“Topping up” of Ombudsman awards through the courts not allowed: Court of Appeal overturns High Court decision

The Court of Appeal has handed down an important judgment holding that complainants who had accepted a Financial Ombudsman Service (“FOS”) determination were barred from bringing court proceedings in relation to the same cause of action under the legal principle of res judicata.

In doing so, the Court of Appeal overruled a High Court decision that complainants to the FOS would be able to accept a determination awarding them the statutory maximum award (now £150,000) and then subsequently claim for damages above that amount through the courts.

Clark v In Focus Asset Management & Tax Solutions Ltd [2014] EWCA Civ 118

The High Court decision in Clark v In Focus Asset Management & Tax Solutions Ltd [2012] EWHC 3669 (QB) (“Clark”) (please see our earlier e-bulletin here) had caused concern in the financial services industry as it had seemingly allowed complainants the opportunity to accept a FOS award in order to build a “war chest” with which to bring litigation proceedings through the courts.

The Court of Appeal decision will be welcomed by the financial services industry because it prevents complainants who accept FOS awards from having “two bites of the same cherry”. The decision also removes the uncertainty as to the finality of FOS determinations which has existed since the High Court decision in Clark was handed down because it was in direct conflict with a previous High Court decision on the issue.

The Court of Appeal’s decision leaves open the possibility that, where a complainant has two distinct causes of action, they may be able to submit one to the FOS, while bringing concurrent or subsequent court proceedings in relation to the other. Such examples are likely to be relatively rare and would in any event have already entitled parties to bring two separate sets of litigation proceedings on the established principles. In such cases, to have the court proceedings struck out, the burden of proof will lie with the respondent firm to demonstrate to the court that the causes of action of the FOS complaint and the litigation proceedings are the same. However, even if a party with two separate causes of action did bring legal proceedings after having accepted a FOS award, they would not be entitled to double recovery of the same losses.

Conflicting High Court decisions

In December 2012, the High Court in Clark decided that a party who had accepted an award of compensation pursuant to a determination of the FOS and had been paid the statutory maximum award (then £100,000, now £150,000) by the firm, could subsequently bring a damages claim through the courts to recover the full loss they had suffered over and above the FOS award.

In the earlier case of Andrews v SBJ Benefit Consultants Ltd [2010] EWHC 2875 (Ch) (“Andrews”) (which was decided on very similar facts to Clark), the High Court decided that once a complainant had accepted an award pursuant to a FOS decision, the doctrine of merger applied. This doctrine provides that once a decision has been given by a judicial body on a cause of action, that cause of action is extinguished and a second set of court proceedings for losses incurred under the same cause of action but not yet claimed cannot then be brought.

The conflict in these judgments of the High Court hinged on the finding that a decision of the FOS was a decision of a judicial body, such that the doctrine of merger would apply to its decisions. In Andrews, HHJ Barratt QC determined that the FOS was such a judicial body; in Clark, Cranston J held that it was not. The reasoning relied on by Cranston J in the High Court was that the FOS was not a judicial body because it dealt with complaints, which were distinct from legal causes of action. Accordingly, the FOS complaint had not merged into the court proceedings as they did not both concern legal causes of action to be determined by a judicial body.

The High Court’s decision was appealed to the Court of Appeal.

Decision of the Court of Appeal


Concluding in favour of the appellant financial adviser in the case, the Court of Appeal applied the doctrine of res judicata to rule that acceptance of a FOS award, for whatever amount, precludes a complainant from then bringing legal proceedings to pursue a claim based on the same cause of action.

Critical to the Court of Appeal reaching this decision were its findings that: (i) a FOS determination is judicial in nature such that the doctrine of res judicata applies to it; and (ii) Parliament’s intentions in establishing the FOS scheme under the Financial Services and Markets Act 2000 (“FSMA”) were that it should be an expeditious and cost-free means of dispute resolution for consumers and, as such, its decisions should be final. Importantly, the Court of Appeal held that nothing in the FSMA prevented the doctrine of res judicata applying to FOS determinations.

Identifying same cause of action crucial to establishing res judicata

In order for res judicata to apply, the action brought before the court must be based on the same cause of action as the complaint brought before the FOS. In the case before the Court of Appeal, this presented no problems. However, the Court of Appeal noted that there may be situations where a complainant who has accepted a FOS award might nevertheless be able to bring legal proceedings because the cause of action (or, perhaps, the type of loss) in the legal proceedings differs from that which had been considered by the FOS (even though the causes of action might arise from substantially the same facts).

In particular, the Court of Appeal noted that a complaint to the FOS might not always appear to equate directly with a cause of action where a complaint is not very well particularised by the complainant (for example, because they do not have legal advice and have simply set out facts as they see them). In such circumstances, because the FOS must give reasons for its decision, it should nevertheless be able to discern what cause of action a complaint is in fact based on, or, if not, it should investigate to establish this and formulate its decision accordingly.

Further, where res judicata is put forward to strike out court proceedings, the burden of proof in establishing that the FOS decision and the court proceedings are based on the same cause of action will lie with the financial services provider. Accordingly, the complainant will have the benefit of any doubt.

FOS as a judicial body

The Court of Appeal held that the FOS was a judicial body for the purposes of the doctrine of res judicata. In reaching that conclusion, the Court noted, among other things, that the FOS must reach its decisions on the basis of what is fair and reasonable, rather than on strict legal principles. However, the Court did not consider that this precluded the FOS from being a judicial body for the purposes of res judicata, particularly because, to be valid, a FOS decision must not be perverse or irrational, and must take (proper) account of the law.

The FOS intervened in the proceedings in order to clarify that it considered itself to be a judicial body for the purposes of the application of the doctrine of merger or res judicata.

Court proceedings only precluded once FOS determination is accepted

A FOS decision is only binding on the parties once it is accepted by the complainant. However, a decision of the FOS which is not accepted by the complainant is not binding and so the doctrine of res judicata cannot apply to it. This means that a complainant may well still seek to obtain a FOS determination in its favour, decline to accept it, and then seek to use it as evidence in its favour in court proceedings.

The courts are not likely to consider determinations of the FOS persuasive, but an adverse FOS decision (and any accompanying recommendation to pay a higher amount of compensation than the statutory maximum) may encourage firms to enter into settlements with their customers.

3. Comment

The Court of Appeal’s decision brings a welcome degree of certainty back to the finality of FOS determinations.

While there is still scope for a complainant to accept an award and then bring legal proceedings if the causes of action and/or the types of loss are different, such circumstances are likely to be limited. Financial firms may be able to take steps to avoid this occurrence by ensuring that, in their response to a complaint, all causes of action arising from the particular set of facts on which a complaint is based are very clearly identified so as to maximise the prospects of demonstrating that the FOS has taken them into account when reaching its decision.

The decision also increases certainty for firms in that, once a FOS award has been accepted, complainants cannot take the same matter to court, even if the FOS has made a recommendation to pay compensation above the statutory maximum.

Equally, this may force some complainants with high value claims to consider at the outset whether a FOS complaint is worth pursuing (notwithstanding the costs involved and the perception of the FOS as a more consumer-friendly forum) or whether litigation is the only viable option.

Hywel Jenkins
Hywel Jenkins
+44 20 7466 2510
Ajay Malhotra
Ajay Malhotra
+44 20 7466 7605
David Dowell
David Dowell
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Interest rate hedging product claims – the current landscape

1.  The FSA review

In 2012, the Financial Services Authority (FSA) announced the findings of its review into interest rate hedging products (IRHPs) sold to small and medium sized firms and in June and July 2012, the FSA agreed with eleven banks that they would conduct a proactive redress exercise and past business review in relation to their sales of IRHPs on or after 1 December 2001.

Specifically, the FSA has agreed with the banks that, for sales to customers categorised under the FSA’s rules as either ‘private customers’ (in respect of sales before 31 October 2007) or ‘retail clients’ (in respect of sales from 1 November 2007), the banks will:

  • Provide appropriate redress to non-sophisticated customers sold structured collars;
  • Review sales of other IRHPs (except caps and structured collars) to non-sophisticated customers and provide redress where appropriate; and
  • Review the sale of caps to non-sophisticated customers in cases where a complaint is made by the customer and provide redress where appropriate.

In each case, a customer will be regarded as ‘non-sophisticated’ if it does not meet the FSA’s ‘sophistication test’ and any redress provided is to be by reference to what is fair and reasonable in all the circumstances. The exercise for each bank will be scrutinised by an independent reviewer and overseen by the FSA.

Each bank was asked to undertake a pilot review of a small sample of more complex cases before beginning the full review.  On 31 January 2013, the FSA published a report on its findings from its review of the pilot exercise conducted by Barclays, HSBC, Lloyds and RBS and confirmed that those banks would commence their full reviews in accordance with the approach set out in that report. The FSA has said that it expects those banks to aim to complete their full reviews within 6 months, although the FSA accepts that for banks with larger review populations this may take up to 12 months.

On 14 February 2013, the FSA also confirmed that the remaining banks (apart from the Irish Bank Resolution Corporation, which went into special liquidation on 7 February 2013)  had also agreed to proceed with their full reviews in line with the same approach set out in the  FSA’s 31 January 2013 report.

2.  FOS decisions

Although the FSA initially considered the establishment of a scheme effectively extending the FOS’s jurisdiction to deal with IRHP complaints, it has recently been confirmed that this will not be put in place.  However, customers meeting the existing FOS eligibility criteria will remain able to refer their complaint to the FOS if they are not satisfied with the redress offered within the review process.

It appears that a number of customers have already complained to the FOS. Indeed, during 2012 two provisional FOS decisions involving the sale of IRHPs were issued –  W Family v Bank E and Business H v Bank S.  The relevant parties in each case were requested to submit further representations before the FOS finalises its determinations. We set out further detail below.

The W Family v Bank E

In July 2007, the W Family took out a variable rate 14 year loan in order to expand their business. At the same time, the family took out a multi-callable swap for a period of 15 years, with an initial two year discounted rate. After two years, a higher fixed rate was payable for the remaining period of the swap. The interest rate payments under the swap were tied to LIBOR, as opposed to Bank E’s base rate, on which the loan was based (i.e. there was an element of mismatch).

The Ombudsman found that:

  • although the documentation was “unclear and contradictory about whether or not advice was given“, the actions of  the bank did in all the circumstances amount to professional investment advice in respect of the swap;
  • the bank recommended a swap that was not suitable to the W Family. The Ombudsman described the swap as being “a one-sided deal”, which allowed the bank to terminate the swap after two years if rates rose at any time, thereby leaving the customer unhedged against rising rates (although he did not directly consider the impact of including the call feature on the discounted rate offered on the transaction). The swap also did not amortise, even though it was expected that the W Family would start making capital repayments against the loan after the first two years, and the swap also lasted a year longer than the loan itself;
  • the bank also failed to explain the potentially onerous cancellation costs associated with the swap.

Business H v Bank S

Business H took out a variable interest rate loan and also bought a “base rate collar” in connection with the loan. (The bank later said that the hedging was a condition of the loan and the lending would not have been granted unless a hedging transaction arrangement had been agreed). The collar was set to cover a sum of £356,000, had a 20 year term and was set to amortise.

The Ombudsman found that:

  • the bank’s actions in connection with the swap amounted to investment advice;
  • the notion of a collar was not inherently unsuitable for Business H in its circumstances, given its desire to minimise the premium for this arrangement. However, a floor of 20 years with the possibility of significant cancellation charges was not suitable overall for the needs of Business H, which was a small operation; and
  • the bank also failed to highlight adequately or to explain the potential cancellation charges.

It is interesting to note that in both cases the Ombudsman did not make any formal findings on redress. Instead, he invited both parties to discuss how best an award could be agreed and, to facilitate those discussions,  set out the principles he would take into account if he were to make a formal award.

3.  Court decisions

Grant Estates Limited v Royal Bank of Scotland2

This is a Scottish case and the first reported judgment on the subject of IRHP mis-selling. In 2007, Grant Estates and RBS entered into a 5 year loan agreement for £775,000 and a swap transaction for the same notional amount. Grant Estates alleged that RBS mis-sold the swap agreement and that, instead of protecting Grant Estates from a rise in interest rates, the swap fixed rates too high and became such a burden on the company that it defaulted on the loan agreement with RBS and fell into administration. The Court rejected the claim on the following grounds:

  • Grant Estates was not a “private person” for the purposes of s.150 of the Financial Services and Markets Act 2000 (“FSMA”) and therefore had no direct remedy under that provision;
  • there was no implied collateral agreement for the bank to advise Grant Estates and consequently no breach of such a contract. This finding was based heavily on the Court’s conclusion that there was a written contract setting out what RBS was to undertake and expressly warning Grant Estates that it should obtain its own independent, legal and tax advice; and
  • the acts of the bank employees were consistent with a contractual regime in which the customer had agreed that it would not treat any views that the bank expressed in bringing about the derivative transaction as advice on which it was entitled to rely.

Green & Rowley v RBS3

In this first reported English IRHP case, the customers alleged that in May 2005, RBS mis-sold to them an interest rate swap as a form of hedge against their existing loan liabilities to the bank. They alleged that:

  • the bank had made various negligent misstatements regarding the operation of the swap, including understating the costs if they chose to break the swap early and inaccurately indicating that the swap transaction fixed not only the base rate but also the margin; and
  • the bank owed them advisory duties in respect of the swap because it had positively recommended the transactions and that those duties had been breached because the swaps were not suitable for them (principally because they allegedly required a transaction that fixed not only the base rate but also the margin).

Originally there were also claims for breach of statutory duty under s.150 of FSMA but it was accepted that those claims were time-barred.  Nevertheless, the customers alleged that at least some of the relevant FSA Conduct of Business Rules (the ‘COB Rules’) informed the scope of the bank’s common law duties for the purposes of both the negligent misstatement and the negligent advice claims.

The claims failed in their entirety, with the Court finding that there was no negligent misstatement and that no advisory duty had arisen (and that, in any event, there had been no breach of any such advisory duty).

This case was highly fact-sensitive and the Court’s findings turned largely on what was said at a meeting between the claimants and employees of the bank at which information regarding the swap and other similar products was provided. However, as in Grant Estates(above), the contractual documents contained helpful provisions clearly confirming that no advice was being given and the judge cited Grant Estates in finding that such provisions can be invoked to negate or delineate the ambit of any duty of care.

The judge also noted, with respect to the relevance of the COB Rules, that the scope of the duty in a common law action for negligent misstatement (as distinct from an advisory duty) is narrower than and does not necessarily encompass the COB Rules to the extent that the COB Rules include (i) duties to take reasonable steps to communicate clearly or fairly (COB 2.1.3) and (ii) duties to take reasonable steps to ensure that a counterparty understands the nature of its risks (COB 5.4.3).

Whilst future decisions could of course take a different approach depending on the specific facts (including particularly the content of a bank’s written terms), these first two IRHP judgments have been welcomed by the financial services industry.

4.  Potential for ‘top up’ of FOS decisions through court action

The manner in which IRHP claims are pursued may also potentially be influenced by a recent  High Court decision holding that a party who had accepted a favourable FOS decision and been paid the statutory maximum award (then £100,000, now £150,000) by the firm could nevertheless subsequently bring a damages claim for the balance of the full loss they had allegedly suffered, over and above the FOS award: Clark & anor v In Focus Asset Management & Tax Solutions Ltd [2012] EWHC 3669.

The decision departs from previous authority on this issue and, unsurprisingly, permission to appeal has been sought.  If the High Court’s decision is upheld, this may have the effect of encouraging potential litigants to seek to fund subsequent court action through a FOS award.  Complainants may also seek to adduce the FOS judgment in support of their court case, particularly given that it is quite common for the FOS to recommend a higher award than its statutory limit (albeit that the test for liability applied by the courts is of course materially different from the test adopted by the FOS).

Read our full briefing on the decision.

5.  LIBOR allegations in IRHP claims

A claim currently pending in the High Court has also raised the possibility of the IRHP claims landscape being overlaid with claims in respect of LIBOR (London interbank offered rate).

The claimants in that action have brought a claim in relation to loans made to them with an associated interest rate swap and interest rate collar agreement, payments under which were set by reference to 3 month Sterling LIBOR.  In a judgment delivered on 29 October 2012, the Court permitted the claimants to amend their pleadings to add claims based on alleged implied representations by the defendant bank (and/or implied contractual terms) as to the integrity of the LIBOR rates. The allegations in this respect rely heavily on regulatory findings against the relevant bank in respect of LIBOR:  Graiseley Properties Limited & ors  v Barclays Bank Plc [2012] EWHC 3093

It is important to note that the Court did not make any considered determination of the LIBOR allegations and was only required to consider whether the points raised reached the threshold of being sufficiently arguable to proceed to trial and be tested. However, this is now an important test case and the trial (listed in October 2013) will be watched closely both by claimants considering bringing similar claims and defendant banks.


1 Grant Estates Ltd v The Royal Bank of Scotland Plc [2012] CSOH 133.
2 John Green and Paul Rowley v The Royal Bank of Scotland [2012] EWHC 3661.

Damien Byrne-Hill
Damien Byrne-Hill
+44 20 7466 2114
Simon Clarke
Simon Clarke
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Rupert Lewis
Rupert Lewis
+44 20 7466 2517
Harry Edwards
Harry Edwards
+44 20 7466 2221
Jan O'Neill
Jan O'Neill
Professional Support Lawyer
+44 20 7466 2202

High Court rules that Ombudsman awards may be “topped up” through court action

The High Court has decided that a party who accepts a FOS determination awarding them the statutory maximum award (now £150,000) can subsequently claim for damages above that amount through the courts.

The Court concluded the doctrine of merger does not apply to FOS decisions. This ruling is in direct conflict with a previous High Court decision (in Andrews) which held that, once a consumer had accepted a FOS decision, its cause of action merged with that decision and could not be pursued further. The firm is seeking permission to appeal this decision and it is therefore possible that it will be overruled by the Court of Appeal on appeal.

The decision may encourage potential claimants with claims of over £150,000 to seek to use the FOS process in the first instance as a means of securing an award with which to fund subsequent litigation claiming the balance of their losses. However, assuming the FOS agrees to determine a complaint likely to exceed the statutory maximum award, such claimants would run the risk that if they accept a FOS award and the recent decision is overruled or not followed, they may be barred from claiming the balance of their losses through the courts.

The Decision

In December 2012, the High Court in Clark v In Focus Asset Management & Tax Solutions Ltd [2012] EWHC 3669 (QB) decided that a party who had accepted a favourable Financial Ombudsman (FOS) decision and had been paid the statutory maximum award (then £100,000, now £150,000) by the firm could subsequently bring a damages claim for the full loss they have suffered over and above the FOS award.

Mr and Mrs Clark (the Complainants) had made a complaint to the FOS that financial advice given to them by In Focus Asset Management & Tax Solutions Ltd (the Firm) was inappropriate.  That advice had allegedly caused them losses of in excess of £500,000.

The FOS upheld the complaint and decided that the Firm should pay compensation in accordance with a formula to put the Complainants back in the position they would have been in had the allegedly inappropriate advice not been given.  However, the FOS’s award was capped at the statutory maximum of £100,000 (in January 2012 this statutory maximum award was increased to £150,000).  The FOS made a recommendation that the Firm should pay the full amount of compensation derived from the formula but warned the Complainants that they “may not be able to enforce a greater amount [than the statutory maximum award] in the courts.”  The Complainants accepted the FOS’s award but added a manuscript rider to the pro forma acceptance form stating: “we reserve the right to pursue the matter further through the civil court“.

The Firm paid the statutory maximum FOS award but did not pay the recommended compensation above this level.  The Complainants banked the cheque for £100,000 and subsequently brought a claim in the County Court for their alleged losses, giving credit for this payment.  However, HHJ Barratt QC granted the Firm’s application to strike the claim out, following the High Court decision in Andrews v SBJ Benefit Consultants Ltd [2010] EWHC 2875 (Ch).

In Andrews (which was decided on very similar facts to Clark v In Focus), HHJ Pelling QC, sitting as a Deputy Judge in the High Court, decided that once a complainant accepts a FOS decision, the doctrine of merger applied to any subsequent court proceedings brought in respect of the same facts.  The doctrine of merger provides that a party which has obtained a final judgment in a tribunal of competent jurisdiction is precluded from later recovering in court a second judgment for the same relief in respect of the same subject matter.  Andrews relied on the reasoning of the Court of Appeal in R (on the application of Heather Moor & Edgecomb Limited) v FOS and Lodge[2008] EWCA Civ 642 in which it was decided that the FOS was a court or tribunal for the purposes of Article 6 (the right to a fair trial) of the European Convention on Human Rights (ECHR).

The decision in Andrews was widely considered by legal and insurance commentators to have provided much needed clarification to the expected legal position in an area with little relevant case law.

However, in Clark v In Focus Mr Justice Cranston considered that Andrews was incorrectly decided on the issue of whether the doctrine of merger applied to FOS determinations.  Mr Justice Cranston said that the Court in Andrews had ignored an obiter statement in Heather Moor in which Rix LJ had said that the FOS is “dealing with complaints, and not legal causes of action, within a particular regulatory setting“.  This comment, in Mr Justice Cranston’s view, showed that there was a distinction between the cause of action being considered in the court case and the matter that had been determined by the FOS.  Accordingly the doctrine of merger did not apply.

Mr Justice Cranston also rejected the reasoning that the FOS should be treated as a tribunal for the purposes of the merger doctrine because it was a tribunal for the purposes of ECHR (as per the decision in Heather Moor). In addition, the Court decided that the acceptance of the award by the complainants as being “final and binding” was “final” only in the sense of being the conclusion of the FOS process rather than in the sense that the complainant could not take further proceedings.  Mr Justice Cranston said that it seemed to him that it was not inconsistent with the aims of the statutory framework of FOS for a complainant to use a FOS award to finance the legal costs of bringing court proceedings.

Interestingly, the Judge held that, if in fact the merger doctrine did apply to FOS decisions (contrary to his primary conclusion), the words written by the Complainants on the pro forma acceptance form for the FOS award (“we reserve the right to pursue the matter further through the civil court“) did not mean that they had not given their “final” acceptance of the FOS determination and would not assist them in arguing that merger had not occurred.

The Firm is seeking permission to appeal the High Court’s decision to the Court of Appeal.

It is worth noting that this decision only affects whether the Firm’s application for strike out of the claim was successful.  Even if the Complainants are ultimately successful in proving negligence, there is no guarantee that the Court will use the same formula as the FOS to determine the quantum of their loss.


If the High Court’s decision in Clark v In Focus is upheld, this may have the effect of encouraging complainants with claims larger than the statutory maximum FOS award to utilise the FOS in the first instance with a view to building a “war chest” of legal costs before commencing court proceedings respect of the balance of their claim.  Complainants may also seek to adduce the FOS judgment in support of their court case, particularly given that it is quite common for the FOS to recommend a higher award than its statutory limit.

A key consequence of this judgment is that the FOS procedure can no longer be seen as an ‘alternative’  to court.  From a regulatory perspective, the FOS may therefore face a higher volume of claims from complainants with higher value claims.  This may possibly be counteracted if the FOS considers (or firms are able to persuade it) that such cases are better dealt with by the courts given their size and complexity, and should therefore be dismissed by the FOS without considering the merits (which is a ground for dismissal under DISP 3.3.4R(10)).

We anticipate that this decision is likely to have moot impact on complaints that have a value around the level of, or that may moderately exceed, the maximum statutory award. This is because the FOS may agree to determine such cases and the complainant may be keeping alive their option to pursue subsequent court proceedings.   However, quantification of financial and investment loss often gives rise to difficult issues (which may in some cases, of course, have given rise to the complaint in the first place).  The precise level of loss may not be known when the complaint is first made to the FOS.  It would be an unfortunate consequence of this decision if the FOS adopted a more cautious stance to agreeing to determine complaints and dismissed more complaints on the basis that they might exceed the FOS’s statutory limit.  This would defeat the legislator’s objective of establishing a scheme for resolving lower value financial claims quickly, informally and without recourse to the courts.

More generally, the High Court’s decision in Clark v In Focus appears to place significant weight on Rix LJ’s statement in Heather Moor that the FOS is “dealing with complaints, and not legal causes of action, within a particular regulatory setting“.  The context of Heather Moorwas a challenge, by way of judicial review, to a FOS decision on grounds that the FOS was required to determine complaints in accordance with English law but had failed to do so, instead making a decision by reference to what the FOS considered to be fair and reasonable.  Rix LJ’s statement was made in the context of distinguishing the FOS, which determines complaints by reference to its “fair and reasonable” jurisdiction, and a judge, who determines legal claims and is bound to apply the law in all its particulars.  There are, of course, strong public policy reasons for this distinction: lower-value financial claims may not merit the full vigour of the legal process and the FOS scheme provides an alternative dispute resolution mechanism to those who cannot afford (or choose not to pay for) it.  There are also strong public policy reasons for resolving such claims efficiently and informally, which the statutory framework establishing the FOS recognises when providing for a “scheme under which certain disputes may be resolved quickly and with minimum formality …”  The decision in Clark v In Focus relies on the principle that the doctrine of merger applies only to causes of action, but a cause of action is (merely) the factual situation which entitles one person to obtain a remedy from a court against another person.  It is not clear why a complaint before the FOS should not be treated as encompassing that factual situation so that the doctrine of merger does apply.  In addition, a complainant is not required to accept a FOS decision (and can instead bring court proceedings), but where he does so, it would seem to meet another aspect of public policy – the need to bring disputes to a final end – for the complainant to be barred from taking his complaint further in a different forum.

It is also interesting to note that the Judge in Clark v In Focus did not consider the fact that DISP 3.3.4R allows, but does not compel, the FOS to dismiss a complaint without considering the merits if the subject matter: (i) has been the subject of court proceedings where there has been a decision on the merits or (ii) is currently the subject of court proceedings.  This reflects the fact that the FOS’s jurisdiction to consider complaints is wider than the legal causes of action but the complaint may be equivalent to or encompass the legal cause of action in a given case.

The financial services industry is not likely to welcome the prospect that claimants can now have ‘two bites of the cherry’ nor the lack of clarity now introduced into this area until the Firm’s efforts to appeal are resolved.  In any event, given that there are now two conflicting High Court decisions, determination of the issue by the Court of Appeal would be desirable.

Simon Clarke
Simon Clarke
+44 20 7466 2508
Jenny Stainsby
Jenny Stainsby
+44 20 7466 2995
Hywel Jenkins
Hywel Jenkins
Senior Associate
+44 20 7466 2510
Ajay Malhotra
Ajay Malhotra
+44 20 7466 7605