AXA S.A. v Genworth Financial International Holdings, Inc.

JurisdictionEngland & Wales
JudgeMr Justice Bryan
Judgment Date06 December 2019
Neutral Citation[2019] EWHC 3376 (Comm)
Date06 December 2019
Docket NumberClaim No CL-2017-000795
CourtQueen's Bench Division (Commercial Court)

[2019] EWHC 3376 (Comm)

IN THE HIGH COURT OF JUSTICE

BUSINESS AND PROPERTY COURTS OF

ENGLAND AND WALES

QUEEN'S BENCH DIVISION

COMMERCIAL COURT

Royal Courts of Justice

Rolls Building, Fetter Lane

London, EC4A 1NL

Before:

THE HONOURABLE Mr Justice Bryan

Claim No CL-2017-000795

Between:
AXA S.A.
Claimant
and
(1) Genworth Financial International Holdings, Inc.
(2) Genworth Financial, Inc.
Defendants
(1) AXA France Iard (as transferee of the business of Financial Insurance Company Limited)
(2) AXA France Vie (as transferee of the business of Financial Assurance Company Limited)
(3) Santander Cards UK Limited
(4) Santander Insurance Services UK Limited
Named Third Parties

Andrew Green QC and Fraser Campbell (instructed by Clifford Chance LLP) for the Claimant and by Pinsent Masons LLP for the First and Second Named Parties

Jonathan Nash QC and James Potts (instructed by Sidley Austin LLP) for the Defendants

Adam Zellick QC and David Murray (instructed by Reed Smith LLP) for the Third and Fourth Named Third Parties

Hearing dates: 4, 5, 6, 7, 11 and 12 November 2019

Approved Judgment

I direct that pursuant to CPR PD 39a para 61.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.

THE HONOURABLE Mr Justice Bryan

Mr Justice Bryan

A. INTRODUCTION

1

This is the first of two hearings that have been directed in these proceedings. This first hearing has been directed to determine various points of principle on liability in respect of:

(1) The claim of the Claimant (“AXA”) against the First Defendant (“GFIH”) for specific performance of an alleged obligation to make payment of £264,953,912.18, under Clause 10.8 of a sale and purchase agreement dated 17 September 2015 (“the SPA”);

(2) AXA's claim in debt against the Second Defendant (“GFI”) (together with GFIH “Genworth”) under a guarantee for the same amount under Clause 15.1 of the SPA, or damages for the same;

(3) Genworth's counterclaim against AXA for a declaration that its liability under Clause 10.8 does not extend to: (i) settlements with customers entered into without Genworth's consent, in breach of Schedule 5, Paragraph 7.2 of the SPA; (ii) charges payable under a Complaints Handling Agreement dated 7 December 2017 (“CHA”); and/or (iii) claims subject to a Standstill Agreement dated 7 December 2017 (“the Standstill Agreement”). Alternatively, Genworth seeks damages for breach of contract in respect of the same; and

(4) Genworth's counterclaim against AXA, the First and Second Additional Parties, AXA France IARD and AXA France Vie (as transferees of the businesses of Financial Insurance Company Limited and Financial Assurance Company Limited (“FICL/FACL”) and the Third and Fourth Additional Parties (together, “Santander”), that in the event Genworth makes any payment to AXA, FICL and/or FACL under Clause 10.8 of the SPA, Genworth will be subrogated to FICL and FACL's claims against Santander in respect of the mis-selling of the relevant payment protection insurance (“PPI”) products.

2

The second hearing directed in these proceedings is a quantum hearing listed for 9–12 March 2020.

B. FACTUAL BACKGROUND B.1 The Parties

3

AXA is a French insurance company. It is now the owner of AXA France IARD, which is the transferee of the business of FICL and AXA France VIE, which is the transferee of the business of FACL. Until 1 December 2015, FICL and FACL had been indirectly owned by GFIH. GFIH is a US company, whose ultimate parent company is GFI.

4

Between 1988 and 2011, FICL and FACL were engaged in the business of underwriting PPI for store cards. During that period, the Third Additional Party, Santander Cards UK Limited (“SCUK”), and the Fourth Additional Party, Santander Insurance Services UK Limited (“SISUK”) (collectively “Santander”) marketed and sold PPI on behalf of FICL/FACL, principally through retail stores.

5

The PPI policies were sold in connection with store credit cards, which were offered by Santander to customers of high street retailers, either via point of sale retail staff or Santander call centre staff. PPI premiums would be collected by Santander from customers' accounts and remitted to FICL/FACL, net of a commission retained by Santander.

6

On 1 December 2000, FICL/FACL and SCUK's predecessor, GE Capital Bank, (“GECB”) entered into an Agency Agreement (“the Agency Agreement”), under which GECB marketed and sold PPI products underwritten by FICL/FACL/FACL.

B.2 PPI Mis-selling

7

The marketing and sale by Santander of PPI underwritten by FICL and FACL has given rise to extensive PPI mis-selling complaints by customers against FICL/FACL. Since around 2005, there has been a developing realisation of the scale of PPI mis-selling to consumers. On 1 August 2010, the FSA sent a letter to the relevant industry participants which identified common “point of sale” failings concerning PPI sales, including inappropriate pressuring of customers, failing to provide accurate information about the policy, failing to ensure that the customer was in fact eligible for the policy bought, and failing to disclose accurate price information. Customer complaints about PPI mis-selling have been, and are continuing to be made in respect of PPI policies underwritten by FICL/FACL and marketed by Santander, including following determinations made by the Financial Ombudsman Service (the “FOS”).

8

Broadly speaking the regulatory redress system for consumers is as follows. A consumer can make a regulatory complaint relating to PPI mis-selling against a regulated financial services company (“Direct Redress”). If that complaint is rejected by the company, or the customer disputes the amount of redress offered, the customer can then refer the complaint to the FOS, which may order the firm to pay redress to the customer (“FOS Redress”). The FOS was established in 2000 and given statutory powers in 2001 pursuant to the Financial Services and Markets Act 2000 (“ FSMA”). If the FOS has jurisdiction to consider the complaint it may order the company to pay redress. Regardless of the outcome, the company is required to pay a flat fee to the FOS for each referral, which is currently £550 (“FOS Fees”).

9

The scale of PPI mis-selling has led to an industry of claims management companies which specialise in presenting regulatory complaints on behalf of customers against regulated companies, in return for which they take a portion of any redress paid to the customer.

B.3 The Regulatory Context

10

At all material times FICL and FACL have been subject to various regulatory regimes in their capacity as issuers of insurance policies. From 1989 until 2005, FICL and FACL were members of the Association of British Insurers (“ABI”), the Insurance Ombudsman Scheme (“IOS”) and/or the General Insurance Standards Council (“GISC”). FICL and FACL became regulated by the FSA for the purpose of underwriting insurance from 1 December 2001, pursuant to the FSMA (Regulated Activities) Order 2001. And from 14 January 2005, the marketing and sale of insurance policies became regulated by the FSA.

11

The upshot of this is that FICL and FACL have at all relevant times been subject to regulations which require them to have in place systems for handling consumer complaints and, where appropriate, to pay redress in relation to the historic mis-selling of PPI. The FOS generally has jurisdiction to consider complaints against FICL and FACL for policies sold during the period when FICL and FACL were members of the IOS and the GISC. This has led to them being exposed to customer complaints regarding alleged PPI mis-selling by their distributors (i.e. in this context).

12

By contrast, Santander itself contends that it only became subject to the FOS regime on 14 January 2005, when the marketing and sale of consumer insurance policies of the type carried out by Santander became regulated by the FSA. Santander contends that before that, the Santander entities had not been members of the ABI or GISC. As such, Santander argues that any regulatory complaint to the PPI Mis-selling prior to 14 January 2005 could succeed only against FICL/FACL and not Santander.

13

AXA emphasises that the regulatory context discourages regulated entities such as FICL and FACL from adopting an adversarial approach to complaints made against them by customers. The key submission was that the consumer redress regime was not about legal liability and differed markedly from what is expected of parties to ordinary civil litigation. In support of that submission, it relied on a number of the rules relating to the required complaints-handling and redress procedures as set out in the Handbook, in the Dispute Resolution: Complaints Sourcebook section (“DISP”). The following were the most relevant DISP provisions to which I was referred:

(1) Complaints procedures for handling complaints should (i) allow complaints to be made by any reasonable means; and (ii) recognise complaints as requiring resolution. (DISP 1, 1.3.2).

(2) Complaints procedures should, taking into account the nature, scale and complexity of the respondent's business, ensure that lessons learned as a result of determinations by the Ombudsman are effectively applied in future complaint handling, for example by: (i) relaying a determination by the Ombudsman to the individuals in the respondent who handled the complaint and using it in their training and development; (ii) analysing any patterns in determinations by the Ombudsman concerning complaints received by the respondent and using this in training and development of the individuals dealing with complaints in the respondent; and (iii) analysing guidance produced by the FCA, other relevant regulators and the FOS and communicating it to the individuals dealing with complaints in the respondent. (DISP 1, 1.3.2A)

(3) Once a complaint has been received by a...

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