The Court of Appeal in Millar & anor -v- Financial Services Ombudsman [2015] IECA, has held that a clause in Danske Bank's terms and conditions allowing them to alter rates in accordance with market conditions was clear and unambiguous and on the facts the Financial Services Ombudsman (the FSO) did not have to have regard to extrinsic evidence in reaching his conclusion.

Facts

Mr and Mrs Millar had a number of mortgage accounts with Danske Bank (Danske) each of which had a Clause 3 which stated:

‘Rates of interest are altered in response to market conditions and may change at any time without prior notice and with immediate effect.’

The Millars complained to the FSO that, having regard to Clause 3 (and other extrinsic evidence), Danske acted wrongly in increasing their variable interest rates at a time when interest rates were falling.

The Millars' complaint was rejected by the FSO who stated:

"Clause 3 of each of the loan agreements is clear in its wording and permits the Bank to increase the interest rate ‘in response to market conditions’. Under the terms and conditions of each of the loan agreements the Bank is not restricted by reference to the ECB rate when it is assessing the appropriate rate of variable interest. The Bank’s obligation under each of the agreements is to alter the rate in response to ‘market conditions’ and not ‘in line with general market interest rates’. The Bank is acting in accordance with the terms and conditions of each of the loan agreements in altering the variable rate of interest in accordance with market conditions and there are no grounds for establishing that the Bank is obliged to disclose the basis on which this assessment is calculated.”

The High Court

The Millars appealed the FSO ruling to the High Court who held that the normal deference that the courts show to the decisions of the FSO did not apply to the ordinary application or interpretation of contract law.  Accordingly, the court considered afresh the terms of the mortgage deeds and particularly the phrase “…in response to market conditions…” contained in Clause 3 and held that the FSO erred in concluding that the words at issue were clear and unambiguous and further erred in not having regard to extrinsic evidence which might inform the meaning of those words.  The High Court also found that the FSO failed to give consideration to whether the complainants could establish a collateral contract regarding the meaning of these words having regard to the promotional and other material supplied by the Bank at the relevant time.

The High Court also found that the FSO was also in error in failing to examine whether the bank's interpretation of the clause was broadly fair and reasonable to the complainants, given his enhanced statutory powers.

Accordingly, the High Court held that the decision reached by the FSO “was vitiated by a serious and significant error or a series of such errors” and made an order setting aside the decision and remitting it for a fresh determination in a manner not inconsistent with the judgment.

The Court of Appeal

Both Danske Bank and the FSO appealed the decision of the High Court.

The Court of Appeal agreed generally with the approach of the High Court in relation to the appeal and agreed that the courts should show a level of deference to the decisions of the FSO. The Court also agreed that the trial judge was correct in concluding that no deference is to be shown to the decision of the FSO on “purely legal questions”. However, the Court found that the trial judge fell into error when construing the provisions of clause 3 as the issue raised by the Millars' complaint was not a pure question of law, but rather a mixed question of both law and fact.

Kelly J noted that the Millars contended that the clause meant that the variable rate of interest could only be increased in line with general market interest rates. However, he was of the view that this contention did not involve a construction of clause 3, but rather a recasting of it. Kelly J held that the FSO was correct in refusing this construction, concluding that clause 3 was clear in its wording and he rejected the finding of the trial judge that the term “market conditions” referred to “market conditions generally”.

Finlay Geoghegan J disagreed with the approach of the trial judge in the High Court in deciding to 'examine afresh' the matter of contractual interpretation. She noted that in an appeal to the High Court from a finding of the FSO which includes a decision on a pure question of law, the burden of proof remains on the appellant; the onus of proof is the civil standard and the court should consider the adjudicative process as a whole in deciding  whether the decision is vitiated by a serious and significant error. In reaching its decision the court will normally determine the appeal on the evidence and material before the FSO. 

With regard to the finding by the trial judge that the FSO was obliged to consider the complaint from a wider perspective than the loan agreements and in particular whether the Millars could establish a collateral contract or rely on principles of promissory estoppel, Finlay Geoghegan J held that while the Millars did refer to other matters from which they contended the meaning of‘variable interest rate’ should be derived this was secondary to their main argument and not based upon specific facts or evidence.

Finlay Geoghegan J also rejected the decision by the trial judge that there was an obligation on the FSO to consider whether reliance by a bank on contractual terms was “broadly fair and reasonable”. She stated that the essential complaint was that the Bank was in breach of the loan agreements and while the FSO could consider a complaint from such a broader perspective, he was not obliged to do so. Whether or not he is in error in failing to do so will depend upon the complaint and facts before him.

Finlay Geoghegan J held that it was implicit in the finding of the FSO that he accepted the submission of the Bank that its funding costs were part of ‘market conditions’ and the Millars had not established that the FSO was in serious error in accepting this submission and finding that the wording used in clause 3 was not restricted to making an increase in line with general market interest rates.

Accordingly the Court allowed the appeal and restored the FSO's finding.

Comment

The decision of the Court of Appeal makes it clear that the court will not read a construction into clauses it considers to be clear and unambiguous.  It has also made clear that arguments in relation to collateral contracts or promissory estoppel will need to be substantiated by clear and specific evidence.