Court of Appeal dismisses appeal, upholding High Court's finding that the Bank could alter interest rate calculation per the loan agreement.

THE COURT OF APPEAL

CIVIL

Approved/No redactions needed

Record Number: 2025/35

High Court Record Number: 2017/9086P

Neutral Citation Number [2025] IECA 233

Binchy J. Pilkington J. McDonald J.

BETWEEN/

SEAN HARTE, PATRICK McCARTHY, JOHN O’MEARA AND

GERALDINE BALFE

PLAINTIFFS/APPELLANTS

-AND-

THE GOVERNOR AND COMPANY OF THE BANK OF IRELAND

DEFENDANT/RESPONDENT

JUDGMENT of Mr. Justice McDonald delivered on 24th November 2025

Introduction

1. This is an appeal from a decision of the High Court (O’Donnell J.) in relation to the interpretation of a commercial loan agreement entered into between the parties in 2009. In a very clear and succinct judgment ([2024] IEHC 714) delivered on 18th December 2024, the High Court judge dismissed the case made by the plaintiffs/appellants (“the appellants”) that, under the terms of the loan agreement between the parties, the defendant respondent (“the Bank”) was not entitled to alter the method of calculation of the interest rate applicable to the underlying loan facilities. The appellants seek to overturn the decision of the High Court on the basis that the High Court judge erred in his interpretation of the relevant loan agreement.

2. The outcome of the appeal hinges on the meaning to be given to a number of provisions of a loan agreement entered into between the parties in late 2009. The terms of that agreement between the parties are to be found in an offer letter of 10th November 2009 which was accepted by the appellants on 11th December 2009. The net issue that arises is whether, under the terms of that offer letter, the Bank was entitled in October 2011 to change one of the elements by reference to which the interest rate was calculated under the loan agreement.

3. In order to understand how this issue arises, it is necessary to first identify and consider the relevant provisions of the Bank’s offer letter together with the standard terms and conditions that were contained in an appendix to that letter.

The Bank’s offer letter

4. By offer letter dated 10th November 2009, the Bank offered “subject to the terms and conditions outlined below and in the attached appendix …” to make available two loan facilities. There was an appendix attached to the letter which contained the Bank’s standard terms and conditions (“the STCs”) and p. 5 of the letter stated that, if there was any conflict between the STCs and the terms of the offer letter, the latter would prevail. The relevant provisions of the STCs will need to be examined in some detail but before, doing so, there are a number of aspects of the offer letter that should be noted.

5. The offer letter contained an offer of a loan facility of €12.2 million to assist with the development of an industrial premises at Rathcoole Co. Dublin and a loan of €2.8 million to assist with the purchase of the premises. The letter stated that the interest rate applicable to the loans was to be a “fixed money market rate”. It was explained on p. 2 that this would be calculated by totalling three components namely (a) the Bank’s “Cost of Funds”, (b) the “Cost of Liquidity” (if applicable) and (c) the Bank’s fixed margin of 2.25% per annum. However, the letter also stated that the actual rate in respect of the Cost of Funds would be determined as of the date of drawdown or two days prior to drawdown in the event that EURIBOR were used. EURIBOR is an acronym for the Euro Interbank Offered Rate which, in broad terms, is the average interest rate at which European banks lend to each other.

6. In so far as the Cost of Liquidity is concerned, Liquidity was defined in the STCs as such additional percentage rate as the Bank should determine to be necessary to compensate the Bank for the cost to the Bank during the term of the facility arising from the imposition of any liquidity requirement by a regulatory authority such as the Central Bank of Ireland or the ECB.

7. With regard to the Bank’s fixed margin, although a rate of 2.25% was identified as the third component of the money market rate, the letter stated that this element would be determined at the date of drawdown. The letter, nonetheless, gave a number of “indicative all inclusive rates” depending on the length of the fixed rate chosen running from 2.98% for a 3 month fixed period to 5.18% for a 5 year fixed rate period chosen.

8. For completeness, it should be noted that the offer letter also envisaged that, within

9 months of drawdown, the loan facilities would be restructured into a single commercial mortgage repayable over 240 months and that the margin would then reduce to 2%.

The drawdown of the facility

9. The appellants maintain that it was agreed with the Bank that the interest rate applicable to the loan would be a fixed money market rate fixed for successive 3-month periods by reference to EURIBOR. The appellants also maintain that this was common case at the trial. In support of the latter proposition, they quoted from an exchange between the judge and counsel for the Bank on Day 3 of the trial in which the judge asked whether there was any dispute that, when the parties entered into the contract, it was agreed that, not only was the loan to be at a fixed money market rate but also one in which EURIBOR was the reference rate to which counsel replied that “there is no doubt at that stage yes”. (my emphasis).

10. On drawdown, the interest rate was calculated by reference to EURIBOR. The plaintiffs’ evidence in the High Court was that they insisted that the interest rate should be fixed by reference to EURIBOR. In para. 45 of his judgment, the High Court judge observed that there did not appear to be any real dispute about this and he said that the final agreement was that interest would be calculated by reference to a 3-month EURIBOR rate plus 2.25%. The Bank’s decision to change the method of calculating interest

11. On 11th October 2011, the Bank wrote to the appellants informing them of a change to the method of calculating interest. The first substantive paragraph of the letter noted that:“Since 2007 the Bank had experienced a significant increase in its funding costs, driven by prevailing market conditions which were outside of our control.” The reference to prevailing market conditions should be noted. That is not the phrase which is expressly used in the relevant provision of the Bank’s STCs which gives the Bank power to change the method for calculating interest. That provision expressly refers to changes in market conventions which the experts on both sides agreed is not the same thing as changes in market conditions.

12. In the letter, the Bank stated that, in the period since 2007, it had been paying a premium over publicly quoted interest reference rates to funds its lending to customers. It went on to state: “In an effort to recoup some of these higher input funding costs, with effect from 16th November 2011, Bank of Ireland is changing the method of calculating its interest rate on your term lending facility(s) from the current Euribor I Euro Interbank derived reference rates to a reference rate based on Bank Cost of Funds (‘BCOF’).”

13. The Bank also stated: “The BCOF will be calculated on a daily basis and will represent the cost to the Bank of funding in the domestic and international market from consumer, business and institutional sources. The BCOF will be available to customers through our Branch Network and Relationship Managers.” The appellants’ challenge to the change implemented by the Bank

14. The Bank explained in the letter that the effect of this change would be to add 0.7% to the interest rate. The Bank’s entitlement to make this change was strongly disputed by the appellants. They paid the new rate under protest but launched these proceedings against the Bank in October 2017. The statement of claim contained claims based on a variety of causes of action including negligence and negligent misrepresentation. It was alleged, for example, that the Bank had assured the appellants that the interest rate applicable to the loans would be based on EURIBOR for the duration of the loans. However, as the High Court judge noted in para. 2 of his judgment, the appellants, at the hearing, relied solely on a claim based on breach of contract. As the judge explained, the result was that the case fell to be determined on the interpretation of the contract between the parties. The appeal must therefore proceed on the same basis and no account can be taken of the other claims made in the proceedings.

15. It is trite law that, in interpreting the terms of a written contract, the contract must be construed as a whole. For that reason, it is necessary to consider not only the terms of the offer letter itself but also the provisions of the STC’s contained in the appendix to the letter. As the judge observed in para. 22 of his judgment, the STCs are of critical importance to the issue.

Relevant provisions of the STCs

16. The STCs appear to be designed to deal with a variety of different loans available from the Bank including variable interest rate loans, fixed interest rate loans and money market rate loans. Clause 5 of the STCs sets out detailed terms in relation to interest rates. Attention was drawn to clause 5 on p.1 of the offer letter which stated, under the heading “Interest Rate”, that the “actual interest rate will be determined on drawdown and subsequent roll-over dates (if applicable) and as set out in Clause 5 of the standard Terms and Conditions set out in the Appendix hereto” (emphasis added). As counsel for the Bank observed in the course of the hearing of the appeal, Clause 5 was not an obscure provision. It was expressly identified on the face of the offer letter as relevant to the interest rate.

17. Clause 5(i) set out that the Bank offered both fixed and variable rates of interest. It also identified that fixed rates may be offered which are tied to money markets. In that context, the last subparagraph of clause 5(i) stated that: “On occasion, the Bank, on request, will quote fixed rates which are tied to money markets. These should be viewed as Market Related Loans for the purpose of liquidity costs, margins, drawdown and rollover procedures. The Cost of Funds will be agreed with the customer on an individual basis prior to drawdown.” (emphasis in the appellants’ submissions)

18. The term “market related rates” was then described in clause 5(ii) as follows:- “These are Market Related Rates and are fixed for periods not exceeding 12 months. The Market Related Rate(s) set out in this Offer Letter will be determined by the Bank. with reference to three components: " (emphasis added).

19. As noted previously, the three components of the calculation of the market related rate were set out on p. 2 of the offer letter. More detail in relation to these components was provided in clause 5(ii) of the STCs. In the case of the first component (i.e. the Bank’s Cost of Funds), the STCs identified two alternative bases by reference to which rates could be determined. The first of these (described as “1 a”) was "Cost of Funds", and the second (described as “1 b”) was EURIBOR. According to the trial judge, there was no dispute that the rates in this case as set out in the letter of loan offer were to be determined by reference to EURIBOR. In that regard, the STCs describe EURIBOR as follows: “The rate determined by the Bank, two Rate Fixing Days prior to drawdown and calculated by reference to the rate at which Euro Interbank term deposits, (quoted for spot value on an adjusted 365 day count basis, for a period corresponding to the relevant interest rate period) are being offered within the EMU zone, by one prime bank to another at 11. 00 a.m. (Brussels time). EURIBOR will be quoted to the bank on a 360 day count basis, adjusted to a 365 day count to take account of existing market practice in Ireland. The amount of interest will vary only to the extent of differences attributable to rounding, when the rate is adjusted from 360 to

365 days. EURIBOR can be availed of any Rate Fixing Day. Rate Fixing Day means any day on which banks are open for general business in Ireland and ‘Target’ is operating. ‘Target’ means the ‘Trans European Automated Real-Time Gross Settlement Express Transfer’ System to facilitate, inter alia, large value interbank same day payments, which is scheduled to operate every day excluding Saturdays, Sundays, Christmas Day, 26th December, New Years day, Good Friday, Easter Monday and 1st May”

20. The second identified component (namely the Cost of Liquidity) by reference to which market interest rates are to be determined is described in clause 5(ii) of the STCs under the heading “Liquidity Costs/Reserve Asset Cost”. These are defined as follows: “Such additional percentage rate as the Bank shall determine to be necessary to compensate the Bank, for the cost to the Bank, during the period of the facility of funding or maintaining a facility in the relevant amount, by reason of the Reserve Asset Requirement relative to such period Reserve Asset Requirement means any liquidity, reserve ratio, special deposit or similar requirement (or other requirement having or not having the force of Law with which the Bank has complied” (emphasis added).

21. The third component by reference to which market interest rates are determined (namely the Bank’s fixed margin) is described in clause 5(ii) of the STCs under the heading “Bank Lending Margin” as follows:- "The margin is as stated earlier in this Offer Letter, Such margin may be increased at any time, at the discretion of the Bank, if in the opinion of the Bank, there is an Event of Default or failure to complete and deliver security in the form specified in this Offer Letter or where the bank has permitted drawdown without satisfaction of conditions precedent in this offer letter. Such increase in margin will be notified to the Borrower in writing and will be effective from the date specified therein."

22. A little later in Clause 5, the following was stated under the heading “Market Related Drawdown/Rollover Procedures” in the context of market related rates: "All facilities based on Market Related Rates are subject to interest rate period determined on the date of original drawdown or such other period (i.e. 1, 3, 6 or

12 months), as may be agreed between Banker and Borrower. On the termination of the original interest rate period and all subsequent interest rate periods determined, unless the Bank is contacted by the Borrower in accordance with these provisions, the Bank will rollover the facility for the same interest rate period, as originally determined, at the prevailing interest rate on the date of rollover, for the relevant interest period. In the case of rate being determined, inter alia by reference to Euribor, the rate applicable will be set two Rate Fixing Days prior to rollover. The Borrower will be notified in writing of the new interest rate on the next rollover date." (emphasis added).

23. Thus, Clause 5 envisaged that, on a rollover date, the interest rate previously applicable might require adjustment to reflect the prevailing rate at the date of rollover save that, in the case of rates based on EURIBOR, the rate would be set two “Rate Fixing Days” prior to roll-over. For present purposes, nothing turns on the meaning of a “Rate Fixing Day” but that term was defined in clause 5 defined as “any day on which banks are open for business in Ireland and ‘Target’ is operating. ‘Target’ means the ‘Trans European Automated Real-Time Gross Settlement Express Transfer’ System to facilitate … large value inter-bank same day payments…”.

24. Having addressed market related rates, clause 5 of the STCs next went on to describe "Calculation of Interest and Conversions". It is clear from the opening words of the paragraph under that heading that the paragraph was intended to apply to all facilities (i.e. not just market related facilities). The relevant paragraph stated:- "For all facilities set out in this Offer Letter, the Bank will determine the rate of interest. Interest will be calculated and accrued daily on the basis of a 365 day count and be computed and payable by the Borrower on the daily balance outstanding (after adjustment is made for items in the course of collection) on the facility and shall be compoundable at such quarterly or other periodic rests as the Bank, in its absolute discretion, shall determine and in accordance with the Bank's practice for accounts, from time to time."

25. The final paragraph of clause 5 of the STCs is particularly important in the context of this dispute. It gave the Bank a discretion to alter the method for calculating the interest rate in certain circumstances and the Bank has relied on this provision as the basis for its contention that it was entitled to make the alteration in issue in October 2011. The relevant paragraph was entitled "Change in the Method of Calculation of Interest for all facilities set out in this Offer Letter" and it provided that:- “The method for calculating interest and the interest rate may be changed in respect of all facilities from time to time at the Bank's absolute discretion whether to take account of a change in prevailing market conventions in Ireland or otherwise. In the event of such change occurring during the continuance of this facility, the Bank will give to the Borrower one month's prior notice that such change is to take place with effect from the date of expiry of such notice."

26. The term “prevailing market conventions” was not defined but it is a technical term that was addressed in the evidence of the experts called by both sides at the trial. Its meaning is considered further below. It is clear from the expert evidence at the trial that there was nothing to suggest that a change in market conventions led to the Bank’s letter of 11th October 2011.

27. For the purposes of this appeal. the aspects of clause 5 identified above are the most relevant elements of the STCs. For completeness, the terms of clause 20(iv) of the STCs should also be noted. It provided that the captions used in the offer letter (which includes the STCs) "are for convenience of reference only and shall not define or limit the provisions hereof.” This is relevant to one of the arguments raised by the appellants in their written submissions.

28. Before turning to the decision of the High Court judge, it may be helpful to address the meaning of “prevailing market conventions” which, as noted above, is the phrase used in the crucially important final paragraph of clause 5. The expert evidence as to the meaning of “prevailing market conventions”

29. Expert evidence was given at the trial dealing with the meaning of the term, “prevailing market conventions”. Such evidence is admissible where it is necessary to explain a technical word or phrase in a written contract. In his evidence on behalf of the plaintiffs, Mr. Francis O’Neill contrasted the term with “prevailing market conditions” which he described as factors outside the control of a bank which can greatly affect lending activities. His evidence was that, between 2009 and 2011, market conditions tightened and that this affected the ability of banks to raise competitively priced funding. He expressed the view that it was a change in market conditions that led to the change in 2011 to the Bank’s cost of funds.

30. In contrast, he explained that, in the context of interest rates, “prevailing market conventions” relate to the conventional standards followed by financial service providers reflecting the consensus view of the market and current accepted practices. According to him, they are structural and systemic in nature and that, in loan transactions such as those in issue, the EURIBOR rate is the main systemic component of the interest rate calculation. His evidence was that this is separate to the idiosyncratic or bank transaction specific elements that can be utilised by banks as part of their methodology of structuring rates.

31. Mr. Ian Tyler gave evidence on behalf of the Bank. According to the judge, he did not take substantive issue with Mr. O’Neill’s description of market conventions but he said that his understanding was that the Bank was not seeking to rely on market conventions to justify or explain the change in the approach to the calculation of interest.

32. The extent of the agreement between the experts is also reflected in para. 1 of the joint memorandum of agreement between them in which it was expressly agreed that “the level of a bank’s funding costs and the sources of a bank’s funding are matters relating to Market Conditions” and they also agreed that “there was no change in Market Conventions preceding the Bank’s adoption of a cost of funds approach. This change occurred within the context of a tightening of Market Conditions.”

33. At para. 66 of his judgment, the judge observed that expert evidence was ultimately of little relevance to the issue before the High Court. He also noted that the appellants did not contest the motivation or suggest that the Bank did not act other than on a reasoned commercial basis. He added in para. 67 that the most relevant aspect of the expert evidence was that the changes made by the Bank were in response to tightening market conditions and there were no changes in market conventions. I agree with the judge’s observations in this context. It was helpful to have expert assistance in relation to the meaning of the technical term “market conventions”. It was also helpful to have agreement between the parties that the change introduced by the Bank in October 2011 was prompted by changed market conditions rather than changed market conventions. However, the expert evidence was otherwise unnecessary in a case which depended on the interpretation of a written contract. As all of the relevant Supreme Court case law makes clear, such a contract is to be objectively construed by the court, as a whole, without reference to the subjective views of the parties or their advisors. Taking both the language of the contract and the objective

factual background into account, the court is required to assess the meaning which the words of the contract would convey to a reasonable person in the position of the parties at the time the contract was put in place.

The decision of the High Court judge

34. The judge concluded that the Bank was entitled, under the terms of the final paragraph of clause 5 of the STCs, to effect the change proposed by it in October 2011. He held that the Bank could take that course in its absolute discretion and that its discretion to do so was not limited to circumstances where there was a change in market conventions. In paras. 88 and 89 of his judgment, he set out his reasons as follows: “88. I do not accept that the discretion conferred on the Bank by the final subclause can only be exercised in response to a change in market conventions. The reference to market conventions is unhelpful and introduces potential uncertainty to what otherwise is a clear piece of drafting. However, the construction urged by the plaintiffs requires the court to conclude that the reference to ‘absolute discretion’ means something quite different. The plaintiffs say that the words ‘whether to take account of a change in prevailing market conventions in Ireland or otherwise’ qualifies and delimits the ‘absolute discretion’. As noted above this requires the court to treat the words ‘or otherwise’ as strictly referable to the words ‘in Ireland’' and therefore synonymous with ‘or elsewhere’.

89. I do not accept that the plaintiffs’ construction is correct. The fact is that the subclause does not use the words ‘or elsewhere’. I consider that the use of the words ‘or otherwise’ does not restrict or limit the discretion but instead operates to emphasise the extent of the discretion. The discretion is described as ‘absolute’. The words ‘or otherwise’ confirm that the reference to changes in prevailing market conventions is illustrative. The Bank's absolute discretion to change interest rates or the method for calculating interest can be to take account of change in market conventions or otherwise, where ‘otherwise’ means 'for other reasons’”.

The appeal

35. In their appeal, the appellants seek to make a number of arguments. These are addressed in turn in this judgment. In para. 11 of their submissions, the appellants confirm that there is no dispute on the facts and that the core issue is whether the final paragraph in clause 5 of the STCs entitled the Bank to replace a reference rate for the mortgage based on EURIBOR with a differently composed reference rate based on the Bank’s cost of funds.

36. The appellants advanced a number of different arguments in support of the appeal. The principal arguments can be broken down as follows:

(a) The loan agreement distinguished between the concept of calculation of the interest rate, on the one hand, and the selection of the interest rate components, on the other. While the Bank had power under the final paragraph of clause 5 of the STCs to change the former, it was not entitled to unilaterally change one of the interest rate components. They contended that the High Court judge erred in taking a contrary view;

(b) They also maintained that the High Court judge misconstrued the meaning of the words “whether to take account of prevailing market conventions in Ireland or otherwise” in the final paragraph of clause 5. They contended that the judge had given an interpretation to the final paragraph that rendered those words meaningless. They also argued that he had failed to apply a number of canons of construction used in the interpretation of contractual provisions;

(c) The appellants also argued that, even if the Bank was entitled under the final paragraph of clause 5 to change the reference rate for the loan, it was not entitled to create an entirely new reference rate which was not already provided for in the loam agreement;

(d) A further argument made by the appellants was that the judge had applied a onesided view of commercial common sense that was weighted in favour of the Bank;

(e) It was also argued that the judge, in interpreting the loan agreement, had impermissibly relied on evidence as to its meaning given by Mr. Ian Tyler, the expert witness called by the Bank;

(f) The appellants also sought to raise an issue that the Bank had failed to bring the final paragraph of clause 5 to their notice.

37. I now deal with these arguments in turn. The argument that the loan agreement distinguished between the concept of calculation of the interest rate and the selection of the interest rate components

38. In para. 10 of their written submissions, counsel for the appellants contended that the Bank had no entitlement, under the terms of the first sentence of the final paragraph of clause 5, to replace the agreed EURIBOR reference rate with an entirely novel reference rate of the Bank’s own creation. The appellants submitted that the Bank was entitled under that paragraph to change the method of calculating the interest and the method for calculating the interest rate but that it was not entitled to change the actual components of the interest rate (i.e. the inputs into the method, (a) + (b) + (c)) which had been agreed between the parties as reflected in the terms of p. 2 of the offer letter. They maintained that, while the opening sentence of the paragraph entitled the Bank to change the “method for calculating interest and the interest rate”, those words do not capture a change in the components of the interest rate. They argued that the judge was therefore in error in the conclusion which he reached.

39. In making that argument, counsel for the appellants submitted that the contract must be considered as a whole (which, of course, is correct) and that, when read in that way, it is clear that the loan agreement distinguished between two distinct concepts relating to the interest rate. First, clause 5 expressly provided that the interest rate will be determined by reference to three specifically identified components. They highlighted the words: “The Market Related Rate(s) set out in this Offer Letter will be determined by the Bank. with reference to three components” in the second sentence of clause 5(ii) and they also referred to the first sentence of the paragraph under the heading “Calculation of Interest and Conversions” which states: "For all facilities set out in this Offer Letter, the Bank will determine the rate of interest.”

40. Counsel for the appellants contended that the process of determining the rate of interest entails the application of the three substantive components of the rate. They contrasted that with the way in which clause 5 expressly addresses the calculation of interest which they submitted is treated in the loan agreement as a different concept to determination of the rate. They referred in this context to what is said on p. 2 of the offer letter where it was stated that money market rates are “calculated by totalling” the (a), (b) and (c) components previously discussed and they also highlighted the heading “Calculation of Interest and Conversions” above the paragraph quoted in para. 24 above and some of the words which follow under that heading namely “Interest will be calculated and accrued daily on the basis of a 365 day count and be computed and payable by the Borrower on the daily balance outstanding … on the facility”. They go so far as to suggest that the bold print used in the heading above that paragraph should be construed as “emphasis”. In my view, the latter suggestion is plainly incorrect. As noted in para. 27 above, clause 20(iv) of the STCs made very clear that the captions (i.e. the headings) are solely for convenience and do not define or limit the provisions of the STCs.

41. Counsel for the appellants then maintained in para. 17 of their submissions that the components comprised in the substantive composition of the interest rate do not comprise the method for calculating interest or the interest rate. Instead, those components are determined by the Bank or agreed between the parties (as EURIBOR was here) while the interest and the interest rate was in each case calculated on the basis set out in the loan agreement.

42. The appellants also sought to make the case that, in para. 85 of his judgment, the judge took an overly narrow view of the appellants’ argument and that he failed to address their submission that the parties expressly distinguished the concept of calculation from the selection of the interest components. They submitted that, wherever the loan agreement refers to the selection of the reference rate component, the parties used the term “determine” but, elsewhere, when addressing the computation of the rate, they used the term “calculate”.

43. I do not believe that the appellants are correct in their contention that the loan agreement makes a distinction of this kind between the determination of the rate and calculation of the rate. In my view, the Bank has persuasively demonstrated that, when considered as a whole, the loan agreement uses these terms interchangeably such that the word “determined” cannot be said to be reserved solely for selection of the interest rate components

44. In this context, it is important to keep in mind that, as counsel for the Bank emphasised in their written submissions, the words “calculated” and “determined” are not defined terms in the loan agreement. As further emphasised by counsel for the Bank, when one looks at the way both words are used in the loan agreement, they are used interchangeably. The loan agreement does not set up any demarcation between them in the manner suggested by the appellants. Counsel for the Bank identified a number of examples of interchangeable use. Two examples are sufficient for this purpose. First, counsel for the Bank referred to the top of p. 2 of the offer letter where different indicative rates were given for the Bank’s fixed margin depending on the length of the fixed interest period and where it was stated that “while the actual rate will be determined at date of drawdown, indicative all inclusive rates for a number of fixed rate periods will be as follows …” (the Bank’s emphasis). The Bank submitted that, on the appellants’ logic, these rates are “the sum of the calculation of the three components”. On that basis, the Bank argued that “determined” is there being used to mean “calculated”. That seems to me to be correct.

45. Second, counsel for the Bank also highlighted the language which appeared under the heading “Terms of Facilities and Repayment” further down on the same page of the offer letter where it was stated that “Exact repayments will be determined on date of drawdown based on the interest rate then prevailing”. As counsel for the Bank noted, in that sentence, the word “determined” is plainly used as a synonym for “calculated”. In my view, that is obviously correct.

46. In addition to the examples cited by the Bank, it is also important to keep in mind the terms of the offer letter itself. While the appellants have highlighted the use of the words “The Market Related Rate(s) set out in this Offer Letter will be determined by the Bank with reference to three components…” in clause 5 of the STCs, the offer letter itself used different language in precisely the same context. On p. 2 of the offer letter, it is stated that “Money Market Rates are calculated by totalling the following …” (emphasis added). It has to be kept in mind in this context that, as I have previously mentioned, the offer letter made clear that, in the event of any conflict between them, its terms prevailed over the provisions of the STCs.

47. Thus, when the loan agreement is construed as a whole, it cannot plausibly be said that it makes a distinction of the kind suggested by the appellants between the meaning of the words “determined” and “calculated”. I would accordingly reject this element of the appellants’ arguments.

48. It is unsurprising that, in his oral argument, counsel for the appellants moved away from the submission based on the suggested dichotomy between “calculate” and “determine”. Instead, counsel focused on the detail of clause 5 and he made a number of arguments in relation to it. First, he contrasted the final paragraph of the clause (dealing with the power to alter the method for calculating the interest rate) with the very specific way in which, for example, an earlier paragraph of clause 5 addressed the power to increase the Bank’s margin as set out on p. 10 of the STCs under the heading “Bank Lending Margin”. The relevant paragraph stated:

“(3) Bank Lending Margin

The margin is as stated earlier in this offer letter. Such margin may be increased at any time, at the discretion of the Bank, if, in the opinion of the Bank, there is an Event of Default or failure to complete and deliver security in the form specified in this Offer Letter or where the Bank has permitted drawdown without satisfaction of Conditions precedent in this Offer Letter. Such increase in margin will be notified to the Borrower in writing and will be effective from the date specified therein.”

49. In my experience, this is a fairly standard provision in a loan agreement between a commercial bank and a customer and is designed to allow the lender to increase its margin where there has been a change in circumstances of a kind which is perceived by the lender as giving rise to an increased level of risk. Nonetheless, counsel for the appellants contrasted the very explicit way in which that power was spelt out in that paragraph, on the one hand, and what he sought to characterise as the much “weaker” way in which the final paragraph was formulated, on the other hand. He submitted that this made it very unlikely that it was intended to have the “muscular effect” which the Bank contends for.

50. I accept that, as part of the construction of the loan agreement as a whole, the difference in language between these two paragraphs of clause 5 should be borne in mind. However, I would not characterise the paragraph dealing with the Bank’s ability to increase its margin as “muscular”. It seems to me that the paragraph very carefully limits the power of the Bank to increase its margin to the very specific circumstances enumerated in the paragraph. The Bank is not given any wider power to do so and the paragraph does not contemplate that the Bank would have any discretion to increase its margin in any circumstance other than those specifically listed in that paragraph. These limitations on the Bank’s power to increase the margin are to be contrasted with the final paragraph of clause

5 which, by its terms (in particular the use of the words “or otherwise”), appears to permit the Bank to alter the method for calculating the interest rate in some circumstances which are not spelt out in the paragraph.

51. It will be necessary, in due course, to consider the language of the final paragraph of clause 5 in more detail. It is sufficient to note, at this point, that since express provision is made in one section of clause 5 empowering the Bank to increase its margin in certain specified circumstances, the general provisions of the final paragraph of the clause could not plausibly be construed as giving any additional power to the Bank to increase its margin. As counsel for the Bank acknowledged, the clause expressly dealing with the power to vary the margin would appear to have the effect that the final subclause was not intended to empower the Bank to increase the margin in any wider circumstances.

52. Before leaving the issue of the Bank’s margin, it should be noted that, at one point in the course of the hearing of the appeal, counsel for the appellants suggested, on the basis of an internal document produced by the Bank in October 2011, namely a business banking repricing proposal, that the Bank had increased its margin in October 2011. However, in response to questions from members of the Court, he acknowledged that there was no finding to that effect made by the High Court and also that, as noted above, it had been expressly agreed in the joint memorandum of the experts that the change effected by the Bank in that month “occurred within the context of a tightening of Market Conditions” which he accepted involved increased costs for the Bank.

53. Moreover, in response to this point, counsel for the Bank drew the Court’s attention to another internal document, namely an appendix to a business banking proposal dated 20th December 2020, which showed that the capacity of the Bank to fund interest costs was deteriorating over the period from 2008 to 2010 from a marginal 0.11% in 2008 to 1.29% at the end of June 2010 and 1.12% at the end of September 2010.

54. In the course of the hearing of the appeal, counsel for the appellant also drew attention to way in which the final paragraph of clause 5 is stated to be applicable to “all facilities”. He suggested that this shows that the power to change the method of calculation should be narrowly construed. He asked rhetorically whether clause 5 could conceivably entitle the Bank to change a fixed rate loan to a variable rate. He submitted that this could not have been the intention of the paragraph. I agree that it is unlikely that the paragraph could be interpreted so broadly but it is necessary to keep in mind that the Bank has not made the case that the paragraph goes so far as to entitle it to alter a rate of interest simpliciter. The issue in this case is whether the change signalled by the Bank in October 2011 was a change to the method for calculating the interest rate. If that is, in truth, what occurred, then there is plainly scope to conclude that the change falls within the ambit of the opening words of the paragraph: “The method for calculating interest and the interest rate …”. In those circumstances, I do not believe that it is necessary to consider whether, notwithstanding the reference to “all facilities”, the power given to the Bank under the paragraph in issue is sufficiently wide to enable the Bank to make changes to the rate of interest applicable to a fixed rate mortgage during the currency of a fixed rate period. It may well be that the power is not so wide but it is unnecessary for present purposes to so decide. It is also unnecessary to decide whether the power has any application to variable rate mortgages where, by their very nature, the Bank has a power to vary the rate applicable from time to time.

55. Counsel for the appellants also submitted that, in construing the loan agreement, clause 6 (dealing with early repayment) is of assistance. It envisages that there will be a funding sum payable by a borrower in the event where, for example, a fixed or market related rate is converted to a variable interest rate or where, before the expiry of a fixed interest period, a new fixed interest rate is put in place. The underlying intention of the clause appears to be to compensate the Bank in the event that a change is made to the nature of the loan which has the effect that the Bank will not earn the level of return it expected to earn if the relevant fixed interest period had run its course. Counsel for the appellants submitted that what occurred here in October 2011 was more akin to a conversion of interest rate than a change in the method for calculating the rate.

56. The Bank rejected this argument. In para. 3.18 of the written submissions of counsel for the Bank, it was noted that neither the word “calculate” nor the word “determine” are used in clause 6. It was submitted that clause 6 is dealing with something else, namely the requirement for the borrower to make a “funding sum payment” in certain defined events.

57. In my view, clause 6 is not relevant. It is very clearly directed at a different situation and it only applies in the very specific circumstances identified in the clause as follows: “There will be a funding sum payment by the borrower in the event of:

• early repayment in full

• partial early repayment(s)

• conversion to a variable interest rate

• conversion to another fixed interest rate, within the initial fixed rate period or any further fixed rate period

• failure to drawdown a facility for which the rate has been booked with the Bank in advance The funding sum will be the amount calculated by the Bank of all losses, costs and expenses arising from such events....”

58. Given the very specific terms and subject matter of clause 6, I do not believe that it provides any assistance in relation to the interpretation of the final paragraph of clause 5 which addresses a different issue, namely the power of the Bank to effect a change to the method for calculating the interest rate. The meaning to be given to that paragraph is of crucial importance to the outcome of the appeal. The text of the paragraph is set out in full in para. 25 above. The first sentence of the paragraph is key for present purposes. It states that: “The method for calculating interest and the interest rate may be changed in respect of all facilities from time to time at the Bank's absolute discretion, whether to take account of a change in prevailing market conventions in Ireland or otherwise.”

59. In the High Court, the Bank did not make the argument that the opening words of the paragraph are sufficiently wide to cover a change in the interest rate simpliciter. That is confirmed in para. 3.20 of the Bank’s written submissions. The argument made by the Bank was that, in October 2011, it did not change the rate simpliciter but rather changed how it calculated its market related rates offered to its business customers and that a change of that kind plainly fell within the ambit of the opening words of the first sentence i.e. “the method for calculating interest and the interest rate may be changed …”.

60. In paras. 23 and 24 of their written submissions, counsel for the appellants submitted that the trial judge fell into error when he said in para. 90 of his judgment that the Bank was entitled under the paragraph to change both (a) the method for calculating the interest rate and (b) the interest rate. In para. 24, they submitted that this “error” on the part of the judge is fundamental in the context of the nature and scope of the power conferred on the Bank.

61. It is true that, in para. 90 of his judgment, the judge suggested that the Bank is entitled to change both the method for calculating the interest rate and the interest rate itself. It is also true that the Bank did not go so far as to argue that the final paragraph of clause 5 permits it to change the rate of interest simpliciter on a fixed rate loan. However, I do not believe that this undermines the validity of the judge’s interpretation of the paragraph in issue. Crucially, he did not make any finding that the Bank had changed the interest rate. On the contrary, it is clear from para. 91 of the judgment that the judge proceeded on the basis that what the Bank had done was to change the method for calculating the interest rate. In the concluding sentence of that paragraph, he said: “Accordingly, the Court finds that the proper construction of the final sub clause in clause five of the STCs, which formed part of the contract between the parties, permitted the Bank to change the method of calculating interest from one based on Euribor to one based on BCOF” (emphasis added)..

62. That is the ultimate finding made by the High Court judge. The appellants fundamentally disagree with that finding. They maintain that the approach taken by the Bank in October 2011 went much further than changing the method of calculation of the interest rate and that the final paragraph of clause 5 does not permit the Bank to alter one of the three components of the rate.

63. In my view, the judge was correct in reaching the conclusion that the change made by the Bank in substituting the Bank’s cost of funds for EURIBOR fell within the ambit of a change in the method of calculating interest on the appellants’ loan. For the reasons previously discussed, I have already rejected the appellants’ arguments that the loan agreement makes a distinction between “determination”, on the one hand, and “calculation”, on the other.

64. I also cannot accept the appellants’ argument that the three components of the interest rate do not comprise inherent elements of the method for calculating the interest rate for a money market rate loan. In this context, it is instructive to consider the appellants’ submission in relation to Part 2.4 of the expert report of Stephen Scott (which was admitted into evidence in the High Court by agreement). In that part of his report, Mr. Scott explained the steps involved in calculating the interest rate and the resulting interest applicable to the loan in each interest payment period. That part of his report bears the revealing heading “Methodology” and Mr. Scott made clear, in para. 2.4.1, that his workings are based on the provisions of Clause 5 of the STCs. The purpose of this part of his report is to compute the interest rate by using the relevant EURIBOR rates in the period from 10th November 2011 to 16th November 2016. In their submissions, counsel for the appellants highlighted that the steps taken by Mr. Scott for this purpose involved a number of steps including identifying the prevailing 3-month Euribor rate two rate-fixing days prior to the next interest rollover date, adjusting the Euribor rate for 365 days (as it is quoted on a 360-day count basis), adding in the Bank's margin, and quantifying the daily interest amount. In essence, they suggested that the calculation of the interest rate is confined to the taking of such steps and that the Bank’s power under the final paragraph of clause 5 is confined to changes to the “computational methods for arriving at the applicable … interest rate during each period, but not the reference rate of the Mortgage.”

65. In my view, the appellants’ argument overlooks the very important fact that, under the terms of the loan agreement, the money market rate is expressed to be calculated by totalling three specified components. In the case of the loan agreement negotiated with the appellants, the first of those components was EURIBOR. The inclusion of that factor seems to me to be an inherent element of the calculation of the rate and this is underscored by the calculation made by Mr. Scott in Part 2.4 of his report. Throughout that part of his report, he uses EURIBOR in his calculation of the applicable interest rate. He effectively treats EURIBOR as part of the methodology to be employed in the exercise of calculating the applicable rate. The heading used by Mr. Scott seems to me to encapsulate what is involved.

66. It is, of course, necessary to keep in mind that the evidence of Mr. Scott is not admissible as an aid to the interpretation of the loan agreement but the exercise carried out by him illustrates how the EURIBOR component is used as part of the methodology of the calculation of the interest rate. His “Methodology” label can be readily applied to what is stated in clear terms on p. 2 of the offer letter which, in plain and simple terms, describes the method for calculating a money market rate by totalling the three components identified namely (a) the Bank’s cost of funds/EURIBOR, (b) the cost of liquidity and (c) the bank’s margin. Clause 5 of the STCs repeats a similar methodology albeit that it uses the word “determined” rather than “calculated”.

67. In my view, if, at the time the loan agreement was put in place, a question was asked of a reasonable person in the position of the parties, what is the method of calculating the interest rate, the answer would be obvious. The answer would surely be that, in the case of a money market rate, one calculates the rate by totalling the three components identified in both the offer letter and clause 5 of the STCs. That is the method for calculating the rate of interest under the loan agreement.

68. The final paragraph of clause 5 envisages that, subject to satisfaction of the remaining conditions prescribed by that paragraph, the Bank can make a change to the method of calculation of the interest rate. That leads inexorably to the next question that might be asked of the reasonable person: how then is a change to be made to the methodology described in para. 67 above? Again, it seems to me that the answer is obvious namely that one would do so by making an adjustment to one of the inherent components of the prescribed methodology. It may be that the paragraph of clause 5 dealing with the Bank’s margin restricts the extent to which the final paragraph of clause 5 can be invoked (if at all) to vary the margin but there is nothing else in clause 5 or in the terms of the offer letter itself which imposes a similar limitation on the Bank’s ability to make a change in relation to the cost of funds’ component of the methodology.

69. That conclusion in itself is not sufficient to dispose of the appeal. It deals solely with the opening words of the final paragraph of clause 5. There are a number of other aspects of the paragraph that require consideration. The meaning and effect of the words “whether to take account of prevailing market conventions in Ireland or otherwise”

70. In their grounds of appeal, the appellants contendrd that the High Court judge erred in his interpretation of the concluding words of the paragraph namely: “…at the Bank's absolute discretion whether to take account of a change in prevailing market conventions in Ireland or otherwise”. They made a number of arguments in this context.

71. The appellants argued that the trial judge got it wrong in para. 89 of his judgment when he said that the use of the words “or otherwise” do not restrict the Bank’s discretion but operate to emphasise the extent of the discretion which he noted was described as “absolute”. In the same paragraph, the judge observed that the reference to changes in market conventions was illustrative and that the words “or otherwise” means “for other reasons”.

72. The appellants contended that the judge was wrong for a number of reasons. First, they maintained that his interpretation failed to give meaning to the express language in issue. Second, they contended that his interpretation is contrary to the ejusdem generis principle. In this context, they referred to Mr. O’Neill’s evidence that market conventions can differ between Ireland and other markets and to Mr. Tyler’s evidence under cross-examination that market conventions can be different between one jurisdiction and another and that conventions in Ireland can be different to conventions elsewhere. Against that backdrop, they submitted that the words “or otherwise” should be read as though they meant “or elsewhere”. Third, as noted above, the appellants criticised the approach taken by the judge in para. 89 of his judgment that the words “or otherwise” confirm that the reference to changes in prevailing market conditions is illustrative and that the words “or otherwise” should be construed as “or for other reasons”. They submitted that the approach taken by the judge renders the term "whether to take account of prevailing market conditions in Ireland or otherwise" surplusage. They argued that, in grammatical terms, the judge's interpretation “renders meaningless the entirety of this adverbial, conditional clause, on which the main clause (referring to ‘absolute discretion’) is dependent for its activation”.

73. The appellants also submitted that the High Court judge was wrong in not construing the paragraph in issue against the Bank, as the drafter of the loan agreement (a principle of contractual interpretation commonly described by reference to the Latin tag, contra proferentem.) In that context, one must bear in mind that the contra proferentem principle will only be applied as a last resort in cases of genuine ambiguity. The principle does not mean that a court should automatically construe an agreement in an unfavourable light towards the party who drafted it. The approach to be taken is described in the following way by O’Donnell J. (as he then was) in the Supreme Court in ICDL GCC Foundation FZ-LLC v. European Computer Driving Licence Foundation Limited [2012] IESC 55 at para. 2, “contra proferentem, may usefully be applied not just to exclusion clauses but to a contract in general but normally only as a last resort in the case of ambiguity and not as a general approach. As has been observed, the purpose of the principle is to resolve ambiguity not to create it.” Thus, this principle will only apply if the words used in the paragraph in issue are reasonably capable of having more than one meaning. It is only in cases where more than one meaning is open, that the court takes the meaning which is less favourable to the party who drafted the agreement.

74. Both sides accepted that every word should be given meaning and that it was unlikely that the parties could have intended that any element of the subclause was no more than surplusage. Thus, counsel for the Bank accepted that the term "or otherwise" has to be given some meaning. Counsel for the Bank also highlighted that, in the High Court, the appellants' case was very clearly premised on the proposition that the words "or otherwise" should be construed as meaning "or elsewhere", i.e. in Ireland or elsewhere. He asked rhetorically how what was happening elsewhere than in Ireland could be relevant to a borrower or to the relationship between a borrower and the Bank in terms of conventions. He submitted that it is fanciful to suggest that the method of calculating interest could be changed unilaterally by the Bank in its absolute discretion to reflect market conventions outside Ireland.

75. I believe that the appellants have misconstrued the terms of the final paragraph of clause 5. 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. 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”. In my view, counsel for the Bank was correct in his submission that it is fanciful to think that those words were intended to be confined to a change in prevailing market conventions elsewhere than in Ireland. There is nothing to suggest that a change in prevailing market conventions elsewhere than in Ireland would have any impact on the Bank. The use of the words “whether to take account of a change …” strongly suggests that it is only changes that affect the Bank that are relevant in the context of the exercise by the Bank of its discretion under the paragraph in issue. It is 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 Bank but also those which did not. The use of the word “prevailing” reinforces this conclusion. Market conventions that do not prevail in Ireland are plainly not intended to be taken into account.

76. I do not believe that it is necessary, in the circumstances, to spend much time on the potential application of the ejusdem generis principle. That principle is succinctly explained in McDermott & McDermott, Contract Law, (2nd Ed., 2017) at para. 10.157 as follows: “When a contract term contains a list of specific words followed by a general word, the parties may be taken to have intended the general word to be confined to cover only the same type of matter as that covered by the specific words.”

77. Thus, the principle may be of assistance where there is a specific enumeration of a genus in a contractual provision which is followed by general words such as “or other” or “otherwise”. As the decision of the Supreme Court in Royal Dublin Society v. the Revenue Commissioners [2000] 1 I.R. 270 shows, it is possible, that the enumeration of a single species may be found to constitute a genus for the purposes of the application of the principle. That said, it is generally more difficult to do so in such cases than in circumstances where more than one species is identified. Crucially, the task is always to try to ascertain the intention conveyed by the entirety of the passage in question. Here, for the reasons already discussed in para. 75 above, I do not believe that there is any basis to conclude that the parties intended that prevailing market conventions in Ireland should be treated as a genus such that the words “or otherwise” would be construed in an analogous way.

78. This does not mean that the reference to changes in prevailing market conventions in Ireland is surplusage. In the first place, those words are clearly capable of application where such a change has, in fact, occurred. Secondly, and more importantly, I believe that the appellants are mistaken in concentrating on the words “prevailing market conventions in Ireland”. In my view, they have overlooked a key aspect of the first sentence of the paragraph in issue. The phrase that precedes the words “or otherwise” is not “prevailing market conventions in Ireland” but “a change in prevailing market conventions in Ireland” (emphasis added). The words “or otherwise” must be read in that context. If one considered those words in isolation, they might be thought to have a very wide meaning such as to permit the Bank to effect a change in any circumstances. However, when one considers them in conjunction with the other language used, I believe it is clear that they are not intended to have such an expansive meaning or effect. For this purpose, I do not believe that it is necessary to invoke the ejusdem generis principle. It is sufficient to apply the much more straightforward principle that the words used in a contract must always be viewed in the context of the surrounding words and the language of the contract as a whole. The task is always to ascertain the intention of the parties from the words they have chosen to use in the contract in issue. When read in that way, a word may have a more restrictive (or, as the case may be, a more expansive) meaning than when it is used in ordinary speech. As Lord Hoffmann observed in Charter Reinsurance Co. Ltd. v. Fagan [1997] A.C. 313, at p. 391: “... in some cases, the notion of words having a natural meaning is not a very helpful one. Because the meaning of words is so sensitive to syntax and context, the natural meaning of words in one sentence may be quite unnatural in another. Thus, a statement that words have a particular natural meaning may mean no more than that in many contexts they will have that meaning. In other contexts, their meaning will be different, but no less natural.”

79. In my view, when one looks at the sentence as a whole, the words “or otherwise” were not intended to give the Bank carte blanche to make changes to the method of calculation of the interest rate without any cause. It seems to me to be clear from the structure and terms of the sentence as a whole that the exercise of the Bank’s discretion to change the method of calculation of the interest rate is limited to cases where there has been a change in circumstances which has affected the Bank and which the Bank needs to take into account in the context of the calculation of the interest rate.

As noted in para. 75 above, the use of the words “whether to take account of a change …” strongly suggests that the changes which fall within that category are confined to those that are relevant to interest rates and which affect the Bank such that the Bank requires to take them into account. A change in the prevailing market conventions in Ireland is specifically identified as a change that triggers the ability of the Bank to exercise its discretion to change the method of calculation of the interest rate. In this context, it is clear from the evidence of the appellants’ expert, Mr.

Francis O’Neill (as summarised in paras. 58 and 59 of the High Court judgment) that market conventions are systemic in nature and that they are relevant to the methodology of structuring interest rates. Thus, while market conventions may not be familiar concept outside the world of banking, there is some logic to their enumeration in the paragraph in issue. However, it is clear that the exercise of the Bank’s discretion under that paragraph was not intended to be confined to that concept. The words “or otherwise” signal that it was intended that a change in market conventions is not the only change within the ambit of the paragraph.

On the other hand, for the reasons outlined above, I am of the view that those words cannot be read as giving the Bank a discretion to change the method of calculation in any circumstances whatsoever. Accordingly, there must be a change in circumstances that affects the Bank in a manner that is relevant in the context of the interest charged and which the Bank wishes to take into account. Thus, it seems to me that the words “or otherwise” must be construed as limited to other circumstances of that kind. That does not involve giving those words an artificial or strained meaning.

For example, one of the meanings attributed to the word “otherwise” in the Chambers Dictionary is “by other causes”.

80. While it has not formed part of my thinking in reaching that view, it is noteworthy that this result is consistent with the earlier paragraph of clause 5 dealing with the circumstances in which the Bank may increase its margin and with the provisions of clause

6 which, as discussed in paras. 51 to 54 above, empower the Bank to require payment of a funding sum. In each of these cases, the Bank is not at large. It may only impose an additional charge in response to a relevant change in circumstances. It is therefore unsurprising that the paragraph in issue would only be triggered by a relevant change in circumstances affecting the Bank. In this context, it is worth bearing in mind the observation of O’Donnell J. (as he then was) in Law Society of Ireland v. MIBI [2023] 1 I.R. 479, at pp. 490-491: “An agreement is an exercise in communication and there is a working, though by no means irrebuttable, presumption of coherence. It is important, therefore, to test any interpretation of a clause against the understanding of the agreement to be gleaned from what is said, and sometimes not said, elsewhere in the agreement.”

81. In reaching the view set out in para. 79 above, I have not lost sight of the fact that the paragraph envisages that the Bank has an absolute discretion. Again, those words must be read in context. While the first sentence of the paragraph speaks of the Bank making changes to the method “in its absolute discretion”, it is clear from a consideration of the first sentence, as a whole, that the Bank’s discretion is limited to circumstances where a change has taken place which has affected the Bank’s position.

82. Thus, I would take a somewhat narrower view of the ambit of the Bank’s power under the paragraph in issue than that taken by the High Court judge in para. 89 of his judgment. On the basis of a consideration of the language as a whole, I do not believe that the words “or otherwise” should be interpreted quite as broadly as “for other reasons”. However, I fully agree with the ultimate result reached by the High Court judge in para. 91 of his judgment that the final paragraph of clause 5 permitted the Bank to change the method of calculating interest from one based on EURIBOR to one based on the Bank’s cost of funds. In this case, the experts were agreed that the change implemented by the Bank at the expiry of the one month notice period specified in its letter of 11th October 2011 was in response to a tightening of market conditions. It is inherent in that description that there had been a change in market conditions which had an impact on the Bank. It seems to me to follow that this was a change of the kind falling within the ambit of the final paragraph of clause 5. The appellants’ argument that, even if the Bank was entitled to change the reference rate, it could not create an entirely new rate

83. For completeness, it should be noted that the appellants also argued that, even if the Bank could change the reference rate, the Bank was not entitled to create an entirely new rate which was not already provided for in the Loan Agreement. They referred in this context to the way in which clause 5 of the STCs describes how the reference rate component of the market related interest rate will be determined by one of two options, namely EURIBOR or the rate determined by the Bank on the date of drawdown and calculated by reference to the rate at which the bank can borrow money on the Euro Interbank Market. They highlighted that in the Bank’s letter of 11th October 2011, the Bank used neither of these options and instead came up with a new methodology. They contended that this had the effect that the Bank unilaterally implemented a material amendment of the Loan Agreement. I do not agree. For all of the reasons outlined previously, I am of the view that the Bank was entitled to alter the method for calculating interest under the loan agreement in light of the change in market conditions which the experts agreed had occurred, namely the tightening of market conditions.

Commercial common sense

84. In light of the conclusion which I have reached in para. 79 above, I do not believe that it is strictly necessary to address the remaining grounds of appeal. I will, nonetheless, briefly address them. The appellants contended that the High Court judge applied a one sided view of commercial common sense and they highlighted that, in para. 87 of his judgment, he observed that the interpretation suggested by the appellants would give rise to an unusual scenario where a change in market conditions would render the loan non-commercial from the Bank’s perspective and “make scant business sense for a lending bank.” While it is true that the judge made that observation and while he also said in the same paragraph that a consideration of the paragraph in issue “does permit some application of considerations of commercial common sense”, I do not accept that his interpretation was ultimately influenced by this consideration. It seems to me that, in paras. 88 and 89 of his judgment, he reached his conclusion on the basis of the language used in the final paragraph of clause 5. In any event, in light of the interpretation which I have reached based on the language used in the loan agreement, it seems to me that this ground of appeal falls away. The appellants’ contention that the judge relied on the evidence of Mr. Tyler

85. I take a similar view in relation to the appellants’ contention that the judge, in interpreting the loan agreement impermissibly relied on the evidence of the Bank’s expert, Mr. Ian Tyler. For this purpose, they referred to para. 91 of the judgment where the judge observed that the final paragraph “is an example of the type of mechanism described by Mr. Tyler in his evidence that could be utilised by banks to protect themselves from exposure to the liquidity repricing risk involved in longer maturity lending.” I do not accept that this suggests that the judge relied on Mr. Tyler’s evidence in his interpretation of the loan agreement. It is clear from the earlier paragraphs of his judgment that the judge reached his own objective interpretation of the relevant provisions and that he merely referred to the evidence for illustrative purposes. I can see no difference in principle between the way in which the judge referred to Mr. Tyler’s evidence and the manner in which the appellants referred to the evidence of Mr. Scott, for illustrative purposes, in their arguments relating to the meaning to be given to the paragraph in issue. The attempt to make a case that the provision was not brought to the appellants’ attention

86. In this Court, the appellants also sought to make a case that the Bank failed to bring the provision in issue to their attention and they sought to rely on the February 2009 Code of Conduct for Business Lending to Small and Medium Enterprises. This did not form part of the case made by the appellants in the High Court and no sufficient basis has been advanced to permit the appellants to raise it for the first time on appeal. In any event, as noted in para. 16 above, the provisions of clause 5 were specifically identified on p. 1 of the offer letter as relevant to the interest rate. It is therefore difficult to see how a case could have been made by reference to that code. Before agreeing to the terms of the offer letter, it was open to the appellants to bargain for a change to be made to any aspect of clause 5 including the final paragraph of that clause.

Conclusion

87. For all the reasons outlined above, I am of opinion that the appeal of the appellants should be dismissed and the order made by the High Court should be affirmed. While I take a somewhat narrower view of the ambit of the contractual provision in issue than the High Court judge, this does not affect the ultimate conclusion of the High Court judge that the Bank was entitled to change the method of calculating the interest rate in the manner signalled by it in its letter of 11th October 2011.

88. Given the outcome of the appeal, it follows that the Bank is presumptively entitled to its costs of the appeal. If the appellants wish to contend for a different order for costs, they have liberty to deliver submissions in writing (limited to 1,500 words) within 14 days from the date of delivery of this judgment and, in the event that such submissions are delivered within that period, the Bank has liberty to deliver replying submissions (subject to the same word limit) within a period of 14 days from receipt of the appellants’ submissions.

89. Binchy and Pilkington JJ. have authorised me to confirm that they agree with this judgment and the orders which I propose.