The High Court recently upheld a decision of the Financial Services and Pensions Ombudsman (the “FSPO”) following an appeal brought by Danske Bank A/S under section 64 of the Financial Services and Pensions Ombudsman Act 2017 (the "FSPO Act 2017").
The decision delivered by Ms Justice Hyland highlights the broad jurisdiction of the FSPO. In particular, the judgment recognises that the mere absence of a breach of law does not make a financial service provider unsusceptible to a finding of unreasonable and improper conduct under section 60(2)(b) and (g) of the FSPO Act 2017.
The complainants obtained a mortgage loan from the appellant’s predecessor, National Irish Bank, in August 2005. The mortgage loan documentation provided that the interest rate applicable to the loan was a tracker interest rate of ECB + 0.99%.
In June 2006, the complainants approached the appellant’s predecessor in order to apply a fixed interest rate to their mortgage loan account. They received a document titled “Final Financial Summary” which summarised the main features of the new loan and outlined how their financial status would change after taking out the mortgage. A housing loan agreement subsequently issued to the complainants applying a fixed interest rate to the balance of their mortgage loan. The fixed rate of 4.18% was to apply for a three-year period until 1 October 2009, with a variable home loan rate applying thereafter. The complainants signed and accepted the housing loan agreement in July 2006 and a three-year fixed interest rate was applied to their mortgage.
On expiry of the fixed interest rate period in October 2009, the complainants sought to revert their mortgage loan to the original tracker interest rate. However, the appellant refused their request on the basis that there was no contractual or regulatory obligation on the appellant to apply a tracker rate to the mortgage loan.
Summary of complaint to the FSPO
The complainants submitted a complaint to the FSPO asserting that the appellant failed to inform them that the ECB tracker interest rate applicable to their first loan in 2005 would not be available to them at the end of the three-year fixed interest period in 2009.
During the course of the investigation of their complaint to the FSPO, the complainants submitted that they were unaware that they were redeeming their original mortgage and taking out a new facility in July 2006. They stated that if they had known that they were drawing down a new mortgage loan subject to different conditions, they would not have proceeded with the transaction. The appellant asserted that the FSPO ought to dismiss the complaint on several grounds including that the 2006 fixed loan agreement had been clear and transparent about the terms and conditions which would apply to it, and that the complainants ought reasonably to have been aware that they had entered into a new loan agreement.
In his decision of 7 April 2020, the FSPO found that:
- The mortgage loan documentation to include the fixed loan agreement did not disclose the real nature of the transaction.
- The appellant failed to appropriately inform the complainants that if they wished to apply a fixed interest rate to their mortgage, their existing mortgage loan would have to be redeemed therefore the terms and conditions applicable to that loan would no longer apply.
- It was unclear to the complainants that their contractual entitlement to a tracker interest rate of ECB + 0.99% that had existed under their initial mortgage loan would no longer apply to the new loan drawn down in July 2006.
- The complainants did not know that they were entering into a new mortgage subject to different conditions.
The FSPO substantially upheld the complaint on two grounds, under section 60(2)(b) of the FSPO Act 2017, being that the conduct complained of was unreasonable, unjust, oppressive or improperly discriminatory in its application to the complainants; and under section 60(2)(g), being that the conduct complained of was otherwise improper.
The FSPO directed the appellant to rectify its errors by applying a tracker rate of ECB + 0.99% to the complainants' mortgage loan from July 2006, repaying any interest overpaid, and coming to an arrangement to ensure the tracker rate be applied to the loan to maturity. The FSPO further directed the appellant to make a compensatory payment to the sum of €4,000.
The FSPO stated that due to the “truncated manner in which the transaction took place together with the lack of clarity in the documentation as to the nature of the transaction” he referred the decision to the Central Bank of Ireland for any action it may deem necessary under section 56(7) of the FSPO Act 2017.
Danske Bank A/S subsequently appealed the decision of the FSPO to the High Court.
Summary of appeal to the High Court
In its appeal, Danske Bank A/S submitted that the mortgage loan documentation signed by the complainants in July 2006 made the position clear. It further submitted that the complainants’ subjective understanding of the documentation and wrongful assumptions were irrelevant and that, where there was no illegality identified on the part of the appellant, the FSPO was not entitled to uphold the complaint.
In refusing the relief sought by the appellant, Justice Hyland made a number of observations which are considered below.
Standard of Review
The court noted that in order to succeed in an appeal of this nature, the appellant must show that the decision reached by the FSPO was “vitiated by a serious and significant error” in accordance with the test in Ulster Bank Investment Funds Limited v. Financial Services Ombudsman  IEHC 323. In applying this test, the High Court will have regard to the expertise and specialist knowledge of the FSPO. However, Justice Hyland also referred to the Court of Appeal's decision in Financial Services Ombudsman v. Millar  2 ILRM 337 where the Court of Appeal confirmed that that the High Court, in hearing an appeal, should not adopt a deferential stance to a decision or determination by the respondent on a “pure” question of law.
Jurisdiction of the FSPO
The judgment acknowledges the breadth of the jurisdiction of the FSPO under section 60(2) of the FSPO Act 2017.
Section 60(2) of the FSPO Act 2017 provides as follows:
“A complaint may be found to be upheld, substantially upheld or partially upheld only on one or more of the following grounds:
- the conduct complained of was contrary to law;
- the conduct complained of was unreasonable, unjust, oppressive or improperly discriminatory in its application to the complainant;
- although the conduct complained of was in accordance with a law or an established practice or regulatory standard, the law, practice or standard is, or may be, unreasonable, unjust, oppressive or improperly discriminatory in its application to the complainant;
- the conduct complained of was based wholly or partly on an improper motive, an irrelevant ground or an irrelevant consideration;
- the conduct complained of was based wholly or partly on a mistake of law or fact;
- an explanation for the conduct complained of was not given when it should have been given;
- the conduct complained of was otherwise improper.”
Justice Hyland observed that the subsections of section 60(2) make it clear that the FSPO has jurisdiction to uphold complaints on grounds involving what she described as "black letter law" issues (such as a contract contrary to law, or based on a mistake of law) but also on grounds "where there has been no breach of law at all".
The appellant contended that the extent of its obligations towards the complainants are set out in the contractual documents signed by the complainants and it was a serious and significant error on the part of the FSPO to hold that the appellant owed additional obligations to the complainants that were not part of the contractual relationship.
Justice Hyland detailed that the grounds on which the FSPO determined the complaint were particularly important. In this case, the appellant argued that the complainants had no legal right to revert to a tracker rate of interest either contractually or because of a statutory or regulatory breach by the appellant. The court noted that if the FSPO had decided that the conduct complained of was contrary to law or based on a mistake of law under Section 60(2)(a) or (c) of the FSPO Act 2017, then the approach taken by the appellant to challenge the decision of the FSPO would be entirely on point. Justice Hyland commented that the case would then be decided on the applicable law, without deference to the FSPO’s evaluation of same. However, in this matter the FSPO upheld the complaint on the grounds that the Provider’s behaviour was unreasonable and improper contrary to Section 60(2)(b) and (g) of the FSPO Act 2017. The court rejected the appellant's argument noting that the appellant failed to recognise the wide jurisdiction of the FSPO under section 60(2)(b) and (g). The court ruled that the mere absence of a breach of law "does not immunise" a financial service provider from a finding of unreasonable and improper conduct under section 60(2)(b) and (g).
The approach by the High Court in the present case appears to differ from the interpretation of Mr Justice Simons as to the jurisdiction of the FSPO under section 60(2) in the recent case of Utmost Pan Europe DAC v. the Financial Services and Pensions Ombudsman and W  IEHC 538. In that case, the court considered a decision of the FSPO in which the FSPO upheld a complaint under section 60(2)(b) and (g) and made a direction under section 60(4) requiring an insurance provider to admit the complainant's claim to recover under a group income protection scheme, pending further assessment of the complainant’s condition.
Section 60(4) of the FSPO Act 2017 identifies the redress the FSPO may order, including directing a financial service provider to review, mitigate or change the conduct complained of or its consequences, provide reasons for the conduct, change a practice relating to the conduct, pay compensation to the complainant, or “take any other lawful action that the Ombudsman considers appropriate having had regard to all the circumstances of the complaint”.
Justice Simons concluded that the FSPO erred in making a finding that the conduct of the insurance provider was unreasonable without measuring that conduct against both the Consumer Protection Code and the terms of the policy, which expressly permitted the insurance provider to verify the validity of a claim prior to making a decision to admit that claim. In doing so, the judge appears to have suggested that there is a limit to the jurisdiction of the FSPO to uphold a complaint in respect of conduct, which, while not contrary to law, is considered by the FSPO to be unreasonable or unjust.
Justice Simons determined that the FSPO had no jurisdiction to direct the insurance provider to admit the claim when upholding a complaint under section 60(2)(b) and (g) as the findings under those provisions went to the conduct of the insurance provider. The court observed that as the FSPO had not found as a matter of contract law that the complainant was entitled to recover, it was therefore wrong to direct a contractual remedy as if it had made such a finding.
It follows that if this approach was applied to the present case, it would be only on the basis of the FSPO's interpretation of the complainants' contractual entitlements and findings under section 60 (2)(a) or (e) that the FSPO could make directions requiring Danske Bank to restore a tracker rate to the complainants' mortgage loan from July 2006. However, Justice Hyland took a different view and makes it clear that "a customer may be bound by their contract with the bank but nonetheless may obtain redress which amounts in substance to a setting aside of those contract terms". She further observed that “the breadth of the Ombudsman’s jurisdiction under s.60(2) cannot be underestimated” as he is effectively given a jurisdiction to override the law in certain situations. In other words, a financial service provider can act perfectly lawfully but nonetheless find that a complaint is upheld against it carrying with it an obligation to make specified redress.
Other observations of the court
The appellant also complained that the FSPO was incorrect to conclude that the contractual language of the fixed loan documentation was ambiguous and insufficiently clear. The court considered the principles identified in Smartt v. Financial Services Ombudsman  IEHC 518 and said there was sufficient material before the FSPO to conclude that there was ambiguity and a lack of clarity in the loan documentation furnished to complainants.
The court also upheld the FSPO’s finding that the appellant acted improperly by not witnessing the complainants’ signatures on the fixed loan documentation in 2006. The appellant's representative had struck through the “witnessed by” section and had offered no explanation as to why it was not necessary to have the complainants' signatures witnessed. Given that the fixed rate home loan documentation was generated by the appellant with a “witnessed by” section, and given the status of the complainants as consumers, it appeared reasonable to the court to have expected the appellant to explain its failure to ensure the loan documentation was fully completed. In circumstances where most loans are witnessed by solicitors who also advise the customers, the court felt that it was therefore reasonable for the FSPO to hold that the complainants did not understand the fixed loan documentation that they signed in 2006.
This robust judgment of the High Court demonstrates the uniquely broad jurisdiction of the FSPO to uphold complaints in respect of conduct and the sweeping nature of his redress jurisdiction. The decision of Justice Hyland makes clear that while a financial service provider can act perfectly lawfully, the FSPO can nonetheless determine the conduct of a financial service provider to be "unreasonable" or "otherwise improper" and can impose a remedy of rectification based on such a finding.
A link to the judgment of Ms Justice Hyland can be found here.
Written by Maria Curran and Rachel Tierney.
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