FML Timeline: Clark v In Focus Asset Management & Tax Solutions Limited

The claimants were a husband and wife who issued a complaint to the FOS in respect of allegedly negligent financial advice they received from In Focus, an independent financial advisor. The Clarks estimated their total loss to be in excess of £300,000. The FOS found in favour of the complainants, awarding them compensation of £100,000. The Clarks accepted the award. However, when signing the award, the Clarks wrote on, and additionally signed, the document a note to the effect that their acceptance of the award was subject to their continuing right to claim further monies in subsequent court proceedings.

The maximum award that can be given by the FOS was then £100,000 (it is now £150,000). The FOS recommended a further award to be paid. In such instances the FOS suggests that the responding company awards further compensation to the complainants voluntarily, in addition to the FOS’s formal award.

The Clarks received no further sum from In Focus, and consequently, in June 2010, issued a claim against In Focus in the courts. In the High Court ([2012] EWHC 3669 (QB)), In Focus made a successful application to strike out the claim, arguing the doctrine of merger. The Clarks then appealed this decision to the Court of Appeal.

Decision

The County Court

Originally, in the County Court, before HHJ Barratt QC, the Court was persuaded that the claimants could not continue their claim due to the doctrine of merger. The Court held that by accepting the FOS award, the claimants had extinguished their cause of action, preventing them from bringing further litigation. This finding disregarded the Clarks’ handwritten reservation of rights. HHJ Barratt QC applied the case of Andrews v SBJ Benefit Consultants in reaching his decision.

The High Court

In an appeal to the High Court however, this decision was overturned. Cranston J disagreed with HHJ Barratt QC and the case of Andrews. The High Court held that the doctrine of merger did not apply to FOS decisions. This decision created an inconsistency with Andrews that needed to be resolved by the Court of Appeal.

Following Cranston J’s High Court judgment, there was concern that a complainant could use a successful FOS decision as a basis for further claims, using the FOS award to fund any subsequent litigation. This obviously would render the FOS - originally intended as a means of expediting and simplifying the complaints process - as merely an enabler of sorts, in a sense encouraging claimants to pursue further, often costly, litigation.

The Court of Appeal

The Court of Appeal overturned the decision of Cranston J. It decided the case not on the doctrine of merger, but on the principle of res judicata. The two principles are similar but subtly different. The doctrine of merger states that a court or tribunal decision extinguishes the cause of action employed, simply replacing it with a right of enforcement. The principle of res judicata, otherwise known as "claim preclusion", means “a matter [already] judged”. The principle is that a previous judicial body binds another where it is deciding on a matter already judged.

In deciding the case, the Court of Appeal therefore had to rule on two issues. Firstly, was the FOS a judicial body? Secondly, was the effect of res judicata excluded by FSMA 2000, s.228(5)?

The court judged that the FOS was a judicial body, and that its determination was indeed a judicial one. The Court noted that the FOS procedure required the production of facts. It required both parties to have an opportunity of stating their case. Further, the observation that Article 6 ECHR applied to FOS procedure strongly indicated that the decision was indeed a judicial one (applying R. (on the application of Heather Moor & Edgecomb Ltd) v Financial Ombudsman Service [2008] EWCA Civ 642). The fact that the FOS made its decision not only on relevant law but also on what is fair and just was not persuasive, nor was the observation that the parties could have alternatively determined their dispute using mediation.

FSMA 2000, s.228(5) states that "If the complainant notifies the ombudsman that he accepts the determination, it is binding on the respondent and the complainant and is final". The Court correctly noted that this provision did not directly refer to res judicata. The Court said that, as a matter of statutory construction, where Parliament was silent on an issue, the common law applied. As the statute did not expressly or impliedly exclude res judicata, the principle would still apply. The Court also noted that, if Parliament’s intention was to allow complainants to claim in the courts for amounts beyond the maximum award available to the FOS, why then was there a limit imposed in the first instance?

The Court did leave open the possibility of a scenario where a complainant could bring a FOS complaint, before bringing a further claim in court. This was where the complainant would have the same factual matrix for both actions, but brings a claim for separate types of loss in each judicial body. The Court specifically flagged that this potentiality may have to be ruled upon at a later date. It does however leave open the possibility that a complainant may choose to bring certain aspects of their case to the judicial body with which it deems it will have the most success. For the FOS for example, a complainant might bring those heads of loss which have a consumer protection bent, rather than arguing the same point in the courts.

The Court of Appeal thus clarified the discrepancy between the High Court decision in Clark, and that of Andrews. Provided complainants wish to continue their case on the same cause of action, those who have accepted an FOS award may not claim for additional monies in the courts, whether they have been awarded the FOS maximum or otherwise. The FOS can of course still recommend that firms award complainants sums in addition to the maximum if they so wish. This ruling will no doubt serve to comfort certain financial firms who may have been concerned that an FOS award would merely come to be seen as a prelude to further litigation.

Noteworthy/ Novel points

This decision reduces the options for parties applying to the FOS who wish to be awarded sums greater than the FOS limit of (as it is now) £150,000. Today, if the recommendation to the responding party to pay greater than the maximum award is not taken up, the complainant party is left with few options. It may (i) reject the FOS award and pursue its complaint in the courts (one assumes on the same grounds as the successful FOS decision); (ii) accept the lesser award of the FOS as full and final settlement; or (iii) accept the lesser sum and then pursue their case in the courts with a different cause of action (if one is found).

It is envisaged that the FOS may now return to its role as originally intended by FSMA, as a cost effective recourse for consumers bringing primarily lower value claims.