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Harte v Bank of Ireland (Approved)
Factual and Procedural Background
The Appellants borrowed €12.2 million and €2.8 million from Company A in November 2009 to develop an industrial site. They subsequently developed and sold properties at a substantial profit, repaid the loans and redeemed the mortgage in 2017. [1]
The lending arrangements initially used EURIBOR as the reference rate. Clause 5 permitted Company A to change the method of calculating interest and the interest rate at its “absolute discretion”, “whether to take account of a change in prevailing market conventions in Ireland or otherwise”, subject to one month’s prior notice. [2][3][4]
Following severe funding difficulties, Company A notified the Appellants in October 2011 that it would replace EURIBOR with its own cost-of-funds rate, described as BCOF. That rate applied from late 2011 until redemption in 2017. [5][6][7]
The Appellants objected, reserved their rights and commenced proceedings shortly before the limitation period expired. They claimed €738,440 in additional interest; the amount was undisputed, and the dispute concerned whether the contract authorized the change. [8][5]
The High Court rejected the claim, and the Court of Appeal dismissed the subsequent appeal. The Supreme Court granted permission to appeal on the construction of the interest-variation clause and the limits of Company A’s discretion. [9][10][11]
Legal Issues Presented
- Did the power to change the “method for calculating interest” authorize replacing EURIBOR with Company A’s own cost-of-funds reference rate? [12][13]
- Did the reference to changes in prevailing market conventions restrict Company A’s discretion, notwithstanding the words “whether” and “or otherwise”? [12][14][15]
- How strictly should a unilateral variation power in a dominant party’s standard-form contract be construed, and what limits applied to its exercise? [16][17]
- Was Clause 5 genuinely ambiguous, requiring application of the contra proferentem principle against Company A as the party advancing the provision? [18][19]
Arguments of the Parties
Appellants’ Arguments
- The negotiated EURIBOR reference rate was external, standardized and transparent. Replacing it with BCOF transferred Company A’s increased funding costs to its borrowers. [20]
- A power to change the calculation method did not authorize changing the component reference rate, which materially altered the structure of the facility. [21][12]
- The discretion was confined to changes in prevailing market conventions, with “or otherwise” referring to conventions outside the domestic market. No relevant change in conventions had occurred. [21][22]
- The lower courts’ interpretation deprived the qualifying language following “whether” of meaningful effect. [12]
Company A’s Arguments
- There was no agreement that EURIBOR would remain the reference rate throughout the mortgage. [23]
- It was rational and commercially sensible to reserve discretion to change the calculation method when circumstances changed. The funding-market disruption justified exercising that contractual power, so no breach occurred. [6][7][24]
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| [2024] IEHC 714 | Earlier High Court decision construing Clause 5 as authorizing the variation. | The Supreme Court reviewed the conclusion that market conventions were illustrative rather than restrictive and ultimately upheld the decision. [9][10][25][26][27][28] |
| [2025] IECA 233 | Earlier appellate decision upholding the variation, while requiring a change affecting Company A’s position. | The Supreme Court explained that the Court of Appeal’s narrower approach did not alter the outcome and upheld its decision. [11][29][30][31][32][28] |
| [2026] IESCDET 35 | Permission to appeal concerning construction of the variation clause and limits on discretion. | Identified the scope of the permitted Supreme Court appeal. [11] |
| [1980] IRM 153; [1980] ILRM 153 | Standard-form arrangements allowing unilateral variation may differ substantially from freely negotiated contracts. | Supported scrutiny of unilateral contractual powers and the particular relevance of ambiguity rules where negotiation is limited. The opinion uses both citation forms reproduced here. [33][34][35][18] |
| [2017] IESC 31, [2023] 1 IR 479 | An agreement conferring third-party rights and involving a dominant public-interest element may not resemble an ordinary commercial bargain. | Provided an analogy illustrating why some contracts require analysis beyond conventional assumptions about commercial negotiation. [36] |
| [2023] IESC 11 | Contractual discretion may necessarily be limited by administrative-law unreasonableness standards. | Supported the conclusion that sweeping contractual language does not exclude implied limits on unreasonable exercises of discretion. [37][38][16] |
| [2015] UKSC 17, [2015] 1 WLR 1661 | A contractual discretion may be subject to an implied reasonableness limitation without becoming a public-law decision. | Discussed through the preceding authority as support for limits on contractual discretion. [37][38] |
| Wednesbury | Unreasonableness means a decision that no reasonable decision-maker could reach. | Used to explain the implied standard governing certain contractual discretions; no separate full case citation was supplied. [38] |
| Case C-472/10, EU:C:2012:242 | Consumer-contract terms permitting unilateral alteration without a specified valid reason may be unfair. | Cited as contextual support only: the Court expressly acknowledged that the present contract was not a consumer contract. [39][40] |
| [1997] UKHL 28, [1998] 1 WLR 896 | The formulation “whether … or otherwise” may be confirmatory rather than restrictive when read in its grammatical context. | Applied by analogy to show that the market-conventions example did not restrict the preceding grant of discretion. [41][42][43] |
| [2020] NSWSC 1892 | A “method of calculating interest” describes computational features distinct from specification of the actual rate. | Supported treating replacement of a component in the interest formula as a change in the calculation method. [13] |
Court’s Reasoning and Analysis
Strict construction without rewriting the bargain
The Court recognized that Clause 5 appeared to confer sweeping unilateral powers. Given Company A’s dominant market position and borrowers’ limited negotiating capacity, such powers required careful, strict construction. A fundamental alteration should not be inferred from doubtful or ambiguous language: clear words were necessary. This approach did not permit rewriting the agreement or disregarding clear contractual language. [44][32][16]
The discretion was also subject to limits against arbitrary or manifestly unreasonable exercise. However, the Appellants did not allege such conduct. The evidence established serious funding constraints, but commercial reasonableness could not itself supply a contractual power that the agreement lacked. [45][46][17]
The market-conventions wording was illustrative
The Court accepted that no relevant change in market conventions had occurred. Nevertheless, “whether to take account of” introduced an example of circumstances permitting variation, while “or otherwise” made clear that the example did not exhaust the power. The absence of a change in conventions therefore did not prevent its exercise. [14][15][47][48][49]
Reading the clause as a whole, the Court treated the reference to market conventions as confirmatory and illustrative. The comparable grammatical construction in the cited House of Lords authority reinforced that conclusion; “or otherwise” also defeated an argument that the permitted circumstances were confined to a restricted class of similar events. [41][42][43]
Changing the reference rate changed the calculation method
The Court rejected the proposed distinction between changing a formula and changing its components. Replacing one component directly changed the “method for calculating interest”, and the contractual wording was sufficiently broad to authorize replacing EURIBOR with Company A’s cost-of-funds formula. That remained the conclusion even under strict construction. [13][50][51]
No genuine ambiguity remained
The contra proferentem principle ordinarily resolves genuine ambiguity against the party advancing the provision, with particular force in standard-form agreements. It required two reasonably available interpretations, however, and the Court found that the Appellants’ construction was not reasonably available. Neither the market-conventions wording nor the calculation-method wording left residual ambiguity on which the principle could operate. [18][19][52][53]
Holding and Implications
The judgment concluded that the appeal should be dismissed and the decisions below upheld. Clause 5 authorized Company A to replace the EURIBOR-based calculation with BCOF; the Appellants’ contractual challenge to the additional interest therefore failed. [5][54][28]
The decision confirms that clear unilateral variation language can authorize a fundamental change despite strict construction, while remaining subject to limits against arbitrary or manifestly unreasonable exercise. No such improper exercise was alleged here. [16][55][17]
The opinion recorded an estimate that the issue affected approximately 8,000 customers of Company A, giving the interpretation significance beyond the individual Appellants. [56]
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