On 4 July 2012, a High Court decision was handed down, that may have a significant impact for any financial institution dealing with litigated PPI mis-selling claims.

Specifically the Judgment may impact upon an institution’s strategy for dealing with cases where court proceedings were issued without the institution being afforded the standard 8 week response period set down by the FSA for responding to PPI mis-selling complaints.

The Case

The decision in question is in the matter of Andrew & Ors v Barclays Bank Plc [2012] EWHC B13 (Mercantile).  The full text of the Judgment can be found here.  

The case arises from Barclays Bank Plc (“Barclays”) applying to stay PPI claims, where the claimants had not followed the standard complaints process put in place by the FSA for PPI mis-selling and had not allowed Barclays 8 weeks to respond to complaints. In the Judgment, His Honour Judge Waksman QC, sitting the in the High Court, Manchester District Registry, sets out guidance for the appropriate pre-action conduct in PPI mis-selling cases and some of the consequences that flow from a failure to follow the same.

The solicitors representing the claimants in this case were Wixted & Co and Ultimate Law Limited.

The Guidance

HHJ Waksman QC gave the following general guidance:

  1. Claimants should bring PPI mis-selling claims through the FSA complaints procedure, by submitting the standard 8 page complaint form available from the Financial Ombudsman Service, to the relevant financial institution, so that the institution can attempt to respond within the relevant 8 week period set down by the FSA. Claimants should not pursue litigation before taking this step. 
  2. If the complaint is not upheld, or if a final response is not forthcoming within the 8 week period, or any reasonable extension of this period, the claimants should issue a letter before claim, in accordance with the Practice Direction on Pre-Action Conduct, prior to commencing proceedings.
  3. Where claimants do not follow the FSA complaint procedure and issue a letter of claim as a first step, the financial institution should send out the complaint form to the claimants’ solicitors and request that they complete and return the same, indicating that the complaint will be dealt with in the 8 week period under the FSA’s complaints procedure.
  4. Where claimants commence proceedings without following or waiting for the conclusion of the FSA’s complaints procedure, the financial institution can apply for the proceedings to be stayed so that the claimants can make a complaint in accordance with the FSA’s complaints procedure.  HHJ Waksman QC indicates that the claimants will be at risk of paying the costs of the application to stay the proceedings.  
  5. Where the FSA complaints procedure has not been followed and a financial institution is considering applying for a stay of proceedings, to enable the FSA complaints procedure to be followed, the institution should invite the claimants to comply, before applying for a stay.

Guidance on Costs

While the guidance offered on the appropriate pre-action procedure is useful, unfortunately HHJ Waksman QC offers little explicit guidance on the issue of liability for costs (whether that be the costs of the proceedings, or any pre-action steps preparatory to the litigation, or following the standard FSA approved complaints procedure).

The decision does not therefore explicitly deal with the common scenario where:

  • A complaint / letter before action has been received by a financial institution; and
  • The institution issues a response, offering a full PPI redress, within the 8 week response period allowed under the FSA’s complaints procedure; and
  • The claimants / solicitors for the claimants, refuse to accept that the dispute is settled, without the payment of their legal costs and subsequently commence legal proceedings.

While no explicit guidance is offered, inferences on the issue of costs can be drawn from the Judgment.  Further:

  • HHJ Waksman QC indicates that the costs benefits of the FSA’s complaint process are “obvious” as the scheme is “free” for the claimants.  Therefore, financial institutions might suggest that the claimants should not be entitled to recover any costs for using the process.
  • By extension of the same logic, financial institutions can argue that where a full offer of redress is made within the complaints procedure, it is thereafter unreasonable to incur the costs of sending a letter of claim and issuing proceedings.

In the absence of any explicit guidance indicating that costs should be irrecoverable where the FSA’s complaints process is used, it is expected that solicitors firms representing claimants in these matters will continue to argue that a full offer of redress does not represent an offer to settle the complaint in its entirety, as it makes no provision to settle the issue of liability for legal costs. However, this poses the question:

What legal costs can a claimant expect to recover for utilising a free complaint scheme, which effectively resolves the substantive complaint, prior to the claimants’ solicitors preparing a letter before action?

Judges may well conclude that the appropriate answer to this question is “none”. This would certainly seem to be the most logical next step, particularly when viewed against the backdrop of recent case law that appears to demonstrate an increasing judicial desire to stop the PPI compensation culture from spiralling any further out of control.