Andrew Law and Another v Financial Services Ombudsman and Another

• Jurisdiction: Ireland
• Judge: Ms. Justice Baker
• Judgment Date: 21 January 2015
• Neutral Citation: [2015] IEHC 29
• Court: High Court
• Date: 21 January 2015

Law v Financial Services Ombudsman

IN THE MATTER OF AN APPEAL PURSUANT TO PART VII(B) OF THE CENTRAL BANK ACT 19421942 AND CHAPTER 6 AND SECTION 57CL THEREFORE (AS AMENDED AND INSERTED BY THE CENTRAL BANK AND FINANCIAL SERVICES AUTHORITY OF IRELAND ACT 2004)

BETWEEN

ANDREW LAW AND JOANNA LAW

APPELLANTS

AND

FINANCIAL SERVICES OMBUDSMAN

RESPONDENT

AND

NEW IRELAND ASSURANCE COMPANY T/D BANK OF IRELAND LIFE

NOTICE PARTY

[2015] IEHC 29

[No. 69 MCA./2014]

THE HIGH COURT

Appeal – Financial Services Ombudsman – Income - Central Bank Act 1942 – Investment – Coercion – Vulnerable Investors – Financial Services – Serious Error - Investments

Facts: This case concerned an appeal from a decision of the Financial Services Ombudsman given on 21st January, 2014, in which he rejected the claim of the appellants that they had been mis-sold a financial product by the notice party. The plaintiffs alleged that in 2007 after persistent and significant pressure from their bank, they invested the sum of €800,000 in an investment product fund sold by the bank”s tied agent, the notice party. The fund did not prosper and the appellant”s encashed their investment in October 2010 and in the process lost the sum of €192,000. It is in respect of that loss, and the purchase by them of what they say was a wholly unsuitable product for their needs, and which did not reflect their express instructions, that they brought the complaint to the Ombudsman pursuant to the statutory scheme. They then brought this appeal from his determination under the provisions of s. 57CI of the Central Bank Act 1942, as inserted by s. 16 of the Central Bank and Financial Services Authority Act 2004.

Held by Justice Baker in light of the available evidence and submissions presented that the Ombudsman did not err in his procedural approach to the complaint or in his views on the way the notice party dealt with the appellants as potentially vulnerable investors. It was determined, however, that the Ombudsman did fall into serious error in his reasoning process and in the manner in which he tested and analysed the evidence he heard and noted in his conclusions. The adjudicative process he employed in the opinion of Justice Baker appeared to have involved the application of objective tests. The correct approach to the process it was reasoned was a focus on the particular documents and factual matrix, and the question whether there was adequate documentation, explanation or an adequate sale process, and whether the investment product was suitable to the needs of the investors. Thus, having regard to the legal consequences that the Ombudsman”s findings raised a res judicata, the Court considered that his decision was vitiated by serious error and accordingly the appeal was allowed.

1 1. This is an appeal from a decision of the Financial Services Ombudsman (the "Ombudsman") given on 21 ^st January, 2014, in which he rejected the claim of the appellants that they had been mismdash;sold a financial product by the notice party. The plaintiffs are a married couple, and at the date of the investment they were aged 74 and 68. They are small time farmers who live a modest life, indeed a life which was described by their counsel as a simple life in which they sought to "escape the rat race". They enjoy the address of Shankill Castle, Co. Dublin, but this in reality is a ramshackle castle building and they live in a small dwelling at the side of the castle which is in relatively poor condition. Their sole source of income was, until the matters which gave rise to the within proceedings, a rental income from a modest office building in Dublin City Centre, and a small income from their farming activity of growing apples and saving hay.

2 2. The appellants had found the management of the rental office building somewhat troublesome and accordingly they sold the premises and lodged the sum of €1.1m in a Bank of Ireland deposit account in Bray, Co. Wicklow. The appellants had banked in this branch for decades and they had an identified relationship manager, one Mary McNulty, who assisted them with their day to day and long term banking needs.

3 3. Apart from the office building, the appellants have made no other investments and Mr. Law's affidavit suggested that he and his wife were particularly risk adverse because his parents had lost money in the Great Depression.

4 4. In October 2007, and arising from what they say was persistent and significant pressure from their bank, the appellants invested a sum of €800,000 in a investment product fund called the Evergreen Fund, sold by the bank's tied agent, the notice party. The fund did not prosper and the appellants encashed their investment in October 2010 and in the process lost the sum of €192,000. It is in respect of that loss, and the purchase by them of what they say was a wholly unsuitable product for their needs, and which did not reflect their express instructions, that they brought the complaint to the Ombudsman pursuant to the statutory scheme. They now bring this appeal from his determination under the provisions of s. 57CI of the Central Bank Act 1942 (the "Act"), as inserted by s. 16 of the Central Bank and Financial Services Authority Act 2004.

Statutory Scheme

5 5. Section 57CI of the Act provides for the bringing of complaints before the respondent. It is common case that the jurisdiction of the Ombudsman permits him to go outside what might be described as the ordinary common law principles of contract law or the law of negligence, and he is entitled to find a claim substantiated or partly substantiated, inter alia,if he finds that the conduct complained of was unreasonable, unjust, oppressive or improperly discriminatory. In addition, he has a power to find a complaint to be substantiated or partly substantiated, if he finds that the application of a practice, law, or regulatory standard was unreasonable, unjust, oppressive or improperly discriminatory in its application to a complainant, or if the conduct complained was based wholly or partly on an improper motive, an irrelevant ground or an irrelevant consideration. He also has a power to look to the conduct complained of and to consider if it was "otherwise improper".

6 6. The Ombudsman is required under the statutory regime to give reasons for his finding and any directions given following from and as a result of the finding. The range of remedies available to the Ombudsman includes the power to direct a financial service provider to review, rectify, mitigate or change the conduct, to provide reasons, change a practice or pay an amount of compensation to a complainant.

7 7. It is not doubted that the purpose of the establishment of the statutory complaints procedure was to afford complainants an informal, expeditious and independent mechanism for the resolution of complaints against a financial service or product provider, and that the complaint does not have to be confined to matters which would fall within the realm of contract law, the law of negligence or other defined legal rights or principles.

8 8. Chapter 6 of Part VIIB of the Act inserts a new s. 57CL (1) and provides that any person dissatisfied with the findings of the Ombudsman may appeal to the High Court against the finding. The High Court is given wide powers to make such order as it thinks appropriate in the light of its determination on appeal.

The test on appeal

9 9. Counsel agreed that the applicable test for an appeal to the High Court is that set out by Finnegan P. in Ulster Bank v. Financial Services Ombudsman [2006] IEHC 323:-

"To succeed on this appeal the Plaintiff must establish as a matter of probability that, taking the adjudicative process as a whole, the decision reached was vitiated by a serious and significant error or a series of such errors. In applying the test the Court will have regard to the degree of expertise and specialist knowledge of the Defendant. The deferential standard is that applied by Keane C.J. in Orange v The Director of Telecommunications Regulation & Anor and not that in The State (Keegan) v Stardust Compensation Tribunal."

10 10. This statement identifies a number of matters familiar in the realm of judicial review, namely that the court will give due deference to the specialist expertise of the Ombudsman, that the adjudicative process as a whole must be considered, and that a decision will be vitiated where there was a serious and significant error or a series of errors. It has been accepted and identified in subsequent case law that the appeal to the High Court, not being a de novohearing, falls somewhere between a judicial review and full appeal, the test being one which bears many of the features of a judicial review, but not all of them. It is accepted by counsel for both parties that the exercise in which the High Court engages is far closer to judicial review than to appeal, but that an error, even one within jurisdiction, provided it is a significant and serious error, can vitiate a decision.

This Appeal

11 11. The appellants lodged a complaint with the respondent on 16 ^th July, 2012. The respondent accepted the complaint and after an oral hearing on 7 ^th January, 2014 issued his decision two weeks later on 21 ^st January, 2014 in which he found the complaint to not be substantiated. The complaint, in short, was that the product was unsuitable, they were vulnerable customers and the investment was neither accurately nor comprehensively explained. The appellants have appealed to this Court on all of the findings.

12 12. The grounds of appeal to the High Court are set out in the grounding affidavit of the first appellant and run to nine grounds. In summary, the grounds are procedural, that the Ombudsman failed to follow the requirements of natural and constitutional justice and fair...