In late December 2012, the High Court heard the appeal in Clark v In Focus Asset Management and Tax Solutions Limited.
The case concerned financial advice given to the appellants regarding the sale of their business and business premises in 2001 and 2004 respectively, which caused them substantial loss.
They complained to the Financial Ombudsman Service (FOS) and their complaint was upheld, with a final award of £100,000.
This was accepted by the appellants, subject to the words 'we reserve the right to pursue the matter further through the civil court'. The appellants subsequently issued court proceedings for the balance of their loss.
The respondent applied to strike out the claim on the basis that the FOS award had been accepted and accordingly the court had no jurisdiction to entertain the claim. The application to strike out was granted.
The judge considered that the case of Andrews v SBJ Benefit Consultants Limited (2010) was binding on him, and that the doctrine of merger applied.
In Andrews, the court held that complainants who accept a final determination from the FOS are bound by it and cannot then bring a civil claim regarding the same subject matter through the courts for any amounts the respondent is recommended to pay above the maximum award limit.
The appellants appealed.
The issue for the High Court was whether the appellants had accepted the FOS award and whether, having accepted it, the appellants could later claim for damages in court to cover what they alleged was their full loss.
The appeal was allowed.
It was held that the doctrine of merger did not apply and the appellants were entitled to claim damages for an amount in excess of the FOS award.
Mr Justice Cranston held that the judge at first instance had been wrong to regard the decision in Andrews as determining the claim. He said that the FOS deals with complaints, not causes of action, and the scheme does not preclude a claim in damages for additional losses over and above the FOS award.
Both cases were heard in the High Court, and accordingly neither takes precedence. However, until such time as the Court of Appeal resolves the matter, it should be taken that the decision in Clark will apply.
As a result of this decision, complainants will be able to obtain an award from FOS - possibly using the award to fund the balance of their claim through the courts - with the added benefit of having obtained evidence from the other side and received a quasi-judicial ruling - all for free.
One would question, however, what should happen if, having received an award from FOS then having sued in court for the balance of the claim, the complainant loses their case. Should the complainant be required to repay their FOS award?
We await any appeal against this decision with interest.