Clark & Anor v In Focus Asset Management & Tax Solutions Ltd & Anor

An accepted determination of the Financial Ombudsman Service may create cause of action estoppel. The adviser must show that the complaint was substantively based on facts constituting the cause of action advanced in the later proceedings, and that the ombudsman determined that complaint.

The result is unaffected by the ombudsman deciding what is fair and reasonable, by the amount awarded, or by the complainant purporting to reserve a right to sue. The complainant must reject the award to preserve the right to pursue the same claim in court. Section 228(5) of the Financial Services and Markets Act 2000 does not exclude res judicata. Parliament legislates against the background of the common law, which applies unless displaced expressly or by necessary implication.

The respondents alleged losses exceeding £300,000 from negligent investment advice given by the appellant. The Financial Ombudsman awarded the then statutory maximum of £100,000 and recommended payment of full compensation. The respondents accepted the award while purporting to reserve their right to claim the balance in court.

HHJ Barratt QC dismissed their subsequent claims for breach of contract, negligence, breach of fiduciary duty and breach of statutory duty. Cranston J reversed that decision in [2012] EWHC 3669 (QB), holding that the causes of action did not merge in the award and disagreeing with Andrews v SBJ Benefit Consultants.

The central issue was whether acceptance of a Financial Ombudsman award precluded later proceedings concerning the same grievance, either under the common law doctrine of res judicata or because of the statutory scheme.

1. The appeal was allowed. An accepted Financial Ombudsman award can be a judicial decision capable of creating cause of action estoppel. The ombudsman gives both parties an opportunity to state their cases, independently determines the dispute and, upon acceptance, produces a final and binding award. The process is judicial for this purpose even though the ombudsman may investigate or mediate and determines the complaint by what is fair and reasonable rather than solely by legal rules.

2. A complaint may consist of, or include, facts constituting a cause of action. Res judicata applies where the ombudsman determines whether those facts establish a complaint and justify a remedy, although the ombudsman does not formally determine the parties’ legal rights or award the remedy available in court. The court must compare the substance of the complaint and determination with the later proceedings. The adviser bears the burden of proving the necessary identity, and the complainant receives the benefit of any doubt caused by an imprecise complaint.

3. Fresh proceedings cannot be used to top up compensation for the same wrong. The result is unchanged if the award was below the statutory maximum or was accompanied by a recommendation for further compensation. A purported reservation of the right to sue cannot prevent res judicata from operating. A complainant wishing to pursue the same claim in court must reject the award.

4. Section 228(5) of the Financial Services and Markets Act 2000 does not displace res judicata. Parliament is presumed to legislate against the background of relevant common-law rules. The Act neither expressly nor impliedly rebuts that presumption. Its objects of quick, informal dispute resolution and consumer protection within the limits of the scheme support finality rather than successive recovery through the scheme and the courts.

5. Arden LJ gave the leading judgment. Black LJ agreed. Davis LJ agreed and approved the essential reasoning in Andrews. Davis LJ reserved the application of Henderson v Henderson to claims which could have been, but were not, presented to the ombudsman.

1. Court of Appeal (Civil Division): Allowed the adviser’s appeal in [2014] EWCA Civ 118 . The accepted award was capable of creating cause of action estoppel, and the respondents could not pursue the same grievances in court.
2. High Court, Queen’s Bench Division: Cranston J, in [2012] EWHC 3669 (QB) , allowed the respondents’ appeal and held that their causes of action did not merge in the ombudsman’s award.
3. County Court: HHJ Barratt QC dismissed the respondents’ proceedings after holding that merger applied.