The Court of Appeal has dismissed an appeal by four borrowers challenging Bank of Ireland's decision to change the way interest was calculated on €15 million in loans connected with an industrial premises in Rathcoole, Co Dublin.
Sean Harte, Patrick McCarthy, John O'Meara and Geraldine Balfe had accepted a 2009 offer for a €12.2 million development facility and a €2.8 million loan to assist with purchasing the premises. When the facilities were drawn down, their interest rate was calculated using three-month EURIBOR plus the bank's margin.
In October 2011, Bank of Ireland notified the borrowers that it would replace the EURIBOR-based reference rate with a Bank Cost of Funds rate. The bank said increased funding costs following the financial crisis meant it was paying a premium over publicly quoted reference rates. The change added 0.7% to the applicable interest rate.
The borrowers paid the revised rate under protest and began proceedings in 2017. By the High Court hearing, their case rested solely on breach of contract. They argued that the loan agreement allowed the bank to change how interest was calculated, but not to replace an agreed component such as EURIBOR with a new reference rate.
The Court of Appeal rejected that distinction. Mr Justice McDonald held that the loan agreement used terms such as "calculated" and "determined" interchangeably and that the reference-rate component formed part of the methodology for calculating interest.
The court differed from the High Court on one point. It found that the bank's contractual discretion was not unlimited: a change had to arise from circumstances affecting the bank and relevant to the interest charged. However, both sides' experts had agreed that the 2011 move followed a tightening of market conditions that increased the bank's funding costs.
That was sufficient to bring the change within the contractual power, the court held. The appeal was dismissed and the High Court order affirmed. Bank of Ireland was presumptively entitled to its appeal costs, subject to any written submissions from the borrowers.