The Court of Appeal has ruled that investors who accept an award from the Financial Ombudsman Service (FOS) cannot pursue their adviser through the courts for further compensation.
The ruling comes at the end of a long legal battle between Portsmouth-based advisers In Focus Asset Management & Tax Solutions and former clients Barry and Julie Clark over whether the Clarks were free to pursue further compensation from the firm after accepting an Ombudsman award.
In December 2012 judge Ross Cranston ruled the Clarks could claim further redress from In Focus despite having already accepted an award of £100,000 from the Ombudsman, which at the time was the maximum amount the FOS could ask firms to pay.
The pair alleged they incurred losses of £500,000 after being mis-sold endowment policy plans following the sale of their business, and had been seeking a further payout through the courts.
In Focus appealed the ruling on the grounds that it clashed with a 2010 decision by judge Mark Pelling who ruled that accepting a FOS award ruled out court action over the same complaint.
In October 2013, the Court of Appeal heard that the firm had settled the Clarks' claim with ‘a substantial sum… over £100,000’ but has continued its legal fight against the decision on a point of principle.
Today Justice Mary Arden upheld the firm's appeal. She said that the claimants should have rejected the award from the FOS if they wanted to seek further compensation from In Focus and then taken the case to court.
She said: 'They 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.'
She added that Parliament did not 'manifest any intention that complainants to the Ombudsman service 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'.
The other judges sitting on the case, justice Black and justice Davis agreed with Arden's judgement.
The Clarks' counsel Clive Wolman said that the claimants were 'obviously disappointed' with the outcome but had won 'substantial compensation' through their legal battle.
'We're obviously disappointed. As far as the Clark's are concerned they didn't get what they wanted to get but they got substantially more compensation than they had originally.'
The Clarks' still have the opportunity to appeal forward to the Supreme Court if they choose.
Alex Denslow, of law firm CMS Cameron McKenna, which acted for In Focus, said the ruling was a ‘landmark decision’.
He said had the previous ruling remained unchallenged it could have led to increased professional indemnity insurance costs for advisers.
‘If the original judgement had been left unchallenged, firms subject to the FOS - be they financial advisers, insurers, brokers, or pensions administrators faced significant financial exposure. In particular, it threatened to make an already tough professional indemnity insurance market harder still, dissuading insurers from participating in the IFA market and, potentially, increasing premiums.’