Court Of Appeal Rules That A Claimant Cannot Accept A FOS Award And Pursue Further Losses From The Courts For The Same Cause Of Action

The Financial Ombudsman has the power to award compensation of up to GBP 150,000. Under the FSA's Handbook, a complainant can choose to accept or reject an award and, under section 228(5) of FSMA 2000, "if the complainant notifies the ombudsman that he accepts the determination, it is binding on the respondent and the complainant and is final". In Andrews v SBJ Benefit Consultants Ltd [2010] EWHC 2875 (Ch), a High Court judge held that, because of the merger doctrine, a claimant cannot accept an award from the Financial Ombudsman and then claim additional losses (above the Ombudsman's limit) in civil proceedings before the courts. However, in the first instance decision in this case, another High Court judge held that the merger doctrine did not apply and there was nothing to stop a complainant using his award from the Ombudsman to finance his court proceedings to recover a greater amount. Accordingly, there were two conflicting High Court decisions on this issue. The appeal in this case has now unanimously held that court proceedings could not be brought for the same cause of action after a complainant has accepted an award from the Ombudsman.

Although the earlier High Court decisions were based on the merger doctrine, the Court of Appeal reached its conclusion based instead on the principle of res judicata. As explained in the decision: "The requirements of res judicata are different from those of merger. All that is necessary to bring merger into operation is that there should be a judgment on a cause of action. Res judicata may apply either because an issue has already been decided or because a cause of action has already been decided" (the latter kind of res judicata was in issue in this case).

The Court of Appeal held that an award from the Ombudsman can give rise to res judicata, because a complaint to the Ombudsman can be a cause of action (and it makes no difference...