If the Financial Ombudsman Service (the “FOS”) determines that a regulated business has acted wrongly or has provided negligent financial advice to a customer, the FOS can award compensation to the customer of up to a statutory maximum of £150,000.
It used to be the case that although the complainant did not have to accept the FOS decision, if he did accept it, the decision was considered final and binding.
However, in the recent case of Clark v In Focus Asset Management & Tax Solutions  the High Court held that a party who has accepted a FOS decision and has been paid the statutory maximum award can subsequently bring a damages claim through the civil courts for any loss they have suffered over and above the award already paid to them by the FOS.
The defendant in the case of Clark is currently appealing this decision. However, if the Clarkdecision is upheld this may allow potential claimants with claims in excess of £150,000 to use the FOS process first (a free and informal process) as a means of securing a monetary award which they can then use to fund legal action to claim the remaining balance of their losses.
In Clark v In Focus Asset Management & Tax Solutions, Mr and Mrs Clark claimed that In Focus Asset Managements & Tax Solutions (the “Firm”) had provided negligent financial advice resulting in a loss in excess of £500,000. The FOS upheld Mr & Mrs Clark’s subsequent complaint and ordered the Firm to pay compensation of £100,000 being the statutory maximum at that time (the current statutory maximum award is £150,000). The FOS made a recommendation to the Firm that it should pay more than the statutory maximum but warned Mr & Mrs Clark that they “may not be able to enforce a greater amount [than the statutory maximum award] in the Courts”.
Mr & Mrs Clark accepted the FOS decision which was stated to be “final and binding” but added a manuscript rider to the FOS acceptance form stating “we reserve the right to pursue the matter further through the civil courts”. The Firm paid the statutory maximum FOS award but did not pay above this level despite the FOS recommendation.
After receiving the statutory maximum award, Mr & Mrs Clark issued a claim against the Firm in the County Court for their total losses, but gave credit for the £100,000 already received. The Firm applied to the Court for the claim to be struck out on the basis that in the recent similar case of Andrews -v- SBJ Benefits Consultants, the Court had held that once a complainant has accepted a FOS decision, the award becomes binding and the doctrine of merger prohibits them from bringing a separate civil claim through the Courts. The Court upheld the Firm’s application and Mr & Mrs Clark’s claim was struck out.
On appeal by Mr & Mrs Clark, the High Court said that in the Andrews case, the Court had ignored the fact that the FOS deals with complaints, not causes of action. The High Court noted that the doctrine of merger “turns on a cause of action being extinguished”. As such, the doctrine of merger does not apply to FOS decisions as the FOS only considers the complaint and does not determine the actual cause of action. The High Court therefore held that Mr & Mrs Clark were not prohibited from claiming damages in Court in addition to the FOS award they had already received.
It is to be noted that the High Court in Clark only determined if the Firm’s application to strike out Mr & Mrs Clark’s claim should have been granted. No determination was made as to whether Mr & Mrs Clark should be awarded the additional damages claimed.
The Firm is currently seeking permission to appeal the High Court’s decision.
Until that appeal is resolved, complainants will run the risk that if they accept a FOS award now and the Clark decision is later overruled or not followed by the Court, then the complainant may be barred from claiming the balance of their losses through the Courts.
It would, therefore, be prudent for any complainants with claims over £150,000 to seek independent legal advice before accepting any FOS decision to ensure they are not waiving their right to a higher amount of damages than they are awarded by the FOS.
Please note this information is provided by way of example and may not be complete and is certainly not intended to constitute legal advice. You should take bespoke advice for your circumstances.