Supporting Documents:
 15-19 Resp Notice.web.pdf 15-19 AFL.web.pdf
THE SUPREME COURT
DETERMINATION BETWEENJOSEPH SHEEHAN PLAINTIFF AND
BRECCIA
IRISH AGRICULTURAL DEVELOPMENT COMPANY
BLACKROCK HOSPITAL LIMITED GEORGE DUFFY
ROSALEEN DUFFY AND TULLYCORBETT LIMITED DEFENDANTS
APPLICATION FOR LEAVE TO APPEAL TO WHICH ARTICLE 34.5.3° OF THE CONSTITUTION APPLIES
RESULT: The Court grants leave to the First and Second Named Defendants to appeal to this Court from the Court of Appeal
REASONS GIVEN:
ORDER SOUGHT TO BE APPEALED
| COURT: Court of Appeal |
DATE OF JUDGMENT OR RULING: 30th July, 2018 |
DATE OF ORDER: 4th October, 2018 |
DATE OF PERFECTION OF ORDER: 8th January, 2019 |
THE APPLICATION FOR LEAVE TO APPEAL WAS MADE ON 29th January, 2019 AND WAS IN TIME. |
General Considerations
1. The jurisdiction of the Supreme Court to hear appeals is set out in the Constitution. As is clear from the terms of Article 34.5.3 thereof and the many determinations made by this Court since the enactment of The 33rd Amendment, it is necessary, in order for this Court to grant leave to appeal from a decision of the Court of Appeal, that it be established by the applicant that the decision sought to be appealed involves a matter of general public importance, or that it is otherwise necessary in the interests of justice that there be an appeal to this Court.
2. The general principles applied by this Court in determining whether to grant or refuse leave to appeal having regard to the criteria incorporated into the Constitution as a result of the 33rd Amendment have now been considered in a large number of determinations and are fully addressed in both the determination issued by a panel consisting of all of the members of this Court in B.S. v. Director of Public Prosecutions [2017] IESC DET 134 and in an unanimous judgment of a full Court delivered by O’Donnell J. in Price Waterhouse Coopers (a firm) v. Quinn Insurance Limited (under administration) [2017] IESC 73. The additional criteria required to be met in order that a so called “leapfrog appeal” direct from the High Court to this Court can be permitted were addressed by a full panel of the Court in Wansboro v. Director of Public Prosecutions [2017] IESC DET 115. It follows that it is unnecessary to revisit the new constitutional architecture for the purposes of this determination.
3. It should be noted that any ruling in the determination is a decision particular to that application and is final and conclusive only as far as the parties are concerned. The issue calling for the Court’s consideration is whether the facts and legal issues meet the constitutional criteria as above identified. It will not, save in the rarest of circumstances, be appropriate to rely on a refusal of leave as having a precedential value relative to the substantive issues, if and when such issues should further arise in a different case. Where leave is granted on any issue, that matter will be disposed of in due course in the substantive decision of the Court.
4. The application for leave filed, and the respondent’s notice thereto, are published along with this determination (subject only to any redaction required by law) and it is therefore unnecessary to set out the position of the parties in detail.
Application
5. The applicants, Breccia and Irish Agricultural Development Company (referred to collectively as “Breccia” as it would appear the former is in control of the latter), seek leave to appeal against the judgments of Finlay Geoghegan J. and Hogan J. both delivered on the 30th July, 2018. Those judgments had the effect of upholding the judgment of the High Court (Haughton J.) which concluded:
(i) that surcharge interest as provided for pursuant to Clause 5.1 of certain loan facilities provided to the respondent, Mr Sheehan, constituted an unlawful penalty; and
(ii) that Breccia would, in any event, have been estopped from claiming surcharge interest by reason of prior representations made to Mr Sheehan by its predecessor, IBRC and by reason of its own conduct when demanding payment of liabilities stated to be outstanding.
Background
6. Mr Sheehan entered into two facilities with Anglo Irish Bank (“Anglo”) on the 29th March 2006 and 12th November 2008 respectively. Pursuant to those facilities he was contractually bound by Anglo’s general conditions for personal loans.
7. The facilities fell due for repayment on the 30th December 2010 however no demand was made. In the meantime, Anglo had been re-registered as IBRC, and on the 7th February 2013 special liquidators were appointed for the purpose of winding up IBRC.
8. In November 2013 Mr Sheehan told the special liquidators that he wished to redeem his loans and they responded indicating that he could redeem “at par at any time in the sale process”. He subsequently made two bids to buy the loans which were rejected. The loans were instead purchased by and transferred to Breccia.
9. In December 2014, Breccia demanded from Mr Sheehan repayment of €16,144,572 under the facilities, in response to which these proceedings were initiated on the 22nd December 2014.
10. In May 2015, Mr Sheehan sought from Breccia a redemption figure in respect of the facilities and was given a figure of €19,663,673 with continuing interest. The primary reason for the difference between that figure and the earlier December 2014 figure was the application of surcharge interest at 4% from the 31st December 2010, under clause 5 of the general conditions, amounting to €2,822,957.
11. Mr Sheehan disputed this claim to surcharge interest and it was agreed that that dispute would be added to these proceedings and determined by way of a modular trial.
High Court
12. In the High Court, Haughton J. found that the surcharge interest was an “unlawful penalty”, when considered in light of the principles laid out in Dunlop Pneumatic Tyre Co Ltd v. New Garage & Motor Co Ltd [1915] AC 79, as applied by this Court in Pat O’Donnell & Co Ltd v. Truck and Machinery Sales Ltd [1998] 4 IR 191. Rather than being a genuine pre-estimate of the loss anticipated as a result of default on the part of the borrower, he concluded that the surcharge was intended to deter borrowers from default. Thus its dominant purpose was penal.
13. Further, the High Court judge found that if the charge had been lawful Breccia would, in any event, have been estopped from claiming any surcharge interest up to the 19th June 2015, although it was thereafter entitled to claim it on account balances. This was because Breccia had impliedly represented that it would not be charging surcharge interest. It had not displaced the representation of its predecessor, IBRC, to Mr Sheehan during the bidding process that the redemption figure was circa €16m. Further, it had itself later demanded that redemption figure of circa €16m.
14. Finally, the High Court judge conclude that Mr Sheehan had, in any event, relied on these representations to his detriment in that he had attempted to negotiate financing for the buy-back of his loans, albeit unsuccessfully, in the belief that it would cost circa €16m and not the later charged figure of €19,663,673, thus enabling him to rely upon an estoppel.
Court of Appeal
15. In the Court of Appeal, the findings of the trial judge in relation to both the penalty clause issue and the estoppel issue were upheld.
16. In her judgment Finlay-Geoghegan J. concluded that clause 5.1 was not a genuine attempt to estimate the damage to be sustained by the lender as a result of the borrower’s default and was thus a penalty, as evidenced by:
(a) the marked difference between clause 5.1 and the very specific provisions applying to the payment of interest at the facility rate;
(b) the absence of any express provision as to when surcharge interest becomes payable by the borrower;
(c) and the absence of any provision entitling the bank to debit the account of the borrower with surcharge interest.
17. In his judgment Hogan J. dealt with the estoppel issue and upheld the decision and reasoning of the High Court judge.
Proposed Appeal
18. Breccia submits that the traditional penalty rule principles set out in Dunlop should be reconsidered in light of the refinement of that rule by the UK Supreme Court in Cavendish Square v. El Makdessi [2016] 2 All ER 519.
19. In Cavendish, it was stated that: “the true test is whether the impugned provision is a secondary obligation which imposes a detriment on the contract breaker out of all proportion to any legitimate interest of the innocent party in the enforcement of the primary obligation. The innocent party can have no proper interest in simply punishing the defaulter.”
20. Breccia submits that the Cavendish approach is preferable because a test focused on the effect of the clause rather than its purpose is more consistent with the case-law and conceptually coherent. It submits that divergence from the UK approach is undesirable and that the consumer protection rationale for a stricter application of the penalty rule has been weakened by the introduction of new statutory powers under the Consumer Contract Regulations.
21. Applying Cavendish, Breccia submits that the penalty clause serves a “legitimate interest” of the lender in ensuring that borrowers repay their loans, especially given that a default could result in the lender incurring costs in excess of the 4% rate.
22. Breccia argues that it should be granted leave to appeal on the basis that the resolution of the uncertainty around the penalty rule is a matter of general public importance. Furthermore, not only is the enforceability of surcharge interest clauses of major importance to Irish lenders and borrowers given that such clauses feature in the vast majority of loan contracts, but the penalty rule is of significant importance in other contractual contexts (e.g. construction contracts).
Estoppel
23. Breccia submits that the Court of Appeal erred in concluding, based on the facts found in the High Court, that the actions of Mr. Sheehan were sufficient to constitute “reliance” or “detriment” for the purposes of creating an estoppel. Furthermore, it had erred in failing to advert to the legal principles applying to “detriment” and “reliance”, namely the requirements of causation and “substantial” detriment. Thus it claims that the proposed appeal raises important legal issues as to how those principles are to be applied.
24. In the alternative, Breccia submits that if the Court grants leave in respect of the surcharge interest issue, it is in the interests of justice that it also grant leave in respect of the estoppel issue given that the two issues are intertwined insofar as they both bar the enforcement of the same contractual right.
Decision
25. It is necessary to first consider whether the appeal proposed involves a matter of general public importance. And, in order to conclude that the threshold is met the Court must be satisfied that the point or points which the applicant wishes to raise are not only stateable but that they have the capacity to affect or govern cases other than that under consideration.
26. The Court is satisfied that the appeal proposed, insofar as it seeks to challenge the conclusion of Finlay Geoghegan J. that the surcharge interest claimed constituted an “unlawful penalty”, is undoubtedly statable, particularly in circumstances where applicant intends to urge the Court to follow the recent jurisprudence as has emerged from the decision in Cavendish. Relevant in this regard is that both Haughton J. and Finlay Geoghegan J. in their respective judgments suggested that it would be desirable for this Court to re-consider the principles laid out in Dunlop Pneumatic Tyre Co Ltd v. New Garage & Motor Co Ltd and Pat O’Donnell & Co Ltd v. Truck and Machinery Sales Ltd.
27. Furthermore, it is undeniable that the issues which Breccia wishes to pursue before this Court, insofar as they concern its entitlement to recover the surcharge interest provided for by agreement, raise matters of general public importance which have the capacity to impact upon not only on the contractual relationship between Mr Sheehan, Breccia and its predecessors, but also, inter alia, on the contractual rights of a significant array of other lenders and borrowers.
28. And, regardless of whether or not the estoppel point which Breccia wishes to pursue on appeal may or may not be of general public importance, it is, in the view of this Court necessary to grant leave to permit this aspect of the proposed appeal be pursued since otherwise no benefit would accrue to Breccia should the issue of general public importance be decided in its favour. Accordingly, the Court is satisfied that it is in the necessary in the interests of justice that Breccia be granted leave to pursue its appeal on the estoppel issue and in so deciding the Court is acting in accordance with its reasoning in Price Waterhouse Cooper (Firm) v. Quinn Insurance Limited (under administration) [2017] IESC 73.
And it is hereby so ordered accordingly.
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