No Court Compensation After Ombudsman Ruling

No Court Compensation After Ombudsman Ruling.

A ruling last week in the Court of Appeal has set the precedent that where a financial services complaint has been handled by the Financial Ombudsman Service and a compensation award agreed and accepted by a complainant, the complainant cannot then seek further compensation via the courts.

The case involved

How does the financial complaints system work?

If you have a financial loss that has been caused by negligence or unfair terms by a financial company, you have a right to complaint and possible compensation.

• Stage 1 – Compliant is made in writing or verbally to the financial company
• Stage 2 – The financial company has usually 7 working days to acknowledge the complaint
• Stage 3 – The financial company will investigate, impartially, your complaint and after 4 weeks will issue either an update letter or a final decision
• Stage 4 – At 8 weeks, the financial company must offer its final decision on your complaint.  This will either be an acceptance of your complaint and an offer of compensation or indeed decline in full or in part.  In the financial decision letter you will also be told of your rights to take your complaint to the Financial Ombudsman Service (FOS).  If you disagree with the decision you use the FOS which is an independent arbitration service to rule on your complaint.  They are impartial. 
• Stage 5 – If you have decided to take your complaint further to the FOS, this will investigated in full by them.  They will write to you requesting full details and will also write to the financial company requesting the same.  The FOS will then investigate and offer a judgement.  The decision made by the FOS is legally binding on the financial company, it is not legally binding on you. 
• Stage 6 – If your complaint is declined by the FOS, you still have the right to take your case to court.  If your complaint is upheld by the FOS, they have powers to award compensation up to £150,000 (was £100,000 before 01/01/12).  Financial compensation awards are legally binding on the financial company and must be paid if you accept the FOS decision. 
• Stage 7 – Initially, your complaint at the FOS will have been handled by a complaints handler.  If you disagree with the complaint handler decision at the FOS, you have the right to appeal and ask for a full Ombudsman within the FOS to review the case and make a decision.
• Stage 8 – If you accept the FOS decision either at Stage 6 or 7, compensation will be paid as awarded.  If you accept the decision, as now proved by the Court of Appeal decision last week, you have no right to pursue for further compensation.
• Stage 9 – If you do not accept the FOS decision whether your complaint was upheld or not, you still have the right to take your complaint to court.

What this case tells us?

The case involved financial losses from the sale of traded endowment policies, resulting in £500,000 of losses to a family.  The original complaint was upheld by the FOS and compensation up to the claims ceiling awarded.  As we know, the FOS compensation limits were at £100,000 and now £150,000.  This is below the loss above.  Allegedly, the award was accepted and then the complainants too the case to court for additional compensation.

The first stage was County Court, and the District Judge declined the claim.  An appeal was then taken to the Court of Appeal, and the Court of Appeal ruled that it could be heard.

The case was then heard by Lady Justice Arden who has set precedent by ruling than an FOS award is a judicial decision and therefore, according to basic legal principals of ‘offer and acceptance’, the complainant accepted an FOS ruling cannot then bring further court proceedings relating to the same claim.

Comment

This case will have a huge impact on the financial services industry.  In simple terms, if a financial company has settled a complaint, had Lady Justice Arden, ruled the other way, it would have opened the flood gates for any complaint that has been settled, to then ask for even more compensation afterwards.  In short, a financial adviser or company could be left to face an open ended risk of compensation for life.

For consumers, the warning is clear.  If you are not happy with an FOS decision or level of compensation awarded, do not accept it.  If you do accept a decision, you cannot then pursue additional claims via the courts.