Introduction

The day after the Court of Appeal’s decision in Harrison & Harrison v Black Horse Limited [2011] EWCA Civ 1128, His Honour Judge Owen QC gave judgment on another payment protection insurance claim in Jones v Northern Rock (Asset Management) plc (2011), Unreported, Lincoln County Court, 13 October 2011 which dealt with two common arguments: firstly, whether Northern Rock (Asset Management) plc (“NRAM”) complied with the Insurance: Conduct of Business Rules (“ICOB”); secondly, whether NRAM’s sales process created an unfair relationship under Section 140A of the Consumer Credit Act 1974 (the “CCA 1974”). Both lenders and intermediaries will be pleased to know that the Court robustly examined the borrower’s evidence, dismissed the borrower’s claim and awarded costs against the borrower on the indemnity basis.  

The Facts

Shortly before August 2006, Mr Jones applied for a loan with NRAM. It was NRAM’s position (which was not accepted by Mr Jones) that Mr Jones applied for the loan online and selected to take the ‘silver’ level of cover of payment protection insurance (“PPI”). NRAM argued that the sale of this policy was non-advised for the purposes of ICOB. Just over a year later, on 16 August 2007, Mr Jones proposed to consolidate his debts (including his existing loan with NRAM) and telephoned NRAM. Mr Jones spoke to the sales representative, who recommended Mr Jones take the ‘gold’ level of PPI. The loan was for £25,000. After the call ended, NRAM sent through its central processing facility:

  • the pre-contract information;
  • the agreement;
  • the initial disclosure document;
  • the demands and needs statement (called a ‘reasons why’) explaining NRAM’s recommendation;
  • a policy summary; and
  • a policy document.

The documentation included a ‘welcome letter’ which explained that the PPI was optional and, to take it, Mr Jones needed to tick and sign an additional box appearing on the agreement. Mr Jones was able to read the documentation at his leisure. On 20 August 2007 Mr Jones signed the agreement. He also signed and ticked a further box stating that he had a “wish” to take further credit to pay for the PPI. He then returned the agreement to NRAM. The policy’s cost was £13,243.25 plus interest.

The Claim

Mr Jones initially issued a claim against NRAM alleging (amongst other things) that the PPI was represented as compulsory. After disclosure and exchange of evidence, Mr Jones applied (and obtained) permission to amend his claim and abandon the allegation that the PPI was represented as compulsory (as this was not supported by the call recording) and expand his other allegations. Mr Jones also sought to rely upon Appendix 3 to the Financial Services Authority’s Dispute Resolution: Complaints (“DISP”). By the time of trial, Mr Jones also abandoned any reliance on DISP. He also abandoned his allegations that there was non-compliance with ICOB and/or an unfair relationship because NRAM failed to advise on, or take account of, the cost of alternative policies on the market and received a commission from the insurer (following Harrison). He therefore argued that:

  • NRAM failed to comply with ICOB by:
    • giving the impression that the PPI was compulsory;
    • drafting the consumer credit agreement in such a way that it was “pre-completed” with PPI and contained “no de-select box”;
    • failing to set out the PPI’s cost;
    • failing to tell Mr Jones that interest would be payable on the premium for the PPI;
    • recommending the PPI when it was unsuitable because it failed to take into account (a) Mr Jones’ sick pay from his employer, (b) the value of a quasi-life insurance and (c) Mr Jones’ pension;
    • failing to provide a pro-rata rebate on early settlement after the initial 30 day cancellation period;
  • NRAM’s failure to comply with ICOB and/or its sales procedure created an unfair relationship between the parties.  

The Decision

After hearing the recording of the telephone call (which was played in Court) and evidence from Mr Jones and Tasneem Tayub (a senior collections manager within the team responsible for NRAM’s unsecured lending portfolio), His Honour Judge Owen QC decided that:

  • the starting point when considering such claims “is the Claimant himself”. Mr Jones was born in 1970, had been employed by Royal Mail for 18 years at the time of the later agreement and had “a clear history and experience with loans and debt management” which was “set out by [the sales representative’s] correct questioning at the outset”;
  • the earlier loan was “selected by [Mr Jones] online, in circumstances where he was provided with the means of opting for the loan with or without PPI, and he chose ‘Silver’ cover”;
  • Mr Jones was “fully aware of the purpose of PPI and its benefits if a risk arose”;
  • there was “a faint issue raised by Mr Jones as to whether the documents were sent. He did not deny receipt, but was reluctant to state plainly that the documents were included in the envelope with the agreement” but His Honour Judge Owen QC was “satisfied that they were included”;
  • it was “for Mr Jones, as a capable adult, to determine whether he wished to read the documents”;
  • the sales representative’s “approach was appropriate and did not fall below the ICOB standard”. In particular, despite the sales representative failing to state the monthly and total cost of the PPI during the phone call, the “‘Key Financial Information’ plainly sets out the premium and monthly payments”;
  • Mr Jones was “concerned about whether he could obtain a loan to the maximum at an instalment which he could – just – afford. Insofar as he believed that the PPI was mandatory, that belief, if it existed, did not arise out of anything said by [the sales representative]. Mr Jones knew what sums he required, knew what PPI was and how it interrelated with the loan and its effect on the monthly payments
  • it was Mr Jones who had “assessed, certainly by the time he signed, that given the loan amount and the period, he chose to accept the recommendation of ‘Gold’ PPI”. If he “chose merely to glance at the documents without troubling to read them, that is probably because he was more than happy to continue with PPI on this enhanced basis, given the enhanced loan”;
  • if Mr Jones “chose to sign up to ‘Gold’ for another reason, that was due to his own self-induced ignorance in not reading the documents in his possession” and if he “signed up with inadequate knowledge, that was not due to anything said or done by NRAM, which complied with the minimum requirements”;
  • the “separate signature was required for the PPI, to indicate that, having considered the position in light of the documents, and assessed by his own knowledge and history, he had chosen to positively tick the box and sign”;
  • Mr Jones’ evidence that “might vaguely have cast his eye over the documents” but wanted to “distance himself from the importance of the documents” was “unimpressive – he knew what he was doing”;
  • the decision to uphold the complaint on the earlier loan, which was written either for customer relation reasons or for expediency, was not relevant. The letter did not “suggest that this subsequent agreement is tainted” and while “Mr Jones’ solicitors may have wanted to make something of it, there is no basis here for criticising this agreement”;
  • Mr Jones did not “enter this agreement due to any, or any material, breach of ICOB” and there was no unfair relationship.

His Honour Judge Owen QC therefore dismissed the claim. After hearing submissions on costs, he awarded them on the indemnity basis in the sum of £19,348.11.  

Comment

This is an extremely welcome decision from the Court and follows the Court of Appeal’s emphatic judgment in Harrison & Harrison v Black Horse Limited [2011] EWCA Civ 1128. It is, to our knowledge, the first decision from the Court on PPI after the handing down of Harrison. It is important to note that, once again, the Court was not impressed by the borrower’s evidence which His Honour Judge Owen QC thought was, at times, “unimpressive”. As we noted following the High Court’s decision in R (on the application of British Bankers Association) v The Financial Services Authority & The Financial Ombudsman Service [2011] EWHC 999 (Admin), consumers already in litigation (or contemplating litigation) who cannot clearly recall the sale with absolute clarity would be better served by discontinuing their claim (or not making it) and making a complaint either directly to the firm or FOS. Mr Jones did not and, instead, pursued his claim in the Courts. By the time of trial, Donns LLP (the solicitors instructed by Mr Jones), had incurred costs (excluding a success fee which was, no doubt, 100%) of around £49,000. If the success fee was 100%, Mr Jones’ costs would have been just short of £70,000 yet, by the time of trial, he had only paid £3,634.01 towards the PPI.

While NRAM did not produce the original seller to give evidence, it did have a transcript of the sale. In our view, the same conclusion would, however, have been reached if there was no transcript of the sale. It was telling that His Honour Judge Owen QC placed considerable (and understandable) weight on the fact that Mr Jones had previously applied for (and selected)

PPI during a non-advised sale. It was “for Mr Jones, as a capable adult, to determine whether he wished to read the documents” but he decided not to do so. The documentation (which was posted to his home address for him to read at his leisure) plainly explained the policy’s cost, its benefits, limitations and exclusions and the reason for recommending the policy. Mr Jones knew what he was doing and decided (on his own) to take further credit and enter into the policy. Finally, the Court’s decision to award costs on the indemnity basis is important. Plainly, His Honour Judge Owen QC was unimpressed by Mr Jones’ claim, or the way in which it was pursued, and gave a stark warning to borrowers who bring such a claim: it will be thoroughly tested and examined and, if it is without merit, it will be dismissed with serious cost consequences. Such an approach should be commended and is plainly right.