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Is the Financial Ombudsman Service a Dead End?

In a decision of enormous importance to financial advisers and consumers of their services, the Court of Appeal has ruled that those who pursue complaints before the Financial Ombudsman Service (FOS), and accept its determinations, cannot also sue in a civil court on the same set of facts.

Resolving an ambiguity in the Financial Services and Markets Act 2000 (the Act) that had been the source of much confusion in the financial services industry, the Court found that the ancient common law principle of res judicata held sway in that consumers who accepted awards made by the FOS were precluded from bringing claims in respect of the same complaint before another court or tribunal.

A couple who claimed that they had lost over £300,000 due to an asset management company’s negligent investment advice complained to the FOS, which awarded them £100,000, the maximum award then permitted (that maximum has since risen to £150,000). The couple accepted the determination and the company paid them the £100,000, but did not follow the FOS’s recommendation that it fully compensate the couple for their loss.

In those circumstances, the couple launched civil proceedings against the company in an attempt to recover the balance of their loss, alleging breach of contract, negligence and breach of statutory and fiduciary duties.  Confusion as to whether that was a permissible course was increased when the couple were at first allowed to pursue their case but were then blocked from doing so on appeal.

Resolving that conflict of authority in the company’s favour, the Court found that, where the Act was silent on the issue, the principle of res judicata applied to fill the gap and provide certainty. The Court observed that ‘Parliament did not manifest any intention that complainants to the FOS should be in any different position from other claimants who have taken their claim for compensation through a tribunal for dispute resolution and obtained a decision, and then sought to litigate the same grievances again in the courts’.

In a ruling which effectively forces consumers to choose between pursuing their complaints in a civil court or before the FOS – but not both – the Court concluded that the couple ‘are not able to raise the same claims in court proceedings even if they could have recovered more in court proceedings. What they had to do to obtain this higher level of compensation was to reject the award and bring court proceedings for that amount’.