Harrison and Another v Black Horse Ltd
| Jurisdiction | England & Wales |
| Judge | Lord Justice Tomlinson,Lord Justice Patten,The Master of the Rolls |
| Judgment Date | 12 October 2011 |
| Neutral Citation | [2011] EWCA Civ 1128 |
| Docket Number | Case No: A3/2010/2996 |
| Court | Court of Appeal (Civil Division) |
| Date | 12 October 2011 |
[2011] EWCA Civ 1128
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION, MERCANTILE COURT
His Honour Judge Waksman QC, sitting as a Judge of the High Court
2010 EWHC 3152 (QB)
Royal Courts of Justice
Strand, London, WC2A 2LL
The Master of the Rolls
Lord Justice Patten
and
Lord Justice Tomlinson
Case No: A3/2010/2996
Brian Doctor QC and Andrew Clark (instructed by McHale & Co Solicitors) for the Appellant
Nicholas Elliott QC and Ruth Bala (instructed by SCM Solicitors) for the Respondent
Hearing date: 13 July 2011
Introduction
This appeal is brought by two of many borrowers who seek to recover, in whole or in part, the cost of payment protection insurance, "PPI", which they were sold by a lender, typically although not here a bank, at the same time as they negotiated a loan from that lender. On this appeal redress is sought under sections 140A and B of the Consumer Credit Act 1974, "the Act", which gives to the court wide-ranging powers in circumstances where the relationship between a creditor and a debtor has been determined to be unfair to the debtor.
Concern about the conduct of lending institutions in selling PPI has of course been rife for some years, leading to the publication by the Competition Commission in January 2009 of a "Market Investigation into Payment Protection Insurance" and the issue by the Financial Services Authority, "the FSA", in August 2010 of a Policy Statement "The assessment and redress of PPI complaints".
The landscape has in consequence changed. We are concerned with a loan advanced and associated PPI sold in 2006. Our decision will be relevant to many who seek redress in respect of transactions entered into at around that time. But since April 2011 the sale of PPI has been prohibited at the point of sale of credit, as has the sale of PPI within seven days before the sale of credit and indeed the sale of single premium PPI policies – see The Payment Protection Insurance Market Investigation Order 2011 issued by the Competition Commission in exercise of its powers under the Enterprise Act 2002.
In view of the wide-ranging nature of complaints concerning the "mis-selling" of PPI, it is worth emphasising at the outset how very narrow is the ambit of this appeal. It traverses very little if any of the terrain illuminated by the market investigations to which I have just referred, in the latter of which there were identified fifteen common types of failings in PPI sales. Rather it focuses upon a single aspect of the typical transaction which has not attracted direct regulatory comment, the failure by the lender to disclose to the borrower that it would receive from the insurer a handsome commission upon the sale of the PPI. Indeed, given that typically the cost of the PPI premium was itself advanced to the borrower under the same credit agreement as the principal loan, repayment of which it ostensibly protected, the reality was that the commission simply became a debt payable by the borrower to the lender at the expiry of the term of the loan, on which interest was payable in the interim for so long as the loan remained outstanding. It should furthermore be noted that it is not the mere non-disclosure of the receipt of commission which is here alleged to provide an avenue to redress. The argument depends upon the size of the commission. Whilst in broad terms the borrowers rely upon various aspects of the relationship between themselves and the lender as giving rise to unfairness, what is said to be critical is the circumstance that typically the commission was disproportionate to the actual cost of the insurance. Here the borrowers were told that the Payment Protection Plan premium was £10,200. Of that, 87% was retained by the lender. Put another way, the commission was 677% of the apparent cost of the insurance, although these figures may in truth be misleading as concealing a cross-subsidy between the cost of the PPI and the annual percentage rate or cost of the loan. In the present case, and presumably it is typical, the PPI insurance was principally provided by an associated company within the same group of companies as the lender.
The unfairness to which these aspects of the transaction is said to give rise is relied upon as investing the court with a power under s.140B of the Act to require the lender to repay to the borrowers all or part of the cost of the PPI. It is said that the taking by the lender in these circumstances of a commission of this order renders the relationship between the lender and the borrowers arising out of the credit agreement unfair to the borrowers, thereby enabling the court to make a determination to that effect under s.140A of the Act and consequently to grant relief under s.140B thereof.
Before setting out the statutory provisions I must first set out the facts relevant to this appeal, as found in large part by the courts below, and describe the course of the litigation thus far.
The facts
The appellant borrowers are Mr and Mrs Harrison. The lender in this case, Black Horse Limited, to which I will refer hereafter as "Black Horse", is not in fact a bank. It is or was at all material times an authorised lender. It is or was at all material times a part of the Lloyds TSB Group. Nothing however turns on its precise status. The trial took place at Worcester County Court before District Judge Marston on 11 June 2010. The judge heard oral evidence from the borrowers, Mr and Mrs Harrison, and from a financial consultant, Mr Cook, who gave evidence on their behalf as to the cost of PPI in the contemporary market. The judge heard evidence also from Patricia Johnston, a secured operations controller with Lloyds Banking Group plc. Mrs Johnston had had no dealings with Mr and Mrs Harrison. Essentially she assisted the judge with an educated reconstruction from the documents and from her knowledge of the training given to the Black Horse sales force.
The first appeal was heard by Judge Waksman QC in the Manchester Mercantile Court. Both parties were represented both at trial and in the first appeal by counsel. Judge Waksman set out the basic facts with great clarity and I gratefully adopt his account, noting however that he was in error to refer to Black Horse as a bank. The essential facts are to be found in the following paragraphs of his judgment:-
"2. The basic facts are as follows: in July 2003 the Harrisons took out a loan from the Bank for £46,000 together with a single premium PPI policy which cost £11,500. As was common at the time, that premium was the subject of a separate loan which attracted its own monthly repayments of capital and interest alongside the main loan.
3. Then, by a further loan agreement made with the Bank on 24 July 2006, the Harrisons borrowed a further sum of £60,000 together with a further PPI policy at a cost of £10,200. Of the sum advanced, £54,815 was applied to discharge the previous loan and cancel its associated PPI. The balance of the 2006 loan went on household improvements and a holiday. The 2006 loan was to be repaid over a period of 23 years. The PPI associated with it would last for the first 5 years only, but was repayable by way of monthly instalments of capital and interest co-terminously with the main loan repayments. In the event, the 2006 loan was discharged by further re-financing on 2 March 2009. At the same time the PPI was cancelled. The total cost to the Harrisons of the PPI by the time of cancellation was £10,529.70.
4. The PPI was sold by the Bank to the Harrisons as agent for the actual insurer, Lloyds TSB General Insurance Limited ("Lloyds Insurance"). For the purpose of the Insurance Conduct of Business Rules then (but not now) in force ("ICOB") the Bank was an insurance intermediary acting on an advised basis but only in relation to the single product offered, namely this PPI provided by Lloyds Insurance.
5. The Bank earned a commission from Lloyds Insurance on the sale of the PPI in the sum of £8,887.49. This represents 87% of the premium paid by the Harrisons. It is common ground that the Bank did not disclose either the fact or amount of this commission to the Harrisons."
I turn next to describe the process pursuant to which the loan was negotiated and the PPI sold. It was Mr Harrison who made the relevant telephone call in July 2006 which led to the transaction. By the time of the trial four years later not unnaturally he could not remember the detail of the conversation but it is possible to reconstruct it from the documents and from the records kept by Black Horse. Mr Harrison made a telephone enquiry to the Black Horse secured loan processing department in Edinburgh on 17 July 2006. He spoke to Lisa Hutcheson, a customer account manager. He told Ms Hutcheson that he and his wife wished to refinance their borrowings and to borrow for the purpose of home improvements and a holiday. From this point, if not before, Ms Hutcheson was obliged to follow a script which was mandatory for employees engaged in the sale of PPI. The District Judge found that the script was followed. The conversation first proceeded to the point at which Ms Hutcheson must have made a provisional offer of a loan in the sum of £60,000, subject to proof of income being supplied. The loan was to be secured by the existing second charge over the Harrisons' home, which Black Horse had had since 7 July 2003 as security for the first loan.
In accordance with the script, Mr Hutcheson then said, "As part of our discussion about your loan Mr Harrison we would like to let you know about our optional Payment Protection Plan". Since the word "optional" is set out in the standard script in bold, italicised and for good measure underlined, one hopes that it...
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