New inquiry ordered into bonds complaint against Davy

THE SUPREME Court has directed the Financial Services Ombudsman to conduct a fresh investigation into a complaint against stockbroking firm J&E Davy by Enfield Credit Union over advice given by the company concerning a bond which later fell in value.

While ruling that the ombudsman must adhere to fair procedures in investigating complaints and had breached fair procedures in some respects in how the complaint against Davy was handled, the five-judge court stressed the ombudsman was also required under law to act informally and speedily.

Mr Justice Joseph Finnegan said the Financial Services Ombudsman was “not required to mimic court procedures” and had discretion, subject to the requirements of fairness, to adopt procedures as every complaint would be different.

Enfield Credit Union had claimed Davy failed to advise it properly about risks involved in perpetual bonds issued by Nordea, Jyske and Oko banks.

The credit union invested €500,000 in those bonds between September 2004 and April 2005 but the total value of the investments in July 2007 was €422,959.

Ombudsman Joe Meade in January 2008 upheld Enfield’s complaint that Davy failed to disclose material information when advising it about the bonds. He directed Davy to pay €500,000 to the credit union in exchange for the bonds and to refund all fees and commissions.

Davy, which insisted it had given full and proper advice, challenged that decision in judicial review proceedings. The High Court in July 2008 upheld some of its arguments and directed Mr Meade to rehear the matter in accordance with procedures lain down by the court.

The ombudsman appealed to the Supreme Court, arguing the intended informality of his decision-making process was threatened, while Davy cross-appealed against some of the High Court findings.

Giving the unanimous judgment of the five-judge Supreme Court’s yesterday, Mr Justice Finnegan upheld the High Court finding that Mr Meade failed to adhere to fair procedures in how the complaint against Davy was processed and directed him to rehear it in accordance with the procedures necessary to ensure fairness.

The judge allowed Mr Meade’s appeal against the High Court finding that he was not entitled to adopt a two-stage procedure in dealing with the complaint and dismissed the Davy claim that this breached fair procedures and involved the ombudsman hearing an appeal against himself.

The judge upheld Davy’s argument that the Financial Services Authority of Ireland Act 2004 (under which the ombudsman was appointed) imposes a mandatory requirement on the ombudsman to offer mediation to parties involved in every complaint made to him.

While Mr Meade failed to comply with the Act as he had not offered mediation here, the judge exercised his discretion to refuse Davy an order referring the dispute to mediation now.

The judge dismissed Davy’s claim that Mr Meade was not entitled to rely, in his decision, on his own experience of dealings with credit unions.

He also rejected Davy’s claim the ombudsman had no power to deal with the complaint due to the failure of the Financial Services Ombudsman Council to make regulations prescribing matters the ombudsman must take into account when investigating or deciding a complaint and prescribing procedures to be followed in processing a complaint.

The judge made no order on Davy’s complaint that the High Court was not entitled to comment that the ombudsman carried out his functions with “a high level of skill” on the basis that remark was not material to the appeal.