Clark and another v In Focus Asset Management & Tax Solutions Ltd1

The Court of Appeal of England and Wales has held that a complainant cannot accept an award from the Financial Ombudsman Service (the FOS) and subsequently bring a civil action in court for additional redress in respect of the same complaint. This landmark decision resolves the uncertainty that had arisen from two previous conflicting High Court judgments. Yet, while it provides some welcome clarification of the law, it remains to be seen how much comfort it will give professional indemnity insurers and their insureds.

The facts

In November 2008, Mr and Mrs Clark made a complaint to the FOS alleging losses of £500,000 as a result of investment advice given by their financial adviser, In Focus, to invest the sale proceeds from a family business in a geared traded endowment plan. Upholding their complaint, the FOS awarded the Clarks £100,000 (the then statutory maximum award, which is now £150,000) and recommended that In Focus pay the balance of the Clarks’ alleged loss. The Clarks accepted the FOS award inserting the words “we reserve the right to pursue the matter further through the Civil Court” in the acceptance form. In Focus paid the Clarks £100,000 only, following which the Clarks issued court proceedings against In Focus for the balance of their loss.

At first instance, In Focus sought to strike out the claim on the basis of the High Court decision in Andrews v SBJ Benefit Consultants2, which held that a complainant accepting a FOS award cannot subsequently litigate to recover the balance of any loss. The High Court3 declined to follow Andrews holding that the FOS award did not extinguish the Clarks’ cause of action.

The Court of Appeal Judgment

Allowing the appeal, Lady Justice Arden confirmed that, in accordance with the doctrine of res judicata (which essentially operates to prevent the same matter being litigated twice), acceptance of a FOS award precludes a complainant from starting legal proceedings to pursue complaints already submitted to, and decided by, the FOS.

In brief, a complainant will be barred from pursuing further litigation, and any subsequent claim will be struck out, if the following two requirements are met:

  • the defendant establishes that the complainant relied in a complaint to the FOS on a set of facts which are in substance the same as those forming the basis of the claim being litigated; and
  • the complainant accepted the FOS award in relation to the complaint.

Arden LJ considered the statutory construction of section 228(5) of the Financial Services and Markets Act 2000 (FSMA), which provides that acceptance of a FOS decision is “binding on the respondent and complainant and final”, and acknowledged that this section does not expressly address whether or not an award precludes further legal proceedings. Equally, she found that there is nothing in FSMA to exclude the common law doctrine of res judicata. Indeed, to do so would “run counter to the more specific purpose set out in section 225(1) [of FSMA] that disputes should be resolved quickly and with the minimum of formality.”

In her judgment, Arden LJ commented that if Parliament had intended that the complainant should be able to recover loss in excess of the FOS limit, it would not have imposed that limit and would have made it clear that consumers were free to go outside the scheme and start court proceedings. However, when setting up the FOS scheme for resolving disputes “Parliament manifested its intention that consumer protection did not go beyond the scheme.”  

The Court held that the FOS would not be able to circumvent the doctrine of res judicata by formulating its award in a particular way or by simply stating that the doctrine did not apply (this is a matter for the Court).


The principal effect of the Court of Appeal’s decision is to prevent a complainant from accepting a FOS award and litigating the same matter again, regardless of the size of any monetary award and any recommendations made by the FOS.

This ruling resolves the uncertainty that arose following the conflicting High Court judgments in this case andAndrews and effectively closes the door to repeat claims by complainants who accept FOS awards. Costs appears to have been one motivating factor behind the decision. As recognised by Arden LJ, if the Clarks had been successful in the appeal it could set a precedent for complainants to use a FOS award as a “fighting fund for legal proceedings” and “the development of a claims industry in this field that increases the costs of obtaining financial advice.”

Insurers and financial intermediaries will welcome this clarification of the law and the certainty that should result where the requirements described above are met. In some cases, however, there may be room to argue over whether the first requirement is met. More broadly, uncertainty remains about how this decision will influence the pursuit and defence of claims and the associated costs.

On its face, for complainants whose claims fall well within the FOS limit, or substantially exceed it, deciding whether to go to the FOS or the courts should be fairly straightforward. More difficult may be those cases that are valued closer to the FOS limit. Even then, a complainant may be more inclined to go to the FOS, on the basis that this will more likely result in a favourable decision and be cheaper and quicker than court action. This may not be so where the case is more complex or faces limitation issues.

Assuming that complainants are more likely to go to (and accept an award from) the FOS, this should not only shorten the tail of some claims but also reduce the costs exposure for firms and insurers.  However, there are several reasons why the costs burden for firms and insurers may not necessarily reduce following the Court of Appeal’s decision. First, some complainants with larger claims may be more inclined to go directly to court, which will likely result in more costs being incurred sooner by both sides. However, some complainants may still choose to refer a complaint to the FOS, hoping for a favourable indication which they can then use to support a court action. Brave may be the complainant who receives a significant monetary award from the FOS and chooses not to accept it. But some complainants may still consider it worthwhile to decline a favourable award, in view of the FOS limits. Further, complainants who are unsure of their options, or the merits or value of their claims, may seek legal advice more readily than they might have done previously, which is also only likely to increase costs.  

In short, it remains to be seen what effect the Court of Appeal decision will have in practice on how complainants pursue their claims or how firms and their insurers defend them. What can at least be said is that the decision will not necessarily have the effect of reducing costs overall and may well result in it being more expensive to resolve some cases. Decisions about the defence and settlement of individual claims will likely continue to be made on a case by case basis.