The recent settlement of the appeal to the Court of Appeal from His Honour Judge Langan QC’s decision, sitting as a High Court Judge in the Leeds Mercantile Court, in Barry Robinson Soulsby & Lynne Soulsby v FirstPlus Financial Group plc & Loans.co.uk Limited , Unreported, 5 March 2010, means that lenders and brokers have a very important and, in most cases, binding decision that they can rely upon on four issues often argued in payment protection insurance litigation: firstly, whether there was a duty to disclose all relevant facts because there were a relationship of utmost good faith; secondly, whether there was a fiduciary relationship; thirdly, whether a failure to comply with the Principles for Businesses, introduced by the Financial Services Authority (the “FSA”) created a cause of action; and fourthly, whether agreements that complete before 6 April 2008 are “related agreements” for the purposes of the unfair relationship test.
Mr & Mrs Soulsby were a married couple. They applied for, and obtained, three separate loan agreements with FirstPlus Financial Group plc (“FirstPlus”) dated 26 February 2002, 21 July 2003 and 13 July 2005. The first agreement was repaid when Mr & Mrs Soulsby entered into the second agreement which, in turn, was repaid when Mr & Mrs Soulsby entered into the third agreement. At the same time as entering into each loan, Mr & Mrs Soulsby obtained further credit from FirstPlus to allow them to enter into contracts for payment protection insurance (the “Policies”).
The Court had to determine (following FirstPlus’ application for summary judgment) the following issues:
- Whether there was a contract of utmost good faith meaning there was an obligation on FirstPlus to disclose all relevant facts about the Policies to Mr & Mrs Soulsby;
- Whether there was a fiduciary relationship between FirstPlus and Mr & Mrs Soulsby;
- Whether breach of the FSA’s Principles for Businesses created a cause of action; and
- Whether the first and second agreements, which completed before 6 April 2008, were “related agreements” for the purposes of the unfair relationship provisions in Section 140A of the Consumer Credit Act 1974 (the “CCA 1974”).
Utmost Good Faith
Many lenders and brokers will, no doubt, be familiar with Mr & Mrs Soulsby’s argument that there was a contract of utmost good faith (or, to use its Latin phrase, a contract of uberrimae fidei) between FirstPlus and them meaning there was a duty to disclose all relevant facts about the Policies. HHJ Langan QC decided that, as there was no contract of insurance between FirstPlus and Mr & Mrs Soulsby (it was, in fact, between Mr & Mrs Soulsby and the insurer), it failed to disclose a real prospect of success and should therefore be struck out.
Mr & Mrs Soulsby attempted to overcome this decision by:
- arguing that Lord Justice Millet said in Bristol & West Building Society v Mothew  Ch 1 that a person is not subject to fiduciary obligations because he is a fiduciary but is, in fact, a fiduciary because he subject to those obligations; or
- relying on obligations and guidance by the FSA or the Office of Fair Trading.
The Court was not persuaded: it decided that if these obligations were binding on FirstPlus then a customer had two options: bring a claim for damages for breach of statutory duty or make a complaint to the relevant regulatory authority.
We have commented in earlier reviews that the Court is often unwilling to find a fiduciary relationship between a bank and its customer. HHJ Langan QC took a similar view and approved His Honour Judge Holman’s decision in an earlier case, James v Black Horse Limited (2009), Unreported, Manchester County Court, 16 September 2009, saying that “it is insufficient for a pleading to raise a bald assertion that a fiduciary duty exists, without setting out the factual matrix from which the duty is said to arise”. The learned judge noted that:
- no particulars were given why a fiduciary relationship had arisen;
- the relationship between a banker and a customer does not ordinarily result in a fiduciary relationship: National Westminster Bank Limited v Morgan  AC 686;
- there was nothing special in this case meaning it was outside of the general rule; and
- he had not been persuaded by Mr & Mrs Soulsby’s submissions in the context of the contract of utmost good faith.
He therefore went on to decide that this issue also failed to disclose a real prospect of success.
FSA’s Principles for Businesses
This allegation was dealt with very shortly by the Court. It noted that whilst Section 150(1) of the Financial Services and Markets Act 2000 (the “FSMA 2000”) created a cause of action for breaches of rules made under FSMA 2000, Section 150(2) went on to say that the rules could specifically exclude such a claim. After considering PRN 3.4.4 of the Financial Services Handbook, the Court noted that a breach of the Principles for Business had been specifically excluded from Section 150(1). There was not, therefore, any cause of action for breach of the Principles of Business and so this issue also failed to disclose a real prospect of success.
Perhaps the most important part of HHJ Langan QC’s judgment considered the unfair relationship allegation. Essentially, Mr & Mrs Soulsby argued that there was an unfair relationship existing between them and FirstPlus arising out of the first and/or the second and/or the third agreement. They alleged, in particular, that the first and/or the second agreements were ‘related agreements’ within the meaning of Section 140A and 140C of the CCA 1974. FirstPlus accepted that Mr & Mrs Soulsby could argue that there was an unfair relationship relating to the third agreement, although it said such an argument would ultimately fail. It suggested, however, that the Court could not consider the first and/or the second agreements as they had completed before 6 April 2008.
Lenders will be aware that the unfair relationship provisions replaced, subject to transitional provisions, the extortionate credit bargain test. After considering submissions, HHJ Langan QC honed in on the wording of Paragraphs 16(4) and 16(5) of Schedule 3 to the Consumer Credit Act 2006. He decided that:
- the Court could make an order on the third agreement under Section 140B(1);
- the first and second agreements would otherwise have been related agreements as they were entered into before 6 April 2007 but they had become completed before 6 April 2008;
- the first and second agreements could not, therefore, be attacked under the unfair relationship provisions although they could (although were not by Mr & Mrs Soulsby) be challenged as extortionate credit bargains under Sections 137 to 140 of the CCA 1974.
It therefore followed that this issue also failed to disclose a real prospect of success.
This is a pleasing, welcome and binding decision from the High Court on issues that typically arise in payment protection insurance litigation. Given that there was no contract of insurance between FirstPlus and Mr & Mrs Soulsby, it is submitted that this argument was always bound to fail. Even if there was any material non-disclosure, our view is that it only goes towards the validity of the insurance contract, not the credit agreement. In any event, MacGillivray on Insurance Law (London: Sweet & Maxwell, 2008: 11th Edition) clearly expresses the view that the duty to disclose all material facts “does not extend to giving the assured the benefit of the insurer’s market experience, such as, for instance, that the same risk could be covered for a lower premium either by another insurer or (presumably) by the same insurer under a different type of insurance contract. The insurer is not required to perform the role of the assured’s broker in this regard. In any event, the sole remedy for breach by the insurer is avoidance, which is of little use to the assured.” We agree.
The Court’s decision on fiduciary relationship is also very sensible. The Court is often extremely reluctant to impose a fiduciary relationship, particularly where the starting point is that a bank does not owe its customer a fiduciary duty. Our experience is that fiduciary duty claims are often poorly particularised; such claims are therefore liable to be struck-out by the Court. Similarly, claims relying upon the Principles for Business are also likely to be struck-out. Lenders facing such a claim should therefore consider the possibility of making an application to the Court.
Finally, the decision on the unfair relationship point is of practical significance. Our experience is that a number of debtors argue, particularly those who had a number of agreements (each with optional payment protection insurance), that the creditor has created an unfair relationship. HHJ Langan QC’s decision is very clear: if an agreement has begun before 6 April 2007 and completed before 6 April 2008 then it is not a related agreement and cannot, therefore, be considered by the Court in the context of an unfair relationship claim. This is a major point for lenders, particularly where the burden of proof is reversed, and will especially help those that struggle to find copies of the documentation issued to debtors for earlier agreements.