His Honour Judge Charles Harris QC, sitting as a judge in the Oxford County Court, recently handed down judgment in Norman Vernalls & Ann Vernalls v Black Horse Limited [2010], Unreported, 4 November 2010, on two issues that often arise in payment protection insurance litigation: firstly, whether Black Horse Limited (“Black Horse”) failed to comply with the Insurance: Conduct of Business Rules (“ICOB”) and, secondly, whether the relationship between the parties was unfair within the meaning of Section 140A of the Consumer Credit Act 1974 (the “CCA 1974”).

The Facts

Mr & Mrs Vernalls were a married couple. On 25 September 2006 they entered into a fixedsum loan agreement, regulated by the CCA 1974, with Black Horse. At the same time, Mr & Mrs Vernalls opted to take further credit of around £11,000 to pay the premium for a contract of payment protection insurance (the “Policy”) with a third party insurer. Notably, Mr & Mrs Vernalls made two successful claims under the Policy.

The Issues

The Court had to determine the following issues:

  1. Whether Black Horse failed to comply with ICOB; and  
  2. Whether the relationship between the parties was unfair within the meaning of Section 140A of the CCA 1974.  


Because the sale of the Policy by Black Horse took place after 14 January 2005, it was subject to ICOB. Mr & Mrs Vernalls were therefore given, before entering into the agreement and opting to take further credit to pay for the Policy, a “demands and needs” statement. The statement asked whether they would like repayments to be paid whilst they could not work or were involuntarily unemployed. They answered “yes” to both questions and also said that they did not have any other cover available to them. Due to inconsistencies in the evidence, by the end of the trial, the only live issue was whether Mrs Vernalls should have been asked if she received sick pay from her employer.

Much of HHJ Harris QC’s judgment focused on the evidence put forward by Mr & Mrs Vernalls. He noted:

  • the evidence of both Mr & Mrs Vernalls was “largely identical”;  
  • the statements mentioned “house insurance” but, in evidence, both accepted that this was not mentioned to them during the sale;  
  • Mr Vernalls did not read the key financial information box which explained the cost of the Policy and simply said “I am a bit lazy really”;  
  • the contention that the Policy was compulsory was abandoned at trial;  
  • the allegations over a “cash-back” of the premium were also abandoned at trial with no explanation;  
  • solicitors acting for Mr & Mrs Vernells had included inaccurate information in the witness statements; and  
  • it was accepted by Mr & Mrs Vernalls in evidence that they received all of the documentation in good time and could have read it if they had wanted to do so.  

HHJ Harris QC therefore decided that:  

  • it was “hard to give great confidence to [Mr & Mrs Vernalls’] evidence”;  
  • he preferred Black Horse’s evidence that the sales script would have been followed;  
  • there was no reason why Black Horse should have been under a duty to ask Mr & Mrs Vernalls about the sick pay available from their employers. In any event, the benefit of the Policy could be claimed in addition to any pay from their employers; and  
  • the reference to “charges” in ICOB 2.10.4 was only relevant to fees: no fee was charged by Black Horse so this was not relevant.  

It therefore followed, in HHJ Harris QC’s decision, that Black Horse had complied with ICOB.  

Unfair Relationship

Mr & Mrs Vernalls argued that the relationship was unfair because Black Horse paid a commission out of the premium and, if the Policy was sold, the sales person would receive a bonus. They also argued that the Policy was expensive and that, instead of advancing around £11,000 to pay the premium, Black Horse should have offered to lend more money to Mr & Mrs Vernalls without selling the Policy.

After hearing evidence and submissions, HHJ Harris QC decided that the agreement was fair because:  

  • commissions paid by the insurer to the lender were “widespread” and “because of them it is not necessary to charge borrowers for the provision of the service”;  
  • it was clear that Mr & Mrs Vernalls “knew what they were being asked to pay and decided to do so”; 
  • a “consumer is fully able to decide whether something is sufficiently attractive to make it an item that he wished to buy”;  
  • the fact that the Policy was expensive did not make the relationship unfair;  
  • the payment of the commission did not, unlike the decision in Yates & Lorenzelli v Nemo Personal Finance & Another [2010], Unreported, 14 May 2010, cause the broker to give false information;  
  • the fact that the salesperson would receive a bonus did not make an agreement unfair. Indeed, such a bonus existed “to incentivise her to carry out the procedures properly”;  
  • a lender is under no obligation to tell prospective borrowers that, instead of using credit to pay for the premium, they could borrow more.


This is, in our view, a very sensible decision from the County Court. Whilst it is not binding on other judges, HHJ Harris QC had adopted a very pragmatic approach to the issues, particularly where the evidence from the debtors can, at best, be described as inconsistent. It also endorses the approach of District Judge Marston in Harrison & Harrison v Black Horse Limited [2010], Unreported, 19 July 2010 where he noted that the consumer law’s role is, as Lady Justice Hale said in The Office of Fair Trading v Abbey National plc & Others [2009] UKSC 6, to “give the consumer an informed choice rather than to protect the consumer from making an unwise choice”. This must plainly be right.

The thorny issue of commissions, which is often argued with considerable vigour by debtors and their solicitors, is also practically dealt with. We fully endorse the learned judge’s comment that the payment of commissions allows creditors to offer any service they may provide free of charge. If commissions were not paid, it would place a considerable pressure on creditors and brokers to charge fees or substantially higher fees. On its own, this does not, and should not, make a relationship unfair and capable of challenge under the unfair relationship provisions in Section 140A of the CCA 1974.