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Landmark Court of Appeal Judgment for Financial Services Claims

Landmark Court of Appeal Judgment for Financial Services Claims

Thursday 20th March 2014

By Glyn Lancefield, Associate at leading law firm Brabners.

Judgment has been recently handed down by the Court of Appeal in the case of Clark v In Focus Asset Management & Tax Solutions Limited.  The Court of Appeal has unanimously decided that a complainant who accepts a final decision from the Financial Ombudsman Service (FOS) is bound by it and cannot subsequently bring a civil claim in the Courts for additional compensation in relation to the same matter.

In this case the complainants Mr & Mrs Clark obtained financial advice from the respondent firm to borrow and invest amounts, together with the proceeds of the sale of a family business, in endowment policy plans.  In November 2008 they complained to the FOS that this advice had been inappropriate in light of their risk profile.

The Ombudsman upheld their complaint in January 2010 and the respondent firm made payment to the complainants of £100,000.  At the time this was the statutory maximum sum that the FOS could compel a firm to pay (the maximum has now been increased to £150,000).

Mr & Mrs Clark cashed the cheques, but then in June 2010 they began Court proceedings against the respondent firm seeking what they claimed was the balance of the monies due to them.  They claimed that their losses were in excess of £500,000.

The firm applied to strike out the court claim, arguing that a complainant in accepting a decision made by the FOS, cannot pursue a claim through the Courts arising from the same subject matter.  In April 2011 the Judge at first instance granted that application, so Mr & Mrs Clark appealed to the High Court.  Mr Justice Cranston granted their appeal.  The respondent firm applied for permission to appeal that decision to the Court of Appeal.  Permission was granted and the Court of Appeal has now decided unanimously in favour of the respondent firm.  Lady Justice Arden said that a complainant who accepts a decision made by the FOS, cannot bring court proceedings relating to a set of facts that is based “in substance” on the set of facts brought to the Ombudsman.  That applies whether the Ombudsman awarded the maximum sum or a lower amount.

The Court of Appeal decision will be welcomed by financial advisors, and by their professional indemnity insurers.  Had the judgment gone the other way, it would have enabled complainants to pursue a complaint first through the FOS and then to use the compensation awarded, should the complaint be successful, as a ‘fighting fund’ for Court proceedings.  Complainants will now have to decide whether to accept a decision made by the FOS, knowing that if they do accept the decision then they will be unable to go to Court seeking further damages.

The decision may also see a decrease in the number of complaints brought to the Financial Ombudsman Service because complainants seeking damages of over the maximum sum are now more likely to pursue their claims through Court proceedings rather than through the FOS in light of the Court of Appeal Judgment.  This is likely to be welcomed given that it has recently been reported that the FOS is working under a deluge of 400,000 unresolved Payment Protection Insurance complaints.  Last year the FOS received 576,000 new complaints, which is an increase of 38% on the figures from 2012.

For further information please contact:

Deborah Ascott-Jones, Director of Business Development & Marketing
Brabners LLP
DD (M/c) 0161 836 8899
DD (Lpool) 0151 600 3021
Mobile 07736 792332

Anne Griffiths, PR Manager
Brabners LLP
DD 0151 600 3072