In Clark v In Focus Asset Management (2012), the High Court ruled that a Claimant who brought a civil claim following a monetary award by the Financial Ombudsman could pursue the shortfall in the award created by the £100,000 limit the Financial Ombudsman can award. This meant that an award by the Financial Ombudsman was not a bar to a civil action.
The Court of Appeal has now reversed the High Court’s first instance decision in this case, holding that an award by the Financial Ombudsman cannot be supplemented by a further claim in civil court for any shortfall in damages.
The position prior to the Court of Appeal’s decision meant aggrieved consumers could recover money from the Financial Ombudsman and use that as a fighting fund to pursue a civil claim for the balance of the loss suffered.
The new position now means that claimants must consider whether the Financial Ombudsman is the most suitable route for their claim and whether or not the financial cap on awards (now £150,000) can fully compensate them for their loss. If not, a potentially protracted and costly civil claim may be the only redress that can adequately compensate them.
What is significant is this situation is not limited to those situations where the complainant to the Financial Ombudsman is awarded the maximum compensation because it applies to all awards made by the Ombudsman. For example, if a complainant to the Financial Ombudsman had potential recoverable damages in the sum of £50,000 but the Ombudsman took the view they were entitled to £20,000 and they accepted this sum, they would be barred from bringing a civil claim based on the same cause of action notwithstanding the fact the statutory limit has not been awarded.
This means any award by the Financial Ombudsman should be considered carefully because whatever the award, it bars any civil action. The award should only be accepted if the complainant is happy with the sum awarded and realises they cannot recover any shortfall in the loss which they may have been entitled to do previously. This will drastically alter the advice solicitors give their clients because prior to this decision there was no prejudice in pursuing redress via the Ombudsman then pursuing a civil claim. It should now be considered from the outset which route is best for the client. If the loss falls within the scope of the Ombudsman’s award limit it is likely to be worth pursuing this route first and deciding whether or not to accept any award they recommend. If it is not satisfactory, it should be rejected and a civil claim pursued. This point was raised by Lady Justice Black in the Court of Appeal who said “Although there may, at first sight, appear to be an unfairness in preventing a claimant from taking legal proceedings to recover the balance of his loss over the award made by the ombudsman, it is important to remember that the claimant himself holds many of the cards” .
It is worth noting that there are strict time limits for bringing a claim to the Ombudsman and nothing should be done to prejudice the limitation period for a civil claim, particularly if it is considered the Ombudsman might not be able to satisfy the total loss.
It seems in line with the common law principle of res judicata that a claim on the same facts cannot be brought twice. Ultimately, it is like any other claim that settles in that the claimant cannot go back for more once it has been settled. It is surprising this wasn’t the case in the first place!
