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Court cuts the cash chain of compensation

The High Court has ruled that a complainant cannot accept a Financial Ombudsman Service award and pursue the firm in court for additional redress over the same complaint.

The FOS can award redress of up to £100,000, although the FSA is consulting on whether this should rise to £150,000. There has been legal uncertainty about whether the complainant has the right to sue for additional redress.

Last week, Judge Mark Pelling, QC, ruled in the High Court in London that Robert Andrews could not pursue advice firm SBJ Benefit Consulting in court for additional redress because he had already accepted and been paid an award from the FOS.

Andrews complained about advice from SBJ Benefit Consulting, part of Bluefin Group, concerning a calculation of loss from a pension review.

The judgment rules that a claimant who accepts a final decision from the ombudsman is bound by it and cannot subsequently bring a civil claim in relation to the same matter.

Andrews was not granted leave to appeal the decision.

Fishburns Solicitors partner Harriet Quiney, who represented the IFA firm in the case, says: “This is useful clarification of the law both for financial advisers and their clients as it means that when the FOS makes a decision, the consequences of acceptance of that decision are clear.”

Evolve Financial Planning director Jason Witcombe says the ruling provides reassurance to IFAs that once the FOS makes an award and it is accepted by the complainant, the issue is closed.

He says: “I do not think it is fair for a firm to have a potential liability hanging over it forever. If the FOS makes an award and the complainant accepts it, that should be the end of the matter.”

Baronworth Investment Services director Colin Jackson says: “It is a very sensible decision. Complaining to the FOS costs clients nothing but it costs IFA firms regardless of whether the complaint is upheld or not. The system is very one-sided in that respect.

“If complainants were allowed to accept a FOS award and go through the same process in a court for the same complaint, IFAs would have to foot a second bill. This is a fair decision.”

PYV chief executive Neil Pointon says the judgment is likely to help avoid rises in professional indemnity premiums for IFAs. He says: “I know of a number of cases where complainants are thinking of going to court after accepting a FOS award.

“Many of these people think it is an automatic process and it is almost a given that once they receive their cheque for £100,000, they will sue in court for the rest. This ruling will help the system get back to what it is supposed to be, where the FOS makes a final decision on complaints. There are likely to be fewer big payouts as a result of the ruling, so it should hold off increases in premiums for IFAs.”

Pointon says the decision will ease pressure on PI insurers but the FSA’s proposed increase to the FOS limit may force premiums up.

He says: “If the limit rises to £150,000 it will have an impact on premiums.”

Collegiate Management Services head of underwriting Richard Turnbull says: “This ruling is positive for insurers. It means that a case is not likely to succeed in a court of law and might result in fewer large payouts in future.

“It may feed back to advisers in terms of premiums if insurers are having to pay less money out to complainants.”

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