View more on these topics

Landmark Court of Appeal ruling finds complainants can’t sue in addition to FOS award

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

In a judgment handed down this morning at the Royal Courts of Justice in London, the Court of Appeal has upheld a High Court judgment from November 2010 which ruled 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.

The case centered around advice given by In Focus Asset Management & Tax Solutions to clients Barry and Julie Clark.

The Clarks complained to the FOS in November 2008 that In Focus gave them unsuitable advice by recommending they invest the proceeds of the sale of a family business in a geared traded endowment plan, leading to losses of £500,000.

After accepting the maximum £100,000 award from the FOS (now £150,000 for cases brought after 1 January 2012), in June 2010 the Clarks issued proceedings against In Focus to recover the balance of their loss. 

The case was initially rejected by a county court judge but they won on appeal in the High Court.

In Focus appealed the ruling in December 2012, challenging whether a complainant should be able to accept a FOS award and then sue for further redress in court.

Legal experts had warned that if today’s judgment had gone against In Focus, advice firms could face open-ended compensation claims which would in turn impact on professional indemnity insurance.

Lawyers raised concerns that if the Court of Appeal found in favour of the Clarks, it would give complainants a “second bite of the cherry” and create the idea that FOS redress would be used as a “fighting fund” to pursue further redress.

CMS Cameron McKenna partner Alex Denslow, who acted for In Focus, says: “This is a landmark decision. If the original judgment had been left unchallenged, firms subject to the FOS – be they financial advisors, insurers, brokers, or pensions administrators – and their insurers – faced significant financial exposure. There is surely a clear public and private interest in the ‘finality’ of the FOS.

“The idea that the complainant can accept and retain the preferential fruits of the FOS option and use that to then have another go at recovering additional compensation in subsequent court proceedings rather looks like a risk-free two way bet.”

In today’s judgment, Lady Justice Arden says a FOS award is a judicial decision and therefore, according to the legal principle of res judicata, a complainant who accepts a FOS ruling cannot bring court proceedings relating to the same matter. The court was also persuaded by arguments relating to the statutory underpinning of the FOS.

Lady Justice Arden says: ”If Parliament had intended that the complainant should be able to recover loss in excess of the current limit, it is difficult to see why it would have imposed that limit in the first place. By setting up a scheme for resolving disputes, Parliament manifested its intention that consumer protection did not go beyond the scheme.

”If the Clarks succeed, a complainant may be able to use an award as a fighting fund for legal proceedings. On the face of it this result would be for consumers’ interests, but that is not necessarily so.

”If they lose court proceedings, it may lead to them losing all that they have gained through the FOS. It may also lead to the development of a claims industry in this field that increases the costs of obtaining financial advice: there are already 210 ombudsmen and many more might be needed if a larger group of complainants can apply.”

It was revealed in court in October that In Focus had made a partial settlement to the Clarks for an undisclosed sum, but further compensation could have been awarded if the judge had ruled in the Clarks’ favour.

11 Stone Buildings barrister Clive Wolman, who acted for the Clarks, says: “The Clarks did receive a substantial settlement from In Focus, but they will be disappointed by this decision as they were hoping for more. 

“The Clarks will not be appealing the decision in the Supreme Court, but that is not to say it could not be appealed by another party at some point in the future.”

Newsletter

News and expert analysis straight to your inbox

Sign up

Comments

There are 2 comments at the moment, we would love to hear your opinion too.

  1. It was always the case that a FOS award was binding on the firm but not on the complainant. The maximum award is £150,000 but FOS can recommend the firm pays more although it cannot bind the firm for the balance above £150K exluding interest, costs or interest on costs. The complainant can enforce the award against the firm but if they think a higher award is justified they can go to the court. This is interesting in that it appears the claimant would have to hold off receiving the ombudsman award and sue for the whole amount they think is due whilst rejecting the maximum FOS award in the meantime. It would be interesting to see how the Supreme Court would interpret this if anyone was game to take it that far. Seems like a complainant would have to reject a FOS award to obtain a higher payment if this becomes a precedent.

  2. The rule was and always should have been ‘accept the FOS judgement or decline it and sue’, not both – or optional based on a subsequent Court outcome.

    Whilst never enforceable, the FOS shouldn’t ever have recommended awards beyond the statutory maximum either. That is beyond its authorised powers in accordance with the FSMA 2000 but who’s going to castigate?

    What about interest on compensation at 8%? Why is the FOS beyond the law of the Country? The Courts now believe:-

    POLICY CONSIDERATIONS
    1.9 Awards of interest are designed to compensate claimants for the cost of being kept
    out of their money. They should put claimants into the position they would have
    been in had the debt or damages been paid when they fell due.

    Interest should not be seen as a penalty on debtors
    1.10 Debt enforcement involves balancing the rights of creditors and debtors. As the
    Government’s 2003 White Paper on effective enforcement puts it, “creditors who
    have established a legitimate claim should be able to pursue it through a
    straightforward and accessible system”.

    Interest should provide fair compensation for claimants

    Ends!

Leave a comment