When Lady Justice Arden handed down her judgment in the Court of Appeal case of Clark
v In Focus, she held that a complainant cannot accept an Ombudsman's award at the statutory maximum (currently £150,000) and sue in court for the balance of their redress if it exceeds that limit. We hoped in vain that that would be the final word on the issue.

If a complainant accepts an Ombudsman's award, it is final and binding upon them. If they wish to claim more than £150,000, the complainant should reject the Ombudsman's award and sue the firm in court. As Arden LJ put it: you don't get "two bites of the same cherry". So far so good.

However, as with all things, the devil is in the detail. There is, in fact, a whole swathe of FOS redress to which the Clark v In Focus principle will not apply and a complainant might be able to sue in court if redress exceeds £150,000. The "loophole", as some commentators refer to it, lies in the word "award".

In order to go before an Ombudsman, a FOS complaint will first be reviewed by an adjudicator. An adjudicator's job is to (a) investigate a complaint; and (b) recommend a resolution before it gets to the Ombudsman. That recommendation (or "view" or "adjudication") might be that the complaint be rejected. It might be that the complaint be upheld and the business pays an amount (potentially over £150,000), to the complainant. Crucially, an adjudicator's recommendation is not an award and is not, therefore, binding.

If the adjudicator "recommends" that a business pays an amount to the complainant, and both the business and complainant accept the adjudicator's recommendation, what follows is a commercial settlement. Again, that settlement is not an award. FOS is, in this way, a form of ADR – alternative dispute resolution – with the adjudicator acting like a mediator.

There is, therefore, no award where a complaint is resolved at the adjudication stage. In the absence of an award, Clark v In Focus will not bite. Whether or not a complainant can sue for the balance of their redress will be governed by the terms of the settlement agreement.

We know from previous experience that the FOS' proposed wording for settlements where redress exceeds the statutory maximum looks something like this:

"if this settlement, before interest and costs (if any), exceeds £150,000 [the business] may choose whether or not to limit the payment to that amount (with interest and costs in addition).
But, if it does limit the payment in that way, this will not be treated as a full and final settlement of the present dispute and it would not necessarily prevent a court considering whether to award more."

What does this mean for respondent firms?
Quite simply, it means that if (a) both the firm and the complainant agree with an adjudicator's recommendation to settle a dispute at £150,000; and (b) the settlement wording (like the above example) does not provide that the settlement is full and final, then the complainant will be able to sue in court for the balance of their redress if they so choose. The settlement will not be final and binding upon the complainant, and the firm will continue to be at risk of court litigation.

Firms have two options to prevent this, each with pros and cons:

  • Firstly, even if a firm wishes to accept the recommendation of an adjudicator to pay the statutory maximum award, they should reject the award and have it reviewed and upheld by an Ombudsman. The Ombudsman will likely make an award in the same terms. Most are agreed that having adjudicator decisions "rubber stamped" by an Ombudsman in this way is an unhelpful drain on an Ombudsman's resources, however the reality is it will ensure that Clark v In Focus applies and, if they accept the award, the complainant cannot sue for the balance of their redress. That, of course, carries risk, since with the finality of a binding Ombudsman's decision comes the adverse publicity of having the decision published on the FOS website and heightened obligations to take the decision into account in the handling of other, potentially similar, complaints. Some businesses may see that as too high a price to pay for certainty
  • Alternatively, firms should ensure that any settlement reached at the adjudicator stage is documented in a properly drafted settlement agreement making clear that the settlement is full and final. This will ensure that the complainant cannot sue for the balance of their redress and will keep a firm's name out of the spotlight.  The FOS adjudicator – if keen to preserve the complainant's rights – may take some persuading but the firm must be sure not to enter a settlement agreement with the complainant that contradicts anything the adjudicator has put in place.  The adjudicator must accept a full and final settlement agreement if both parties have agreed

Whichever option firms choose, the message is clear: think carefully when settling complaints at the adjudication stage. Miss a trick, and it may bite you in the cherry.