Banks are exploiting dysfunction in the legal system to get fast-track judgments against debtors, the Master of the High Court has warned.
Edmund Honohan also said barristers were not informing judges of legal precedents and members of the judiciary were making “errors in law” as a result. The comments were made in a scathing decision involving Allied Irish Bank Plc.
The bank was seeking a summary judgment against Trudy McDermott, a business consultant of Westmoreland Street, Dublin, over an alleged €700,000 debt.
Mr Honohan said the bank filed affidavits filled with “irrelevant material” in the case. He said it appeared the bank “has some notion” it would win the case if it created a “sort of smokescreen to obscure the defendant’s defence”.
The Master decided to forward the matter for a full hearing rather than allowing the bank to seek summary judgement on the basis of affidavits.
He also awarded the costs of the motion against AIB.
He said there may be an information deficit affecting judges, where they appear to be giving fast-track debt rulings as they are unaware of legal precedents requiring an oral hearing where the defendant has an arguable defence.
“This may be because, perhaps unsurprisingly, counsel for the banks do not inform the judge that these cases mean that a defendant should usually be afforded a plenary hearing,” he said.
“It is not in the interests of the banks that the judges should be so informed, but it is the duty of counsel to do so, even if it is not in the client’s interests.”
Mr Honohan has long been an outspoken critic of the conduct of financial institutions in debt cases. Although not a judge, he has a quasi-judicial role. In contested cases he ensures correct procedures are followed and paperwork is in order before sending a matter on to the High Court.
He can also deal with applications for judgments in uncontested cases.
The AIB case involves an €1.5m loan facility for a property investment in February 2008 where Ms McDermott’s father Seán McDermott, a businessman from Patrickswell, Co Limerick, wanted €700,000 of the borrowings to be “in the name of his daughter”.
Ms McDermott disputes her alleged liability for the loan, which was to be repaid by July 2009. She claims she was told the loan was non-recourse and would be in her name for “internal administration purposes” and as “a way around” AIB’s internal credit policy.
She also alleges she was asked to backdate paperwork associated with the loan.
The claims are denied by AIB, which alleges she was at all times aware of the nature of the transaction.
The Master said it was hard to see how the bank’s solicitors could have reached the view Ms McDermott had no defence to its claim.
He said internal paperwork was replete with references to her father and appeared to contemplate a single investment in a mezzanine fund.
Mr Honohan also queried why the bank would offer a loan of €700,000 to someone who was not a customer and who was only earning €45,000 per annum. He described parts of an affidavit filed by an AIB deponent as “scandalous”, saying it offered as evidence “comment, derision and irrelevant fake evidence”.
In the decision, Mr Honohan commented generally on the practice of banks filing supplementary affidavits which “condition” judges to look with disfavour at a defendant’s affidavit evidence so the bank can secure a summary judgment.
“Judges fall into this fake evidence trap so very easily. They presume the bank’s paperwork must be accurate,” he said.
Mr Honohan said some banks had an “establishment viewpoint” which makes them think “they can say anything they like and demand judgment as a right”.
The Master said some judges were “noticeably slow to check the caustic and superior comments of bank deponents in summary judgment applications”. He said “euphemisms abound” in such affidavits, which he described as “an exercise in signalling”.
“These are patronising ‘put down’ lines, born of arrogance which suggests an inside track, and no likelihood of judicial sanction,” he said. “The level of condescension shown by bank deponents in these supplemental affidavits is toe-curling.”
Mr Honohan said that if a judgment turns on the credibility of a defendant, the assessment must be on the balance of probability.
If this is the case, the defendant should be entitled to confront and cross-examine the witnesses disputing their evidence.
“He is entitled, in natural and constitutional justice, to a full plenary hearing. Some lawyers and some judges appear not to understand this,” he said.