knowledge 24 September 2024 |

Tracker Mortgages and the FSPO: Court of Appeal reverses High Court and Clarifies Deference Owed to the Ombudsman

Background

In Ulster Bank DAC v Financial Services and Pensions Ombudsman¹, Ulster Bank appealed against a High Court judgment that had upheld a number of decisions of the Financial Services and Pensions Ombudsman (the “Ombudsman”) in relation to tracker mortgages.  For a discussion of the High Court judgment please see our earlier briefing (here).

Central to the questions considered by the Court of Appeal was the extent to which the High Court should have reviewed, or shown deference to, decisions made by the Ombudsman on matters of law and contractual interpretation.

Deference to the Ombudsman

Meenan J, giving judgment for the Court of Appeal, reviewed the relevant case law.  He noted that it was well established that for an appeal from the decision of the Ombudsman to succeed, 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 series of such errors.  In applying the test the Court will have regard to the degree of expertise and specialist knowledge of the [Ombudsman]…”.

Meenan J noted that the first part of the test was clear but that the second part – ie the degree of deference that a court should show to the expertise and specialist knowledge of the Ombudsman – was more challenging.  Having reviewed the authorities in detail, Meenan J came to this conclusion: 

Application to this Case:  No Entitlement to Tracker Rate

Applying the above principles, Meenan J held that on the Court of Appeal’s analysis of the contractual documentation, the Ombudsman’s interpretation of the relevant mortgage contracts was incorrect.  Applying ordinary principles of contractual interpretation, Meenan J found that the complainants had clearly agreed to vary their contracts, such that a (then preferential) staff interest rate applied to their loans and there was no provision in the varied mortgage loan agreements that gave them the option to return to their tracker rates.

On that basis, the Ombudsman's decision that the complainants were entitled to be returned to the tracker rates, which they had voluntarily moved off, was reversed.  Meenan J noted that the High Court ought to have carried out its own analysis of the contractual documents and did not owe the Ombudsman any deference in that regard.

Meenan J went on to consider the Ombudsman's finding that Ulster Bank's conduct had been “otherwise improper”, which is one of the bases on which the Ombudsman had upheld the complaint before them.²  Meenan J noted that, in coming to this finding, the Ombudsman had reached conclusions about the extent of the complainants’ knowledge without holding an oral hearing.  The Court of Appeal found that there was no evidence in the documentation for the inferences made by the Ombudsman in relation to the complainants’ knowledge and that, given the lack of oral hearing, the Court  of Appeal should overrule the Ombudsman on this point also.

Outcome

The Court of Appeal overturned the judgment of the High Court and made orders setting aside most of the decisions made by the Ombudsman entirely.  The Court of Appeal also directed that the question of whether Ulster Bank’s conduct was “otherwise improper” should be remitted to the Ombudsman for consideration following an oral hearing.

The Court noted that the Ombudsman reached the conclusion that Ulster Bank’s conduct was “otherwise improper” based on a consideration of the documentation furnished, having refused an oral hearing.  The Court further noted that attempting to establish what the complainants knew or did not know (or ought to have known) is a subjective exercise. The Court therefore found it difficult to see, in the absence of an oral hearing, how the Ombudsman could reach the conclusion that the complainants, essentially, did not know what they were doing.

This leaves open the possibility that the complainants might yet be able to establish, through oral evidence before the Ombudsman, that they did not understand or have explained to them that by moving from a tracker rate to another interest rate, they would lose the tracker rate.

Comment

This will undoubtedly be a welcome decision for lenders, credit servicing firms and other financial institutions who have provided tracker mortgages.  More significantly, it is a very important decision for all – customers and financial institutions alike – in relation to decisions of the Ombudsman and the extent to which the courts can review and overturn those decisions.