Important decision relating to the Financial Ombudsman Service

On 19 December 2012 the High Court delivered judgment in the case of Clark & Clark v In Focus Asset Management & Tax Solutions Ltd. This decision held that an investor can bring a substantial complaint to the Financial Ombudsman Service (“FOS”), accept an award of the maximum amount FOS can award (currently £150,000 but £100,000 at the time that an award was made to the Clarks) and then sue for any balance in court. This is contrary to the decision in Andrews v SBJ Benefit Consultants Ltd2 (“Andrews”) which held that investors cannot do this. The Clark case is an appeal from a county court decision to the High Court, so Andrews is not overturned as such, but the decision must now be regarded as open to question.

The case

In Focus provided financial advice to the Clarks to invest the proceeds of sale of a family business in a geared traded endowment plan. This proved disastrous and the Clarks lost over £500,000. In November 2008 the Clarks complained to FOS. Their complaint was upheld by an adjudicator and then by an Ombudsman. The Ombudsman said that the Clarks: “may not be able to enforce a greater amount in the courts. A court would make its own decision of whether to award the recommended greater amount above £100,000”; however, he recommended that In Focus pay the balance of the loss over and above £100,000.

In Focus indicated that it would only pay the Clarks £100,000 and would not pay any balance over this amount. The Clarks asked FOS if their right to sue would be prejudiced by accepting FOS’s award, but FOS refused to provide further guidance. The Clarks then accepted the award, adding the words “we reserve the right to pursue the matter further through the civil courts” before their signature.

In June 2010 the Clarks issued proceedings against In Focus to recover the balance of their loss, stating that they would give credit for the £100,000 already received. In November 2011, approximately one year after the Andrews decision, In Focus made an application to strike out the Clarks’ claim on the basis that the FOS award had been accepted, thus the court had no jurisdiction to entertain a claim on similar issues.

The application was heard by a county court judge. He decided that the matters before the court were the same as those which had been decided by FOS. He considered that he was bound by the Andrews case. Following Andrews, when the Clarks accepted the FOS determination, their cause of action merged into it, thus the Clarks were barred from litigating (in a nutshell, they’d had a determination of their cause of action and it is not possible to have two determinations on the same point, so they could not take it to court). He also held that the Clarks’ reservation of rights had no effect.

The Clarks appealed to the High Court. The matter was heard by Mr Justice Cranston in October 2012 and his judgment was delivered on 19 December.

The Andrews decision rested on the argument that FOS was to be treated as a court or tribunal because (a) a previous Court of Appeal decision, Heather Moor & Edgcomb3, had found this to be the case; (b) FOS’s procedures satisfied the relevant tests; and (c) the informality of its procedures and its ability to decide cases other than by reference to the law did not mean that it was not to be so treated. Provided FOS is to be treated as a court or tribunal, then its decisions determine causes of action such that the doctrine of merger applies.

Mr Justice Cranston found that Heather Moor & Edgcomb had held that FOS determines complaints not causes of action. Further, FOS was not a tribunal. As a result, the doctrine of merger does not apply. He also found that for a complainant to use an award of £100,000 to finance the legal costs of bringing court proceedings was not inconsistent with the statutory aims of FOS. Mr Justice Cranston did, however, agree with the first instance decision that the Clarks’ reservation of rights had no effect and that the causes of action before the court were the same as the issues considered by FOS.

There was further lengthy discussion about whether the Clarks had accepted the FOS award due to a mistake as to their ability to sue, which were fact specific and which this note does not discuss. More troublingly, Mr Justice Cranston held that if the Clarks had not been able to sue for the balance of their loss, In Focus would have been unjustly enriched, although he was not certain of the nature of the remedy that such a decision would provide.


The Clark decision does not over rule the Andrews decision as they are both decisions of the High Court, albeit that they are contradictory. The matter can now only be clarified by a decision of the Court of Appeal. We do not know if In Focus is to appeal the decision of Mr Justice Cranston, though we hope that it will.

In the interim, those handling complaints against FOS complainants which seem to be worth more than £150,000 (or £100,000 if the complaint was issued prior to 1 January 2012) will need to consider with caution what to do when FOS finds in favour of the complainant. The firm is not required to pay any sum recommended by FOS over and above this amount and, just because FOS finds in favour of the complainant, it does not necessarily follow that a court will do the same. That said, the additional cost of litigation and the knowledge that the complainant now has a fighting fund may mean that difficult commercial decisions have to be made.

This article was written by Fishburns LLP and has been reproduced with their permission (professional advice should always be sought where assistance is required in specific areas of law; Fishburns LLP do not accept responsibility for any action based on this article). Fishburns LLP offer dispute resolution and claims management services for the insurance sector. For more information please contact Harriet Quiney, Partner at Fishburns LLP, on 020 7280 8873.