Lyons Anor -v- Financial Services Ombudsman
Neutral citation (2011) IEHC 454
Judgment was delivered on December 14th, 2011, by Mr Justice Gerard Hogan
Two businessmen who took a complaint to the Financial Services Ombudsman were entitled to an oral hearing, as the right to cross-examination is fundamental to fair procedure.
John Lyons and Patrick Murray are two businessmen who took a dispute with the Bank of Scotland (Ireland) to the Financial Services Ombudsman.
Their dispute concerned the interest to be paid on loans of about €17 million, which they borrowed for property acquisition in Counties Clare, Tipperary and Limerick between 1999 and 2008. They said they had a verbal agreement to pay interest-only on the loans at rates ranging from 1.25 per cent to 1.8 per cent, and that they were able to pay this from the rental income on their properties.
They insisted this agreement was made orally, in the presence of their accountant, but the bank would not put it in writing because this would breach Central Bank guidelines. This was corroborated by their accountant, but strongly contested by the bank.
Between July 2008 and February 2009 the bank increased the interest rate to one which would have pushed them into default, and at a meeting in February 2009 repudiated the oral agreement. They continued to pay the original interest amount, €550,000, but the bank insists they now owe €1.9 million.
On November 1st, 2009, the appellants made a complaint to the Financial Services Ombudsman, which decided the complaint was not substantiated. They appealed to the High Court on grounds the ombudsman failed to hold an oral hearing into the complaint.
Mr Justice Hogan pointed out that the appellants were not “consumers” of normal retail banking, under the 2005 Financial Services Ombudsman regulations. “Consumers” include partnerships and other incorporated bodies such as clubs, charities and trusts.
This expanded the scope of the jurisdiction of the ombudsman to a point beyond which “some might think it might sensibly or appropriately bear”, as it meant loans negotiated by a syndicate of businessmen running to hundreds of millions of euro could be the subject of a complaint to the ombudsman, he said.
It raised the question as to what was the function of the ombudsman, and how did this differ from that of the courts.
It appeared that virtually every commercial dispute involving private individuals could be shoehorned into the broader reaches of section 57BC(4) or 57C1(5). This realisation brought uncomfortable consequences.
Mr Justice Hogan asked whether a customer who had defaulted on his loan agreement could potentially fend off significant commercial litigation by initiating a complaint to the ombudsman.
He noted Mr Justice Peter Charleton had already ruled it would be contrary to the statutory scheme for parties to a complaint before the ombudsman to be subjected later to very similar litigation. It followed that an adverse finding by the ombudsman rejecting a complaint can, in some circumstances, create a form of issue estoppel preventing the relitigation of these issues.
Turning to the nub of the present appeal, the issue of an oral hearing, he said that where there was an adjudicatory system which was statutorily designed to be informal and expeditious, the courts should be reluctant to impose some form of adversarial court-style model. The ombudsman could not be regarded as some miniature version of the Commercial Court, and it could not function if that was expected of it.
There had been a number of decisions of the High Court upholding the decision of the ombudsman not to hold oral hearings.
However, in a recent case, Hyde -v- Financial Services Ombudsman (2011), Mr Justice Cross had held he did not see how the appellant’s complaint could be fairly or properly determined without an oral hearing. This was very relevant here.
The existence or otherwise of an oral agreement regarding an interest-only agreement for 10 years was the essence of the appellants’ complaint. The appellants could not realistically hope to establish the merits of their case without an oral hearing.
In justifying his decision, the ombudsman had stated that detailed statements had been given, and that an oral hearing would serve no purpose. This was tantamount to saying the bank officials had adhered steadfastly to their position that they gave no oral assurances. No documentary evidence had been produced to support it.
“The assertion that simply because the witnesses to one side or the other adhere to their stated positions in written statements, cross-examination is likely to be of no value, is one which, time after time, experience has shown to be unfounded,” Mr Justice Hogan said.
It was impossible to avoid the conclusion that the ombudsman’s decision was vitiated by a serious error which negated the appellants’ constitutional right to fair procedures. Mr Justice Hogan said he was aware this conclusion would have resource implications for the ombudsman’s office at a time of austerity. Perhaps cases such as this would prompt a review of the proper scope and role of the ombudsman vis-a-vis the court system, he said.
Once the ombudsman has proceeded to adjudication, a Rubicon has been crossed, Mr Justice Hogan said, and the ombudsman was obliged to uphold the constitutional right to fair procedure. He allowed the appeal.
The full judgment is on courts.ie
Barry Sheehan, solr, Cork, for the plaintiffs; Paul Anthony McDermott BL, instructed by Eversheds O’Donnell Sweeney, for the Financial Services Ombudsman; Rossa Fanning BL, instructed by Arthur Cox, for Bank of Scotland (Ireland)