Financial Services Update: Failure To Serve A Letter Of Demand Correctly

On 14 June 2016, the High Court determined that Start Mortgages Limited had not commenced enforcement proceedings in accordance with the terms of the loan agreement as they had failed to serve a letter of demand correctly and, as a result, enforcement has been delayed pending a plenary hearing.

This case 1 involved an appeal by Mr Shane Hanley (the "Defendant") against a High Court judgement. This had been granted against him for failing to repay monies borrowed by him from Start Mortgages Limited (the "Plaintiff"). The Defendant's appeal was grounded on the basis that he claimed he never received the demand for payment which led to the proceedings before the High Court. Instead, the notice had been sent to a different Mr Hanley, who had no connection to the Defendant, and the Court accepted that this had occurred. As a result of this, the Plaintiff claimed that he was denied the "period of continuing and heightened negotiation that would typically flow after the issue of a demand" and matters had instead progressed to judgment being obtained against him.

The Defendant submitted a number of defences including that:

1. It was not required to issue a demand under the terms of the loan agreement

   The Court examined the relevant provision of the loan agreement which stated that following a default

   ".... The Lender may demand payment thereof on giving seven days' notice in writing to the Borrower...".

   The Plaintiff argued that this wording meant that they were not obliged to issue a demand. The Court rejected this argument and determined that the effect of this clause was that a repayment of the loan could only be demanded upon the giving of seven days' notice.

2. If such notice of demand was required, that the proceedings commenced were a sufficient notice

   The Court dismissed this argument also, and the Judge noted in particular that general banking practice recognised that there was a significant difference between issuing a letter of demand and commencing court proceedings to recover monies owed.

3. It was permitted to commence proceedings at any time after a default under the terms of the loan agreement

   The Court also considered another clause of the loan agreement which the Plaintiff argued negated the...