Actions over mortgages must take account of EU rules

Court applications from banks where a mortgage is not being paid will now have to take account of European law on consumer rights following a judgment in the High Court last week.

In a case where AIB was seeking summary judgment against a Dublin farmer and his wife, Mr Justice Max Barrett accepted argument from counsel for the couple that a European consumer regulation on fair terms should apply.

The EU rule imposes an obligation on courts in such cases, regardless of whether they are asked to do so or not, to examine the mortgage contract and decide if any of its terms are unfair.

The ruling is a significant breakthrough, according to NUI Galway law lecturer, Dr Padraic Kenna.

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It could in time lead to a requirement that house repossession cases consider a “proportionality test”, whereby the rights of the family under the EU Charter on Fundamental Rights form part of the consideration.

He said that a lot of new rulings in the area of house repossession have been made by the Court of Justice of the European Union (CJEU), arising from cases originating in Spain, but have yet to form part of the court process here.

In last week's case, AIB was seeking a summary judgment order for more than €1 million against Peter and Mary Counihan of Ballyboughal, Co Dublin, arising from loans used to buy additional frontage for their family farm.

Spanish case

The Counihans’ barrister,

Gary Fitzgerald

, raised the issue of the EU Unfair Terms in Consumer Contracts Regulations, which state that terms in contracts that are unfair and preformulated, may not be enforceable.

Mr Justice Barrett considered a CJEU decision in a case called the Aziz case, where a Mr Aziz had a mortgage with Spanish bank Catalunyacaixa, which was seeking to repossess his home.

The European court noted that national courts were “required to assess of their own motion whether a contractual term falling within the scope of the directive is unfair, compensating in its own way for the imbalance which exists between the consumer and the seller or supplier”.

Mr Justice Barrett said the CJEU appeared to contemplate a court, even in an adversarial system such as Ireland’s, acting in an inquisitorial manner.

He said Irish courts facing summary applications should identify whether any of the terms of the loan agreement at issue might be unfair for the purposes of the EU regulations. If they were, and were therefore potentially not binding, this could create the grounds for the matter having to go to full hearing.

The judge made the comments even though he accepted the position put by Mr Fitzgerald, for the Counihans, that there were no terms in the couple’s AIB contract that offended the EU regulations.

He did accept other arguments that the case should go to a full hearing, and in particular claims that bank officials told the couple that their home would not be taken from them. The effect of any judgment order would be that they would lose their home, they said.

The judge refused the application from AIB and the matter will now go to a hearing.