UK: Financial Ombudsman Service: Court Confirms £100,000 Limit For Awards

Last Updated: 30 May 2007

Article by Jeremy Barnes, Rob Morris and Caroline Kennedy

Despite recent attempts by the Financial Ombudsman Service to circumvent the monetary award limit, the High Court has today confirmed that it does not have the power to make a binding award requiring a redress payment in excess of £100,000.

The case involved two complainants’ attempts to enforce supposed "directional" awards made by the FOS. Enforcement of the awards would have required the firms involved to pay redress well over the £100,000 monetary award limit, effectively rendering the limit pointless. This was precisely what the FOS, who were represented in these proceedings, argued in favour of.

CMS Cameron McKenna acted for the firms, who were successful in defending the enforcement proceedings. The Court decided that the FOS did not have jurisdiction to make any kind of binding award that resulted in a firm having to make a redress payment of more than £100,000.

Thankfully for regulated firms and their insurers, this decision restores some much-needed certainty. Firms can now be assured that any payments will be limited to the £100,000 statutory cap, no matter how the FOS might term the award.

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Despite attempts by the Financial Ombudsman Service to circumvent the monetary award limit, the High Court has today confirmed that it does not have the power to make a binding award requiring a redress payment in excess of £100,000.

The decision ruled on two separate claims where a complainant had obtained a Financial Ombudsman Service award in his favour. In each case, the award appeared to require a redress payment of more than £100,000. In one, it was well over £1 million.

The FOS has the power to make two types of binding awards:

(i) A monetary award limited to a maximum of £100,000. Although FOS can recommend that an investor be paid in excess of £100,000, an award above this limit is not binding;

(ii) A directional award; that is, a direction that the firm takes such steps as FOS considers "just and appropriate". This type of award is not expressly subject to a financial limit.

Given the apparent cap on financial awards, the two firms involved refused to pay the complainants more than £100,000 redress. The complainants brought claims seeking to enforce the FOS decisions, arguing that the decisions were directional awards and were not subject to any financial cap. The FOS actively participated in the trial and supported this argument.

CMS Cameron McKenna LLP acted for the firms in successfully resisting the enforcement proceedings. The Court held that:

1. Whether or not an award is classed as a monetary or a directional award depends on the substance rather than the form of the award. If an award requires the payment of money to, or for the benefit of, the complainant it is a monetary award and therefore subject to the £100,000 limit. The Court specifically confirmed that:

  • In order to constitute a monetary award, it is not necessary for an award to require a firm to make a payment to the complainant. An award to make a payment to a third party (such as a pension provider) for the benefit of a complainant is also a monetary award and limited to £100,000.
  • It is not necessary for an award to be quantified in monetary terms in order to be classed as a monetary award. Accordingly, an award that requires payment of money is a monetary award, even if the amount of money that must be paid is unquantified at the date the award is made. This prevents the FOS circumventing the £100,000 by using formulae to calculate redress rather than stating specific figures.

2. The FOS does not have the power to make a directional award that would require a firm to make a payment that exceeds £100,000. If the cost of compliance with a direction is unknown at the time it is made, it is subject to the implicit limitation that it will not be enforceable once the £100,000 limit is reached.

The Court also rejected arguments that the firms should be prevented from questioning the validity of the FOS’ decisions because they failed to judicially review the awards within 3 months of them being made. The Court recognised that there is a strong presumption that a person’s right to defend himself against an unfounded claim should not easily be denied. The firms were allowed to question whether the FOS had formal jurisdiction to make the purported awards as a defence to these enforcement proceedings.

As many will be aware, the FSA has recently consulted publicly on whether the monetary limit should remain at £100,000. It was decided that there was "no case for change" and the FSA reaffirmed the statutory limit on awards. However, we have seen the FOS seek to circumvent this limit by classifying awards as "directional" rather than "monetary". Thankfully for regulated firms and their insurers, this decision restores some much-needed certainty. Firms can now be assured that if they are required to pay money to, or for the benefit of, a complainant the payment will be limited to the £100,000 statutory cap; no matter how the FOS might try and dress up the award.

Further reading: Roger Bunney v Burns Anderson plc; and Jeremiah James Cahill v Timothy James & Partners Limited [2007] EWHC 1240 (Ch)

This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to

Law-Now information is for general purposes and guidance only. The information and opinions expressed in all Law-Now articles are not necessarily comprehensive and do not purport to give professional or legal advice. All Law-Now information relates to circumstances prevailing at the date of its original publication and may not have been updated to reflect subsequent developments.

The original publication date for this article was 25/05/2007.

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