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Battle lines drawn over right to sue after FOS award

by Michelle Abrego on Jan 14, 2013 at 10:17

Battle lines drawn over right to sue after FOS award

The battle lines have been drawn for a legal showdown to decide whether consumers can claim further compensation after accepting an award from the Financial Ombudsman Service (FOS), according to a lawyer at the heart of the case.

The stage has been set for a judge to give a definitive answer on the contentious issue following the decision by advice firm In Focus Asset Management & Tax Solutions to request an appeal against a recent ruling that its clients, Barry and Julie Clark, could claim further redress despite having already received £100,000 from the FOS.

The Clarks’ victory was itself an appeal against a county court decision, meaning In Focus Asset Management & Tax Solutions has requested a second appeal.

New Model Adviser® understands the advice firm has bid to appeal the decision by judge Ross Cranston on the grounds that it clashed with a 2010 judgment by judge Mark Pelling that accepting a FOS award ruled out court action over the same complaint.

Barrister Clive Wolman, of 11 Stone Buildings, who is representing the Clarks, said requests for a second appeal were rarely granted, but he expected it to be in this instance, and that the ensuing ruling would override the previous judgments from Cranston and Pelling.

‘If it goes to the Court of Appeal, it would definitely override both of the decisions, but otherwise I think the judges would go with Cranston’s decision because he’s more senior and it’s more recent,’ he said.

In the wake of the Clarks’ victory, the FOS updated its consumer guidelines to say: ‘Until recently, if a consumer accepted our decision, they could not then take the business to court. However, a decision from the High Court in December has taken a different view.’

Advisers have voiced fears the ruling could lead to professional indemnity cover costs jumping even higher.

Roderic Rennison, director of consultancy firm The Ideas Lab, said there was an urgent need for clarity for consumers and advisers.

‘There has to be a known process and there has to be quality [to that process],’ he said. ‘This has thrown it into significant doubt.’

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25 comments so far. Why not have your say?

Man in Black

Jan 14, 2013 at 11:07

I think this case is getting blown out of proportion.

The correct response, when faced with an adverse FOS (final) determination, has always been to send the complainant an Offer Letter noting the FOS decision, and offerring redress on exactly the same lines, stating that the offer is made "without admission of liability" and "in full and final settlement".

FOS do not like this, but I've always insisted on it, as have a number of PI lawyers I know.

In the particular case in issue, reading the judgement, the complainants seem to have told the FOS that they accepted the decision in so far as it left open their ability to sue for the balance. The firm then seems to have just issued the cheque whereas a discharge form, marked "full and final settlement" would protected them.

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Mike Hardy

Jan 14, 2013 at 11:28

I thought the judge took the view that "full and final settlement" meant of just the FOS award?

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Jan 14, 2013 at 12:21

There is a problem in this area, in reality the FOS should have declined to look at this case in the first place as the amount of loss to the clients far exceed the redress that the FOS is able to offer.

I think that a change of approach would work here, the FOS looking at cases where losses and potentail redress will not exeed the FOS maximums and cases which will exceed these maximums being advised to pursue the firms involved through the courts.

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Paul Nedas

Jan 14, 2013 at 12:47

Let's be precise in any discussion: FOS make an AWARD; they do not offer REDRESS.Any payment of redress is responsibility of the advisor.

Extract from an FOS Adjudication

" From the information provided about current value of the TEP arrangement, I am unsure if this compensation amount will be greater than the maximum we can award, namely £100,000 capital loss plus interest. However, for the sake of completeness, I should state that if the amount calculated in line with the formula detailed above produces a sum greater than £100,000 then the consumer may not be able to enforce a greater amount. The consumer may take this matter to court but it would be for the courts to decide whether a greater amount should be enforced. However, it is my recommendation that the business pay the full amount of any compensation calculated."

Surely it is only fair & reasonable, if the loss as calculated by the suggested formula is greater than the maximum FOS award, that the client should be able to recover the remainder of the loss from the advisor in Court. Should the Court award against the advisor, then the advisor should also reimburse FOS.

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Green Eyed Monster

Jan 14, 2013 at 12:51

Reimburse FOS?

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Alasdair Sampson (FinServ Solicitor)

Jan 14, 2013 at 12:53

@ Man in Black

I wouldn’t often disagree with you, MiB – I would only get another lecture if I did! – but I think that this Focus Asset case is of fundamental importance to the IFA community and complainants alike, to say nothing of the PI market.

I disagree that a separate settlement offer replicating the terms of the FOS award and which is made without admission of liability and stated to be in full and final satisfaction would prove to be the prophylactic you think against the complainant taking a second bite at the cherry.

If the complainant is representing themselves and signs such a discharge put to them by the respondent firm’s lawyer and signs not knowing or not realising what it is they are signing and its effect, then the issue of mistake at law could arise as it did in the Focus Asset case.

The issue on which this Focus Asset case turned, however, was whether or not the doctrine of merger applied.

That doctrine means that a person who has obtained a final judgment in a tribunal of competent jurisdiction is precluded from later recovering in court a second judgment for the same relief in respect of the same subject matter. The subject of the first action merges with the judgment so that there is no cause of a second action on the same grounds.

That was applied in SBJ and the complainant was unable to recover the excess of the alleged loss after payment of the FOS award.

In the Focus Asset case, the appeal judge referred to the Heather Moore & Edgecombe case 2008 – that case decided that the FOS does not need to follow the law! – and in particular the view expressed by one of the judges that the FOS ombudsman was “….after all, dealing with complaints, and not legal causes of action, within a particular regulatory setting”.

The appeal judge in Focus Asset discussed that point and went on to say that just because the FOS was to be treated as a tribunal under the ECHR, that did not mean to say that that it is necessary to be treated as a tribunal whose determinations would allow the principle of merger to apply.

He said that even if the Ombudsman does issue a determination, that is incapable of binding either the complainant or the respondent unless the complainant consents.

The appeal judge stated that for a complainant to use the award of the FOS to finance the legal costs of bringing court proceedings for a greater amount is not inconsistent with the statutory aims of the FOS – and in his view “final” as in “final award” simply means the end of the FOS process.

FOS not only don’t like the type discharge you advocate but in my experience will actively discourage the complainant from signing it.

Certainly, when I represent a complainant I advise them to sign nothing except what I tell them to sign simply so that any residual rights are preserved, and will do so especially since the Focus Asset decision.

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Green Eyed Monster

Jan 14, 2013 at 12:55


Those pursuing amounts above £100,000 will need to have the means to pay lawyers fees, so they will still approach the FOS first. If/when they receive the max £100,000 from the adviser they can then afford to go to court for thre balance. However by putting the case in the hands of the court they run the risk of having it overturned, as the judge may take a different view to the ombudsman, particularly as the cross examination of witnesses etc will be allowed.

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Paul Howard via mobile

Jan 14, 2013 at 13:04

Paul Nedas

I would agree that if a loss was proven and the cause of that loss was inappropriate advice, the full amount of redress should be applied.

The problem is, FOS does not adjudicate on the legal basis of appropriate/inappropriate - often is will be on the basis of probability.

So if I did nothing wrong but on the balance of probability FOS thought I had, I could be forced to pay a very large sum out when I was innocent. And due to the rules of FOS it would not be possible to show my innocence.

Hence why this recent ruling is so wrong and will cause a lot more trouble than it will resolve.

A good example is if the Clarks did sue for the full amount (as the court case was for the right to do this - not the actual case to receive the full redress payment) and the Court found against them? Could the firm get their £100,000 back as they have been proved innocent?

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Paul Nedas

Jan 14, 2013 at 13:25

@Green Eyed Monster As far as I understand, as a non-lawyer, in the event that the courts decide that a greater amount should not be enforced: this would not OVERTURN the original FOS award.

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Green Eyed Monster

Jan 14, 2013 at 13:42

@Paul Nedas

My understanding is that if the claim is successful then an award for the additional amount will be made. If the claim fails then it fails in full, and the previous award would be refundable by the claimant.

i.e. If the loss was caused by wrong advice then the full amount could be claimed (albeit in two parts) If the loss was not caused by wrong advice then the adviser is not liable for any amount of redress.

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Alasdair Sampson (FinServ Solicitor)

Jan 14, 2013 at 14:34

@ Green Eyed Monster & Paul Nedas

An award made by the FOS is entirely separate from any judgement issued by a court.

FOS may reach its decision on what appears to the adjudicator and/or to the ombudsman as being “fair and reasonable “ in their subjective view. It has been judicially determined that whilst the FOS has to have regard to the law and to the applicable FSA rules it is not bound to reach a decision by applying the law or the FSA rules. The FOS can come to a decision that a court simply does not have the power to do.

There is simply no legal means by which a respondent firm can appeal against the FOS finding on the merits of a complaint where that results in an adverse decision against the firm. All it can do is to seek a judicial review as to whether the FOS correctly exercised its power or whether it did so reasonably, but there is no means by appeal.

If the FOS final decision is to award redress in excess of the cap of £150,000 then it is unlikely that the respondent firm would pay out more that the £150,000. According to the judgement in the Focus Asset case, that is “final” to the FOS process. It does not, however, bring to an end the complainants’ rights to seek further redress by going to court.

Although the court action for recovery of the excess loss over the FOS cap of £150,000 will be between the same parties and will be in respect of the same miss-sold investment, the manner in which the court requires to consider the subsequent litigation will be according to the law of negligence.

The court cannot sit as an appeal court to reconsider the FOS decision because there is no legal power to allow that, and it will only look at the claim of the excess over the £150,000 as a separate claim. The court has to reach a decision objectively and based on the evidence and on the law, which is quite unlike the manner in which the FOS can decide a case.

It is therefore entirely possible that although the FOS upholds a complaint and awards redress resulting in a payout of £150,000, that the court may reject the later claim for the complainant’s loss in excess of the FOS Cap of £150,000 – but the court does not have any power to sit as an appeal court to set aside that FOS decision.

So you could end up with the situation that the grounds of complaint are upheld by the FOS but the same grounds of claim are rejected by the court.

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Green Eyed Monster

Jan 14, 2013 at 14:49

Thanks Alastair, very helpful.

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Green Eyed Monster

Jan 14, 2013 at 14:52

It seems from Alasdairs comments that advisers should - in all circumstances where the potential redress amounts to more than £150,00 - encourage complainants to go to court

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Alasdair Sampson (FinServ Solicitor)

Jan 14, 2013 at 15:00

Unfortunately, the IFA doesn't get any say as to which forum the complainant chooses.

If a client makes a complaint and the IFA rejects it without advising him of the right to refer the complaint to the FOS then (a) the 6 month time scale does not start to operate, and (b) you are likely to be rapped on the knuckles by FSA/FCA for failing to treat customers fairly.

The IFA is caught between a rock and a hard place.

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Paul Howard via mobile

Jan 14, 2013 at 18:16

Surely if the court is unable to enforce the return of any FOS redress, that pretty much destroyes the Human Rights Act and if any element of the Magna Carta remains - that too.

i.e How can someone be found innocent by a court of law. and yet be required to pay compensation?

I can see advisory firms not paying out awards where FOS says the loss is over £150,000 and claim an infringement of their human rights if the FSA tries to force them too????

And I can't see how any UK or European court would force the payment to be made!

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Alasdair Sampson (FinServ Solicitor)

Jan 14, 2013 at 18:22

I will answer that later - off to the gym just now.

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Paul Nedas

Jan 14, 2013 at 21:00

@ Paul Howard

The FOS states the following:

"The law requires us to decide each complaint on the basis of what we believe is FAIR B& REASONABLE. In doing so, our rules require us to take account of the law, rules and good practice in the industry. This is the way in which parliament specifically intended us to operate.

In fact, in the majority of cases, our approach is based on what we know the courts would be likely to do in similar circumstances. For example, many of the disputes we settle turn on well-established points of contract law.

However, in some areas of financial services there is little relevant case law. And in some areas – for example, in insurance – good industry practice has developed separately from the law. We still have to make decisions in these cases, but this doesn't, of course, mean we are beyond the law.

And the law is often not as clear-cut as those may think who sometimes compare the ombudsman approach with what they believe might happen in a court of law.

Our approach is to ask questions, listen to both sides of the story, and decide each case on its individual facts and merits – not on how cleverly or persuasively either side argues their case."

May I suggest that you refer to http://www.financial-ombudsman.org.uk/faq/businesses/answers/decide_cases_a7.for more complete explanation.

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Paul Howard via mobile

Jan 15, 2013 at 09:29

Paul - I am sure most of us know how FOS operates and equal I bet most of us know of some very strange FOS decisions!

What the 'rules' say is one thing and with the complaints like it is - this will only make more aggressive complaints occur.

(And if complainants can lie through their teeth with FOS safe in the knowledge any money they get from them can't be reclaimed, people will threaten to sue for the excess they perceive are owed but suggest a fair compromise to avoid further costs....

.... It happened on the blanket endowment payments by the banks and if people smell free money, who cares if it is ineffect legalised (FSA doesn't seem to care) fraud?

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Alasdair Sampson (FinServ Solicitor)

Jan 15, 2013 at 09:42

@ Paul Nedas

Yup…..you are absolutely right, that’s certainly what it says on the FOS website.

In reality, however, in exercising the “fair and reasonable” discretion in reaching an outcome FOS can and very often does depart substantially from what a court could award which is what Parliament did empower FOS to do.

Have a look at http://www.bailii.org/ew/cases/EWCA/Civ/2008/642.html - Heather Moor & Edgecomb Ltd v FOS. This is a lengthy court report but read paras 33-41 in particular.

That case certainly spells out the very real and substantive difference between what a court can do and what the FOS can do.

Nothing, however, is said in that case or elsewhere about the procedural differences which have a huge impact, and to which Paul Howard alludes.

@ Paul Howard

You ask (a) if the court is unable to enforce return of the FOS redress does that not breach the Human Rights Act and (b) how can someone be found innocent by a court of law and yet be required to pay compensation.

Firstly - if a complainant raises a court action for recovery of any loss above the FOS cap of £150,000, the court is not acting as an appeal court judging the FOS decision to uphold the complaint. The function of the court is to consider the evidence to determine whether, in law, the complainant is entitled to be compensated above the FOS cap of £150,000.

Strange tho it may seem, it is entirely possible that the court could decide that the complainant is not entitled on the evidence to compensation for the balance of the loss, but that would not cause the earlier FOS decision to be set aside.

I cannot think of having read any case where that had actually happened. What is more likely, is that the complainant would found their court claim in part at least on the fact that the FOS had upheld the complaint.

Following the Andrews v SBJ benefit case, 2010, it was then no longer possible for an investor who had accepted the FOS award thereafter to sue for the balance. That was on the basis that the grounds of the initial complaint, because it had been upheld by FOS, had merged with the decision to uphold it – thus the investor no longer had any ground of claim.

This recent case of Clark – v- Focus Asset has reversed that, back to what it was before 2010, on the basis that a FOS decision was not sufficient for that legal doctrine of merger to operate.

Secondly – there isn’t any question of a finding of innocence or guilt, which relate to the criminal law, but I know what you mean. If the court were to decide that an IFA was not liable for the excess loss above the FOS cap of £150,000, how could the IFA still be liable for the £150,000?

Its simply because the FOS and the court decide the issues of liability on very different bases. As above, the court is not an appeal court.

Illogical, I know – but, as above, I had not heard of any case where an investor won in the FOS and took the maximum redress FOS could award but then lost in court seeking to recover the balance.

Unless someone is now going to tell me of such a case!?

If Focus Asset loses its appeal then we will be back to the pre-2010 position. An investor can claim in the FOS, accept the maximum award and then sue for the balance in court.

In your last comment, Paul, you touch on a fundamental issue.

In court, evidence is tested by cross examination. Anomalies and factual inaccuracies – and, yes, lies – can be found out. But not so in a complaint to the FOS.

In court, a plaintiff runs the risk of being found liable for costs of he loses – not so in the FOS.

And it is the lack of the sanctions of costs and penalties for perjury in FOS cases that create the real imbalance.

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Usually found sitting on the fence

Jan 15, 2013 at 09:58

One other point, I thought the FOS decision was binding if accepted, therefore in terms of claiming through the FOS the eventual outcome is accepted and by making/receiving the payment this activity is concluded. So any action to recover the monies awarded by the payer would be a breach...

Am sure someone can correct me on the finer details!!

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Paul Nedas

Jan 15, 2013 at 10:13

To adopt a more positive approach, I suggest a discussion to which I am confident that Alasdair can make a major contribution:

What methodolog combined with technology should advisors operate in order to maintain demonsrable compliance (audit trails of evidence) that

a) minimise the risk of complaints/claims

b) enable defeat of complaints/claims at the outset


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Alasdair Sampson (FinServ Solicitor)

Jan 15, 2013 at 10:47

@ Usually found sitting on a fence

You have not been paying attention….

In the latest case, Clark v Focus Assets, the judge said that “final” as in the FOS “Final Decision” meant the finality of the FOS process.

Which means that the court process can still be undertaken.

@ Paul Nedas

If I could provide you with a concise response I would be even busier than I am defending IFAs against FSA regulatory proceedings.

Where to start…

• Know the rules that actually apply is always a help……you would be horrified to know how many IFAs don’t have a clue what the rules actually say

• If you have a fact find form then use it – actually complete all of it and post it out to your client to sign and return

• Do the same for your assessment of his attitude to risk and tolerance of loss

• Over estimate the risk profile of the investment you intend to advise on – and don’t just use the provider’s risk rating, its not the same thing

• Under score your client’s attitude to and tolerance of loss

• When you write to your client do so in eejit-speak (a Glasgow expression for idiot-speak) – the FSA and the FOS always just assume that your client has the IQ and the intellectual stamina of a cretin

• Don’t write War and Peace – send it out in easy-to-digest chapters. Otherwise the FSA and the FOS will say that your client may have got tired before he/she got to the end of it (that is for real, I have actually seen that)

• Get your client to sign and return an acknowledgement that he got whatever you sent him – FSA and FOS can tend to assume that if you sent it by post it got lost.

• Record EVERYTHING in your file: the GOLDEN RULE is very simple – if it isn’t written down then it didn’t happen

• Trust in God

Does that help?

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Paul Nedas

Jan 15, 2013 at 11:22

@Alasdair Great summary

Only comment on: "Get your client to sign and return an acknowledgement that he got whatever you sent him .... "

Even better if clients acknowledges that they have RECEIVED & UNDERSTOOD what they have received.


Seriously think of recording all meetings & phone calls

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Alasdair Sampson (FinServ Solicitor)

Jan 15, 2013 at 11:32

Ah well now.......

That won't hold the water you think it will.

i have had several IFA clients who have used "read and understood" receipts.

Every single time the FSA, and on occasion the FOS, has challenged the IFA to show how a read/understood receipt could prove that the client actually did understand what it was he had read.

You think I make this stuff up....?

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Usually found sitting on the fence

Jan 15, 2013 at 11:44

@ Alasdair - On the contrary, I was paying attention. My point was in reference to the IFA winning the case in court not being able to claim the monies back from the FOS payout, as that was separate and binding (by virtue of the payment made and received). Re-read my comment in the understanding that the court case is separate to the FOS outcome/decision.

I acknowledge that they are not connected, although the FOS decision may be used to add weight to make a claim through the courts.

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