The Banking Inquiry report it seems has concluded that Irish Banks were able to 'lend recklessly' on property deals without fear of regulatory reprisal. However, aggrieved borrowers need to understand that in Ireland there is still no legal concept of reckless lending and they cannot bring a claim for loss based on that allegation. Indeed the Judiciary has been forthright in its views on the subject and those views stand in stark contrast to the Banking Inquiry's findings.
The legal position was summarised best by Mr Justice Hogan in 2014 in the case of Healy -v- Stepstone Mortgage Funding. Mr Healy issued proceedings against Stepstone claiming that Stepstone broke “serious liquidity laws which… caused the financial collapse” and that by reason of this conduct the mortgage contract was “seriously flawed”. He also claimed damages for “reckless lending procedures” by Stepstone.
Stepstone successfully applied to have Mr Healy’s claim struck out as it disclosed no reasonable cause of action. Mr Justice Hogan stated that it was “absolutely clear that there is no such common law tort of reckless lending” and that the proceedings were completely unsustainable in law and doomed to fail.
Mr Justice Hogan's decision followed that of Mr Justice Charleton delivered in 2010 in which he stated that the “tort of reckless lending does not exist in law as a civil wrong“. In his Judgment Mr Justice Charlton confirmed that while the Oireachtas could pass a law prohibiting reckless lending, it was “not within the competence of the court to invent such a tort.”
More recently the former president of the High Court Mr Justice Kearns dismissed a case brought by a Donegal couple who claimed their lender "recklessly" lent them the money for a mortgage. Mr Justice Kearns characterised the claim as "frivolous and vexatious" (bound to fail) and said that he was not prepared to entertain "fanciful arguments" by borrowers seeking to repudiate their loans, in a written Judgment delivered in January 2015.
So it appears that until the Oireachtas considers legislating on the matter, borrowers cannot claim damages on foot of what have been found by the Oireachtas to be reckless lending practices. By now in any event many of those claims will be barred by the statutory time limits applicable for bringing them which is six years.
Leman Solicitors Financial Services Law Group advises parties to contentious lending and contractual disputes and in relation to regulation and compliance obligations.
The final report on the investigation into the collapse of the Irish economy, which will be published today, is understood to conclude that banks were able to recklessly lend on property deals as it was known the regulator would not take action.