Banks’ ability to enforce surcharge interest clauses an ‘important legal issue’, court hears

The ability of banks to enforce surcharge interest clauses over loan defaults is an issue that will likely need determination by the Supreme Court, lawyers for Bank of Ireland have said.

The bank told the High Court its entitlement to recover surcharge interest (which is charged in addition to regular interest) over defaults is an “important legal issue” for which there is a strong divergence between the Republic, the UK and other common-law jurisdictions.

In May 2022 the Governor and Company of the Bank of Ireland secured judgment of €1.15 million against James Boyle snr on foot of a 2017 loan. Mr Boyle snr, late of Drumkeen, Claremorris, Co Mayo, died a year later, having been predeceased by his wife.

The bank is now pursuing his estate, represented by his son Declan O’Boyle, for some €213,000 in surcharge interest in what the bank considers to be a “lead case” on the surcharge dispute. Given the widespread significance of the issue, the bank has agreed to pay the defendant’s reasonable legal costs in contesting any entitlement to apply surcharge interest.

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In a sworn statement, the lender’s director of business banking, John O’Beirne, said the bank has existing loan agreements that contain clauses triggering surcharge interest when a borrower exceeds an overdraft limit and does not repay the overdraft when required or demanded.

The mechanism forms part of the bank’s “graduated response to default”, he said. Mr O’Beirne said he has been advised by the bank’s lawyers that it may be necessary for the Supreme Court to consider the matter.

According to the bank’s legal filings, Mr Boyle was offered the 2017 loan facility of €1.2 million to restructure existing borrowings by him and his late wife to develop five houses in Claremorris. The 2017 facility was to be repaid in full by May 15th, 2018, from the sale of assets and was based on the bank’s standard terms and conditions for business customers, it alleges.

Contrary to the terms, Mr Boyle did not repay the loan in full by May 2018 and was a year later invited to engage with the bank regarding the breach, the bank claims.

The agreement contained a clause entitling the bank to apply surcharge interest of 0.75 per cent per month to any due amount not paid, the bank alleges. It claims the surcharge is “proportionate, reasonable and fair in all the circumstances”.

In April 2021, solicitors for the bank demanded immediate payment of €1.36 million, including €213,671 in surcharge interest arising between November 2017 and May 2020. High Court proceedings followed a few months later, and judgment for the amount less surcharge interest was granted in May 2022. The surcharge interest issue was adjourned for plenary hearing.

The case came before Ms Justice Niamh Hyland on Wednesday, when she made orders substituting Mr O’Boyle, as the administrator of Mr Boyle’s estate, as the defendant in the case.

The bank’s senior counsel, Kelley Smith, said it is “very likely” an appellate court will need to determine the legal issue after the High Court gives a decision.

The defendant, represented by John O’Donnell SC, is contesting the bank’s entitlement to collect surcharge interest against the estate. It is denied that the surcharge clause was lawfully applied to Mr Boyle’s loans or that €213,671 is due and owing.

Noting the matter is “relatively urgent”, Ms Justice Hyland scheduled for it to return for case management on March 6th.

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