‘Ashfaq’: CA decision on ‘Consumer’

The Court of Appeal has handed down judgment in Ashfaq v International Insurance Company of Hannover plc [2017] EWCA Civ 357. Mr Ashfaq owned a residential property which he let out to students. The property was damaged by fire and a dispute arose as to the enforceability of certain clauses in an insurance policy covering the property.

The issue on appeal was whether Mr Ashfaq was a “consumer” for the purposes of the Unfair Terms in Consumer Contracts Regulations 1999 (“the UTCCRs”) and/or rule 2.1.1(3) of the Insurance (Conduct of Business) Sourcebook in the FCA Handbook (“ICOBS”). The two definitions were materially identical (“any natural person acting for purposes which are outside his trade, [business] or profession”). However, ICOBS contained additional guidance to the effect that an insured would be a “consumer” where he entered the policy “mainly” for purposes unrelated to his trade or profession. ICOBS also stated, by way of example, that where the insured took out a policy covering a property bought under a buy-to-let mortgage, he would be a commercial customer rather than a consumer.

On the position under the UTCCRs, counsel for Mr Ashfaq recognised that he faced difficulties, since the policy was taken out for both private and business purposes (i.e. the business of ownership of property to be let for profit). Applying the UTCCRs caselaw (Overy v Paypal (Europe) Ltd [2012] EWHC 2659 (QB)), he was unable to characterise the business element of these purposes as “negligible or insignificant”.

However, Mr Ashfaq maintained that he was a “consumer” for the purposes of ICOBS. He was a company director whose business was I.T., not property ownership or letting. He claimed that the property was his home, and only temporarily let, although he had adduced no evidence to support this. The main purpose of the insurance policy was said to be the private purpose of protection against fire; insurance against loss of rent was subsidiary.

The Court dismissed Mr Ashfaq’s appeal from summary judgment in favour of the insurer, on the ground that he had no real prospect of success in establishing that he was a “consumer” under either ICOBS or the UTCCRs. His application had been for a residential let policy, not for ordinary domestic insurance. Mr Ashfaq had been carrying on the business of property letting in addition to being a company director. Someone who purchases a policy covering a property bought under a buy-to-let mortgage is classified by ICOBS as a commercial customer; it is neither here nor there that he may also be carrying on another profession unrelated to property letting. The same classification must apply to someone who purchases a property which is let, irrespective of what type of mortgage he has. In each case the purpose of the policy is to protect property which is let.

This decision will be of relevance not only to the interpretation of “consumer” in the UTCCRs, ICOBS and the Consumer Rights Act 2015, but also to the application of the business purposes test under the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001, article 61A.