The High Court ruled that Allied Irish Banks plc can pursue judgment against solicitor Siobhan Fahy on a €1.3 million loan, but cannot recover €94,602.06 in surcharge interest because it failed to show how the 12% rate was set.
In a judgment delivered on 2 May 2014, Ms Justice Iseult O’Malley rejected Ms Fahy’s argument that she took the 2006 facility as a consumer. The court found that the application was made for business purposes, including funding the liquidation of two property companies and investment in the Home Law Direct franchise. The Consumer Credit Act’s protections therefore did not make the loan unenforceable.
AIB had sought liberty to enter final judgment for about €1.6 million, based on the €1.3 million facility and subsequent charges. The 2006 loan combined €900,000 remaining on a 2005 facility with a further €400,000. Ms Fahy argued that the earlier borrowing had substantially served personal purposes, including clearing mortgages on her home and repaying family loans, and that the later loan continued that borrowing.
The judge noted that AIB had treated the 2005 facility as a consumer contract. But she found that the 2006 application described business purposes and that funds were paid to two companies. She said the new facility remained a business borrowing even though it incorporated the outstanding earlier loan. The court also found Ms Fahy’s account of the loan’s purposes unsupported in important respects, including by accounts or bank statements.
The separate dispute concerned surcharge interest charged during four quarters from December 2008 to March 2010. AIB said the contractual terms allowed it to charge surcharge interest when the account was in default. The bank’s evidence was that the 12% rate applied, but its witness could not explain the basis for that rate. The terms described when surcharge interest could be imposed but did not explain how it would be calculated.
The court accepted that a bank may charge surcharge interest in principle and that Ms Fahy bore the burden of establishing that the charge was a penalty. However, the loan terms already provided for a higher rate when client-account funds fell below the loan balance, and AIB offered no evidence supporting the additional 12% rate as a genuine pre-estimate of loss. The judge found the charge appeared to be a penalty and was unenforceable.
The court concluded that AIB was entitled to judgment for the amount claimed less any element attributable to surcharge interest. The judgment does not specify the resulting net sum.