Ulster Bank Ireland DAC v Financial Services and Pensions Ombudsman

• Jurisdiction: Ireland
• Judge: Mr. Justice Charles Meenan
• Judgment Date: 20 September 2024
• Neutral Citation: [2024] IECA 231
• Court: Court of Appeal (Ireland)
• Docket Number: High Court Record Numbers: 2021/137 MCA and 2021/174 MCA

Between/

Ulster Bank DAC

Appellant

and

Financial Services and Pensions Ombudsman

Respondent

and

UHK, FK and KC

Notice Parties

[2024] IECA 231

Allen J.

Meenan J.

O'Moore J.

High Court Record Numbers: 2021/137 MCA and 2021/174 MCA

Court of Appeal Record Number: 2023/256

THE COURT OF APPEAL

CIVIL

Contract – Interpretation – Deference – Applicants seeking leave to appeal – Whether the High Court afforded excessive deference to the respondent’s interpretation of the contract

Facts: Two borrowers (the complainants) requested, but were refused by the appellant, Ulster Bank Ireland DAC (the Bank), to revert to an interest rate from which they had moved. Both complained to the respondent, the Financial Services and Pensions Ombudsman (the Ombudsman). The Ombudsman reached two decisions in respect of each of the complaints. Firstly, the Ombudsman dealt with the issue of the construction of the mortgage contracts under the provisions of s. 60(2)(a) of the Financial Services and Pension Ombudsman Act 2017 which was clearly a matter of law. Secondly, he considered whether sufficient notice or explanation of the consequences of moving from one type of interest rate to another was given to the complainants. This required the Ombudsman to consider the knowledge which the complainants had, or ought to have had, in their decision to change the applicable interest rate. This was the basis for the finding under s. 60(2)(g). The Bank appealed both decisions of the Ombudsman to the High Court under s. 64 of the 2017 Act. In each case, on the application of the Bank and without opposition from the Ombudsman, the Bank was granted leave to appeal to the Court of Appeal. The Bank submitted that the trial judge wrongly gave curial deference to the Ombudsman on the construction of the contracts. It was submitted that the trial judge failed to set out what, in her view, was the correct construction of the contracts but rather confined her judgment to whether or not the Ombudsman was entitled to have reached the decisions he did. As against this, the Ombudsman submitted that, based on the authority of Millar v Financial Services Ombudsman [2015] 2 I.L.R.M. 337, the trial judge was prohibited from “examining afresh” the issue of construction.

Held by Meenan J that an analysis of the contractual documentation in both complaints established that the Ombudsman’s construction of the mortgage contracts was incorrect. Meenan J held that the High Court ought to have carried out its own analysis of the contractual documents and did not owe the Ombudsman any deference in that regard. Meenan J held that the submission that the High Court was precluded from doing so by reason of the decision in Millar was not correct.

Meenan J allowed the appeal against the judgment of the High Court. Meenan J proposed making the following orders: (i) setting aside the finding of the Ombudsman that in respect of both complaints that the conduct of the Bank was contrary to law under s. 60(2)(a) of the 2017 Act; (ii) setting aside the decision of the Ombudsman that the conduct complained of was “otherwise improper” under s. 60(2)(g) of the 2017 Act; (iii) setting aside the direction of the Ombudsman that the Bank pay to the complainants overpaid interest and compensation; and (iv) a direction that the issue under s. 60(2)(g) be remitted to the Ombudsman for consideration following an oral hearing.

Appeal allowed.

NO REDACTION NEEDED

JUDGMENT ofMr. Justice Charles Meenandelivered on the 20 ^th day of September 2024

Introduction:-

1 . As was observed in the course of these proceedings, taking out a mortgage is probably the most significant financial responsibility a person takes on in their lifetime. The level of interest payable each month has a direct impact on a person's disposable income, so it is not at all surprising that a close eye is kept on the various interest rates that are available over the term of the loan. In this case, Ulster Bank DAC (“the Bank”) offered a range of interest rates being “tracker rates”, “variable rates” and “fixed rates” (including staff fixed rates).

2 . A person paying a particular interest rate has every incentive to move to another rate, if available, to reduce monthly payments. All is well until the interest rate that is moved to becomes much less attractive than the interest rate that was moved from. At the heart of these proceedings is whether or not the borrowers (“the Notice Parties”) having switched their interest rate, had a legal entitlement to move back to an interest rate that has become more attractive than it previously was. In these proceedings there were two borrowers, “A”, and “B” (the “complainants”).

3 . Borrowers “A” and “B” requested, but were refused by the Bank, to revert to an interest rate from which they had moved. Both complained to the Financial Services and Pensions Ombudsman (“the Ombudsman”). I will set out in some detail the complaints made by “A” and “B” and the decision of the Ombudsman in respect of each complaint. In the course of this judgment, I will also consider the legal role of the Ombudsman and, more particularly, the standard of review to be applied by the High Court on appeal from decisions of the Ombudsman.

Complaint “A”:-

4 . In August 2006 these complainants were issued with an offer of advance for a mortgage loan for €365,000. The special conditions attached provided, inter alia:-

“The rate of the Ulster Bank flexible mortgage tracks the ECB rate with a margin which is fixed for the life of the Home Loan term. The margin for this Home Loan is ECB rate plus 1.15%.” (Emphasis added).

5 . These complainants (or one of them) were employees of the Bank and thus in a position to avail of a “staff fixed rate” offered by the Bank in respect of a portion of the loan to a maximum of €190,000. The “Staff House Loan Scheme Rules” provided:-

“ Interest rates

The current staff house loan scheme interest rate is 3% per annum fixed for the term of the loan.” (Emphasis added)

These complainants availed of this and moved €190,000 of their loan to the staff fixed rate of 3%.

6 . By letter dated 6 September 2010, these complainants requested the Bank to move their loan from the “staff rate” back to the ECB tracker rate “as per our loan offer terms and conditions…”. In response, the Bank, by letter dated 14 December 2010, stated:-

“As we no longer offer Tracker Rates we are not in a position to revert your account to the previous tracker rate.”

Complaint “B”:-

7 . In April 2004 the Bank advanced to these complainants the sum of €253,000 for a term of 25 years at an initial interest rate of 2.95%. This initial interest rate was a reduction on the then applicable Variable Home Loan Rate and would apply until April 2005, at which time the interest rate would increase to the full variable rate, which at the time of the drawdown was 3.5%.

8 . In January 2006 these complainants signed an “Ulster Bank flexible mortgage transfer form”, which provided that the Bank would provide them with a “tracker rate” which “is fixed for the full life of the Home Loan” (Emphasis added).

9 . In May 2007 these complainants signed an “Ulster Bank house mortgages fixed rate mortgages” form, which provided that they were moving to a “fixed rate” until 31 August 2010. The form stated:-

“ At the end of the fixed period:

Ulster Bank Ireland Limited may offer to continue the advance for such a period and such a fixed rate as it may decide. It may also offer alternative available products. If such offer is made and you elect to accept then you must do so in writing, your acceptance … . If no such offer is made or if an offer is made and no acceptance is received … then the ‘Ulster Bank Home Loan Rate’ shall apply …”

10 . At the end of the fixed rate period, 31 August 2010, these complainants wished to revert to the “tracker rate”. However, the Bank's position was that a tracker rate was no longer available. By a letter dated 14 August 2010, the Bank outlined a number of other fixed rate options. The letter stated:-

“Please note if you opt for a further fixed rate and your current default interest rate option is a tracker rate, at the end of this new fixed rate period the tracker interest rate option will no longer be available, and your mortgage will default to a standard variable rate.”

Role of the Ombudsman:-

11 . Before considering the decisions of the Ombudsman in the complaints of “A” and “B”, it is necessary to look at the role and legal powers of the Ombudsman when considering such complaints. The office of Ombudsman was created by the Financial Services and Pension Ombudsman Act 2017 (“the Act of 2017”). Section 7 establishes the Office of the Ombudsman and s. 8 provides for his or her appointment. Part 6 of the Act sets out a Complaints Procedure and s. 60 provides:-

“60. (1) On completing an investigation of a complaint relating to a financial service provider that has not been settled or withdrawn, the Ombudsman shall make a decision in writing that the complaint –

(a) is upheld;

(b) is substantially upheld;

(c) is partially upheld; or

(d) is rejected.

(2) A complaint may be found to be upheld, substantially upheld or partially upheld only on one or more of the following grounds:

(a) the conduct complained of was contrary to law;

…

(g) the conduct complained of was otherwise improper.”

Section 64 of the Act of 2017 provides that a party to a complaint before the Ombudsman may appeal to the High Court against a decision or direction of the Ombudsman.

12 . Section 60(2)(a) and (g) have been considered in a number of decisions of the High Court. Hyland J. in Danske Bank A/S v FSPO[2021] IEHC 116, in considering an appeal under s. 64 of the Act of 2017, stated:-

“27. Those subsections make it clear that the Ombudsman both has jurisdiction to uphold on grounds involving what I might describe as...