knowledge 5 July 2023 |

High Court rules against Ulster Bank in Significant Tracker Mortgage Decision

On 22 June 2023, the High Court issued its judgment (here) in respect of a challenge by Ulster Bank (the “Bank”) of three related decisions of the Financial Services and Pensions Ombudsman (the “FSPO”) under s. 64 of the Financial Services and Pensions Ombudsman Act 2017 (the “2017 Act”). In its ruling, the Court rejected the Bank’s appeal. It found no serious or significant error in the FSPO’s findings, in respect of the first and second decisions (“Cases A and B”), that the Bank’s conduct was contrary to the borrowers’ contractual rights, as well as to the Central Bank’s Consumer Protection Code 2006 (the “Code”) (this version of the Code applied at the relevant time).

In the case of the third FSPO decision (“Case C”), there was a procedural issue, and the High Court remitted it to the FSPO for further consideration.

Background to the Cases

Each appeal arose out of complaints successfully made to the FSPO by the borrowers, contending that they were entitled to a tracker interest rate on their mortgages, on the basis of previous commitments by the Bank.

Case A

In Case A, the borrowers took out a loan from the Bank in 2006 on a tracker rate stated to be “fixed for the life of the home loan term”. In 2007, they transferred the maximum permissible amount of their mortgage to a staff fixed rate of 3%. They subsequently sought to revert to the tracker rate, but the Bank refused because it had, by 2010, stopped offering a tracker rate to new customers.

The borrowers submitted that the Bank failed to advise them of the consequences of their 2007 transition to the staff fixed rate. The Bank relied on the Staff Home Loan Scheme Rules, which it had made available to the borrowers via its intranet and which described the staff interest rate as “3% per annum fixed for the term of the loan”. The Bank claimed that this denied the borrowers any right to revert back to the tracker rate that was, by the time the borrowers applied to revert, no longer offered by the Bank to new customers.

Case B

Case B concerned a mortgage, drawn down in 2004 on the Bank’s then Home Loan Rate, and switched to the Bank’s tracker rate in 2006, stated at that time to be “fixed for the life of the Home Loan term”. In 2007, the borrowers elected to fix their interest rate for a specified period of time. They signed a Fixed Rate Authority which stated that, on expiry, the Bank might offer “alternative available products” but if no such offer was made or if such an offer was made but not accepted, the Home Loan Rate would apply. The fixed rate period came to an end in 2010 and the borrowers sought to revert to their previous tracker rate. The Bank refused the request on the basis it had since 2008 stopped offering a tracker rate to new customers.

Basis for FSPO’s Decisions

In both decisions, the FSPO found against the Bank.

In respect of Case A, the FSPO noted that when the borrowers transferred to the preferential staff rate, no new agreement was drawn up to amend the terms and conditions of the original offer of advance. The Code imposes a duty to ensure that all documents or instructions that change or remain contractual entitlements are clear as to the changes being made. In this case, there was no documentation incorporating the Staff House Loan Scheme Rules into the borrowers’ existing terms and conditions of their mortgage loan, even though the Bank may have intended those rules to amend or vary those terms and conditions. The FSPO found that the terms and conditions of the mortgage loan were not amended by the borrowers’ move to the staff interest rate in May 2007 and therefore the condition providing for the tracker rate “for the life of the Home Loan term” remained in being. Thus, the FSPO found that the Staff Home Loan Scheme Rules did not override the borrowers’ entitlement to the tracker interest rate and the Bank should have made it clear if they intended the Rules to do so.

In Case B, the FSPO found in favour of the borrowers on similar grounds. It did not accept the argument that the Home Loan Interest Rate equalled a tracker interest rate or was to be construed as being related to it, but it did find that the borrowers had a contractual entitlement to the tracker rate because signing the form to move to the tracker rate with a margin stated to be “fixed for the life of the Home Loan” had altered the terms and conditions of their original mortgage loan. The form did not say the rate was fixed provided the borrowers did not choose to move a different rate later, or for so long as they chose to remain on a tracker rate. If the Bank had intended that, the FSPO said it should have caveated the form with either or both of those conditions. The FSPO found that the terms or conditions of the borrowers’ mortgage loan were therefore amended to include a contractual commitment to the tracker rate. The FSPO claimed to be at a loss to understand how the Bank could form a view that the borrowers would or should have known that the consequences of applying for the fixed rate was that they were giving up their entitlement to the tracker rate when this was not documented.

High Court Ruling

In respect of Cases A and B, the High Court upheld the FSPO’s decisions in favour of the respective borrowers, refusing the Bank’s appeal. A curial deference will be shown to FSPO’s decisions in situations where it has access to some specific knowledge or information, which is not available to the Court in a statutory appeal. In these cases, the Bank failed to establish a serious or significant error, or a series of errors, in the FSPO’s analysis of the terms of the contract or of the documentary evidence surrounding the borrowers’ move from tracker rate to a different rate, or their subsequent attempts to revert to, what was claimed to be and the FSPO confirmed, was their continuing contractual right to a tracker rate which the Bank failed to rescind.

The following aspects of the Court’s judgment are worth noting:

Oral Hearing

It had been submitted by the Bank that a conflict of facts gave rise to the need for an oral hearing. The Court, however, found that the FSPO exercised its discretion properly in finding that there was no need for an oral hearing where it had been furnished with ample and clear documentary evidence and where there was no suggestion by either party that the terms of their contract fell to be determined by anything other than objective evaluation of documentary evidence.

Breadth of the FSPO’s Jurisdiction

The Court reiterated the breadth of the FSPO’s jurisdiction afforded by the provisions of the 2017 Act. According to the Court, that jurisdiction means that errors made by the FSPO may have been made within jurisdiction and may not necessarily merit the overturning of a decision. Whether the Court would have reached the same decision on the evidence before the FSPO is irrelevant. The only issue is whether there was a serious or significant error or series of errors perpetrated by the FSPO in reaching the decision.

Contractual Interpretation

The Court was satisfied to uphold the FSPO’s decision, since the Bank’s conduct was found to be contrary to its contractual obligations.

The FSPO made its decision based on what was and was not included in the documentation furnished to the borrowers when they moved off the tracker rate, and how any alterations to the terms and conditions of their mortgage loans fell to be analysed in the light of the information and documentation made available to them when they elected to move from the tracker rate to a different rate of interest.

Had the Bank intended to incorporate a term stipulating that the borrowers’ decision to move from the tracker rate to a different rate meant that the entitlement to a tracker rate would dissipate, it should have made express provision to that effect.

Additional Statutory Jurisdiction

Additionally, the FSPO’s jurisdiction is not confined to the interpretation of a contract such as might face a court in determining a contractual dispute. Section 60(2) of the 2017 Act confers on the FSPO a unique statutory jurisdiction which enables it to condemn the behaviour of a financial services provider on the basis of its conduct being contrary to law or being otherwise improper.

The Court was satisfied in this case that the Bank’s conduct failed to comply with obligations pursuant to the Code, which have been held to be binding in law.¹ Specifically, it failed to adhere to the duty to ensure clarity for customers in any documents altering contractual entitlements. The Bank’s failure to include what it had intended, i.e. that the tracker rate might not be part of the alternative available products to be offered to the borrowers when their fixed rate came to an end or when borrowers decided to move off it, meant that no such restriction could be applied to them if they sought to return to the tracker rate in accordance with the entitlement to it that they thought they were retaining, when they moved off it previously.

Comment and Next Steps

The precise impact of this ruling remains unclear. However, it is likely that mortgage-holders in similar circumstances will be able to claim a contractual right to revert to a tracker rate to which they were previously entitled and which, in the FSPO’s analysis, the Bank failed to rescind. Financial institutions should take note of the FSPO’s broad jurisdiction in the pursuit of its consumer protection mandate, and ensure that any attempts to vary contractual entitlements be made in clear and express terms, in accordance with the Consumer Protection Code 2012.

Also contributed to by David O’Keeffe Ioiart