The High Court, in a decision handed down on 4 February last – Smith & anor v Financial Services Ombudsman & anor [2014] IEHC 40, considered the circumstances where the Financial Services Ombudsman (the FSO) should hold an oral hearing into a complaint before it.

Facts

The complainants were engaged in property investment and approached a Bank in 2005 – when they were both aged 59 - with a view to making a property investment. The complainants allege the Bank recommended participation in a particular scheme. In a letter to the FSO in 2011 the Bank described the investment as "High Risk", being "medium to long term investments which are specialised, highly geared, generally illiquid and do not offer a capital guarantee." The issues before the FSO concerned the extent to which the complainants had received advice or warnings on the suitability of the product. There was a conflict as to who the complainants had dealt with prior to the investment and there were no notes of conversation between the parties. The Bank claimed it was merely a third party broker and that it introduced the complainants to the promoter of the product who communicated directly with the complainants in relation to the investment. The complainants suffered significant financial losses on the investment and complained to the FSO. They sought an oral hearing on the basis that the issues were too complex to be dealt with in correspondence. The FSO found that no oral hearing was necessary saying that the conflicting accounts between the parties could be resolved by analysing the documentation and it went on to reject the substance of the complaint.

Decision

Barrett J firstly considered the role of the court in an appeal from the FSO and adopted the, by now well-known, test of Finnegan P in Ulster Bank Investment Funds Limited v Financial Services Ombudsman and others [2006] IEHC 323 where he stated:

"the Plaintiff must establish as a matter of probability that, taking the adjudicative process as a whole, the decision reached was vitiated by a serious and significant error or a series of such errors. In applying the test the Court will have regard to the degree of expertise and specialist knowledge of the Defendant."

Barrett J perceived the test as seeking to give effect to the intentions of the Oireachtas and also to show due deference to the expertise of the FSO. However, he went on to hold that the deference to the FSO is in relation to his area of expertise – financial services matters – but does not extend to issues of procedural fairness

The court held:-"There are assertions and counter-assertions ...... and by declining to hold an oral hearing the Financial Services Ombudsman in effect denied Mr and Mrs Smith the opportunity to test by way of cross-examination various factual issues arising between the parties, the determination of which was necessary to enable the Smiths to establish the merits of their case….The failure by the Financial Services Ombudsman to allow these issues to be tested at an oral hearing denied Mr and Mrs Smith the opportunity to establish the merits of such case as they sought to make and thus is an error of such significance as to vitiate the finding. As the question of whether there should be an oral hearing is a matter that is not within the specialised area of knowledge of the Financial Services Ombudsman, the issue of deference to be accorded to that expertise does not arise."

Accordingly the complaint was remitted back to the FSO for fresh consideration.

Case law on oral hearings

In the past few years the High Court has issued a number of judgments on the right to an oral hearing before the FSO.

In Davy v FSO [2010] IR 363 the FSO found in favour of a complainant in respect of a loss suffered on particular funds. The financial services provider succeeded in a claim for an oral hearing where there was a dispute between the parties as to whether an oral agreement was reached. In that case the court held that the test was whether an oral hearing was imperative by reason of a dispute between the parties as to the reliability of the evidence or the accuracy of documentation.

In Hyde v FSO [2011] IEHC 422 the FSO rejected a complaint from a complainant who argued he had agreed a loan in the sum of €965,000 and not €715,000. The court found that the complainant was entitled to an oral hearing where the dispute could not be adjudicated on the documentation alone. This was the case even where the complainant had not requested an oral hearing before the FSO.

In Lyons v FSO [2011] IEHC 454 the complainant alleged that an oral agreement had been reached that the bank would seek interest only on certain loans. The FSO rejected the complaint and the complainant appealed. The court found that the complainant was entitled to an oral hearing where there was a dispute as to whether an oral agreement was reached.

In Murphy v FSO [2012] IEHC 92 the FSO rejected a complaint from a complainant who was refused insurance cover for a burglary on the basis that there was no operable alarm system in the premises. The court found that there should be an oral hearing where each party's expert differed in relation to the operability of the alarm system.

However in other cases a claim for an oral hearing has been dismissed by the courts.

In Cagney v FSO, High Court, Hedigan J, 25 February 2011 the court refused to overturn the FSO's decision not to hold an oral hearing where the complainant alleged his signature had been forged. The court referred to the fact that the complainant had not produced expert evidence to show that the signatures in question were forged.

In Caffrey v FSO [2011] IEHC 285 the court refused to overturn the FSO's decision not to hold an oral hearing. The dispute concerned whether the complainant had been led to believe a bond had a guaranteed return. The court pointed to the fact that the disputed telephone conversation had taken place 5 years earlier, the complainant had not requested an oral hearing and it was unlikely such a hearing would reveal anything.

Commentary

The High Court has once again made it clear that where there are serious areas of conflict between the parties the complainants' rights to fair procedures will require that an oral hearing be held. This position is not one which has found favour with the FSO. In November 2013, at a legal conference, the FSO criticised some of the High Court decisions on oral hearings saying that findings that he should hold an oral hearing if there was a conflict of material fact in a case were not compatible with the operation of his office. He is quoted as saying - "If we have to hold an oral hearing in every such case, I hope our political establishment has the intellectual honesty to abolish the office because otherwise it is simply a charade."