By Ann O'Loughlin
Orders granting a bank judgment of about €3.97m against a developer and his wife and requiring them hand over possession of 22 properties have been overturned by the Court of Appeal.
Allied Irish Bank Mortgage Bank was not entitled to issue a demand in 2012 for repayment of €3.97m capital and interest arising from a 2005 loan when it had not complied with terms of a review of that loan, Mr Justice Paul Gilligan said in the three-judge court's judgment. The capital was repayable only from 2015, he said.
Patrick Hayes and Helena Crowley Hayes can now proceed with their claim for damages against the bank for breach of contract, misrepresentation, negligence and breach of duty, he added.
The proceedings arose from a loan consolidation facility for €4m given to the couple in 2005. An existing loan was secured on 22 residential properties in Co Cork then valued at an estimated €5m.
The couple in 2005 sought a 10-year facility from Allied Irish Bank Mortgage BANK (AIBMB) on the basis of an interest-only tracker mortgage. They had obtained an offer from Bank of Ireland for a 10-year facility, for repayment of interest only and a slightly better interest rate, but wanted to stay with AIBMB.
AIBMB was unable in 2005 to offer them an interest-only tracker rate basis mortgage beyond a period of five years.
The High Court found AIBMB's agents gave them assurances, if they took its five-year, interest-only facility offer, that would be reviewed in 2010 for the purpose of extending it for another five years on an interest-only repayment basis.
A bank official suggested in emails to Mr Hayes in 2005 that, "all things being equal", there would be no problem extending the interest-only period for another five years.
Neither the bank nor Mr Hayes would have known in 2005 the financial crisis to follow would have such a catastrophic impact on the bank's finances, the value to loan ratio of the securities and the couple's rental income, the High Court said. It found there was a review in February 2010 but the circumstances were quite different from when the loan was negotiated in 2005 and all things were not "equal".
Mr Justice Gilligan, with whom Mr Justice Michael Peart and Mr Justice Gerard Hogan agreed, said the High Court erred in finding the February 2010 review complied with the written and other assurances given by the bank in 2005.
The promised review was a critical factor in inducing the Hayes' in 2005 to enter the loan contract with AIBMB, he said. The loan was to be reviewed with a view to continuing it on an interest-only basis for another five years so they would end up with a 10-year, interest-only loan.
The review as promised in 2005 could not, and did not, take place in 2010 because AIBMB was not then giving out five-year, interest-free loans or extensions to loans, he found. The 2005 loan was not reviewed for the purpose of a five-year extension and on an "all things being equal" basis.
The bank could not be allowed to benefit from its own failure to honour the terms of the collateral contract, he ruled.
While the original loan remains outstanding and remains to be repaid, the bank was not entitled to issue a demand in 2012 for repayment of capital and interest when it had not complied with the review, he said.
The obligation to repay capital and interest arose only from May 2015, when a 10-year, interest-only loan would have expired, he said. The couple paid accrued interest on the loan between 2010 and 2015, he noted.