WHEN DOES FINAL MEAN FINAL?

A stark reminder of the differences between a complaint brought before the Financial Services Ombudsman (“FOS”) and court proceedings was provided by the recent High Court decision of Clark & Anor v In Focus Asset Management and Tax Solutions Limited.

Mr & Mrs Clark complained poor investment advice from IFAMTS Limited (“IFAMTSL”) caused them losses exceeding £500,000.  The FOS upheld the complaint, stating that Mr & Mrs Clark should be compensated by a formula which returned them to the position before the incorrect advice was given which in all likelihood would be greater than the £100,000 cap of compensation which could be then awarded by the FOS (the cap has subsequently increased to £150,000).  Perhaps not surprisingly, IFAMTSL declined that recommendation and only offered the £100,000 limit. 

The pro-forma “final decision” letter issued by the FOS contained the usual advice to Mr & Mrs Clark that they had 28 days to accept/decline the conclusion and that if they accepted they “would be bound by the decision, which will be final”.  Not wishing to give up on the rest of their claim, Mr & Mrs Clark returned the decision letter but not before amending it to say, “We reserve the right to pursue the matter further through the Civil Court”.

After receiving the £100,000 Mr & Mrs Clark did indeed then issue court proceedings seeking what they believed to be the balance of their full entitlement.  IFAMTSL successfully struck the claim out as the court felt bound by the earlier decision of Andrews v SBJ Benefit Consultants Limited [2010] EWHC 2875 which had ruled that the “doctrine of merger” applied.   This prevents someone obtaining a final judgment from a court of competent jurisdiction pursing a further claim in court proceedings and reflects the desire to avoid multiple proceedings on the same issue. Hence the first instance court ruled that Mr & Mrs Clark, by accepting the FOS award, had lost the right to pursue the claim through the courts. 

Mr & Mrs Clark successfully appealed that decision (to strike out their claim). The statutory scheme underpinning the FOS Scheme is the Financial Services & Markets Act 2000 which states its purpose is to enable disputes to “be resolved quickly and with minimum formality by an independent person”. The scheme deals with “complaints” so a customer does not have to formulate a legal “cause of action”. The Act requires any decision of the Ombudsman to be “fair and reasonable in all the circumstances of the case”. Case law has ruled such a decision can be “contrary to the common law”.  The informality of the process is emphasised by the relevant DISP Rule allowing the Ombudsman to resolve a complaint “by whatever means appear to him to be most appropriate, including mediation or investigation”. After highlighting the differences between the FOS scheme and formal precedent based court proceedings   Mr Justice Cranston ruled that the Ombudsman was not a tribunal of competent jurisdiction, the doctrine of merger could not apply and thus Mr & Mrs Clark were free to continue with their claim.

The effect of this ruling (and it is not known whether IFAMTSL will seek to challenge it) does not allow for double recovery but will provide a gateway for customers to seek full compensation for any loss and to do so by more than one method.  A recommendation by the Ombudsman that full compensation should be awarded should not now be ignored by reliance on whatever the applicable compensation cap. However the ruling should not have any substantial effect on the deluge of PPI complaints as the measure of compensation is the same whether determined  by the FOS or the court and individual should not  come anywhere near the compensation cap.

  -  For further information please contact Jeremy Bouchier (Solicitor & Chief Legal Officer).


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