Killian Flood BL

About this case:

• Citation:
  [2021] IEHC 116
• Judgment:
  External link
• Court:
  High Court
• Judge:
  Ms Justice Niamh Hyland

The bank had appealed a decision of the Financial Services and Pensions Ombudsman who had found that the Bank had not properly informed the complainants of the effect of taking out a new mortgage and failed to tell the complainants that a tracker mortgage rate was not available under the new loan.

The bank claimed that the Ombudsman had made serious and significant errors in reaching the conclusions in the decision. However, the court held that the Ombudsman has a wide power under the Financial Services and Pensions Ombudsman Act, 2017 to uphold a complaint irrespective of whether an institution had technically complied with the law. The court duly dismissed the appeal.

Background

The complainants, Mr Martin Moore and Mrs Martina Moore, had taken out a mortgage loan with Danske Bank’s predecessor, National Irish Bank, in 2005. The interest rate on the loan was the tracker interest rate of the ECB plus 0.99 percent per annum. Under the loan, the complainants had no right to a fixed interest rate.

The complainants subsequently decided that they wanted to fix the interest rate and met with the bank’s employees in 2006 to facilitate this. They received a “Final financial Summary” document which summarised the main features of the new loan and outlined how their financial status would change after taking out the new mortgage.

A housing loan agreement with a fixed interest rate was then drawn up and signed by the complainants. The fixed rate was to apply for a three-year period to October 2009 after which the bank’s standard variable interest rate would apply. This was expressly provided for in the loan agreement.

After the three-year fixed interest period expired, the complainants attempted to revert back to the tracker mortgage rate. However, they were told by the bank that this was not possible due to the terms of the 2006 loan.

In 2015, the couple lodged a complaint with the Ombudsman, claiming that the bank had failed to inform them that the tracker rate would not be available to them after the three-year period. The complainants said that they had not realised in 2006 that they were taking out a new loan facility with different terms and conditions to the previous mortgage and had assumed that they would be able to revert to the tracker rate.

The Ombudsman upheld the complaint against the bank on two legal grounds. First, under section 60(2)(b) of the 2017 Act, the Ombudsman held that the conduct was “unreasonable, unjust, oppressive or improperly discriminatory in its application to the complainants.” Second, under section 60(2)(g), it was held that the conduct was otherwise improper.

The Ombudsman found that the bank had not clearly outlined the effect of the 2006 loan to the complainants and that the language in the 2006 documents was ambiguous. It was also held that the bank acted improperly by failing to ensure that the 2006 loan was witnessed. The Ombudsman ordered the bank to rectify the mortgage to allow a tracker rate, to repay any overcharged interest and to make a compensatory payment of €4,000 to the complainants. The bank appealed the decision to the High Court.

High Court

Delivering a written judgment, Ms Justice Niamh Hyland rejected the submissions from Dankse Bank and upheld the decision of the Ombudsman. The court began by identifying the standard of review in the case. Applying Ulster Bank Investment Funds Limited v. Financial Services Ombudsman [2006] IEHC 323, the court ruled that it had to be satisfied that the Ombudsman made a serious and significant error in reaching his decision.

The court also identified the extent of the Ombudsman’s powers under section 60 of the 2017 Act. The Ombudsman has the jurisdiction to uphold a complaint on “black letter law” issues (such as a contract contrary to law) and also on grounds “where there has been no breach of law at all,” the court said. It was held that “the breadth of the Ombudsman’s jurisdiction under s.60(2) cannot be underestimated: he or she is effectively given a jurisdiction to override the law in certain situations.”

After considering the legislative scheme, Ms Justice Hyland then considered the submissions from the parties. She rejected the argument that the Ombudsman had erred by upholding the complaint even though the loans did not breach any law. The court held that this submission failed to recognise the wide jurisdiction conferred on the Ombudsman to uphold complaints. “The mere absence of a breach of law does not immunise a financial services provider from a finding of unreasonable and improper conduct under s. 60(2)(b) and (g) by the regulator,” the court ruled.

The bank also failed to convince the court that the Ombudsman erred in his finding that the language of the 2006 documents was ambiguous. Applying the case of Smartt v. Financial Services Ombudsman [2013] IEHC 518, the court said there was enough material before the respondent to conclude that the documents were not sufficiently clear on their face.

Further, the court upheld the Ombudsman’s finding that the bank acted improperly by not witnessing the complainants’ signatures on the 2006 loan. The bank’s employee had struck out the “witnessed by” section and had offered no explanation as to why it was not necessary to witness the signatures on a new loan. In circumstances where most loans are witnessed by solicitors who also advise the customers, it was reasonable for the Ombudsman to hold that the complainants did not understand the agreement they were signing in 2006.

Conclusion

Finally, the court upheld the Ombudsman’s finding that the bank had acted improperly by not explaining to the complainants that they were agreeing to a new mortgage. In light of the court’s analysis, Ms Justice Hyland dismissed the appeal and upheld the ruling of the Ombudsman.