The Court of Appeal has set aside two decisions of the Financial Services and Pension Ombudsman (FSPO) which found that borrowers were entitled to revert to their tracker interest rates having moved to fixed interest rates.
Delivering judgment for the Court of Appeal, Mr Justice Charles Meenan recognised the incentive for mortgagors to move to more attractive interest rates, warning: “All is well until the interest rate that is moved to becomes much less attractive than the interest rate that was moved from.”
Background
The notice parties were borrowers who asserted an entitlement to revert to their ECB tracker interest rate from the interest rates to which they had moved.
In complaint A, the complainants entered into a mortgage, a special condition of which stated: “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%.”
The complainants were employees of the appellant bank and availed of a “staff fixed rate”, the terms of which provided: “The current staff house loan scheme interest rate is 3% per annum fixed for the term of the loan.”
In complaint B, the complainants moved from a variable rate to a tracker rate “fixed for the full life of the Home Loan”, later signing to move to a fixed rate until 31 August 2010.
The relevant term 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…”
The appellant bank denied the borrowers’ requests to revert to their tracker rates on the basis that it no longer offered same, causing the borrowers to complain to the respondent.
FSPO
Declining to convene an oral hearing, the respondent upheld complaint “A” pursuant to the Financial Services and Pension Ombudsman Act 2017, finding that the conduct complained of was contrary to law (s.60(2)(a)) and was otherwise improper (s.60(2)(g)).
The respondent determined that the “A” complainants had a contractual entitlement to return to the tracker rate, and that the appellant acted improperly by reference to the Consumer Protection Code 2006 having failed to explain to the complainants that by opting for a fixed staff rate they could lose their entitlement to a tracker rate.
Employing the same reasoning in respect of complaint “B”, the respondent made similar determinations in respect of the appellant’s conduct pursuant to s.60(2)(a) and (g) of the 2017 Act.
In both cases, the respondent directed the appellant to repay overpaid interest and awarded €3,500 compensation for loss, inconvenience and expense.
High Court
The appellant unsuccessfully appealed both decisions to the High Court pursuant to s.64 of the 2017 Act.
The High Court determined that the respondent had exercised its discretion properly in refusing an oral hearing and found in respect of the standard of review: “Whether this court would have reached the same decision on the evidence before the FSPO is irrelevant as the only issue for this Court is whether there was a serious or significant error or series of errors perpetrated by the FSPO in reaching his decision. That assessment is likely to involve affording the FSPO some level of curial deference, at least on his analysis of the facts.”
The trial judge did not set out what, in her view, was the correct construction of the contracts, deferring to the “particular expertise of the FSPO in interpreting contractual arrangements or documents”. The High Court also considered that the respondent
On appeal, the Court of Appeal was asked to determine inter alia whether the High Court erred in affording deference to the Ombudsman’s contractual interpretation, and in holding that the Ombudsman’s upholding of each complaint was not seriously in error regarding the interpretation of the contract.
Court of Appeal
As to the standard of review to be applied to the respondent’s decisions, Mr Justice Meenan relied upon Ulster Bank v Financial Services Ombudsman [2006] IEHC 323 which set out: “To succeed on this appeal the Plaintiff must establish as a matter of probability that, taking the adjudicative process as a whole, the decision reached was vitiated by a serious and significant error or series of such errors. In applying the test the Court will have regard to the degree of expertise and specialist knowledge of the Defendant.”
Finding the second part of this test to be “more problematic”, the judge considered, inter alia, Mara (Inspector of Taxes) v Hummingbird Limited [1982] 2 I.L.R.M. 421, Millar v. Financial Services Ombudsman [2015] 2 I.L.R.M. 337 and Utmost Pan Europe v FSPO [2022] IECA 77 in respect of the second part.
The Court of Appeal concluded: “The test as described by Finnegan P. in Ulster Bank Investment Funds Limited requires a court, when reviewing a decision of the Ombudsman on the construction of a contract, to reach its own conclusion as to what that proper construction is. Having done so, the court then has to consider whether the decision of the Ombudsman ‘was vitiated by a serious and significant error or series of such errors’.”
The court explained: “In carrying out this exercise, the court extends no curial deference to the Ombudsman on issues of law. Insofar as facts are involved, curial deference to the Ombudsman is limited to facts of a specialist or technical nature.”
Noting that the respondent had dealt with the contractual issue under s.60(2)(a) “which was clearly a matter of law”, Mr Justice Meenan outlined that in respect of whether the appellant provided a sufficient explanation to the complainants concerning their interest rate switch, the respondent was required “to consider the knowledge which the complainants had or ought to have had, in their decision” for the purpose of s.60(2)(g).
Finding that the respondent’s interpretation of the mortgage contracts was incorrect having regard to normal contractual principles of construction, Mr Justice Meenan determined in respect of complaint “A” that “it is clear that in moving a portion of the loan to a ‘staff rate’ these complainants were agreeing to a variation in their contract concerning the interest rate which was applicable”.
As to complaint B, the court determined that the contractual analysis thereof yielded “much the same result”, expressing: “Unfortunately for these complainants, when they moved to the fixed rate in May 2007 there was no provision in their contract that their default interest rate would be a tracker rate. Rather, the contract provided, as stated above, at the end of the fixed rate period they were offered a range of options of “alternative available products” which did not include a “tracker rate” as this was no longer available from the Bank.”
Finding that the High Court should have carried out its own analysis of the contractual documents and did not owe the respondent any deference in this regard, the court considered the respondent’s findings under s.60(2)(g):
“Attempting to establish what the complainants knew or didn’t know or ought to have known is a subjective exercise…In the absence of an oral hearing, I find it difficult to see how the Ombudsman could reach the conclusion that the complainants, essentially, did not know what they were doing.”
Conclusion
Accordingly, the Court of Appeal allowed the appeal, set aside the findings of the respondent and remitted the issue of s.60(2)(g) for consideration following an oral hearing.
Ulster Bank DAC v Financial Services and Pensions Ombudsman [2024] IECA 231
