A High Court judge has delivered a shock ruling that investors who accepted the maximum award from the Financial Ombudsman Service (FOS) can pursue their adviser through the courts for more money.
The ruling clashes with a landmark court judgment made two years ago, that accepting a FOS award ruled out court action over the same compliant.
Judge Ross Cranston has ruled that investors Barry and Julie Clark are free to claim further damages from In Focus Asset Management & Tax Solutions, despite the adviser firm having paid £100,000 compensation following a FOS judgment. That payout was the maximum the FOS was able to award at the time, although the limit on FOS claims has since risen to £150,000. The pair have alleged they incurred losses of £500,000 after being mis-sold endowment policy plans following the sale of their business and premises.
In making his judgment, Cranston disputed the ruling of judge Mark Pelling in 2010 that investor Mr Andrews was not entitled to pursue adviser SBJ Benefit Consultants through the courts because the firm had already paid compensation following a FOS judgment. Pelling’s ruling hinged on ‘the doctrine of merger’, which dictates that if a complainant has received a final judgment in a ‘tribunal of competent jurisdiction’ they cannot then pursue the same complaint in court.
Cranston said: ‘In my respectful view the judge in Andrews was wrong to regard the doctrine of merger as applying to the determinations of the Ombudsman.’
He argued that the FOS should not be characterised as a ‘typical tribunal’, in that its role encompasses mediation, and that it issues non-binding recommendations.
Cranston also dismissed arguments from In Focus lawyers that the wording of Ombudsman rulings, that firms should pay ‘in full and final settlement’, meant complainants could not take any further proceedings. ‘It seems to me that for a complainant to use an award of £100,000 to finance the legal costs of bringing court proceedings for a greater amount is not inconsistent with the statutory aims [of the FOS],’ he said. ‘In my view the term “final” simply means the end of the Ombudsman’s process.’
In his concluding remarks, Cranston said that as the ‘doctrine of merger’ does not apply to Ombudsman cases, ‘nor does the statutory scheme preclude those like the [investors] in this case from claiming damages from a financial services provider for an amount in excess of the Ombudsman’s determination, which they have accepted’.