Plevin v Paragon Personal Finance Ltd
| Jurisdiction | England & Wales |
| Judge | Lady Hale,Lord Sumption,Lord Clarke,Lord Hodge,Lord Carnwath |
| Judgment Date | 12 November 2014 |
| Neutral Citation | [2014] UKSC 61 |
| Date | 12 November 2014 |
| Court | Supreme Court |
[2014] UKSC 61
Lady Hale, Deputy President
Lord Clarke
Lord Sumption
Lord Carnwath
Lord Hodge
Appellant
Jonathan Crow QC Ian Wilson Sandy Phipps
(Instructed by Irwin Mitchell LLP)
Respondent
Hodge Malek QC James Strachan QC John Campbell
(Instructed by Miller Gardner Solicitors)
Heard on 11 and 12 June 2014
(with whom Lady Hale, Lord Clarke, Lord Carnwath and Lord Hodge agree)
Payment Protection Insurance (or "PPI") is sold to borrowers to cover the repayment of specified borrowings upon the occurrence of an insured event, generally sickness, accidental injury, or unemployment. In its report, Market Investigation into Payment Protection Insurance (29 January 2009), the Competition Commission recorded that PPI was commonly sold as part of a package with the loan itself, and in those cases usually provided for a single premium to be paid upfront at the time of the transaction and added to the amount borrowed. Commissions payable to intermediaries were high, typically between 50 and 80 per cent of gross written premium for policies sold in connection with a personal loan. These levels of commission were much higher than those payable for introducing the loan itself, which meant that a large proportion of the profits of loan brokers was derived from selling PPI policies. The Commission found that the market for PPI sold as a package with loans was characterised by limited competition and low levels of substitutability, and that these factors resulted in high premiums relative to what would be expected in a well-functioning market. They made a number of recommendations, including a prohibition of selling PPI in a package with the loan and a prohibition on single premium policies. These recommendations have since been adopted.
Sections 140A to 140D of the Consumer Credit Act 1974 confer wide powers on the court to reopen unfair credit transactions. This appeal is about the application of those provisions to a PPI policy issued in 2006 to Mrs Susan Plevin.
Mrs Plevin was then a widowed college lecturer of fifty-nine living in her own house, with a mortgage and various unsecured personal debts. She responded to an unsolicited leaflet put through her letter box by an independent credit broker called LLP Processing (UK) Ltd, which has since gone into liquidation. They offered to arrange the refinancing of her existing liabilities at a competitive rate of interest over a long term, secured on her home. She telephoned LLP and told them that she was interested in borrowing money to pay off her existing debts and fund some home improvements. During the call, LLP completed an internal form called a "Demands and Needs Statement" on the basis of information provided by her. They then proposed that she should borrow £34,000 from Paragon Personal Finance Ltd, repayable in instalments over ten years, and take out PPI for five years with Norwich Union. The PPI premium was £5,780, which was payable at the outset and added to the amount of the loan making a total borrowing of £39,780. Paragon was one of eleven lenders with whom LLP had arrangements to introduce clients. These arrangements allowed them to input details of the proposed loan into a Paragon computer system and obtain a preliminary indication of whether the transaction was likely to be acceptable. Each lender had an arrangement with a designated insurer who underwrote PPI policies associated with its loans. Norwich Union was the insurer designated by Paragon.
After the telephone conversation, LLP sent Mrs Plevin a letter recording their proposal, and quoting a premium for PPI cover at £5,780. It enclosed a "Key Facts" document describing the insurance cover, a "Borrower Information Guide" produced by the Finance Industry Standards Association ("FISA") and an application form. The application form, which Mrs Plevin completed and dated 6 March 2006, recorded brief details of her income and outgoings, including her current mortgage, and that she wished to borrow £34,000 and buy a PPI policy. The form was returned to LLP.
Subsequently, she was telephoned by an employee of Paragon. This call was made in accordance with a standard internal procedure and was known as a "speak with". It resulted in the generation within Paragon of a computerised form headed "Money Laundering Details". The body of the form confirms what the title would lead one to expect, namely that it is concerned with satisfying Paragon's obligations under the money-laundering legislation and regulations. It established Mrs Plevin's identity, that she had applied for the loan in the amount stated in the application form, the purpose for which she required it and the amount and date of the first payment. It also confirmed that no upfront application fee had been charged by LLP, which would have been contrary to the FISA code of practice. The "speak with" was not intended to appraise the suitability of the transaction for Mrs Plevin's purposes. On 21 March 2006, Paragon sent her a copy of the credit agreement, the PPI certificate and four cheques, three of which were payable to her designated creditors and the fourth to her personally. These were the only instances of direct contact between Mrs Plevin and Paragon.
Of the £5,780 premium, 71.8% was taken in commissions from the premium before it was remitted by Paragon to Norwich Union. LLP received £1,870 and Paragon retained £2,280. The net sum of £1,630 was then remitted by Paragon to Norwich Union. The FISA borrowers' guide told Mrs Plevin that "commission is paid by the lending company". But neither the amount of the commission nor the identity of the recipients was disclosed.
These provisions were added to the Consumer Credit Act 1974 by sections 19–22 of the Consumer Credit Act 2006. They replaced provisions which had conferred a limited power to reopen "extortionate credit bargains" (sections 137–140 of the 1974 Act) but set too high a bar to debtors and sureties wishing to challenge the terms of their agreements. The new provisions came into force on 6 April 2007, after the agreement with Mrs Plevin was made, but they apply by virtue of the transitional provisions of Schedule 3 of the Act.
Section 140A provides, so far as relevant, 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."
Section 140B(9) provides that where the debtor (or a surety) alleges that the relationship is unfair, it is for the creditor to prove that it is not. Section 140B lists the orders which a court may make if it finds the debtor-creditor relationship to be unfair including, under subsection (1)(a) an order requiring "the creditor… to repay (in whole or in part) any sum paid by the debtor … by virtue of the agreement or any related agreement…".
Section 140A is deliberately framed in wide terms with very little in the way of guidance about the criteria for its application, such as is to be found in other provisions of the Act conferring discretionary powers on the courts. It is not possible to state a precise or universal test for its application, which must depend on the court's judgment of all the relevant facts. Some general points may, however, be made. First, what must be unfair is the relationship between the debtor and the creditor. In a case like the present one, where the terms themselves are not intrinsically unfair, this will often be because the relationship is so one-sided as substantially to limit the debtor's ability to choose. Secondly, although the court is concerned with hardship to the debtor, subsection 140A(2) envisages that matters relating to the creditor or the debtor may also be relevant. There may be features of the transaction which operate harshly against the debtor but it does not necessarily follow that the relationship is unfair. These features may be required in order to protect what the court regards as a legitimate interest of the creditor. Thirdly, the alleged unfairness must arise from one of the three categories of cause listed at sub paras (a) to (c). Fourthly, the great majority of relationships between commercial lenders and private borrowers are probably characterised by large differences of financial knowledge and expertise. It is an inherently unequal relationship. But it cannot have been Parliament's intention that the generality of such relationships should be liable to be reopened for that reason alone.
In January 2009, Mrs Plevin brought proceedings against LLP and Paragon. As against LLP, she...
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