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Harriet Quiney: Adviser victory ends legal uncertainty

The Court of Appeal decision prevents most customers from taking two bites of the compensation cherry.


The Court of Appeal last week handed down judgment in the case of Clark & Clark v In Focus. It held that it is not possible to collect an award from the Financial Ombudsman Service and then litigate the same matter in court, using the FOS compensation to fund the litigation.  The court has also held that an investor cannot accept a FOS award and reserve the right to go to court.  In reaching its decision the court considered the legal principle of “res judicata”, which holds that when a matter has been judicially decided, it cannot be decided again.

This is good news for advisers as it means once a complaint has been determined by FOS, accepted by the customer and compensation paid, it is over.

The only unknown is the extent to which a customer may argue that while FOS has considered some aspects of his or her claim, it did not consider other issues and that these might still be considered by the courts.  Lady Justice Arden said:

“Whether [an investor can bring proceedings based on the same facts] depends on whether the substance of the proceedings asserted before the courts are the same as that before the Ombudsman Service.  Fresh proceedings are not permitted if based on the same cause of action so a complainant cannot use proceedings to top up his award for that wrong.  The burden of showing that the requirements for res judicata are made out on the facts of the two sets of proceedings will fall on the adviser.”

Satellite litigation is therefore likely. We anticipate test cases where the same or similar facts are raised but the losses alleged are different, for example where there is both negligence and a breach of trust.  In this situation it will be for the adviser to show the FOS complaint and the court case are the same, rather than for the customer to show they are different.

In reaching its decision, the court actively considered the rights of customers and whether they should be able to use FOS awards to create a fighting fund for subsequent litigation. Lady Justice Arden said:

“On the face of it this result would be for consumers’ interests, but this is not necessarily so.  If they lose court proceedings, it may lead them to losing all that they have gained through the Ombudsman Service.  It may also lead to the development of a claims industry in this field that increases the cost of obtaining financial advice.”

It is nice to see one of our leading judges is alive to the practices of some claims management companies, the ways in which they drum up business and the impact this has on the industry.

In considering fairness to consumers, Lady Justice Black pointed out the customer “holds many of the cards” as the customer can decide whether to accept or reject a FOS award once the result is known, with no fear of having to pay the firm’s costs.

The decision is to be welcomed as providing clarity and preventing most customers from taking two bites of the cherry. But when responding to FOS complaints, firms should ensure their final decision letters cover all relevant complaints to reduce the risk of customers bringing subsequent court proceedings.

Harriet Quiney is partner at DWF Fishburns


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