Clark and Another v in Focus Asset Management & Tax Solutions Ltd Financial Ombudsman Service (Intervener)
| Jurisdiction | England & Wales |
| Judge | Lady Justice Arden,Lady Justice Black,Lord Justice Davis |
| Judgment Date | 14 February 2014 |
| Neutral Citation | [2014] EWCA Civ 118 |
| Docket Number | Case No: A2/2013/0065(B) & A2/2013/0065 |
| Court | Court of Appeal (Civil Division) |
| Date | 14 February 2014 |
and
[2014] EWCA Civ 118
Lady Justice Arden
Lady Justice Black
and
Lord Justice Davis
Case No: A2/2013/0065(B) & A2/2013/0065
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM
HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
Mr Justice Cranston
Royal Courts of Justice
Strand, London, WC2A 2LL
Mr Alistair Schaff QC and Mr Simon Howarth (instructed by CMS Cameron McKenna LLP) for the Appellant
Mr Clive Wolman (instructed by George Ide LLP) for the Respondents
Mr James Strachan QC (instructed by the Financial Ombudsman Service) for the Intervener
Hearing dates: 22–23 October 2013
Approved Judgment
ISSUE: EFFECT OF AWARD UNDER FINANCIAL OMBUDSMAN SCHEME SET UP TO DEAL WITH CONSUMER COMPLAINTS AGAINST FINANCIAL SERVICE PROVIDERS
Parliament has by primary legislation, namely the Financial Services and Markets Act 2000 (" FSMA"), set up a dispute resolution scheme called the Financial Ombudsman Service ("the Ombudsman Service") for consumers who have disputes with providers of regulated financial services. This Service determines disputes and may award compensation. If a consumer accepts an award of compensation, the award is binding on the adviser and the complainant, and is final. Parliament gave the financial services regulator (now the Financial Conduct Authority ("the FCA")) power to fix a maximum award of compensation that could be awarded. The scheme is very important to consumers not least because it is free to them: financial advisers against whom complaints are made are liable to pay fees to the Ombudsman Service and those fees largely fund it. But nothing was said in the legislation about consumers taking legal proceedings after accepting an award under the scheme. It is on one view at least consistent with the consumer-facing purpose of the provisions that the consumer should be able to do this. However, there are now conflicting decisions at the level of the High Court as to whether consumers can do this. We must resolve this conflict on this appeal.
I shall need to summarise the background to this appeal, the statutory scheme, the ambiguity in FSMA and the conflicting decisions of the High Court. Then I will set out the submissions and my reasons for my conclusions in relation to those submissions. In summary, for the detailed reasons given below, and having been assisted by the able submissions of all parties, I consider that this appeal should be allowed for the following reasons:
(1) Leaving aside FSMA, acceptance of an award would preclude a complainant from starting legal proceedings to pursue complaints which he had already submitted to the Ombudsman Service, and which the ombudsman had decided, because of the common law doctrine of res judicata, which I explain below; and
(2) The relevant provision of FSMA, section 228(5) FSMA (set out below), does not exclude the operation of the common law doctrine of res judicata.
Common law doctrines preclude a person who has obtained a decision from one court or tribunal from bringing a claim before another court or tribunal for the same complaint. These rules are referred to as res judicata and merger. The parties have argued this case on the basis of both principles. The judge dealt solely with merger.
To understand merger, it is necessary to understand the meaning of "a cause of action". It is not a legal construct. The term "cause of action" is used to "describe the various categories of factual situations which entitle[d] one person to obtain from the court a remedy against another" (per Diplock LJ in Letang v Cooper [1965] 1 QB 232 at 242. A complaint to the ombudsman need not be a cause of action but (as further discussed below) it may involve consideration of an underlying cause of action and the facts on which a complaint is based may be or include facts constituting a cause of action.
Merger explains what happens to a cause of action when a court or tribunal gives judgment. If a court or tribunal gives judgment on a cause of action, it is extinguished. The claimant, if successful, is then able to enforce the judgment, but only the judgment. The effect of merger is that a claimant cannot bring a second set of proceedings to enforce his cause of action even if the first tribunal awarded him less than he was entitled to (see, for example, Wright v London General Omnibus Co [1877] 2 QBD 271 and Republic of India v Indian Steamship Company Ltd (The Indian Grace) [1998] AC 878). As Mummery LJ held in Fraser v HMLAD [2006] EWCA Civ 738 at [29], a single cause of action cannot be split into two causes of action.
Res judicata principally means that a court or tribunal has already adjudicated on the matter and precludes a party from bringing another set of proceedings (see generally Lemas v Williams [2013] EWCA Civ 1433). The doctrine also covers abuse by a litigant of the court's process by bringing a second set of proceedings to pursue new claims which the claimant ought to have brought in the first set of proceedings (this is known as the rule in Henderson v Henderson (1843) 3 Hare 180; 67 ER 313).
The requirements of res judicata are different from those of merger. All that is necessary to bring merger into operation is that there should be a judgment on a cause of action. Res judicata may apply either because an issue has already been decided or because a cause of action has already been decided. We are concerned on this appeal with res judicata of the latter kind, known as cause of action estoppel.
I take as the requirements of cause of action estoppel the summary from Spencer Bower and Handley on Res Judicata cited with approval by Lord Clarke (with whom Lords Phillips, Rodger and Collins agreed) in the recent case of R(o/a Coke-Wallis) v Institute of Chartered Accountants in England and Wales [2011] 2AC146 at [34]:
"34 In para 1.02 Spencer Bower & Handley, Res judicata, 4th ed makes it clear that there are a number of constituent elements in a case based on cause of action estoppel. They are:
"(i) the decision, whether domestic or foreign, was judicial in the relevant sense; (ii) it was in fact pronounced; (iii) the tribunal had jurisdiction over the parties and the subject matter; (iv) the decision was — (a) final; (b) on the merits; (v) it determined a question raised in the later litigation; and (vi) the parties are the same or their privies, or the earlier decision was in rem."
If the requirements of res judicata are fulfilled, they constitute an absolute bar and the court has no discretion to hold that res judicata should not apply in any particular case.
If the requirements of merger are satisfied, it is unnecessary to see if the requirements of res judicata were fulfilled, and vice-versa.
There is a powerful two-fold rationale for the doctrines of merger and res judicata. The first rationale is "the public interest in finality of litigation rather than the achievement of justice as between the individual litigants" (see per Lord Goff in The Indian Grace at 415). Mr Clive Wolman, for the respondents, suggests that the public interest in finality arises out of a concern that the public courts and tribunals should not be clogged by repetitious re-hearings and re-determinations of the same disputes. This is clearly a powerful consideration.
Second there is the private interest. As Sir Nicolas Browne-Wilkinson V-C put it in Arnold v National Westminster Bank plc [1983] 3 All ER 977 at 982: "it is unjust for a man to be vexed twice with litigation on the same subject matter".
HOW THE DISPUTE IN THIS CASE AROSE
The respondents are Mr and Mrs Barry Clark. The Clarks' case is that they have lost more than £300,000 through negligent investment advice given by the appellant, their former financial adviser. They took their complaint to the Ombudsman Service. The ombudsman, Mr Christopher Tilson, decided that they were entitled to compensation exceeding the then limit of £100,000 now £150,000 that the Ombudsman Service could award. In addition to awarding the Clarks £100,000, he recommended payment of full compensation. The Clarks accepted the award. They did so subject to their right to claim more in court proceedings. The appellant paid the Clarks the sum of £100,000 on about 24 March 2010. The appellant did not, however, pay the full recommended amount.
On 22 June 2010 the Clarks took the step that they indicated they would take: they started proceedings in the District Registry of the High Court in Chichester, which were transferred to the Chichester County Court, for damages for breach of contract, negligence, breach of fiduciary duty and breach of statutory duty, stating that they would give credit for the sum already awarded. The defendant (the appellant on this appeal) asked the court to make an order dismissing them. HHJ Barratt QC held that the doctrine of merger applied and made such an order. He applied the first High Court decision with which we are concerned, namely the decision of HHJ Pelling QC, sitting as a deputy judge of the High Court of Justice, Chancery Division, in Andrews v SBJ Benefit Consultants [2011] PNLR 577. However, on appeal, Cranston J held that the Clarks' causes of action did not merge in the ombudsman's award. He disagreed with the decision in Andrews. Accordingly he concluded that HHJ Barratt QC had been wrong to dismiss the proceedings. The appellant now appeals from the order made by Cranston J.
This conflict of authority has obvious practical...
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