High Court dismisses investor who lost €2m in property syndicate’s FSO appeal
The High Court has dismissed Mr Charles Verschoyle-Greene’s appeal against a decision of the Financial Services Ombudsman, in which the FSO dismissed his complaint about the way the Bank of Ireland sold him a property investment.
The appellant had been a client of the bank for a number of years, and in 2007 had invested €4m in two products advertised by the bank: €2m in an equity based product called the Newgrange Fund and €2m in a retail property called the New Mersey Property Syndicate.
Following the global economic collapse in 2008, the value of the property fell sharply causing a breach of the LTV covenant and triggering the interest rate increase.
According to the appellant’s case, the interest rate increase ultimately led to the collapse of the investment and the loss of all the equity invested in the property, including the appellant’s €2m.
The essence of the appellant’s case was that the LTV covenant was never disclosed to him, it caused the loss and had he been made aware of it, he would never had made the investment.
On 27 April 2011 the appellant lodged a complaint with the FSO about both investments, and in September 2013 the FSO wrote to the appellant advising him of the decision to hold an oral hearing in order to resolve a conflict of fact that had arisen in relation to the information and advice given by the bank to the appellant.
The appellant indicated to the FSO that if the bank intended to bring legal representation, then he would do also.
However, the bank did not notify the FSO of the fact that it would be bringing three witnesses, a solicitor and a barrister until three days before the hearing, and the appellant was not informed.
The hearing took place in December 2013, with the bank represented by solicitor and counsel and the appellant accompanied by his accountant.
In January 2014 the FSO released his determination, finding that the decision to borrow to fund the investment had been the appellants, that he had been aware with the risks associated with the Mersey Property, that he was an experienced investor and that both investments were reasonably presented to him.
He considered it significant that at that time, the appellant had substantial assets which could have been used to fund the investment in New Mersey.
The appellant placed particular reliance on the LTV covenant. However, the FSO found that the LTV covenant was not in any way the cause of the loss – the cause of the loss was the risks that had been clearly set out, principally deteriorating market conditions.
Thus, the appellant’s complaint was unsubstantiated.
The appellant then appealed, making three arguments. First, that he had not been notified that the bank would bring legal representation, second, that the appellant was refused permission to have his accountant sit beside him, and third, that the FSO had made a serious and significant error in his assessment of the evidence and analysis of the legal duty of the bank.
It was argued that the FSO failed to analyse the existence, scope or nature of this duty of care, and failed to provide adequate reasons for his conclusions.
The Court noted that The scope and nature of a statutory appeal from the FSO to the High Court had been the subject of many decisions of the Superior Courts. In Ulster Bank Investment Funds Ltd v. FSO IEHC 323, Finnegan P. said (at p. 9):
“To succeed on this appeal 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. The deferential standard is that applied by Keane C.J. in Orange v The Director of Telecommunications Regulation & Anor 4 I.R. 159 and not that in The State (Keegan) v Stardust Compensation Tribunal I.R. 642.”
This had been cited with approval in Molloy v. FSO (Unreported, High Court, 15th April, 2011) and the subsequent jurisprudence.
It was noted that the FSO need not follow procedural rules such as would be allowed by a court, and that the standard of review on appeal from the FSO was that it was not for the Court to agree or disagree with the FSO’s findings, as long as the findings were based on the evidence before him (Hedigan J. in Smartt v. FSO IEHC 518; Millar v. FSO IECA 126.)
In relation to the facts of the case, it was noted that the vast majority of FSO cases do not have an oral hearing, and that the oral hearing in this case was the final stage in a two and a half year process.
It was noted that the appellant was very articulate and, that if the appellant was in truth at any disadvantage as a result of not having lawyers present, there was no hint of it in the transcript.
It was clear that the appellant had long since decided that he was more than capable of presenting his own case without legal assistance, despite the fact that he had been informed by the FSO that it was commonplace for financial service providers to be represented by lawyers at oral hearings.
Further, the FSO were notified that the bank would bring representatives too late to make any material difference, and the appellant had not expressed any sense of disadvantage at the hearing itself.
Thus, no unfairness was found on this issue.
In relation to not having his accountant beside him, the Court noted that this would have been entirely inappropriate when the appellant was giving evidence, and that the argument appeared to be somewhat contrived and unreal.
Turning to the substance of the FSO’s decision, the Court noted that:
“Quite apart from the issue of curial deference in relation to expert tribunals, it seems to me that the court cannot interfere with findings of fact arrived at by a tribunal that has had the opportunity of seeing and hearing the evidence and demeanour of witnesses who have been subjected to cross examination, unless there is no evidential basis to support such finding.”
This was not found to be the case. It was clear that the FSO had considerable reservations about the appellant’s evidence in a number of critical respects. It is not suggested, nor could it be, that there was no evidence before the FSO upon which he could have arrived at these conclusions.
In the light of that, the Court found it difficult to understand what duty of care could be contended for by the appellant and how it could be argued that the FSO somehow misconstrued an alleged duty of care which he plainly considered did not exist on the facts of this case.
Mr Justice Noonan concluded that:
“I am of the view that the appellant has failed to demonstrate any error in the finding of the FSO, let alone one which could be classed as serious, substantial or significant. It seems to me that in reality this appeal represents an attempt to appeal the decision of the FSO to the court on the merits. As the authorities discussed above show, this is not permissible.”