Harrison Appeal is dismissed - Court of Appeal decides that nondisclosure of commission in the sale of PPI does not create an unfair relationship

Today the Court of Appeal handed down its much awaited Judgment in the matter of Harrison and Harrison v Black Horse Limited.

Matters Considered by the Court of Appeal

  • Whether the receipt of an undisclosed commission by the lender for selling a payment protection insurance ("PPI") policy gave rise to an unfair relationship for the purposes of section 140B of the Consumer Credit Act 1974.
  • Whether receipt of an undisclosed commission by the lender in such circumstances conflicts to a material extent with the lender's duty to ensure that the PPI policy was suitable for the customers' demands and needs under the Insurance Conduct of Business Rules ("ICOB").
  • Whether the lender in such circumstances must take into account the cost of the PPI policy when considering whether the PPI policy was suitable for the customers' demands and needs under ICOB.

The Court of Appeal found that:

  •  There was no requirement on the lender, whether under ICOB, or otherwise under the statutory and regulatory framework, to disclose the amount of commission received for selling the PPI policy and consequently, there was no basis to find that the lack of disclosure gave rise to an unfair relationship.
  • The receipt of an undisclosed commission by the lender did not, on the facts of the case (where the sales person had no knowledge of the commission), conflict to a material extent with the lender's duty to ensure that the PPI policy was suitable for the customers' demands and needs and furthermore, the size of the commission (in this case 87% of the premium) was not a relevant consideration.
  • There was no requirement on the lender to take into account the cost of the PPI policy when considering whether the PPI policy was suitable for the customers' demands and needs, in circumstances where the issue of cost was not raised by the customer and where the lender had made it clear that it could offer the customer only one PPI product (as opposed to having a number of different products on offer).

Other points of note

  • The Court of Appeal distinguished the decision of HHJ Platts in Yates and Lorenzelli -v- Nemo Personal Finance Limited (unreported, Manchester County Court, 14 May 2010). The case of Yates (oft-quoted by customers when attempting to assert an unfair relationship against a lender based on undisclosed commission) was noted to be a decision based upon its own facts, where a substantial undisclosed commission was received an credit broker, where the credit broker had misrepresented that the PPI policy was a condition of a loan and where the credit broker subsequently became insolvent.  While the Court of Appeal stopped short of finding that the decision in Yates was wrong, Lord Justice Tomlinson clearly indicated that he did not follow HHJ Platts' reasoning and noted that the finding that  there had been a misrepresentation would usually be irrelevant to the question of whether the relationship was unfair.
  • The lender succeeded in defending the claim notwithstanding that it could not produce the sales person who sold the PPI policy to give evidence.  The lender succeeded on the basis of giving evidence as to the detail of its sales process and in reliance on the scripting its sales persons were obliged to use.

Implications of the Judgment

  • The Judgment is likely to be the death knell (certainly within the context of PPI mis-sale claims) for allegations  that an unfair relationship exists where a lender has complied with or has not breached its regulatory obligations.
  • Where customers have alleged in the course of litigation that an unfair relationship exists due to a lender receiving undisclosed commission for the sale of a PPI policy, and where the lender was effectively merely selling its own product, it is expected that the allegation will now be withdrawn.
  • Furthermore, where it is asserted that an unfair relationship existed due to the price of the PPI product and the lender was effectively merely selling one (its own) product, the allegation would now seem to be unsustainable.
  • Where an unfair relationship is alleged to exist and the PPI policy was sold by a broker, the Judgment offers lenders renewed hope of distinguishing the Judgment in Yates and Lorenzelli -v- Nemo Personal Finance Limited.