Stockbroking firm J & E Davy has brought a High Court challenge to a decision by the Financial Services Ombudsman upholding a complaint by Enfield Credit Union against the firm over its advice on three bank bonds that fell in value.
The ombudsman last month found the bonds were unsuitable investments for credit unions and directed Davy to pay Enfield credit union €500,000 in exchange for the bonds and also ordered it to refund all fees and commissions paid to it in connection with the matter.
The credit union said it had made a total investment of €500,000 in the three bonds between September 2004 and April 2005 and the total value of the investments in July 2007 was €422,959.
Mr Justice Iarfhlaith O'Neill gave leave yesterday to Paul Sreenan SC, for the firm, to seek orders in judicial review proceedings to overturn the ombudsman's decision of January 21st last substantiating the complaint by Enfield Credit Union about the advice given by Davy to it.
The firm is also challenging the constitutionality of the relevant provisions of the Central Bank Act relating to the powers of the ombudsman and deputy ombudsman.
The advice from Davy related to the investment by the credit union in three perpetual bonds issued by three banks - Nordea Bank, Jyske Bank and Oko Bank - between September 2004 and April 2005.
The credit union complained Davy failed to make adequate disclosure of relevant material information regarding the bonds, particularly that they were perpetual and could "run forever".
In an affidavit for Davy, the firm's chief executive, Tony Garry, rejected the claims, argued the credit union fully understood the nature of the bonds in question; that it had not relied exclusively on Davy for investment advice; and that the fall in the value of the bonds was not because of the bonds' characteristics, but was a result of the general unprecedented deterioration in the credit markets.
Mr Garry said his firm had impressed sufficiently on the credit union the nature of the bonds. He said he was advised the ombudsman had erred in law in the handling of the complaint in that he had not attempted to try and resolve the complaint through mediation and had not followed proper procedures for the processing of the complaint.
