Boilerplate clauses and standard language may not operate as intended

Two recent decisions of the Court of Appeal will be of interest to any financial institution, lender or receiver active in the Irish market (including anyone acquiring Irish loans in the secondary market) as they deal with determination of penalty clauses, standard saver of rights language in demand letters, receivers costs and typical general conditions in loan documentation covering surcharge or default interest, indemnities and
recoverability of the costs of enforcement.

Key Points
  • The Irish Courts’ approach to determining penalty clauses in contracts has now diverged from the recently re-stated and more liberal approach taken in the UK.
  • For a default interest clause to be valid and enforceable, it must represent a genuine pre-estimate of the bank’s likely loss upon default. Default interest clauses in the general conditions of loan documentation (not bespoke and not unique to the borrowers) will not be considered to be a genuine pre-estimate of a loss on default.
  • The purchaser of the loan was estopped from charging default interest due to an implied representation by the original lender that default interest would not be charged.
  • The purchaser of the loan was bound by the representations of the original lender. The presence of standard saver of rights language in the demand letters did not alter this position.
  • Any contractual entitlement to costs of enforcement in proceedings is subject to the jurisdiction of the court and such costs may not be recovered except under an order of the Court and are a matter of discretion for the judge.
  • Redemption figures cannot include contingent costs, though where costs have been incurred but no order has been made, an estimate of those costs can be included in the redemption figure.

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