The Court of Appeal has dismissed Breccia’s appeal against a High Court ruling that a 4% surcharge interest clause in Joseph Sheehan’s bank loan terms was an unenforceable penalty. It also varied the order on enforcement costs, allowing an estimate of costs already incurred to be included in a redemption figure in specified circumstances.
The dispute followed Breccia’s purchase of Sheehan’s loans from the special liquidators of Irish Bank Resolution Corporation in December 2014. Breccia demanded €16,144,572 under two facilities, plus sums under a guarantee. A later redemption figure was €19,663,673.88, including €2,822,957.05 in surcharge interest and €93,362.56 in stated enforcement costs. Sheehan disputed the surcharge and costs.
The High Court had found that the 4% surcharge under clause 5 of the general conditions was a penalty. On appeal, the Court of Appeal applied the Irish approach based on the principles in Dunlop and the Supreme Court’s decision in Pat O’Donnell. It concluded that the clause was not a genuine attempt to estimate the lender’s loss. Among the features it considered were that the standard clause was not tailored to Sheehan’s loan or security, and did not specify when surcharge interest became payable or allow it to be debited to his account.
The court therefore dismissed Breccia’s appeal on the penalty issue. It said it was unnecessary to decide the appeal ground concerning estoppel; the judgment added that, if a decision were needed, it would dismiss that part of the appeal too.
On enforcement costs, the court upheld the High Court’s decision that litigation costs already subject to a court order could not be added to the redemption figure if the order did not award them to Breccia. The court said litigation costs remain within the court’s discretion, and any contractual right to costs should be considered when that discretion is exercised.
The Court of Appeal varied the High Court’s approach to costs already incurred in the proceedings but not yet covered by a costs order. Breccia could include an estimate of those costs in the redemption figure where it asserted a contractual right to recover them from the mortgaged property. Recovery could depend on a later costs order or taxation. Sheehan could pay the estimate or seek agreement on another way to secure the amount while its liability or value remained uncertain.
The ruling did not permit future costs that had not yet been incurred to be included. The court left the precise changes to the High Court order to be settled after hearing the parties.