Karen Smith Derek Burrell v The Royal Bank of Scotland Plc
| Jurisdiction | England & Wales |
| Judge | Lord Justice Coulson,Lady Justice Macur,Lord Justice Birss |
| Judgment Date | 03 December 2021 |
| Neutral Citation | [2021] EWCA Civ 1832 |
| Docket Number | Case Nos: B2/2021/0154 & B2/2021/0887 |
| Year | 2021 |
| Court | Court of Appeal (Civil Division) |
[2021] EWCA Civ 1832
Lady Justice Macur
Lord Justice Coulson
and
Lord Justice Birss
Case Nos: B2/2021/0154 & B2/2021/0887
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM PLYMOUTH DISTRICT REGISTRY
HIS HONOUR JUDGE GORE QC
F05YM581
ON APPEAL FROM NORTHAMPTON COUNTY COURT and FAMILY COURT
HIS HONOUR JUDGE MURDOCH
F07YM941
Royal Courts of Justice
Strand, London, WC2A 2LL
John Taylor QC and Giles Robertson (instructed by Pinsent Masons LLP) for the Appellants
Robert Weir QC and Jonathan Butters (instructed by Cheval Legal Ltd) for the Respondents
Hearing date: 14 October 2021
Approved Judgment
These two appeals relate to claims for compensation under the Consumer Credit Act 1974 arising from payment protection insurance (“PPI”) policies taken out at the same time as agreements for credit cards from the Royal Bank of Scotland (“RBS”). The issues in this appeal are about how the Act in its form as amended on 6 April 2007 applies to cases in which the PPI policy was terminated before the amendments to the Act came into force. There are numerous PPI cases coming before judges in the County Court at the moment. We were told that different courts have reached different conclusions on this issue and therefore authoritative guidance is required.
The appeals involve two claims against RBS, one brought by Karen Smith and the other by Derek Burrell. By agreement, the oral argument before this court focussed entirely on the case brought by Ms Smith, which was heard at first instance by DJ Stone and then on appeal by HHJ Gore QC.
The sequence of events relating to Ms Smith
In January 2000 Ms Smith's application for a credit card from RBS was successful. From that point on she had a credit card agreement with RBS. At the same time Ms Smith also entered into a separate insurance contract with the Direct Line insurance company. This insurance contract was the PPI contract. It insured her payments under the credit card in case of death/illness or unemployment. Monthly PPI premiums were charged to her credit card as a percentage of the outstanding balance. Each monthly credit card statement included an entry stating the cost of the PPI for that month. Ms Smith was also liable to pay interest on unpaid monthly balances, including the PPI premiums.
The only document signed by Ms Smith when she applied to enter the credit agreement was the RBS application form. On the form Ms Smith ticked a box on the form next to the words “We strongly recommend you take out this cover. For cover just tick this box.” By that mechanism Ms Smith entered into the PPI contract.
In fact, and unknown to Ms Smith at the time, RBS received commission payments on the PPI policy premiums. We know the value of these commissions was larger than 50% of the premium but RBS has never said how much they actually were.
Ms Smith terminated the PPI policy in March 2006. The last payment made under the PPI policy was in April 2006.
On 6 April 2007 the amendments to the 1974 Act by the Consumer Credit Act 2006 came into effect. There was a transitional period (see below) which ended in April 2008. Broadly stated, the amendments repealed the existing law which had given consumers the right to bring claims for extortionate credit bargains and replaced it with a new law based on bringing a claim for an unfair credit relationship. The new law would apply to an existing credit agreement if it remained in force after the end of the transitional period. The new law would not apply to a credit agreement which was a “completed agreement” (see below) by the end of the transitional period.
The credit agreement between Ms Smith and RBS was cancelled in 2015.
Meanwhile, in November 2014 the Supreme Court decided the case of Plevin v Paragon Personal Finance [2014] UKSC 61. It is common ground before us that the effect of this decision is that, assuming the relevant parts of the Act apply (which the bank disputes), the relationship between the bank and Ms Smith during the time when she paid PPI premiums was unfair. The nature of the unfairness was explained by Lord Sumption in Plevin at paragraph 18:
18 I turn therefore to the question whether the non-disclosure of the commissions payable out of Mrs Plevin's PPI premium made her relationship with Paragon unfair. In my opinion, it did. A sufficiently extreme inequality of knowledge and understanding is a classic source of unfairness in any relationship between a creditor and a non-commercial debtor. It is a question of degree. Mrs Plevin must be taken to have known that some commission would be payable to intermediaries out of the premium before it reached the insurer. The fact was stated in the FISA borrowers' guide and, given that she was not paying LLP for their services, there was no other way that they could have been remunerated. But at some point commissions may become so large that the relationship cannot be regarded as fair if the customer is kept in ignorance. At what point is difficult to say, but wherever the tipping point may lie the commissions paid in this case are a long way beyond it. Mrs Plevin's evidence, as recorded by the recorder, was that if she had known that 71.8% of the premium would be paid out in commissions, she would have “certainly questioned this”. I do not find that evidence surprising. The information was of critical relevance. Of course, had she shopped around, she would not necessarily have got better terms. As the Competition Commission's report suggests, this was not a competitive market. But Mrs Plevin did not have to take PPI at all. Any reasonable person in her position who was told that more than two thirds of the premium was going to intermediaries, would be bound to question whether the insurance represented value for money, and whether it was a sensible transaction to enter into. The fact that she was left in ignorance in my opinion made the relationship unfair.
In other words the customer did not have to take out the PPI policy at all. The unfairness arose from the failure to disclose the existence and scale of the PPI commission, which was information which, had they been given it, would have led any reasonable person in that position to question whether the insurance represented value for money, and whether it was a sensible transaction to enter into at all.
In February 2018 Ms Smith received £529.80 from RBS under the redress scheme mandated by the Financial Conduct Authority. This sum repaid part of the commission and interest.
On 19 August 2019 Ms Smith's county court claim was issued. It sought repayment of all PPI premiums she paid between January 2000 and April 2006 with interest.
The claim came before DJ Stone sitting in Bodmin on 21 January 2020. Mr Taylor QC who appeared before us for the appellant bank also appeared before DJ Stone. Ms Smith was there represented by Mr Butters of counsel, who was led by Mr Weir QC before this court. In a reserved judgment given on 9 March 2020 DJ Stone upheld Ms Smith's claim, making an order requiring RBS to pay £1,346.29 to Ms Smith as well as costs. That sum represented the whole of the PPI premiums paid (with interest) less the sum already awarded by the FCA under the redress scheme. Irrespective of the outcome of this appeal, I would like to pay tribute to DJ Stone's judgment. It is a model of precision, and clear and concise handling of the issues. The bank appealed and that came before HHJ Gore. He dismissed the appeal. The matter comes before us as a second appeal, with permission given by Asplin LJ.
The facts of Mr Burrell's case
The relevant facts of Mr Burrell's case can be stated shortly. The credit card agreement, together with PPI policy, was entered into in 1998. There is no material difference between the agreements and circumstances at this stage between Ms Smith and Mr Burrell. The PPI policy was cancelled in March 2008. The credit card agreement continued into 2019. A payment by RBS under the FCA scheme was made in 2017 and the claim was issued in August 2019. The Court (DDJ Crow) found for Mr Burrell and that conclusion was upheld on appeal by HHJ Murdoch. In terms of the grounds of appeal the issues are the same as for Ms Smith.
The legislation
The relevant sections of the 1974 Act are s140A to s140C. Section 140A is as follows:
140A Unfair relationships between creditors and debtors
(1) The court may make an order under section 140B in connection with a credit agreement if it determines that the relationship between the creditor and the debtor arising out of the agreement (or the agreement taken with any related agreement) is unfair to the debtor because of one or more of the following—
(a) any of the terms of the agreement or of any related agreement;
(b) the way in which the creditor has exercised or enforced any of his rights under the agreement or any related agreement;
(c) any other thing done (or not done) by, or on behalf of, the creditor (either before or after the making of the agreement or any related agreement).
(2) In deciding whether to make a determination under this section the court shall have regard to all matters it thinks relevant (including matters relating to the creditor and matters relating to the debtor).
(3) For the purposes of this section the court shall (except to the extent that it is not appropriate to do so) treat anything done (or not done) by, or on behalf of, or in relation to, an associate or a former associate of the creditor as if done (or not done) by, or on behalf of, or in relation to, the creditor.
(4) A determination may be made under this section in relation to a relationship notwithstanding that the relationship may have ended.
[…]
This section provides the conditions to be satisfied in order for the...
To continue reading
Request your trial
- Karen Smith Derek Burrell v The Royal Bank of Scotland Plc
-
Smith and another v Royal Bank of Scotland Plc
....... Karen Smith . 4 Karen Smith applied (successfully) for a credit card with the bank in ...That decision was affirmed on appeal by the county court judge. . Derek Burrell . 8 Derek Burrell entered into a credit card agreement with the bank and ......
-
The King -on the application of- Shawbrook Bank Ltd v Financial Ombudsman Service Ltd
...149 As regards the status of Scotland & Reast, it was cited with approval by the Court of Appeal in Smith v Royal Bank of Scotland [2021] EWCA Civ 1832 in relation to its analysis of the threshold test for s.140A (although I cannot see that the s.56 point squarely arose there; and the case......
-
R Mortgage Agency Service Number Five Ltd v Financial Ombudsman Service Ltd
...accordingly. 62 Patel was approved in Scotland v British Credit Trust Ltd [2014] Bus LR 1079 CA and in Smith v Royal Bank of Scotland [2021] EWCA Civ 1832. 63 The Claimant distinguishes those cases on the basis that the régime established by sections 140A and 140B of the Consumer Credit Ac......
-
Payment Protection Insurance (PPI)
...to 22 CCA 2006 7. Schedule 3(16) Consumer Credit Act 2006 8. S.9 Limitation Act 1980 9. Smith and Burrell v Royal Bank of Scotland Plc [2021] EWCA Civ 1832 [69] 10. Canada Square Operations Ltd v Potter [2021] EWCA Civ 339 [157] 11. Hussain v Mukhtar [2016] EWHC 525 (QB) [40] 12. Hussain v ......