Regulation  

Compensation loophole is shut down

Rob Morris, partner at law firm Reynolds Porters Chamberlain, said the Court of Appeal has effectively shut down a “loophole” allowing clients to bring a civil case against a firm once they have accepted a final determination from Fos.

The case, Clark v In Focus Asset Management & Tax Solutions, centred on a couple who lost more than £300,000 due to negligent investment advice and took their complaint to Fos.

The adjudicator, Mr Christopher Tilson, ordered full compensation above the then-limit of £100,000, which the couple accepted.

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When the adviser did not pay out the full amount, the couple took their case to Chichester County Court, asking for damages for breach of contract, negligence, breach of fiduciary duty and breach of statutory duty.

Judge Barratt enforced the order based on a previous case, Andrews v SBJ Benefit Consultants, upholding the legal principle that a person who has obtained a final judgment in one tribunal cannot seek a second judgement from another.

This decision was overturned on appeal by Judge Cranston, but the defendant took the case to the Court of Appeal.

In a 26-page copy of the judgement, Lady Justice Arden ruled on 14 February that allowing multiple compensation claims from any one party could “raise the costs of seeking financial advice”.

She said: “If complainants lose court proceedings, it may lead them to losing all that they have gained through the ombudsman. It may also lead to the development of a claims industry that increases the costs of obtaining financial advice.

“There are already 210 ombudsmen and many more might be needed if a larger group of complainants can apply.”

Adviser view

Simon Mansell, managing director of Worcester-based IFA Temple Bar, said: “Of course an acceptance of a Fos award should close down future claims. The client had the option to appeal to the courts after rejecting the award. Not only should the claimant have this right of appeal but so should the adviser. Fos should be subject to judicial scrutiny.”