The Court of Appeal has found that a defendant creditor could not rely on a limitation defence to a borrower’s claim that its non-disclosure of a very high rate of commission rendered the relationship “unfair” within the meaning of s.140A of the Consumer Credit Act 1974, as the borrower could establish deliberate concealment to postpone limitation under s.32 of the Limitation Act 1980: Canada Square Operations Ltd v Potter [2021] EWCA Civ 339.

Section 32(1)(b) of the Act provides that, where any fact relevant to a claimant’s right of action has been deliberately concealed by the defendant, limitation does not begin to run until the claimant has discovered the concealment (or could with reasonable diligence have discovered it). Section 32(2) provides that, for these purposes, deliberate commission of a breach of duty in circumstances where it is unlikely to be discovered for some time amounts to deliberate concealment of the facts involved in that breach of duty.

The Court of Appeal’s decision is of interest in confirming that s.32 does not require “active concealment”. It may apply to cases of non-disclosure and, in such cases, there is no need for the court to consider whether there was a pre-existing contractual, tortious or fiduciary duty to disclose. Precisely when the court will find there was a sufficient duty is not altogether clear, however. The decision suggests that the obligation may arise from “a combination of utility and morality”, which is not the most straightforward of benchmarks. The upshot is that claimants may be able to postpone the limitation period due to (deliberate) non-disclosure, even where the non-disclosure is not actionable in itself.

The decision also clarifies what is meant by “deliberate”, for both deliberate concealment under s.32(1)(b) and deliberate commission of a breach of duty under s.32(2). It shows there is no need for the claimant to establish actual knowledge or wilful blindness on the part of the defendant. Recklessness is sufficient, in the sense that: (a) the defendant realised there was a risk (that they ought to disclose the information, or that their conduct amounted to a breach of duty); and (b) it was objectively unreasonable to take that risk. Again, this may make it easier for claimants to postpone time running, as there is no need to show a defendant was aware of its wrongdoing so long as it took an unreasonable risk that what it was doing was wrong.

Background

The claimant (Mrs Potter) took out a loan with the defendant (Canada Square) in 2006 for just under £17,000. Canada Square acted as insurance intermediary to arrange payment protection insurance (“PPI”) on her behalf, for which an amount of £3,834 was added to the loan amount. This was referred to in the documentation given to Mrs Potter as the “payment protection premium lent”. Mrs Potter was not told that over 95% of this amount was paid to Canada Square as commission for the PPI policy.

Mrs Potter completed the payments under the agreement and the agreement came to an end on 8 March 2010.

In November 2014 the Supreme Court handed down judgment in Plevin v Paragon Personal Finance Limited [2014] UKSC 61 finding that, on similar facts, the non-disclosure of a very high commission made the relationship between the creditor and borrower “unfair” within the meaning of s.140A of the Consumer Credit Act 1974.

In December 2018 Mrs Potter brought proceedings to recover the balance of the premium she had paid (over and above some £3,160 of compensation she had received following a complaint to Canada Square), together with interest, relying on s.140A.

Canada Square conceded that its non-disclosure of the commission made the relationship unfair, but argued that the claim was time-barred because it was brought more than six years after the relationship between the parties had ended. Mrs Potter relied on ss.32(1)(b) and 32(2) of the Limitation Act 1980 as postponing the start of the limitation period until she had found out about the commission.

Recorder Murray Rosen QC held that the claim was not time-barred. Jay J dismissed Canada Square’s appeal, finding that Mrs Potter could not rely on s.32(1)(b) by itself but that she could rely on s.32(2). Canada Square brought a further appeal to the Court of Appeal.

Decision

The Court of Appeal dismissed the appeal. Rose LJ gave the leading judgment, Males LJ gave a shorter concurring judgment, and Sir Julian Flaux, Chancellor, agreed with both judgments.

The court found that the creation of an unfair relationship by Canada Square was a breach of duty on which Mrs Potter could rely for the purposes of s.32(2). It then went on to consider the requirement for “concealment” for the purposes of s.32(1)(b) and the meaning of “deliberate” for the purposes of both s.32(1)(b) and s.32(2).

Requirement for “concealment”

The parties agreed that there was no active concealment by Canada Square, but rather a failure to disclose the existence and scale of the commission. The question was whether s.32(1)(b) could apply in a case of non-disclosure, and if so whether that was limited to a case where there was a free-standing legal duty to disclose.

The court concluded that s.32(1)(b) could apply to cases of non-disclosure, regardless of whether there was a free-standing legal duty to disclose. This was the effect of the majority decision of the Court of Appeal in AIC Ltd v ITS Testing Services (UK) Ltd: The Kriti Palm [2006] EWCA Civ 1601, and was also the better construction of s.32(1)(b). The court noted that s.32(1)(b) does not refer to a duty to disclose, only to concealment. Inherent in the concept of “concealing” something is the existence of some obligation to disclose it, but this does not mean there has to be a pre-existing legal duty to disclose. That would “add an unwarranted and unhelpful gloss on the clear words of the statute”.

There was no need to analyse issues of implied contractual terms or tortious duties of care to determine whether there was a pre-existing duty to disclose. The obligation need only be one arising from “a combination of utility and morality”, and the focus should be on whether the defendant was “under a sufficient obligation to disclose for the failure to disclose to amount to concealment”.

The court rejected Canada Square’s argument that, for the purposes of s.32(1)(b) (as opposed to s.32(2)), the conduct relied on as concealment could not be the same conduct which formed the basis for the right of action. Section 32(2) was intended to extend the scope of s.32(1)(b); its potential application should not close out the possibility of section 32(1)(b) applying.

In the present case, the court was satisfied that (subject to the question of whether the concealment was “deliberate”) Mrs Potter could rely on s.32(1)(b). Canada Square’s obligations to act fairly resulting from s.140A meant that its failure to disclose the commission amounted to concealment within the meaning of s.32(1)(b).

Meaning of “deliberate”

The House of Lords decision in Cave v Robinson Jarvis & Rolf (a firm) [2002] UKHL 18 established that, under s.32(2), it was not enough that Canada Square deliberately chose not to disclose the level of commission and, as a matter of law, that gave rise to an unfair relationship contrary to s.140A. The breach of duty must have been “deliberate” in the sense that Canada Square had the “necessary mental element in respect of the fact that their conduct gave rise to a breach of duty”. Similarly, under s.32(1)(b), the failure to disclose must have been deliberate in the sense that Canada Square realised it should have told Mrs Potter about the commission and decided not to do so.

The court identified four possibilities for the necessary mental element: (i) actual awareness; (ii) wilful blindness; (iii) recklessness with both an objective and subjective element (in that a person is subjectively aware of a risk, and it is objectively unreasonable to take that risk); and (iv) recklessness with only a subjective element.

It was accepted that Mrs Potter would not be able to show the mental elements at (i) or (ii) above, so if either of these were the test the appeal would succeed.

The court concluded that the relevant test was recklessness in the sense of (iii) above. It took the view that there was not a clear, natural meaning of “deliberate” in this context, and the case law construing the word “deliberate” in s.32 was also inconclusive. However, the pre-1980 case law established that recklessness was a sufficient mental element for s.26 of the Limitation Act 1939, which was the precursor to s.32, and the Parliamentary materials relied on by Mrs Potter showed that the test under s.32 was not intended to be any more difficult for the claimant to overcome.

Accordingly, the court held that Mrs Potter could rely on s.32 if she could show that:

  1. (for s.32(2)) Canada Square realised there was a risk that their failure to disclose the commission resulted in the relationship being unfair under s.140A, and it was not reasonable for them to take that risk; or
  2. (for s.32(1)(b)) Canada Square realised there was a risk that they had a duty to tell Mrs Potter about the commission, such that their failure to do so meant they deliberately concealed that fact from her.

On the facts, the court found that these burdens had been discharged, and Mrs Potter could rely on both provisions.