Many consumers reading or listening to media reports on the High Court’s recent decision in R (on the application of British Bankers Association) v The Financial Services Authority & The Financial Ombudsman Service [2011] EWHC 999 (Admin), combined with the public announcements by banks including Lloyds Banking Group, may have the impression that payment protection insurance (“PPI”) was always mis-sold meaning many are in for a windfall. But like many things in life that seem too good to be true, it unlikely that simply making a PPI complaint will result in a windfall.

Judicial Review

The judicial review proceedings essentially challenged the lawfulness of the Financial Services Authority (“FSA”) Policy Statement 10/12 (“PS 10/12”). For many lenders and brokers selling PPI (called “firms”), PS 10/12 was seen as a step too far because it seemingly required them to take steps under (and assess complaints against) rules and standards that were not in force at the time of the sale of PPI. The High Court, in dismissing the application for judicial review, decided that PS 10/12 was lawful and firms needed to follow it.

Complaint Handling

The effect of PS 10/12 is, therefore, to require a complaint to be assessed in accordance with Appendix 3 to the FSA’s Dispute Resolution: Complaints (“DISP”). This will involve consideration of the Insurance: Conduct of Business Rules (“ICOB”) for sales on or after 14 January 2005 or the Insurance: Conduct of Business Sourcebook (“ICOBS”) for sales on or after 6 January 2008 and the FSA’s Principles. The Rules in DISP 3 are fairly detailed and, for example, explain the factors that the firm should consider combined with the weight it should give to the evidence. It also makes it clear, by DISP 3.6.1E, that if there is a breach or failing, the firm must consider whether the consumer would have bought the PPI without that breach or failing.  


There has been much publicity recently over the decision of major banks to make substantial provisions for compensation. Many consumers may therefore have the impression that firms are expecting to uphold every complaint. But this is simply not the case. While provisions have been made, it is an estimate of the likely level of redress that the firm may need to pay. Consumers believing they simply have to make a claim will therefore be disappointed: firms will continue to consider each complaint on its own merit and, if there is a failing, uphold the complaint. If, however, there is no failing then the consumer’s complaint is likely to be rejected.

FOS or Court?

If a consumer is unhappy with the firm’s final response, she has to make a decision: to refer her complaint to the Financial Ombudsman Service (“FOS”) or issue a claim in the County Court alleging PPI mis-selling. If a consumer has authorised a claims management company or a solicitor to act for her, the decision will often be taken with their advice. Our view is that consumers should not lose sight of the fact that the County Court is not a straight-forward process:

  • The Court cannot (unlike FOS) take into account the FSA’s Principles: it can only take into account the strict wording of ICOB or ICOBS.
  • The Court has (unlike FOS) the benefit of hearing live evidence. Consumers need to give sworn evidence and are cross-examined on their recollections. In our experience, their recollection is often contradicted by documentary evidence.
  • Experienced judges are used to balancing evidence given by a consumer over events which happened years earlier. Many consumers, while doing the best they can to remember matters which happened many years earlier, do not prove their claims.
  • There have been a number of decisions which have gone against consumers. Indeed, the growing body of decisions are largely in the firm’s favour.

Recent Decisions

There have been two recent judgments handed down after the judicial review. Firstly, District Judge Derbyshire handed down judgment on 6 May 2011 in Amanda Bishop v Lloyds TSB Bank plc (2011), Unreported, Reading County Court. Whilst the trial took place before judgment was handed down in the judicial review, District Judge Derbyshire reserved judgment and handed it down after the judicial review. Secondly, His Honour Judge Gosnell handed down judgment on 19 May 2011 in Cudahy & Liburd v Black Horse Limited (2011), Unreported, Leeds County Court. The trial took place after judgment in the judicial review and His Honour Judge Gosnell asked about the impact (if any) of the judicial review and Lloyds Banking Group’s provisioning announcement. In both cases, the consumers’ claims were dismissed and they were ordered to pay the lenders’ costs (including making an interim payment, in Cudahy, of £7,500).

In Bishop, District Judge Derbyshire decided that:

  • Despite being an “experienced borrower” with a “very good salary at the time of £60,000 odd”, Ms Bishop alleged that her agreement was unenforceable, the PPI was compulsory and there was an unfair relationship.
  • It was “not the case that she was dealing with a Bank employee who was a brash young salesman but rather a kindly old-style Bank Manager and Mr Burridge was thoroughly professional and experienced”.
  • Ms Bishop’s “recollection of events was at odds with the documentation”.
  • The financial implications were “clear from the documentation and that if she had read them it would have been clear to her and in particular the right to cancel”.
  • The fact that 65% of the PPI was kept by the Bank as commission “may have been a bad bargain” but there were “policy benefits”.
  • The facts were close to His Honour Judge Waksman QC’s decision in Harrison & Harrison v Black Horse Limited [2010] EWHC 3152 (QB) and there was therefore no unfair relationship.

In Cudahhy, His Honour Judge Gosnell decided that:

  • Whilst Ms Liburd (who dealt with the lender’s salesperson) and Ms Ingham (the lender’s sales person) were honest witnesses, Ms Liburd’s recollection of the events were “sketchy”. Whilst this was not her fault, given the passage of time, the learned judge expressed surprise that Ms Liburd could not remember her past loans or explain the significant difference between her income stated in her sworn witness statement and the documents. By contrast, Ms Ingham was a “very straightforward and clear woman and a businesslike employee”. She was also praised for her “mastery” of the documents and explanation of the logs.
  • Ms Ingham followed the standard sales script which made it clear that the PPI was optional.
  • Ms Liburd’s decision to decline more expensive cover in favour of life cover (which was cheaper) was an instruction that she wanted PPI.
  • Because the loan was secured, the lender had to comply with Section 58(1) of the Consumer Credit Act 1974. This meant it had to post an advance copy of the documents and could not, for seven days after sending them, contact the borrowers. After this period finished, the lender sent signature copies of the documentation and could not, once again, contact the borrowers for another seven days after sending them. The mortgage deed was also witnessed by a third party, not the lender’s employee. The borrowers therefore had a long time to consider all of the documentation before entering into the agreement.
  • The lender was not required to assess the PPI’s cost because the borrowers did not tell the lender that it was relevant to their demands and needs. Even if the borrowers did, the learned judge followed His Honour Judge Waksman QC’s decision in Harrison & Harrison v Black Horse Limited [2010] EWHC 3152 (QB). Because the lender only sold one policy, the effect of it doing so meant it only needed to consider the PPI’s costs against other policies that it sold (of which there were none) by virtue of ICOB 4.3.7(1)G. This would have been meaningless so there was no breach of ICOB.
  • The borrowers had “taken their eye off the ball” and may not “with the benefit of hindsight” have taken the PPI but they did so. They were not told the PPI was compulsory and all of the documentation explained its cost, its cover and the fact it was optional. It was not, in the learned judge’s view, Parliament’s intention to “protect people that did not exercise common sense”. It therefore followed that there was no unfair relationship.


Despite PS 10/12 and the judicial review, firms are still facing a substantial number of new court claims issued by solicitors in County Courts up and down the country. Such claims are always backed by a conditional fee agreement between the consumer and the solicitor (otherwise known as a “no win, no fee” agreement). If the consumer wins or settles the claim with the firm, the success fee sought is often 100%. Claims are also backed by expensive after the event insurance policy meaning that, by the time of trial, a consumer’s legal bill is often more than £50,000 but can sometimes be as high as £100,000 even when the value of the consumer’s claim is for little over £5,000. This is (on any view) wholly disproportionate when unhappy consumers can make a complaint to FOS, which is a free service with a decision that binds the firm if the consumer accepts it. If a consumer does not accept it, she can pursue a claim in the Court.  

Given the high uphold rates at FOS, it must follow that consumers already in litigation (or contemplating litigation) who cannot recall the sale with absolute clarity would be better served by discontinuing their claim (or not making it) and making a complaint either directly to the firm or FOS. The consumers’ prospects of achieving a settlement through one of these avenues seem considerably better given the Court’s continued rejection of many PPI claims (even after the judicial review). Discontinuing or not pursuing claims does, however, cause a significant problem for solicitors and insurers that have already invested time and resources in pursuing a complaint through litigation (or contemplated litigation). Whilst solicitors are under an obligation to act in their client’s best interest at all times (and must put aside their own interests), discontinuing a claim will mean the solicitor recovers nothing. If the claim is, instead, pursued to trial, the prospect of recovering some of their costs (no matter how hopeless the prospects are) is plainly greater. No doubt time will show how this apparent conflict is resolved.