The Court of Appeal has overturned the High Court’s decision in Clark v In Focus Asset Management, meaning that a claimant cannot ordinarily complain to the Financial Ombudsman Service (“FOS”), accept the maximum award limit if the complaint is determined in his favour, and then sue for the balance of loss in court. This appeal raised a very important point of principle and practice in relation to the FOS. It is of interest to complainants, financial companies (and their insurers) and the FOS handlers themselves. The decision will also be of interest to those who complain to other Ombudsman Schemes, such as the Pension Ombudsman Service and the Legal Ombudsman service.

CMS acted for the successful Appellants.

Background facts

The Claimants complained to the Ombudsman of negligent investment advice given by the financial advisory firm In Focus. The Ombudsman required payment of compensation in accordance with a formula and recommended that any balance in excess of the (then) monetary limit of £100,000 be paid by In Focus.

The Claimants accepted the Ombudsman’s Final Decision with a “rider” on the acceptance form, purporting to “reserve the right to pursue the matter further through the civil court”. The Ombudsman informed the parties that the Final Decision had been accepted and was binding. In Focus sent a cheque for £100,000 which the Claimants cashed. The Claimants subsequently commenced court proceedings. The Circuit Judge struck out the claim in the County Court on the basis that the Claimants, having already accepted the Ombudsman’s award, could not pursue a claim for the balance of their loss in court.  Cranston J allowed the Claimants’ appeal, ominously (and controversially), observing that a FOS award could be used by a Claimant as a fighting fund to bring court proceedings.

The issue

Under section 228 of the Financial Services and Markets Act 2000 (“FSMA”), a complainant can accept or reject a determination by the Ombudsman; if accepted, it is “binding and final”; if rejected, the complainant is free to pursue the complaint in court. The crux of this appeal was whether there is a ‘third way’: can the complainant accept the determination and the maximum award in his favour (previously £100,000, now £150,000) and then sue in court for additional compensation in respect of a claim based upon the same facts and matters the subject of the original complaint? 

It was held in Andrews v SBJ Benefit Consultants Limited (2010) that the complainant did not have this third option – his cause of action had “merged” in the Ombudsman’s award, thereby extinguishing all rights arising from that cause of action so as to preclude further court proceedings.  In Clark v In Focus, however, Cranston J held that the doctrine of merger had no application to a determination of the Ombudsman and that a complainant can accept an award up to the statutory limit and then sue in court for damages in excess of that limit. There was therefore conflicting authority in the High Court on the issue.  The parties having entered into a partial compromise on a number of issues, the only issue which remained “live” on this appeal was effectively whether Andrews v SBJ was correct in holding that the merger principle applies in this context.

The Court of Appeal distilled the appeal into two questions:

Does the principle of ‘res judicata’ (literally ‘matter already judged’ as an extension to the “merger” principle) apply to a FOS decision once accepted?  In particular, is FOS a judicial body?

Does FSMA oust the operation of that common law principle?


The Court of Appeal found unanimously for In Focus on both issues.  A complaint to the FOS may well consist of or include facts which constitute a cause of action.  Neither the fact that the FOS decides complaints by reference to what is ‘fair and reasonable’ (rather than applying legal principles), nor that the FOS may issue a recommendation in addition to making an award, precludes the operation of the long-established res judicata principle.  Critically, the FOS was a judicial body: it could not be said it exercised a purely administrative function. 

In the lead Judgment, Arden LJ acknowledged that the FOS was established principally for consumers, who may not well particularise their complaint into a distinct ‘cause of action’ and this could potentially make it difficult to ascertain whether a FOS award was the product of facts constituting the cause of action relied upon in later court proceedings.  Davis LJ further noted that this was a potential ‘trap for complainants’.  However, the Court observed that this should not be overstated: some complainants were well informed and benefited from legal advice.  Additionally, the FOS investigates facts constituting a cause of action and reaches a decision on that basis. 

Equally, the Court held that complainants’ rights of access to court under Article 6 of the European Convention of Human Rights would not be violated by res judicata applying to decisions of the FOS in this way.  That right of access could be restricted by law - here the common law principle of res judicata - and there was a strong public policy that a defendant should not have to face the same claim twice. 

The Court did not, however, deny complainants the ability ever to accept a FOS award and claim in court.  Each case would be decided on its own facts and, faced with a claim seemingly on the same facts as that forming the basis of an accepted FOS award, the court will have to “consider the substance of things and to assess the true subject matter of the prior complaint and determination”.  In all cases, the burden of proving that res judicata operates would be on the defendant.  Equally, res judicata would not detract from the court’s power to apply other established legal principles - for example abuse of process because, for example, a complainant could and should have brought all of its claim before the FOS.

Albeit in comments falling outside the binding Judgment, Davis LJ opined that the result may be different if the facts giving rise to the subsequent legal claim were the same but the “alleged types of loss arising out of those facts were different”. Bringing such a claim at court, after accepting a FOS award, might potentially amount to an abuse of process.

As to what the Court saw as the second issue, Arden LJ accepted that FSMA was ambiguous: the Act did not expressly preclude subsequent legal proceedings.  Neither did Section 228 (5) expressly refer to res judicata.  However, the Court held that res judicata applied because it was part of the common law and FSMA was enacted by Parliament against that backdrop.  There was no evidence of an intention by Parliament to put complainants to the FOS in a special position whereby they could benefit from a tribunal’s award and then litigate their grievance again in court. Indeed, had Parliament intended that the complainant should be able to recover loss in excess of the current limit, it was difficult to see why it would have imposed that limit in the first place.

Overall therefore, the Court of Appeal’s judgment means that a complainant cannot accept an award of the FOS and make a claim based upon precisely the same facts in court, either for the so-called ‘balance of loss’ in excess of the FOS award limit, or (regardless of their amount) for other losses arising from the same facts which the FOS declined to award.


This is a landmark decision.  On the Clarks’ case, a determination (once accepted) is not ‘final and binding’ since the same complaint can spawn court proceedings in which all issues of liability and quantum are back on the table.  That would be entirely inconsistent with the FOS scheme, as would be the notion that it can be used as a means of financing court proceedings for a greater amount.  There is surely a clear public and private interest in the ‘finality’ of the FOS.  As Arden LJ noted, whilst it might appear that a FOS award acting as a fighting fund for court proceedings is consumer-friendly, it may mean that complainants lose the award they gained at the FOS and the development of a claims industry which serves to increase the cost of obtaining financial advice. 

If Cranston J’s judgment had been left unchallenged, firms subject to the FOS - be that financial advisors, insurers, brokers, or pensions administrators - and their insurers - faced significant financial exposure.  In particular, it threatened to make an already tough PI insurance market harder still, dissuading insurers from participating in the IFA market and, potentially, increasing premiums.  Even those insurers dealing purely with run-off cover were considering their back-book of business where complaints relating to negligent financial advice had been determined at the FOS could be resurrected by claimants as a Court claim. Interestingly, the Court observed that if awards were to be used by complainants as “fighting funds” for legal proceedings (as envisaged by Cranston J), that might lead to the development of a claims industry in this field that would increase the cost of obtaining financial advice. 

It should not be forgotten that there are considerable advantages conferred on the complainant by the FOS Scheme. The scales are already heavily, but not unfairly, tilted in the complainant’s favour. It is swift, informal and cheap. Instead of applying ‘black letter’ law, the Ombudsman determines the dispute in accordance with what he considers to be “fair and reasonable”, meaning that a complainant may obtain a binding monetary award in his favour, albeit with the disadvantage that it is subject to a maximum limit, which may not have been obtainable from the courts on a strict application of the law. There are no adverse costs.

But the idea that the complainant can accept and retain (irrecoverably) the preferential fruits of that (unilateral) option and use that to then have another go at recovering additional compensation in subsequent court proceedings (which might well turn out to show that the claim was never good in the first place) rather looks like a risk-free ‘two way bet’.

The proper analysis is that if the complainant is not happy with the compensation awarded and cannot procure a larger consensual settlement, then the Scheme provides him with a single choice: acceptance of a smaller award (but obtained quickly by a low cost and informal process and binding on the company); or its rejection, with an entitlement to proceed in court for a larger sum, but with all the attendant risks that that course entails.

Further reading: Clark & Another v In Focus Asset Management & Tax Solutions Ltd and Financial Ombudsman Service [2014] EWCA Civ 118

Andrews v SBJ Benefit Consultants Limited [2010] EWHC 2875 (Ch)