Introduction

On 16 December 2013, the Court of Appeal handed down judgment on the unfair relationship provisions in Section 140A of the Consumer Credit Act 1974 (CCA”), in the context of alleged payment protection insurance (“PPI”) mis-selling, in two conjoined appeals: Sheelagh Conlon v Black Horse Limited (which was a second appeal to the Court of Appeal) and Susan Plevin v Paragon Personal Finance (1) Limited. In delivering the leading judgment, Lord Justice Briggs (with whom Lord Justice Moses and Lord Justice Beatson agreed) dismissed the borrower’s appeal in Conlon (deciding the court was bound to follow the Court of Appeal’s recent decision Harrison & Harrison v Black Horse Limited [2011] EWCA Civ 1128 but allowed the borrower’s appeal in Plevin and proposed to remit that case back to the County Court for a re-hearing.

Facts

The facts of both Conlon and Plevin will be familiar to anyone dealing with PPI litigation or complaints.

Conlon

Mrs Conlon is an auxiliary nurse who entered into three credit agreements with Black Horse Limited (“Black Horse”). There were two re-financings (each time with additional borrowing) and the last loan (dated 3 April 2007) was again secured against her home by a second legal charge. No independent credit broker was used but Black Horse was the intermediary for selling the PPI. Under the terms of the agreement, Black Horse lent Mrs Conlon £30,518.40 and a further £5,838.00 to pay for a policy of PPI. The policy is a single premium policy. At trial, before Mr Recorder Atherton, Mrs Conlon’s evidence was that if she had known that part of the premium (40%) would be kept as commission by Black Horse she would not have bought it but “would have shopped around”. She also said she expected Black Horse “to earn some commission but not that much”. By the end of trial, Mrs Conlon’s barrister, Andrew Clark, conceded that “non-disclosure of the commission is the single factor on which he rests his claim that the relationship was unfair”. Mr Recorder Atherton decided that the relationship was unfair and ordered that the payments made for the PPI be repaid and discharged Mrs Conlon for any responsibility to make payments in the future for the PPI. Black Horse paid Mrs Conlon the remediation ordered, adjusted her account and did not seek repayment following both of its successful appeals.

Black Horse appealed (placing reliance on both the High Court’s and the Court of Appeal’s decisions in Harrison) and in November 2012 Mr Justice Wilkie allowed the appeal. Giving judgment, Mr Justice Wilkie placed considerable reliance on Mrs Conlon’s barrister’s concession at trial and said he was bound by Harrison. Mrs Conlon therefore appealed to the Court of Appeal and permission was granted by Lord Justice Pitchford.

Plevin

Mrs Plevin is a widowed college lecturer. She received an unsolicited leaflet from a broker,  LL Processing (UK) Limited (“Loan Line”), which was (a) authorised by the Financial Services Authority (“FSA”) to be an insurance intermediary subject to the FSA’s Insurance: Conduct of Business Rules (“ICOB”) and (b) a member of the Finance Industry Standards Association. Mrs Plevin called Loan Line and it conducted a demands and needs assessment over the phone.  Loan Line recommended PPI and sent her a letter enclosing a policy summary and a “key facts” document. Paragon Personal Finance (1) Limited (“Paragon”) was one of a number of lenders on Loan Line’s panel and the insurer underwrote a number of policies for a number of those lenders.

After signing Loan Line’s application form, and after Paragon conducted a ‘speak with’ call (which dealt with anti-money launder compliance) with Mrs Plevin, she entered into a credit agreement with Paragon on 21 March 2006 which was secured against her home by a second legal charge. Under the terms of the agreement, Paragon lent Mrs Plevin £34,000 and a further £5,780.00 to pay for a policy of PPI. The policy was a single premium policy.

At trial, before Mrs Recorder Yip QC, Mrs Plevin raised a number of issues in a “long and complex” but “defective” pleading. The issues raised were eventually reduced to (a) an unfair relationship existing between Mrs Plevin and Paragon because of things done “on behalf of” Paragon by Loan Line and (b) an unenforceability argument under the CCA. After hearing the evidence, the Recorder dismissed the claim (and awarded Paragon its costs on the indemnity basis). Her decision on the unfair relationship claim (which was appealed to the Court of Appeal) was that (a) Loan Line is the intermediary under ICOB 1.2.3R(2), (b) there is no agency relationship between Loan Line and Paragon, (c) it was unnecessary to decide whether Loan Line had complied with ICOB because, even if it had not, Paragon would not responsible for anything Loan Line did (or did not) do under Section 140A(1)(c) of the CCA and (d) she was bound by Harrison on the non-disclosure of commission. Mrs Plevin  therefore appealed and to the Court of Appeal and permission was granted by Lord Justice Pitchford.

The Appeal

Conlon

Before the Court of Appeal, Mrs Conlon’s barrister, Hodge Malek QC, argued that Conlon could be distinguished from Harrison because:

  • Mrs Conlon’s evidence was that she would have “shopped around” if she had known about the commission;
  • of the Recorder’s finding that Black Horse had been motivated by its own commercial interests in deciding not to disclose the commission;
  • it was incorrect to view the Recorder’s decision as solely being decided on the non-disclosure of commission; and
  • the sale of a single premium policy was, on its own, enough to create unfairness in the relationship.

David Bailey QC, for Black Horse, submitted that (a) Conlon was indistinguishable from Harrison, (b) the Court of Appeal was bound by it as a matter of precedent and (c) Harrison is correctly decided in any event for a large number of reasons.

Plevin

Before the Court of Appeal, Mrs Plevin’s barrister, James Strachan QC, argued that the Recorder failed to correctly interpret the words “on behalf of” in Section 140A(1)(c) because they should be given a wide meaning. In effect, this meant a Court should be allowed to consider “any relevant act or omission by a person who, in a non-technical sense, would be viewed by the man on the Clapham omnibus as having played some part in the bringing about of the credit agreement for the creditor”.

The Decision

Conlon

In giving the leading judgment, Lord Justice Briggs decided that:

  • the submissions from Mrs Plevin’s barrister “justify a conclusion that the Recorder decided the case otherwise than upon the basis of Mr Clark’s concession that non-disclosure of the commission was the single factor upon which the claim of an unfair relationship was based”;
  • it did not matter than Mrs Conlon would have “shopped around”; the “touchstone” of Harrison was that “it would be anomalous if a lender could be found to have created an unfair relationship, where there was no  breach  of the  relevant regulatory regime”  particularly where this point had been “specifically considered and decided by the framers of that regime”;
  • he was “unable to see how this undoubted difference in underlying fact between the two cases separates Mrs Conlon’s case from the substance of this court’s reasoning on this point” in Harrison;
  • he was “equally unpersuaded that evidence of Black Horse’s motivation  makes  any  difference either”;
  • Mrs Conlon’s case was “in substance indistinguishable” from Harrison and to “treat evidence differences … which do not go to the heart of the matter as sufficient to permit this court to form its own view about the point of principle decision in the Harrison case would, to my mind, be an illegitimate departure from the rules as to binding precedent. It would be a disservice to the requirement for legal certainty, and give rise to a welter of litigation about modest amounts, based upon fine evidential distinctions, rather than the application of clearly formulated legal principle to a statutory jurisdiction”.

Mrs Conlon’s appeal was therefore dismissed.

Plevin

In giving the leading judgment, Lord Justice Briggs decided that:

  • while he had not found the issues “at all straightforward” and his mind had “changed more than once”, he preferred Mr Strachan’s “broad approach” on the meaning of the words “on  behalf  on”  to Paragon’s narrow approach;
  • because the CCA was an Act which existed to “protect consumers”, the words “on behalf of” should be considered in that context;
  • the provisions of Section 140A(1) allow the “net to be cast as widely as might be thought possible” but “the relevant fish are only those which are in some sense causative of the perceived unfairness”;
  • it was “no part of the purpose behind section 140A(1) to limit the court’s purview of conduct to that for which the creditor incurred some legal liability to the debtor, whether under the general law, or by means of statutory recourse under an enforceable regulatory code such as ICOB”;
  • the “imposition of the reverse burden of proof in section 140B(9) is a powerful indication of a general parliamentary intention to confer a broad rather than narrow measure of protection upon debtors”;
  • while Harrison was “persuasive authority” supportive of Paragon’s narrow interpretation, he was not persuaded by it;
  • there were two prospective “escape routes” from the consequences of a broad interpretation: (a) the court may conclude that conduct on a lender’s behalf, even if blameworthy, does not render the relationship unfair or (b) the powers given to the court are discretionary because Section 140A(1) says that the court maymake an order; and
  • the “express imposition of a monitoring responsibility by the lender of its credit broker under section 5 of the FLA code does seem to me at least to be at least a pointer towards the unspoken assumption that responsibility for self-regulatory compliance in relationship to lending is at least shared between lender and broker rather had placed solely on the broker in contact with the customer, as under ICOB”.

Mrs Plevin’s appeal was therefore allowed and the Court of Appeal proposed to remit the case (subject to any appeal to the Supreme Court) back to the County Court.

Comment

The Court of Appeal’s decision in Conlon is unsurprising. Given the clear concession by Mrs Conlon’s barrister at trial, that Mrs Conlon’s case was solely on the issue of whether an undisclosed commission created unfairness in the relationship, it was inevitable that the Court of Appeal would follow its earlier (and recent) decision in Harrison. The Court of Appeal has already made it clear, in Young v Bristol Aeroplane Company Limited [1944] KB 718, that it is bound to follow its own decisions and those from courts of co-ordinate jurisdiction. Unless the Supreme Court considers any appeal from Conlon, the decision in Harrison that the non-disclosure of a commission does not create any unfairness in the relationship remains. Similarly, it also remains well-defined that if a party complies with its  legal obligations then there cannot, without something more, be unfairness in the relationship. While all three Lord Justices expressed some dissatisfaction about Harrison, none of them dissented or undermined the clear decision of Lord Justice Tomlinson.

The Court of Appeal’s decision in Plevin is, however, a complete bolt out of the blue. It was established in Harrison that the touchstone should be compliance with regulatory obligations. In Plevin,  the regulatory obligation to comply with ICOB was on Loan Line (ie the broker). ICOB 1.2.3R(2) makes this extremely clear. To resort to voluntary codes of conduct or guidance is inappropriate. Such guidance is often written by trade associations who may have a variety of members. The codes are essentially the aims and aspirations of members and often go over and above the regulatory requirements. To make a lender responsible for something which may be in guidance or a code (and go further than a legal obligation) is completely unnecessary and may lead to either (a) trade associations or bodies withdrawing codes or guidance (which could ultimately lead to lesser protection for consumers or more confusion amongst lenders) or (b) members deciding not to join trade associations (who often do very good jobs improving the knowledge and understanding of regulatory obligations which naturally improves a customer’s journey or experience).

The other key problem with Plevin is that the scope of “on behalf of” is now so wide, it is likely to lead to a considerable amount of litigation (possibly over modest sums of money). Lord Justice Briggs placed considerable reliance, when deciding Conlon, on trying to stop “an illegitimate departure from the rules as to binding precedent” because these could “give rise to a welter of litigation about modest amounts, based upon fine evidential distinctions, rather than the application of clearly formulated legal principle to a statutory jurisdiction”. It is suggested that the court’s decision in Plevin now provides a platform for a “welter of litigation about modest amounts, based upon fine evidential distinctions, rather than the application of clearly formulated legal principle to a statutory jurisdiction”.

It is important to remember that the 'unfair relationship' provisions apply to any credit agreement without any financial limit whatsoever (with some minor exceptions) between a creditor and an ‘individual’ (as defined by the CCA). This includes sole traders and partnerships of two or three partners (not all of whom are corporates). It is clear that a commercial agreement with ‘individuals’ (and many of these types of cases form the basis of case-law from High Court) can now consider anything done, or not done, by, or on behalf of, the creditor in the widest sense. This will no doubt lead to more challenges using the unfair relationship provisions which will involve the Court considering everything the debtor says was done, or not done, by, or on behalf of, the creditor. The result of this is obvious: longer trials and higher costs (and more court time occupied). It is only after the court has heard all of that evidence that it can then decide (a) whether the relationship is unfair and (b) whether to exercise its discretion.

The Consumer Credit Act 1974 was enacted to give effect to the recommendations of the report of the Crowther Committee (Cmnd 4596) in 1971. Whilst one of the aims was consumer protection, another equally important aim was simplification of the law (so that lenders could comply). In Chapter 9.5.2 of the Crowther Report, it was urged on the law or policymakers with responsibility for consumer credit that they “should be informed of legal developments abroad” and that “But all too often in the past these differences…..have been adumbrated as a justification for ignoring legislation in other countries and going our own way”. It should be noted (see the previous Squire Sanders note dated 16 November 2012: “Appeal judge makes first decision reversing “unfair relationship” finding: Conlon v Black Horse Limited”) that the law in the US is well settled on this in relation to commission disclosure (or the mark up of the wholesale price in retail financial services) following two Supreme Court decisions in the 1990s: one from Ohio and the another from Alabama. Both cases were in the composite authorities bundle for the Court of Appeal in Plevin/Conlon, were referred to in Black Horse’s skeleton argument for the Court of Appeal and in its oral submissions before Mr Justice Wilkie. The Supreme Court of the United Kingdom will (if an appeal goes ahead) have to look at these decisions (which were unanimous ones made by a full court – and in Re Bramlett after much discussion and deliberation between the panel Justices) and decide whether the UK should follow them or not.

It is therefore hoped that the Supreme Court tackles the problematic decision in Plevin as soon as possible to resolve these issues and restore the regulatory and commercial certainty which Harrison provided. Until then, anything from debt sales to capital markets to securitisation could be thrown into doubt with the uncertainty that Plevin creates as the muddled decision in Plevin means that we are back to “visceral instincts” in deciding if a broker or other third party intermediary has acted (or failed to act) such that any such acts or omissions of that third party should be blamed on a lender who will then be made responsible for any financial losses that flow  from  them to an end user consumer. These intermediaries are, of course, independent legal entities and will hold their own consumer credit licences from the OFT (or interim permissions from the Financial Conduct Authority ("FCA")) as well as (in many cases) authorisations to conduct general insurance intermediation from the FCA (or its predecessor, the FSA). The effect of the Plevin decision is to make a lender essentially a guarantor without any financial limit on the acts or omissions of any independent broker it may accept business from. This did not feature in the DTI White Paper in December 2003 (which ultimately led to the Consumer Credit Act 2006 which enacted the 'unfair relationships'). It cannot be right to make a lender an unlimited (quasi) guarantor. But, as it now stands following Lord Justice Briggs' decision in Plevin, that it is exactly what it does.

From a practical point of view, it is also difficult to see how it would be right in Plevin to find unfairness in the relationship where Mrs Plevin complained to Loan Line and received a £5,000 settlement from the Financial Services Compensation Scheme. She must have been happy with the settlement; so why should she be able to pursue the ‘balance’ of such a claim to the lender (who did not recommend or advise on the PPI but simply provided the finance)? It is, of course, also worth noting that if Mrs Conlon seeks permission to appeal then she is likely to be in a far worse position before the Supreme Court than Mr & Mrs Harrison. Unlike Harrison, Conlon does not raise any issues which were identified by the FSA in Policy Statement 10/12 and there was no mismatch in the term of cover provided. The prospect of Harrison remaining good law must therefore be very good.