Edwin Coe Blog: Think twice before accepting a Financial Ombudsman’s decision (FOS)

In January 2013 Edwin Coe reported on the case of Clarke v In Focus Asset Management & Tax Solutions Ltd in which the High Court ruled that a party may accept a FOS determination and then claim additional damages from the same party through the Courts.

Of course, the consequences of the Judgment were significant, making it open to parties to obtain determination from the FOS for the maximum amount of £100,000 and then issue Court proceedings to recover the remainder of their losses.

Clarke v Focus Asset Management & Tax Solutions Ltd related to a professional negligence claim against a Financial Advisor, but has broad applications for all entities governed by the FOS, including insurers.

In March of this year, The Court of Appeal allowed an appeal by Focus Asset Management determining that an FOS decision was equivalent to a decision by a Court or Tribunal, and that due to the legal principle of res judicita (which prevents a party from being sued for the same claim twice), a complainant cannot “top up” the FOS Award based on a claim comprising the same causes of action as the complaint.

The decision reduces the option for Claimants seeking more than the FOS compensation limit. Claimants should consider any FOS decision carefully before accepting it. If the Claimant is not happy with the compensation awarded and cannot procure a larger consensual settlement, then it has the following choices:

to accept the smaller Award on the basis that it was been obtained quickly, at low cost through an informal process which is binding on the company
to accept the lesser sum and sue on a different cause of action if one can be identified or
to reject the FOS decision and to commence the civil litigation process.

An untested alternative is that Claimants, and especially those with complex claims, can choose to select only certain causes of action to argue before the FOS and attempt to save other causes of action which may result in them being awarded higher damages to use in separate civil proceedings. Whilst this will enable Claimants to use an FOS Award as a “fighting fund” to pursue litigation, such claims will be few and far between.

The decision provides some comfort for companies subject to the FOS; potentially limiting the level of their financial exposure and guaranteeing, to some degree, the finality of the FOS decision. The decision reinforces the message that the FOS is not a suitable forum for resolving higher value and complex claims.

The upshot of this decision is that those who wish to take a complaint to the Ombudsman where the amount sought in damages is more than £150,000 should think carefully before pursuing a complaint through the FOS. If they do choose to do so, they should reject any award if they want to sue for more through the Courts otherwise they risk losing their right to litigate that complaint for their full losses.

For further information about this issue please email nicola.maher@edwincoe.com

http://www.edwincoe.com/services/insurance.asp

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