The High Court has set aside a decision from the Financial Services Ombudsman (FSO) and ordered that it reassess a complaint made against Danske Bank, relating to the variable interest rate of mortgages. Judge Hogan found that the Ombudsman failed to apply wider public law aspects when making his decision rather than just private contract law.
The applicants in the case are multiple mortgage holders, who are on variable interest rates and were not in arrears. They complained to the FSO due to the manner in which Danske Bank had increased the variable interest rate. The applicants claimed that the bank had wrongly increased its interest rates at a time when interest rates generally have fallen to historically low levels.
The Ombudsman rejected the applicant’s complaint, only on the basis of the contractual terms. The FSO highlighted that each agreement explicitly states that the rates “are altered in response to market conditions and may change at any time without prior notice and with immediate effect”, and distinguished between an obligation to respond to “market conditions” and to vary the rate “in line with general market interest rates”. He held that Danske was “not restricted” by the ECB rate and that Danske is not obliged to disclose the basis on which they set their rates.
The Court, in interpreting the term “in response to market conditions”, opted for the “more common usage”. Danske had asserted that it related to its own cost of funding, rather than general market conditions, and the Ombudsman agreed that they were free to vary the rate according to their own criteria. However the High Court found that it was not a specialist term of art and applied the “more common usage”, which means it could be taken to refer to “market conditions generally”. The Ombudsman should have had regard to “the available background evidence in order to determine the precise meaning of this phrase in this particular context”.
According to Hogan J the FSO has the power to measure the general fairness of a contractual provision or action by reference to general principles from the realm of public law and which would not ordinarily be applied to a purely private contract. The Act governing the powers of the Financial Services Ombudsman states that complaints can be made in respect of conduct which is “unreasonable, unjust, oppressive or improperly discriminatory in its application to the applicant”, even whether or not the conduct is in accordance with the law.
The Court found that the Ombudsman failed to consider “whether it would be broadly fair and reasonable” for Danske to apply its construction of the term “in response to market conditions”. The Court quashed the decision of the FSO on the grounds of “a serious and significant error or a series of such errors” and made an order for the Ombudsman to give a fresh determination in a manner consistent with the judgment.
Click here to read the full judgment of Millar & anor. v Financial Services Ombudsman [2014] IEHC 434.