Bank of Ireland has been refused a €204,501 surcharge interest claim against the estate of a farmer who had borrowed to develop his land for housing.
James Boyle entered a loan arrangement with the bank in 2004. The debt was continued in 2010 and restructured in 2015. In November 2017, after earlier defaults, the bank offered him a new facility of €1,203,245 secured on six properties. It was due for full repayment by 15 May 2018.
Boyle did not repay the facility by that deadline. From August 2018, Bank of Ireland applied surcharge interest of 9% a year to the outstanding debt. It stopped charging the surcharge in May 2020 after concluding that repayment was unlikely.
The bank later obtained judgment for €1,154,639.94 in May 2022. Its separate claim for €204,501.23 in surcharge interest was sent to a full High Court hearing.
Ms Justice Marguerite Bolger found that the bank had originally identified two reasons for surcharge interest: recovering the cost of managing defaulting loans and discouraging customers from breaching agreed limits.
The judge held that the second purpose amounted to deterrence. The bank had also carried out no empirical assessment when setting the relevant rate to establish that 9% represented a genuine estimate of likely losses from default.
Evidence showed that much of the work on Boyle’s account after the 2018 default was routine or repeated work already undertaken during earlier difficulties. The €204,501 surcharge represented the equivalent cost of more than 4,000 staff hours, while the court found the actual work did not approach that level.
Applying existing Irish law on contractual penalties, the judge found that the surcharge was not a genuine pre-estimate of loss and was both extravagant and unconscionable. The 9% rate was also more than three times the underlying lending rate of 2.86%.
The bank’s claim for the surcharge interest was therefore refused. Final orders were left for a later hearing.