Irish Life and Permanent Plc v Financial Services Ombudsman

• Jurisdiction: Ireland
• Judge: White Michael J
• Judgment Date: 16 November 2011
• Neutral Citation: [2011] IEHC 439
• Court: High Court
• Date: 16 November 2011

[2011] IEHC 439

THE HIGH COURT

Record No. 84MCA/2011

Irish Life & Permanent PLC v Financial Services Ombudsman & Ors

IN THE MATTER OF AN APPEAL PURSUANT TO SECTION 57CL OF THE CENTRAL BANK 1942 (AS INSERTED BY SECTION 16 OF THE CENTRAL BANK AND FINANCIAL SERVICES AUTHORITY OF IRELAND ACT 2004)

BETWEEN/

IRISH LIFE AND PERMANENT PLC

Appellant

-and-

FINANCIAL SERVICES OMBUDSMAN

Respondent

-and-

AILEEN FEELEY and DECLAN GALLAGHER

Notice Parties.

CENTRAL BANK ACT 1942 S57CI(2)

CENTRAL BANK & FINANCIAL SERVICES AUTHORITY OF IRELAND ACT 2004 S16

ORANGE COMMUNICATIONS LTD v DIRECTOR OF TELECOMMUNICATIONS REGULATION & METEOR MOBILE COMMUNICATIONS LTD (NO 2) 2000 4 IR 159 2000/15/5538

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

CENTRAL BANK ACT 1942 S57BK(1)

CENTRAL BANK ACT 1942 S57BK(4)

BRISTOL & WEST BUILDING SOCIETY v MOTHEW (T/A STAPLEY & CO) 1998 CH 1 1997 2 WLR 436 1996 4 AER 698

DOOLAN v MURRAY & ORS UNREP KEANE 21.12.1993 1994/2/414

MCGHEE & ORS SNELLS EQUITY 32ED 2010

DELANY EQUITY & THE LAW OF TRUSTS IN IRELAND 4ED 2007 213

WAIT, IN RE 1927 1 CH 606

CENTRAL BANK ACT 1942 S57BZ

CENTRAL BANK ACT 1942 S57CI

HENRY DENNY & SONS (IRL) LTD T/A KERRY FOODS v MIN FOR SOCIAL WELFARE 1998 1 IR 34 2000/5/1750

CENTRAL BANK ACT 1942 S57CM(2)(C)

BANKING LAW

Financial services ombudsman

Appeal - Mortgage - Duty to explain consequences of switching from fixed to variable rate mortgage - Respondent upholding notice parties' complaint - Whether fiduciary relationship - Whether misrepresentation by silence - Whether factual assertions misstated - Whether serious and significant errors in findings - Henry Denny & Sons (Ireland) Ltd v Minister for Social Welfare [1998] 1 IR 34 applied; Ulster Bank Investment Funds Ltd v Financial Services Ombudsman [2006] IEHC 323 (Unrep, Finnegan P, 1/11/2006) followed - Central Bank Act 1942 (No 22), s 57CL - Central Bank and Financial Services Authority of Ireland Act 2004 (No 21), s 16 - Appeal allowed, matter remitted to respondent (2011/84MCA - M White J - 16/11/2011) [2011] IEHC 439

Irish Life and Permanent plc v Financial Services Ombudsman

Facts: An appeal was made from a finding of the Financial Services Ombudsman when a complaint made by the Notice Parties was substantiated pursuant to s. 57CI(2) Central Bank Act 1942 as inserted by s. 16 Central Bank and Financial Services Authority Act 2004. The Notice Parties had a mortgage with the appellant and complained that they had lost the benefit of a preferential rate of interest tied to the European Central Bank rate by switching from a fixed to a variable rate. The appellant alleged serious errors of law and misstatement of fact. The Ombudsman had found that the Bank was in a fiduciary relationship with its customer. The appellant argued that the Ombudsman had misstated the factual position of the appellant in resolving the conflict of fact.

Held by White J. that there was a combination of series and significant errors in the finding of the Financial Services Ombudsman in that the conflict of evidence was not addressed and the legal relationship of fiduciary was incorrectly applied to the parties and as a result a finding of misrepresentation by silence was incorrectly made. The appropriate remedy was to remit the mater back to the Financial Services Ombudsman for review.

Reporter: E.F.

1 Judgement of White Michael J delivered On the 16th of November, 2011

2 This is a statutory Appeal from a finding of the Financial Services Ombudsman of the 21 ^st day of February, 2011 when a complaint made by the Notice Parties was substantiated pursuant to the provisions of Section 57CI(2)of the Central Bank Act 1942 as inserted by Section 16 of the Central Bank and Financial Services Authority Act 2004.

3 The legal principles governing this statutory Appeal are well settled and are not in dispute between the parties.

4 The dicta of Keane C.J. in Orange Communications Limited V the Director of Telecommunications Regulation (2000 4 I.R. 159), has been approved by Finnegan J in Ulster Bank Investment Funds Limited V Financial Services Ombudsman ( 2006 IEHC 323), as the appropriate test to follow in Appeals of this nature.

5 To succeed on this Appeal the Plaintiff must establish as a matter of probability that, taking the adjudicative process as a while, 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 & Anor and not that in The State (Keegan) V The Stardust Compensation Tribunal".

6 The statutory Appeal while different from Judicial Review has many of its characteristics. It is not a hearing de novo, but an examination of the decision making process, always having respect for the particular role of the Ombudsman, set out in the Act.

7 Section 57BK(1) "The principle function of the Financial Services Ombudsman is to deal with complaints made under this part by mediation and where necessary by investigation and adjudication.

8 (4) The Financial Services Ombudsman is entitled to perform the functions imposed, and exercise the powers conferred, by this Act, free from interference by any other person and when dealing with the particular complaint, is required to act in an informal manner and according to equity, good conscience and the substantial merits of the complaint without regard to technicality or legal form.

9 The Notice Parties had a mortgage with the Appellant and complained they had lost the benefit of a preferential rate of interest tied to the European Central Bank (ECB) rate, by switching from a fixed rate to a variable rate.

10 The Appellant alleges serious errors of law and misstatement of fact".

UNDISPUTED FACTS.

11 Miss Aileen Feeley and Mr. Declan Gallagher applied for a Mortgage from Irish Life & Permanent plc to purchase a property 8 The Grove, Grange Manor, Lucan, Co. Dublin. Loan Approval issued on the 17 ^th September, 2007. They were approved for a 100% loan of €395,000 for a term of 35 years at an interest rate of 5.45% fixed for a period of 3 years.

12 At the end of the fixed rate period the interest rate applicable was to be not more than 1.10% over the ECB refinancing rate as varied by the ECB from time to time. The letter of offer also acknowledged that the fixed rate could be broken subject to payment of a redemption fee as described in the Section on Early Repayment in the Letter of Offer.

13 Condition 7 of the Loan Approval stated,

"without affecting the entitlement for the Borrower to apply at any time to fix the rate for a further period(if available) and in variation of general mortgage loan approval Condition 5.1 on expiry of the fixed rate period the interest applicable to the loan will not be more than 1.10% over the European Central Bank refinancing rate(the ECB rate) as varied by the European Central Bank(the ECB) in the event of any variation of the ECB rate the interest rate applicable to this loan will not be more than 1.10% over the ECB rate as varied by the ECB."

14 The Notice Parties signed an Acceptance of Loan Offer on the 24 ^th October, 2007 witnessed by their Solicitor James Sweeney, in which they acknowledged, their Solicitor had fully explained the Terms and Conditions of the Loan Offer to them.

15 On the 8 ^th January 2009, the Notice Parties contacted Ms Liz Fleming of the Lucan Branch Permanent TSB by telephone to enquire if they opted for a Variable Rate, would there be a penalty.? Miss Fleming sent this query by e- mail to her own Mortgage Department, and received a reply the following day the 9 ^th January indicating there would be no redemption penalty on breaking the Fixed Rate. The Notice Parties could avail of a Variable Rate of 4.65%, but a written request had to be forwarded.

16 Miss Fleming forwarded this e- mail to Brendan O'Neill Asst Manager in the Lucan Office shortly after its receipt on the 9 ^th January, 2009. The Notice Parties called into the Lucan office that afternoon and signed a request to switch from the Fixed Rate of 5.2% to the LTV Variable Rate of 4.65% with immediate effect. This was formally confirmed to them by letter from Permanent TSB on the 13 ^th January, 2009.

17 On the 16 ^th of July 2009 Aileen Feeley made a written complaint to the Manager Permanent TSB Lucan, about the consequences of the rate change. In that letter Ms Feeley stated that when they attended the Lucan Branch of Permanent TSB their circumstances had changed and they urgently required guidance on their options.

DISPUTED FACTS.

18 What actually transpired in the course of the telephone contact with the Branch on the 8 ^th of January 2009 and the meeting on the 9 ^th January 2009 is very much an issue between the Notice Parties and the Appellant. In this Appeal the Appellant has argued that the Ombudsman in resolving this conflict of fact has misstated the factual position of the Appellant.

FINDING OF THE OMBUDSMAN.

19 The Ombudsman found that the Bank was in a position of a fiduciary relationship with its customer, especially when the customer was seeking to discuss variations of existing Agreements which it had previously entered into. He quoted an extract from an English case Bristol and West Building Society -v- Mothew (1998) C.A. 1. describing the obligations of a fiduciary.

20 The Ombudsman went on to state that

"In a way this is an issue about whether the silence of the Bank in this matter was in effect a misrepresentation." The ombudsman quoted an extract from the Consumer Protection Code August 2006, and an extract from a Judgement Doolan...