Professional Negligence Claims and Financial Ombudsman Decisions


Clark –v- In Focus Asset Management (“IFAM”) [2014] EWCA Civ 118

Professional Negligence Solicitor, Emma Slade, examines a unanimous Court of Appeal decision which confirms that once a decision by the Financial Ombudsman is accepted, the complainant cannot sue for any shortfall in the courts

The Financial Ombudsman Service (“FOS”) was set up by the Financial Services and Markets Act (“FSMA”) 2000 as a dispute resolution service between consumers and providers of regulated financial services.  The purpose was to provide a swift and simple service, free at the point of contact to the consumer, whereby the Ombudsman would determine the complaint “by reference to what is, in the opinion of the ombudsman, fair and reasonable in all the circumstances of the case.”  He can therefore ignore the technicalities of the law (although if the decision is considered “perverse” or “irrational” a court can overturn it) and even order compensation over and above that which would be allowed by the law.  Currently, there is a maximum compensation limit of £150,000 but the FOS can make recommendations that a further payment over and above that amount be paid (although that additional sum is not enforceable).

The procedure for considering a complaint is that the FOS will invite each party to put their case in writing to the Ombudsman for consideration.  Although oral evidence can be provided, it is very rare and even then, there is no opportunity for formal cross examination or, as in the case of litigation, disclosure of documents between the parties.  At the conclusion of his investigation, the Ombudsman will make a decision and the complainant is invited to accept the decision.  If the complainant accepts the decision, for the purposes of the FSMA, it is considered “final”.  However, for a long while, it has been accepted that it is only “final” in terms of the FOS procedure.  There is nothing in the FSMA which expressly addresses whether or not the decision precludes legal proceedings.

This has been considered at great length by the courts over the past few years.  The view the High Court took in the Clark case was that the FOS was merely dealing with complaints and that it was simply “a scheme for the summary and informal resolution of disputes”, certainly not a court or a tribunal.  Indeed, the Court went so far as to say that:

“It seems to me that for a Complainant to use an award of £100,000 to finance the legal costs of bringing court proceedings for a greater amount is not inconsistent with the statutory aims.”

IFAM appealed the decision, its legal team citing the legal doctrine of res judicata, a Latin term which basically means that if a ‘cause of action’ has already been adjudicated upon by a judicial tribunal, then it precludes a party from bringing another set of proceedings.  It took the view that as the FOS had made an award which had been accepted by the Clarks, they were prevented from seeking further compensation.  The Court of Appeal therefore had to decide whether:

The FOS is a judicial tribunal
Whether a complaint to the FOS is a ‘cause of action’
Whether there is anything in the FSMA which would allow or prevent subsequent litigation proceedings

The issue of whether the FOS is a judicial tribunal was easily dealt with.  Consideration of the procedure – especially the fact that both parties could put forward their case, the fact the decision was determinative and that the FOS had jurisdiction over both parties, meant the Court of Appeal was certain that the FOS is a judicial tribunal for the purposes of res judicata.

But is the FOS considering the same ‘cause of action’?  What is a ‘cause of action’?  Quite frankly, it is a high- fallutin’ legal term for describing “the various categories of factual situations which entitle[s] one person to obtain from the court a remedy against another”.  In short, it is simply a set of facts presented for determination.  And the Court of Appeal considered that in many instances, even if the actual complaint itself does not constitute a cause of action, the underlying details that the FOS has to consider may indeed be a cause of action.

So in short, the Court of Appeal came to the conclusion that, if a complainant accepts an FOS decision but then brings proceedings against the respondent on the same set of facts, res judicata will apply and the case will have to be struck out as an abuse of process.

Was there anything in the FSMA which prevented this?  As I have said above, no.  It is entirely silent on the point of whether further legal proceedings are precluded.  In those circumstances, as statute is quiet, we must fall back on the common law.  As common law does not allow “two bites at the same cherry”, subsequent litigation proceedings following an accepted FOS decision will not be allowed.

What did it mean in this instance?  In this case, Mr & Mrs Clark had invested a significant sum of money in endowment policies upon the recommendation of IFAM.  They lost a sum in excess of £300,000.  The FOS agreed the advice had been poor and gave them the maximum award which at that time was £100,000, with the further recommendation that IFAM make further compensation which IFAM ignored.  The Clarks legal team sought advice from the FOS whether, if the award was accepted, it would prevent additional proceedings but the FOS response was that they simply did not know.  The Clarks accepted the offer but on the proviso that it was without prejudice to their right to seek additional recompense via the courts.  Would this work?  No.  Davis LJ dealt with this in the final judgment in this case stating that “purported reservation of the right to sue cannot operate to create such a right when, on acceptance of the award, such a right was never there.”


This is going to be a bitter pill to swallow.  It has to be accepted that the litigation animal is not a particularly swift one and invariably, the complaint arises as the complainant has been deprived of much needed funds.  The prospect of a swifter and much cheaper resolution through the Ombudsman service is therefore extremely attractive particularly as it is non-litigious in nature and does not involve the stress and strains that litigation may have.  However, its remedy for large value claims is limited to only £150,000 which, given the FOS has admitted it has approximately 87 claims per year over this value, means there should be a serious pause taken before engaging the FOS.  Even more importantly, it is unclear whether the FOS are going to be altering their website and media publications to make it clear that once the complainant signs on the dotted line, there is no secondary recourse for compensation.  In short, whilst the FOS is a useful vehicle for smaller claims to be considered, for larger claims, you should always take independent legal advice to ensure the best procedure is adopted in your case.

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