The Court of Appeal has restored a Financial Services Ombudsman finding that Danske Bank did not breach the terms of the Millars’ mortgage agreements by increasing their variable interest rates in 2011.
In a judgment delivered on 24 June 2015, Kelly J said Kenneth and Donna Millar had not shown that the Ombudsman’s decision contained a serious and significant error. The court allowed appeals by the Ombudsman and the bank, discharged the High Court order and reinstated the Ombudsman’s finding.
The dispute concerned seven mortgage agreements entered into in 2005. The Millars said the bank’s 0.95 percentage point rate increase, effective from November 2011, breached their agreements because the increase was based on the bank’s funding costs rather than general market interest rates. The agreements stated: “Rates of interest are altered in response to market conditions and may change at any time without prior notice and with immediate effect.”
The bank told the Ombudsman that increased funding costs were a primary driver of its pricing decision. It declined to disclose commercially sensitive pricing information and said its decisions were reviewed through internal governance and audit processes. The Millars challenged the bank’s explanation and argued that the increase was inconsistent with their agreements.
In December 2013, the Ombudsman rejected the complaint. He found the agreements did not limit rate changes to movements in general market interest rates or the European Central Bank rate. He also rejected the Millars’ complaint about a separate discount offer, finding that their existing 0.4% discount did not entitle them to a later offer for other customers. The Ombudsman’s decision followed a written investigation and no oral hearing.
The Millars appealed to the High Court, which set aside that decision and remitted the complaint for a fresh determination. The Ombudsman and the bank then appealed to the Court of Appeal.
The Court of Appeal said the High Court was right that courts should not defer to the Ombudsman on purely legal questions. But Kelly J concluded that the Millars’ challenge involved both law and fact. He said their proposed reading of “market conditions” added words that were not in the clause, and that the Ombudsman had correctly considered the clause’s actual wording and the evidence before him.
The Court of Appeal did not itself make a new determination of the underlying complaint. It held that the Millars had not met the required threshold for overturning the Ombudsman’s decision and restored that decision.