On 12 November 2014 the Supreme Court handed down its much anticipated judgment in Plevin v Paragon Personal Finance Limited  UKSC 61. The case revisited the issue of unfair relationships in payment protection insurance (PPI) mis-selling claims and focussed on two key questions:
- Whether the failure to disclose the amount of commission paid in respect of the PPI created an unfair relationship; and
- Whether the broker’s alleged failure to adequately assess the suitability of the PPI for Mrs Plevin’s demands and needs was something done or omitted to be done “on behalf of” the lender for the purposes of s.140A(1)(c) of the Consumer Credit Act 1974 (the CCA).
In its judgment, the Supreme Court opted to give a narrow interpretation to the term “on behalf of” and overruled the Court of Appeal (CA) decision in Harrison & Anor v Black Horse Limited  EWCA Civ 1128 by deciding that the non-disclosure of commission could render the relationship between a borrower and lender unfair.
Mrs Plevin was a 59 year old college lecturer. She received an unsolicited leaflet from LLP Processing (UK) Limited (LLP), an ICOB regulated broker, and following a demands and needs assessment conducted via telephone, LLP made a recommendation of PPI to her.
Paragon Personal Finance Limited (Paragon) was one of a number of lenders on LLP’s books. After signing the application form, Paragon telephoned Mrs Plevin and conducted a “speak with” call, the purpose of which was to comply with anti-money laundering regulations. There was no further assessment for Mrs Plevin’s demands and needs during that call. Mrs Plevin subsequently entered into a credit agreement with Paragon on 21 March 2006 for a total amount of £39,780 which comprised a loan of £34,000 together with an upfront PPI premium of £5,780. Of the PPI premium, 71.8% was taken in commission with LLP receiving £1,870 and Paragon retaining £2,280. Neither of the commission amounts were disclosed to Mrs Plevin.
At first instance, Mrs Plevin’s claim that there was an unfair relationship was dismissed. This was appealed to the CA and conjoined with the similar case of Conlon v Black Horse Limited. In Conlon, the appeal was dismissed on the basis that the facts could not be distinguished from Harrison. The same point of appeal was also dismissed by the CA in Plevin. However on the other key point in Plevin, the CA opted for a broad interpretation to the term “on behalf of” by deciding that an unfair relationship could be created as a consequence of the failings of an independent credit intermediary. It therefore found that these actions were done (or not done) “on behalf of” Paragon. It is this point which was later appealed to the Supreme Court in Plevin.
The CA decision in Conlon was also appealed but settled before the Supreme Court hearing.
Supreme Court decision
In its unanimous decision, the Supreme Court overruled Tomlinson LJ’s decision inHarrison which stated that a relationship could not be found to be unfair where there had been no breach of the relevant statutory regulations.
In his sole judgment, Lord Sumption stated that the ICOB rules are “some evidence” of the “standard of commercial conduct reasonably to be expected of the creditor” and “impose a minimum standard of conduct”. He went on to say that a relationship could be unfair for reasons “which do not have to involve a breach of duty” and “the question whether the debtor-creditor relationship is fair cannot be the same as the question whether the creditor has complied with the ICOB rules, and the facts which may be relevant to answer it are manifestly different”. Considerations which would be relevant when assessing the fairness of a relationship include “the characteristics of the borrower, her sophistication or vulnerability, the facts which she could reasonably be expected to know or assume, the range of choices available to her, and the degree to which the creditor was or should have been aware of these matters”.
On the facts in Plevin, Lord Sumption held that the non-disclosure of commission was unfair because it led to a “sufficiently extreme inequality of knowledge and understanding” and stated that there is a “tipping point” at which commissions become so large that it renders the relationship unfair. He recognised that it is difficult to say where the “tipping point” lies, but found in this particular case that 71.8% was “a long way beyond it”. As the only party who could have known the size of both commissions, responsibility for the commission disclosure sat with Paragon and it was therefore held that this made the relationship unfair.
Lord Sumption placed significant emphasis on the facts of the case and particularly on Mrs Plevin’s evidence that had she known about the size of the commission, she would have questioned it, stating this was of “critical relevance”. Therefore whilst non-disclosure of commission now does have the potential to make the relationship unfair, there are still evidential hurdles which must be overcome and it remains clear that each case will be judged on its own facts.
Interpretation of “by or on behalf of”
The second point of the Supreme Court judgment centred on the failure to assess the suitability of the PPI policy for Mrs Plevin’s needs. As this statutory obligation was expressly assigned to LLP, the Supreme Court held that Paragon could not have been expected to carry out its own suitability assessment. The key question was therefore whether the acts or omissions of LLP were done (or not done) “on behalf of” Paragon.
Briggs LJ in his CA judgment decided on a narrow balance that a broad interpretation of “on behalf of” was correct so that acts or omissions by a person who “played some part in the bringing about of the credit agreement for the creditor” would be caught. The Supreme Court disagreed with this interpretation and Lord Sumption gave the term its ordinary and natural meaning thereby confining it to agency and deemed agency relationships. LLP was not acting as Paragon’s agent (and was in fact acting as Mrs Plevin’s agent) and therefore was not “acting on behalf” of Paragon. The assessment of suitability, whilst defective, was performed solely for the benefit of Mrs Plevin. The judgment also confirmed that the payment of commission does not define who may or may not be an agent stating that it is “of the utmost legal and commercial importance to maintain the principle that the source of the commission has no bearing on the identity of the person for whom the intermediary is acting or the nature of his functions”.
Rather than limiting the protection afforded to debtors as was suggested by the CA when considering the narrower interpretation, Lord Sumption stated that once the decision in Harrison is discarded, s.140A can be seen to give extensive protection to debtors “extending beyond the right to enforce the creditor’s legal duties”. This ‘extension’ must however be judged against the more limited liability that lenders are now deemed to have for third parties.
The Supreme Court also disagreed with the CA’s position on the issue of the Finance & Leasing Association and the Financial Industry Standard Association’s voluntary codes. Lord Sumption stated that the codes have no legal status save as between the associations and their members and the “most that can be said about them is that they may be some evidence of what constitutes reasonable standards of commercial conduct in this field”.
The appeal was therefore dismissed, but for different reasons than those given by the CA. The non-disclosure of commission was in the circumstances of this particular case considered to have made the relationship unfair. However, the failure to conduct a demands and needs assessment did not.
It is clear from the judgment that an assessment of the fairness of a debtor-creditor relationship will be a fact specific test with the question of fairness involving “a large element of forensic investment”. Creditor-debtor relationships are described as being“inherently unequal” and characterised by “large differences of financial knowledge and expertise”. However the Supreme Court stated that this does not lead to any automatic conclusion that the relationship is unfair.
Even in the event that a relationship is found to be unfair, the Court has a wide discretion under s.140B in deciding what, if any, remedy would be appropriate in the circumstances. The Supreme Court judgment gave no indication of what a suitable remedy might be and the case has been remitted back to Manchester County Court for this to be decided.