On 14 February 2014 the Court of Appeal handed down its much-anticipated judgment in the important case of Clark v In Focus Asset Management & Tax Solutions (2014)
The case concerned the ability of a party who accepts a favourable determination of the Financial Ombudsman Service ("FOS"), and is duly paid the statutory maximum award under the FOS scheme (currently GBP 150,000), subsequently to sue in court for the balance of what they allege is their full loss. The claimants, Mr and Mrs Clark, complained to FOS that In Focus Asset Management and Tax Solutions ("In Focus") had provided them with unsuitable investment advice in light of their risk profile. The FOS found in their favour and they accepted an award of the then statutory maximum of GBP 100,000, but sought to reserve the right to pursue the balance of their claimed loss through the courts. In December 2012, Mr Justice Cranston, sitting in the High Court, held that the Clarks were entitled to pursue such a balance through the courts. This was contrary to the earlier decision of the High Court in Andrews v SBJ Benefit Consultants Ltd (2010), thereby leaving the authorities in a state of conflict and raising concerns for financial advisers and their insurers about a loss of finality in the FOS procedure and the prospect of litigants using a FOS award as a 'fighting fund' to pursue litigation.
In a welcome development for the financial services industry, the Court of Appeal has today unanimously overturned Cranston J's decision.
One of the reasons given by Cranston J for allowing the Clarks to proceed with their claim against In Focus was that the legal doctrine of merger did not, he said, apply to prevent those who had accepted favourable determinations and the maximum FOS award from claiming damages for an amount in excess of that award, because the functions of the FOS differed from those of a typical tribunal since, amongst other things, the FOS considers complaints, not causes of action.
Giving the principal judgment of the Court of Appeal, Lady Justice Arden rejected this analysis, finding that the allied doctrine of res judicata (which bars a party from bringing another set of proceedings in relation to a matter on which a court or tribunal has already adjudicated) would apply to prevent further proceedings provided that the FOS had decided a question posed by facts constituting a cause of action. The Court also found that Parliament had not, in the Financial Services and Markets Act 2000 ("FSMA") (under which the FOS scheme is established), manifested any clear intention that the doctrine of res judicata should not apply in this way to FOS complainants.
The Court has therefore concluded that a complainant to the FOS who accepts an award in his favour may not bring further proceedings in the courts to claim additional compensation if the defendant can show that the complaint determined by the FOS was in substance based on the same set of facts as constitutes the cause of action relied upon in the subsequent proceedings. If a party wishes to obtain more than is awarded by the FOS, therefore, they should reject the award and commence the civil litigation process.
Importantly, the Court has expressly stated that this analysis applies even where the FOS has awarded less than the statutory maximum award, and regardless of any attempt to preserve a right for the complainant to bring subsequent court proceedings (such as the attempt which was made by the Clarks, when writing to accept the FOS award made in their case, to make it a condition of that acceptance that they remained free to bring court proceedings).
Clyde & Co will be producing a more detailed note on this decision in due course.
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