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No second bite of the cherry for claimants who accept awards from the Financial Ombudsman.

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A unanimous ruling in Clark & Anr and In Focus Asset Management and Tax Solutions Ltd and the Financial Ombudsman Services by the Court of Appeal effectively prevents a claimant from bringing Court proceedings to pursue a claim, the subject matter of which has been considered by the Financial Ombudsman Service (“FOS”) and in respect of which a claimant has accepted an award.

The facts of the In Focus case are as follows. Mr and Mrs Barry Clark lost in excess of £300,000 as a result of negligent investment advice given by their former financial advisers, In Focus Asset Management and Tax Solutions Ltd (“IFAM”). The Clarks made a complaint to the FOS which determined that the Clarks were entitled to compensation exceeding the then limit of £100,000 (now £150,000) that the FOS could award. In addition to awarding the Clarks £100,000, the FOS recommended payment of the full amount of the Clarks’ loss. The Clarks accepted the award subject to their right to claim more in Court proceedings. IFAM paid the Clarks the sum of £100,000 on or around 24 March 2010 but did not pay the full amount recommended by the FOS.

On 22 June 2010 the Clarks commenced Court proceedings against IFAM. The Clarks stated in their pleaded case that they would give credit for the £100,000 already paid by IFAM pursuant to the FOS award. The Court at first instance dismissed the Claim holding that the doctrine of merger applied. The Clarks appealed and the appellate Court found that the Clarks‘ causes of action did not merge in the FOS‘ award. IFAM appealed to the Court of Appeal and the Court of Appeal upheld the appeal on the basis that the Clarks causes of action had already been determined by the FOS i.e. the doctrine of res iudicata applied.

This judgment will affect the decisions of many businesses and individuals who have financial complaints, and particularly those at the moment who have complaints about mis-sold interest rate hedging products. The Banks are unlikely now to pay more than the FOS £150,000 limit notwithstanding any recommendations the FOS may make to pay sums above this limit. For affected bank customers, it will mean that a careful analysis will need to be undertaken on the merits of claims right at the outset to identify the appropriate forum in which to seek redress: a complaint to the FOS or a claim through the Courts. For example, the FOS make awards on the basis of what is fair and reasonable taking into account all of the circumstances of a case whereas strict legal principles have to be applied by the Court; a complaint to the FOS does not expose the customer to paying the other side’s costs if a complaint is ultimately not upheld whereas if the claimant loses a Court claim, costs usually follow the event which means that the customer will be liable to pay not only their own legal costs but a significant proportion of the Bank’s legal costs; for those with potentially large consequential loss claims, the FOS compensation limit is £150,000 whereas there is no limit on the amount of compensation that can be awarded by the Court.

For more information on pursuing interest rate hedging product claims and, specifically, consequential loss claims, feel free to contact me, Dominic Blakeley on 0113 336 3365 or via email dominic.blakeley@clarionsolicitors.com.

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