Key Post There is no legal defence of reckless lending

As this comes up from time to time on Askaboutmoney, I thought it would be useful to publish this summary from Page 10 of the Expert Group on Repossessions


No defence of reckless lending

7. In several recent cases, the validity of the security has been called into question by borrowers resisting repossession orders on the ground that the lender had engaged in ‘reckless lending’. The courts have not, however, recognised this as a valid defence. In ICS Building Society–v–Grant, 6 Charleton J stated: “Contract law assumes that those entering into an agreement intend that it should be legally enforceable and, unless the contrary is shown, have acted in relation to each other by their mutual choice and not out of compulsion. People can enter into bad bargains.” In McConnon -v- President of Ireland & Ors,7 KellyJ stated his belief that a tort of reckless lending does not exist as a civil wrong in Irish law.

Good post! All the reckless lending posts in the last week are getting a little boring.

Charlie Weston reports on a High Court judgement last month, where the judged dismissed a claim for reckless lending as "frivolous and vexatious".

Now it has emerged that High Court President Mr Justice Nicholas Kearns, in a case taken by Patrick Harrold of Drumrooske, Donegal Town, dismissed the reckless lending claim saying it was frivolous and vexatious.

He said there was no tort of reckless lending in this country, and he was not prepared to entertain fanciful arguments by borrowers seeking to repudiate their loans, in a written judgment delivered last month.

The decision comes after a number of people were advised to take on their banks and claim reckless lending.

It is understood that around 1,000 similar cases claiming reckless lending and seeking compensation were lodged with the courts with the help of variety of groups, some of whom were charging to take the cases.

The full case is here Harrold vs Nua Mortgages Ltd

Some extracts

"a number of other broad and general allegations he makes in relation to the lending practices of “various banks” which the plaintiff contends “created the false boom and bust situation which has crippled my country”. Blanket allegations such as these do not give rise to a reasonable cause of action in the plaintiff’s case, are bound to fail and must be struck out. That is not to say that such allegations related to the wider context of the financial crisis should not be considered by a more appropriate forum of inquiry."


"As to the plaintiff’s contention that the lender simply “created the alleged money out of thin air on a computer keyboard”, the Court agrees entirely with the decisions of Gilligan and Hogan JJ. in the Freeman and McCarthy cases respectively. As indicated by Gilligan J. in Freeman, this argument has come before the Courts with increasing frequency in recent times and is invariably advanced by litigants who unfortunately find themselves in financial distress. As set out above, this ‘creation of currency’ argument has quite rightly been described as ‘fanciful’ and ‘completely devoid of merit’. This aspect of the plaintiff’s claim is frivolous in the extreme, bound to fail, and accordingly should be struck out. In any event, regardless of how the money was allegedly ‘created’, it is not disputed that the plaintiff applied for the loan, drew down the loan, and spent the funds. By his own admission, the plaintiff was initially offered a lesser amount by the lender which he rejected as “not sufficient for the project which the plaintiff wanted to pursue”. Undoubtedly, the plaintiff willingly participated in the transaction"

"the plaintiff was afforded a great deal of latitude in relation to the form of his pleadings and his submissions to the Court. However, while the Court may sympathise with the unfortunate predicament the plaintiff finds himself in, I am satisfied that this is one such case where the plaintiff’s claim is bound to fail and must be struck out."

If you have around 20 minutes, the full judgement is worth reading for the manner in which it dismisses Freeman nonsense.
It's often very funny.

In relation to the plaintiff’s allegation that the defendant illegally “created” the money for the purposes of the loan, counsel submits that this claim is also bound to fail. Arguments of this kind were considered by Hogan J. in McCarthy and Others v. Bank of Scotland PLC and Others [2014] IEHC 340 in the following terms (para. 9):-

• • 
    “It is, I think, a measure of the desperate straits in which some litigants have found themselves as a result of the collapse in the property market from 2008 onwards that arguments of this kind have been seriously advanced, not only in this case but in other recent cases of the same kind, both here and in other jurisdictions, most notably Canada. A version of this fanciful theory had been advanced in Dempsey v. Enviston Credit Union [2006] BCSC 750 where it was described in the following terms by Garson J.:
    • 
      
      ‘In his submissions on the motion, in the actions concerning him, Mr. Dempsey described the “money for nothing” theory. He stated that the banks do not have money. Rather, they create money out of “thin air”…He says that the plaintiffs create money by signing promissory notes, and as soon as the promissory note is signed, the banks deposit money in their own statement of account. The bank does not place hard currency in the hands of the debtors. Mr. Dempsey then charge interest on nothing and that is a criminal rate of interest because interest is charged on nothing. Mr. Dempsey states: “it is not like the old days when people used to go to the bank and, in the back room, count out dollars, there is no law that allows the banks to create dollars out of thin air.’
    
    It is scarcely a surprise that in Dempsey this argument was described by the British Columbia courts as “fanciful” and “completely devoid of merit.” Yet this has not deterred other litigants in this jurisdiction advancing similar arguments which are equally lacking in merit and which, indeed, lack any relationship to contractual or other legal realities.”

as you pointed out above it is mainly related to Freeman on the land nonsence,
unfortunately some people are being sold this scam as a way out by unscrupulous individuals, who are claiming victories over the banks.
the people being sold this scam are going to be facing high costs and extra harship by following these scammers.
Unfotunately these scammers are contacting the people in trouble when they are in court, so when they are at their weakest point.

these people are all over facebook and some of them previously ran to be elected.

re Freemen, the propertypin keeps a good eye on them.

They would be downright comical except they pile onto/add onto what are usually already tragedies.

Would this suggest that the argument of reckless lending by the ECB and others to Irish banks is also now defunct as an argument? It's hard to see how we can apply that argument to money borrowed by Irish banks when we won't allow it to be applied to money lent by those same banks!

Ceist Beag said:

Would this suggest that the argument of reckless lending by the ECB and others to Irish banks is also now defunct as an argument? It's hard to see how we can apply that argument to money borrowed by Irish banks when we won't allow it to be applied to money lent by those same banks!

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I don't understand the question! Yes the banks lent recklessly and as a result lost significant sums of money. Bailout by the Government was done to protect the Economy rather than specific banks. Rights and wrongs of this have been frequently debated. However, the banks themselves borrowed funds from the bondholders to fund their reckless lending. So in using this argument the Banks/Government could not have refused to pay back the bondholders who had themselves "recklessly lent" funds to Irish Banks. I.e. The excuse of reckless lending cannot be used by either bank customers or banks themselves to get out of their obligations.

44brendan said:

However, the banks themselves borrowed funds from the bondholders to fund their reckless lending. So in using this argument the Banks/Government could not have refused to pay back the bondholders who had themselves "recklessly lent" funds to Irish Banks. I.e. The excuse of reckless lending cannot be used by either bank customers or banks themselves to get out of their obligations

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That's exactly the point I'm making Brendan. Even now, especially with the Greece situation, the argument is being made that bondholders should take a hit as they were the ones lending the money to Irish banks and should have been aware of the risks. However this export report is essentially saying that lenders cannot be held to account for lending the money.
So if we're going to agree with this report then we can't very well turn around and say burn the bondholders at the same time. I'm not saying anyone on this thread is agreeing with the report and claiming we should burn the bondholders btw - I'm just making an observation!

Ceist Beag said:

However this export report is essentially saying that lenders cannot be held to account for lending the money.

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I don't really agree with this idea that the lenders were not held accountable - they got wiped out! The real bankers - the ones that owned the bank and were responsible for the appointment of the directors etc. lost the lot. All others were employees and if they did something illegal then they should be prosecuted. The so called bail out, was not a bail out, it was a take over. The owners of the banks - the shareholders (many of them pensioners) got naught! And at the end of the day, any revenues generates will go back into the state coffers.

Ceist Beag said:

I'm not saying anyone on this thread is agreeing with the report and claiming we should burn the bondholders btw - I'm just making an observation!

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That is another thing, if you look carefully at the so called bondholders, many are asset managers and these people do not hold these bonds in their own right. I fully expect that those bonds are sitting in financial products which in turn have been passed on to pension funds, charities and even government institutions. So people who want to burn the bondholders should be careful what the wish for - they just might be burning their own pension funds and charities.

This reminds me of the unwinding of the Lloyds Insurance syndicates, until it slowly began to dawn on them that they were the ones that were going to get their fingers chopped off!