The Plevin case has raised uncertaintly thought to have been resolved in the Harrison case says Russell Kelsall
You may be forgiven for thinking that undisclosed commissions in payment protection insurance (PPI) selling had been resolved by the Court of Appeal in Harrison & Harrison v Black Horse Limited (2011) EWCA Civ 1128.
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The Court said that failing to disclose a commission did not create any unfairness in the relationship within Section 140A of the Consumer Credit Act 1974 (CCA).
The Court of Appeal was recently asked to reconsider its decision in Harrison & Harrison v Black Horse Limited on whether failing to disclose a commission created unfairness in the relationship within Section 140A of the CCA, together with the meaning of "on behalf of" in Section 140A(1)(c) of the CCA (i.e. does it only make a lender responsible for acts done (or not done) by its agent?), in two conjoined appeals: Conlon v Black Horse Limited and Plevin v Paragon Personal Finance (1) Limited.
In delivering the leading judgment, Lord Justice Briggs (with whom Lord Justice Moses and Lord Justice Beatson agreed) dismissed the borrower’s appeal in Conlon but (disappointingly) allowed the borrower’s appeal in Plevin on surprising grounds.
Facts
In Conlon the PPI was sold by Black Horse but in Plevin the PPI was sold by a third party broker (LLP). Both were single premium policies.
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By GlobalDataMrs Conlon said that if she had known that part of the premium (40%) would be kept as commission by Black Horse she would not have bought it but "would have shopped around".
Mrs Conlon’s barrister conceded that "non-disclosure of the commission is the single factor" when arguing "the relationship was unfair".
The County Court decided that the relationship was unfair. Black Horse appealed to the High Court and was successful because the Court was bound by the judgement in Harrison. Mrs Conlon appealed to the Court of Appeal.
Mrs Plevin was contacted by LLP (an authorised insurance intermediary). It recommended PPI (and sent a letter enclosing the policy documents) and placed her application with Paragon (a FLA member).
Mrs Plevin argued at trial (a) an unfair relationship because of things done "on behalf of" Paragon by LLP and (b) an unenforceability argument under the CCA. The County Court dismissed the claim because (a) LLP was not Paragon’s agent and (b) Paragon was not responsible for anything done (or not done) by LLP under Section 140A(1)(c). Mrs Plevin appealed to the Court of Appeal.
The Appeal
Conlon
Lord Justice Briggs decided that: (a) whether Mrs Conlon would have "shopped around" did not matter, (b) motivations for selling PPI did not make "any difference" and (c) the case was "in substance indistinguishable" from Harrison and it was important to follow earlier decisions to ensure "legal certainty". The appeal was therefore dismissed.
Plevin
Lord Justice Briggs decided that: (a) the words "on behalf of" should be considered broadly (despite Harrison being a "persuasive authority" supporting Paragon’s narrow interpretation), (b) there were two prospective "escape routes" for lenders from this approach: (i) a third party’s blameworthy conduct will not always render a relationship unfair and/or (ii) the Court has the discretion to make an order even if there is unfairness and (c) Paragon’s agreement to the FLA Code seemed "at least to be a pointer towards the unspoken assumption that responsibility for self-regulatory compliance" being shared with LLP. The appeal was therefore allowed.
Comment
The Court of Appeal’s decision in Conlon is unsurprising.
It was inevitable that the Court of Appeal would follow its earlier (and recent) decision in Harrison.
Unless the Supreme Court considers any appeal from Conlon, the decision in Harrison that the non-disclosure of a commission does not create any unfairness in the relationship remains.
Similarly, if a party complies with its legal obligations then there cannot, without something more, be unfairness in the relationship.
The Court of Appeal’s decision in Plevin is extremely surprising. Harrison established that the touchstone should be compliance with regulatory obligations.
In Plevin, the regulatory obligation under Insurance: Conduct of Business was on LLP. Resorting to voluntary codes of conduct or guidance is inappropriate.
The codes are essentially the aims and aspirations of members and often go beyond regulatory requirements.
To make a lender responsible under a code is completely unnecessary and may lead to either (a) trade associations or bodies withdrawing codes or guidance (which would be unwelcome) or (b) members deciding not to join trade associations (which would reduce standards).
The scope of "on behalf of" is now so wide that it is likely to lead to a considerable amount of litigation.
Lord Justice Briggs placed considerable reliance, when deciding Conlon, on trying to stop claims for "modest amounts, based upon fine evidential distinctions".
Plevin now provides a platform for such claims. Customers can now it argue that anything done, or not done, by a motor dealer or broker falls within the unfair relationship test.
The reversed burden of proof means lenders facing such claims will have to obtain detailed evidence to respond to those claims. The result is obvious: longer trials and higher costs.
It is to be hoped that the Supreme Court tackles the problematic decision in Plevin as soon as possible to resolve these issues and restore the regulatory and commercial certainty which Harrison provided.
