Verschoyle-Greene v Bank of Ireland Provate Banking Ltd

• Jurisdiction: Ireland
• Court: High Court
• Judge: Mr. Justice Noonan
• Judgment Date: 12 March 2016
• Neutral Citation: [2016] IEHC 236
• Docket Number: [2014 No. 67 MCA]
• Date: 12 March 2016

IN THE MATTER OF STATUTORY APPEAL

PURSUANT TO SECTION 57 CL OF CENTRAL BANK ACT, 1942, AS INSERTED BY SECTION 15 OF THE CENTRAL BANK AND FINANCIAL SERVICES AUTHORITY OF IRELAND ACT 2004)

AND IN THE MATTER OF APPEAL FROM A

FINDING OF THE FINANCIAL SERVICES OMBUDSMAN

BETWEEN

CHARLES VERSCHOYLE-GREENE

APPELLANT

AND

BANK OF IRELAND PRIVATE BANKING LIMITED AND THE FINANCIAL SERVICES OMBUDSMAN

RESPONDENTS

[2016] IEHC 236

Noonan J.

[2014 No. 67 MCA]

THE HIGH COURT

Banking & Finance – Non-payment of loan – Appeal against the decision of Financial Services Ombudsman – The Central Bank Act, 1942 – Oral hearing – Fair procedures – Deferential standard

Facts: The appellant had filed an appeal for setting aside the determination made by the second named respondent. The appellant alleged that the second named respondent had erred in law in his analysis of the concept of the duty of care owed by the first named respondent to the appellant. The appellant contended that the second named respondent had conducted the oral hearing in an unfair manner as it failed to inform the applicant in advance that the first named respondent was being represented by counsel and that appellant was not allowed to seek the assistance of his accountant during the said hearing.

Mr. Justice Noonan dismissed the appeal. The Court held that in order to succeed on an administrative appeal, the applicant must establish that the decision reached by the decision-maker was flawed with an error apparent on the face of the law. The Court held that it might apply a deferential stance and took into consideration the degree of expertise and specialist knowledge of the expert administrative body. The Court found that the since the appellant was an experienced investor, he was deemed to be acquainted with the associated risks of the business; no unfairness was caused to him even if he was not represented by a lawyer. The Court found that in spite of being advised by the bank that there was no capital guarantee in the product that he was investing in, the appellant had chosen to invest a large amount of money in it, and thus, the bank owed no duty of care towards the appellant. The Court found that it was well-settled that a party who was being cross-examined could not consult any other party at that time, and thus, the second named respondent was correct in not allowing the accountant of the appellant to sit beside him when the appellant was being sworn in for the purpose of giving evidence.

JUDGMENT of Mr. Justice Noonan delivered the 12th day of May, 2016.

1 This matter comes before the court by way of appeal from the determination of the second respondent (‘the FSO’) made on 20th January, 2014, seeking an order setting aside that determination and remitting the matter to the FSO.

Background Facts

2 The appellant has for some years been a client of the first respondent (‘the bank’). He is a high net worth individual whose background is in farming. He owns approximately 700 acres of land in Co. Carlow. Since the late 1990s, the appellant has invested very significant sums with the bank in a number of different investment products. Although the appellant's complaint in these proceedings relates to property investments, he has a significant history of investing in equities and products such as CFD's (contracts for difference).

3 In 2007, the appellant invested a total of €4m. in two products being promoted at that time by the bank. The first was called the Newgrange Fund, which was equity based and the second the New Mersey Property Syndicate, the latter being an investment in a retail shopping centre in Liverpool. The appellant invested €2m. in each product. He utilised his own funds for the Newgrange investment but in respect of New Mersey, he borrowed the €2m. from the bank's parent, Bank of Ireland. The acquisition of the shopping centre was funded by a combination of private equity from investors such as the appellant and borrowings from an international financial institution. The borrowing was non recourse to the investors and contained a number of covenants including one relating to the loan to value ratio (‘LTV’) which provided that in the event of the value of the property falling below a certain level relative to the amount of the loan, certain consequences would ensue. These included a hike in the underlying interest rate levied by the international lender.

4 Following the global economic collapse in 2008, the value of the property fell sharply causing a breach of the LTV covenant and triggering the interest rate increase. The outgoings on the property, primarily the loan repayments, were funded by the rent roll from the tenants of the shopping centre and were largely self sufficient. However, according to the appellant's case, the interest rate increase triggered by the breach of the LTV covenant, meant that the property could no longer ‘wash its face’ which ultimately led to the collapse of the investment and the loss of all the equity invested in the property, including the appellant's €2m.

5 Although he made a number of complaints about the manner in which the product was sold to him, the essence of the appellant's case is that the LTV covenant was never disclosed to him, it caused the loss and had he been made aware of it, he would never had made the investment.

6 On 27th April, 2011, the appellant lodged a complaint with the FSO about both the Newgrange and the New Mersey investments. Extensive written submissions were made by the appellant and the bank following which the FSO decided to hold an oral hearing. On 9th September, 2013, the FSO wrote to the appellant advising him of the FSO's decision to hold an oral hearing into the complaint. The FSO felt that this was necessary to resolve a conflict of fact which had arisen in the documents submitted. This related to the information and advice given by the bank to the appellant as to the nature of the risks attaching to the investment. The FSO indicated that he would require to hear oral evidence from the appellant and from the named witnesses on behalf of the bank, Mr. John Kennedy and Mr. Chris Reilly. The FSO went on to state:

‘If there are other individuals whom either of the parties considers should be present at the Oral Hearing, please respond in writing in order to indicate the names of the individuals in question, including any legal personnel who will represent you. Please note that whilst parties can have legal representation at the Oral Hearing if they wish, this is entirely a matter of choice, this office will not bear the costs of any legal representation or any other costs incurred by the parties.’

7 Enclosed with this letter was a document entitled ‘Oral Hearings Guidelines’ giving information on the procedures adopted by the FSO in conducting such hearings. This stated inter alia:

‘[11.] Each party is permitted to be legally represented, if desired. Any costs incurred by the party in that regard will not be born by this office and are a matter for the party itself…

[13.] During the hearing you must do as the Ombudsman asks you. At the start the Ombudsman will explain how the hearing will run and will at any time answer any questions you may have on the procedure. Remember if you would like to, you may have someone speak on your behalf. You may bring a relative, friend or colleague, as well as a solicitor or other professional for that purpose.’

8 The appellant replied by letter of 19th September, 2013, confirming that he would be accompanied by Mr. Richard J. Smyth, chartered accountant at the oral hearing. He went on to state:

‘If the respondent confirms that they will have any legal representation at the oral hearing, then I will also have legal representation.’

9 The FSO responded on 27th September, 2013, saying:

‘At this point, it is unclear as to whether the respondent financial service provider intends to have legal representation at the oral hearing. In the event that this information becomes available however, we will of course let you know.’

10 In an email on 6th December, 2013, the appellant wrote:

‘Dear Sylvia,

I hope this finds you well. Can you tell me if [the bank] have declared who they will be bringing to the oral hearing on Monday 16th December?

As stated I will be accompanied only by Mr. Richard Smyth.’

11 The FSO replied on the same date:

‘I have checked our records and cannot see any note from the provider which sets out who it intends bringing to the oral hearing. However, just for your information, it is not unusual in cases like this for a provider to be accompanied by legal representation and even a barrister at times.’

12 On Friday 13th December, the bank notified the FSO by email that it would be attending the oral hearing with three witnesses together with a solicitor and barrister. This information was not relayed to the appellant before the commencement of the oral hearing on the following Monday 16th December, 2013.

13 The oral hearing took place on the 16th of December, 2013, at a Dublin hotel. The appellant attended with his accountant, Mr. Smyth. The bank was represented by solicitor and counsel. A transcript of the hearing was put in evidence at this appeal. The applicant presented his case and gave evidence on his own behalf. He was questioned by counsel for the bank and by the FSO. Three witnesses gave evidence on behalf of the bank. The first was Mr. Chris Reilly whose involvement was confined to the Newgrange fund in respect of which the appellant withdrew his complaint. The second witness was Mr. John Kennedy, a senior manager with the bank. He had a number of dealings with the appellant over a period of time and introduced the New Mersey investment to him.

14 One of the complaints made by the appellant to the FSO was that he had been advised by Mr....