Recent decision may impact on those bringing claims against financial service providers

Posted 28/01/2013

A recent decision, dealt with on appeal has reversed a 2010 decision which may have important implications for those wishing to bring claims against banks, independent financial advisers and insurance companies under the Financial Services Ombudsman Scheme.

The 2010 decision had effectively stated that where a complainant had accepted the statutory maximum under the scheme, they could not take any further action through the courts.The Financial Services Ombudsman Scheme is often used as an alternative to the Courts for disappointed investors and customers of banks, insurance companies and IFAs. The FSO can make awards which are capped at a maximum of £100,000. It is possible for the FSO to recommend awards in excess of that sum, but the cap is a statutory maximum.Under this scheme it is possible for a complainant to reject the Ombudsman’s award as insufficient. However, if accepted by the complainant, the FSO award is binding upon the bank, insurance company or IFA and they must pay.In the case of the Financial Services Ombudsman and the Court in Clark v In Focus Asset Management & Tax Solutions Limited [2012], the Judge decided on appeal that a successful complainant under the FSO scheme, who had accepted the maximum £100,000 award, could still bring a later claim through the Courts for any remaining compensation that the complainant believed was due to them. In this case, the losses claimed were £500,000. The Defendant in the later case argued that Mr Clark’s case, being pursued through the court, should be struck out because he had been paid the maximum under the scheme.The Judge in this latest case saw things differently. He could see no reason why the acceptance of the maximum award should restrict a complainant from pursuing any other losses above that sum that they believed had been suffered. Much of the arguments surrounded the doctrine of ‘merger’, but the Judge took the view this did not apply where an award was made under the Financal Services Ombudsman scheme.We will have to see what impact this has on the Financial Services industry. At present, in our experience, most cases where the loss claimed exceeds £100,000 are dealt with through the Court. Disappointed investors might now decide as the first stage of their recovering losses to pursue a complaint through the FSO, in the hope that where their claim might exceed £100,000, that a positive recommendation by the FSO will encourage banks and insurance companies to offer payments in excess of the statutory maximum.