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Contradictory High Court decisions on the doctrine of merger

Clark v In Focus Asset Management & Tax Solutions Limited [2012] EWHC 3669 (QB)

The claimants had invested the proceeds of sale of a family business in a geared traded endowment plan, after taking advice from the defendant Financial Services Company. It transpired that the advice was negligent and led to the claimants losing over £500,000.

The claimants originally complained to the FOS who upheld their complaint. However the award was capped at the statutory maximum of £100,000 . Despite the FOS recommending to the defendant Financial Services Company that they pay compensation that would effectively put the claimants in the position that they would have been had the negligent advice not been given, the FOS warned the claimants that they “may not be able to enforce a greater amount in the courts”.

This warning was based on a High Court decision in Andrews v SBJ Benefit Consultants Ltd [2010] EWHC 2875 (Ch). This case held that the merger doctrine applies where a claimant has accepted an award from the Financial Ombudsman, which means that a claimant cannot claim for additional losses above the Ombudsman’s statutory maximum limit, in later proceedings before the courts. They are effectively bound by the final determination from the FOS.

At first instance in Clark the judge followed the decision in Andrews.

The claimants appealed to the High Court, and the appeal was allowed. Mr Justice Cranston found that the Court in Andrews had wrongly applied the doctrine of merger to FOS determinations.

This decision directly conflicts with the decision in Andrews, and as both cases were determined by the High Court, neither takes precedence. The defendant is seeking permission to appeal the decision, in which case the Court of Appeal should resolve the matter. Unless and until the issue reaches the Court of Appeal however, the law remains unclear.

Note: The Financial Ombudsman has the power to award compensation of up to £150,000 where a complaint has been made on or after January 2012. Complaints before this date are subject to the £100,000 limit.