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You are here: BAILII >> Databases >> High Court of Ireland Decisions >> Lynch -v- Financial Services Ombudsman & anor [2015] IEHC 298 (26 March 2015)
URL: http://www.bailii.org/ie/cases/IEHC/2015/H298.html
Cite as: [2015] IEHC 298
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Judgment
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Neutral Citation [2015] IEHC 298 THE HIGH COURT AN ARD CHÚIRT [2013 No. 345 MCA] IN THE MATTER OF SECTION 57CL OF THE CENTRAL BANK ACT 1942 (AND AS INSERTED BY THE CENTRAL BANK AND FINANCIAL SERVICES AUTHORITY OF IRELAND ACT 2004) AND IN THE MATTER OF AN AWARD OF AN OMBUDSMAN UM SEIRBHÍSÍ AIRGEADAIS BETWEEN TIMOTHY LYNCH APPELLANT AND
FINANCIAL SERVICES OMBUDSMAN RESPONDENT AND
KBC BANK IRELAND PLC NOTICE PARTY JUDGMENT of Ms. Justice Baker delivered on 26th day of March, 2015 1. This is a statutory appeal from a decision of the Financial Services Ombudsman (FSO) given on the 15th October, 2013 in which the complaint of the appellant against KBC Bank Ireland PLC, the notice party, was found to be unsubstantiated. The questions raised in the appeal are primarily matters of law and it is not argued that the FSO fell into any error of process, or that an oral hearing was required to resolve any issue of facts between the parties. Background 3. The appellant and his then wife had purchased property in Co. Sligo also with the assistance of the loan from the Bank and this loan was secured by way of a charge on the lands part of folio 14854F Co Sligo. The appellant and his wife fell into arrears on the Sligo loan and by letter of the 15th December, 2008 the solicitors acting on behalf of the Bank demanded payment of the full amount secured on the Co. Sligo property, and vacant possession of that property was formally demanded on the 19th February, 2009. Subsequent to this an agreement was entered into between the borrowers and the Bank to bring the account into order and various capital payments were made. The loan, at all material times, remained in arrears albeit the amount of the arrears was very small in July 2009 when the application of the surplus from the London sales to the Sligo loans was first proposed. 4. The appellant’s complaint relates to a letter from the Bank of the 3rd July, 2009 by which the Bank indicated that it intended to apply the surplus from the London sales against the Sligo loan account. In the event this did not in fact happen until August 2012 and in the intervening years the Bank continued to deal with the borrowers under the Mortgage Arrears Resolution Process (MARPS). The question before the Ombudsman 6. The matter was determined by the Deputy Ombudsman and she took the view that no conflict of evidence arose such as would require to be dealt with by oral evidence and identified the issue for adjudication by her as whether the Bank had acted lawfully in applying surplus funds from the sale of the properties secured by the English charge to the credit of the Irish loan account held jointly by the appellant and his wife. The appellant argued before the FSO, that the Bank had no contractual entitlement to apply a set-off, and that it acted unfairly and in breach of duty, and in breach of the Consumer Protection Code and the Code of Conduct on Mortgage Arrears. The findings of the Ombudsman 8. The Ombudsman considered the relevant provisions of the English charge, clause 19.1 of which being the one that governed set-off. This provides that the Bank could without notice to the borrower:
2) She found that the credit balance was “held” in a designated account at the relevant time within the meaning of clause 19.1 such that the power of set-off was “open to invocation”. 3) She held that the Bank was entitled to apply the credit balance towards the Irish loan account notwithstanding that the latter account was held in the joint names of the complainant and another party. She interpreted clause 19.1 as permitting the Bank to apply monies towards the satisfaction of “secured liabilities”, which she held included the Irish indebtedness, and monies owed severally or jointly, and the fact the Irish loan post-dated the English charge did not mean that the Irish loan was not secured by the English charge. 4) The Ombudsman also took the view that the third party borrower on the Irish loan did not suffer any prejudice by virtue of the lump sum reduction of the outstanding balance on her joint debt, and that the Bank did not breach the terms contained in the letter of loan offer for the Irish loan. 5) The complainant had also argued that clause 14 of the Irish mortgage prevented a set-off. That clause provides as follows:- “Unless a Statute otherwise required neither the Borrower nor the Lender will at any time on in any circumstances have any right to set-off any sum due to either of them in relation to the Mortgage against or with any other sum whatsoever nor will either of them make use of any right of cross claim, counterclaim, retention, deduction or rebatement.” The Ombudsman held that while clause 14 did prohibit the Bank from setting off any sum due on the Irish loan against any other sums, it did not prevent monies from other sources being applied in discharge of the joint loan and she agreed with the Bank’s contention that “clause 14 is irrelevant to the set-off exercises by the Bank”. 6) The Ombudsman also rejected the argument that the complainant was a consumer within the meaning of the consumer protection code as he had purchased the properties in London as an investor, and for that purpose the Ombudsman also noted clause 333 of the amended letter of offer of the 29th May, 2007 by which the borrower warranted that in accepting the loan facility he was acting within his business and was not a consumer within the meaning of the Consumer Credit Act 1995. This point was not argued before me. 7) The Ombudsman also rejected the argument that the Bank failed to adhere to the provisions of the code of conduct on mortgage arrears on the grounds that this was not properly before her, as the account in respect of which this claim was made was not an account solely operated by the complainant. Again, this point was not argued before me. 11. The appellant’s primary argument is that the Ombudsman misapplied the law in the interpretation of clause 19.1, in that she failed to take account of the fact that the English charge was to be construed in accordance with English law. It was noted that nowhere in the finding of the Ombudsman did she make any reference whatsoever to foreign law, and that no submissions were sought or made by either party with regard to English law. 12. It is argued that the FSO fell into error as follows:-
2) In failing to have regard to the fact that the Irish loan was taken out after the English charge. 3) In misinterpreting the provisions of clause 19.1 of the English charge and clause 14 of the Irish charge, and in determining that the clause in the Irish charge prevented a lawful set-off. 4) In failing to have regard to the fact that the money in the English account, the balance remaining after the sale of the London properties, was held on a statutory trust for the appellant by virtue of s.105 of the English Law of Property Act, 1925. 5) In failing to have regard to the fact that the Irish loan was a joint loan and that in the circumstances no mutuality arose that might give rise to a right of set off. 6) In holding that there was no waiver by the Bank of its letter of demand in regard to the Irish loan. It is argued that once the Bank engaged with the MARPS process for the purposes of the arrears on the Irish loan the letter of demand was waived. 7) In failing to take account of the fact that at the time the set-off was applied the Irish account was in arrears in the sum of only €500 and that the application of a set-off was disproportionate. The arguments of KBC Bank Ireland PLC 14. With regard to the question of waiver it is noted that the Sligo loan agreement at clause 22 contained an express “no waiver” provision and the FSO was perfectly entitled to hold that nothing that the Bank had done in its engagement with the MARPS process or otherwise amounted to a waiver of its rights under the Sligo mortgage. It is also suggested that insofar as there might have been an agreement made for a stay on enforcement of the Irish loan that it was a conditional agreement, the terms of which were set out in a letter from AC Forde Solicitors dated 15th December, 2008 and which required certain payments to be made by the borrowers within 10 days, which payments were not met. The arguments of the FSO 16. It is argued that a right of set-off, or the exercise of that right, is not an inherently oppressive action. It is accepted that while deference is paid by the High Court to the FSO and to other administrative bodies no such deference arises in the case of an error of law consisting of an interpretation of legal document, a misinterpretation of a statute or of the common law. This is established inter alia as a result of the judgment of Hogan J. in Millar v. Financial Services Ombudsman [2014] IEHC 434. 17. It is argued that the FSO in all cases will come to interpret documents, and such interpretative activity can be more or less difficult depending on the documentation that falls to be interpreted. The mere fact that the FSO engaged in an interpretative process does not amount to a basis of appeal, and it must be shown that the FSO fell into a substantial or significant error in interpretation. 18. It is also argued that the FSO was justified in coming to a conclusion of fact that the Bank has not waived its right of set-off by virtue of an engagement with the MARPS process. Discussion The first question: had the English charge become extinguished? 21. The English charge contains the following clause 3.1:-
25. KBC replied by a letter of 11th April, 2013 making the point that “if the sale proceeds of a mortgaged asset are insufficient to discharge the loan balance, the mortgagor remains liable to the mortgagee for the shortfall due on the loan, pursuant to the terms of the mortgage”. It is pointed out that the liabilities secured by the mortgage included all liabilities of the borrower to the Bank including the Irish loan. 26. This suggests that an automatic discharge did not as a matter of contract occur until all the secured liabilities had been repaid. No evidence was adduced before the FSO that the borrower sought the release of the charge, although the charge no longer burdens the English properties once these had been sold pursuant to the statutory and contractual power of sale. 27. I can find no error in the findings of the FSO that the English charge became extinguished once the two English properties had been sold. I reject counsel’s argument that to consider otherwise would mean that the purchasers of these properties would take subject to the security interest, such that no purchaser would ever prudently purchase repossessed lands. The purpose of the statutory overreaching and discharge provisions are precisely to allow a mortgagee selling pursuant to the statutory or express power of sale (contained in s.88 of the English Act of 1925) to sell free of the mortgage term. That does not mean that the charge may not continue as security for other loans, as is precisely what occurred in this case. 28. The English charge was security for all of the secured liabilities and that term was defined in “Secured liabilities” are defined in clause 1.2 of the conditions attached to the English charge which provided as follows:
The second question: did the FSO err in not considering English legal rules and principles? 31. I consider that it is undoubtedly the case that the English charge was governed by English law, although it is less clear whether the loan for the English property was governed by Irish or English law. If the Ombudsman took the view that the clause was clear, she did so taking a view as to the meaning of the words in the clause, and nowhere in her finding expresses the view that she was assisted in the interpretative process by any legal principles, provisions of any statute or any case law. Therefore the Ombudsman did not engage with any legal principles, whether they be Irish or English legal principles, and confined herself, as she was entitled to, to interpreting the words of the clause. Had there been a finding that the clause was ambivalent, certain canons of construction might have come to be engaged, and that engagement might well have involved the Ombudsman in considering whether the relevant canons were to be found in Irish or English law. 32. My function in this appeal is to consider inter alia whether the Ombudsman fell into an error of law. I do not find that she did and that is because I do not find that clause 19.1 is ambivalent or that it engages any canons of construction, or requires the assistance of case law or statute. Were that to have been my view I would have required the assistance of an affidavit of laws at the least to assist me in the determination of any identified ambiguity. Mr Lynch does not say the clause was unclear, he simply urges a particular meaning, and the contrary meaning was successfully urged by KBC in its submissions to the Ombudsman. 33. I do not find any error of law in the Ombudsman findings The third question: the trust argument
38. I note that the Ombudsman made no reference whatever to this trust argument in her ruling. I consider that the appellant is correct that the surplus monies held in the account following the sale of the two English properties were held pursuant to s.105 on trust for the appellant. However the matter does not rest there and the English charge was created to secure all of the secured liabilities as therein defined to include all monies, obligations and liabilities of the borrower whether jointly or severally in any currency or in any capacity. Therefore it seems to me that while the Ombudsman made no reference to s.105 of the English Law of Property Act 1925 this fact did not lead to any error in substance which would entitle me to set aside her order. This is because no trust balance came to arise having regard to the fact that the English charge was put in place to secure inter alia the monies owed on the Sligo property, and no surplus funds existed which could be held under such trust. 39. Therefore I find no error in the finding of the Ombudsman. The fourth question: set off 41. I reject the argument that the FSO fell into error in the construction of the relevant set off provisions. The fifth question: waiver 43. The appellant also contends for an alleged agreement said to have been made between Mr Lynch and the Bank to waive or suspend the demand. This agreement was not made before the Ombudsman at all. The appellant argues that he made an agreement with one Mr Spellman acting on behalf of the Bank, that the action on foot of the Sligo accounts would be stayed. Mr Lynch says in his grounding affidavit that an agreement was entered into with KBC “to bring the arrears on the account into order”, and this was done by way of lodgements. He says the loan was not in arrears at the end of June 2009 but it fell into thereafter and the Bank engage with himself and his co-borrower under the MARPS agreement. 44. It is argued, and I quote from the long and detailed letter of the 15th March, 2013 from Mr Lynch to the FSO as follows:-
46. It has not been shown by My Lynch in any of his affidavits that the Sligo loan arrears had been cleared, albeit he says that a very small amount was still in arrears in July 2009. The existence of an agreement between the Bank and Mr Lynch that the Bank would not enforce, or had agreed to waive, its rights to seek payment of the full amount on the Sligo loan was not canvassed before the Ombudsman, and there is no point raised before the Ombudsman by Mr Lynch that the agreement which he asserts and which he says was made with Mr Spellman prevented the Bank from ever seeking to call in the Sligo loan, or to apply the surplus monies to that loan. 47. I do not accept that in the course of the hearing before me I am entitled to now enter upon an analysis of the factual nexus and the arguments which Mr Lynch asserts imputes an agreement not to enforce the Sligo. Nothing that Mr Lynch has said on affidavit would suggest that there was before the Ombudsman a live and real issue as to the nature and effect of the alleged agreement. Mr Lynch’s own document dated the 20th December 2012 which he describes as “a summary of complaint” argues that he is a consumer, a point not now being pursued, argues that the Bank is in breach of the Consumer Protection Code and the Code of Conduct on Mortgage Arrears, a point also not being pursued, and apart from these arguments the focus of his complaint, and of the questions that he raises in his schedules, is with regard to the set-off, the question of whether the Sligo and the London mortgages ought to be treated as separate contracts, and I consider that the focus of his argument which crystallised further in his long and detailed submissions made in March 2013, was the set-off and whether the finding of the FSO that a right of set off arose was legally correct. 48. It is fair to say that the Ombudsman considered that the main issue for adjudication by her was the alleged wrongful application of the surplus funds towards the Sligo account, and the Ombudsman did not deal in her findings with the argument of waiver or the other matter that I will detail below. A considerable amount of correspondence had been exchanged with her with regard to the question of a waiver and whether there was an agreement to waive, and it might have been preferable if the Ombudsman had dealt with this in the course of her finding. However I accept the argument of the Bank that the English charge and the Sligo loan both contained a “no waiver provision”, in each case at clause 22. For that reason it seems to me that nothing would be gained were I to remit for consideration by the Ombudsman the question of waiver and in that regard the alleged argument of waiver was fully ventilated through extensive correspondence, and no argument could be made by the appellant that his argument was not fully before the Ombudsman. The sixth question: was set off disproportionate? General 51. It is well established as a matter of law that for the High Court to allow an appeal under the statutory scheme it must be satisfied that the adjudicative process taken as a whole was vitiated by “a serious and significant error or a series of such errors”. In that regard I not the dicta of O’Malley J. in Carr v. Financial Services Ombudsman [2013] IEHC 182 where she stated the following:-
53. I dismiss the appeal. |