In Clark v In Focus Asset Management & Tax Solutions Ltd (2014), the Court of Appeal decided that an award by the Financial Ombudsman Service precludes a complainant from revisiting the matter by way of legal proceedings, overturning the controversial decision of the High Court. This decision brings to an end uncertainty between the High Court decision in this case and a previous contrary decision (Andrews v SBJ Benefit Consultants Ltd (2010)).
As reported in our January 2013 edition, the High Court decision inClark threw into doubt the general understanding that if a complainant accepted an award by the Financial Ombudsman Service (the "FOS") it could not then issue legal proceedings to recover an additional amount over and above the amount awarded. The Court of Appeal has now overturned the High Court's decision.
Mr and Mrs Clark complained to the FOS, alleging that they had lost more than £300,000 through negligent investment advice given by In Focus Asset Management & Tax Solutions Ltd ("In Focus"), their former financial adviser. The FOS decided that the Clarks were entitled to compensation exceeding the then FOS limit of £100,000 (now £150,000), awarding £100,000 in their favour, and the FOS recommended payment of the full amount claimed by In Focus. The Clarks subsequently accepted the award, but did so subject to their right to claim the remaining alleged amount in court proceedings. In Focus paid the Clarks £100,000 but did not pay the full amount claimed, despite the recommendation of the FOS that it do so.
The Clarks brought proceedings against In Focus for damages stemming from its breach of contract, negligence, breach of fiduciary duty and breach of statutory duty, but acknowledging that credit had to be given for the £100,000 already paid. In Focus sought an order dismissing the proceedings. The County Court did so, but the High Court then reversed this decision.
In Focus appealed to the Court of Appeal, arguing that the claim should be struck out on the basis that, because the FOS award had been accepted, the Court had no jurisdiction to entertain the Clarks' claim – in other words, the Clarks' claim had already been decided on its merits and the common law doctrine of res judicata ("a matter already tried") applied.
The parties' disagreement centred on two key points, namely (i) whether a decision by the FOS was a decision of a judicial body for the purposes of res judicata, and (ii) whether the complaints to the FOS and the causes of action relied on in the proceedings were the same. As well as the two parties, the FOS also made submissions to the Court of Appeal, stating that, inter alia, it considered itself to be a judicial body for the purposes of res judicata. The FOS also submitted that, in making its decisions, it does not determine the rights of the parties or the causes of action, but will consider the same subject matter and resolve the dispute by a different set of principles.
Court of Appeal Decision
Arden LJ gave the leading judgment (with which Black LJ and Davis LJ both agreed), allowing the appeal.
The Court found that the FOS was a judicial body and the decision was a judicial decision for the purposes of res judicata. This was because the FOS was not making an administrative decision; the process involved giving both parties an opportunity to state their case and the decision was binding on both parties, once accepted. Arden LJ also noted that, although not determinative, the fact that the determination was subject to Article 6 of the European Convention on Human Rights (right to a fair trial) was strongly indicative that the decision was judicial in nature.
Arden LJ agreed that a complaint to the FOS was not a cause of action – the FOS is empowered to resolve disputes by reference to what in its judgment is "fair and reasonable" rather than by reference to legal principles. However, Arden LJ stated that this was not an impediment to the application of res judicata and that "it is sufficient…that the[FOS] decides a question posed by facts constituting a cause of action". She concluded that the principle of res judicata could apply in these circumstances, stating that "the rule is about not having two bites at the same cherry". She concluded that a complaint to the FOS and a cause of action in legal proceedings could be the same in substance and so res judicata could apply.
Having established that res judicata could apply, Arden LJ went on to consider whether the Financial Services and Markets Act 2000 ("FSMA") excluded the operation of the doctrine. As res judicata was not precluded either expressly or impliedly by FSMA, Arden LJ concluded that, as a matter of statutory interpretation, Parliament must be presumed to have intended to apply it.
Finally, notwithstanding the above, the Court stated that there could still be occasions when a complainant may bring court proceedings even after accepting an award by the FOS, provided that the substance of the claim before the court is brought on a different basis to that before the FOS. The burden is on the respondent to establish that the doctrine ofres judicata applies on the basis that the FOS has already determined the questions raised in the court proceedings.
This judgment is undoubtedly good news to those operating in the financial services industry. Complainants to the FOS will no longer have a second bite of the cherry; they will instead need to assess their chances of success in the courts before accepting a FOS award. Effectively, the Court has ruled out the possibility of complainants "topping up" a FOS award by issuing court proceedings in respect of the same substantive complaint.
The Court of Appeal's decision would appear to be a return to the position whereby the FOS is considered as an alternative to litigation, which was arguably the intention of the scheme in the first place.
The judgment may also have implications for parties' approach to the findings of the FOS adjudicator (before an appeal to the Ombudsman). For example, in the event of an adverse decision by the adjudicator, a respondent may consider not appealing the decision to the Ombudsman if it thinks the case against it is strong enough to succeed in court for an amount greater than £150,000. Conversely, when faced with a negative FOS adjudication which has a weaker legal basis, a respondent may now more readily consider it worth appealing to the Ombudsman (with the hope of a reduced award and a good chance of defending a possible legal action).
The FOS has recently amended its technical and consumer guidance in response to the judgment so as to recommend that consumers seek independent legal advice as to how to proceed, where they believe that they may be entitled to more than £150,000.