FOS Awards – Acceptance is now a final resolution of the dispute
In February 2014, the Court of Appeal made a ruling in Clark v Focus Asset Management & Tax Solutions Ltd. The effect is far reaching. From now on, a disgruntled customer of a financial institution who is granted an award by the FSO needs to think carefully before accepting the award. If s/he does so, the acceptance is deemed to be a final resolution of the dispute. The customer can no longer also proceed to litigation in the court as a way of increasing the amounts recovered.
Facts:
Mr and Mrs Clark (“C”) received a FOS award of £100,000 (the maximum statutory cap at the time) for losses suffered as a result of negligent investment advice given by their financial adviser (“F”). In accepting the FOS decision, C added a handwritten rider to the acceptance form stating “we reserve the right to pursue the matter further through the Civil Court”.
C then sued F in court for the remaining losses (which C considered to be in excess of £500,000). F applied for C’s claim to be struck out, on the basis that the doctrine of res judicata applied – namely, C cannot bring another set of proceedings when a court or tribunal has already adjudicated on a claim arising from the same cause of action and the same set of facts.
The issues before the Court of Appeal were whether or not:
- under the doctrine of res judicata, a complainant who accepts an ombudsman’s award is precluded from starting legal proceedings in relation to a complaint on which the ombudsman had already decided; and
- the FSMA s.228(5), which relates to FOS determinations, excludes the operation of res judicata.
Decision
The Court of Appeal held in favour of F.
It was held that, for the purposes of res judicata, the FOS’s award is a judicial decision. C therefore is barred from bringing proceedings against F following acceptance of the FOS’s award, if the claim arose from the same causes of action and over the same set of facts.
It was also held that s.228(5) is silent on the doctrine of res judicata. If Parliament had intended that a complainant should be able to recover losses in excess of the limit, it is difficult to see why it would have imposed that limit. FOS was set up to resolve disputes (s.225 of FSMA 2000) between a financial institution and its customers. It is not intended that the complainants should be able to litigate the same grievances again in the courts in an attempt to recover higher levels of compensation.
In light of this, the Court of Appeal concluded that res judicata would apply if a defendant could show that: the claimant had relied, in a complaint to the FOS, on the same set of facts as those which constituted the cause of action relied upon in subsequent court proceedings; and the FOS had determined that complaint by reference to what is fair and reasonable or by reference only to legal principles.
Implications
The Court of Appeal’s decision in Clark affects both sides’ early considerations in dealing with a mis-selling claim, in particular:
- Claimants need to think very carefully and take legal advice before accepting a FOS award and ruling, if the case is strong and may result in judgment of more than £150,000 (the current cap).
- Potential claimants can no longer use the FOS as a cheap way to secure funding, before embarking on litigation.
- Banks which have accepted and paid FOS awards should seek to strike out any follow up court proceedings.
Gibson & Co.
May 2014