This recent Court of Appeal case considered whether a person who had received compensation in respect of a complaint made to the Financial Ombudsman Service Ltd (“FOS”) could also recover damages through court proceedings.

The Court of Appeal held the principle of res judicata applies to decisions of the Ombudsman, such that a complainant who has accepted compensation from FOS will be barred from bringing court proceedings based on the same cause of action to recover any additional damages.


Mr and Mrs Clark were awarded £100,000 by FOS as compensation for negligent advice given to them by In Focus Asset Management, their financial adviser (“In Focus”). At the time of the award, £100,000 was the maximum amount of compensation which could be awarded by FOS under the Financial Services and Markets Act 2000 (the “FSMA”). As well as awarding the maximum compensation, the Ombudsman recommended that In Focus compensate Mr and Mrs Clark for their full loss, which amounted to more than £300,000. Mr and Mrs Clark accepted the award subject to their right to claim the remainder in court proceedings. In Focus made the awarded payment of £100,000 but did not compensate the Clarks further.

Mr and Mrs Clark commenced proceedings in the High Court for damages, intending to give credit for the amount already awarded by FOS. HHJ Barrett QC dismissed the proceedings on the basis of the doctrine of merger, applying Andrews v SBJ Benefit Consultants (“Andrews”), which held a complainant’s cause of action had effectively merged in the award from FOS, precluding any further proceedings. On appeal, Cranston J overturned the order dismissing the proceedings, holding the doctrine did not apply to decisions of FOS and a complainant could pursue the balance of its loss. In Focus appealed Cranston J’s decision.

The Ombudsman Scheme

FOS was set up under the FSMA as an independent dispute resolution service. It determines complaints by reference to what is, in the opinion of the Ombudsman, fair and reasonable in all the circumstances of the case. FOS may award compensation to a complainant, which is not to exceed the limit set by the Financial Conduct Authority (“FCA”), and may recommend the payment of an amount exceeding the statutory limit, although it has no power to compel such a payment. A complainant has the option of rejecting an award made by FOS but, if accepted, it becomes final and binding on both parties and can be enforced as a county court judgment.

“Binding on the respondent and the complainant and final”

Section 228(5) of FSMA states: “If the complainant notifies the ombudsman that he accepts the determination, it is binding on the respondent and final”.

There had been conflicting High Court authority on this point. In Andrews HHJ Pelling QC held the doctrine of merger applied to a decision by FOS and accordingly a complainant could not bring court proceedings to pursue the same causes of action.

Conversely, in this case, Cranston J held the statutory aims of the Ombudsman scheme as a whole were to provide for the informal resolution of disputes, and section 228(5) merely referred to the end of the Ombudsman’s process. Cranston J considered that the purpose of the Ombudsman Service was to provide consumers with speedy, free dispute resolution, and it was therefore consistent to exclude any common law doctrine such as merger or res judicata.

The Court of Appeal

The Court of Appeal held that a decision of the Ombudsman under FOS is a decision of a judicial body for the purposes of res judicata on the basis that the Ombudsman decides a question posed by facts constituting a cause of action. Whether a complainant will be barred from bringing court proceedings following acceptance of an award by FOS will depend on whether the substance of the proceedings asserted before the court is the same as that which was before the Ombudsman, as fresh proceedings are not permitted on the same cause of action.

As part of its reasoning, the Court held FSMA cannot be interpreted to exclude the operation of res judicata because, as a matter of statutory interpretation, where Parliament is silent on an issue, the common law still applies unless it has been excluded expressly or by implication. Far from excluding the common law rules, the FSMA in fact refers to the scheme as one for resolving disputes, which strongly indicates it did not intend consumers could bring legal proceedings as well as accepting an award.

Practical Implications

This case provides welcome certainty that a complainant who accepts an award from the Ombudsman will be precluded from bringing court proceedings which is in substance based on the same facts as those which were before the Ombudsman. This is so regardless of whether the maximum award was made by FOS, and regardless of whether any rights to litigate were reserved.

It is also a reminder of the principles of statutory interpretation and of the interaction between the common law and statutory schemes, such as those set up under FSMA. The decision provides much-needed clarity for lenders and their insurers by confirming consumers cannot top-up compensation payments from FOS by way of court proceedings.

For further information, please contact Georgina Squire or the Partner with whom you usually deal.