No more double payouts in financial compensation claims?
A case that has been rumbling for some time has now received judgement in the Court of Appeal. Previously, victims of financial loss as a result of mis-selling or inappropriate advice could take their case to the Financial Ombudsman and then also sue the financial firm allegedly responsible for the loss in civil court. The new judgment, on the back of opposing previous judgments, makes it clear that accepting Ombudsman compensation precludes complainants from later suing on the same matter.
While this might initially sound like a triumph of common sense, consumer groups are decrying this as a blow for consumer rights, given that some victims would use their Ombudsman payout, a process which is free, more streamlined and enables faster payouts, to enable them to fund a civil case. It is conceivable that those who have suffered financial loss at the hands of a shoddy adviser might not have oodles of cash with which to fight a court case.
Currently, the financial ombudsman can award maximum compensation of £150,000 to a customer who has suffered a loss due to issues such as negligence, poor financial advice or mis-selling.
The new ruling concerns the case of Barry Clark, 70, and his wife Julie, 68, of Portsmouth, who were clients of In Focus Asset Management and Tax Solutions. The firm advised them to invest the proceeds of the sale of a family business in a geared traded endowment plan. The product was unsuitable for their needs and ended up costing them losses of £500,000- so the couple complained to the ombudsman.
The ombudsman upheld the complaint and awarded the maximum compensation, which was £100,000 at the time. Mr and Mrs Clark then used the money to issue proceedings in the county court for additional losses.
In her judgment, handed down today, Lady Justice Arden acknowledged the way people were combining the two routes to compensation, but felt it was potentially harmful to consumers. She said: “If the Clarks succeed, a complainant may be able to use an award as a fighting fund for legal proceedings. On the face of it this result would be for consumers’ interests, but that is not necessarily so.
“If they lose court proceedings, it may lead to them losing all that they have gained through the FOS [Financial Ombudsman Scheme]. It may also lead to the development of a claims industry in this field 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.” In 2013, the ombudsman received over 500,000 complaints, half of which were upheld, although this does include endless PPI compensation claims.
While many people would want to avoid the UK turning into as litigious a state as some others around the world, is it right that the Clarks are down £400,000 (and more now, after losing the case at appeal) with no means of further redress? Doesn’t this ruling mean that it will be only those who have pots of spare cash to fund a legal challenge who will be able to get their full compensation?