What was the court supposed to rule on?
Briefly, the situation was as follows. A number of severally connected (real estate) borrowers had a financing relationship with ING bank. This relationship was terminated by the bank due to insufficient information being provided about the ownership and control structure within the group.
In two summary proceedings, the borrowers claimed longer notice and continued availability of business bank accounts. Both claims were rejected both at first instance and on appeal. The bank then proceeded to execute its collateral. The foreclosure auction was eventually averted by a private sale of the properties by the borrowers themselves. With the proceeds, the bank was paid in full.
In its redemption notes to the notary, the bank included as costs, inter alia, the litigation costs (of which, for now, the attorney's fees are relevant), the costs of preparing for the foreclosure auction, and a fee for early redemption (hereafter: RSA).
The borrowers disagree with these settlement notes and initiate proceedings. The court dismisses their claims. The borrowers appeal this ruling to the Amsterdam Court of Appeals. There they find more hearing.
What judgment did the court reach?
1. Litigation Costs
Pursuant to the applicable general conditions and the General Banking Conditions (GBC), all (extra)judicial costs are borne by the borrowers. This therefore includes the litigation costs of the two summary proceedings against the termination, which were lost by the borrowers.
The court acknowledged this in so many words, but added an additional condition: the bank "may be expected, when requested by the customer, to provide an accurate breakdown of the costs involved, making it clear to the customer how much time was spent on what work.
According to the court, it is insufficient if the declarations state the names of the persons who performed the work, what their hourly rate is, how much time they spent in total and with a general description of their work. The court requires an even further specification. In addition, the court finds the reduced hourly rate of €400.00 euros to be unreasonably high, in light of the fact that the client has no influence on the choice of lawyer and his rate.
On this basis and in light of the banking duty of care to take into account the interests of the client (Art. 2 GBC), the court decides that only half of the charged costs can be passed on to the client on the grounds of reasonableness and fairness.
It is unclear where the court gets the very far-reaching specification requirement from, as it is not in the GTC or the agreement between the parties. Only when a cost clause is unacceptable by standards of reasonableness and fairness can a court moderate these costs. Especially against the background that the bank stopped foreclosure under the express condition that interest and costs be paid by the borrowers, the court could have exercised more restraint.
2. Auction fees
The same judgment is applied to the costs of preparing for the foreclosure auction. The auction notary engaged by the bank had already begun preparations for the auction. This involved costs.
That execution costs were charged, the court does not find unreasonable. The amount, on the other hand, the court does consider unreasonable. This cost will also be halved. The execution costs would not have been specified sufficiently and the auction notary's fee would not have been in proportion to the 'standard activities' performed, in the opinion of the court of appeal.
This decision and justification also leaves much to be desired. It is the borrowers who ask the bank to stop the foreclosure and agree to a private sale. The bank agrees to this if it is paid in full, including interest and costs.
Moreover, Article 3:269 of the Civil Code implies that the auction sale can be prevented by payment of the bank debt for which the mortgage right serves as security, plus the already incurred costs of the foreclosure sale.
3. Early Redemption Allowance (RSA).
The court leaves in place the costs for the early repayment of the financing. These costs (damages) refer to the lost interest due to the early repayment. The fact that the bank itself initiated the termination is not enough, in the court of appeal's opinion, to not charge these costs. The parties have agreed that the client must always pay an RSA, regardless of the reason for the early repayment. The court of appeal rightly leaves this stipulation intact.
Conclusion
The court goes quite far in reasonableness and fairness-correction of the litigation and auction costs incurred. The court can only intervene if all is unacceptable by the standards of reasonableness and fairness. The fact that the court introduces the specification requirement on that ground and thereby considers the hourly rates to be unreasonably high, taking into account that certain work is, in the judge's opinion, merely "standard work," is not in line with the restraint that a judge should show when reviewing reasonableness and fairness. The banking duty of care does not alter that restraint.
It does not become clearer to banks and lenders to what extent they can pass on their litigation and foreclosure costs to the customer. It is advisable that they exercise caution when passing on these costs in full and, in any case, specify them as well as possible. For borrowers, it is important that they carefully review the litigation and enforcement costs charged and, if necessary, object to them.
