After a long wait, the Court of Appeal has today allowed the appeal in Clark v In Focus Asset Management & Tax Solutions [2014], ruling that once a Financial Ombudsman Service (FOS) final determination is accepted by a complainant it is not possible to bring a civil claim based on the same facts. Accordingly, those with grievances against financial services firms will have to make a choice – make a complaint to the FOS, but accept only limited redress will be available; or bring a civil claim, where compensation is unlimited, but the process more rigorous. This decision will undoubtedly be met with relief amongst the financial services industry. It is a victory for common sense and ought not to have taken this long to be determined.

Statutory Scheme

The Financial Ombudsman Service (FOS) was set up by the Financial Services and Markets Act 2000 (FSMA) to resolve individual disputes between consumers and financial businesses – fairly, reasonably, quickly and informally. It is free to consumers. Consumers do not have to accept any decision the FOS makes. They are free to go to court instead. But if they accept an ombudsman’s decision, it is binding on both them and the business. These words have been included at the beginning of every FOS Annual Review for the last eight years.

FSMA says that if a complainant accepts a final determination from the FOS, that determination is binding on the respondent firm and the complainant and is final.

The Financial Conduct Authority (FCA) Handbook DISP rules reflect this statutory provision, by stating that if an Ombudsman’s determination is accepted it is final and binding on both parties. The DISP rules also state that the maximum money award that the Ombudsman may make is £150,000 (until January 2012 it was £100,000).

It is these provisions that have given rise to one of the longest running disputes concerning the FOS and its place as a dispute resolution service within the financial services industry. It strikes us that they are suitably clear, and should not have given rise to such a lengthy debate.

Confirmation? – Andrews v SBJ

In 2005 Mr Andrews made a complaint to the FOS concerning a pension transfer he made as long ago as 1988/89. The transfer fell within the industry wide Pension Review and the adviser firm offered him redress but Mr Andrews disputed the level of redress offered to him.

In March 2008, an Ombudsman issued a final determination in Mr Andrews’ favour, making the then maximum award of £100,000, with a recommendation that the firm pay more. Mr Andrews accepted the final determination, but then issued civil proceedings in June 2009 in order to recover the balance of his loss in excess of £100,000.

In the resulting judgment in Andrews v SBJ Benefit Consultants [2010] His Honour Judge Pelling QC considered the legal principle (referred to as the “doctrine of merger”) that a person who has obtained a final judgment in a tribunal cannot then recover a second judgment from another tribunal for the same relief in respect of the same subject matter. He concluded that:

  1. The doctrine of merger applied in principle to a final determination by the FOS, which was a tribunal for these purposes.
  2. The civil claim made by Mr Andrews was the same as the subject matter of the complaint made to the FOS. The same facts were relied on and the same types of loss claimed in both the FOS proceedings and the civil claim.
  3. Accordingly, having accepted the FOS award and rendered it binding Mr Andrews’ civil claim could not succeed.

Pelling pointed out that the FOS scheme is an alternative machinery for resolving relevant disputes quickly and with minimum formality (he might have added, “and cheaply”). If the proceedings before the FOS were not to be regarded as binding if a final decision was accepted, said Pelling, then there was little point in creating the scheme at all.

One might have thought, following this decision, that the matter was determined once and for all. Indeed, the FSA clearly thought it had been, when in January 2011 Hector Sants (then chief executive of the Financial Services Authority (FSA)) wrote an open letter to the government confirming that the FSA and FOS both agreed that the decision in Andrews v SBJ should be codified to eliminate any remaining uncertainty so that such a challenge did not arise again (and would avoid expecting customers to know about the High Court decision). Unfortunately, the government did not action Mr Sants’ suggestion.

Confusion? – Clark v In Focus

Around the same time Mr Andrews was making his complaint to the FOS, Mr & Mrs Clark were advised to invest in certain endowment policy plans, which, they said, proved to be disastrous. Their losses were alleged to be in excess of £500,000. In 2008 the Clarks made a complaint to the FOS, complaining that the advice to invest in the endowment policies was unsuitable for them. In January 2010 an Ombudsman issued a final determination in the Clarks’ favour, making the maximum award of £100,000 but recommending that the firm pay more. The Clarks accepted the final determination. They then issued civil proceedings, claiming breach of statute, fiduciary duty, tortious duty of care and contract, seeking recovery of the balance of their alleged losses in excess of the £100,000 FOS award.

So far, so familiar. However, in Clark v In Focus Asset Management & Tax Solutions Limited [2012] Mr Justice Cranston concluded that His Honour Judge Pelling QC’s decision in Andrews v SBJ was wrong. Cranston decided that the FOS should not be considered a tribunal for the purposes of the doctrine of merger, hence an accepted final determination of the FOS did not preclude a complainant from bringing a civil claim for the same relief based on the same subject matter. His reasoning for disagreeing with Pelling was partly based on a passing comment made in another case in which it was said that the FOS determined complaints and not causes of action. Cranston said that this meant that the FOS’ determination of a complaint could not extinguish the individual’s cause of action. (This, it seemed to us at the time, was a piece of reasoning in which form and not substance was given far too much weight.)

Cranston also held that the FOS should not be considered a tribunal because:

  • The FOS has the power to try to resolve cases by way of mediation, which is not typical of a tribunal. (This seems to ignore the court’s increasing power to encourage mediation, if not actually participate in it.)
  • The FOS can make non-binding recommendations, which is not typical of a tribunal. (There are many cases where judges exhort the parties to adopt a particular course of action, but such recommendations are not binding.)
  • FOS determinations are not automatically binding but have to be accepted by the complainant, which is not typical of a tribunal. (It is true that this mechanism is unusual, but the point is more that it provides the complainant with a choice, and what is of greater relevance is what the statutory consequences of accepting the determination are.)
  • A final determination by the FOS still resolves complaints and is final in the sense that it is an end to the FOS process even if the complainant can then continue to pursue a claim in the civil courts. (In fact, the statute says that the determination is only final if the complainant accepts it. Whereas the end of the FOS process has been reached whether the complainant accepts the determination or not. Furthermore, this entirely misses the point that in accepting the determination it becomes binding on both the firm and the complainant. If the complainant can still pursue his claim before a civil court, on no analysis can the determination be said to bind him.)

In light of the weaknesses in Cranston’s decision, it was inevitable that it would be appealed and, in October 2013, the Court of Appeal heard the appeal. After a considerable delay, the judgment from the appeal has been handed down today.

Court of Appeal Brings Clarity at last

Thankfully, the Court of Appeal has today confirmed that once a complainant accepts a final determination from the FOS he will be barred from pursuing a civil claim based on the same facts.

The Court of Appeal concluded that, in fact, it is the principle of res judicata rather than the doctrine of merger that will prevent a complainant from bringing a civil claim based on the same facts as an accepted FOS determination. Res judicata is simply the doctrine that prevents a party from re-litigating a claim that has already been decided thus ensuring the finality of judgments.

The Court concluded that Mr Justice Cranston was wrong in respect of his main findings. Specifically, it concluded that contrary to Cranston’s decision: the FOS is a tribunal; and although the FOS determines complaints, these might consist of or include facts which constitute a cause of action.

It was also stated:

  • That the Court would look at the substance of the matter considered by the FOS when determining whether a complainant could subsequently bring a civil claim.
  • The FSMA requires and mandates the FOS to “resolve” a dispute – if further Court proceedings based on the same facts were permitted following an accepted final determination, then the dispute could not be said to have been “resolved”.
  • The FOS cannot get round the application of res judicata by wording its awards in a particular way – the matter is a question for the Court. (This is particularly interesting in light of some of our comments below under “To Be Continued...”.)
  • It was not necessarily appropriate for consumers to be able to accept a FOS award and then use that as a “fighting fund” to pursue further litigation. Indeed, the development of a “claims industry in this field” should not be encouraged.


The question as to whether a complainant can accept a FOS determination and then still pursue a civil claim for losses in excess of the award limit has been debated for more than 10 years. It is now to be hoped that this matter has been finally put to rest.

The Court of Appeal’s decision has made it clear that an individual (or small business) with a grievance against a financial services firm has two choices to make: first, whether to pursue a complaint before the FOS or not; and second whether to accept a final determination or not. At both points the complainant is free to decide to pursue a remedy before the civil courts instead. If he does so, he knows that he can seek full compensation for any loss he has suffered, regardless of the amount. However, he also knows that the process will involve more formality, a more rigorous examination of the evidence and will not be free of cost to him.

The truth is that the FOS is a vital part of the financial services sector and provides consumer protection where it is most needed. However, it is designed to provide a speedy and convenient mode of recovering in respect of slight or moderate losses. Its informality (the need to consider but not necessarily apply the law, the lack of reciprocal disclosure obligations and (in all but the rarest of cases) absence of oral hearings) and speed of decision making are it strengths, and were deliberately designed as such, but they are also its weaknesses. These weaknesses, the legislature has decided, can be tolerated for matters worth £150,000 or less. However, the FOS provides summary justice and is not suitable for matters where more than £150,000 is at stake.

To be continued ....

Unfortunately, we continue to see issues arising from FOS decisions that mean further challenges to awards it makes are almost inevitable:

  • Increasingly, we are seeing the FOS seeking to circumvent its £150,000 award limit by electing to “sever” single complaints into multiple complaints (sometimes in contrived circumstances) thus potentially resulting in multiple awards that together significantly exceed £150,000.
  • The FOS is also using directional awards to circumvent the award limit. For instance, in respect of complaints about avoided insurance policies the FOS guidance on “Proportionate Responses”1 states that if it decides a policy should be reinstated and a claim under the policy dealt with, the £150,000 award limit will not apply. This runs contrary to previous case law2, which held that any directional award made by the FOS, if it involves the payment of money to the complainant, would be subject to the award limit cap. (It is also contrary to other FOS technical guidance on compensation3, which states that if the FOS directs a business to pay an insurance claim the £150,000 limit still applies.)

We will watch the FOS’ reaction to the decision in Clark v In Focus with great interest and will report further developments to you.