7th July 2010 by Simon O’Neill
The recent High Court judgment ofPeter Kelly J. in the case of AIB PLC v Higgins & Others [2010] IEHC 219 is one of the first occasions that the Irish High Court has considered the definition of a ‘Consumer' under the Consumer Credit Act 1995 ("the Act) and in particular Section 30 of the Act.
In an important decision for the banking sector it has clarified a particular grey area concerning how to determine whether a person is acting as a ‘consumer’ within the meaning of the Act.
The case involved an action by AIB for summary judgment againstfour defendants for the sum of €6,324,959.81 in relation to loan facilities advanced to thefour borrowers (who were in partnership) for the purchase and development of lands in Duleek Co.Meath. In defence to AIB's application for summary judgment and in an effort to have the action set down for a full hearing the defendants acknowledged that they had received loan money from AIB but asserted that AIB should be prevented under Section 38 of the Actfrom demanding repayment or enforcement of its security on the grounds that it should have treated the borrowers as consumers under the Act and, in failing to do so, was in breach of the requirements of Part III of the Act.
Part III of the Act provides for various mandatory requirements in relation to loan facilities to consumers, such as providing a copy of the agreement in writing, addresses of all parties to the agreement, any costs or penalties under the agreement and cooling off periods (Section 30) and form and content of such Credit Agreements (Section 31).
A consumer is defined under the Act as “a natural person acting outside the person’s business”.
Business is defined as including a “trade or profession”.
Section 38 of the Act provides that a creditor may not enforce a credit agreement, security or guarantee provided to it unless the requirements under Part III are complied with.
In defence of its position AIB asserted that the monies were advanced as part of its commercial lending business.
The borrowers contended that theirindividual circumstances were such that they should havebeen considered consumers by AIB.
It was argued by counsel for the defendants and accepted by the Court that property investment was not their principal or main business. It was further contended by their counsel, that under the Act, a person could have just one business, trade or profession and that any borrowing made outside that 'single business trade or profession' were borrowings made as a consumer. It was further argued by counsel for the defendants that member states could adopt more stringent measures [in implementing the relevant directive] to protect the consumer and that the legislature in enacting the Act was deliberately more stringent by providing that the term consumer should only be construed by reference to such a person having but one business.
Mr. Justice Kelly disagreed and referred to Section 18 of the Interpretation Act 2005 which provided that "a word importing the singular shall be read as also importing the plural, and a word importing the plural shall be read as also importing the singular.." and held that "a business" could be either single or plural. Further, there was no suggestion in the Act that Section 18 of the Interpretation Act was not to apply. Indeed Kelly J. stated that such an interpretation would have profound consequences and would mean that "every person who belonged to a trade or profession and who decided to borrow money to invest it in promoting another business with a view to profit would have to be treated as a consumer under the Act. The legislature could never in my view, have so intended. if it did so it would have said so in clear and unequivocal terms."
Kelly J. also had regard to the judgment of the European Court of Justicein Benincasa v Dentalkit (Case C-269/95) which stated "... in order to determine whether a person has the capacity of a consumer, a capacity which must be strictly construed, reference must be made to the position of the person concerned in a particular contract, having regard to the nature and aim of the contract, and not to the subjective situation of the person concerned. .... Consequently, only contracts concluded for the purpose of satisfying an individual's own needs in terms of private consumption come under the provisions designed to protect the consumer as the party deemed to be the weaker party economically."
In summarising the entire nub of the issue Kelly J. stated that "Only contracts concluded for the purpose of satisfying an individual's needs in terms of private consumption are protected by the Directive. There is nothing in the Act suggesting that the legislature here sought to go further than the Directive, still less to confine the interpretation of the term “business” in the definition of “consumer” to a single business activity. ..... These defendants acted as partners in a partnership which borrowed money from AIB. They did so with a view to investing in property and its development for profit. In so doing, they engaged in business and the Act had no application to them".
Further Information:
Please contact: Simon O'Neill - soneill@mckr.ie - Tel: +353 1 670 2990
