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High Court upholds Financial Services Ombudsman finding and clarifies its role in hearing appeals
The High Court has established that a section 57CL appeal is not a de novo hearing of a complaint to the Financial Services Ombudsman (the “FSO”) but rather a review of the FSO’s decision making procedure.
The legislation which established the FSO provides for appeals of FSO decisions to the High Court. In the recent case of Caledonian Life v Financial Services Ombudsman (the “Caledonian Case”), the High Court took the opportunity to clarify its role in hearing such appeals against FSO decisions (1).
The office of the FSO was established under the Central Bank and Financial Services Authority of Ireland Act 2004 which amended the Central Bank Act 1942 (the “Act”). Section 57CL of the Act provides either party with a right of appeal to the High Court against a finding of the FSO within 21 days of the finding or such further period as the High Court may allow. An appeal taken under this procedure is separate from Judicial Review proceedings. As set out in Section 57CM of the Act, the High Court has a broad discretion in terms of the orders it can make in such an appeal including, inter alia, affirming the finding of the FSO with or without modification, setting aside the finding of the FSO or remitting the finding to the FSO for further review.
To date, the case that attracted most attention was the Davy case which related to the selling of perpetual bonds by Davy stockbrokers to Enfield Credit Union Limited and an allegation that Davy did not adequately explain the nature of the bonds to Enfield Credit Union. The FSO directed Davy to pay Enfield Credit Union the sum of €500,000 in exchange for the three bonds in question and to refund all fees charged by Davy. In response, Davy mounted a legal onslaught against the FSO, bringing three separate challenges in the form of a Judicial Review case, a statutory appeal and a constitutional challenge to the legislation itself.
The High Court judgment in the Judicial Review proceedings found that the FSO had failed to follow fair procedures in the manner in which it upheld the Credit Union’s complaint (2). The High Court quashed the FSO’s decision and directed that certain procedures should be adopted such as, inter alia, holding an oral hearing where facts are in dispute. The High Court also directed that both parties must receive equal treatment from the FSO. The FSO appealed against this decision on the basis that the High Court’s directions would interfere with the intended informality of the FSO process. However, the Supreme Court upheld the High Court’s directions in respect of FSO procedure with the exception that the FSO should be permitted to adopt a two stage procedure.
Facts of the Caledonian Case
The High Court had the opportunity to review the FSO decision making process when Caledonian Life appealed an FSO finding against it. The case involved a life assurance policy taken out with Caledonian by the complainant and his brother. On the death of the complainant’s brother the complainant sought to claim under the policy, whereupon Caledonian informed him that the policy had been cancelled. Caledonian argued that it had received a written request to cancel the policy. The complainant denied this and Caledonian had not retained a record of the cancellation letter it relied on.
The FSO was critical of Caledonian for only communicating with, and returning the premium cheque to one of the policy holders, the complainant’s late brother. The FSO award of €30,000 was made as a result of these omissions. The sum awarded by the FSO was mitigated by the complainant’s failure to notice that instalments had not been debited from his bank account by direct debit as arranged and thereby not realising that the policy had been cancelled.
The FSO also criticised Caledonian for not maintaining documents relating to the file for a statutory minimum of six years and erroneously referenced the requirement to maintain records set out in section 202(9) of the Companies Act 1990. The Court ruled that section 202(9) was not applicable to this case and ordered the FSO’s to remove the reference from its finding.
Review of FSO Procedure
Section 57CA of the Act sets out a statutory requirement that the FSO attempt to deal with each complaint through mediation. However, Hanna J cited with approval the judgment in the abovementioned J & E Davy case where it was held that mediation need only be embarked upon where it carried a reasonable prospect of achieving results and the courts should be reluctant to interfere with the FSO’s discretion in this regard.
The judgment in the Caledonian Case sets out the role of the High Court in hearing section 57CL appeals of FSO decisions and how that role differs from the criteria used by the FSO when considering a complaint in the first instance.
The FSO is empowered to consider matters which the courts might not have regard to, such as:
- whether the conduct complained of was unreasonable;
- whether an explanation for the conduct was not given when it should have been;
- whether, although the conduct was in accordance with a law, it is unreasonable, or is otherwise improper (see s. 57CI(2)).
The FSO can also make orders of a type that a court would not normally be able to make, such as directing a financial services provider to change its practices in the future. Thus, the FSO possesses a type of supervisory jurisdiction which the court does not have.
An appeal of an FSO decision under this section 57CM of the Act is not a re-hearing of the complaint but is, in accordance with the principles laid down in the Ulster Bank Investment Funds Limited v Financial Services Ombudsman, an examination of whether the appellant can establish that, taking the process as a whole, the decision reached by the FSO was weakened by a serious and significant error or a series of errors. In applying the test the Court will consider the degree of expertise and specialist knowledge of the FSO.
In the Caledonian Case, the Court found that the FSO was not engaged in resolving a contract law dispute in the manner in which a court would and was enjoined not to have regard to technicality or legal form. The respondent must be given appropriate latitude to give proper force and effect to its broad ranging powers set out in the Act.
The decision in Orange v Director of Telecommunication was cited with approval in the Caledonian case (3). It sets the parameters of statutory appeals such as section 57CL appeals against FSO decisions. Appeals provided for under the Act are not intended to take the form of a re-examination from the beginning of the merits of the decision appealed perhaps culminating in the substitution by the High Court of its decision for that of the FSO. It is accepted that at the other end of the spectrum the High Court is not solely confined to the issues that might arise if the decision of the FSO was being challenged by way of judicial review.
The Court has established that to successfully appeal an FSO decision “…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 [FSO]…” (4)
Unlike the Davy v Enfield Credit Union judgment, the judgment in the Caledonian Case largely affirms the decision making process used by the FSO in hearing the complaint against Caledonian Life.
For more information, please contact Joe Beashel or your usual contact in the Regulatory Risk Management and Compliance Group.
 In the matter of Central Bank Act, 1942 (section 57 CL as inserted by the Central Bank and Financial Services Authority of Ireland Act, 2004, section 16, Caledonian Life and Financial Services Ombudsman and Gillian Tobin and Noel Tobin  IEHC 384.
 J. & E. Davy v Financial Services Ombudsman and others – Charlton J., 30 July 2008
 Orange v Director of Telecommunication ( no 2) -  4 IR 159 Ulster Bank Investment Funds Limited v Financial Services Ombudsman - Finnegan P., 1 November 2006 (under appeal)