High Court reserves judgment on Davy appeal

THE HIGH Court has reserved judgment on a challenge by stockbroking firm JE Davy to a decision by the Financial Services Ombudsman that it failed to advise Enfield Credit Union properly about the risks of investing in three perpetual bank bonds that later fell in value.

Final legal submissions were made yesterday in the three-day hearing before Mr Justice Peter Charleton, sitting in the Commercial Court, the big business division of the High Court. The judge reserved his decision and said he hoped to give judgment before July 31st next.

Davy has challenged ombudsman Joe Meade's decision of January 21st 2008, upholding Enfield credit union'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 decision.

A statutory appeal by the company and a challenge to the constitutionality of provisions of the Central Bank Act relating to the powers of the ombudsman are to be heard at a later stage.

The actions arose after Enfield credit union invested €500,000 in three perpetual bonds issued by three banks - Nordea Bank, Jyske Bank and Oko Bank between September 2004 and April 2005. The total value of the investments in July 2007 was €422,959.

The ombudsman last January ruled that the bonds were unsuitable investments for credit unions, and directed Davy to pay the credit union €500,000 in exchange for the bonds and to refund all fees and commissions paid, a sum of €3,800.

Davy had rejected the complaints by Enfield and insisted it had provided full and proper advice about the nature of the bonds and the risks involved.

In submissions for the ombudsman, Michael Cush SC argued Mr Meade acted fairly, reasonably and within his powers in the manner in which he reached his decision, and had given detailed reasons for that decision. Counsel said there was an emphasis on informality in the statutory scheme involved and he rejected arguments by Davy that, in the absence of regulations relating to complaints against stockbrokers, Mr Meade was not entitled to uphold the complaint.

Counsel said the ombudsman was entitled to direct Davy to buy back the bonds because the intention was to rectify the consequences of the conduct complained of.

Closing the case for Davy, Paul Sreenan SC, said the ombudsman was stressing the informality of the process "to the point of hypnosis". Informality did not equate with an absence of fair procedures. His side had received the credit union's letter of complaint but the ombudsman had failed to consider mediation as he was required to do, and also failed to provide it with key documents on which he based his decision.

The importance of fair procedures and of having an oral hearing with an opportunity to cross-examine had to be seen in the context of a complaint of major significance to Davy's reputation and where it could be exposed to multimillion euro claims by other credit unions, counsel indicated.