Court of Appeal decides whether misrepresentation is needed to establish “unfair relationship” in a PPI case

The claimants took out a loan with the defendant and were misled by the defendant’s broker into  believing that they needed to purchase payment protection insurance in order to secure a loan. At  first instance, the judge held that that there had been a misrepresentation and breach of the ICOB  rules which in turn created an “unfair relationship” under section 140 of the Consumer Credit Act  1974, entitling the claimants to compensation.

One of the issues considered in this appeal was whether the judge had been wrong to take into  account the misrepresentation when deciding whether the relationship was unfair and whether a  finding of misrepresentation and a breach of the ICOB rules should be determinative of the question  whether there was an unfair relationship. The defendant sought to rely on the Harrison v Black  Horse case (see Weekly Update 37/11) in which Tomlinson LJ had observed that a misrepresentation was ordinarily likely to be irrelevant to the question whether a relationship  was unfair. Here, Kitchin LJ said that “I  recognise that a misrepresentation may not create or even contribute to an unfair relationship but I do not understand Tomlinson LJ to have been suggesting that it can never  do so. Indeed it seems to me that it plainly can”.

He distinguished this case on the basis that, but for the misrepresentation and associated breaches  of the ICOB rules, the claimants would not have taken out the loan (whereas in Harrison the ICOB  rules then in force did not require the disclosure of the existence or amount of any commission).  Furthermore, although the judge accepted  that the ICOB rules did not apply to the defendant, they  nevertheless provided a benchmark, or “touchstone”, against which the conduct of the broker could be measured.