Barack Obama’s visit to the United Kingdom has caused much media speculation about our ‘special relationship’ with the United States of America. Courts dealing with payment protection insurance (“PPI”) mis-selling claims, seemingly not wanting to feel left out, have also been busy considering a ‘special relationship’ of their own: fiduciary duties. Indeed, there have been three recent decisions all coming to the same conclusion: claims alleging a breach of fiduciary duty in PPI litigation fail to disclose a real prospect of success. They have also considered two other issues which often also arise: claims in negligence and for breaches of Codes of Conduct. Both of these issues have also been dealt with in a similarly robust way.
Lawson & Lawson v Black Horse Limited (2011), Unreported, 15 April 2011, Newcastleupon-Tyne County Court
On 15 April 2011, His Honour Judge Langan QC (on appeal from a decision of District Judge Bullock) handed down judgment in Lawson & Lawson v Black Horse Limited (2011), Unreported, 15 April 2011. Mr & Mrs Lawson appealed District Judge Bullock’s decision to dismiss their application for permission to amend their Particulars of Claim to include allegations of breach of fiduciary duty and liability under Section 75(1) of the Consumer Credit Act 1974 (the “CCA 1974”). To support the allegation of breach of fiduciary duty, Mr & Mrs Lawson argued that:
- Black Horse Limited acted as their agent;
- the General Insurance Standards Council Code of Conduct applied and this was breached by Black Horse Limited; and
- Black Horse Limited failed to comply with the Office of Fair Trading (“OFT”) Guidelines.
After hearing submissions, His Honour Judge Langan QC decided that:
- the allegations of breach of fiduciary duty were “of the most general kind” and “wholly inadequate” to say that they give rise to a fiduciary relationship;
- there was nothing in the statement of case to show that the transactions were “anything other than over-the-counter transactions, without special, personal relationships coming into existence”;
- the allegation under Section 75(1) was “skating on pretty thin ice”;
- after two pages of very detailed terms and conditions, the policy stated that “Lloyds TSB General Insurance adheres to the Code”; and
- that statement was “not part of the terms and conditions” and could not “possibly amount to a contractual term”. Paragraph 10.2 of the Code also makes it clear that any breach provides “no contractual rights for consumers”.
His Honour Judge Langan QC therefore concluded that District Judge Bullock “rightly disallowed” the proposed amendment to claim breach of fiduciary duty. The proposed claim under Section 75(1) also had “no prospects of success”. He therefore ordered Mr & Mrs Lawson to pay Black Horse Limited’s costs of £5,000.
Carson & Hazell v Black Horse Limited (2011), Unreported, 18 April 2011, Cambridge County Court
On 18 April 2011, His Honour Judge Maloney QC handed down judgment in Carson & Hazell v Black Horse Limited (2011), Unreported, 18 April 2011, Cambridge County Court. Black Horse Limited applied for the following parts of Mr Carson & Ms Hazell’s Particulars of Claim to be struck-out (or for summary judgment to be awarded on those parts):
- the allegation of misrepresentation;
- the allegation of a duty of care in negligence; and
- the allegation that Black Horse Limited owed Mr Carson & Ms Hazell a fiduciary duty, which it breached.
Before the hearing, Mr Carson & Ms Hazell’s barrister conceded that:
- the allegation that the PPI was compulsory, which was pursued as a misrepresentation under the Misrepresentation Act 1967; and
- the claim for damages under Section 75 of the CCA 1974,
could not be pursued because the allegations related to agreements made more than six years ago. They were therefore statue barred by virtue of the Limitation Act 1980.
After hearing submissions, His Honour Judge Maloney QC decided that:
- the remaining allegations of misrepresentation were “not adequately pleaded” and did not show “the misrepresentation which is alleged”. He therefore struck-out the claim for misrepresentation but allowed Mr Carson & Ms Hazell to re-state their case but on the basis that they “show why any statement was a misrepresentation and whether and how it was relied upon”;
- the claim for a duty of care in negligence was struck-out because as “long as a bank is operating fairly and within the law and regulations then the first and primary duty they have is to their shareholders. That duty is to make as much lawful profit as possible and so to increase profits”; and
- the claim for breach of fiduciary duty was struck-out because Mr Carson & Ms Hazell “knew full well that someone in the transaction was making a profit” and the “pleadings are plainly flawed”. He went on to decide that it was “a travesty of the concept of fiduciary duty that this is pleaded”.
His Honour Judge Maloney QC therefore struck-out the relevant parts of the Particulars of Claim and required Mr Carson & Ms Hazell to file and serve an Amended Particulars of Claim. He also ordered them to pay Black Horse Limited’s costs, which were assessed at £4,500.
Barnes & Barnes v Black Horse Limited (2011), Unreported, 31 May 2011, High Court of Justice, Manchester District Registry, Mercantile Court
On 31 May 2011, His Honour Judge Waksman QC (sitting as a judge of the High Court) handed down judgment in Barnes & Barnes v Black Horse Limited (2011), Unreported, 31 May 2011, High Court of Justice, Manchester District Registry, Mercantile Court. Mr & Mrs Barnes had applied for (amongst other things) permission to re-amend their Particulars of Claim to include additional claims for breach of fiduciary duty, negligence and breach of contract by Black Horse Limited. To support those allegations, Mr & Mrs Barnes argued that:
- they were sold PPI policies when they already had sickness benefit;
- the PPI policies were very expensive;
- Black Horse Limited did not advise them to shop around for PPI policies;
- they were told the policies were compulsory when they were not;
- Black Horse Limited did not establish that the policies were in their interest; and
- Black Horse Limited failed to follow the terms of certain documents.
After hearing submissions, His Honour Judge Waksman QC decided that:
- the draft Re-Amended Particulars of Claim was “not set out as helpfully as it might have been”;
- he had already given some “general case management guidance which emphasised the fact that such claims were frequently being made on an inadequate basis and the courts should be vigilant to weed out unsustainable allegations of breach of fiduciary duty at an early stage”;
- the “policy was simply offered as a product, not recommended or advised after an assessment of needs”;
- Mr & Mrs Barnes’ barrister accepted that “in this sort of situation it is exceptional for a lender to have any fiduciary duty to the borrower at all”;
- the General Insurance Standards Council (“GISC”) Private Customer Code (the “Code”) did not create a fiduciary relationship, particularly in a context where “no advice or recommendation is given” because there are no “assumed voluntary obligations [that] can possibly give rise to fiduciary obligations”;
- the argument that there is a fiduciary relationship if the insurer was a member of GISC was “absurd”;
- reliance on the OFT Non-Status Lending Guidelines for Lenders and Brokers (revised in 1997) did not apply because Mr & Mrs Barnes were not non-status lending and the agreement was not secured;
- Black Horse Limited was not Mr & Mrs Barnes’ agent: the “logical and common sense interpretation of the position here when one product only was being offered to the Barnes without any prompting (on their case) by them and absence any request for advice, is that it was being offered by Black Horse on behalf of the insurer”;
- the High Court’s recent decision in R (on the application of British Bankers Association) v The Financial Services Authority & The Financial Ombudsman Service  EWHC 999 (Admin) was of no assistance;
- of “more assistance” were the recent decisions by two judges “with considerable experience in this field”: His Honour Judge Langan QC’s decision in Lawson & Lawson v Black Horse Limited (2011), Unreported, 15 April 2011 and His Honour Judge Maloney QC’s decision in Carson & Hazell v Black Horse Limited (2011), Unreported, 18 April 2011, Cambridge County Court;
- the facts of this case came nowhere close to “crossing the line” from “mere honesty care and skill and the like to a fiduciary obligation”;
- if Mr & Mrs Barnes were right, “it would following that every time the bank sold a single product PPI policy to accompany a loan agreement, then, without more (assuming the insurer was a member of GISC) fiduciary obligations would arise”;
- given “its voluntary nature and the ambit of any complaint being limited to one made to the GISC, I cannot see that this can of itself establish a duty of care”;
- the fact that the Code “only forms part of the contract between the member and the GISC and excludes any rights to others… , emphasises that the only recourse contemplated for any breach of the Code was to GISC”;
- “conspicuously absent from the plead of a duty of care here is any factual basis relating to this particular case from which it could be drawn”;
- the argument that there was a contractual claim because the insurer “adheres to” to Code meaning Black Horse Limited was liable under Section 75 of the CCA 1974 was “the same argument for incorporation [that] was made before HHJ Langan QC in Lawson”. He agreed for His Honour Judge Langan QC’s reasons that this was not an arguable point;
- even if the Code was incorporated into the PPI contract, when it was made, “it is hard to see how there could be a breach of contract by reason of breaches of the Code which occurred before the contract is made”; and
- the claim for return of all monies paid under the three agreements by reason of an alleged mistake over their enforceability was abandoned at the hearing. His Honour Judge Waksman QC therefore refused to give Mr & Mrs Barnes permission to amend their Particulars of Claim to argue breach of fiduciary duty, negligence and breach of contract by Black Horse Limited. He noted that they were “unnecessary embellishments in the first place”. He ordered Mr & Mrs Barnes to pay Black Horse Limited’s costs of £5,000.
For many lenders and brokers, these three decisions will be extremely welcome particularly as one is binding on the County Court. They also follow in the footsteps of His Honour Judge Langan QC’s earlier decision in Soulsby & Soulsby v FirstPlus Financial Group plc & Another (2010), Unreported, Leeds Mercantile Court, 5 March 2010 which decided that there was no fiduciary relationship between the lender and the borrowers. It seems clear that an allegation of a fiduciary duty, which has always been an extremely high hurdle to clear, fails to disclose a real prospect of success. The fact that three senior judges, with one sitting on appeal from the County Court and another sitting in the High Court, have described such allegations as “wholly inadequate”, “a travesty of the concept of fiduciary duty” and coming nowhere close to “crossing the line” from “mere honesty care and skill and the like to a fiduciary obligation” should give encouragement to all judges tackling similar claims. The tone of the judgments are also extremely telling and it is likely to follow that applications for strike-out or summary judgment will be successful, with adverse costs orders being made against borrowers.
Similarly, other claims like a duty of care in negligence and liability for the creditor under Section 75 of the CCA 1974 have been dismissed by the Courts as failing to show a real prospect of success. His Honour Judge Maloney QC rightly reminded litigants that as “long as a bank is operating fairly and within the law and regulations then the first and primary duty they have is to their shareholders. That duty is to make as much lawful profit as possible and so to increase profits”. Similarly, His Honour Judge Waksman QC correctly stated that given “its voluntary nature and the ambit of any complaint being limited to one made to the GISC, I cannot see that this can of itself establish a duty of care”. We agree.
It is our experience that a considerable number of claims made by borrowers and their solicitors are wholly misconceived and include unnecessary “embellishments”. Lenders or brokers may therefore consider applying for these claims to be struck-out so that the real issues (if any) can be tackled. This will not only save the Court’s time and costs, but also allow the parties to concentrate on the real issues in dispute. That must be right.