About this case:

• Citation:
  [2026] IESCDET 35
• Judgment:
  External link
• Court:
  Supreme Court

Granting leave to appeal, the Supreme Court determined: “Given that this is a standard term, it remains important to construe the range of options open to a bank where a general discretion clause as to changes in interest is involved on the basis of the ostensible wording of a banking contract and to construe whether there are limits as to what a bank may do or whether in effect a carte blanche is agreed as between customer and bank and how that may be so.”

Background

In 2009, the defendant bank loaned €12.2 million and €2.8 million to the plaintiffs for the development of property subject to certain terms and conditions.

Clause 5 of the terms and conditions stated that the method for calculating interest and the interest rate could be changed from time to time at one month’s notice by the defendant at its absolute discretion, whether to take account of a change in prevailing market conventions in Ireland or otherwise.

The plaintiffs claimed that around October 2011, the defendant wrongly changed the method of calculating interest from the Euro Interbank Offered Rate (Euribor) to a rate based on the bank’s Cost of Funds (BCOF). The defendant had written to the plaintiffs stating that since 2007, the defendant had experienced a significant increase in its funding costs, driven by prevailing market conditions which were outside of its control.

The plaintiffs issued proceedings alleging that had the interest rate not been changed, about €700,000 would have been saved by them on the cost of the borrowings.

The High Court

The High Court analysed the construction of the commercial contract, refusing to accept that the discretion conferred on the defendant could only be exercised in response to a change in market conventions.

The court observed that the construction urged by the plaintiffs, that the words “whether to take account of a change in prevailing market conventions in Ireland or otherwise” qualified and delimited the defendant’s absolute discretion and would require the court “to treat the words ‘or otherwise’ as strictly referable to the words ‘in Ireland’ and therefore synonymous with ‘or elsewhere’”.

The High Court was satisfied that the words “or otherwise” did not restrict or limit the bank’s discretion but instead emphasised the extent of the discretion and confirmed that the reference to changes in prevailing market conventions is illustrative and that the discretion could be exercised for other reasons.

In the circumstances, the court found that the proper construction of the clause permitted the defendant to change the method of calculating interest from one based on Euribor to one based on BCOF.

The Court of Appeal

On appeal, the Court of Appeal considered the contra proferentem principle, noting that same applies only if the words in issue in a contract are reasonably capable of having more than one meaning.

Having heard the parties, the court opined that the appellants had misconstrued the terms of the final paragraph of Clause 5, noting: “There could be no dispute that the express words used in that paragraph plainly entitle the Bank, in its discretion, to change the method for calculating the interest rate where a change in prevailing market conventions in Ireland occurs which the Bank wishes to take into account.”

The court continued: “It is accepted by the Bank that no such change in prevailing market conventions occurred in Ireland prior to its letter of 11th October 2011. However, to my mind, the express language of the paragraph does not limit the circumstances in which the Bank may exercise its power to those involving a change in market conventions. That is clear from the use of the words ‘or otherwise’.”

Finding for the defendant, the court observed there was nothing to suggest that a change in prevailing market conventions elsewhere than in Ireland would have any impact on the defendant and that it was improbable that a reasonable person in the position of the parties would have considered that the language was intended to address not only changes in market conventions that affected the defendant, but also those which did not.

The Supreme Court

On appeal to the Supreme Court, the plaintiffs asserted that a point of law of general public importance arose.

The plaintiffs highlighted the “dramatic alteration” in interest rates for the purpose of the defendant’s own interests which could not be contemplated by rational business people, and pointed out that 8,000 customers were similarly affected.

The defendant suggested that the matter was an inter-partes one and that insofar as other customers were affected, this was “in the past” and statute-barred.

Having considered the parties’ submissions, the Supreme Court found that this standard clause had affected many more customers than the plaintiffs and that while “the number is uncertain and any issue as to efflux of time may be germane to other customers, it remains the case that this was a standard clause which had a serious impact on borrowing and on the margins of commercial customers”.

The Court continued in light of the term being a standard one, “it remains important to construe the range of options open to a bank where a general discretion clause as to changes in interest is involved on the basis of the ostensible wording of a banking contract and to construe whether there are limits as to what a bank may do or whether in effect a carte blanche is agreed as between customer and bank and how that may be so”.

Conclusion

Accordingly, the Supreme Court granted leave to appeal on the following grounds:

1. The proper construction of the interest variation clause in the standard loan letter exemplified by the subject agreement (offer letter of 10 November 2009 and signed by the plaintiffs) and the standard terms and conditions thereto. 
2. Whether any limits might be placed on the ostensible discretion of the bank to alter interest rates.

Harte & Ors v The Governor and Company of the Bank of the Ireland [2026] IESCDET 35