Our finance litigation experts bring you the latest on the cases and issues affecting the lending industry.
Harrison, PPI and unfair relationship revisited
The Court of Appeal has revisited the issue of unfair relationship in payment protection insurance (PPI) claims where the payment of commission was not disclosed.
The two conjoined appeals were Plevin v Paragon Personal Finance Ltd and Conlon v Black Horse Ltd. Conlon argued that her claim could be distinguished from Harrison as the court had accepted that, had she been aware of the commission, she would have searched for cheaper insurance. In Plevin, the argument was that there were serious failings in the broker's assessment of the policy's suitability and that the broker's conduct was "on behalf of" and so bound the lender.
The Court of Appeal held that Conlon's case was indistinguishable from Harrison. It did not accept the fact that Conlon would have looked for cheaper insurance had she known of the commission as a relevant distinction. In Harrison it was held that it would be anomalous if a lender could be found to have created an unfair relationship where there was no breach of the relevant regulatory regime. The regime exonerated the lender from any obligation to disclose the existence of the commission to any of its customers, not just those to whom disclosure was irrelevant. No distinction could be made on the basis of evidential differences that did not go to the heart of the matter.
In Plevin, the court held that the phrase "on behalf of" under s140A of the Consumer Credit Act (CCA) had to be interpreted purposively and in its context. This point was not addressed directly in Harrison. The CCA existed to protect consumers and a broad interpretation of "on behalf of" was appropriate.
In determining whether the broker/intermediary was acting "on behalf of" the provider, the provider's payment of commission to the intermediary would generally be sufficient to confirm it was. This was regardless of whether the conduct complained of occurred before or after the provider was introduced to the transaction. The intermediary did not have to be the provider's agent at law. The existence of a true fiduciary agency between the customer and the intermediary, where the commission paid, albeit by the provider, is fully disclosed, will indicate the intermediary is acting on behalf of the customer and so the provider is not responsible for its actions.
The court held that Harrison is not authority for the proposition that the requisite misconduct must be that of the provider or even that for which it is responsible. Plevin's appeal succeeded, with the case being remitted back to the lower court for a determination as to whether there had been serious failings in the intermediary's assessment of suitability.
Things to consider
The decision in Conlon is unsurprising. The court is bound to follow its earlier decision and Harrison remains binding on this point unless the Supreme Court holds otherwise on any subsequent appeal in Conlon, or any other case on the point.
In Plevin, the court said it was keen to ensure that those that contribute to the unfairness from which a consumer suffers ought to be brought within the ambit of s 140A and a broader interpretation of "on behalf of" achieved this. Given how wide the scope of "on behalf of" now appears to be drawn, lenders can expect more challenges based on the unfair relationship provisions and what might have been done or said by an independent broker or intermediary to bring about the transaction complained of. Lenders would appear to have been placed in the unenviable position of guarantors of the acts or omissions of independent brokers who send business to them.
Owner's right to deal with property
In Blemain Finance Ltd v Goulding, the court had to determine whose interests prevailed, the registered owner of a property or a trustee in bankruptcy who had been unaware of the property and whose alleged interest in it had never been registered.
On 12 February 2003, G transferred his property to C. On 14 February 2003 G was made bankrupt. C's title was registered on 20 February 2003. G's trustee in bankruptcy was appointed in June 2003. C granted a second legal charge to B in July 2007. B later obtained an order for possession against C. G was joined as a party to the proceedings and sought to set the possession order aside on the basis he had been in possession of the property as his sole residence at the time of the transfer to C and continued to so reside.
G argued the transfer was voided by his bankruptcy and that title to the property had vested in his trustee. He asserted that he had an overriding interest in the property as it was his sole residence at the time of his bankruptcy and that title had vested in him at the end of three years following his bankruptcy (s283A Insolvency Act 1986). The trustee knew nothing of G's claimed interest in the property.
G's application was dismissed, with the court finding that the property had not been G's sole or main residence at the time of the bankruptcy, only subsequently. In fact, he had signed a letter of consent to B's charge and so expressly postponed any interest he had to B's interest as chargee.
The Court of Appeal dismissed G's appeal, holding it had no prospect of success. A trustee in bankruptcy can apply to be registered as proprietor of property that vests in him. It would be odd if his omission to do so meant that the registered proprietor could not cannot make a registered disposition of it under which a transferee would take a valid title.
Things to consider
B had given valuable consideration, acted in good faith and had no notice of the bankruptcy petition or the alleged interest of the trustee in bankruptcy. B obtained good title as against G's trustee.
No winding-up order where genuine dispute over debt
A winding up order was wrongly made where a creditor was described as a contingent creditor but the underlying debt upon which the petition was based appeared to be genuinely disputed.
In LSI 2013 Ltd v Solar Panel Co (UK) Ltd, the petition was based upon invoices giving rise to a substantial outstanding balance on the trading account between the parties. The debtor alleged it was not liable on two of the invoices at all as they related to a different company; that there were discrepancies between the amounts shown in the invoices and those shown in the petition; that payments made were understated; and that in fact there was a balance due to it on the account, not to the petitioner. It also alleged a cross-claim.
The petitioner relied on the fact the debtor had proposed a company voluntary arrangement (CVA) in which it had been described as a contingent creditor for £1. The winding-up order was made and the debtor appealed.
Setting aside the winding-up order, the High Court held that a petitioner whose debt was disputed or subject to a cross-claim was not a contingent creditor for the purposes of presenting a winding-up petition. The petition was based on the trading account between the parties and the debtor had brought evidence to show that that account was genuinely disputed.
The first instance judge had placed too much reliance on the reference to the petitioner as a contingent creditor where the contingency referred to was the outcome of the disputed claim upon which the petition was based. The CVA was just a proposal and did not amount to an agreement that any amount was due to the petitioner.
Things to consider
Although the order was set aside, the petition was not dismissed but remitted back to the district registry so that further argument/consideration could be given as to whether there was a genuine dispute. Petitioners need to take care to ensure that their evidence of the debt is clear, not contradictory or erroneously recorded, and that there is no genuine dispute before issuing a petition in order to avoid throwing good money after bad.
Equity of exoneration
A sub-surety was entitled to an indemnity from the assets of a guarantor before a third party's debt bit upon the guarantor's assets.
In Day v Shaw and Shaw, a bank had lent money to the first defendant's company. The first defendant (and another) guaranteed that loan. The loan was also secured by a charge over the first defendant's and his wife's (the second defendant) property.
The claimant had lent money to the first defendant which was not repaid. He obtained a judgment, secured by way of a charging order over the first defendant's interest in the property.
The company became insolvent and the bank called in the debt. The property was sold and the bank repaid. The claimant contended that the money paid to the bank in settlement was taken from both defendants' share of the proceeds of sale equally and his judgment debt should be paid out of the first defendant's share of the remaining net proceeds.
The second defendant argued that she was entitled to an indemnity from the first defendant as she had an equity of exoneration i.e. she was acting as sub-surety to her husband's guarantee of the loan to his business venture in which she had no interest. The indebtedness to the bank should be discharged as far as possible out of his equitable interest in the property with any remaining balance only then being deducted from her share.
The High Court agreed. It was established law that a joint owner who was effectively in the position of a surety for the other joint owner was entitled to be indemnified in relation to the debt. The second defendant's right to indemnity gave her a proprietary right in relation to the first defendant's share which had priority over the claimant's charging order. There were no net proceeds of sale to which the first defendant remained entitled to which the charging order could attach.
Things to consider
This is the classic situation in which the equitable right of exoneration arises - a wife mortgaging the family home, together with the husband, as security for the husband's business venture in which she has no interest.
Relief from sanctions cases
Lenders need to be aware of a number of judgments on relief from sanctions applications featuring the reworded Civil Procedure Rule (CPR) 3.9. . Two are referred to below.
The first case is Durrant v Chief Constable of Avon & Somerset. The judgment confirms that a party should not be lulled into a false sense of security if relief from sanction has initially been granted.
In Durrant, the defendant failed to comply with an order for exchange of witness statements. An extension of time was granted, with an unless order attached, for service by 12 March 2013. The defendant served two witness statements on 13 March and the claimant complained they were out of time. The defendant applied for relief from sanction on 15 May and also sought to serve a further four statements. The trial was listed for 10 June. A further application for relief so as to allow service of two further witness statements was made on 5 June.
Both applications were heard at the start of the trial on 10 June. Although the trial judge referred to the court now being required to take a much stronger and less tolerant approach and to the two specific factors in CPR 3.9, (being for litigation to be conducted efficiently and at proportionate cost and to enforce compliance with rules, practice directions and orders) to be considered, he went on to grant relief. The trial had to be adjourned. The claimant (a litigant in person) appealed.
Following Mitchell, the Court of Appeal held that:
- The sanction initially imposed following failure to serve on time was not appealed and should, therefore, be taken as a proportionate sanction which complied with the overriding objective.
- Both applications for relief were made late in the day and not promptly as required by Mitchell.
- The effect of the witnesses being unable to give evidence was something to be taken into account in determining how much time should be allowed for service of the witness statements in the first place, and what sanction to impose for failure to comply. However, once the deadline and sanction have been determined, such considerations would not carry much weight on a relief application.
- Although the first two witness statements were served only one day late, which may look like a trivial non-compliance as suggested in Mitchell, looking at the history of the proceedings, it was more significant. The original deadline had been missed, as had the deadline imposed by the unless order and crucially the application had not been made promptly. The delay was inexcusable.
The Court of Appeal upheld the appeal and refused both applications for relief from sanction. None of the eight witness statements could be served/evidence called.
The second judgment is in the long-running Harrison v Black Horse Ltd PPI litigation. This claim was successfully defended at first instance and on two appeals but was settled after leave to appeal to the Supreme Court was granted to the Harrisons. By the settlement, the defendant agreed to refund the PPI premiums paid and to pay the Harrisons' costs throughout (save for after the event insurance premiums).
The Harrisons' litigation had been funded by way of four separate conditional fee agreements (CFAs) (one for the first instance proceedings and for each appeal). All the CFAs were pre-April 2013, so the success fee was recoverable if notice was properly given. Notice of two of the CFAs had been served on the defendant. It was accepted that notice of the CFA in relation to the High Court appeal had not been served but it was disputed whether notice had been served in relation to the Court of Appeal proceedings. The Harrisons' solicitors claimed they had served the notice but the defendant denied receiving it.
The automatic sanction for failure to serve the appropriate notice is that the success fee cannot be recovered for the duration of the period during which the party failed to provide that information (former CPR 44.3B). The Harrisons sought relief from that sanction in relation to the Court of Appeal CFA.
The court held that it was clear that the Harrisons had intended to give notice and believed they had done so. The defendant's evidence was that, had it been given notice of the CFA and the additional liability, its approach to settlement might have been different. It had therefore been prejudiced by the failure to give notice. The new requirements of CPR 3.9 (as set out above) demanded a tougher approach to relief from sanctions. Here, the failure was not trivial - notice had not been given in any form - and no good reason for the failure had been shown. The application had not been made promptly either, and in fact could have been made pre April 2013. The court refused to grant relief and the success fee could not be recovered from the defendant.
Things to consider
Following the Court of Appeal's decisions in Mitchell and Durrant, there should be little doubt as to how the courts will approach relief from sanctions applications. Parties cannot expect relief to be granted unless the breach is trivial and an application for relief is made promptly, or there is very good reason for the breach. It is best to ensure all deadlines are noted and complied with to avoid having to seek relief in the first place.