Caffrey v Financial Services Ombudsman

• Jurisdiction: Ireland
• Judge: Mr. Justice Hedigan
• Judgment Date: 12 July 2011
• Neutral Citation: [2011] IEHC 285
• Court: High Court
• Date: 12 July 2011

[2011] IEHC 285

THE HIGH COURT

[No.320 MCA/2010]

Caffrey v Financial Services Ombudsman & Ors

IN THE MATTER OF AN APPEAL PURSUANT TO SECTION 57 CL (1), PART VIIB OF THE CENTRAL BANK ACT, 1942, (AS INSERTED BY SECTION 16 OF THE CENTRAL BANK AND FINANCIAL SERVICES AUTHORITY OF IRELAND ACT, 2004) AND ORDER 84 C OF THE RULESOF THE SUPERIOR COURTS

BETWEEN

JOHN CAFFREY

APPELLANT

V.

THE FINANCIAL SERVICES OMBUDSMAN

RESPONDENT

AND

ANGUS MCDONNELL, JOHN MAGUIRE, ARTHUR QUINLAN, DAVID HARLOW, RAYMOND DEASY, PETER COSTIGAN, AIDAN SHEERIN, ANNE BARRETT, MARTIN HARTE, FBD SECURITIES LIMITED, PRACTISING UNDER THE STYLE AND TITLE OF BLOXHAM

NOTICE PARTIES

CENTRAL BANK ACT 1942 S57CM(2)(B)

CENTRAL BANK & FINANCIAL SERVICES AUTHORITY OF IRELAND ACT 2004 S16

CENTRAL BANK ACT 1942 S57CM(2)(C)

J & E DAVY T/A DAVY v FINANCIAL SERVICES OMBUDSMAN 2010 3 IR 324 2010 2 ILRM 305 2010/24/5828 2010 IESC 30

CENTRAL BANK ACT 1942 S57BB

ULSTER BANK INVESTMENT FUNDS LTD v FINANCIAL SERVICES OMBUDSMAN UNREP FINNEGAN 1.11.2006 2006/56/11976 2006 IEHC 323

GALVIN v CHIEF APPEALS OFFICER & MIN FOR SOCIAL WELFARE 1997 3 IR 240 1998/7/1929

MOLLOY v FINANCIAL SERVICES OMBUDSMAN UNREP MACMENAMIN 15.4.2011 (EX TEMPORE)

CONSUMER LAW

Financial Services

Serious and significant error - Oral hearing - Whether serious and significant error - Whether respondent erred in accepting notice party's evidence - Whether too much weight attached to evidence - Whether respondent should have conducted oral hearing - Whether respondent fulfilled statutory obligations - Whether infirmity in respondent's reasoning - Whether decision within jurisdiction - J & E Davy t/a Davy v Financial Services Ombudsman [2010] IESC 30, [2010] 3 IR 324; Ulster Bank Investment Funds Ltd v Financial Services Ombudsman [2006] IEHC 323, (Unrep, Finnegan P, 1/11/2006); Galvin v Chief Appeals Officer [1997] 3 IR 240 and Molloy v Financial Services Ombudsman (Unrep, HC, 15/04/2011) considered - Central Bank Act 1942 (No 22), s 57CM(2)(B) and (2)(C) - Central Bank and Financial Services Authority of Ireland Act 2004 (No 21), s 16 - Relief refused (2010/320MCA - Hedigan J - 12/07/2011) [2011] IEHC 285

Caffrey v Financial Services Ombudsman

1 Judgment of Mr. Justice Hedigan delivered the 12th day of July 2011

2 1. The appellant resides at 1 La Touche Park, Greystones, County Wicklow. The respondent is a statutory officer who deals independently with complaints from consumers about their individual dealings with all financial services providers.

3 2. The appellant seeks the following relief:-

4 (1) An Order pursuant to section 57CM (2)(B) of the Central Bank Act, 1942, as inserted by s. 16 of the Central Bank and Financial Services Authority of Ireland Act. 2004, setting aside the decision of the Financial Services Ombudsman of 22, November 2010.

5 (2) Further or in the alternative, and without prejudice to the foregoing, an Order pursuant to section 57 CM (2) (C) of the Central Bank Act 1942, as inserted by s.16 of the Central Bank and Financial Services Authority of Ireland Act, 2004, remitting to the Ombudsman for review in accordance with the directions of this Honourable Court the decision of 22 November, 2010 for the reasons set out in the notice of motion and any other reasons which may be adduced at the hearing of this action;

6 (3) Such further or other order as the Honourable Court should deem fit;

7 (4) An order providing for the costs of and incidental to this application.

8 2 3.1 In or about March 2005, the appellant became aware from Bloxham's Equity Research Quarterly Newsletter the "Quarterly Newsletter", of what was described as the Dresdner Bond. In the Quarterly Newsletter, under a section entitled "Corporate Bonds" the Dresdner Bond was listed as having a 6.25% yield with a maturity date of 2031. The credit rating was described as "A". Further, the Quarterly Newsletter stated: "The Dresdner Bond pays 6.25% per annum for the first five years followed by 4 x (10 yr Euribor -2yr Euribor). All of the Bonds should benefit from rising yields." After reading the Quarterly Newsletter, the appellant contacted Daniel Kiely of Bloxham Stockbrokers. The contents of this conversation are in dispute between the appellant and the notice party. The appellant claims that he was given the impression that Dresdner Bank AG guaranteed the return of the monies invested. The notice party claims that it explained the nature of the Bond to the appellant informing him that total loss was possible, but unlikely. The conversation between the appellant and Daniel Kiely lasted only a few minutes and the appellant avers in paragraph 6 of his first affidavit that at no time was the true nature or essential features of the Bond and the risks inherent thereto explained to him. The appellant claims that he was not informed that the Bonds were in fact notes issued by Saturn Investments Europe plc and that the investment was linked to a US dollar currency bond. Moreover, the appellant claims that he was not advised that there was a swap agreement in place with Morgan Stanley.

9 3 3.2 A contract note issued to the appellant on 15 ^th April, 2005, recording the purchase price of €50,000. The contract note referred to "Saturn's Investment Europe plc 6.25% NTS 05/07/31 EUR 1000". An accompanying letter confirmed the purchase of the Dresdner Bond and stated that for "administrative reasons this appears as Saturn's in stock description line above". The letter described this as a "brand name and in no way effects any of the terms of the Bonds that you have bought." On the 5 ^th December, 2008 the appellant telephoned Daniel Kiely of Bloxham Stockbrokers to enquire how the Bond was performing. On the 29 ^th June, 2009, Bloxham Stockbrokers wrote to the appellant informing him that Morgan Stanley had terminated the Swap Agreement with Saturn, and that the appellant would only receive €0.03 per €1 originally invested.

10 4 3.3 On the 15 ^th February. 2010, the appellant submitted a complaint to the Financial Services Ombudsman. The appellant complained that at no time during his conversation with Daniel Kiely was the true nature of the Bond and the risks inherent thereto explained to him. On the 14 ^th April, 2010, Bloxham submitted its final response to the complaint. On 30 ^th April, 2010, the appellant set out its response to that letter. On 23 ^rd August, 2010, the appellant received a copy of the response from Bloxham Stockbrokers to questions put to it by the Financial Services Ombudsman. On 3 ^rd September, 2010, the appellant responded to the response of Bloxham Stockbrokers by way of letter addressed to the Financial Services Ombudsman. On 6 ^th October, 2010, Bloxham submitted its response thereto.

11 5 3.4 On 22 ^nd November, 2010, the appellant received a letter from the Financial Services Ombudsman stating that the investigation into the complaint had concluded and enclosing a copy of the finding. In its finding the Ombudsman held inter alia as follows:-

"The Complainant had been a client of Bloxham for over twenty years, and was classified as an advisory retail client. His portfolio is largely made up of shares, and the Complainant operates a CFD account with Bloxham. Upon receipt of Bloxham's Quarterly Newsletter, Bloxham states that the Complainant contacted Mr. Daniel Kiely, a broker employed by Bloxham. The Complainant indicated that he required a long-term source of income from the funds he wished to invest at a better rate than was available on deposit. The Bond offered a good level of income."

12 …

13 Bloxham portrayed the Complainant as '… an experienced investor who… previously invested in equities through Bloxham and has also operated a contract for difference account with Bloxham.

14 …

15 Bloxham say that it told the Complainant that total loss was possible, but unlikely. The order to purchase the Bond was made by the Complainant over the telephone. The Complainant was 72 at the time of making the investment and says that because it could not be encashed until 2031, it was inherently unsuitable. However, it does not appear to be correct to say that the Bond could not be sold until 2031.

16 …

17 The Complainant was an experienced investor. The Bond was purchased by the Complainant in the secondary market 'below par'. In and of itself, this told the Complainant that the value of the investment might fluctuate.

18 I consider that the investment was sold in good faith by the Provider, inter alia on the basis that it provided the Complainant with the potentially high return that he was seeking. I am satisfied that the Provider reasonably considered that the investment was relatively secure, but also that the Complainant was advised of and knew of the possibility of fluctuation in its value.

19 More fundamentally, I do not perceive in this case the likelihood of any causal link between any fault on the part of the Provider, and the loss that has been sustained by the Complainant. I perceive there to be quite a degree of artificiality about a number of the submissions advanced on behalf of the Complainant, when analysing in 2010 the circumstances surrounding the inception of this investment in March 2005.

20 In the overall circumstances, I do not consider that it is just to fix the Provider with responsibility for the loss that has been incurred by the Complainant. The Complaint is not substantiated."

21 In these proceedings the appellant seeks to challenge this finding on the basis inter alia that the Ombudsman erred in accepting the notice party's evidence regarding the crucial telephone conversation and in finding that the notice party had not misrepresented the nature of the investment. The appellant also submits that the Ombudsman attached too much weight to the contention that he had significant...