Ombudsman or Court Proceedings?

There are a number of well-established Ombudsman schemes available to people who wish to complain about various industries – local government, legal services and, perhaps most well known of all, financial services.  They can provide a relatively simple and cheap way of complaining about a service provided and receiving compensation.

One major disadvantage of the schemes is that the compensation awarded is limited. It has therefore not been unusual for people to complain to the Ombudsman as a first step, with the option of starting Court proceedings if the compensation awarded is not considered to be adequate (and, of course, if there is a good case).

Unfortunately for potential claimants, the decision in the case of Mr and Mrs Clark v In Focus Asset Management and Tax Solutions Limited and the Financial Ombudsman Service (February 2014) has put an end to that.  It is now necessary for claimants to consider very carefully whether to pursue proceedings with the Ombudsman or the Court, where there is a choice.

In that case, the Clarks complained about the service provided by financial advisers – Focus Asset Management.   The Clarks estimated their losses at £500,000.  The Ombudsman made an award of £100,000 – the maximum available – but recommended that further compensation be paid. The Clarks accepted the payment subject to their right to claim more in Court proceedings, but when the additional compensation recommended was not paid, they started proceedings for damages for breach of contract, negligence, breach of fiduciary duty and breach of statutory duty.

Focus applied to strike the proceedings out on the grounds that a decision had already been made and compensation paid.  Focus relied on the doctrine of res judicata – once a claim has already been decided, it cannot be re-litigated.  This is designed to rightly exclude vexatious litigation – to stop people from simply starting proceedings arising out of the same set of facts in more than one court or Tribunal.

The Court of Appeal agreed that the Clarks could not seek further compensation having accepted an award from the Ombudsman.   The Court held that the Ombudsman’s award was effectively a judicial decision (even though the process is quite different from Court proceedings) and the Clarks could not seek a further judicial decision from the Court.  This was a major change in the established position, and means that claimants must now be very careful about choosing the appropriate forum for a complaint.  There is now only one opportunity to get the forum right (although it appears to remain the position that if the Ombudsman award is made but not accepted, then the claimant can still proceed with Court proceedings).

Reasons that someone may choose the Ombudsman are:

– The process is free (if you choose to use a solicitor to help with the complaint, then you are unlikely to recover your costs);

– The process is informal and reasonably fast;

– If the level of compensation that you are ever likely to receive is less than the maximum which can be awarded by the Ombudsman, then it may not matter if you cannot go to Court afterwards;

– Certain issues are better dealt with by the Ombudsman – for example, the Legal Ombudsman will deal with complaints about the service provided by solicitors where those do not amount to negligence, which cannot be dealt with by the Court.

However, there are circumstances where it may be better to go to Court.

– Where there is a strong legal claim;

– Where the level of compensation is likely to be more than the Ombudsman can award;

– If the time limit of 6 months for applying to the Ombudsman has passed – time limits for Court proceedings are often longer (for example, 6 years for negligence claims);

– Where the matter is one that requires complex legal advice – you are more likely to get your costs (or part of them) awarded by a Court;

– Where the Ombudsman cannot accept your complaint – for example for businesses or charities other than micro businesses (the Ombudsman schemes are for consumers).

If you require any advice about an Ombudsman service or Court proceedings, please do not hesitate to contact a member of our civil and commercial litigation team.

*Disclaimer: The information on the Anthony Gold website is for general information only and reflects the position at the date of publication. It does not constitute legal advice and should not be treated as such. It is provided without any representations or warranties, express or implied.*