HIGH COURT SUPPORT FOR THE FINANCIAL SERVICES OMBUDSMAN


Two recent decisions by the same Judge have clarified the limited jurisdiction of the High Court to interfere with a decision of the Financial Services Ombudsman (“the Ombudsman”).

The Financial Services Authority of Ireland Act, 2004 affords the Ombudsman powers to investigate complaints made by personal customers of financial service providers, small companies, charities, club trusts and partnerships in relation to their individual dealings with financial service providers. The Ombudsman’s role in determining how complaints of that nature should be resolved has been much used over the last number of years where the value of investments has fluctuated significantly, very often to the detriment of the individual investor.

In the case of Caffrey v the Financial Services Ombudsman [2011] IEHC 285, Judge Hedigan was asked to set aside the decision of the Ombudsman or in the alternative to remit the matter back to the Ombudsman for review.

In March 2005, Mr Caffrey learned of the “Dresdner Bond” available through Bloxham. The bond was advertised as having an attractive yield and a credit rating described as “A”. In fact, the Dresdner Bonds were notes issued by Saturn Investments Europe plc and the investment was linked to a US dollar currency bond. Furthermore, the investment was complicated by a swap agreement in place with Morgan Stanley. Mr Caffrey contacted Bloxham and discussed a potential investment over the phone for no longer than five minutes. The content of that conversation was much disputed in the relevant written argument before the Ombudsman. Essentially, Bloxham maintained that Mr Caffrey was informed of the exact nature of the investment as well as the possibility of a loss on the return. Mr Caffrey maintained that he was not informed of the complex nature of the investment, nor was he informed of the inherent risks in investing in the bond. Mr Caffrey invested €50,000.00 in the bond. Just over four years later Bloxham wrote to Mr Caffrey informing him that Morgan Stanley had terminated the swap agreement with Saturn and that he would only receive €0.03 per €1.00 originally invested. Mr Caffrey subsequently complained to the Ombudsman and written arguments were sent in by both sides for consideration by the Ombudsman.

The Ombudsman has a discretion to direct that an oral hearing should take place, but he declined to do so in this case. The Ombudsman found that Mr Caffrey was an experienced investor and the investment was sold in good faith by Bloxham. The Ombudsman also found that Mr Caffrey was advised of the possibility of fluctuation in the value of the investment. The Ombudsman placed emphasis on the fact that there was unlikely to be any causal link between any fault on the part of Bloxham and the loss which was sustained by Mr Caffrey. The Ombudsman found the complaint not to be substantiated. Mr Caffrey challenged the Ombudsman’s findings pursuant to the statutory right of appeal provided for by the Financial Services Authority of Ireland Act, 2004. Mr Caffrey maintained that the Ombudsman erred in accepting Bloxham’s evidence regarding the crucial telephone conversation and in finding that Bloxham had not misrepresented the nature of the investment. He also argued that the Ombudsman attached too much weight to the contention that Mr Caffrey had significant investment experience.

In the High Court, Judge Hedigan relied heavily on the test laid down by the then President of the High Court in Ulster Bank v Financial Services Ombudsman and Others (2006) IEHC 323 where Finnegan P stated:

“…the plaintiff must establish as a matter of probability that, taking the adjudicative process as a whole, the decision reached [by the Ombudsman] was vitiated by a serious and significant error or a series of such errors”.

Judge Hedigan noted that the Ombudsman had a discretion whether or not to hold an oral hearing and further noted that it was doubtful that the parties would have been in a position to give an accurate and detailed description as to the contents of a short telephone conversation that had occurred five years previously. Furthermore, Judge Hedigan found that the fact that no oral hearing was requested by either of the parties to the complaint was a fact which should be weighed in his decision. Ultimately, Judge Hedigan found that it was reasonable for the Ombudsman to determine that an oral hearing was unnecessary.

Judge Hedigan also concluded that it was reasonable for the Ombudsman to find that Mr Caffrey was an experienced investor. Having made that finding, it was also reasonable for the Ombudsman to factor in that experience in his decision making. Judge Hedigan refused the Orders sought by Mr Caffrey and found that the Ombudsman had acted within his jurisdiction and had acted reasonably.

Just over two weeks later, Judge Hedigan upheld the decision of the Ombudsman in the case FBD Insurance PLC v Financial Services Ombudsman [2011] IEHC 315. Judge Hedigan again reiterated the relevant test as set out in Ulster Bank v Financial Services Ombudsman and Others and made an interesting observation in relation to the function of the Ombudsman. He stated:

“The function performed by the Respondent [the Ombudsman] is, therefore, different to that performed by the Courts. He is enjoined not to have regard to technicality or legal form. He resolves disputes using criteria that would not usually be used by the Courts, such as whether the conduct complained of was unreasonable, simpliciter; or whether an explanation for the conduct was not given where it should have been; or whether, although the conduct was in accordance with the law, it is unreasonable, or is otherwise improper (see s57CL(2)).

He can also make orders of a type that a court would not normally be able to make, such as directing a financial services provider to change its practices into the future. Thus, he possesses a type of supervisory jurisdiction not normally vested in the court. These observations are to be borne in mind when considering whether the decision made by the Respondent [the Ombudsman] was validly made within jurisdiction”.

Having found that the decisions made by the Ombudsman were within his power to make, Judge Hedigan went on to state that the Ombudsman’s findings are something which must attract a high degree of deference by the Courts.

From these two decisions it can be seen that as long as the Ombudsman acts within his powers in a reasonable fashion, the Courts will afford him a wide degree of latitude in relation to the findings made by him. Judge Hedigan acknowledged the differences between the adjudicative process over which the Ombudsman presides and the court process. Nevertheless, Judge Hedigan effectively held that the courts would be very slow to interfere with the decision of the Ombudsman as long as he appropriately conducts himself in executing his statutory function.

In light of very recent developments an update to this article is available on our website at www.hayes-solicitors.ie

Matthew Austin