Introduction

Earlier today, at 10am on 7 December 2011, His Honour Judge Moloney QC handed down judgment in Mark Williams & Karen Williams v Black Horse Limited (2011), Unreported, Cambridge County Court, on three common arguments in payment protection insurance (“PPI”) mis-selling claims: firstly, whether the policy of PPI (the “Policy”) was represented as compulsory and/or represented that it would improve Mr & Mrs Williams’ prospect of getting the loan; secondly, whether Black Horse Limited (“Black Horse”) failed to comply with the Insurance: Conduct of Business Sourcebook (“ICOBS”) when selling the Policy; thirdly, whether there was an unfair relationship between the parties within the meaning of Section 140A of the Consumer Credit Act 1974 (the “CCA 1974”). At trial, Mr & Mrs Williams abandoned the allegation of unfairness but maintained their other two claims. After considering the evidence and hearing submissions, including submissions made on the effect of the Court of Appeal’s judgment in Harrison & Harrison v Black Horse Limited [2011] EWCA Civ 1128 (which was handed down on the morning of the second day of the trial), HHJ Moloney QC dismissed Mr & Mrs Williams’ claim.

The Facts

In June 2008, Mr & Mrs Williams were both working but Mr Williams was the main breadwinner. Even after excluding their mortgage, Mr & Mrs Williams had debts of around £18,500. They wished to consolidate their debts and spoke to Black Horse (after being introduced by a broker). Mr & Mrs Williams met with Black Horse’s employee, Jessica Day on 4 June 2008. She was not called to give evidence at trial because she was no longer working for Black Horse. She had failed to respond to a request to attend court to give evidence for her former employer. As general insurance selling is heavily regulated, her evidence as to what happened 3½ years ago was unlikely to add much to what Black Horse had in its paper records and computer systems. Instead evidence was given at trial by Mr Paul Starling on these records and this evidence was preferred by the judge to that of Mr & Mrs Williams. Mr & Mrs Williams asked for a loan of £15,000 (the “Loan”) to be repaid over five years. The Loan was unsecured.

During the meeting, Black Horse completed the demands and needs statement (the “DAN”), which indicated Mr Williams wanted cover. Mr Williams signed the DAN. Black Horse provided to Mr & Mrs Williams (amongst other things) a copy of the agreement, the DAN and the “key facts” policy summary. At the end of the meeting, Mr & Mrs Williams signed the agreement. They also ticked and signed a separate box opting to take further credit of £4,805 to pay for the Policy.

The Issues

The Court had to determine whether:

  • the Policy was represented as compulsory and/or Mr & Mrs Williams were given the impression that it was compulsory;
  • Black Horse breached ICOBS by failing to:
    • advise that the Policy was optional;
    • obtain a proper demands and needs statement and advise on the issue of cost and value for money;
    • tell Mr & Mrs Williams of other policies and the disadvantages of a single premium policy;
    • advise on the Policy’s full cost;
    • provide the Policy’s summary before signing the agreement;
    • provide an agreement where PPI could be “de-selected”.

The Decision

After hearing the evidence and submissions, HHJ Moloney QC decided:

  • the fact that Mr & Mrs Williams initially stated in their letter of claim and Particulars of Claim that they had to have the Policy but, by the time of trial, had watered down their allegation in their statements and Amended Particulars of Claim to a suggestion that their application would be looked on “more favourably” if they took PPI, was “not a particularly persuasive as a foundation”;
  • the burden of proof was on Mr & Mrs Williams yet they gave conflicting evidence: Mr Williams had described Jessica Day as “bubbly” while Mrs Williams described her as “flighty”;
  • Mr Williams’ oral evidence was “not given in a persuasive or convincing manner … and his recollection of collateral details such as how they had entered the building was very weak”. By contrast, Mrs Williams’ oral evidence was “business-like” but “on the crucial question of whether Jessica Day had actually said words to the effect contended for, her evidence under crossexamination differed materially from her husband’s”;
  • when assessing the quality of the evidence, one item which helped the Court was the DAN which stated that the Policy “took effect only if he became unemployed or suffered an accident etc. not if she did” but Mrs Williams told the Court that “this was a surprise to her; she had believed at the time that both of them were covered”;
  • the “contemporary documents, prepared by Jessica Day during the meeting, clearly indicate that this topic was dealt with and a decision made to cover only his inability to work. This makes commercial sense, given that he was the main breadwinner; but if so, then it must also follow that she has very little recollection even of that part of the meeting that most directly affected her”;
  • the agreement “clearly states that the PPI is optional (including in a box apparently ticked by them). While this is not necessarily enough to fix the borrowers with notice of the point, and would certainly not draw the sting of a positive misrepresentation, it is less likely that a salesperson would make a false statement which was liable to be exposed at once if the borrower read the form carefully”;
  • Mr & Mrs Williams therefore did not, despite Black Horse not calling Jessica Day, persuade the Court that there was any misrepresentation. To make such a misrepresentation would have gone “against [Jessica Day’s] training and her employer’s written directions, for no gain to herself”;
  • the fact that a commission was received by Black Horse from the insurer was irrelevant, particularly given the Court of Appeal’s decision in Harrison;
  • the Financial Services Authority’s Dispute Resolution: Complaints (“DISP”) rules are “not intended to apply to cases which go to court, or to supplant the ordinary rules of law as to evidence and causation, and I do not accept [Mr & Mrs Williams’] suggestion that I should follow it in that way”;
  • after considering the alleged breaches of ICOB:
    • Black Horse did not represent the Policy as compulsory so there was no breach;
    • the Policy’s full cost was clearly set out, separately, on the face of the agreement: there was no requirement to do anything else;
    • there was no requirement under ICOBS to provide an agreement where the PPI could be “de-selected”. Even if there was, any failure to provide such an agreement was overcome because the Policy could be cancelled within the first thirty days;
    • the DAN, which was signed by Mr & Mrs Williams, deals in a “proper manner with the matters necessary to decide whether a client needs PPI at all” and advised Mr Williams to take out cover;
    • despite the fact that Harrison looked at ICOB (which ICOBS replaced on 6 January 2008), the Court would adopt the same approach. This meant that while Mr & Mrs Williams were concerned about cost, Black Horse “sufficiently discharged its duties by ensuring that they could afford the premium. To go further and require [Black Horse] to advise on cost and suitability in an open market context would be inconsistent with its status as a tied advisor (of which [Mr & Mrs Williams] were aware) and with its whole business model, and I do not consider that the ICOBS rules in their 2008 version, and in the context of the then legislative regime (now changed), lead me to that draconian result”;
    • while the Court was “prepared to accept” that Mr & Mrs Williams were not given a policy summary at the time of the meeting with Jessica Day (but the Judge found this was sent out to them by post the following day), the Court was “firmly of the view that this non-compliance with the rules had no causative effect on loss”.

HHJ Moloney QC therefore dismissed the claim. This was a multi track case. An application for permission to appeal was made to HHJ Moloney QC. He has refused permission to take this case to the Court of Appeal. His reason for this is that he says he has correctly applied the test laid down by the Court of Appeal in Harrison & Harrison v Black Horse Limited [2011] EWCA Civ 1128.  

Comment

In a very short period of time after the Court of Appeal’s emphatic judgment in Harrison & Harrison v Black Horse Limited [2011] EWCA Civ 1128, the Courts have, after testing the evidence, dismissed a number of PPI mis-selling claims. HHJ Moloney QC’s decision is important for all lenders and intermediaries. It is, to our knowledge, the first time that a fully reasoned judgment has been handed down on ICOBS (rather than ICOB). Unsurprisingly, the Court considered the High Court’s and Court of Appeal’s interpretation of ICOB in Harrison and applied it to ICOBS. This is extremely welcome: if the Court applied a different test it would be difficult to reconcile the clear position under ICOB where an intermediary who only sells one policy does not need to compare with other policies.  

The judgement of HHJ Waksman QC in the High Court in Harrison v Black Horse [2010] EWHC 3152 (QB) was approved by Lord Justice Tomlinson in the Court of Appeal. HHJ Waksman QC decided that the pleaded claims for breach of ICOB would have failed anyway because of causation. This is the approach the Courts have always taken in this area so the approach of HHJ Moloney in this case should come as no surprise. In September 2011 His Honour Judge Havelock-Allan handed down judgment in Rubenstein v HSBC Bank plc [2011] EWHC 2304 (QB) in the High Court in Bristol. He had to consider a claim by an investor against a bank for breach of a different set of rules issued by the FSA – this time the Conduct of Business Rules (“COBs”). HHJ Havelock-Allan followed the approach of HHJ Waksman QC in Harrison v Black Horse and roundly dismissed the pleaded claims for breach of COBs because they failed in causation. He said this:

“That still leaves the breaches of COB. The breaches of the procedural rules in COB 5.2 and 5.3 can give rise to no more than nominal damages because I accept Mr Marsden’s evidence that, even if he had followed the procedural requirements to the letter, he would still have recommended the EVRF….. However, neither side submitted that in this case the measure of the damages under section 150 of FMSA was any different from that which could be recovered for breach of contract or in tort. No one has suggested that the same approach to causation, foreseeability and remoteness does not apply. Accordingly, for the reasons I have already given, I am unable to find that the decision to invest in the EVRF caused the loss which Mr Rubenstein claims or that the loss is one which was a reasonably foreseeable consequence of his having made the investment.”

The High Court also came to a similar conclusion on causation, again applying COBs, in Zaki & Others v Credit Suisse (UK) Limited [2011] EWHC 2422 (Comm). After hearing evidence, Mr Justice Teare decided that “Section 150 of the Financial and Services Markets Act 2000 requires a claimant to establish that loss has been suffered as a result of a breach of duty. CSUK argued that causation had not been established. I agree that it has not been established”.

It is also welcome that Mr & Mrs Williams’ reliance on DISP was dismissed. We firmly believe that a borrower has an option: he or she can go to the Financial Ombudsman Service (“FOS”) or go to the Court instead. The FOS service is free for customers to use. If a claim is made to FOS, then FOS will determine using their “fairness” criteria which allows it a wide discretion. FOS had can take account of the FSA principles and also consider the latest version of DISP rather than the version that was in force when the sale took place. On the other hand the Courts have to determine disputes on the law, using the Civil Procedure Rules and after considering the evidence which will be tested at a trial by cross-examination. If claimants do not come up to proof their claims will be dismissed with costs. A Court will look at the rules in force at the time of the sale and a court cannot give retrospective effect to either the present version of DISP or the FSA’s Policy Statement PS 10/12.

The Court also robustly dismissed the claim for misrepresentation. We regularly see claims made by borrowers alleging misrepresentation covering the full spectrum of potential statements: from a claim that they were told that they had to have PPI to a claim that they were given the impression that they had to have PPI. In our view, the Court was rightly reluctant to decide there was a misrepresentation where Mr & Mrs Williams failed to give evidence that they were told they had to have the PPI. Even if such a claim is made, as Mr Recorder Rees correctly noted in Buckingham & Buckingham v Black Horse Limited (2011), Unreported, Birmingham County Court, 3 February 2011, a claim for misrepresentation is an extremely serious one and needs to be supported by “compelling evidence”. In our experience, borrowers are rarely able to provide such evidence, particularly when the contemporaneous documents wholly undermine their claims. The perceived ‘gravy train’ of PPI mis-selling claims is therefore hitting the buffers. With Christmas approaching the fizz of these speculative claims is now falling very flat indeed.