The High Court has allowed an appeal by John Lyons and Patrick Murray against a Financial Services Ombudsman decision rejecting their complaint about lending by Bank of Scotland. Mr Justice Hogan ruled that the complaint must be reheard by the Ombudsman, with an oral hearing required to assess the disputed facts.
The borrowers, described in the judgment as businessmen, borrowed a total of about €17 million from the bank and its predecessor, ICC Bank, for property acquisitions principally in Limerick, Tipperary and Clare between 1999 and 2008. They said they had agreed with the bank that the loans would be serviced on an interest-only basis, using rental income, at specified rates over the cost of funds. They alleged bank representatives gave oral assurances about the arrangement at meetings, mainly between 2004 and 2008, and said their accountant supported their account. The bank and its officials denied that any such agreement existed.
The dispute intensified in 2008 and 2009. The borrowers said an interest-rate increase notified in July 2008 would push them into default and that bank representatives repudiated the alleged agreement at a meeting in February 2009. They said they continued paying about €550,000 a year on an interest-only basis and had not defaulted. The bank disputed that position and told the court it considered about €1.9 million due. Those figures and positions were presented in the judgment as the parties’ competing claims, not findings on the debt.
The borrowers complained to the Ombudsman on 1 November 2009. The Ombudsman rejected the complaint on 12 January 2011, finding it was not substantiated, and declined to hold an oral hearing. The Ombudsman considered that both sides had provided detailed written accounts and that an oral hearing would merely repeat them.
Mr Justice Hogan held that the existence of the alleged oral understanding was central to the complaint. In those circumstances, he found that the written statements alone did not provide a fair way to resolve the dispute, and that cross-examination could be valuable. The court concluded that refusing an oral hearing had seriously impaired the borrowers’ right to fair procedures.
The court allowed the statutory appeal under section 57CM(2)(b) of the Central Bank Act 1942 and remitted the complaint to the Ombudsman for rehearing under section 57CM(2)(c). The judgment says the precise form of the order was to be discussed with the parties’ legal representatives. It did not decide whether the alleged oral agreement existed, whether the borrowers were in default, or what amount, if any, was owed.