Distressed borrowers may have taken hope from the Keane report – but people should be cautious before taking on the banks – the courts don't do sympathy, writes PAT IGOE

NOBODY WANTS to do down distressed mortgage holders. But the Keane report acknowledges the severe limits on the help that can be given. The banks will not, and legally cannot, forgive loans (unless it’s in the bank’s interest which it isn’t). Any exceptions will be based on the individual facts.

Can the courts help? It does not look likely. The judges’ hands are tied by the law of contract. As Independent TD Mick Wallace now knows, negotiation is the only game in town. And that is a way forward.

The news that the High Court this week ordered Wallace to repay to ACC Bank the more than €19 million that he owes did not come as a surprise. It would have been a remarkable if the Court had sought to forgive the debt. Unfortunately, it is a simple matter of contract.

Countless householders around the country also face a situation where their formerly friendly banks want to bring them to the Four Courts and effectively dispossess them of their homes. For the present, the banks are prevented from doing so. They await an appeal to the Supreme Court against a High Court decision in July by Ms Justice Elizabeth Dunne that there is a lacuna in the law for borrowers who borrowed before December 1st, 2009, and who have fallen into arrears since then. But the debts are still there and the banks are still waiting in the wings.

The moral argument was raised on Monday evening's RTÉ1 programme, The Frontline. Presenter Pat Kenny commented that this was the banks' area of expertise. "They are the experts. They got it wrong 300,000 times and yet the individual customer pays."

But to win in court against a bank, a borrower must satisfy the court that the bank fundamentally breached its contract with the borrower or that the contract is frustrated through no fault of either party – both hugely difficult.

The other route is to argue firstly that the bank had a duty of care to the borrower; secondly, that the bank broke that duty of case; and, thirdly, that the breach had caused damage or loss to the borrower. But the courts are most reluctant to recognise a duty of care by banks to their customers in the first place.

Earlier this year, Mr Justice Bermingham said that he found no basis for absolving a debtor from his €32 million debt even though he found it “bizarre” that Zurich Bank had handed over the money with such speed. Monaghan businessman James McConnon was ordered to repay the money owing.

Neither did Mr Justice Bermingham leave open the possibility of a viable argument being raised by an ordinary domestic householder under the Consumer Protection Code. This Code was introduced in 2006 by the Financial Regulator in the hope of redressing the massive imbalance between a bank and a customer, particularly a customer in difficulty.

He noted that Mr McConnon had no arguable defence under the Code and was emphatically not a consumer. But he added that, even if the bank had breached the Code, there was no suggestion that a breach of the Code would exempt a borrower from the liability to repay.

One of the principles of the Code was that banks must act with “due skill, care and diligence in the best interests of its customers”. But this provision has failed to help borrowers in trouble.

Similarly, the Code’s requirement that banks act “honestly, fairly and professionally in the best interests of customers and the integrity of the market” has not had much impact.

The relationship between a bank and its customers is based on a simple contract between two independent parties. The banks do not have a professional duty of care to their customers. If they do not have this duty, then it is not relevant how a customer is damaged by an agreement with a bank. It is just a serious case of “buyer beware” and of a bad bargain. Bank officials are not professional advisors. Ordinarily, they do not have a duty of care.

In New York, the courts have been similarly exercised in tackling a surge in defence actions by householders trying to fend off banks trying to foreclose. To successfully argue negligence by a bank requires a duty by the bank beyond the contract with the customer. But the relationship is solely contractual in nature.

In Yolanda Mejias v Premium Capital Funding two years ago in New York, the court firmly rejected the argument that the lender “should have known” that the borrower would not be able to repay. There was no duty of care owed by the bank to the borrower. Similarly in England where last year the High Court decided in Kotonouv v National Westminster Bank plc that the Bank did not owe the borrower a duty of care.

The law essentially regards contracts between adults as inviolable. It seems that distressed borrowers must look elsewhere.

The Government’s new proposed agency to help distressed mortgage holders and private schemes such as New Beginning, led by Ross Maguire SC, may indeed point a way forward.

There is a lot at stake for countless thousands of ordinary borrowers and their families. It is far from over.

Pat Igoe is a solicitor in Blackrock, Co Dublin