Are consumer’s precluded from “topping-up” an award by the Financial Ombudsman through the courts?

July 3, 2014

The Financial Ombudsman Service was set up by the Financial Services & Markets Act 2000 in order for disputes to be swiftly and easily resolved between consumers and providers of regulated financial services. Under this scheme the Financial Ombudsman (“the Ombudsman”) can deal with complaints, investigate, mediate, resolve disputes and most importantly for consumers provide compensation. The maximum limit of possible compensation is set by the Financial Conduct Authority.

There have been conflicting decisions as to whether a consumer can accept a compensation award from the Ombudsman and then go on to issue proceedings through the courts in order to recover further compensation to total the amount they lost due to the original negligence. This conflict has now been resolved by the Court of Appeal decision in Clark v In Focus Asset Management & Tax Solutions Ltd [2014] All ER (D) 133.

In Clark the claimants alleged they had lost £300,000 due to the negligent investment advice given to them by their financial advisor. They took their complaint to the Ombudsman who awarded them £100,000, the maximum limit at the time, while also recommending payment of full compensation by their financial advisor. The Clarks accepted the award of £100,000, subject to their right to claim more through the courts. The full £100,000 was paid by their financial advisor, but nothing more. The Clarks therefore proceeded to initiate proceedings. Ultimately the matter came to be decided by the Court of Appeal.

The issue the Court of Appeal had to consider was whether an award of compensation by the Ombudsman could give rise to the judicial doctrine of res judicata. Res judicata essentially means that where a court or tribunal has already adjudicated on a matter, a party is precluded from bringing another set of proceedings based on the same matter. The key point to be decided was whether a complaint to the Ombudsman could be a cause of action in law. In the court’s view a complaint may include facts constituting a cause of action and that was enough to show that a complaint may be, or include a cause of action.

It was held that the Ombudsman could be held to be exercising an judicial function due to the fact that the Ombudsman makes a decision based on the facts of the case and the decision is not merely administrative. Furthermore, the application of res judicata is not precluded in relation to the Financial Ombudsman Service by the Financial Services and Markets Act 2000, s. 228(5) as it is a common law doctrine which runs alongside Parliament made legislation.

The Court of Appeal acknowledged that there may therefore be occasions where a complainant can bring court proceedings against an advisor even though he accepted an award from the Ombudsman,  but this would depend on the whether the substance of the proceedings asserted before the courts is the same as that which was before the Ombudsman.

The burden of showing the presence of res judicata is on the financial advisor. Therefore, those in the financial services sector will need to be aware of this judgement should a consumer pursue them both in front of the Ombudsman and in the courts. It may be possible to prevent a consumer from succeeding in court if it can be shown that the claimants are initiating a cause of action which is based on a set of facts relied on in the complaint before the Ombudsman, which has already been determined by the Ombudsman and accepted by the complainants.

For those consumers awarded compensation by the Ombudsman it is necessary to consider whether the compensation is enough to satisfy the claim. For those wishing to obtain a higher award the compensation should be rejected and court proceedings should be initiated for the higher amount.

Kathryn Johnston, Trainee Solicitor, Cleaver Fulton Rankin

Please note; the content of this article is for information purposes only and further advice should be sought from a professional legal advisor before any action is taken.
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