A milestone legal case has rendered complaining to an ombudsman a dilemma for many consumers.
Many public and private sectors have an official ombudsman – including financial services, property, local government and legal services.
Between them, they handle hundreds of thousands of complaints each year and are a cornerstone of consumer protection in their industry.
But the new ruling means many consumers seeking compensation will have to make a careful decision about mounting a costly legal challenge or opting for a quick and free decision from the ombudsman
The key case is Mr and Mrs Clark v In Focus Asset Management and Tax Solutions Limited, which was heard in the Court of Appeal in February 2014.
Appeal Court rejects consumer case
The Clarks felt Focus Asset Management had given them poor advice which led to them losing £500,000 of savings.
They went to the Financial Ombudsman Service (FOS) who found in their favour and ordered the firm to pay £100,000 compensation and recommended they should pay a further award.
The firm paid the £100,000 but failed to hand over the rest of the cash.
The Clarks went to court to claim their money but the Court of Appeal rejected their case on the grounds they had already been before the ombudsman, who effectively made a judicial decision even though the process is nothing like going to court.
The decision was made under the legal doctrine of res judicata, which prevents claimants from starting the same case in different courts for two bites at the same compensation cherry.
Deciding which forum is best
Effectively, consumers now have to consider going to an ombudsman is worthwhile if their claim is over the limits the service can award because if they win and the offending firm fails to pay up, the award cannot be enforced by another court.
In the Clark case, the ombudsman top award is limited to £100,000.
Going to an ombudsman is still a good idea for small claims and cases the courts can’t handle – like complaints of poor service that do not amount to negligence. The ombudsman service is still free and quick for dealing with most matters.
The ruling does not stop a consumer turning down the ombudsman’s award and starting court proceedings instead, but the Court of Appeal decision means whatever route a consumer takes for compensation, and then they have to make the right decision of the best way to go for the result they expect.
