Introduction
Smith marks the latest entry in the every-growing list of authorities stemming from the PPI scandal of the last decade. However, the implications of Smith affect not only PPI claims, but all claims made pursuant to section 140A-C of the Consumer Credit Act ("the Act").
Background
The matter concerned the combined appeals of two Claimants' seeking redress for allegedly mis-sold Payment Protection Insurance (PPI) policies. The Bank conceded the commission in relation to the PPI was undisclosed and that the level of commission was unfair. However, the Bank contended the claims were statute barred. This was on the basis that the PPI policies were cancelled over ten years before the claims were brought and that the "unfairness" had arisen then at the time of inception.
The Claimants had continued using their credit cards after the PPI policies had been cancelled - less than six years before bringing the claim. The Claimants therefore argued that the time for limitation should start at the end of the relationship between the Bank and the Claimants.
The Judgment
The Court agreed with Claimants. In doing so, the Supreme Court found:
”The central flaw in the completed cause of action argument is that, for as long as the credit relationship is continuing, the debtor cannot have a completed cause of action before the time at which a determination of unfairness is made. Proof of facts which made the relationship unfair to the debtor at some earlier point in time is never sufficient to give the debtor an entitlement to a remedy. That is because, as noted at paras 19-21 above, unless the relationship has ended, section 140A makes the power of the court to make an order under section 140B conditional on a determination that the relationship ‘is’ (i.e.at the time when the determination is made) unfair to the debtor. Necessarily, a right to obtain a remedy for unfairness existing on that day cannot arise before that day comes.”
In short, this meant that both Claimants' were considered in time to bring a claim against the Bank, despite the fact the events complained of occurred more than 10 years before the claim.
The Floodgates – The gates are open but not fully
At first blush, this decision may seem to open the floodgates of litigation of historic credit agreements and is a setback for the finance sector. It would appear to create significant uncertainty for the credit industry – knowing a dissatisfied consumer may bring a claim for an alleged unfairness significantly after that unfairness ceased (if it ever did exist). It certainly provides a boost for Claims Management Companies and is especially timely in light of the recent motor finance commissions mis-selling wave.
However, there are still very useful elements of the judgment that gives lenders hope to defeat such historic unfairness claims. In making its determination, the Court made two key observations:
- The Court noted that its role under section 140A(4) is to determine whether the whole credit relationship was unfair. While one element may be considered unfair, this does not render the entire relationship unfair and countervailing factors must be considered. Chief among these countervailing factors are whether any complaints or attempts to seek redress were made at the time of the alleged unfairness as "in the absence of some extraordinary explanation, inaction by the debtor over such a length of time is likely to be regarded as an overwhelming factor point to the relationship not being unfair when it ended".
- The Court noted it is within its discretion to make an order under section 140B that the credit relationship was unfair. Should a debtor wait a considerable time to bring a claim for unfairness, the court notes that "it seems inconceivable that the court would think it just to make such an order [of unfairness]".
If you wish to discuss Smith further or the effect the Judgment might have on your business, then do get in touch.
Authors: Mahesh Vara and Alex Falco
