THE SUPREME COURT
Record No. 363/2010
LAUNCESTON PROPERTY FINANCE LIMITED
FRANK BURKE and LORNA BURKE
JUDGMENT of Mr. Justice William M. McKechnie delivered on the 15th day of March, 2017
1. This is an appeal from the judgment of McGovern J. delivered on the 15th March, 2010, and the resulting Order whereby he directed the defendants to deliver up possession to the plaintiff of, first, the lands comprised in Folio 25639F County Galway, Freehold Register (“the Clarinbridge Property”), and, secondly, a parcel of unregistered land upon which the family home of Mr. and Mrs. Burke is situated, which is generally known as No. 5 Averard, Galway City, County Galway (“Taylor’s Hill” or “the family home”). A stay of three months was granted in respect of the former lands, and six months in respect of the family home; costs were awarded to the plaintiff/respondent.
2. Although there were many grounds advanced in the Notice of Appeal, which was received on the 30th September, 2010, only three of those therein nominated were canvassed in the hearing before us. These, along with a further issue sought to be advanced for the first time, can be described as follows:
(i) that the delineation of the Taylor’s Hill property, in the relevant mortgage and charge, was incorrect; it was inaccurately described as including a turning bay, which was in error;
(ii) that as the plaintiff was not a “regulated body” under the Central Bank Act 1997, as amended (“the 1997 Act”), it could not take any further steps to enforce the underlying security;
(iii) that the loan arrangement fees and interest rate charged, and the legal fees imposed by the plaintiff, were excessive and thus were in the nature of a penalty, unenforceable at law; and, finally,
(iv) that Article 8 of the European Convention on Human Rights applies so that when the appellants’ rights to their family home are measured against the respondent’s property rights, the Court should decline to exercise its discretion and thus should refuse to uphold the Possession Order made by the High Court.
3. From the year 1999 onwards, both Mr. and Mrs. Burke, then solicitors, had a banking relationship with Anglo Irish Bank Corporation (“Anglo Irish Bank” or “the Bank”) which resulted in the Bank advancing to them certain sums of money in the years which followed. There are three such arrangements which are relevant to this case: first, a letter of offer dated the 7th January, 2003, which provided loan facilities up to a maximum sum of €855,000; second, a “Housing Loan Agreement” dated the 6th October, 2005, which increased that sum to a maximum of €974,500; and, third, a Credit Agreement dated the 14th August, 2006. Each such arrangement was in substitution for other facilities then existing, with the amount said to have been advanced under the Credit Agreement being approximately €1,088,000.
4. The terms and conditions of these facilities, inter alia, specified an interest rate of 3.5% above the three month Euribor plus RAC, with the Bank also charging what it called an “Arrangement Fee” for each separate advance. In 2003, that sum was €5,000; in respect of the 2005 Housing Loan Agreement it was €20,000, and in respect of the Credit Agreement of August, 2006 the sum was €2,000, which was to increase to €20,000 if an adjoining property known as No. 6 Averard, Taylor’s Hill, was not sold by the Burkes on or before the 31st December, 2006.
5. The common security underpinning each transaction was (i) a first legal charge over the Clarinbridge Property and (ii) a first ranking mortgage over what I have termed, purely for descriptive purposes, as the family home at Taylor’s Hill. The charge was duly notified on the Folio on the 22nd February, 2000, with Mr. and Mrs. Burke executing the mortgage in respect of the unregistered land on the 22nd May, 2001. In addition, there is a reference to a letter of undertaking over the net proceeds of sale of No. 6 Averard, Taylor’s Hill, Galway, for earlier finance. This is, however, not of direct relevance to this appeal.
6. Default having allegedly been made as and from January, 2007, Anglo Irish Bank, by letter of demand dated the 22nd February, 2008, called on the defendants to pay the entirety of the sum then outstanding, which, when interest was added, amounted to €1,214,118.47. This was followed by the issue of a Special Summons on the 18th June, 2005, in which possession of the registered property was sought under section 62(7) of the Registration of Title Act 1964, and possession of the family home under Order 3, Rule 15 and Order 54, Rule 3 of the Rules of the Superior Courts (R.S.C.). Several affidavits were filed on behalf of both parties prior to the matter coming on for hearing before McGovern J., who, as above stated, granted the Possession Order as sought on the 15th March, 2010. From that a Notice of Appeal was served on the 30th September, 2010, in which the grounds of challenge then intended were set forth. These grounds bear little resemblance to the issues which counsel on behalf of Mr. and Mrs. Burke sought to agitate at the hearing before us. Each such issue will be addressed later in this judgment.
7. Although referred to in the papers as having some connection to this case, it does not appear that either the previous loan arrangements entered into by the parties prior to January, 2003, are material, or that the security the Bank had, or should have had, in respect of No. 6 Averard, Taylor’s Hill, Galway, is relevant; save that the No. 6 agreement remains of interest, but only to the question of fees, charges and levies. Likewise with the proceedings which the appellants issued against Anglo Irish Bank in 2008 (for background: see the judgment of Birmingham J., delivered on 15th December, 2011  IEHC 478). Therefore, none of these matters will feature further in this judgment.
A Point to Note
8. Before considering the grounds of appeal relied upon, it should be noted that the appellants do not dispute the fact that they entered into the transactions above described, that the monies were advanced, that default has occurred within the meaning of the relevant facility letters and the charge/mortgage instruments, and that the mortgagee has a power of sale thereunder. Moreover, it is not in challenge that the Court has the power to grant a Possession Order under section 62(7) of the Registration of Title Act 1964, being the law then applicable, in respect of the registered parcel, and under Order 3, Rule 15 and Order 54, Rule 3 R.S.C. in respect of the unregistered portion. What is said, however, is that notwithstanding these admitted facts, the High Court erred in law in making the Orders which it did in March, 2010.
New Ground of Appeal
9. At the outset of the appeal hearing, counsel on behalf of the appellants sought to raise a point said to have been discovered for the first time some seven to ten days prior to this case being heard. It arises in the following way and relates to the land on which the family home is built.
10. By virtue of the Indenture dated the 22nd May, 2001, Mr. and Mrs. Burke conveyed onto the Bank what was described as the “mortgage property”, being that set out in the schedule thereto. That schedule reads as follows:
“ALL THAT AND THOSE that part of the lands of Shantalla, in the parish of Rahoon and West Liberties of the town of Galway known as Averard East, being the property more particularly described and delineated in red on the map attached to a certain Deed of Conveyance made between … of the one part and … of the other part together with the right of way to go past, re-pass by day or by night along the right of way coloured yellow on the map attached hereto … together with the right to connect up with and use all services laid or constructed in, on or over the said right of way to include … which said lands were conveyed to the mortgagors from (the Bank of Ireland) on the 24th March, 1998, pursuant to an order of the Circuit Court dated 22nd January, 1998, which said lands are more particularly delineated in red on the map attached hereto.”
11. It is now claimed that this description of the area is incorrect in that included within the relevant map is what is described as a “turning bay”, in respect of which it was never the intention of the mortgagors to convey any interest or title to Anglo Irish Bank. Accordingly, this Court was asked by the appellants to admit further affidavit evidence, upon which this argument is founded. Such application was objected to by counsel on behalf of the respondent.
12. The relevant Mortgage Deed was executed by Mr. and Mrs. Burke as far back as May, 2001, at a time when both were solicitors in their own right. At no point up to the institution of the within proceedings was any concern expressed about the description of the mortgaged property as contained in this instrument; indeed, such was not done even when the enforcement of the security became the subject matter of a Special Summons. The case was before the High Court for more than twenty months, again without objection being taken. It was not raised as part of any submissions during the High Court hearing, nor did it feature in the Notice of Appeal. Moreover, that appeal was drafted almost six years ago and no such point was ever flagged, let alone pursued, during the intervening period of time. For these reasons, I would not entertain the argument at this juncture of the proceedings.
13. In any event, if it was open to the appellants at this remove to argue such a point, they would have to do so in proceedings taken at trial level and which were appropriate to that end. I would refuse to accept the evidence as tendered and would likewise refuse to entertain this suggested ground of appeal.
The Transfer of Title
14. The appellants’ submission on this issue is diffusely put, but it would appear to centre on two points. The first is that the charges levied by the Bank against them are inconsistent with and breach some unspecified provision(s) of the Consumer Credit Code 2006, as amended; however, whilst this point was made in the submissions, it was not, as such, pursued in the oral part of the appeal. In any event it falls more properly for consideration under the “penalty clause” argument, separately advanced. Second is an assertion said to be more significant: it is that the entity now appearing as the plaintiff/respondent in these proceedings is not authorised to conduct business within this State and, accordingly, cannot move to enforce the security given as part of the transactions outlined at para. 5, supra.
15. Following nationalisation in 2009, Irish Nationwide Building Society and Anglo Irish Bank merged, some two years later, to form a new entity known as Irish Bank Resolution Corporation (IBRC). That company, pursuant to the provisions of the Irish Bank Resolution Corporation Act 2013, was put into special liquidation by the Minister for Finance in February of that year. Mr. Kieran Wallace and Mr. Eamonn Richardson were appointed as joint special liquidators thereof. In that capacity they entered into the following transaction which directly gave rise to Launceston Property Finance Limited (“Launceston Property”) becoming entitled to continue with the instant proceedings which, as noted, had previously been issued by the Bank as far back as 2008.
16. By agreement in writing dated the 28th March, 2014, the special liquidators of IBRC, who at the time were the owners of and had full legal title to the credit facilities the subject matter of the within proceedings, agreed to transfer and assign absolutely onto Launceston Property the entirety of IBRC’s rights and benefits in these and in many other such facilities. The 23rd May, 2014, was specified as the “effective date” for the completion of this agreement.
17. On that date, the special liquidators duly executed a Deed of Transfer whereby the entirety of whatever rights, title and interest which IBRC had or were entitled to pursuant to the transactions entered into by Anglo Irish Bank and the defendants were transferred to the purchasers. Accordingly, as and from that date, Launceston Property in effect stepped into the shoes of IBRC, and thereby became the owners of a large and diverse loan portfolio, with related security, which included the facilities referable to Mr. and Mrs. Burke (see section 28(6) of the Supreme Court of Judicature Act (Ireland) 1877).
18. By letter dated the 6th June, 2014, the special liquidators wrote to the defendants/appellants and informed them of the agreement which they had entered into with Launceston Property. On the 26th June, 2014, Pepper Asset Servicing (see para. 21, infra) also wrote to Mr. and Mrs. Burke pointing out that they had been appointed by Launceston Property as its intermediary, so as to provide portfolio and asset management services in respect of their particular facility. That series of correspondence also outlined in general terms the effect and consequences of such transaction for both the defendants and for the within proceedings. Finally, on the 31st October, 2014, by Order of this Court, Launceston Property Finance Limited was substituted for Anglo Irish Bank Corporation as plaintiff/respondent.
19. Accordingly, there can be no doubt but that the interest which Anglo Irish Bank once had in these facilities was validly transferred, via the above process, to Launceston Property.
The Regulation Point
20. The Oireachtas, in enacting the Consumer Protection (Regulation of Credit Servicing Firms) Act 2015 (“the 2015 Act”), amended, inter alia, Part V of the Central Bank Act 1997. It did so in order to ensure that borrowers who had a ‘regulated loan’ which was acquired by an ‘unregulated body’ would continue to have the protection of various consumer codes and statutory provisions. The effect of the amendment so created, as applying to this case, is that Launceston Property, as an unregulated body, must use an agent or an intermediary which is regulated by the Central Bank. It is argued on behalf of the appellants that no such licensed intermediary has been so appointed and, accordingly, that the underlying security relative to their loan cannot be enforced in these proceedings.
21. It is clear from, inter alia, the provisions of the 2015 Act that Launceston Property is not itself obliged to be “authorised” by the Central Bank of Ireland in order to legally operate within this State, in the sense of defending this appeal. It can do so even if unregulated, subject only to the requirement as mentioned. To facilitate this, there is a system of registration in place which is governed by Part V of the Central Bank Act 1997, as amended. The question, therefore, is whether such an agent has been appointed, for if it has, that will sufficiently support the status of Launceston Property to continue with these proceedings.
22. On its behalf, the respondent states that for some time past, it has appointed Pepper Finance Corporation (Ireland) Limited, trading as Pepper Asset Servicing, to provide portfolio and asset management services in respect of, inter alia, the facility which the Bank had afforded to the Burkes. The appellants at least question, if not directly challenge, this suggestion. In support of this argument they were permitted to file a further, late, affidavit which was sworn by Mrs. Burke on the 7th July, 2016. As had to follow, an affidavit in response, being that of one Patricia Dardis, was also admitted.
23. In an exhibit to her affidavit, Mrs. Burke produced a printout of what appears to be an online search, carried out on the Central Bank Register, for credit servicing companies within the state who are authorised to act on behalf of unregulated entities which have purchased loan portfolios from, inter alia, IBRC. This document – in fact there are two – purports to show the situation as of both the 17th May, 2016, and the 4th July, 2016. On the former date the name Pepper Asset Servicing, or its more formal identity, does not appear, whilst as of the 4th July, 2016, under reference No. C37043, it does; its “authorisation status” as of that date, however, is designated as “transitional”. On this basis, the appellants claim that the service provider may not be regulated and, therefore, the steps taken by or on behalf of the respondent to defend this appeal are unlawful.
24. Ms. Dardis, who describes herself as the Head of Compliance and Operational Risk with Pepper Asset Servicing, exhibits in her affidavit, sworn on the 14th July, 2016, a letter from the Central Bank dated the 7th July, 2016, and a screenshot from the Bank’s website taken on a date which is not entirely clear. The letter reads:-
“A list of all of the financial services providers which are regulated by the Central Bank of Ireland is available on our website … on the registers tab.
I can confirm that Pepper Finance Corporation (Ireland) DAC, trading name: Pepper Asset Servicing, Pepper Home Loans, is regulated by the Central Bank of Ireland (reference No. C37043).”
25. The screenshot indicates that this company is an insurance/re-insurance intermediary registered as such under the European Communities (Insurance Mediation) Regulations 2005, as amended. Furthermore, it is described under the heading “Product Producer” as “a financial services provider which produces financial products and issues appointments to intermediaries or an intermediary which may issue appointments to other intermediaries”. Finally, it states that the company is authorised under section 31 of the Central Bank Act 1997, as amended, as a “Retail Credit Firm and/or Home Reversion Firm”.
26. In addition, Ms. Dardis has averred that Pepper Asset Servicing has entered into a service agreement with Launceston Property to provide portfolio and asset management services, which includes day to day management and administration of loans. Whilst a great deal of this agreement is redacted for what is described as sensitive commercial reasons, in truth this appeal is concerned only with whether or not this service provider has been so appointed. Such is plainly evidenced by page 1 of the agreement, which is dated the 23rd May, 2014.
27. This evidence of Ms. Dardis has not been questioned and there is nothing contrary in the documentation which challenges it: one must therefore assume its accuracy. On the first point, this means that Pepper Asset Servicing is duly regulated by the Central Bank, inter alia, as a Retail Credit Firm. Its authorisation status, referred to at para. 21, supra, is most probably explained by the provisions of section 4 of the 2015 Act, which deals with the transitional position of such firms which, prior to its enactment, lawfully carried on business in the State. On the second aspect of the argument, it appears, according to the records of the Central Bank, that Launceston Property has appointed Pepper Asset Servicing as its agent or intermediary as required by legislation. It follows, therefore, on the basis of such appointment, that Launceston Property is lawfully entitled to act as a respondent for the purposes of this appeal.
A Subsidiary but Connected Point
28. As above stated, Pepper Asset Servicing, on the instructions of the respondent, wrote to the appellants on the 26th June, 2014, notifying them of the acquisition of their loan facilities and underlying security, and indicating that in future it, as the service provider, would be their new point of contact in respect of such facilities. The appellants question whether, given what followed, this provider is duly compliant with the statutory requirements as set out in the 2015 Act.
29. In Mrs. Burke’s affidavit of the 7th July, 2016, she says that for a period of approximately twelve months, commencing in March, 2014, certain negotiations took place between herself and her husband, on the one hand, and Pepper Asset Servicing, on behalf of the respondent company, on the other. During one such meeting the Burkes were asked whether they would return the keys of the family home. By reason of this request, viewed in the context of the negotiations to that date, it is claimed that Pepper Asset Servicing was taking steps to enforce the security above described. In addition, as is common case, it is they which are instructing Vincent & Beatty Solicitors to defend the appeal taken by Mr. and Mrs. Burke against the Order of the High Court made in March, 2010. These steps can be validated only if, in addition to Pepper Asset Servicing being a regulated provider, it is acting within the terms of the relevant statutory provisions of the 2015 Act.
30. Section 1 of the 2015 Act inserted the following definitions into section 28 of the Central Bank Act 1997:-
• “‘credit agreement’ means an agreement whereby a creditor grants, or promises to grant, credit to a relevant borrower;
• ‘credit servicing’, in relation to a credit agreement, means managing or administering the credit agreement, including—
• ‘credit servicing firm’ means—
(a) a person … who—
(i) undertakes credit servicing other than on behalf of a regulated financial service provider authorised, by the Bank or an authority that performs functions in an EEA country that are comparable to the functions performed by the Bank, to provide credit in the State”
31. The section continues by adding the following subsections to section 28:-
“(2) For the purpose of this Part ‘credit servicing’ does not include—
32. Such negotiations as those referred to by Mrs. Burke could not be classified as the taking of steps to enforce a credit agreement. What occurred was simply an engagement by Pepper Asset Servicing with borrowers to try and identify a way forward that did not involve a continuation of these proceedings. It was nothing more than exploratory. In any event, it is via the claim for possession by which the security is sought to be enforced. Consequently, I do not accept that by reason of the averment outlined at para. 29 above, this service provider acted in any way in breach of the statutory provisions as identified.
The Arrangement Fees, Interest Rate, and Legal Fees
33. In the appellants’ written submissions, it is argued that certain excessive charges, loan arrangement fees and high interest rates, which were enabled by the clauses and conditions in the loan facility letters, in the Bank’s standard terms and conditions and in the Deed of Mortgage, constitute a penalty and, therefore, are unenforceable. They go further, however, and submit that the same vitiates the entire contractual arrangement between the parties, with the result that the security aspect thereof is unenforceable.
34. The starting point for an assessment of the law relating to penalty clauses remains the principles set out in the speech of Lord Dunedin in Dunlop Pneumatic Tyre Co. Ltd. v. New Garage and Motor Co. Ltd.  AC 79 (“Dunlop Pneumatic Tyre Co.”) at pp. 86-88. These principles were endorsed by the Supreme Court in Pat O'Donnell & Co. Ltd v Truck and Machinery Sales Ltd  4 I.R. 191 (“Pat O’Donnell & Co Ltd”) and have been applied by the Irish courts on myriad occasions since then.
35. One such example is the decision in Irish Telephone Rentals v. I.C.S. Building Society  2 I.R. 525, where Costello J. stated the following as the relevant principles:
“The courts have evolved various rules for considering whether a stipulated sum is a penalty or a genuine pre-estimate. That which is relevant to the present case is that stated by Lord Dunedin in Dunlop Pneumatic Tyre Co. at p. 87:-
‘It will be held to be a penalty if the sum stipulated for is extravagant and unconscionable in amount in comparison with the greatest loss that could conceivably be proved to have followed from the breach.’” (p. 536)
36. In more recent years there have been several such judgments, all of which continue to apply Dunlop Pneumatic Tyre Co. One such is the decision of Charleton J. in Durkan New Homes v. The Minister for the Environment Heritage & Local Government  2 I.R. 440, wherein the learned judge at paras. 23 and 25 of the report stated that:
 Parties entering into a contract are always aware that it may be broken. Since parties are free to contract on the basis of any consideration and for any purpose, other than what is illegal, it is also within their rights to genuinely pre-estimate what loss would occur in the event of a breach. A damages clause within a contract is to be upheld by the courts as having equal validity to any other term of the contract as thereby the parties are shown to contemplate and agree on their future losses. The difficult question of quantification is therefore removed from any future dispute as to the effect of a breach. What parties are not allowed to do however is to terrorise against a breach of contract through a clause disguised as a damages clause but which considerably overloads the party in breach with a liability to pay that is unrelated to what the contemplation of the parties genuinely would be as to loss.
 The principles set out by Lord Dunedin in Dunlop Pneumatic Tyre Co. at p. 87 continue to be applied and do not need to be quoted again here. In Treitel – The Law of Contract (13th ed., 2011) at para. 20.131 the question of construction of clauses with an apparently penal element is helpfully considered as follows:-
‘A clause is penal if it provides for ‘a payment of money stipulated as in terrorem of the offending party’, or, as it has been put more recently, if the contractual function of the clause is ‘deterrent rather than compensatory’. If, on the other hand, the clause is a ‘genuine’ attempt by the parties to estimate in advance the loss which will result from the breach, it is a liquidated damages clause. This is so even though the stipulated sum is not precisely equivalent to the injured party's loss…’”
37. The applicable principles were also considered by Finlay Geoghegan J. in ACC Bank Plc v. Friends First Managed Pensions Funds Ltd & Ors  IEHC 435 (“ACC”). At para. 82 the learned judge stated that:
“In this jurisdiction, the High Court is bound by the applicable principles in accordance with the Dunlop Pneumatic Tyre Company case as determined by the Supreme Court. However, I respectfully agree with Clarke L.J. in Murray v. Leisureplay  EWCA Civ 963, that the decision of Colman J. in Lordsvale Finance v. Bank of Zambia,  Q.B. 752, may not be a departure from such principles, but rather, a modern application of them to the banking sector. …”
38. As deep-rooted as these principles appear to be, the test or yardstick for distinguishing between clauses which are penal or compensatory was recently reformulated by the UK Supreme Court in its judgment in Cavendish Square Holding BV v. Talal El Makdessi; ParkingEye Ltd. v. Beavis  UKSC 67 (“Cavendish”). In their judgment, having reviewed the law in this area, Neuberger and Sumption L.JJ. (with whom Carnwath L.J. agreed) stated as follows:
Neuberger and Sumption L.JJ. went on to note that the penalty rule is an interference with freedom of contract, and that it undermines the certainty which parties are entitled to expect of the law. Mance, Hodge and Toulson L.JJ. also favoured this new approach.
39. As above mentioned, the appellants have argued that if the test propounded by the UK Supreme Court in Cavendish was to be applied in the instant case, there is a chance that the fees, interest rates and legal costs imposed by the respondent would be found to be disproportionate to the Bank’s legitimate interests and thus would amount to a penalty. Therefore this Court, implicitly at least, is asked to follow the path set by the UK Supreme Court and to adopt this new test in lieu of the traditional “genuine pre-estimate of loss” formula.
40. The Cavendish decision was considered by Haughton J. in Sheehan v. Breccia & Ors  IEHC 67 (judgment of the 5th February, 2016), albeit that he did not reach a decision on whether it should be adopted: this out of judicial comity with other High Court judgments which have recently applied the traditional test. Having thoroughly reviewed the case law, including ACC and Cavendish (paras. 75-99), and the evidence (paras. 100-116), the learned judge concluded as follows on the issue:
“118. It seems to me that, unless ACC can be distinguished, this court should, on the basis of Worldport, follow the decision of Finlay Geoghegan J. and approach this aspect of the case by determining whether the surcharge is a genuine pre-estimate of loss in the event of default. In my opinion the UK Supreme Court has now taken a divergent view in Cavendish. That decision gives even greater primacy to freedom to contract and the bargain reached between parties; it eschews the test of whether a clause is a genuine pre-estimate of loss in favour of a test of whether it imposes a detriment out of all proportion to the legitimate interest of the innocent party in the enforcement of the primary obligation. On the application of such a test there is no doubt that Anglo had a legitimate interest in ensuring performance by the plaintiff of his primary obligations under the Facility Letters. If the court accepted Mr. O'Malley's evidence that the expected loss could be in a range that far exceeds 4%, then under the Cavendish test it could well be that clause 5 would properly be regarded as proportionate and therefore lawful.
119. Cavendish is a very recent decision, so could not have been considered in ACC. However there is no doubt but that Finlay Geoghegan J. in ACC reviewed the existing significant case law on penalty clauses – including lengthy consideration of the decision of Colman J. in Lordsvale which in itself reviewed the law up to 1996 (and from which the UK Supreme Court took its lead in Cavendish in switching the emphasis to commercial justification). Finlay Geoghegan J. then applied the law as she found it to default interest provisions in this jurisdiction. Her decision was handed down on 26th October, 2012 and is therefore recent in origin.
121. It is also significant that the decision in ACC has been followed and applied by the High Court in AIB plc. v. Fahy, a decision delivered as recently as 2nd May, 2014. …
122. Accordingly, for reasons of comity this court should follow the principles applied to default surcharge interest in ACC. While arguments for applying a different test may be finely balanced, and there are attractions to the reasoning in Cavendish and contentions put forward on Breccia’s behalf, it will be a matter for an appellate court in due course to consider whether in this jurisdiction the approach taken by the UK Supreme Court in Cavendish should be preferred in a case of this nature.”
41. In a related judgment delivered on the same date (Flynn v. Breccia  IEHC 68), Haughton J. stated at para. 48 that:
“It is my view that since Cavendish it has become apparent that in the UK courts the jurisprudence on penalty clauses involves a different approach and a different emphasis. Whether this should now be applied in this jurisdiction is a matter that may fall to be considered by an appellate court, but I have concluded that I should not depart from the jurisprudence established by judges of equal rank.”
42. Thus the traditional perspective continues to be applied in this jurisdiction, and the test under Irish law, as it presently stands, has now diverged from that applicable in England and Wales. A modest caveat to that, however, should be entered: it is that Haughton J. saw some merit in the new UK approach. However, he stopped short of outright endorsing it, much less applying it, preferring instead to leave it to an appellate court to consider whether a recalibration of the Irish test is required.
43. For the reasons which I am about to outline, I am satisfied that this issue does not require to be determined in the instant case; however, I shall take this opportunity and say, though clearly obiter, that I am not immediately convinced that any change to the test is necessary, nor that the route taken by the UK Supreme Court is necessarily a superior one. I stress that the live debate must be left over for a more suitable case, if and when that should arise. My reasons for this conclusion are as follows.
44. Save in respect of the conditional fee of €20,000 which attached to the 2006 Credit Agreement, it is an entire mischaracterisation of the law relating to penalty clauses to suggest that it has any application whatsoever to either the remainder of the fees charged or the rate of interest provided for. At the heart of what underlies the courts’ approach to this type of clause is the existence of a provision which penalises one party for breaching a contractual term. The following passage from Clark, Contract Law in Ireland (8th Ed., Dublin, 2016), couched in traditional language, neatly demonstrates the point. At p 768 the author states that:
“A clause will be valid if it is a genuine pre-estimate of the damage which will probably result from a breach of contract. Such a clause is called a liquidated damages clause. If the clause is designed to deter one party from breaking the contract by stipulating that breach will result in the payment of a fixed amount the courts will refuse to enforce the clause by holding it to be a penalty. The burden of showing that the sum is a penalty rather than liquidated damages is upon the proferens. While penalty clauses are normally found to exist where the party in breach of contract is required to pay a sum of money upon breach, it has been recognised that where non-monetary obligations arise following a breach of contract, the law relating to penalties may still be invoked.” (Emphasis added)
45. The payment of the arrangement fees in respect of the three transactions above referred to, with the exception as stated, is in no way either related to or dependent upon a potential breach of the arrangements. In fact the very opposite is the case, in that they are imposed as a condition for granting the loan in the first place, and not in anticipation of any default. They are an additional price which the lender demands for doing business with the borrower. That may be right or wrong, reasonable or unreasonable, just or unjust, but that is what they are. They are paid in the performance of the contract and at a time “…before the mutual obligations of the parties have been finally discharged” (Pat O’Donnell & Co Ltd, per Barron J. at 218). Therefore, unless the provision is found to be unenforceable for some other reason, it certainly evades capture from this rule of law. Accordingly, there is no connection, in my view, between these fees and this invalidating or, more accurately, unenforceable aspect of contract law.
46. The distinction between the circumstances where this rule applies and those where it has no application becomes self-evidently clear when the imposition of the fees last mentioned is contrasted with the reasons for the imposition of the conditional fee attached to the 2006 transaction. It was there provided that unless No. 6 Averard, Taylor’s Hill, was sold by a certain date, the specified fee of €2,000 would jump to €20,000, offering potentially a classic example of what, in all probability, is a clause which is penal in nature. Apart from this aspect of the parties’ arrangement, however, I cannot see anything legally objectionable to the other fees as demanded.
47. With regard to the €20,000 fee, I would be prepared to hold, if it was necessary to do so, that a fee of this magnitude in the circumstances of its imposition was genuine for no purpose and to no end, save the accretion of super profit. From the borrowers’ view point, it could correctly be seen as an in terrorem provision. However, on foot of an undertaking offered to this Court by counsel on behalf of the respondent that his client would not seek to recover such sum, it is unnecessary to say anything further on the matter.
48. The second reason why Cavendish does not have to be considered relates to the consequences for the underlying contract where a penalty provision is found within it. Mr. and Mrs. Burke say that such vitiates the entire arrangement between the parties. Given the distinct and discrete nature of such a clause, I cannot conceive of how this would vitiate the contract such as to allow the appellants to escape their obligation to repay at least the principal sums, or would prevent the respondent from seeking an Order for Possession. No authority has been opened or referred to, in which a court, having found a penalty clause within a contract, then set aside the entirety of such contract on that basis. Rather, it is that the offending clause itself is unenforceable, but even then, only to the extent of the penalising amount, a point which I now further explain.
49. There are several cases where, in the context of an established finding granting relief against such a clause, the court then considered and was satisfied to accept that the moving party could still recover any loss actually suffered due to the breach. Lord Denning put the matter as follows in Campbell Discount Co. Ltd. v. Bridge  2 W.L.R. 439;  A.C. 600 at p. 632:
“When equity granted relief against a penalty, it always required the recipient of its favours, as a condition of relief, to pay the damage which the other party had really sustained. A Quantum Damnificatus was issued to determine it. On payment of the damage, equity granted an injunction to restrain the other party from proceeding to enforce the penalty at law. Now that equity and law are one, the hire-purchase company should recover its actual damage, and such damage should be assessed according to the realities and not according to any fiction.”
50. In Jobson v. Johnson  1 W.L.R. 1026, Nicholls L.J. stated at p. 1040 that:
“Although in practice a penalty clause in a contract as described above is effectively a dead letter, it is important in the present case to note that, contrary to the submissions of Mr. Joseph, the strict legal position is not that such a clause is simply struck out of the contract, as though with a blue pencil, so that the contract takes effect as if it had never been included therein. Strictly, the legal position is that the clause remains in the contract and can be sued upon, but it will not be enforced by the court beyond the sum which represents, in the events which have happened, the actual loss of the party seeking payment. There are many cases which make this clear.”
51. As can be seen, therefore, the clause, technically speaking, is not even expunged, but simply will not be enforced beyond the actual loss suffered by the innocent party. In Irish Telephone Rentals Ltd. v. Irish Civil Service Building Society  2 I.R. 525, Costello J., having examined the offending clause in that case, by reference to the traditional approach (Dunlop Pneumatic Tyre Co.), concluded as follows: “I cannot therefore allow the plaintiff’s claim based on clause 11 [penalty clause] and must assess damages based on the actual loss I think the plaintiff suffered.” See also Schiesser International (Ireland) v. Gallagher (1971) 106 I.L.T.R. 22.
52. The third reason is that, once again, the entire question of penalty relief is simply not relevant to the instant appeal. Obviously if a money judgment had been given against Mr. and Mrs. Burke, I would readily see how a sustainable argument could be advanced in respect of the €20,000 conditional fee. But that is not what we are dealing with. It is an appeal against the making of a Possession Order. It is, therefore, very difficult to see how the allegedly penal element of the contract is at all engaged on the facts: what the respondent seeks is possession of the properties, not a sum, penal or otherwise, for a breach of the underlying contract. In addition, it is undoubtedly the fact that even if all fees were waived, there was still a sufficient default which triggered the rights set forth in the security instruments. Therefore, the issue does not arise.
53. Finally, the inclusion of what has been described as a “very high interest rate” charge (para. 4, supra) in this argument has been withdrawn by the appellants. Accordingly, for these reasons also, I cannot entertain the submission as made.
54. It has also been argued that the debiting by the Bank of the appellants’ account with certain legal fees was likewise vitiated by the penalty jurisprudence. If a valid complaint exists in this regard, it cannot be pursued through this route for the very same reasons as above outlined. The appellants were either liable for such fees, or not. This matter must be judged by contractual provisions other than the penalty clause.
Article 8 ECHR
55. The appellants wish to argue as a ground of their appeal that Article 8 of the European Convention on Human Rights and Article 1 of the First Protocol to that Convention are engaged, and that this Court must therefore balance the right of Mr. and Mrs. Burke to their family home against the property rights vested in the respondent by virtue of the instruments referred to above. This point was not raised in the High Court and did not feature in the Notice of Appeal. It is mentioned in the appellants’ submissions, in which two cases from the neighbouring jurisdiction are referenced: the first is Manchester City Council v. Pinnock  UKSC 45 (“Pinnock”);  2 AC 104 and the second is Malik v. Fassenfelt  EWCA Civ 798 (“Malik”). In this respect, the appellants refer also to Articles 7 and 17 of the Charter of Fundamental Rights of the European Union, as well as to Articles 40.3.2°, 41 and 43 of the Constitution.
56. Counsel on behalf of the Burkes attempted to overcome the well-established jurisprudence of this Court that a point neither raised nor argued in the High Court will only be entertained by an appellate court in rather exceptional circumstances. He says that such circumstances exist: this by reason of the acquisition of a loan book by a special purpose joint venture vehicle or, as described by him, a vulture fund. The phraseology used is a largely matter of legal indifference, subject only to maintaining consistency of meaning. He says that Launceston Property, in its make-up and in its very existence, is motivated solely by maximising its return from any venture it may enter into. Simply put, it is inspired only by profit. It thus is quite unlike a standard or traditional banking entity which, as part of its consideration for enforcement, has regard to a business relationship with a client. This relationship is entirely absent from a vulture fund. When asked if this submission could be made if the Bank had remained the plaintiff, the response was that, whilst it could, it would not have the same force.
57. I do not accept that the intervention of Launceston Property can be regarded as an event which would justify this Court in standing down its jurisprudence. Whilst I appreciate the point made about the absence of a true banking relationship between that entity and the Burkes, nonetheless the duties and liabilities of the borrowers cannot be increased by reason of the assignment which has taken place. They remain precisely as they appear under the contractual documents which each of them signed. The entity enforcing the underlying security has no greater rights than the original lender, and cannot impose any additional obligations on the borrowers. Thus, whilst the banking relationship as such may have changed, this does not affect their underlying exposure.
58. Moreover, that relationship between the Burkes and Anglo Irish Bank evidently collapsed, or at least was seriously in peril, when these proceedings were instituted in 2008. At a minimum, the Bank took legal proceedings to enforce the security. It is those proceedings which are presently before this Court. Thus, that is what we must determine. It cannot be part of our inquiry to in any way assume that negotiations might have taken place with the Bank, which have not taken place with Launceston Property, or that they might have been more successful or productive from the Burkes’ point of view. That cannot be a factor. Therefore, this submission falls at the first hurdle.
59. In any event, it is tremendously difficult to see how Article 8 of the Convention could be engaged in the circumstances of this case. That Article, entitled “Right to respect for private and family life”, provides as follows:
“1. Everyone has the right to respect for his private and family life, his home and his correspondence.
2. There shall be no interference by a public authority with the exercise of this right except such as is in accordance with the law and is necessary in a democratic society in the interests of national security, public safety or the economic well-being of the country, for the prevention of disorder or crime, for the protection of health or morals, or for the protection of the rights and freedoms of others.”
60. The interference with the appellants’ property rights in the present case arises as a result of their personal and voluntary decision to enter into a commercial transaction(s) where, as security for money advanced, they committed the properties in question, including the family home, to the Bank. The appellants were solicitors at the relevant times and were not acting as consumers. There is no suggestion that they were suffering from any legal incapacity when the contracts were entered into, or that their choice to make such agreements was anything other than a free one. This was a business opportunity which unfortunately did not work out for them, like for so many others who diversified from their chosen profession and invested in various market activities, with untoward consequences.
61. As unfortunate as that is, it remains the situation that the mortgagee’s right to possession and sale of the properties arises as a matter of contract law, pursuant to an arrangement between private parties. Accordingly, it is somewhat difficult to see how Article 8 of the Convention, or Article 1 of the First Protocol, could in some way debar the respondent’s right to enforce the contract so entered. To the extent that Pinnock and Malik suggest a horizontal application of Article 8, that arises in the particular circumstances of the UK Human Rights Act 1998, where, under the provisions of section 6(3), a court is a public authority. Moreover, as addressed below, nothing suggests that the making of the Possession Order by the learned trial judge was in any way disproportionate in all the circumstances of the case.
62. As regards the reference to the Charter of Fundamental Rights of the European Union, Article 51(1) thereof provides that “[t]he provisions of this Charter are addressed … to the Member States only when they are implementing Union law.” There is no point of EU law at issue in the present proceedings. Accordingly, neither Article 7 nor Article 17 CFR are engaged on the facts of this case.
63. Moreover, I do not see that the cited provisions of the Constitution can avail the appellants in any way. They have defaulted on their contractual obligation to repay the monies advanced to them in accordance with the terms of the mortgage. They remain in default of that obligation. For certain, the referenced Articles of the Constitution provide foundational protection to the appellants’ property and family rights, but they cannot and do not insulate the appellants from the obligation to repay their mortgage or the consequences of their failure to do so.
64. Finally, the appellants have submitted that the learned trial judge erred in not giving sufficient weight to certain factual circumstances prior to making the Order for Possession; such matters include, inter alia, Mrs. Burke’s medical condition at the relevant time, the fact that there were dependent children residing in the home at the time the Order was made, and the fact that the family home was in a prestigious location and that the security of the bank was not endangered by a private sale. Whilst sympathetic to their plight, I am not, however, satisfied that the appellants have demonstrated any error in the trial judge’s assessment of these or any of the other matters raised, or in the weight which he attached to such arguments. The learned trial judge took account of these factual matters and made an order which was proportionate and appropriate in the circumstances.
65. Accordingly, for the reasons above outlined, I am satisfied that the appellants’ appeal must be dismissed.