Start Mortgages DAC v Keating & Anor (Approved)

Factual and Procedural Background

The proceedings concern a loan agreement entered into on 7 November 2007 between the plaintiff lender and the defendants borrowers, secured by a mortgage on the borrowers' family home. The dispute centers on the appropriate rate of interest under the loan agreement, specifically the interpretation of a contractual clause stating that the interest rate will be "directly affected by the rise and fall of the Euro Interbank Offer Rate" (EURIBOR). The borrowers contend that the interest rate must be calculated by reference to EURIBOR, alleging they have been overcharged and would not be in arrears if the correct rate had been applied. The lender asserts discretion in setting the interest rate but accepts some correlation with EURIBOR.

The procedural history includes an initial possession order granted by the Circuit Court on 1 December 2016, stayed pending appeal. The borrowers appealed to the High Court, which made an order for discovery requiring the lender to produce documents related to interest rates and calculations. The lender's appeal against this discovery order was struck out by the Court of Appeal. Disputes arose over the adequacy of discovery, and the matter came before the High Court for procedural directions regarding the appeal. The parties disagree on whether the appeal should be decided summarily or after a plenary hearing. The court has adjourned the matter to a plenary hearing with directions for pleadings exchange.

Legal Issues Presented

1. What is the correct interpretation of the contractual clause governing the rate of interest, particularly the meaning and effect of the proviso that the interest rate will be "directly affected by the rise and fall of the Euro Interbank Offer Rate"?
2. Whether the appeal can be determined summarily or requires a plenary hearing with oral evidence and cross-examination.
3. Whether the lender has complied adequately with the order for discovery.

Arguments of the Parties

Borrowers' Arguments

• The interest rate must be calculated by reference to EURIBOR, with a fixed margin (allegedly 2.65%) over EURIBOR, as evidenced by a telephone conversation with a lender official and an audio recording obtained on discovery.
• The borrowers have been overcharged interest contrary to the terms of the loan agreement.
• The proceedings should not be disposed of summarily but remitted to plenary hearing to allow oral evidence and cross-examination, particularly on the factual controversy about the interest rate calculation.
• The lender has failed to comply adequately with the order for discovery, and this issue remains unresolved.

Lender's Arguments

• The lender retains discretion to vary the interest rate and is not bound to calculate the interest rate based on a constant margin over EURIBOR.
• EURIBOR is a factor influencing the interest rate but not the sole determinant; market interest rates and commercial factors such as cost of funding also affect the rate.
• The lender accepts there must be some correlation between the contractual interest rate and EURIBOR and is willing to provide supplemental affidavit evidence on EURIBOR fluctuations.
• The appeal issues are capable of summary adjudication without oral evidence.
• The lender objects to disclosing commercially sensitive information regarding its funding arrangements.

Table of Precedents Cited

Court's Reasoning and Analysis

The court identified that the central legal question is the correct interpretation of the contractual clause governing the interest rate, especially the phrase that the rate "will be directly affected by the rise and fall of the Euro Interbank Offer Rate." The court recognized that the wording is unusual compared to typical variable rate clauses that expressly confer discretion on lenders.

The court emphasized the importance of interpreting the clause in context, noting that terms like "Euro Interbank Offer Rate" require elaboration and evidence to determine which specific rate was intended (e.g., one-month EURIBOR). The phrase "market interest rates" is ambiguous and may refer either to consumer lending rates or the lender's cost of funding.

The court acknowledged the relevance of promotional material and information accessible to consumers at the time of contracting, consistent with the EU Directive on unfair terms in consumer contracts and the related Court of Justice judgment.

There is a factual dispute as to whether the interest rate was calculated by applying a fixed margin to EURIBOR, supported by an audio recording obtained by the borrowers. This factual controversy cannot be resolved summarily and requires oral evidence and cross-examination.

The court noted the absence of pleadings to clearly define the parties' legal positions, which hinders proper adjudication of the difficult legal issues involved. The court found that a plenary hearing with pleadings exchange is appropriate to clarify the parties' cases and legal arguments.

The outstanding dispute over the adequacy of the lender's compliance with the discovery order further supports the need for a plenary hearing.

Holding and Implications

The court's final decision is to ADJOURN THE APPEAL TO A PLENARY HEARING pursuant to Order 5B of the Circuit Court Rules, with directions for the exchange of pleadings: the plaintiff/lender to deliver points of claim by 8 June 2021, the defendants/borrowers to deliver points of defence by 6 July 2021, and the plaintiff/lender to deliver any reply by 31 July 2021. The case is to be listed for further case management on 31 August 2021.

The court also confirmed that the question of whether the lender has complied with the order for discovery remains undetermined, and the borrowers may pursue their motion regarding this issue at the directions hearing.

No new precedent was set by this decision; rather, it provides procedural clarity on the appropriate process for resolving complex contractual and factual disputes concerning mortgage interest rate calculations under the loan agreement.