R Mortgage Agency Service Number Five Ltd v Financial Ombudsman Service Ltd
| Jurisdiction | England & Wales |
| Judge | Mr Justice Griffiths |
| Judgment Date | 27 July 2022 |
| Neutral Citation | [2022] EWHC 1979 (Admin) |
| Docket Number | Case No: CO/4036/2021 |
| Court | Queen's Bench Division (Administrative Court) |
and
[2022] EWHC 1979 (Admin)
Mr Justice Griffiths
Case No: CO/4036/2021
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
ADMINISTRATIVE COURT
Royal Courts of Justice
Strand, London, WC2A 2LL
John Taylor QC and Tom Rainsbury (instructed by Eversheds Sutherland (International) LLP) for the Claimant
James Strachan QC (instructed by Financial Ombudsman Service Ltd) for the Defendant
Hearing date: 15 th June 2022,
further written submissions 16 and 20 June 2022
Approved Judgment
The Honourable
This is an application for judicial review of a decision of a Financial Ombudsman.
On 26 August 2021, the Ombudsman (Emma Peters) decided that the Financial Ombudsman Service was only able to investigate the complaint of the Interested Party about the interest rate that the Claimant applied to her mortgage from 31 October 2012. There is no challenge to that decision, which was in the Claimant's favour. But the Ombudsman also decided: “As part of this we will be reviewing the history of Mrs D's mortgage from the time it reverted onto the SVR”, i.e. January 2009. The Claimant says that this part of the decision was an error of law and goes back further than her jurisdiction permits, more than six years before the complaint was made in 2018.
Mrs Davies' mortgage
In 2006, Mrs Davies took out a 10-year interest-only residential mortgage with the Claimant's predecessor, GMAC-FRC Ltd, in respect of a property in Burry Port, a waterside town on the north side of the Loughor estuary in south Carmarthenshire. The interest rate was fixed at 5.64% after which it was to revert to a Standard Variable Rate (SVR) from 1 January 2009.
On 8 June 2007, the mortgage was sold and transferred to the Claimant. No issue arises from this. The Claimant became Mrs Davies' counterparty in respect of the mortgage, in place of GMAC-FRC Ltd.
The offer letter to Mrs Davies in 2006 noted that the SVR was, at that time, 6.74%. But the contractual mortgage conditions provided that, as a variable rate, the SVR might change from time to time. Condition 3.1 said:
“ Changes to the standard variable rate
If the interest rate is the standard variable rate we may vary it for any of the following reasons:
(a) to reflect a change which has occurred, or which we reasonably expect to occur, in the Bank of England base rate or interest rates generally;
(b) to reflect a change which has occurred, or which we reasonably expect to occur, in the cost of the funds we use in our mortgage lending business;
(c) to reflect a change which has occurred, or which we reasonably expect to occur, in the interest rates charged by other mortgage lenders;
(d) to reflect a change in the law or a decision by a court; or
(e) to reflect a decision or recommendation by an ombudsman, regulator or similar body.”
Of these, it seems that the Claimant wholly or mainly relies on (b), changes in the cost of funds, to justify the increases that Mrs Davies complains about.
Interest was calculated and payable monthly.
On 1 January 2009, Mrs Davies' mortgage rate ceased to be fixed at 5.64% and moved onto the SVR. After that, the SVR went up and down as follows:
i) A decrease to 4.99% from 1 January 2009 to 13 January 2009.
ii) A decrease to 3.99% from 13 January 2009 to 24 February 2009.
iii) A decrease to 3.49% from 24 February 2009 to 17 March 2009.
iv) A decrease to 2.99% from 17 March 2009 to 1 July 2009.
v) An increase to 3.74% from 1 July 2009 to 1 October 2009.
vi) An increase to 4.5% from 1 October 2009 to 1 March 2011.
vii) An increase to 5.25% from 1 March 2011 to 1 May 2012.
viii) An increase to 5.75% from 1 May 2012 to 1 September 2016.
There were further changes, up and down, after that, but it is the last four increases which lay the foundation for Mrs Davies' complaint in the period which the Claimant says the Ombudsman should not include in her review.
At the end of the mortgage term, Mrs Davies had no money to repay the principal sum, having only paid the interest to date on this interest-only mortgage. The value of the property, which had originally comfortably exceeded the amount borrowed, had fallen below the purchase price and below the amount borrowed. In addition, market changes meant that she could not remortgage at a more favourable rate than the rates charged by the Claimant. She therefore describes herself as being trapped in this mortgage. The Claimant has brought possession proceedings but Mrs Davies has so far avoided repossession and wishes to keep the property, which is her husband's home.
Mrs Davies' complaints to the Claimant and the Financial Ombudsman Service
Mrs Davies wrote to the Claimant complaining about her predicament on 31 October 2018. She made a number of claims against the Claimant, and criticisms of the Claimant, not all of them still in play, but what is important for present purposes is that she was complaining about paying more on her interest-only mortgage than she expected “over the ten years since the crash”, which is a reference to the financial crisis of 2008. She said “All I ask for is to be treated fairly.”
The date of this letter has been accepted on all sides as the end-date for whatever period of time the Ombudsman counts back from in order to decide upon her jurisdiction in relation to Mrs Davies' complaint.
The correspondence between Mrs Davies and the Claimant did not result in agreement. On 21 December 2018, Mrs Davies made a complaint to the Financial Ombudsman Service. In the box headed “Please tell us what your complaint is about”, she wrote:
“I took a mortgage in 2007 with GMac and they have gone out of business but MAS [the Claimant] have taken over this mortgage. Not long after I took this mortgage the Banking Crisis occurred and the house went into negative equity and so I had no chance of remortgaging to another company. I have had to pay high interest rates on this interest only mortgage and now the mortgage term has come to an end. MAS are threatening to repossess the house. I have asked them to extend the mortgage term but they are not willing to do so. It is an interest only mortgage and l have no way of repaying this mortgage balance. I can afford the repayments but I feel trapped because I am paying a high interest rate and have no chance of remortgaging to another company whilst the house is in negative equity. Also as I am nearly 70 it will be difficult for me to move this mortgage. I am extremely distressed about this… I really do hope you can help.”
In an email on Mrs Davies' behalf to the Financial Ombudsman Service on 6 November 2019, her lay representative (Dominic Lindley) set out the factors which, in his opinion, needed to be looked at. He said:
“In my opinion, to examine the fairness of the interest rate being charged to Mrs D, you would need to look at all of the factors included in my previous email – these are:
• Whether the variation term and the way in which MAS 5 and the Co-operative bank group have applied it to set the SVR in a one-sided manner is fair?
• The specific reasons MAS 5 / Co-operative bank group have used to justify each increase in the rate since 2008/09?
• The funding costs which relate to the mortgage and how they have changed over time?
• Why the SVR being charged to Mrs D is different from the SVR of 4.99% being charged by the Co-operative bank and the specific reasons which justify the difference? (Noting the previous FOS decisions about dual SVRs)
• Whether MAS 5 is taking advantage of the fact that many of its customers are ‘trapped’ borrowers by increasing the SVR and keeping it at a different level from the Co-operative bank and is therefore in breach of Principle 6?
• What percentage of MAS 5 borrowers are trapped borrowers and why the Co-operative bank is not offering Mrs D access to its own mortgage products?
• Why the Co-operative bank is not applying the UK Finance voluntary agreement to MAS5 borrowers and offering them new deals, particularly in the light of Caroline's comments that it represents good industry practice?”
Principle 6, referred to in the fifth of these bullet points, is that “A firm must pay due regard to the interests of its customers and treat them fairly.” It is one of the 11 Principles set out in the FCA Handbook.
The Ombudsman asked for and received the Claimant's response to these points. The Ombudsman then asked the Claimant “Can I clarify – does MAS5 give consent for us to look at these issues since 2008?”. The Claimant replied, by email dated 12 February 2020:
“As the complaint about our SVR was raised on 23 July 2019, we would only grant consent to you looking at matters which occurred over the course of the previous six years, i.e. since 1 July 2013, as per DISP 2.8.2.”
It is now common ground that the correct end-date was not 23 July 2019 but 31 October 2018, as I have said, based on the complaint of that date. Consequently, the Claimant's position is that the Ombudsman should only look at matters occurring over the course of the six years previous to that, i.e. since 31 October 2012.
The decisions of the Ombudsman
The provisional decision of 12 February 2021
The Ombudsman issued a provisional decision on this point on 12 February 2021. She described it as “a provisional jurisdiction decision to give the parties a chance to respond”. The provisional decision was as follows:
i) Identifying the complaint, she said “Mrs D is unhappy about the interest rate that's been applied to the mortgage by MAS5 since December 2008. Mrs D's complaint is that this rate is unfairly high.”
ii) She noted that the Claimant “has said that under our rules it thinks we can only look at Mrs D's complaint about the...
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