On 24 June 2015, the Court of Appeal handed down judgment allowing the appeals of the Financial Services Ombudsman (the “FSO”) and Danske Bank against Mr Justice Hogan’s Judgment of October 2014 in the case of Millar –v- Financial Services Ombudsman & Danske Bank. In so doing, the Court of Appeal dismissed the Order made by Mr Justice Hogan in the High Court and restored the Finding of the FSO.
The complaint to the FSO
In 2005, Mr and Mrs Millar (the “Millars”) entered into seven mortgage loan agreements with Danske Bank. In November 2011, Danske increased the variable interest rate on those loan accounts by 0.95% on each loan. The Millars complained to the FSO in May 2013. The crux of their complaint was that the terms of their loan agreements provided that the variable interest rate could only be increased “in line with general market interest rates”. The Millars contended that when they queried the rate increase, Danske advised that it was due to the bank’s funding difficulties. The Millars submitted that Danske’s funding difficulties were not relevant to the definition of the variable rate referred to in their various loan agreements and that Danske’s decision to increase the rate of interest when the ECB rate had declined was not in line with general market interest rates. Thus, the Millars were of the view that Danske had breached the terms of their various loan agreements.
The FSO’s Finding
Following a lengthy investigation, the FSO made its Finding on 10 December 2013. In dismissing the Millars’ complaint, the FSO found that the clause relating to increasing variable rates was clear in its wording. Clause 3 of the relevant loan agreements provided as follows:
“Rates of Interest are altered in response to market conditions and may change at any time without prior notice and with immediate effect.”
The FSO held that this wording permitted Danske to increase the interest rate ‘in response to market conditions’. The FSO noted that Danske was not restricted under the terms and conditions of each of the loan agreements to reference to the ECB rate when assessing the appropriate rate of variable interest. The FSO was of the view that Danske’s obligation under each of the agreements was to alter the rates “in response to market conditions” and not “in line with general market interest rates” as advanced by the Millars. The FSO further found there were no grounds for establishing that Danske was obliged to disclose the basis on which this assessment was calculated. Accordingly the FSO dismissed the Millars’ appeal.
Judgment of the High Court
The Millars appealed the FSO’s Finding to the High Court and Mr Justice Hogan handed down judgment on 30 September 2014. In allowing the Millars’ appeal, Hogan J held that the FSO had erred in its construction of clause 3. In coming to that conclusion Hogan J considered whether the High Court should show appropriate deference to the specialist skill and knowledge of the FSO in dealing with such complaints. Hogan J held that the principle of curial deference does not apply in respect of matters of pure contract law. Consequently, he found that the question of contractual construction was one which the High Court was required to examine afresh in the course of determining a statutory appeal taken against a decision of the FSO.
Having considered the construction of clause 3 afresh, Hogan J found that he could not agree that clause 3 was “clear in its wording”, rather he was of the view that clause 3 was ambiguous and that the meaning required to be determined by reference to the factual background against which the contract was entered into and to other material in existence at the time the contract was entered into. Hogan J also held that even if the construction of clause 3 as advanced by Danske were correct, the FSO nonetheless fell into error in failing to examine whether it would be broadly fair and reasonable for Danske to apply such a construction as the FSO is entitled to do pursuant to s.57CI(2)(c) of the Central Bank Act 1942 as inserted by section 16 of the Central Bank and Financial Services Authority of Ireland Act 2004 (the “Act”). Consequently, Hogan J allowed the Millars’ appeal.
Judgments of the Court of Appeal
Both the FSO and Danske sought and were granted leave to appeal Hogan J’s judgment. The appeal was heard by Ms Justice Finlay Geoghegan, Mr Justice Kelly and Mr Justice Peart on 11 February 2015, with Judgment being delivered on 24 June 2015. The appeals were unanimously allowed, with Ms Justice Finlay Geoghegan and Mr Justice Kelly delivering written judgments.
In his judgment, Kelly J agreed with the trial judge that no curial deference ought to be shown to the FSO in respect of “purely legal questions”. However, Kelly J found that Hogan J fell into error in construing the issue raised by the Millars as a pure question of law rather than a mixed question of both law and fact. Kelly J held that the Millars’ contention that the variable rate of interest can “only be increased in line with general market interest rates” did not involve a construction of clause 3 but rather a recasting of it and sought to read into it something that was not there. Kelly J was of the view that the FSO properly considered the actual wording of clause 3 and was correct in concluding that it was clear in its wording. Further, Kelly J did not agree with Hogan J’s conclusion that the term “market conditions” may be taken to refer to “market conditions generally”, nor did he agree that the clause was ambiguous. In allowing the FSO’s and Danske’s appeals, Kelly J held that the Millars did not discharge the burden of proof demonstrating that the decision of the FSO was vitiated by a serious and significant error or series of errors.
Finlay Geoghegan J agreed that where the FSO has made a decision or determination on a pure question of law, the court should not adopt a deferential stance. However, Finlay Geoghegan J held that Hogan J had erred in his view that where an appeal against a Finding of the FSO includes a question of contractual construction, that the High Court is required to “examine afresh” that issue. Rather, she held that the correct position is that the general principles set out in Ulster Bank Investment Funds Ltd. v. Financial Services Ombudsman continue to apply to the determination of the appeal, namely, that the burden of proof remains on the appellant; the onus of proof is the civil standard; the court should consider the adjudicative process as a whole and the onus is on the appellant to show that the decision was vitiated by a serious and significant error. Consequently, Finlay Geoghegan J allowed the appeal against this part of the High Court judgment.
Finlay Geoghegan J also found that Hogan J had erred in law in deciding that the FSO was obliged to consider the complaint from a wider perspective than clause 3 of the loan agreements. She stated that it was implicit in the Finding that the FSO accepted that the relevant contractual terms were the written loan agreements between the parties including clause 3 of the general terms.
Finally, Finlay Geoghegan J found that Hogan J had erred in holding that the FSO was in error in failing to examine whether it would be broadly fair and reasonable for Danske to apply the construction of clause 3 advanced by them. Finlay Geoghegan J held that it appeared implicit that the trial judge considered that s.57BK(4) and S.57CI(2) of the Act imposed a mandatory obligation on the FSO to consider whether reliance by a bank on contractual terms was “broadly fair and reasonable”, but the FSO is not obliged by the terms of the sections to do so. In allowing the appeal, Finlay Geoghegan J held that the Millars had not established that the FSO was in serious error in finding that Danske was not in breach of the terms and conditions of the loan agreements in making the increases in 2011.
Accordingly, the Court of Appeal allowed the appeals of both the FSO and Danske Bank and restored the FSO’s Finding of 10 December 2013.