Mary Carty-Doyle v Financial Services Ombudsman and Another
| Jurisdiction | Ireland |
| Judge | Mr. Justice Herbert |
| Judgment Date | 15 July 2014 |
| Neutral Citation | [2014] IEHC 352 |
| Court | High Court |
| Date | 15 July 2014 |
[2014] IEHC 352
THE HIGH COURT
BETWEEN
AND
AND
STOCK EXCHANGE ACT 1995
INVESTMENT INTERMEDIARIES ACT 1995
RYAN v FINANCIAL SERVICES OMBUDSMAN UNREP MACMENAMIN 23.9.2011 (EX TEMPORE)
LAW & SMULLEN OXFORD DICTIONARY OF FINANCE & BANKING 4ED 2008
CARR v FINANCIAL SERVICES OMBUDSMAN UNREP O'MALLEY 26.4.2013 2013/9/2515 2013 IEHC 182
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
MOLLOY v FINANCIAL SERVICES OMBUDSMAN UNREP MACMENAMIN 15.4.2011 (EX TEMPORE)
J & E DAVY T/A DAVY v FINANCIAL SERVICES OMBUDSMAN 2010 3 IR 324 2010 2 ILRM 305 2010/24/5828 2010 IESC 30
HYDE v FINANCIAL SERVICES OMBUDSMAN UNREP CROSS 16.11.2011 2011/26/6887 2011 IEHC 422
MURPHY v FINANCIAL SERVICES OMBUDSMAN UNREP PEART 21.2.2012 2012/29/8593 2012 IEHC 92
O'BRIEN v FINANCIAL SERVICES OMBUDSMAN UNREP O'MALLEY 28.2.2014 2014 IEHC 111
CAFFREY v FINANCIAL SERVICES OMBUDSMAN UNREP HEDIGAN 12.7.2011 2011/7/1582 2011 IEHC 285
CENTRAL BANK ACT 1942 S57CM(1)
CENTRAL BANK & FINANCIAL SERVICES AUTHORITY OF IRELAND ACT 2004 S16
Financial Services Ombudsman – Stockbrokers – Finding – Procedure – Conflict of Material Fact – Oral Hearing – Statutory Discretion – Property Investment
These proceedings involved a complaint against a finding by the Financial Services Ombudsman. The appellant in this case invested monies, on the advice of GoodBody Stockbrokers, into Northern Ireland Properties. After the investment plummeted the appellant lodged a complaint against the stockbrokers to the Financial Services Ombudsman, the Respondent. The respondent decided to investigate this complaint and came to conclusion that the stockbrokers had acted lawfully. This issue then came before Herbert J. in the High Court, who focused on the two important questions, why did the Stockbrokers believe it was appropriate for the Complainant to invest all her funds in Northern Irish Property? And was the appellant pressurized into investing monies she was reluctant to invest?
Herbert J. reviewed the initial Finding by the respondent and all the imperative correspondence exchanged between the parties involved. In the initial finding the respondent found that the complainant received adequate notice of the high level of risk that attached to the investment and was satisfied that the stockbrokers didn”t apply any adverse pressure on the appellant. Procedurally however Herbert J. was of the opinion that the Finding by the respondent fell short, even if only slightly. The Finding failed to address all the complaints put forward by the appellant and lacked detail, and even if it couldn”t be classified as a serious and significant error on the whole the appellant has a statutory right of appeal from the Finding of the respondent to this Court. In regards to the case law applied in such instances the parties agreed that the principles confounded in Orange Communications Limited v. the Director of Telecommunications Regulation and Another [2000] 4 I.R. 159 at 184 were to be applied. Herbert J. concluded that it is well established that it is an unfair procedure for the respondent not to exercise his statutory discretion to hold an oral hearing where there is a conflict of material fact. Herbert J. in this case decided more detailed information is required and there needs to be an agreement on fact. Herbert J. decided the best way to resolve the facts in dispute was an oral hearing to clear up any conflict of facts.
JUDGMENT of Mr. Justice Herbert delivered the 15th day of July 2014
1. Dissatisfied with the Final Response letter dated the 30 th August, 2010, received by her solicitors from the notice party, the appellant, through her solicitors, submitted a complaint to the respondent dated the 2 nd November, 2010. The respondent decided to investigate this complaint. By a letter dated the 5 th August, 2011, the respondent submitted to the notice party a Summary of Complaint, a Schedule of Questions and, a Schedule of Documentary Evidence which he wished to consider. For the purpose of this appeal only the first and second questions posed by the respondent are relevant. These are:
2 "1. Please explain why the Stockbroker believed it was appropriate for the Complainant to invest all her funds in Northern Irish Property.
2. Please address the issues raised by the Complainant in her Solicitor's letter dated the 2 nd November, 2010, and in particular the contention that the investments were not consistent with the representations made to the Complainant."
2. At paras. 3 and 4 of this letter of complaint dated the 2 nd November, 2010, it is stated as follows:-
2 "3. Our client met with T.J. Scully of Goodbody Stockbrokers on the 29 th November, 2005. T.J. Scully introduced numerous investment products to our client. Our client was not interested in the investment products presented to her as they were mainly property orientated. On the 6 th December, 2005, our client had a further meeting with M.K. of Allied Irish Bank at the (named) Branch. M.K. asked our client how she got on with Goodbody Stockbrokers and whether there was any particular investment she was interested in. A general discussion ensued and our client indicated to M.K. that there was nothing of interest to her and that she would not proceed with any investment. M.K. assured our client that Goodbody Stockbrokers were very professional, had a lot of experience in the marketplace and that they would endeavour to find a suitable investment product for her.
4. In or about the 8 th December, 2005, our client received a call from Goodbody Stockbrokers asking her to make contact as they had an investment opportunity for her and time was of the essence. At this stage, our client was introduced to Northern Ireland property fund by T.J. Scully. He advised her that the fund would invest in various commercial properties throughout Northern Ireland. Our client indicated her reluctance to invest in this fund as she believed that the market had peaked at this time. In particular, she pointed out to T.J. Scully that she did not want any exposure to the residential property market. T.J. Scully assured our client that the purpose of the fund was to invest in commercial properties only throughout Northern Ireland, such as shopping centres, office accommodation etc. He assured her that the fund would not be investing in residential property. This oral representation by T.J. Scully is supported by the following documentation which was sent to our client."
There were:-
(a) A letter for Goodbody Stockbrokers addressed to Mary Doyle-Carty [sic] dated the 6 th December, 2005.
(b) The Goodbody Northern Ireland Property Fund Information Memorandum dated December 2005.
3. The letter of the 2 nd November 2010, goes on to state that contrary to these oral representations by T.J. Scully and to the terms of the letter dated the 6 th December, 2005, and the terms as incorporated in the Information Memorandum dated December 2005, approximately 70% of the Northern Ireland Property Fund (or even more if borrowed finance was taken into account), was invested "solely and exclusively in residential property investments".
4. The letter of complaint dated the 2 nd November, 2010, goes on to complain that:-
"… From the financial information provided by Goodbody Stockbrokers it would appear that the Goodbody Northern Ireland Property Fund borrowed in the region of Stg£222,550,000. This level of borrowing is 500% plus greater than that envisaged and/or as outlined in the letter dated the 6 th December, 2005, by Goodbody Stockbrokers addressed to our client."
This level of borrowing was raised either via bank loan or via Mezzanine finance. It is well known that Mezzanine finance is a very expensive way to raise finance and it is generally only availed of when bank funding is not available due to the high risk nature of the investment. In the circumstances Mezzanine finance tends to attract a high rate of interest ranging anywhere between 12 and 20% or greater. Further it should be noted that the level of funding whether it be mezzanine finance or bank finance greatly exceeded the 1.5 leverage as indicated in the letter dated the 6 th December, 2005. In fact, the level of funding is 8 plus times the level of equity which effectively means it exceeds nearly four times the level of maximum leverage as indicated in the letter of the 6 th December, 2005. As aforementioned, it is obvious that this fund was highly leveraged and therefore the risk of loss of capital was greatly increased by the amount of leverage. This fact was never explained to our client and there is no reference to this particular risk either in the correspondence from Goodbody Stockbrokers to our client prior to her investment or in the Information Memorandum dated December 2005."
5. The letter of the 2 nd November, 2010, complains that the management fee of 0. 5% of gross assets paid quarterly in arrears created a conflict of interest between the notice party and investors, including the appellant, by encouraging the notice party to increase the gross assets through reckless borrowing to the detriment of investors including the appellant and this conflict of interest was increased by members of...
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