Res judicata – Finality of decision – Claimants obtaining award from Financial Ombudsman Service – Claimants issuing proceedings for additional sum
The Court of Appeal handed down its decision in Clark v In Focus Asset Management & Tax Solutions Limited  EWCA Civ 118 on February 14, 2014. In a welcome outcome for financial services firms, the Court ruled that a complainant cannot accept financial redress from a firm via the Financial Ombudsman Service (FOS) and then launch subsequent court proceedings in an effort to ‘top up’ the compensation awarded where the claim is based upon the same complaint.
The Court of Appeal overturned the High Court’s ruling that a complainant could accept a FOS award and still pursue a civil claim for losses that exceed the Ombudsman’s award limit of £150,000.
Mr and Mrs Clark (the Clarks) brought a complaint to the FOS alleging that they had lost more than £300,000 through negligent investment advice provided by In Focus Asset Management & Tax Solutions Limited (In Focus). The Ombudsman Service awarded compensation of £100,000 (the limit it could award at the time) and recommended that the firm pay full compensation. The award was accepted by the Clarks subject to their right to claim more in court proceedings. In Focus paid the Clarks the sum of £100,000, but not the full recommended amount. Not satisfied by this, the Clarks subsequently launched court proceedings.
The claim was dismissed at first instance but on appeal to the High Court, Cranston J held that the Clarks causes of action did not merge in the Ombudsman’s award and the lower court had, therefore, been wrong to dismiss the proceedings. In Focus appealed to the Court of Appeal.
The Court of Appeal unanimously overturned the High Court’s decision. The Court allowed In Focus’s appeal having considered the relevant provisions of the Financial Services and Markets Act 2000 and the common law doctrine of res judicata (meaning ‘a matter already judged’) that precludes a person who has obtained a decision from one court or tribunal from bringing a claim before another court or tribunal for the same complaint.
In reaching its decision the Court of Appeal considered the effect of the Ombudsman’s power, under rules governing the procedure for complaints, to dismiss proceedings where there have been previous court proceedings, and whether the Ombudsman is a judicial tribunal.
Lady Justice Arden, giving the principal judgment, stated that, “Parliament did not manifest any intention that complainants to the Ombudsman Service should be in any different position from other claimants who have taken their claim for compensation through a tribunal for dispute resolution and obtained a decision, and then sought to litigate the same grievances again in the courts. They are not able to raise the same claims in court proceedings even if they could have recovered more in court proceedings. What they had to do to obtain this higher level of compensation was to reject the award and bring court proceedings for that amount.”
Arden LJ went on to explain that in future cases res judicata will apply, regardless of the amount of the FOS award, if the firm can show that the consumer’s complaint is based on a set of facts which constitutes the cause of action already determined by the FOS in a fair and reasonable manner.
Financial services firms can breathe a sigh of relief that complainants cannot seek further compensation in the courts having already obtained a FOS settlement. A decision to the contrary would have led to significant upheaval in the consumer redress process. The FOS was established to protect consumers by creating a more level playing field for resolving disputes. Allowing complainants to pursue further compensation through the courts would be in conflict with Parliament’s intention.
The Court of Appeal affirms the Ombudsman’s status as a judicial body and clarifies that financial redress awarded by the FOS is accepted by complainants as final settlement of that claim, regardless of the amount awarded. The current statutory FOS award cap of £150,000 will be the maximum amount that claimants can receive. If claimants wish seek more than the FOS settlement, they must reject the award and pursue their claim in the civil courts.
For insurers writing professional indemnity (PI) cover this is a particularly helpful decision. The potential for complainants to pursue compensation via the FOS and in court would have made assessing liability risk increasingly difficult and might have forced some PI providers to exit the market.
View Clark & Anr v In Focus Asset Management & Tax Solutions Ltd and Financial Ombudsman Service  EWCA Civ 118, 14 February 2014