Why are attempts to enforce Financial Ombudsman Service decisions in the legal system so onerous?
A number of new clients I have dealt with in recent times have brought to me, quite a peculiar conundrum – attempts to enforce Financial Ombudsman Service (FOS) decisions in a legal system, where the clients, and even the courts, are not quite sure of where they stand.
First, to give some context, the FOS is a body which is supposed to be a form of alternative dispute resolution (ADR) and take strain off the civil justice system being a simple and informal alternative for consumers. The FOS can award up to £150,000 in any one case that involves a regulated financial adviser. Section 228(5) Financial Services & Markets Act 2000 (FSMA) states that FOS decisions are ‘final and binding’ i.e. once they are in effect, they are there to stay.
The FOS is a free-to-use service, meant to be accessible to the lay community. Equally, when a decision is made, enforcement of that decision is meant to be a straightforward enough task that too can be dealt with by lay persons; otherwise the entire regime would be undermined. Or so they say, as this is the point where the problems actually start to come in.
To start with, most consumers are not even aware of what they can do to pursue a FOS award; the prospect of an opponent whom you have just won a case against, simply refusing to pay up is quite daunting, with many consumers just giving up at this stage alone. The more robust consumers will go a step further and ask the FOS to try and assist in enforcing the award, and if that fails, the regulator, the Financial Conduct Authority (FCA) can intervene, but most will have lost confidence in the system at this stage.
But what if that is not fast enough, the process is too long-winded, or the consumer desperately needs a return of their monies? Then, the court once again comes into play.
Fortunately, once the FOS have made their decision, the court need not go into the merits of the case, as the FOS will have already made a determination on the facts of the case. This is provided for in paragraph 16 of Schedule 17 FSMA, which ensures that a court can order that a FOS decision is then awarded as if it were an order of the court. This is when things start to get messy.
Litigants in person struggle at this point to get into the court, never mind get any sort of a decision. Let us bear in mind at this stage that this process should merely be administrative, not adversarial as the merits have already been considered by the FOS. Because the purpose of the court proceedings that will be brought, are simply to enforce a FOS decision, the relevant claim procedure is a Part 8 Civil Procedure Rules 1998 [CPR] claim; this is because the simple enforcement of a FOS decision is naturally caught under Part 8.1(2)(a) CPR – a claim unlikely to involve any substantial dispute of fact.
I have seen clients batted back and forth between Part 8 CPR and Part 7 CPR claim types by a number of Deputy District Judges (all in the same action no less!) as the judges cannot decide which claim category the action falls into. So far, enforcement of a FOS award is not as simple as intended then… .
Alongside the main claim that gets brought to life, an application has to be made to the court to give the FOS decision the effect of the court order. An LIP then gets the joyous task of having to choose the correct form of the near identical N322A or N322B forms, certainly not any easy task, even for many lawyers. In practical terms the N322B is for enforcement of awards which are automatically considered on par with a Court Order.
The N322A is for the enforcement of awards where the court’s permission is required to give the effect of a Court Order, which applies to FOS awards as the FOS award does not have the effect of a Court Order until the court so orders. Naturally, I have had clients who (as litigants in person) have fallen at this hurdle, on a procedural difficulty alone.
When making the N322A application, the relevant law allowing enforcement must be referred to; so in the case of FOS awards this is Section 228(5) FSMA, which makes such awards final and binding, and paragraph 16 of Schedule 17 FSMA, which allows a court to order the FOS decision may be recovered by execution as if it were Court Order. At this point there seems to be a significant problem in the court system, with the courts unable to recognise the relevant law allowing FOS decisions to be enforced through court.
One of my clients went through three Deputy District Judges who, despite my client pointing out the relevant law and even giving the court the FOS Consumer Factsheet on ‘how to enforce an Ombudsman’s decision in court’, still would not enforce the FOS decision. The judges sympathised with my client but told them they had no claim in law, a nonsense, but one in which the third judge ultimately struck my client’s claim out.
Fortunately my client then instructed our firm just in time to see that the claim that was struck out was brought back to life, and further persuade the fourth Deputy District Judge that the enforcement of a FOS award was indeed possible.
But why is a regime, intended to be simple, informal and accessible for consumers, full of complexity and barriers? It should be the case that a litigant in person can go to the court and make a part 8 CPR Claim, accompanied by Form N322A (with evidence of course) and the court should then (without a hearing) order that the money award be recovered by execution issued from the court as if it were payable under an order of that court.
The reality is that nine times out of 10, FOS awards are immediately paid up by the defaulting party, as the threat of regulatory action lingers. That in turn means that it is very rare that FOS decisions ever need to be enforced, and whilst this is encouraging that the regime is certainly successful, it indeed becomes clear that the courts are not familiar with such actions.
The larger or superior courts may see few of these types of proceedings, but local courts are likely to have never come across them, and this is a shame for LIPs, who will ultimately need to utilise the services of lawyers if they are to be successful in the pursuance of their debt.
Tobias Haynes is a litigation paralegal at Regulatory Legal Solicitors, West Midlands