The Financial Ombudsman Service provides consumers with a straightforward and free dispute resolution scheme in relation to complaints they may have against providers of regulated financial services. Under the scheme, the maximum award of compensation that can be awarded is fixed by the financial services regulator. However, following two conflicting decisions from the High Court it was unclear whether the consumer could, after accepting an award of compensation, then bring legal proceedings in relation to losses over and above the compensation limit. In an important decision for the financial services industry, that conflict has now been resolved by the Court of Appeal in Clark v In Focus Asset Management & Tax Solutions Ltd.

In Clark, the claimants argued they had lost more than £300,000 through negligent investment advice given by their former financial advisor. They took their complaint to the Ombudsman Service where it was held that they were entitled to compensation exceeding the then limit of £100,000. In addition to awarding £100,000, the Ombudsman therefore also recommended payment of full compensation. The claimants accepted the award, subject to their right to claim more in court proceedings, and the £100,000 was paid, but no more. The claimants therefore started proceedings, and ultimately the matter came before the Court of Appeal.

The Court of Appeal held that an award by the Ombudsman could give rise to the doctrine of res judicata, which precludes a complainant from starting legal proceedings to pursue complaints which have already been determined by a court or tribunal. The key point was whether a complaint to the Ombudsman could be a cause of action in law, and in the judge’s view such a complaint could consist of or include facts which constitute a cause of action and that was enough to show that it may be, or include, a cause of action. It was also held that an Ombudsman’s award was a judicial decision for the purposes of the requirements of res judicata, as the parties are given an opportunity to state their case and the decision is not merely administrative. Given that res judicata is part of the common law, and is not excluded in relation to the Ombudsman Service, either expressly or by implication under the Financial Services and Markets Act 2000, the Court of Appeal therefore held that res judicata could apply in relation to an award by the Ombudsman. Thus, if the defendant could show that the claimants relied on a complaint determined by the Ombudsman which was, in substance, based on a set of facts which constituted the cause of action on which they relied in the subsequent court proceedings, then res judicata would apply.

The Court of Appeal had not been asked to concern itself with the facts of this case, determining instead the principal of law. However, as the court noted, despite its judgment there will clearly be occasions when a complainant may still bring court proceedings against an advisor, even though he has accepted an award from the Ombudsman, depending on whether the substance of the proceedings asserted before the courts are the same as that before the Ombudsman Service. Therefore, although those in the financial services industry can now be reassured that acceptance of an Ombudsman’s award will normally bring an end to a dispute, there may still be opportunity for some consumers to bring a further claim.

Clark & Anr v In Focus Asset Management & Tax Solutions Ltd & Anr [2014] EWCA Civ 118