The Financial Ombudsman Service - A Launch Pad For Litigation?

A recent High Court decision has opened the gateway for consumers to bring claims in relation to disputes for which they have already received compensation via a Financial Ombudsman Service ("FOS") award. The previously accepted position was that once a FOS award was accepted by a consumer it was final and binding on the parties and no further claims could be brought. This case has changed the status quo; making the position unclear, such that financial services firms should be prepared for claims to reappear even after they make a payment to settle the matter through the FOS.

The case in question, Clark v In Focus Asset Management1, relates to financial advice given to the complainants, which the FOS agreed was inappropriate and awarded the statutory maximum compensation (then £100,000, now £150,000) along with a recommendation that the firm should pay a further amount to satisfy the complaint. The complainants accepted this award, subject to a handwritten amendment to their acceptance that they reserved the right to pursue their claim through the courts. The firm paid the obligatory £100,000 but no more and the complainants then issued proceedings for the balance of their losses. The High Court refused the firm's application to have the claim struck out and the claim has been allowed to proceed.

This decision directly contradicts an earlier High Court decision (Andrews v SBJ Benefit Consultants2), which dismissed a claim based on almost identical facts. The judge considered that the claimant's acceptance of the FOS determination extinguished any further claim it might seek to make on the same subject matter. The judge's decision was based on the doctrine of merger, which precludes a party from seeking a second judgment on a matter that has already been determined by a competent tribunal or court. The judge believed the FOS was a competent tribunal for these purposes, as it was held to be one in Heather Moor & Edgecomb v FOS3. The judge also noted that the purpose of the FOS, as enacted in legislation, is to resolve disputes quickly with minimal formality and any determination it makes, which is accepted by the complainant, should be final and binding on the parties. The judge commented that the FOS would be somewhat redundant if a claim could continue after the FOS had "resolved" it.

In Clark v In Focus, the judge disagreed with Andrews v SBJ Benefit Consultants. He did not consider the FOS to be a competent tribunal for the purposes of...