The Financial Ombudsman Service ("FOS") provides a useful service for aggrieved financial services customers. For many, it is an attractive alternative to Court because the FOS has the ability to look beyond the law and the small print when assessing what is fair and reasonable in all the circumstances of a case. This means that the FOS can take into account a number of factors when making their decision: the relevant law, regulations, the Regulator’s rules/guidance and Codes of Practice.
THE PREVIOUS POSITION
The Ombudsman can award a maximum of £150,000 in compensation. The previous position was that if the compensation sought was greater than this amount then the balance could be recovered by litigation in Court following the acceptance of the initial award. In a previous blog post, Neil Morrison indicated that this position may possibly change following an appeal being lodged in the case of Clark v In Focus Asset Management & Tax Ltd.
CLARK V IN FOCUS ASSET MANAGEMENT & TAX LTD
The Clarks complained to the FOS about the conduct of their financial advisor. They claimed that as a result of negligent investment advice they had lost approximately £300,000. The Ombudsman ruled in their favour, granting the maximum award (at the time) of £100,000 and recommending that In Focus pay the balance of the total compensation sought. However In Focus refused to pay the balance and this prompted the Clarks to raise court proceedings. The High Court found in favour of the Clarks but In Focus appealed the decision.
The appeal judgement was recently handed down and it does not make good reading for those using the FOS. The legal position following the appeal decision has changed so that if a Complainant accepts an award of damages from the FOS then the same claim cannot be raised in Court for recovery of any shortfall between the FOS award accepted and the total compensation sought by the Complainant.
The Court of Appeal held that that the legal doctrine of res judicata operated in this case. Res Judicata is a legal principle that prevents the same claim being heard again or in the words of the Court of Appeal “the rule is about not having two bites at the same cherry”. The conditions of the rule were met in this case:
1) the Ombudsman’s decision was a judicial one;
2) issues of fact were determined;
3) the Ombudsman had jurisdiction over the parties and the subject matter of the dispute; and
4) the Ombudsman’s decision was final and determined the issues the Clarks were now trying to put before the Court.
In addition to this the Court held that there was nothing in the Financial Services and Markets Act 2000 which prevented the doctrine of Res Judicata being used by In Focus.
It is important to note however that this decision does not prevent cases being brought to Court which have previously been determined by the Ombudsman, providing the case is brought on the basis of a different set of facts. However such cases in reallty may be few and far between.
The upshot of this decision is that those who wish to take a complaint to the Ombudsman where the amount sought in damages is more than £150,000 must think very carefully before they accept any FOS Award or risk kissing goodbye to their right to litigate that complaint for their full losses.
Do you have any queries about making a FOS Complaint and the implications for any future litigation? Do you need assistance with a FOS Complaint or require to raise Court proceedings for a financial dispute?
If so, MBM Commercial LLP may be able to assist you. For more information, please contact a solicitor in the Financial & Banking Disputes team, on 0131 226 8200.
While every effort has been made to ensure the accuracy of this blog post, it is not intended to provide legal advice as individual situations will differ. No recipients of content in this blog post should act or refrain from acting on the basis of the blog post without seeking the appropriate legal advice on the particular facts and circumstances at issue from a qualified solicitor in their jurisdiction. The blog post is for general information only and is not legal advice. The law changes frequently and varies from jurisdiction and jurisdiction. No solicitor-client relationship is formed nor should any such relationship be implied. If you require legal advice, please consult with a solicitor qualified to practise in your jurisdiction. Should you be interested in seeking our assistance with a legal matter, please contact the Dispute Resolution team on 0131 226 8200.