
exception prescribed by law.
5. The Amendment provided for the establishment of the Court of Appeal. Article 34.4.1º
sets out the appellate jurisdiction of that Court in the following terms:
4.1º The Court of Appeal shall –
i
save as otherwise provided by this Article, and
ii
with such exceptions and subject to such regulations as may be prescribed by
law,
have appellate jurisdiction from all decisions of the High Court, and shall also have
appellate jurisdiction from such other courts as may be prescribed by law.
6. The text here clearly indicates that the Court of Appeal now enjoys the jurisdiction
previously exercised by the Supreme Court in respect of appeals from the High Court.
restrictions imposed on an appeal to this Court under the previous regime now prima
facie apply to the Court of Appeal.
7. The Amendment also altered the scope and machinery of the Supreme Court’s
jurisdiction. Article 34.5.3º deals with appeals to this Court from decisions of the Court of
Appeal as follows:
5.3º The Supreme Court shall, subject to such regulations as may be prescribed by law,
have appellate jurisdiction from a decision of the Court of Appeal if the Supreme
Court is satisfied that –
i
the decision involves a matter of general public importance, or
ii
in the interests of justice it is necessary that there be an appeal to the
Supreme Court.
8. The next sub-article, Article 34.5 then provides:
4º Notwithstanding section 4.1º hereof [i.e. the jurisdiction of the Court of Appeal],
the Supreme Court shall, subject to such regulations as may be prescribed by law,
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have appellate jurisdiction from a decision of the High Court if the Supreme Court is
satisfied that there are exceptional circumstances warranting a direct appeal to it,
and a precondition for the Supreme Court being so satisfied is the presence of
either or both of the following factors:
i
the decision involves a matter of general public importance;
ii
the interests of justice.
9. Article 34.5.5º remains unchanged, and sets out an express prohibition on the enactment
of any law excepting from the jurisdiction of the Supreme Court cases involving questions
as to the validity of any law having regard to the provisions of the Constitution.
10. It is also relevant to note certain provisions of the Court of Appeal Act 2014. Firstly, s.8 of
that Act provides for the general jurisdiction of the new court. Subject to specific
exceptions not relevant here, there is now vested in the Court of Appeal “all appellate
jurisdiction which was, immediately before the establishment day, vested in or capable of
being exercised by the Supreme Court”.
11. Section 74 provides that references to the Supreme Court, in relation to an appeal, in any
enactment passed or made before the establishment of the Court of Appeal are to be
construed as references to the Court of Appeal unless the context otherwise requires. (An
express exception to this general rule was provided for in relation to appeals to the
Supreme Court from the then still-extant Court of Criminal Appeal.)
12. Prior to the date of establishment of the Court of Appeal, the Oireachtas had frequently
provided in the legislation governing certain types of legal issue that a decision or
determination of the High Court in a case governed by the enactment in question was to
be final, subject to a right of appeal to the Supreme Court in certain circumstances. Thus,
for example, the right of appeal in an immigration or environmental law case might be
subject to the grant of permission to appeal by the High Court judge who decided the
case, with such permission to be given only in accordance with particular statutory
criteria. It was established by the jurisprudence of this Court that there was no appeal
against a refusal to give permission.
13. Section 75 of the Act of 2014 now provides that any reference to such a decision or
determination is to be construed as being without prejudice to Article 34.5.4º. It also
provides that a reference to the “Supreme Court” in such legislation is to be construed as
a reference to the Court of Appeal unless the context otherwise requires.
14. Section 76 deals with a different category of litigation, where pre-2014 legislation in
respect of various matters made the decision of the High Court final in all respects, with
no provision for a right of appeal in any circumstances. The section stipulates that such
measures are to be construed as being without prejudice to Article 34.5.4º of the
Constitution.
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15. I do not suggest that the interpretation of a constitutional text can be guided by the
provisions of a statute. The task of the Court is to adhere to the words approved by the
People. Furthermore, it might be said that it is unnecessary for the legislature to
expressly provide that an Act is to be construed as being without prejudice to the
Constitution – that would be so in any event. Nonetheless, I think that it is appropriate to
acknowledge the acceptance by the Oireachtas that the Amendment may have altered the
former status of a statutory exclusion of this Court’s jurisdiction in relation to certain
decisions of the High Court.
The decision in Grace and anor v. An Bórd Pleanála [2017] IESC 10
16. The proceedings in this case were governed by s.50 of the Planning and Development Act
2000, as amended. The appellants’ judicial review proceedings were dismissed in the High
Court. Under the terms of the section, they could not appeal against that decision unless
the trial judge certified that a point of law of exceptional public importance arose and that
it was desirable in the public interest that an appeal be pursued. The High Court decision
in the case was given in 2015, so, if such a certificate had been granted, the appeal would
have gone to the Court of Appeal. An application for a certificate was refused, and the
appellants then sought leave to appeal to this Court. The jurisdiction of the Court to hear
the matter was disputed by the respondents in their objection to a grant of leave.
17. In holding that it had jurisdiction to hear the appeal, the Court placed emphasis on the
new wording of Article 34.5.4º and the absence of any power to legislate for the exclusion
of any appeal from this Court. The following passage appears at paragraph 3.4 of the
joint judgment of Clarke and O’Malley J.J.:
“That provision must be seen in the light of that fact that, in order to obtain leave
to appeal to this Court under the new regime, it is necessary that this Court be
satisfied that a general issue of public importance [sic] arises or that the interests
of justice require an appeal to this Court. The deliberate omission, in the
constitutional amendment passed by the people, of an entitlement on the part of
the Oireachtas to exclude an appeal to this Court under the new regime has to be
seen in that context. Would it have been appropriate to allow the Oireachtas to
prevent an appeal coming to this Court even though this Court was satisfied that
the case raised an issue of general public importance or that the interests of justice
required an appeal? But it seems to us to follow that any measure which prevents
(rather than regulates) the exercise by this Court of its entitlement, under the 33rd
Amendment, to consider whether a case meets that constitutional threshold must
be considered to be an impermissible exclusion of the right of appeal to this Court.
No express relevant measure has been introduced since the 33rd Amendment.
Precisely what form of measure might be considered an exclusion rather than a
regulation does not, therefore, fall for consideration in this case.”
18. The Court therefore held that the appellants had a right to invite the Court to consider
whether the constitutional threshold had been met and thereafter, having obtained a
favourable decision on that point, to pursue the appeal.
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19. This conclusion did not, of course, touch upon the constitutional validity of s.50 of the Act
of 2000 in any way. The section, in common with similar provisions imposing a certificate
requirement for an appeal in other legislation, imposes a valid restriction on the right of
appeal to the Court of Appeal in such cases.
Submissions of the parties on jurisdiction
20. In written submissions the appellants and respondent have agreed that the Supreme
Court does, in principle, have jurisdiction to entertain an appeal from a decision of the
High Court on a Circuit Court appeal, although they differ on the question whether this
case satisfies the constitutional criteria.
21. The Attorney General also submits that the Court has jurisdiction. It is noted that it was
emphasised by this Court in Grace that the wording of Article 34.5.4° of the Constitution
makes it clear that relevant legislation may regulate but, unlike the situation under the
previous text, cannot exclude an appeal to this Court. By contrast, the wording of Art.
34.5.3° refers expressly to the possibility that appeals from the High Court to the Court of
Appeal can be either excluded or regulated by appropriate legislation. The Attorney
General submits that this indicates an intention that under the new constitutional
arrangements, the Oireachtas would not continue to have the power to create exceptions
to the Supreme Court’s appellate jurisdiction.
22. It is acknowledged that in some cases it might be debatable whether a particular
legislative provision constitutes an “exception” to an appellate jurisdiction, as distinct
from a “regulation” of it. However, the Attorney General considers that no such question
arises in respect of s.39 of the Act of 1936. The section would be in direct contradiction to
the terms of Article 34.5.4°, were it not for the limiting effect of s.76 of the Court of
Appeal Act 2014.
23. In the course of the hearing a question arose as to the effect of the words “warranting a
direct appeal” in relation to appeals from the High Court. On one view, the reference to a
“direct appeal” might be taken to imply that the section is applicable only to cases where
appeals would otherwise lie to the Court of Appeal, and therefore only to cases that the
Court of Appeal has jurisdiction to hear.
24. The Attorney General disputes that interpretation, arguing that to accept it would create
the possibility that the Oireachtas could limit the jurisdiction of this Court indirectly (by
legislating to exclude categories of litigation from the jurisdiction of the Court of Appeal)
where it could not do so directly (by legislating for exceptions to the jurisdiction of this
Court). It is pointed out that the terms of the Constitution do not expressly limit the
jurisdiction of the Supreme Court, in the case of appeals from the High Court, to cases
where that Court was acting as a court of first instance, or to cases where there would
otherwise be a right of appeal to the Court of Appeal. The constitutional distinction
between the Court of Appeal and the Supreme Court, in terms of appellate jurisdiction, is
said to be that the former has jurisdiction in all cases unless there is a relevant exception
or restriction, while this Court has jurisdiction in all cases if the constitutional criteria are
otherwise satisfied.
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Conclusion on the jurisdictional issue
25. Section 39 of the Courts of Justice Act 1936 must now, by virtue of s.76 of the Act of
2014, be construed as if it read:
“Without prejudice to Article 34.5.4º of the Constitution, the decision of the High
Court… shall be final and conclusive and not appealable.”
26. Article 34.5.4º provides that this Court has appellate jurisdiction from a decision of the
High Court, if it is satisfied in relation to specified matters. Those are that the Court must
be satisfied that either or both of the general public importance and the interests of
justice factors are present, and that there are exceptional circumstances warranting a
direct appeal to it. Should these criteria be met, the Court has jurisdiction
notwithstanding the jurisdictional provision made for the Court of Appeal in Article
34.4.1º.
27. It seems to me, therefore, that the jurisdiction of this Court in relation to appeals from
the High Court is a matter to be assessed without reference to any exclusion or restriction
affecting the jurisdiction of the Court of Appeal. It is clear that the jurisdiction of the two
Courts is not intended to be co-terminous in all respects, in that the Oireachtas may
validly legislate for exceptions in respect of the Court of Appeal but no longer has that
power in respect of the Supreme Court. I agree with the Attorney General that the
legislature cannot, in this regard, do indirectly what it cannot do directly – it cannot
reduce the jurisdiction of the Supreme Court by reducing the jurisdiction of the Court of
Appeal.
28. The analysis adopted in Grace and Sweetman v. An Bórd Pleanála is valid in this context.
The same question can be posed – would it be appropriate to allow the Oireachtas to
prevent an appeal from being taken against a decision of the High Court in a Circuit
appeal, if this Court was satisfied either that it involved a point of law of general public
importance or that an appeal was required in the interests of justice?
29. It is relevant to note here that, while appeals from the Circuit Court generally concern
well settled areas of law, it is always possible that a decision given in that context may
give rise to some new legal development of widespread significance. In accordance with
Court judge will normally follow a previous decision given by another judge of that Court
unless satisfied that it was in error. However, the exclusion of Circuit appeals from the
category of decisions of the High Court that could be further appealed has, in the past,
brought about a situation where there were conflicting High Court judgments on
important questions of law (see, for example, the decisions of Hogan J. and Kearns P. in,
Council v. Kinsella [2015] IEHC 229).
30. It should be remembered that judges of the High Court may, before pronouncing final
judgment or order in an appeal from the Circuit Court, refer any question of law for the
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determination of the Court of Appeal (s.38(3) of the Courts of Justice Act 1936 – for a
discussion of this provision, including its application to cases where no oral evidence was
However, it is nonetheless possible that, where this option is not adverted to or not
taken, serious anomalies may remain unresolved.
31. If the legislature, hypothetically, were now to enact a provision excluding the possibility of
an appeal in such a case, it would not be affected by s.76 of the Act of 2014 (since that
measure applies only to legislation enacted before the establishment of the Court of
Appeal). It would be difficult, in those circumstances, to see such a provision other than
as an impermissible exception to the jurisdiction set out in the Constitution.
32. The reference in Article 34.5.4º to a “direct appeal” does not, in my view, support an
alternative analysis. It is not only the fact that such an alternative analysis would,
obviously, permit indirect exclusions from the jurisdiction of this Court. It seems to me
that it would also require the reading in of words such as “where the Court of Appeal
would otherwise have jurisdiction to hear the appeal”. The literal interpretation
appropriate to technical provisions of the Constitution would reject such an exercise. In
my view the “direct appeal” envisaged in the Article is simply an appeal that comes
directly from the High Court to this Court, rather than via the Court of Appeal. It is an apt
description of such an appeal, whether or not the Court of Appeal would have had
jurisdiction to hear it.
33. I would conclude, therefore, that this Court has jurisdiction to grant leave to appeal from
a decision of the High Court made on appeal from the Circuit Court, notwithstanding s.39
of the Courts of Justice Act 1936, provided that the constitutional criteria are satisfied.
However, certain considerations must be stressed. The most significant feature of leave to
appeal from the High Court is that an applicant for leave must, under Article 34.5.4º,
demonstrate exceptional circumstances warranting such an appeal, as well as the
presence of a point of law of general public importance and/or the requirement for an
appeal in the interests of justice.
34. It was submitted by the appellants in their notice of application for leave to appeal that if
the general public importance or interests of justice aspect of the threshold test were to
be reached, the very fact that the legislation excluded an appeal to the Court of Appeal
might provide the exceptional circumstances justifying a direct appeal to this Court. This
submission was strongly disputed by the respondent, who submits that the “exceptional
circumstances” must be specific to the applicants and their case, and cannot be found in
legislation that is of general application to all litigants.
35. In its determination granting leave to appeal in Grace (see Grace & Anor v An Bórd
Pleanála [2016] IESCDET 29), the Court suggested that if the constitutional threshold was
met in respect of general public importance or the interests of justice, then the
“exceptional circumstances” might very well be found in the fact that an appeal to the
Court of Appeal was excluded under the relevant legislation. Ultimately, that aspect did
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not require to be addressed either in the substantive judgment in that case or, as yet, in
any subsequent appeal in relation to the Planning and Development Acts.
36. It seems to me that the analysis in the Grace determination is a valid one in this context.
Exceptional circumstances are required in the case of an appeal from the High Court
precisely because of the fact that in most cases the most appropriate route of appeal will
be to the Court of Appeal. If that Court does not have jurisdiction, there will be the
possibility that a point of law that is of general public importance will remain unaddressed
by either the Court of Appeal or the Supreme Court. That is not the intention underlying
the constitutional structure, and in my view is capable of being seen as an exceptional
circumstance that can justify a grant of leave.
37. However, in any case of this nature where leave to appeal to this Court is sought, four
particular factors will be borne in mind. The first is that the general policy of the
legislature, unchanged since 1936, is that Circuit Court litigation should not be appealed
beyond the High Court. The second is that in the same statute the legislature has
provided for a means by which the High Court can refer questions of law for
determination by the Court of Appeal. It is highly desirable that this procedure should be
utilised in cases of doubt, and particularly where a High Court judge is being asked, in a
Circuit appeal, to disagree with a previous High Court judgment. An applicant for leave to
appeal to this Court can therefore expect to have to address the question why that
procedure was not pursued. The third is that cases of this nature will rarely meet the
criteria of the “interests of justice” category, since there will already have been both a
hearing and a full appeal. Finally, the fact that there has already been one level of appeal
means that the absence of a further right of appeal is not as exceptional as, for example,
the category of cases where a certificate of leave from the trial judge is required.
38. It seems to me that this case meets the constitutional criteria. The proper application of
the Éire Continental criteria has already been identified in Seniors Money v. Gately as
raising an issue of general public importance. The substantive issue also concerns a point
of law of general public importance, being the operation of the Directive and Regulations.
The extent of any obligation on a court to assess the terms of a mortgage, or other
consumer contract, for unfairness has not previously been the subject of a written
judgment of this Court, and is clearly capable of being a matter in respect of which
guidance may be desirable at every level of the court system.
The background facts
39. The appellants entered into a loan agreement in or about December 2007 for the sum of
€810,000. The loan was secured on their partly-constructed home, the property that is
now the subject of the order for possession. It appears that part of the loan was used to
satisfy a Revenue debt and the rest was spent on the completion of the construction.
40. Under the terms of the loan offer the mortgage was repayable in 468 monthly instalments
over 39 years. The interest rate was fixed at 6.70% for the first three years. At that point
the lender might choose to offer a further fixed rate period or to apply a variable rate,
whereby the rate would vary either upwards or downwards at the lender’s discretion.
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41. An express provision in the agreement drew the borrowers’ attention to the fact that the
loan, and the security, would be freely transferable by the lender. However, in the event
of such transfer, and subject to its terms, the policy in respect of interest rates and the
handling of arrears would not change unless either the lender or the borrowers were in
breach of their obligations.
42. Following the economic downturn, the appellants went into arrears on their loan
payments. Although they have continued to make some payments to the respondent, the
sums paid since their first default in March 2009 are greatly exceeded by their obligations
under the loan.
43. A civil bill for possession was issued in November 2014. Several terms of the mortgage
agreement were expressly pleaded as grounding the claim:
(i) That the borrowers would pay the secured monies, including the balances, interest
and other sums due on foot of the loan facility at the times and in the manner
provided for;
(ii) That the borrowers would secure the payment of the monies by charging the
property in favour of the lender;
(iii) That the borrowers would pay the secured monies on demand;
(iv) That all monies remaining unpaid and secured by the mortgage would immediately
become due and payable on demand, on the occurrence of any event of default
including default in making payment of any monthly or other periodic payment;
(v) That the secured monies were deemed to have become due and payable, within the
meaning and for all purposes of the Conveyancing Acts, on the execution of the
mortgage;
(vi) That, at any time after the execution of the mortgage, the lender could without any
further consent from or notice to the borrowers enter into possession of the
mortgaged property or any part thereof; and
(vii) That the power of sale would be exercisable by the lender without the restrictions
on its exercise imposed by s.20 of the Conveyancing Act 1881.
44. It was averred in the grounding affidavit that the appellants had first defaulted in making
repayments in March 2009. Correspondence was exhibited to establish that the
respondent had engaged with the appellants, in compliance with the 2013 version of the
Central Bank’s Code of Conduct on Mortgage Arrears and the prescribed Mortgage Arrears
Resolution Process. Such Codes, issued under statutory authority, are legally binding on
lenders. The 2013 version stipulated inter alia that lenders must, apart from attempting
to find a solution that would obviate the need for repossession, wait at least eight months
after the first default in payment before taking enforcement action. In the event, it was
not until February 2014 that the respondent informed the appellants that no alternative
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repayment arrangement could be offered as, essentially, they did not have sufficient
income to service the mortgage. Other options available to the appellants were outlined –
the “Mortgage to Rent” scheme, assisted voluntary sale and voluntary surrender.
45. The appellants had a right to appeal this decision in accordance with the Code, but did not
do so and did not take up any of the suggested options. A demand for payment of all
outstanding monies was made on the 26th May 2014, and was followed by a demand for
vacant possession on the 18th June 2014.
46. The matter was first listed before the County Registrar in March 2015, and then
adjourned from time to time before being finally dealt with on the 19th January 2017. The
appellants were represented by solicitor and counsel at the hearing. As of that date the
figure for the arrears was €325,434. The appellants were making payments of €300 per
month, which was less than 10% of the due figure. It may be noted here that the records
exhibited by the lender demonstrated that the interest rate applicable to the mortgage
had dropped to 4.78% in February 2010, and was further reduced in the course of 2011.
47. The possession order was made by the County Registrar, but a stay was given until the
1st August 2017. No appeal was brought by the appellants within the prescribed ten-day
period.
48. The appellants engaged a new solicitor in July 2017. That solicitor wrote to the
respondent’s solicitor on the 27th July 2017, days before the expiry of the stay, stating
that the appellants intended to appeal the possession order on the basis that it was made
without any assessment of the fairness of the terms of the loan agreement as required
under the European Communities (Unfair Terms in Consumer Contracts) Regulations
1995. These regulations implement Council Directive 93/13 (“the Directive”), a
harmonising measure concerning consumer contracts.
49. The respondent’s solicitor, in replying to this and subsequent correspondence, stated that
AIB v. Counihan [2016] IEHC 752 (in which Barrett J. had held that a court considering a
consumer contract must conduct such an assessment of its own motion) had been
expressly drawn to the attention of the County Registrar and that she had said that she
was aware of it.
50. The appellants filed a motion in the Circuit Court in October 2017, seeking an extension of
time to appeal the decision of the County Registrar. In the grounding affidavit it was
averred by the first named appellant that he and his wife had not sought to appeal earlier
because they had been advised by the solicitor then acting for them that they had no
grounds for appeal or judicial review. He deposed that his “recollection” was that the
County Registrar had not carried out an assessment of the terms of the loan. He further
asserted that there had been no assessment of the proportionality of a possession order
in the context of their rights under the Charter of Fundamental Rights and the European
Convention on Human Rights. He asked for an extension of time “given that we formed
the intention to appeal within the prescribed time limit, that my previous solicitor did not
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inform me of these rights and that we have a strong ground of appeal”. He undertook to
continue paying €300 per month.
51. There was no evidence, whether by way of affidavit or an attendance note, from the
appellants’ original legal representatives.
52. A draft notice of appeal was exhibited, with three grounds of appeal. The first was that
the County Registrar did not assess the terms in accordance with the Regulations; the
second was that, if such an assessment had indeed been carried out, it had not been
recorded and no reasons for the decision had been given; and the third was that there
had been no proportionality assessment.
53. A replying affidavit on behalf of the respondent asserted that AIB v Counihan had been
drawn to the attention of the County Registrar, as had each of the contractual terms
being relied upon by the respondent in seeking the order for possession. The County
Registrar had considered the papers before her, and in particular the letter of loan offer
and the mortgage, and had been satisfied that the respondent was entitled to an order.
Regard had also been had to the appellants’ personal circumstances and the stay was
given for that reason.
54. The application to extend time was ultimately refused by the Circuit Court on the 13th
February 2018. It is clear from the DAR transcript that the trial judge, in holding that the
appellants had not met the Éire Continental criteria, laid considerable emphasis on the
fact that the appellants had been legally advised at the time they entered into the
agreement and at all material times thereafter including the hearing before the County
Registrar. She also stressed the length of time that had elapsed between the order and
the motion to extend time. Finally, she referred to a judgment given by Ní Raifeartaigh J.
some weeks earlier (Pepper Finance v. Hanlon, a decision delivered ex tempore in January
2018), where that judge had commented on the failure of the mortgagor to point to any
particular term in a mortgage that could be said to be unfair.
55. The Circuit Court refusal to extend time was appealed, and the first named appellant
swore a further affidavit in which he averred that he and his wife had wanted to appeal
the decision of the County Registrar “immediately”, but had been advised they had no
grounds. He then made specific reference to a clause in the loan agreement that
purported to allow the respondent to vary the interest rate at its discretion, in the
absence of any factors limiting that discretion, and asserted that this was unfair. In this
regard he exhibited a Central Bank addendum to the Consumer Protection Code. The
addendum, which became effective on the 1st February 2017, obliges a regulated lender
to produce a summary statement of its policy for setting each variable mortgage interest
rate in respect of loans to personal consumers, and to update the policy when it changes.
The statement must inter alia clearly identify the factors that may result in a change, and
the criteria and procedures applicable to the setting of the rate. A copy of the statement,
and any change to it, must be provided to the consumer.
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56. It should be noted here that these amendments to the Code were made on foot of the
European Union (Consumer Mortgage Credit Agreements) Regulations 2016 (S.I.
142/2016), which apply to agreements entered into after the 21st March 2016.
57. The appeal was dismissed by the High Court (Noonan J.) on the 17th July 2018. It is clear
from the ruling that there was, again, emphasis on the fact that the appellants had been
represented before the County Registrar.
58. Turning to Éire Continental, Noonan J. referred to it as setting out the “test” for an
extension of time, with three “requirements” that any applicant for an extension “must”
satisfy. In this case, Noonan J. was prepared to assume for the purposes of the
application that there was an arguable ground of appeal. However, he considered that the
appeal should be dismissed on the basis that the appellants had not crossed the first two
hurdles. The first affidavit contained no evidence of the formation of an intention to
appeal. The second affidavit was not of assistance, since to “want” to appeal (which
Noonan J. saw as a natural reaction for a losing party) was not the same thing as to “form
an intention” to appeal. It was, in his view, clear that the appellants had decided to
accept their lawyers’ advice after the hearing and on that basis had formed an intention
not to appeal.
59. Similarly, Noonan J. did not accept that there was evidence of a mistake of the sort that
he considered was envisaged in Éire Continental. He stated that a mistake as to
procedure, or the meaning of a rule, would not suffice and he saw a mistake as to the law
applicable to the substantive matter before the Court as being in the same category.
Tracey v. McCarthy [2017] IESC 7. Noonan J. felt that they did not assist the appellants
either, but rather affirmed the correctness of Éire Continental. In both cases Clarke J. had
emphasised the importance of finality in litigation, and therefore the justification for the
setting of short time limits for the bringing of appeals. Such limits were intended to
facilitate the fundamental legal principle that finality is important – parties are entitled to
order their affairs on the basis that once the case has been decided, and no appeal has
been brought, the matter has run its course. The delay in this case, of almost nine
months, had to be compared with the ten-day limit within which the appeal should have
been brought.
Submissions in the appeal
The appellants
61. At this point the appellants accept that they do not meet two of the Éire Continental
criteria, in that it is no longer argued either that they formed an intention to appeal within
ten days of the order or that there was anything in the nature of a mistake. Their
concentration is on the arguability of the grounds of appeal, which they say are strong.
They emphasise the discretionary nature of the jurisdiction to extend time, and suggest
that what were originally intended as guidelines may have come to be applied in an overly
rigid manner. However, it is noted that the flexibility of the criteria has been highlighted
in a number of judgements of this Court such as Goode Concrete v. CRH Plc and Others
Page 13 ⇓
[2013] IESC 39 and Lough Swilly Shellfish Growers Co-operative Society Ltd. v. Bradley &
Ivers [2013] IESC 16.
62. Further, the appellants submit that since they are relying on rights under European Union
law, there are two additional considerations that, independent of their own action or lack
of action in progressing an appeal, may require a recalibration of the Éire Continental
criteria in any event. The first is that the principles of equivalence and effectiveness must
be considered when national procedural rules are being applied. The other is that the
courts, and court officials such as the County Registrar, are obliged to vindicate rights
created by a protective regime established by the European Union. It is submitted that a
failure in this regard must be taken in consideration when the appellate court is asked to
extend time.
63. On the substance of the issue sought to be argued in an appeal, the appellants submit, in
summary, that the jurisprudence of the Court of Justice of the European Union establishes
that there is an obligation on the part of a national court to assess, of its own motion,
whether contractual terms falling within the scope of the Directive are unfair, where it has
available to it the legal and factual elements necessary for that task. The purpose of the
process is to compensate for the imbalance which exists between the consumer and the
seller or supplier. The role attributed to the national court by EU law in this area therefore
goes beyond the normal function of ruling on a dispute between parties. If the court finds
a term to be unfair, that term will be unenforceable, whether or not the consumer has
raised an argument in court in that regard, and whether or not the seller or supplier has
invoked the term as against the consumer. It is further submitted that domestic law
principles concerning the finality of judicial proceedings and the principle of res judicata
may, at times, be required to give way to the obligation to take a binding rule of EU law
into consideration.
64. The appellants argue that certain terms in the mortgage in question are unfair and
therefore unenforceable. In particular, they contend that the “acceleration” clause
(providing that the entirety of the secured debt would become due and payable on
demand on the happening of any event of default) was unenforceable. They say that it
follows that the full amount of the principal and interest was not due to the respondent
when it sought possession. They also refer to the interest variation clause and to clauses
giving the lender power to enter into possession of the appellants’ home and to transfer
the contract without any restrictions.
The respondent
65. The respondent accepts that the Éire Continental principles are to be seen as guidance
rather than as “a prescriptive doctrinal test”, and that discretion ultimately remains with
the court. However, it is submitted that the importance of each of the three criteria is
reflected in the fact that they have survived for in excess of 60 years, and have been re-
affirmed in countless decisions of the superior courts. The respondent relies in particular
on the observation in Goode Concrete that the Éire Continental test would apply in the
vast majority of cases.
Page 14 ⇓
66. It is submitted that the appellant must provide some justification, where a bona fide
intention was not formed within the time permitted by the Rules. Further, it is submitted
that Goode Concrete requires that the justification should be based on some fact or
information that did not arise in the court below – this is based on the comments in that
judgment to the effect that in general parties will be aware of the time-limits and will
have available the materials, submissions and information that were before the first
instance court. In this context it is stressed that the issue of an “own motion” assessment
was expressly raised by counsel for the respondent at the original hearing, in the
presence of the appellants as well as their counsel.
67. It is argued that the appellant must show that the application to extend time was brought
promptly once the intention was formed. On the assumption that an intention to appeal
was formed in late July 2017, no application to extend time was brought until more than
two months later. This is said to be a significant delay in a context in which the
appropriate time period within which to apply was 10 days of the original decision. (The
appellants attribute the delay during that period to the correspondence attempting to
ascertain whether or not the County Registrar had conducted the appropriate
assessment.)
68. On the facts of the case it is submitted that the appellants have “manifestly” failed to
meet the first two Éire Continental criteria. In asking the Court to overlook such a failure,
an appellant must, it is submitted, demonstrate a “very strong” case that would be likely
to overturn the substantive result at first instance, rather than merely “arguable” grounds
of appeal. This is said to be necessary in order to ensure an appropriate balance of justice
as between the parties. However, in this case, it is contended that the appellants do not
even reach the lower bar of “arguable” grounds of appeal. Based on the affidavit
evidence, the respondent asserts that the County Registrar was aware of her own
obligations under the Directive and Regulations, that she considered the relevant
contractual provisions in the light of the relevant case law of the CJEU and that she
concluded, nonetheless, that the respondent was entitled to an order for possession.
69. Further to this submission the respondent makes a number of points on the issues of EU
law. First, it is contended that the obligation to repay the secured monies, coupled with
the entitlement of a mortgagee to obtain possession of a property on foot of a deed of
mortgage in the event of default, are the sine qua non of any deed of mortgage. It is thus
argued that those terms are the very essence of the subject matter of the contract and
fall within the ambit of Article 4(2) of the Directive and Regulation 4 of the Irish
regulations.
70. Even if this were not the case, it is argued that the relevant terms are not unfair within
the meaning of the Directive and regulations. Furthermore, it is submitted that if the
appellants do satisfy the court that their rights pursuant to EU law have been infringed,
the CJEU’s own interpretation of the finality principle, as relied on by Ní Raifeartaigh J. in
Cronin v Dublin County Sheriff [2017] IEHC 685, makes it clear that it is not necessary to
disapply domestic rules on finality due to a (disputed) misapplication of EU law. It is
Page 15 ⇓
submitted that the appellants have failed to demonstrate any basis upon which they
should be entitled to circumvent that principle.
Discussion
71. Before engaging in an analysis of the enactments and decisions relevant to the Directive,
it will, I think, be helpful to deal briefly with one aspect of the appellants’ submissions. It
has been argued that the approach to extensions of time for appeals should be
recalibrated to take account of the requirements of EU law relating to the principles of
equivalence and effectiveness and the obligation of the courts to protect rights conferred
by EU law. However, I can see no basis for an argument in respect of either equivalence
or effectiveness. Equivalence is not breached by time-limits that are applied to litigation in
general, whether related to EU law or national law. The principle of effectiveness requires
Member States to ensure that the protection of EU rights by national courts is not made
impossible or excessively difficult – again, there are no grounds upon which it could be
contended that the ordinary time-limits, which are coupled with the discretion to extend
time, result in a situation where it is impossible or unduly difficult for consumers to
defend their rights.
72. Further, it must be borne in mind that the principles of res judicata, including the principle
that judicial decisions become definitive after the expiry of time-limits for appeal, are part
of the jurisprudence of the European Union. This position is exemplified in the judgment
the questions asked by the referring court was whether a national court was under an
obligation to review and set aside a judicial decision, that was otherwise final, if that
decision infringed Community law. In its response, the Court said:
“In that regard, attention should be drawn to the importance, both for the
Community legal order and national legal systems, of the principle of res judicata.
In order to ensure both stability of the law and legal relations and the sound
administration of justice, it is important that judicial decisions which have become
definitive after all rights of appeal have been exhausted or after expiry of the time-
limits provided for in that connection can no longer be called into question (Case C-
224/01 Kobler [2003] ECR I-10239, paragraph 38).
Therefore, Community law does not require a national court to disapply rules of
procedure conferring finality on a decision, even if to do so would enable it to
remedy an infringement of Community law by the decision in issue (see, to that
effect, Case C-126/97 Eco Swiss [1999] ECR I-3055, paragraphs 46 and 47).”
73. The Court therefore stated that the obligation of a national court to review a decision that
appeared to have been made in breach of Community could arise only if the court in
question was empowered under national law to do so. As it has in many judgments, the
Court also stressed that, in laying down procedural rules designed to protect the rights
acquired by individuals through Community law, Member States must respect the
principles of equivalence and effectiveness.
Page 16 ⇓
74. I do not suggest here that the instant case is res judicata, insofar as the Court has yet to
determine whether or not an appeal should be permitted to proceed. The point is that,
once the principles of equivalence and effectiveness are satisfied, there are no separate
considerations applicable to the case by reason only of the fact that its subject-matter
concerns EU law. The considerations identified in the Irish case-law concerning the need
for finality in litigation are equally important in EU law.
75. Having said that, it will be seen that the acceptance by the CJEU of the importance of the
principle of res judicata does not necessarily mean that a decision that would normally be
regarded as final may not be revisited in respect of an issue that was not addressed.
The Directive and Court of Justice authorities
General approach to the Directive
76. According to the recitals, the Directive was adopted by the Council of the European
Communities as part of the process of establishing the internal market. It was noted that
there were disparities between the laws relating to contracts in the Member States and, in
particular, that there were marked divergences in relation to unfair terms in consumer
contracts. This could lead to distortions of competition, and an unwillingness on the part
of consumers to purchase goods or services in other Member States. The removal of
unfair terms from consumer contracts was seen as essential. The adoption of uniform
rules in respect of such contracts would have afforded the most effective protection, but,
as national laws stood at the time, only partial harmonisation could be envisaged.
77. The Directive proceeds on a presumption that statutory or regulatory provisions already in
force in Member States, that directly or indirectly affect the terms of consumer contracts,
do not themselves contain unfair terms. The principal obligation imposed on Member
States is to ensure that unfair terms are not used in contracts concluded with consumers
by a seller or supplier and that if, nevertheless, such terms are so used, they will not bind
the consumer. Where an unfair term is found, the contract will, nonetheless, continue to
bind the parties if it is capable of continuing in existence without that term.
78. The line of authorities on the Directive cited by the parties includes Pannon GSM v Gyorfi
(C-243/08, EU:C:2009:350), where the CJEU was asked whether the consumer protection
provided by the Directive required the national court to carry out a review of the fairness
of contractual terms of its own motion, even where they had not been challenged in court
by the consumer.
79. The Court commenced its analysis with the statement that the system of protection
introduced by the Directive was based on the idea that the consumer was in a weak
position vis-à-vis the seller or supplier, in relation to both bargaining power and level of
knowledge, and could be led to agree to terms without being able to influence their
content. The aim of compensating for that imbalance would not be achieved if it was left
to the consumer to raise the unfairness of the terms, and therefore effective protection
could only be attained if the national court acknowledged that it had power to evaluate
the terms of its own motion and to rule that the consumer was not bound by an unfair
term. Consequently, the national court’s role was not limited to a power to rule on the
Page 17 ⇓
possible unfairness of a term, but also consisted of an obligation to examine the issue if it
had available to it the legal and factual elements necessary for that task.
Article 3
80. Article 3 provides that a contractual term that has not been individually negotiated shall
be regarded as unfair “if, contrary to the requirement of good faith, it causes a significant
imbalance in the parties’ rights and obligations arising under the contract, to the
detriment of the consumer”. A contract is not individually negotiated if, inter alia, it is
based on a pre-formulated standard contract. “Good faith” is also referred to in the
sixteenth recital, where it is stated that the requirement of good faith may be satisfied by
the seller or supplier where he deals “fairly and equitably” with the consumer, whose
“legitimate interests” he has to take into account.
81. An Annex to the Directive contains an indicative and non-exhaustive list of terms that
may be regarded as unfair. Of these, it may be relevant to note subparagraph (e), which
refers to terms that have the object or effect of requiring a consumer who fails to fulfil his
obligations to pay a “disproportionately” high sum in compensation; and subparagraph
(j), which refers to terms which enable the seller or supplier to alter the terms of the
contract unilaterally, without a valid reason specified in the contract. This latter
subparagraph is stated to be without prejudice to terms under which a supplier of
financial services reserves the right to alter the rate of interest payable by the consumer,
or the amount of other charges for financial services, without notice where there is a valid
reason, provided that the supplier is required to inform the other contracting party or
parties thereof at the earliest opportunity and that the latter are free to dissolve the
contract immediately. Further, the subparagraph does not apply to transactions where the
price is linked to fluctuations in, inter alia, a financial market rate that the seller or
supplier does not control.
82. In Aziz v. Caixa d’Estalvis de Catalunya, Tarragona i Manresa (C-415/11,
EU:C:2013:164), the CJEU responded to a request for clarification of the concept of an
“unfair term” with reference to a mortgage agreement. It was noted that in each case it
would be for the national court to decide whether a contractual term was actually unfair,
and that the role of the CJEU was confined to giving guidance as the criteria that must be
taken into account.
83. In summary, the question whether a term creates a “significant imbalance” within the
meaning of the Directive should be assessed by asking whether the consumer has been
placed in a less favourable position than would be the case, under the relevant provisions
of national law, if the term was not there. This assessment should have regard to the
means available to a consumer, under national law, to prevent continued use of unfair
terms. The “good faith” assessment, in relation to a term, requires the court to ask
whether a seller or supplier could reasonably assume that the consumer would have
agreed to such a term if the contract had been negotiated individually.
Page 18 ⇓
Article 4
84. Article 4 is here set out in full:
“1. Without prejudice to Article 7 [not relevant here], the unfairness of a contractual
term shall be assessed, taking into account the nature of the goods or services for
which the contract was concluded and by referring, at the time of conclusion of the
contract, to all the circumstances attending the conclusion of the contract and to all
the other terms of the contract or of another contract on which it is dependent.
2. Assessment of the unfair nature of the terms shall relate neither to the definition of
the main subject matter of the contract nor to the adequacy of the price and
remuneration, on the one hand, as against the services or goods supplied in
exchange, on the other, in so far as these terms are in plain intelligible language.”
Article 4(1)
85. The “circumstances attending the conclusion of the contract”, as referred to in Article
4(1), include the consequences of the term in issue under the national law applicable to
the contract (Aziz).
Article 4(2)
86. Article 4(2) has been held to represent a derogation, and is therefore to be interpreted
strictly. Contractual terms falling within the notion of the “main subject-matter of the
contract” are those that lay down the essential obligations of the contract and, as such,
characterise it (Kasler and Kaslerne Rabai v. OTP Jelzalogbank Zrt (C-26/13,
EU:C:2014:282). Again, it is for the national court to decide whether a term comes within
this category. It is also necessary to emphasise that such terms will only be exempt from
an assessment as to fairness if they are written in plain and intelligible language. If they
are not, the national court should assess them for unfairness accordingly.
the quality/price ratio (exempt under Article 4(2)) could affect the review of the fairness
of a term relating to the calculation of interest. The CJEU responded that if the national
court found that a term relating to quality and price, although covered by Article 4(2),
was not in plain intelligible language it should proceed to consider whether it caused a
significant imbalance in the parties’ rights and obligations. In so doing it should compare
the method of calculation laid down in the term, and the total sum reached, with the
statutory interest rate and the rates applied on the market, as of the date of conclusion of
the agreement, for a loan of a comparable sum and term.
88. In Aziz the CJEU was asked for guidance in relation to, inter alia, an “acceleration” clause
in a mortgage providing that the lender was entitled, on the expiry of a stipulated time, to
call in the totality of the loan if the borrower had failed to fulfil his obligation to pay any
part of the principal or interest. The CJEU held that the national court must assess
whether the lender’s right was conditional upon a failure of the borrower to comply with
an obligation that was of essential importance in the context of the contractual
relationship. The court must also assess whether the lender’s right arose in cases where
Page 19 ⇓
the non-compliance by the borrower was “sufficiently serious” in the light of the term and
amount of the loan – given the context, the implication here must be that the term may
be unfair if it entitles the lender to call in the loan in the event of a trivial default.
89. The court must further consider whether the lender’s right amounts to a derogation from
the national legal rules that would otherwise apply, and whether the law provides an
adequate means for the consumer “to remedy the effects of the loan being called in”.
These questions may involve consideration of the statutory rules governing mortgages, if
the mortgage agreement stipulates that such rules are not to apply to the agreement or if
they are otherwise adapted in the contract for the benefit of the lender and to the
detriment of the borrower. Some remedies, such as rescission, may be available under
common law contract principles. Others are available under statute and will be discussed
in due course.
90. The Court of Justice was also asked about a term fixing a default rate of 18.5% in respect
of any sum not paid when due. Again, it was said that the national court should assess
what interest rate would have applied under national law if there was no such term. The
contractual default rate should be compared with the statutory rate, in order to determine
whether it is appropriate for attaining the objective sought to be achieved by it.
91. Again, in the Irish context the issue of interest has been the subject of some statutory
regulation, while default interest may also be subject to the common law principles
relating to “penal” interest. If a comparator rate is required, the rate applicable to
judgment debts appears appropriate (i.e. “Courts Act interest”).
Article 6
92. Article 6 requires Member States to lay down that unfair terms shall not, as provided for
under national law, be binding on the consumer. The contract is, however, to continue to
bind the parties if it is capable of continuing in existence without the unfair terms. The
CJEU has held that Article 6 is a mandatory term. Further, Member States are obliged, by
Article 7, to ensure that adequate and effective means exist to prevent the continued use
of unfair terms in consumer contracts.
93. In Banco Primus v. Garcia the contract contained an acceleration clause permitting the
lender to call in the totality of the loan in the event of failure to pay any monthly
instalment. Spanish legislation, on the other hand, required a period of at least three
months’ default. The bank had, in fact, waited seven months before proceeding against
the borrower. The Spanish referring court asked whether it could be precluded by the
national legislation from declaring the clause to be invalid.
94. The CJEU noted that the wording used in the contract indicated an intention not to be
bound by the statutory restriction. Accordingly, the clause fell within the scope of the
Directive. However, it pointed out that by virtue of Article 6(1) the national court was
merely required to exclude the application of an unfair term, so that it did not bind the
consumer. The court was not empowered to revise the content of the contract, which was
to continue in existence if such was legally possible after deletion of the unfair term.
Page 20 ⇓
95. The Court held that the obligations of Member States to ensure a dissuasive effect,
required under Article 7, meant that the ruling of a court on the unfairness of a term
could not be contingent upon the term having been actually applied. Further, the fact that
a term was not invoked could not prevent the national court from drawing “appropriate
inferences” from the unfair nature of the term.
Procedural rules and appeals under the Directive
96. In Aziz, the CJEU found that the Spanish procedural rules applicable at the time breached
the principle of effectiveness and impaired the protection intended by the Directive. In
brief, this was because of the very limited grounds upon which enforcement proceedings
brought by the lender could be defended. It was possible for a court to find the terms of
the contract to be unfair, but the court with jurisdiction to make that finding was unable
to grant interim relief capable of staying or terminating the enforcement proceedings, and
the remedy that it could grant by way of final order was inadequate in that the loss of the
mortgaged property was irreversible. That consideration, according to the CJEU, was
particularly relevant in the case of a family home.
97. In the light of the ruling in Aziz, the Spanish rules were amended to permit a consumer to
defend enforcement proceedings on the basis that the contractual term upon which the
proceedings were grounded was unfair. However, the debtor had no right of appeal
against an unfavourable finding, while the lender could appeal against a finding of
unfairness or a refusal to enforce. This gave rise to a further preliminary reference in
Morcillo and Garcia v Banco Bilbao Vizcaya Argentaria S.A. (C-169/14, EU:C:2014:2099).
98. In this case the Court noted that, in the absence of harmonisation of national
enforcement measures, the details of rules establishing a right of appeal against a
decision on the legality of a contractual clause were matters falling within the domestic
legal order of the Member States. It is, of course, necessary that such rules should
comply with the principles of equivalence and effectiveness. There was no evidence in the
case to suggest that the principle of equivalence had been breached.
99. With reference to effectiveness, the Court noted that it had previously held that where the
question arose as to whether a national procedural provision made the application of EU
law “impossible or excessively difficult”, the case must be analysed by reference to the
role of that provision in the process, viewed as a whole, before the various national
bodies. In that context, it is necessary to take into account, where relevant, the principles
which lie at the basis of the national legal system such as the protection of the rights of
the defence, the principle of legal certainty and the proper conduct of the proceedings.
100. The judgment goes on to point out that the principle of effective judicial protection in EU
law protects the right to a court or tribunal but does not guarantee a right of access to a
second level of jurisdiction. The fact that Spanish law provided a remedy to the consumer
at only one jurisdictional level was not, of itself, contrary to EU law.
101. However, the Court criticised a number of other features of the Spanish procedural
system. In particular, it noted that the amendments introduced after Aziz conferred a
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discretion on the court hearing enforcement proceedings to examine the fairness of the
contractual clauses upon which the claim for enforcement was based, but did not oblige it
to do so of its own motion. Any such assessment was required, under the legislation, to
be carried out and determined within a very short period of time. Further, it remained the
case that other defences that the borrower might have had were to be dealt with in
separate proceedings, that could result in compensation but could not have the effect of
staying or terminating the enforcement proceedings.
102. The lack of a right of appeal for the borrower was considered at this point, as one of a
number of procedural matters that placed the consumer in a weaker position as regards
judicial protection than the lender. The attainment of the objectives of the Directive was
put at risk, since the procedural imbalance accentuated the existing imbalance between
the parties to the contract. This was contrary to the principle of equality of arms, an
integral element of the principle of effective judicial protection, and was liable to
jeopardise the protection intended by the Directive.
103. Spanish procedures were again in issue in Finanmadrid EFC SA v. Zambrano (C-49/14,
EU:C:2016:98). The subject-matter of this case was an 84-month car loan. The borrower
ceased to make payments after about 55 months. The lender terminated the contract
some months later. It then applied to the Secretario judicial of the local court to open
enforcement proceedings against the borrower and his guarantors in respect of the
balance due. In accordance with the applicable rules, the Secretario judicial had power
only to decide whether the documents submitted constituted prima facie evidence of the
claim and to then order the defendants to either pay the money, with interest, or appear
before the court to explain why they were not liable. They did neither, so the Secretario
judicial closed that stage of the procedure and issued a direction to the lender to seek an
enforcement order from the court. Such a direction, given by way of reasoned decision,
was an “enforceable procedural instrument with the force of res judicata”.
104. The simple making of an application sufficed for the purpose of seeking a court order and
no evidence was required. It seems that under the applicable rules the court could not
refuse an order unless either the debtor contested the order for payment proceedings or
the Secretario judicial reported that the amount claimed was incorrect. The defendants
did not engage with a request by the court for submissions on the fairness of the contract
terms and the appropriateness of the procedural rules. The court, nonetheless, doubted
the compatibility of the process with the Directive, and referred a number of questions to
the CJEU.
105. The Court stated, as it had previously in Banco Espanol de Credito v. Camino (C-618/10,
EU:C:2012:349), that national law could not preclude a court from determining, of its
own motion, in limine litis (at or before the commencement of the case) or at any other
time, whether a contract was unfair, even if the consumer had not lodged an objection. A
procedural arrangement such as the one in question was liable to undermine the
effectiveness of the protection intended by the Directive, which required a court to be
permitted to check of its own motion whether the terms of the contract were unfair. The
Page 22 ⇓
Secretario judicial did not have the power to make such an assessment, and since the
decision at that stage had rendered the order for payment proceedings res judicata it was
impossible to check the terms at the enforcement stage.
106. The Court observed that there was a significant risk that consumers would not lodge the
objection required by the rules, given the very short time period allowed, the risk of legal
costs, possible ignorance of their rights and the limited amount of information submitted
by the lender. It concluded that the rules in issue ran counter to the principle of
effectiveness.
107. Banco Primus v. Garcia, already referred to above, also raised the issue of res judicata.
The background was a transitional legislative measure, brought into force in 2013, which
applied to all pending cases where mortgage repossession cases had been instituted but
not concluded. The defendants in such cases were given one month, from the date on
which the measure came into force, to lodge objections to the enforcement proceedings
on the basis of the alleged unfairness of the contractual terms.
108. In Mr. Garcia’s case a court had already found the acceleration clause in his mortgage to
be unfair, but had upheld the lawfulness of the contract in circumstances where the bank
had not invoked the clause against him and had waited for seven months before issuing
proceedings. As already noted, Spanish legislation provided that the total amount of
principal and interest could be claimed if the borrower was in default for a period of not
less than three months. After the 2013 measure was enacted Mr. Garcia lodged a further
objection, based on the same clause, but did so after the month had passed. At that point
the court dealing with the enforcement process referred questions to the CJEU asking, in
effect, whether it could be precluded from examining the contract of its own motion by
reason of inter alia the fact that there was an earlier decision that was final under national
procedural law.
109. The Court referred again to its previous analysis of Article 6(1) – that it is a provision of
equal standing to such national rules as rank, within the domestic legal system, as rules
of public policy. It went on to re-emphasise the importance, both for the EU legal order
and for national legal systems, of the principle of res judicata. The Court also stated
clearly that consumer protection is not absolute. EU law does not require a national court
to disapply domestic rules of procedure that confer finality on a decision, even if
reopening the decision would make it possible to remedy an infringement. The Directive
did not, therefore, preclude rules that had the effect of prohibiting a national court from
examining of its own motion the fairness of the terms of a contract where a ruling has
already been given on the lawfulness of the terms of the contract, taken as a whole, in a
decision that has become res judicata.
110. However, the Court went on to hold that this principle did not apply where the first
national court had limited itself to examination of only one, or some, of the terms. Where,
in subsequent enforcement proceedings, a consumer had properly lodged an objection, a
national court dealing with those proceedings was obliged, either at the request of the
Page 23 ⇓
parties or of its own motion, to assess the potential unfairness of other terms of the
contract.
111. It may need to be emphasised that this latter obligation arises in the context of an
application that is properly before the national court. The CJEU did not alter the position
that a court cannot be required to act outside its powers under the applicable rules, even
if to do so would enable the rectification of an infringement of a party’s rights under EU
law.
The Irish legislation and authorities
112. The Directive was implemented in Irish law by the European Communities (Unfair Terms
in Consumer Contracts) Regulations, 1995 (S.I. 27/1995, as amended in 2000 and 2013
in relation to matters not relevant here). The Regulations are, more or less, an exact
reflection of the Directive insofar as the core principles and indicative list of terms that
may be regarded as unfair are concerned. Schedule 2 sets out brief guidelines for the
application of the test of good faith – regard is to be had to the strength of the bargaining
positions of the parties; whether the consumer had an inducement to agree to the term in
question; whether the goods or services were sold or supplied to the special order of the
consumer; and the extent to which the seller or supplier has dealt fairly and equitably
with the consumer whose legitimate interests he has to take into account.
113. Article 8 of the Regulations confers a power on an authorised body (the Central Bank, the
Competition and Consumer Protection Commission, or an authorised consumer
organisation) to apply to either the Circuit Court or High Court for a declaration that any
term drawn up for general use in contracts concluded by sellers or suppliers, or any
similar term used or recommended by any seller or supplier, is unfair. The Court may
grant an order prohibiting the further use of such a term. Injunctive relief is available
ancillary to this jurisdiction, which does not appear to have been widely invoked. The
power is without prejudice to the right of a borrower to rely upon the Regulations.
Registrar in this case. The matter before the High Court (Barrett J.) was an application for
summary judgment, and the question to be determined, therefore, was whether the
defendants were entitled to a plenary hearing. The defendants ultimately succeeded on
this issue, on a point not relevant here, but in the course of the judgment Barrett J.
considered the Regulations in the context of the lending activities of credit institutions.
Having cited the CJEU judgment in Aziz, he made the following observations on the
obligations of a court applying the Regulations:
“10. First, the Court of Justice’s observations appear to contemplate a court, even in an
adversarial system of justice, acting in an inquisitorial manner.
11. Second, counsel for AIB suggested that the above-mentioned duty ought to be
construed by reference to the particular facts of Aziz. However, it appears to the
court that this, with respect, cannot be so. As is apparent even from the above-
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quoted text, Aziz is but the latest case in which the above-mentioned duty has been
iterated. So the duty is clearly of more general application.
12. Third, a summary application for debt seems to the court to afford a classic
example of proceedings in which the potentially ruinous consequences for a
consumer of the court’s judgment (Mr and Ms Counihan have indicated that the
effect of judgment against them at this time would render them all but destitute)
on the basis of relatively limited argument, requires that the abovementioned task
be undertaken if consumers are to be protected in the manner contemplated by
Directive 93/13/EEC (as now implemented).
13. Fourth, given the low threshold identified, for example, in Aer Rianta (considered
below) for sending matters to plenary hearing and the limited form and scope of
summary proceedings generally, it seems to the court that to conform with, inter
alia, the decisions in Aer Rianta and Aziz, a three-part version of the task identified
in Aziz necessarily arises whereby (i) the court faced with the summary application
should identify whether it sees any terms of the loan agreement which may be
unfair for the purposes of the Regulations of 1995, as amended, and which were
they to be proven unfair and so not binding would, to borrow from the phraseology
of Aer Rianta, yield an arguable defence to the summary claim presenting, (ii) to
the extent that the court identifies any potential arguable defence which has not
been the subject of argument at the summary application, it should invite the
parties to make any further submissions that they may have to make concerning
same, and (iii) assuming that (a) the answer to (i) is that there are one or more
such potential arguable defences and (b) after hearing any further submissions as
are referred to at (ii) it appears to the court that such potential arguable defences
as it has posited to arise do in truth present, the matter ought to go to plenary
hearing, it then being for the court at plenary hearing to decide, inter alia, (I)
whether such terms as are identified by the court at summary hearing or other
terms (‘or other terms’ because the court at plenary hearing likewise operates in
the shadow of Aziz) are unfair, and (II) what consequences, if any, such a finding
has as regards the debt recovery application before it.
14. Fifth, of some concern when it comes to the application of Aziz is how the task
identified by the Court of Justice falls to be discharged in a common law system
grounded upon, inter alia, the rules of precedent. If, for example, the court at
summary hearing reviews particular terms and conditions and identifies clauses A,
B, and C as potentially unfair, is a later court of equal or lesser jurisdiction
precluded from finding that clauses X, Y and Z in the same terms and conditions
present a difficulty in this regard? It seems to this Court that they could reasonably
be contended not to be so bound because (a) each case will be decided to a great
extent on its own facts, and/or (b) ultimately even the demands of precedent must
yield to the supremacy of European Union law, where applicable, and/or (c)
because of the precedential weight to be ascribed a judgment following summary
hearing, as opposed to a judgment given after full plenary hearing.”
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115. It seems to me that this is an accurate summary, so far as it goes, of the obligations of a
court considering whether to grant an application for summary judgment or send the
matter for plenary hearing. As far as the application of the doctrine of precedent is
concerned, I am not sure that the question posed by Barrett J. gives rise to any real
difficulty – the findings of one court in respect of A, B and C will not bind a subsequent
court dealing with X, Y and Z. Further, it is not necessary in this context to consider the
supremacy of EU law over what would otherwise constitute a binding precedent – the
CJEU has made it clear that it is for national courts to determine whether or not particular
terms are unfair.
116. It seems to me that a finding by a superior court that a particular term is fair or unfair
may be binding. This will to some extent depend on the circumstances. Thus, a finding
that a term used in a standard form contract is unfair is likely to be binding unless the
supplier can, in a subsequent case, distinguish it on the facts. Similarly, a finding that a
term is a “main term” of the contract, and in principle exempt, will be binding in respect
of all standard form contracts where a term of like effect is to be found. However, the
court will still be obliged to assess the language of the term as expressed in the contract
under consideration, for plainness and intelligibility. If it is found to be unclear the
assessment for fairness must follow.
117. In any event, I note that Barrett J. did not in fact conduct an assessment of the fairness
of the contract in question, apparently because counsel for the defendants indicated a
view that the terms were not unfair. It may be open to question whether, in the light of
the CJEU jurisprudence, a court is entitled to rely on the view of the legal representatives
of a consumer on this issue. The implications of the jurisprudence in an adversarial
system such as ours is a matter that has not been fully debated, and I think it best not to
go further for the moment than to say that in my view a decision by a legal
representative not to take issue with the fairness of any contractual term may be taken,
to at least some extent, as a reasonable indication that it is not unfair. It must be borne
in mind that the purpose of the “own motion” assessment is to redress the imbalance
between the parties, and the presence of legal representation can certainly be seen as a
significant factor in that context.
118. The parties have referred to a number of subsequent judgments of the High Court dealing
appeal against an order for possession made in the Circuit Court in circumstances where
the documentation placed before the court by the lender did not contain all of the terms
of the contract (despite the fact that the appellants had raised the issue on affidavit).
Barrett J. held that, since the court was unable to perform the task imposed upon it by
the Directive and associated jurisprudence, the order could not be allowed to stand.
for an injunction to restrain the repossession of a family home, on the basis that there
had been no assessment of the fairness of the mortgage. An order for possession had
initially been made in the Circuit Court. The plaintiff had not appeared at the Circuit Court
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hearing but had appealed the order and was represented in the High Court, where the
order was affirmed. No argument relating to the Directive had been raised in those
proceedings. The judgment turns primarily on the application of the principles of res
judicata and the broader considerations set out in the Henderson v. Henderson line of
Raifeartaigh J. concluded that the jurisprudence of the CJEU on the Directive did not
require an exception in circumstances where the matters now sought to be raised could
have been raised in the original proceedings.
Conclusions
120. The Éire Continental principles are the subject of detailed discussion in Seniors Money and
I do not propose to repeat here the analysis set out in that judgment.
121. The question before the Circuit Court judge and, on appeal, the High Court judge, was
whether or not an extension of time should be permitted. That required them to consider
the strength of a potential defence based upon the unfairness of any term of the contract
which, if found to be unfair and therefore unenforceable as against the appellants, would
have required a court to refuse to grant possession to the lender.
122. In my view the High Court judge in the instant case erred insofar as he saw Éire
Continental as setting a “test” with three “requirements” that had to be met, in holding
that a mistake as to law could not be sufficient to satisfy the “mistake” criterion and in
determining that, since the appellants failed to meet the other two requirements, the
existence of arguable grounds could not be sufficient to justify an extension. Extension of
time within which to appeal is a matter for the discretion of the court, the exercise of
which will in most cases be guided by the three factors identified in Éire Continental but
which is not the subject of rigid rules. As Geoghegan J. said in Brewer v. Commissioners
of Public Works [2003] 3 IR 539, it is not to be assumed either that an extension will be
granted if all three are satisfied or that it will be refused even if an applicant fails in
respect of all three.
123. Noonan J. assumed, for the purposes of his decision, that the appellants had arguable
grounds for an appeal. He therefore found it unnecessary to consider the case proposed
to be made. The issue has taken a rather more central role in this appeal, as has the
factual question as to what transpired before the County Registrar.
124. In Seniors Money v. Gately I have expressed the view that a significant delay in seeking
an extension of time within which to appeal requires correspondingly strong grounds for
the appeal, going beyond the merely arguable, such that a very long delay may need to
be counterbalanced with a strong case to the effect that the order made in the lower
court was unjust. I do not consider that the appellants have made out a sufficiently strong
case to outweigh the significant delay in this case.
125. The order was made by the County Registrar on the 19th January 2017, with a stay until
the 1st August 2017. The correspondence indicating an intention to appeal commenced
just days before the expiry of the stay, in late July 2017, and the necessary notice of
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motion was not issued until the 4th October 2017. This period of time has to be
considered in the context of the fact that the applicable time-limit was 10 days from the
date of the order.
126. The case sought to be argued by the appellants commences with what happened or did
not happen in the hearing before the County Registrar. The question whether or not the
Registrar actually conducted an assessment of the terms of the mortgage cannot, in my
view, be answered definitively by this Court on the basis of the information put before us.
The averment by the first named appellant that he does not recollect it taking place is
insufficient for a finding that it did not. It seems to me that an appellant generally bears
the onus of proof where it is claimed that some legal impropriety occurred at first
instance, and in this regard I find it surprising that there is no evidence of any attempt to
procure an account of the hearing from the legal representatives acting at the time. There
is, in fact, no indication at all as to the case made on behalf of the appellants in the
hearing before the County Registrar. Instead, the appellants have in effect sought to
reverse the burden by arguing that the respondent has adduced insufficient evidence that
the Registrar did conduct an assessment. This seems to me to be unsatisfactory.
127. On the other hand, I think that the respondent is seeking to persuade the Court to draw
unjustifiable inferences from very slight evidence. The affidavit goes no further than to
state that the attention of the County Registrar was drawn to AIB v. Counihan. The
submission, on the basis of this evidence alone, that she was aware of her obligations and
considered the papers in the light of the relevant CJEU case law, simply goes too far. It is,
moreover, common case that the Registrar made no reference to the Regulations or
Directive in giving her decision. While she is not to be expected to give detailed written
rulings, the gist of the reasons for a decision should always be given.
128. However, even if it were to be assumed that the required assessment was not carried out,
I would nonetheless take the view that the extension of time should not be granted. This
is largely because I do not find any grounds for belief that an appeal on the grounds
indicated could succeed.
129. The appellants have not challenged any of the main terms of the agreement. In the case
of a standard mortgage I take these to be the borrower’s obligation to repay the loan and
to provide security for it, and the lender’s right to take possession of the security in the
event that the loan is not repaid. In contending that they have a strong appeal, the
appellants focus in particular on the “price variation” clause (that is, the provision that the
interest rate would vary at the lender’s discretion), the “acceleration” clause (that is, the
provision entitling the lender to demand early repayment of the principal and accrued
interest in the event that any repayment was not made on the due date), the power to
enter into possession of the property in the event of a missed payment or other breach on
the part of the borrower and the “transfer of rights” clause (that is, the entitlement of the
lender to sell on all or part of the security without notice to the borrower).
130. In assessing the any given contractual term for unfairness, it should be remembered,
firstly, that the primary consequence of a finding that it is unfair is that it becomes
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unenforceable as against the consumer. The contract remains in being provided it can
exist without the unenforceable term. Secondly, where an impugned clause was not in
fact invoked against the borrower, it is examined only for the purpose of drawing such
inferences as may be appropriate if it is found to be unfair. Such inferences must, it
seems to me, relate to the question whether the lender has dealt with the borrower in
good faith as defined by the regulations and Directive. Thirdly, the requirement to
consider all of the circumstances means that the assessment of fairness should take into
account inter alia any relevant EU provisions and any relevant aspects of the national
regulatory regime with a view to the remedies against unfairness available to the
consumer under national law. There is now in existence a wide range of consumer
protection legislation which may apply to mortgages, and the following discussion should
not be seen as exhaustive.
131. On the face of it, the interest variation clause comes within the exemption in Article 2(b)
of the Regulations (which relates to subparagraph (j) of the Annex to the Directive),
permitting a supplier of financial services to reserve the right to alter the interest rate
without notice where there is a valid reason, provided that the supplier is required to
inform the other contracting party at the earliest opportunity and that the latter can
dissolve the contract immediately. Of course, dissolving the contract will not extinguish
the debt, which may limit the practical desirability of this option from a borrower’s point
of view. However, there are other relevant considerations.
132. Prior to 2016 the primary information that had to be furnished to consumers entering into
mortgage agreements was set out in the Consumer Credit Act 1995. This included a
statement of the total cost of the credit being provided, and also a calculation of the
effect of an increase in the interest rate of 1%. This information was provided to the
appellants. The obligations in respect of information are now largely dealt with in the
European Union (Consumer Mortgage Credit Agreements) Regulations (S.I. 142/2016),
which, in addition to the information requirement already discussed, stipulate that the
borrower must be informed of the change in the interest rate and of the consequent
change in the payment instalments. As a result it may be that, depending on the
circumstances, a failure to inform the borrower in due course would result in a court
refusing to find that the extra sums claimed were due.
133. Another consideration is that if a lender were to attempt to apply an increased interest
rate to sums due where a payment is late, then if such a rate is set at a level that is not
fairly related to the costs of the lender, the clause is likely under Irish law to be found to
constitute an unenforceable penalty by reference either to common law or to Article 29(2)
of the European Union (Consumer Mortgage Credit Agreements) Regulations 2016.
134. It appears that in this case the lender reduced, rather than raised, the interest rate after
the expiry of the fixed rate period. The consequence was that the monthly instalments
were reduced from a figure in excess of €4,800 to c. €3,700. I cannot see that any
inference of lack of good faith can be drawn from this, and nor does it support the
contention that the total sum claimed might not have been due and owing. The appellants
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have not, therefore, put anything before the Court that could lead to a finding that they
can make out any defence in relation to the interest variation clause.
135. The “acceleration” clause was also not in fact invoked against the appellants. As already
noted, that does not mean that the court is not required to examine it for unfairness, and
if necessary to draw appropriate conclusions. A clause of this type might well be found to
be unfair, if it were to be construed by the courts as permitting the lender to call in the
entirety of the debt and enforce the security in the event of a single late or missed
payment. However, there are a number of measures that prevent such a result.
136. Section 54 of the Consumer Credit Act 1995, as amended, requires the lender to serve
notice on the borrower in the event of a default by the latter and to give an opportunity to
remedy any such default.
137. A series of Codes of Conduct issued by, firstly, the Financial Regulator and, in more recent
years, the Central Bank, under the terms of s.117 of the Central Bank Act 1989, as
amended, have imposed various obligations on lending institutions dealing with
consumers. One primary obligation, which came to the fore during recent years as a
result of the number of borrowers falling into arrears during the recession, is to refrain
from seeking repossession of a dwelling until a specified period has elapsed. Breach of a
Code is a regulatory offence, but for some years there was doubt about the effect of a
breach on the enforceability of the contract as between the lender and the borrower. In
2015 this Court held that a court could not properly consider and facilitate an application
for an order for possession brought before the moratorium period was over (see Irish Life
& Permanent v. Dunne [2015] IESC 46). This position is now entrenched by statute –
under the terms of the European Union (Consumer Mortgage Credit Agreements)
Regulations 2016 the creditor must exercise reasonable forbearance before initiating
possession proceedings and shall, at a minimum, comply with the provisions of any Code
or similar measure put in place by the Central Bank.
138. There have been further developments, not directly relevant to the facts of this case
given the dates, but informative in relation to the concept of fairness. For example,
certain provisions of the Land and Conveyancing Law Reform Act 2009 have the effect, in
respect of mortgages created after the 1st December 2009, of preventing a lender from
standing on any purported contractual right to take possession without a court order. On
the making of such an application, the court has a broad discretion to consider the ability
of the mortgagor to pay any arrears if given a reasonable time and to direct an
adjournment accordingly.
139. On the evidence in this case, the lender implemented the requirements of the Code of
Conduct in place at the time and sought to engage with the appellants in an attempt to
find a sustainable solution. The problem, however, was that their income had dropped to
a point where they could not service the mortgage. I appreciate that they have continued
to make payments, but the scale of payment that they have been able to afford was
simply unrealistic given the scale of the debt. They did not avail of the other options
pointed out to them at the time. The lender did not attempt to take possession without a
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court order and did not issue proceedings until late in 2014, in circumstances where the
appellants had been in substantial default since March 2009. I can see no indication of
bad faith on the part of the lender. The issue of proportionality, while raised in written
submissions, has not been the subject of any analysis in this appeal but it seems to me
that, given the facts of the case, the forbearance on the part of the lender was sufficient
to close off the possibility of arguing disproportionality as a defence to possession.
140. Similarly, there has been little reference to the final issue raised, in respect of the
“transfer of rights” clause. There has been no engagement with the considerable number
of decisions endorsing the views expressed by Peart J. in Wellstead v Judge White &
Featherstonehaugh [2011] IEHC 438) that such clauses are neither unusual, mysterious
nor unlawful. No case has been cited where the operation of such a term was found to
adversely affect the rights or interests of the borrower. The consumer’s, rights are as set
out in the original contract, and the appellants have not given any indication as to how
the clause in this case could be found to have been unfair to them.
141. In conclusion, I think it should be pointed out that there has been no discussion in this
appeal of the particular position of a County Registrar dealing with a matter of this kind.
The jurisdiction under s.34 of the Act is confined to cases where there is no appearance or
defence. Order 5B, r. 7(2) of the Circuit Court Rules obliges the Registrar to transfer a
case to the Judge if an affidavit lodged by the defendant discloses a prima facie defence.
It seems to me that it might raise difficult constitutional issues if the Registrar, who is not
a judge appointed under the Constitution, were to be called upon to make findings that
particular terms in a contract were unfair and thus unenforceable. The appropriate
approach, in my view, would be for the Registrar to consider the contract by reference to
the relevant EU jurisprudence, for the purpose only of deciding whether there is a
potential defence to the lender’s claim. This should be done whether or not the defendant
appears, or raises any particular objection. If there is a potential defence, the matter
should proceed in the judge’s list.
142. In the circumstances I would dismiss the appeal.
Result: Appeal dismissed.