Update: summary of Supreme Court decision now available here

  1. The Court of Appeal’s judgment in the conjoined cases of Conlon v Black Horse and Plevin v Paragon was handed down in December 2013.
  2. Permission to appeal to the Supreme Court has been granted in both cases. Here is a summary of the decision:

Conlon v Black Horse

  1. Ruth Bala of Gough Square Chambers was led by David Bailey QC, representing the finance company. Black Horse succeeded in having the appeal dismissed again.
  2. Mrs Conlon had been sold PPI and the commission (here only 40%) had not been disclosed. The issue was whether Harrison v Black Horse (in which Ruth had also represented Black Horse) should be distinguished and/or was correctly decided.

Whether to distinguish Harrison

  1. The first basis on which Mrs Conlon said Harrison should be distinguished was that she had given ‘hypothetical reaction evidence’ at trial (i.e. “had I been informed of the commission, I would have shopped around”). The CA held that this evidence did not separate the case from the substance of the reasoning in Harrison. Further, there was nothing Mrs Conlon had said or done to indicate that she cared about commission and which set her apart from other customers (at [22]).
  2. The second proposed distinction was that Black Horse had disclosed an internal document from which the Recorder had inferred that it had decided as a matter of policy not to disclose commission for commercial reasons. The CA held that the motivation was highly likely to have been the same for every lender, and again this did not affect the substance of the reasoning in Harrison (at [23-24]).
  3. The third proposed distinction was that the non-disclosure of the commission could be assessed in conjunction with other factors in deciding whether there was an ‘unfair relationship’ (“UR”). Primarily, the Appellant relied upon the fact that this was single premium PPI in the context of a series of refinancing agreements (and therefore poor value). However, the CA noted that it had been conceded at trial that non-disclosure was the sole issue, and held that the Recorder’s decision had been based in substance upon non-disclosure (at [14] and [21]).
  4. Conclusion [25]:

“To treat evidential differences between the two cases which do not go to the heart of the matter as sufficient to permit this court to form its own view about the point of principle decided in the Harrison case would, to my mind, be an illegitimate departure from the rules as to binding precedent. It would do a disservice to the requirement for legal certainty…”

Whether Harrison correctly decided

  1. At the hearing of the appeal, the CA had not been interested in hearing submissions on the merits of Harrison, as they indicated that whether it was correctly decided was a matter for the Supreme Court. However, unfortunately this did not restrain them from making their views clear in the judgment.
  2. Briggs LJ at [26]:

“In so concluding, I do not mean thereby to express any sense of comfort about the principle laid down in the Harrison case. If I had been free to do so, I would have regarded a visceral instinct that the relevant conduct was beyond the Pale as a persuasive starting point in the analysis whether such conduct gave rise to an unfair relationship, all the more so where, as the report of the Competition Commission makes plain, the standards imposed at the time by the regulatory authorities manifestly failed to prevent the abuse of point of sale single premium PPI, to an extent that it has since become a national scandal, and has been prohibited for the future. But these are questions which must be addressed, if at all, in the Supreme Court.”

  1. Nonetheless, although it is clear that Harrison causes this panel of the CA “discomfort”, the CA did clarify what they feel the Harrison principle to be. The CA held in Plevin (at [63]):

“If the Harrison case is binding authority for anything outside the narrow subject matter of non-disclosed commission, it is only that sections 140A and B are not aimed at reopening a creditor-debtor relationship where there has been no legal or regulatory misconduct of any kind by anyone on the creditor’s side of the transaction.”

  1. Further, the CA makes it clear that they are bound by the decision as a matter of precedent.  Moses LJ added at [82]:

“This is a dispiriting conclusion. It means that, until the principle in Harrison is re-examined, compliance with those Rules excuses a deliberate decision not to disclose commission, taken in circumstances where the creditor appreciated that to do so would make it unlikely that the debtor would purchase a single premium PPI policy”.

  1. Moses LJ stated that he would have dissented had the other two judges not agreed that the sole basis of the trial judge’s decision was non-disclosure. He called the trial judge’s finding of a UR “unimpeachable” and said (at [84]):

“I see no point, however, in dissenting in the light of my hope that the Supreme Court, if your lordships agree, will consider this court’s decision in Harrison. My dissent is not going to make such consideration any more likely in light of the fact that when its reliance on ICOB last appeared under threat, following the Supreme Court’s grant of permission in Harrison, Black Horse paid the amount at stake and costs in full. It seems a pity that a concession [that non-disclosure was the sole issue in Conlon] deprives this court of the opportunity to express its support of the Recorder’s judgment in answering the question which the statute poses: was the relationship arising out of the agreement unfair? The value judgment which the statute requires the court to make can hardly be described as visceral, even in circumstances where the facts are in danger of arousing indignation.”

Plevin v Paragon

  1. Paragon was represented by 3VB and the Appellant by 39 Essex St. Surprisingly, the borrower’s appeal was successful. The judgment is likely to cause a headache for the finance industry, especially for finance companies which used brokers.

Meaning of “On Behalf Of” in s140A

  1. The broker had gone into administration, but it was alleged that the broker had failed to undertake a compliant demands and needs assessment. It was common ground that the broker was not the creditor’s agent, but the borrower alleged that the creditor should nonetheless be liable for breaches by the broker, as (for the purposes of s140A) the broker had acted “on behalf of” Paragon in selling the PPI.
  2. Paragon relied upon ICOB r1.2.3, which provides that where there is a “chain of insurance intermediaries” (e.g. a creditor and a broker), it is only the one in contact with the customer (i.e. the broker) which shall be liable for breach of ICOB.
  3. Paragon did not suggest that “on behalf of” in s140A required strict agency (although it would seem this is arguable). Instead, Paragon said “on behalf of” required “agency or something akin to agency”, i.e. where the creditor was “responsible” for the broker’s conduct.
  4. The CA preferred the wide interpretation, so that “on behalf of” meant that the creditor could be held liable for misconduct by anyone on the “creditor’s side of the transaction”. Proof that a broker had been paid commission by the creditor would usually be sufficient to bring on board the whole of the broker’s conduct (at [65]).
  5. In reaching this conclusion, the CA relied upon the FISA and FLA voluntary codes, which Paragon had also subscribed to. In these codes there was no provision similar to ICOB r1.2.3 and no allocation of responsibility as between creditor and broker. The effect of r1.2.3 was to allocate “front-line responsibility” to the broker, but the creditor retained a monitoring obligation (at [77]). Therefore, even if the CA had accepted Paragon’s interpretation of “on behalf of”, it would still have held that it was “responsible” for any mis-selling by the broker, as there was insufficient evidence of monitoring (at [78]).
  6. This did not mean that a creditor would always be liable for a broker’s misconduct: there would be no UR where (i) no unfairness had in fact been caused by the misconduct, (ii) the Court chose not to exercise its discretion because the creditor had diligently “monitored” the broker so as to ensure as far as possible that the broker was compliant, or (iii) the borrower was able to gain relief directly against the broker (at [60-61]). Alternatively, it might be shown that the broker was the borrower’s fiduciary (at [65]).
  7. The CA reconciled this interpretation with Harrison by saying that in Harrison there had been no regulatory breach by anyone on the creditor’s side of the transaction (whereas here it had been alleged that the demands and needs assessment was non-complaint with ICOB). The “anomaly” referred to in Harrison would only arise if neither the creditor nor the broker had contravened ICOB (at [58-59]).

Breadth of UR provisions

  1. The CA commented on the breadth of the UR provisions, saying (at [53]):

“the net is being cast as widely as might be thought possible. Within that large net, the relevant fish are only those which are in some sense causative of the perceived unfairness of the relationship to the debtor. That is the effect of the ‘because’ condition. Leaving aside the Harrison case for one moment, it is not obvious that the language of subsection (1) imposes any additional requirement that the relevant conduct of the creditor should either be unlawful, contrary to some regulatory regime.. Or even blameworthy…” [56] “the imposition of the reverse burden of proof in s140B(9) is a powerful indication of a general parliamentary intention to confer a broad rather than narrow measure of protection upon debtors”

  1. In summary, the judgment makes it clear that the CA would have wished to dissent from Harrison on the nature and scope of the UR provisions, but is forced by the rules of precedent to follow Harrison (at least in Conlon). It remains to be seen whether a decisive interpretation of the UR provisions will be offered by the Supreme Court.