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Stephen O'Sullivan

The Financial Services Ombudsman

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Introduction

The office of the financial services ombudsman (hereinafter FSO) was created by the Central Bank and Financial Services Authority of Ireland Act 2004, which inserted sections into the Central Bank Act 1942 (hereinafter the Act of 1942).

Some prerequesites for a claim are:-

  • A claim can only brought by a consumer, which is defined to include a natural person or an incorporated body with an annual turnover of less than €3 million.
  • A complaint can only be made against a regulated financial services provider (FSP) (as defined in the Act of 1942). Generally this is a FSP regulated by the Central Bank or IFSRA or by an authority in the EEA country that performs similar functions. The definition is sufficiently broad to cover most banks, insurance companies, brokers, investment providers and investment advisers resident within Ireland. Difficulties can arise where the FSP is resident outside Ireland.
  • The claimant must not be subject to legal proceedings before a court and the complaint must be brought within 6 years of the conduct complained of.
  • The complainant must allow the relevant financial institution to investigate the complaint internally before bringing the claim to the FSO.

Common claims currently coming before the FSO include:-

  • A customer argues that the terms of a loan sought to be enforced by a bank should be interpreted in a particular way. It might be argued that a loan was recourse to property only (a non-recourse loan) or that the bank agreed interest only payments for a period.
  • A customer argues that a bank was in breach of the code of conduct on mortgage arrears or the Consumer Protection Code 2012.
  • A customer argues that his bank account has been dealt with wrongly, in particular that he has lost the benefit of a tracker mortgage by availing of a fixed rate mortgage for a period.
  • An investor argues that a representation was made that an investment would be of a different nature to what it turned out to be eg. that it was capital guaranteed.
  • An insured argues that a policy of insurance applies in circumstances where the insurer refused cover
  • There has been a considerable number of claims in recent years that payment protection insurance was miss-sold in particular that it was sold to persons who were self employed in circumstances where only employment income was covered under the policy.

According to the FSO annual report for 2012, the success rate for claims before the FSO was 27%. In 2013, the success rate was 23%.

The complaint can be upheld where, inter alia, the conduct complained of was contrary to law (s. 57CI(2) of the Act of 1942). Importantly, the complaint can also be upheld in circumstances where a common law action would not succeed such as where, inter alia, the conduct was unjust, oppressive or was based on an improper motive, an irrelevant ground or was otherwise improper. An example of this is Irish life and Permanent Plc v. FSO (Unreported, High Court, 3/8/12), where the court held, in respect of one claimant (Mr. Thomas), that the bank should have informed the claimant more fully of the implications of terminating a fixed term mortgage early, being that the claimant would revert to a variable mortgage and not a tracker mortgage. The court held that the FSO was entitled to find for the claimant, even if there was no obvious error of law or misrepresentation on the facts. The court relied heavily on Chapter 2.12 of the Consumer Protection Code 2006. This decision was appealed to Supreme Court but the appeal was withdrawn.

The hearing before the FSO is usually based on documentation furnished by both parties. The FSO has power inter-alia to compel the financial services provider to produce a document or to compel an employee’s agent of the FSP to give evidence. The FSO may enter the premises of the FSP to inspect any document.

Time limits for a claim

The complaint must be made within 6 years of the conduct complained of.

Caselaw on the time limit for a common law claim for misrepresentation might be useful in interpreting when time begins to run, though such caselaw is not determinative because of the difference in wording between the Statute of Limitations and the Act of 1942.

In O’Hara v. ACC Bank Plc (Unreported High Court 7/10/11) the defendant failed to have the court proceedings for misrepresentation struck out as being statute barred. The plaintiff invested in the fund in 2003 which matured in 2009, but did not issue proceedings until 2010. The court held that the financial loss was not crystallised within six years before the issuing of proceedings and therefore the claim was not statute barred.

Under the Statute of Limitations, though not necessarily under the Central Bank Act, time might be extended for fraudulent concealment. In Komady Ltd. v. Ulster Bank Ltd. (Unreported High Court 26/6/14) the plaintiff entered a swap arrangement in 2006 and incurred significant losses arising therefrom. The plaintiff argued that the defendant missold the product and did not advise it properly of the risks attaching to the product. The plaintiff also argued that these actions of the defendant amounted to fraudulent concealment and the time could be extended beyond 6 years. The court court held it did not amount to fraudulent concealment –  the plaintiff had all the information it needed in 2006 to ground a claim, regardless of how they might have reacted to any new information the defendant might or should have given them.

In European Property Fund Plc -v- Ulster Bank Ireland Ltd [2015] IEHC 425 the plaintiff entered into a positive carry swap and claimed breach of contract and tort on the basis inter alia it was not a suitable product. The court struck out this aspect of the claim because inter alia the claim was statute barred. The cause of action accrued when the transaction was entered. There was not act of fraudulent concealment in the 6 years prior to issuing the claim.

Right to an oral hearing

The FSO can direct an oral hearing of the complaint. There is no obligation to do so.

In some cases an appeal has been brought from the decision of the FSO, on the basis that an oral hearing was not directed by the FSO.

In Davy v. FSO 2010 IR 363 the court stated that the test was whether an oral hearing was imperative by reason of a dispute between the parties as to the reliability of the evidence or the accuracy of documentation.

This argument has been met with varying degrees of success depending on the facts of the case.

Cases in which the argument succeeded include the following

  • In Davy v. FSO [2010] IR 363 the FSO had found in favour of the claimant, who invested in particular funds in 2004 which had fallen considerably in value in 2008. The court held that the FSP was entitled to an oral hearing because of the conflict between the parties as to the oral advice given to the claimant in relation to the funds.
  • In Lyons v. FSO (Unreported, High Court, 14/12/11) the claimant failed in a claim before the FSO to the effect that an oral agreement had been reached that the bank would seek interest only on certain loans. The court determined that the claimant was entitled to an oral hearing where there was dispute as to whether an oral agreement was reached.
  • In Hyde v. FSO (Unreported, High Court, 16/11/11) the FSO had found against the claimant, who argued that he had agreed a loan in the sum of €965,000 and not just €715,000. The court determined that the claimant was entitled to an oral hearing where the dispute could not be adjudicated on the documentation alone. This was so, even in circumstances where the claimant had not requested an oral hearing before the FSO.
  • In Murphy v. FSO (Unreported, High Court, 21/2/12) the FSO found against the claimant, who was refused insurance cover in relation to a burglary on the basis there no operable alarm system in the premises. The court directed that an oral hearing should have been directed where each party’s expert differed in relation to the operability of the alarm system.
  • In Smith v. FSO (Unreported High Court 4/2/14)  the FSO found against the claimants, who had invested in a high risk property fund and argued that Ulster Bank did not give proper advice. The court directed an oral hearing.  The oral hearing was necessary to determine whether the claimant had meaningful contact with an agent of Ulster Bank or whether all contact was with an accountancy firm that promoted the fund, whether they had received the investment memorandum for the fund and whether they had been apprised of the high-risk nature of the fund.
  • In O’Neill v. FSO (Unreported High Court 27/5/14) the FSO found against the claimant, who argued that the insurer wrongly refused to pay out on damage to his vehicle. The claimant had argued, relying on his assessor’s report, that the damage was caused by flooding. The insurer had argued, relying on their expert report, that damage was not caused by flooding. The court said that the conflict of fact could not be resolved without an oral hearing.
  • In Doyle v FSO (High Court, Herbert J, 15 July 2014) the claimant invested monies in a Northern Irish Property fund . The court held there were conflicts of fact which required an oral hearing. The claimant claimed that the broker said orally that the fund would invest in commercial property only. There was a conflict as to level of risk appellant was willing to undertake.
  • In O’Driscoll v. FSO (Unreported High Court (Bermingham) 20/10/14) the claimant invested in a fund in 2007. He argued that the broker advised him it was a secure investment. The claimant lost 10% of the investment on maturity. The High Court held there was a conflict of fact as to what the broker said to the plaintiff about the investment – this required an oral hearing.

  • In O’Donoghue v. FSO (Unreported High Court 19/11/14) the FSO found against a claimant. The claimant had home insurance and claimed when the house was damaged. The broker (which was a bank) and underwriter refused cover as the claimant had declared that the property would not be left unoccupied. The court allowed the appeal on a point of law. The claimant was entitled to an oral hearing when he claimed that he had informed the seller that the property would be unoccupied until he had money to furnish it and the FSO found against him on this. That conflict required an oral hearing to resolve. Also, one declaration of the claimant (that the property would be occupied by family) was inconsistent with another (that it would be occupied by tenants) and therefore an issue of misselling arose.

Cases in which the argument for an oral hearing failed include

  • In Caffrey v. FSO (Unreported, High Court, 12/7/11) the claimant failed in a claim that he was lead to believe that a bond purchased had a guaranteed return. The High Court pointed to the fact that the claimant had not requested an oral hearing and that the events the claimant complained preceded the FSO adjudication by 5 years and it was unlikely an oral hearing would reveal anything.
  • In Cagney v. FSO (Unreported High Court 25/2/11) the court held that the FSO acted within jurisdiction to refuse an oral hearing even though the claimant had made an allegation before the FSO to the effect that his signature had been forged. The court outlined the fact that the claimant had failed to produce expert evidence to the effect that the signatures were forged.
  • In O’Brien v. FSO (Unreported High Court 28/2/14) the claimant invested in a property fund in 2006, which had fallen in value, and argued that he understood the investment to be guaranteed. The High Court held the FSO was not required to hold an oral hearing – the claimant had not requested this and, even if an oral hearing had been held and the FSO accepted the claimant’s evidence as to the meetings in 2006, the FSO was entitled to come to a conclusion that, reading the documentation signed, that the claimant knew the capital was not guaranteed.

Remedy before the FSO

The FSO can order inter alia compensation up to €250,000 and/or compel a financial service provider to take any other lawful action. This might include an order that the claimant be given back the money for the product invested in.

The FSO can award a sum less than the claimant’s actual loss. In O’Brien v. FSO (Unreported High Court 28/2/14) the claimant invested in a property fund in 2006, which had fallen in value by at least €16,000 and argued that he understood the investment to be guaranteed. The FSO held that the respondent had erred in the assessment of the claimant’s attitude to risk in finding that he was ‘active growth investor’ – there was insufficient documentation to support this conclusion. Further, in a document headed ‘understanding of investment’, there was some confusion as to whether the investment was guaranteed. The FSO awarded compensation of €5000 but found there were insufficient grounds for the remedy of rectification. The High Court said there was no error of law in awarding a sum less than the actual loss – the loss had not been crystallised and the FSO was not awarding compensation for the actual loss suffered but rather for the fact that the documentation lacked clarity.

The standard of review in a statutory appeal

A party may appeal the FSO decision to the High Court.

The standard of review is as stated in Ulster Bank v. FSO (Unreported High Court 1/11/06):-

“[T]he 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 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.”

Further In Molloy v. FSO (Unreported, High Court, 15th April, 2011) stated.

“(i) the burden of proof is on the appellant;

(ii) the standard of proof is the civil standard;

(iii) the court should not consider complaints about process or merits in isolation, but rather should consider the adjudicative process as a whole;

(iv) the onus is on the appellant to show the decision reached was vitiated by a serious and significant error or a series or such of errors – put in simple terms, the question is if the errors had not been made, would it reasonably have made a difference to the outcome;

(v) in applying this test, the court may adopt what is known as a deferential stance and may have had regard to the degree of expertise and specialist knowledge of the F.S.O.”

The normal order would be for the matter to be remitted to the FSO for reconsideration.

The argument is often made that the decision of the FSO should only be overturned if it is unreasonable or irrational. In Millar v. FSO the court said that it had jurisdiction to overturn the decision of the FSO if the claim was for breach of contract and if there was a misapplication of the law, in the same way that an appeal court could overturned the decision of a lower court. Similarly in Governey v Financial Services Ombudsman [2015] IESC 38 the Supreme Court held that where the claim to the FSO is one that could equally be made to a court at first instance, no undue deference should be paid to the FSO. 

Examples of cases where a party succeeded on appeal from the decision of the FSO on grounds other than merely that an oral hearing was not afforded include:-

  • In Koczan v. FSO (Unreported High Court 1/11/10)  the claimant was refused cover under a sickness payment policy in circumstances where he had a valid paid-up policy at the time the accident occurred but stopped making contributions after the accident occurred. The High Court held there was an error of law in that the FSO failed to analyse the document sufficiently to assess whether these circumstances meant that the policy did not apply and also failed to assess whether the conduct of the insurer was unjust or oppressive.
  • In Gabriel v. FSO (Unreported High Court  27/7/11) the FSO determined that the claimant had failed to bring a hire purchase agreement to an end by sending a letter to that effect. The court allowed the appeal on the basis that the FSO misinterpreted s.63 of the Consumer Credit Act 1995 in coming to its conclusion that the claimant could only bring the hire purchase agreement to an end by first discharging the liability to the finance company.
  • In Haverty v. FSO (Unreported High Court 3/5/13) the claimant failed before the FSO in a claim to have a charge against property removed. The court allowed the appeal because the FSO failed to consider whether a charge had been invalidly registered against the family home because the spouse had not consented to the creation of the charge.
  • In Millar v. FSO (Unreported High Court (Hogan J.) 30/9/14), the claimant argued that a variable mortgage, which allowed the bank to vary rates of interest “in response to market conditions”, meant the bank should have taken cogni n zance of the ECB rate, with the result that the variable rate should have been lower than it was. The High Court upheld the appeal and remitted the matter for reconsideration by the FSO. The FSO was obliged to apply the principles of contract law. The FSO was wrong in concluding that the words “in response to market conditions” were clear. In Millar v. FSO 2015 IECA 127 the Court of Appeal allowed the appeal. The FSO acted correctly in interpreting the relevant term. The bank could increase the interest rate in respnse to market conditions not just the ECB rate. There was no error of law.
  • In Law v. FSO (Unreported, High Court, 21/1/15) the claimants invested 800,000 in an investment fund in 2007. They encashed 3 years later and had lost 24%. The FSO found for the respondent. The court held there was an error of law. There was insufficient evidence to justify the finding that the product was suitable for the claimants – they had sought a low risk investment and, regardless of the documentation, there was no evidence to show that the respondent provided a product that was suitable for them.
  • In Earls v. FSO [2015] IEHC 536 the insurer refused to pay out on an insurance policy on the basis of non disclosure. The claimant had suffered a house fire. The claimant had had bullets that damaged the house years before and did not dislose this. The court held there was an error of law by the FSO in apply the non disclosure principles.

In a number of cases (including In Hayes v. FSO (Unreported High Court 3/11/08) and McManus v. FSO (Unreported High Court 28/7/11)) the court refused to overturn a decision of the FSO in circumstances where the point made on appeal had not been made before the FSO.

In 2012, 4 of 37 appeals that were heard were successful and 9 were unsuccessful.

Judicial review

Separate to a statutory appeal, a party might seek to judicially review the decision of the FSO. This is very rarely done as the statutory appeal would normally provide everything that judicial review would provide. One advantage might be that the time limit for judicial review is longer than the time for a statutory appeal (3 months or 6 months as opposed to 21 days) although the 21 say time limit can be extended.

In Davy v. FSO [2010] IR 363 the High Court and the Supreme Court found that the FSO should have furnished to Davys not only the letter of complaint but the attached appendices.

Running a FSO claim in addition to court proceedings

In O’Hara v. ACC Bank Plc (Unreported, High Court, 7/10/11) the claimant had failed in a claim before the FSO that the bank misrepresented  to him, when investing in a particular fund, that the money would be invested in blue-chip companies when this did not turn out to be the case. The court held that the plaintiff was estopped from proceeding with fresh High Court proceedings claiming misrepresentation arising from the same facts.

“Absent a special reason of sufficient impact to nullify any potential abuse of process, it would be wrong for this court to say that complaint could be re-litigated all over again.”

A similar conclusion was reached in Crowley v. Zurich Life Assurance Plc [2015] IEHC 97. The plaintiff had lost in a claim to the FSO that an insurer should pay out on a critical insurance policy and did not appeal the FSO decision. The High Court stated the plaintiff could not run a similar claim in the High Court.

Conclusion

If there is a a dispute between the parties as to the reliability of the evidence or the accuracy of documentation, the claimant would be advised to ask the FSO for an oral hearing. If one is refused there may be a ground of appeal.

Either party might ask the FSO to compel the other party to furnish particular documentation if it is relevant – an indirect form of discovery eg. ask for phone recordings of conversations in dispute. A claimant would be advised to make a Data Protection Act  (DPA) request to the respondent well in advance of the time limit for submissions to the FSO  – the respondent has 21 days to comply under the DPA.

Each party would normally be entitled to a copy of all documentation furnished by the other side that is considered by the FSO. The parties should insist on this.

If the FSO has made a clear error of law, such as a misinterpretation of a statutory provision, an appeal might be successful. A claimant should be sure to raise all relevant points at FSO stage not just at appeal stage.

A claimant should choose between the FSO and the court route. One factor in the decision is costs – there is no liability for the other sides costs if the FSO claim is dismissed. Also the FSO can find for the claimant based on overall fairness in circumstances where there was no tort, breach of contract or breach of statute. As against this, there are more effective mechanisms for the discovery of truth before a court – discovery and a guaranteed oral hearing. In a strong and valuable case for the claimant, the court route might be the best.

The information in this article is not a substitute for legal advice. I intend to update this article as and when the law develops in relation to these particular areas.