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Irish Journal of Legal Studies
Vol. 3(1)
Review of Mary Donnelly, The Law of Credit and Security
(Dublin: Thomson Round Hall, 2011)
Gráinne Callanan*
Advancing credit involves the acquisition of a risky asset. Minimising this risk
requires, inter alia, a credit history, a repayment capacity and the taking of adequate
security. The Irish Financial crisis demonstrated that far too often these basic lending
principles were eschewed in favour of expediency, questionable remuneration packages,
inadequate oversight and poor governance. Accordingly, the timing of Mary Donnelly’s
book on the Law of Credit and Security is particularly apt. In the foreword to this
comprehensive work, Mr. Justice Clarke observes:
[i]t is becoming increasingly clear that there was, in many places, a lax attitude to
credit arrangements and to putting in place proper security during the boom years of
the bubble. The courts are now frequently faced with cases where there are at least
doubts about the terms of credit arrangements or the adequacy of security
documentation and, it might well be inferred, there are many more cases which do
not come to court at all because the relevant documentation is accepted as being
inadequate.1
Part I of this book explores the regulation of credit providers. It begins with a
brief historical overview of credit regulation from the Code of Hammurabi 1792-1750
B.C. through to the development of banking systems, the expansion of credit providers,
the manner in which these providers were funded and the lending policies which were
adopted. This historical account sets the scene for what was to follow: the meltdown of
the global capital markets and the near collapse of the Irish banking industry. The
remainder of this part of the book describes the first phase of the key Irish, European
and International legislative attempts to deal with the crisis. The author is to be
commended in bringing together this burgeoning range of legislative measures in a
chronological and coherent manner while at the same time managing to explore the
regulatory failures and the policy considerations which lead to their enactment.
*Lecturer in Company and Commercial Law, Waterford Institute of Technology.
1
M. Donnelly, The Law of Credit and Security (Dublin: Thomson Roundhall, 2011) at vii.
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Book Review
Part II deals with credit provision and covers the usual elements expected in a
work of this type; the different forms of credit; the loan contract; the liability of lenders;
and consumer protection in the context of credit. In addition to these traditional areas,
an entire chapter is dedicated to the legal aspects of the decision to lend which is a
welcome development. Heretofore, the decision to lend was regarded as a commercial
matter with little input from the law. While freedom of contract still prevails to a large
extent, a legal and regulatory policy shift has been evident in recent years. Accordingly,
the author considers the implications of the novel concept of “responsible lending”
introduced by Regulation 11 of the European Communities (Consumer Credit
Agreements) Regulations 20102, developments in relation to credit rating/referencing
agencies, the Central Bank’s Code of Practice on Lending to Related Parties, 3 the
increasingly important area of access to credit and the regulatory framework for credit
intermediaries.
The 2010 Regulations implement Council Directive 2008/48/E.C. on Consumer
Credit, which replaces Directive 87/102.4 The 1987 Directive had been implemented in
Ireland by the Consumer Credit Act 1995 (1995 Act). While the 2010 Regulations
reference the 1995 Act, they do not provide specifically for amendment thereof, but the
effect of some of the regulations has this effect in respect of certain credit arrangements.
The author does not criticise the choice of implementing the Directive by secondary
legislation. However, in explaining the combined scope and effect of both the 1995 Act
and the 2010 Regulations, it becomes evident that primary legislation may have been a
preferable method of implementation to avoid the current situation which the author
describes as “two systems of consumer credit protection operating alongside each
other.”5 She refers to, by way of example, the differing methods of calculating the
S.I. No. 281 of 2010 [hereinafter 2010 Regulations]. Reg. 11 implements Article 8 of Council Directive
2008/48/E.C. on Credit Agreements for Consumers.
3 Imposed on Irish Banks by the Central Bank pursuant to s.117 of the Central Bank Act 1989. Code of
Practice is available at <www.centralbank.ie.>.
4 Council Directive 87/102/E.E.C. on Consumer Credit.
5 Donnelly, supra note 1 at 325.
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Irish Journal of Legal Studies
Vol. 3(1)
A.P.R. in respect of the credit agreement under the two regimes, with the 2010
Regulations being more detailed.6
The numerous Codes of Practice which now feature significantly on the Irish
credit landscape are given a thorough analysis by the author.7 Although this book predated the implementation of the revised Consumer Protection Code which came into
effect in January 20128, the author provides a detailed discussion of the draft Code
which was published mid-2011. The author’s observations in this regard remain
relevant. As the Consumer Protection Code is legislative and not voluntary, the author
offers an interesting commentary on the status of the code in the context of private
complaints. These observations have already been the subject of judicial commentary in
the context of the failure of a credit provider to comply with the Code of Conduct for
Mortgage Arrears.9
Part III of the book provides an extensive survey of various types of security,
both corporate and personal. Contemporary problems in respect of certain security
mechanisms are identified.
The author provides an interesting analysis of the
implications for mortgagees following the enactment of the Land and Conveyancing Law
Reform Act 2009 (2009 Act) particularly in light of the decision of Miss Justice Dunne in
Start Mortgages v. Gunn. This case raised issues surrounding enforcement procedures for
certain types of mortgages under the 2009 Act; in particular the right of lenders to apply
for possession of registered land where this right had not accrued prior to December 1,
2009.10 Questions were also raised about the ability of lenders to appoint receivers
where there was no contractual provision to do so.11 Subsequent to the publication of
Ibid. at 329. Since the publication of this work Directive 2008/48 has been amended by Commission
Directive 2011/90/E.U. which provides for additional assumptions for the calculation of the annual
percentage rate of charge.
7 It should be noted that the Minimum Competency Code was published on September 1, 2011 and came
into effect in December 2011. A revised Code of Conduct for Business Lending to Small and Medium
Enterprises came into effect in January 2012. Both Codes were published by the Central Bank of Ireland
subsequent to the publication of this book. All Codes are available at <www.centralbank.ie>.
8 Published by the Central Bank of Ireland and came into effect on January 1, 2012. This Code is available
at <www.centralbank.ie>.
9 Stepstone Mortgage Funding Ltd. v. Fitzell & Another [2012] I.E.H.C. 142 (Laffoy J.).
10 The date the 2009 Act came into effect. Donnelly, supra note 1 at 434.
11 Kavanagh and Another v. Lynch and Others [2011] I.E.H.C. 348, Donnelly, ibid. at 435.
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Book Review
this book, the cases of E.B.S. v. Gillespie12 and McEnery v. Sheahan13 have clarified
matters in relation to the appointment of receivers and their right to apply for
possession. Nonetheless, the approach of the High Court in each of these cases was not
uniform and as uncertainty remains, legislative intervention is long overdue.14
An in-depth discussion of the complexity of perfection and priorities in respect of
non-possessory security over personal property is undertaken with some insightful
ideas for reform particularly in relation to the creation of a single security register for
all forms of personal property which would clarify rules in respect of priorities and
eliminate the double registration requirements which exist in relation to certain
charges.15 The author also provides a useful commentary on the continuing conceptual
and practical difficulties in taking security over financial instruments, despite legislative
reform of the area.16
Part III deals with enforcement. The limitations on enforcement of certain types
of security are given a detailed exposition including inter alia the impact of the Code of
Conduct on Mortgage Arrears and the difficulties facing mortgagees in taking
possession of, and exercising a power of sale over certain registered property. Given the
current state of the property market and the fact that many lenders are appointing
receivers to manage distressed projects – rather than sell them – the potential
expansion of the duty of care owed by receivers is given a considered discussion.17
This book is a comprehensive analysis of the law of credit and security. It draws
on a wealth of academic commentary, official reports and an extensive amount of
legislation, both domestic and International. The number of post-2009 case law
included in the work is remarkable, but not surprising, given the effects of the financial
crisis on borrowers. This book will be a necessary companion for any professional
engaged in lending and taking security.
[2012] I.E.H.C. 243.
[2012] I.E.H.C. 331.
14 The Land and Conveyancing Law Reform Bill 2013 published in March 2013 seeks to eliminate the
difficulties for mortgage holders following Start Mortgages by ensuring that the statutory protections
which applied to mortgages created pre-December 2009 will continue to apply.
15 Donnelly, supra note 1 at 472.
16 Ibid. at 567.
17 Ibid. at 738 and 739.
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