THE FINANCIAL Services Ombudsman Joe Meade acted unfairly while deciding that stockbroking firm JE Davy failed to properly advise Enfield Credit Union about the risks of investing in certain bank bonds, the Commercial Court was told yesterday.

The three perpetual bank bonds at issue later fell in value.

The ombudsman's decision concerning Davy's advice, his finding that the bonds were unsuitable investments for credit unions, and his direction that Enfield Credit Union be refunded by Davy, have significant implications for Davy's reputation and could also expose it to legal action by other credit unions, Mr Paul Sreenan SC, for Davy, said.

Davy provides investment advice to some 380 credit unions and some 139 of these had bought similar bonds to those acquired by Enfield, counsel outlined.

He said Davy rejected the complaints made against it and insisted it had provided full and proper advice about the nature of the bonds and the risks involved.

The advice was based on sound analysis of the market at the time, the firm argues. It claims the credit union understood the nature of the bonds, did not rely exclusively on Davy for investment advice and that the fall in the value of the bonds was not due to the bonds' characteristics but was a result of general unprecedented deterioration in the credit markets.

It also claims the Irish League of Credit Union (ILCU) had taken the view that perpetual bonds are suitable investments for credit unions.

Mr Justice Peter Charleton began hearing a judicial review challenge by Davy to the ombudsman's decision of January 21st, 2008, upholding Enfield's complaint about Davy's advice on the bonds.

The action is the first of three sets of proceedings by Davy aimed at overturning the ombudsman's decision. The other proceedings - a statutory appeal by the firm against the decision and a challenge to the constitutionality of provisions of the Central Bank Act relating to the powers of the ombudsman - will be heard at a later stage.

The actions arise from the investment by Enfield Credit Union in three perpetual bonds issued by three banks: Nordea Bank, Jyske Bank and Oko Bank.

The credit union invested a total of €500,000 in the three bonds between September 2004 and April 2005, and the total value of the investments in July 2007 was €422,959.

The ombudsman had ruled the bonds were unsuitable investments for credit unions and also directed Davy to pay the credit union €500,000 in exchange for the bonds and to refund fees and commissions paid in connection with the matter, a sum of €3,800.

Mr Sreenan said that, when dealing with the credit union's complaint, the ombudsman had considered and relied on reports produced for Enfield by Robert T Moynihan, described as an independent financial adviser, in which Mr Moynihan criticised Davy's advice. Mr Moynihan had also encouraged other credit unions to bring complaints against Davy, counsel added.

Davy had never been given those reports by the ombudsman, Mr Sreenan said. As a matter of fair procedures, it should have been given the reports and allowed respond to them and to question their author. The ombudsman had acted unfairly in failing to permit this and in failing to convene an oral hearing on the matter, Mr Sreenan added.

Davy should also have been given a chance to defend the criticisms levied by Mr Moynihan against Davy's independent expert, Colin Harte, counsel said.

Davy is also arguing the ombudsman was required to try and resolve the complaint through mediation but failed to do so. It has further claimed that, since it took its legal action, Mr Meade had publicly commented on it and had alleged that Davy wanted his offence to exist no longer.

The case continues today.