Claimants can not accept a compensation ruling from the Financial Ombudsman Service (FOS) and later claim for more in the courts, a landmark Court of Appeal ruling has decided.
Clients of advisory firm In Focus Asset Management and Tax Solutions were pursuing a top-up compensation claim for negligent advice for which the FOS had already awarded them £100,000, when the Court of Appeal threw their case out.
Mr and Mrs Clark claimed in 2008 they had lost £500,000 as a result of bad advice relating to an investment in a geared traded endowment plan.
The FOS' limit for compensation was £100,000 at the time, which the Clarks' were awarded. The FOS limit increased to £150,000 in 2012.
Today the Appeals court decided that a complainant cannot accept an award from the FOS and then make a claim based upon precisely the same facts in court, either to get the difference between actual loss and FOS compensation or for other losses that were caused by the same facts.
Had the judge ruled in favour of the couple, experts feared it could have had devastating effects on the claims culture in financial services.
For instance, claimants could have been incentivised to use the proceeds from the FOS to fund further proceedings in the courts.
Alex Denslow of law firm CMS Cameron McKenna who acted for In Focus said: "This is a landmark decision. If the original judgement had been left unchallenged, firms subject to the FOS - be they financial advisers, insurers, brokers, or pensions administrators - and their insurers - faced significant financial exposure.
"In particular, it threatened to make an already tough professional indemnity insurance market harder still, dissuading insurers from participating in the IFA market and, potentially, increasing premiums.
"The idea that the complainant can accept and retain the preferential fruits of that option and use that to then have another go at recovering additional compensation in subsequent court proceedings rather looks like a risk-free ‘two way bet'."
Adam Edwards, a solicitor at law firm Browne Jacobson who specialises in handling IFA and financial services claims, said: "The Court of Appeal decision is a huge sigh of relief and a welcome decision for many businesses that are subject to FOS jurisdiction."
A spokesman for the FOS added: "Complaints that involve high levels of compensation - up to and over the mbudsman's limit of £150,000 - are rare and make up an extremely small number of the cases the ombudsman sees."
Mr and Mrs Clark had originally accepted the Ombudsman's final decision in 2010 with a 'rider' on the acceptance form, purporting to "reserve the right to pursue the matter further through the civil court".
But a subsequent ruling struck out the claim in the County Court on the basis that the claimants, having already accepted the ombudsman's award, could not pursue a claim for the balance of their loss in court.
The couple took their claim to the High Court where Justice Cranston ruled in December 2012 that a FOS award could be used by a claimant as a fighting fund to bring court proceedings.
This prompted the FOS to change the wording in its rulings to reflect the possible further claims.
In Focus appealed against the clients' right for further compensation following the ruling.
Experts thought at the time that the ruling had contradicted the prevailing case law, which was based on the principle of 'Doctrine of Merger', meaning that a claimant could not bring civil action on a case that had already been decided on by a 'tribunal of competent jurisdiction' such as the FOS, therefore was not eligible for additional redress.
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