The High Court has set aside a Financial Services Ombudsman decision rejecting Kenneth and Donna Millar’s complaint about interest increases on seven Danske Bank mortgages, and remitted the complaint for a fresh determination.
In a judgment delivered on 30 September 2014, Mr Justice Gerard Hogan found that the Ombudsman had made serious and significant errors. The court did not decide whether Danske Bank had breached the mortgage agreements or whether the Millars’ complaint should ultimately be upheld.
The Millars took out the seven loans in 2005 for residential properties, including their family home and buy-to-let investments. The loans carried standard variable rates, were not tracker mortgages, and were being serviced without arrears, the judgment said.
The dispute concerned a term allowing the bank to change interest rates “in response to market conditions”. The Millars said rates on their loans rose by almost one percentage point in November 2011 and remained just above 4%, while the European Central Bank’s rate fell close to zero. They argued that the contract and information provided by the bank meant their rates should respond to general market movements. Danske said ECB cuts were not relevant because it did not receive ECB funding.
The Ombudsman rejected the complaint in December 2013, reasoning that the contracts did not tie the variable rate to the ECB rate or require changes to track general market rates. The Millars also relied on an earlier bank website description saying a variable-rate loan changed “in line with any fluctuations in general interest rates”. They contended that the wording was later changed to say the rate “may change” in line with fluctuations.
Justice Hogan held that “market conditions” was ambiguous and that the Ombudsman was wrong to treat the phrase as clear. He said the complaint required consideration of relevant background evidence when interpreting the contract. The Ombudsman should also have considered whether material supplied by the bank could support a collateral contract, and whether the bank’s interpretation would be broadly fair and reasonable under the Ombudsman’s statutory powers.
The court said it would review ordinary questions of contract law afresh, while allowing appropriate deference to the Ombudsman’s specialist judgment on wider fairness principles. It concluded that the decision could not stand and ordered it set aside and returned to the Ombudsman for a new determination consistent with the judgment. The fresh determination, and the underlying complaint, remained unresolved by this ruling.