A significant and eagerly-awaited decision was handed down last month by the Court of Appeal in Clark & Anr –v- In Focus Asset Management & Tax Solutions Ltd, a case to determine whether complainants who accept a favourable award from the Financial Ombudsman Service (FOS) can then pursue a civil action through the courts to recover compensation for the same failings of the respondent firm.
Fortunately, common sense prevailed and – reversing the 2012 High Court decision – it was held that complainants cannot claim double compensation for the same issue. In other words, they cannot have their cake and eat it.
So does this decision have any implications for the Legal Ombudsman (LeO) scheme? Well, the rights of complainants under LeO’s scheme are slightly clearer because s140 of the Legal Services Act 2007 states that an ombudsman’s decision is final and legal proceedings may not be commenced or continued by either the complainant or the respondent in relation to the same issue.
But whilst the legal sector is unlikely to witness an analogous case to Clark, LeO’s scheme is by no means perfect and to some degree assumes that pursuing a complaint is always in the best interests of a prospective complainant. However, prospective complainants must be properly advised on all available options to avoid situations where they accept an ombudsman’s final, binding decision, only for it to transpire that it is not necessarily the most desirable outcome.
Complainants are drawn to LeO’s scheme because it is free. However, as the old saying goes: there’s no such thing as a ‘free’ lunch. The LeO’s office did not fare particularly well in the Legal Services Consumer Panel’s 2013 study of ten dispute resolution schemes, which found that 70% of complainants reject LeO’s decision and that, ironically, LeO’s office receives more judicial review applications and complaints generally than other comparable ombudsman schemes.
There will also be occasions when LeO’s scheme will not be an appropriate form of redress, either because the ombudsmen do not possess the requisite expertise to consider the failings of the respondent firm, or because the complainant has actually suffered quantifiable losses and should be seeking to recover those losses, not simply a compensation payment for a poor standard of service. With the court system being a notoriously expensive and lengthy process, it is perhaps unsurprising that consumers are readily accepting LeO’s invitations to complain. The danger, however, is that a complainant accepts a binding remedy from LeO, only to discover later that his loss was actually greater than the £50,000 maximum LeO can award. Would the complainant have another cause of action in such circumstances?
More importantly, there are also potentially hazardous effects of a binding LeO ruling for lawyers. Not only will an upheld complaint carry a £400 case fee, it will also be disclosable to PI insurers, lender panels and the SRA. Further, whereas a substantiated civil claim will invariably have been assessed according to the principles of professional negligence and with reference to existing case law, a complaint made to LeO will be upheld should a single ombudsman – who has unfettered discretion and is not bound by legal principles – decide that it is fair and reasonable in the circumstances.
Given LeO’s autonomy and the implications of an upheld complaint, it is imperative that lawyers have effective systems for identifying and handling complaints. In addition, it is important to remember – before accepting LeO’s proposed resolution – that the decision will be binding. We offer an independent outsourced solution to assist lawyers with resolving complaints – please get in touch to see how we can help you.
Adam Entwistle is a member of Compl-i,  the bespoke consultancy service of Weightmans LLP. Compl-i delivers a full-service, flexible package of tailored support to lawyers, including expert legal and best practice advice, as well as assistance on regulation, compliance, business management and structure.