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The judgment was issued on the 4th of October, 2023, and the hearing and proceedings were conducted in the UK Supreme Court on the 12th of January, 2023.
The proceedings’ background relates to claims brought under section 140B of the Consumer Credit Act 1974, seeking an order from the court requiring the Royal Bank of Scotland (RBS) to repay money made out by the debtors – Ms Smith and Mr Burrell – for a Payment Protection Insurance (PPI) policy under their credit agreement, for which RBS received significant undisclosed commissions. The basis for these claims was that RBS, by failing to disclose the commissions it received from the debtors’ PPI payments, had rendered the creditor-debtor relationship between these parties’ unfair’, contrary to section 140A of the 1974 Act. The PPI agreements to which Smith and Burrell were subject ended in 2006 and 2008, respectively, yet their credit arrangement with RBS continued until 2015 and 2019. Two central issues emerged from these facts. First, whether the claims of Smith and Burrell had expired by the time they were actioned under section 9 of the Limitation Act 1980, and second, whether the relationship between the RBS and the debtors can be considered unfair overall. Following successive appeals, the case was heard in the UK Supreme Court, where Lord Leggatt issued the court’s unanimous judgment in favour of the appellants.
Initially, Smith and Burrell brought separate claims before the relevant county courts in 2019 based on the provisions of the 1974 Act mentioned above. At the time, the district judge in each case ruled in favour of the claimants, and those decisions were subsequently upheld by the county court judges on appeal. On appeal by RBS, the Court of Appeal upheld that the claims were precluded by the Limitation Act 1980; section 9 limits the period in which an action to recover a sum to six years from the date the cause of action accrued. Consequently, this decision was appealed to the UK Supreme Court.
The Consumer Credit Act 1974 provides the legislative basis for these proceedings. Section 140A of this Act entitles courts to determine the fairness of a relationship arising from a credit agreement between the creditor and the debtor. According to subsection 1, unfairness can be derived from three broad matters: the terms of their agreement or any related agreement, how the creditor has exercised or enforced his rights under any such agreement, or anything done or not done by or on behalf of the creditor. An assessment of fairness can be made at the end of the relationship between the creditor and the debtor. Suppose unfairness can be established on the facts. In that case, the court is empowered to make an order under section 140B, possessing broad discretion over the type and nature of such an order to reverse any detrimental financial consequences incurred by the debtor.
Lord Leggatt issued the court’s decision. Preliminarily, it is essential to note that RBS does not dispute that its conduct prejudiced the fairness of the credit agreement. Since Pleven v Paragon Finance  UKSC 61, similarly concerning the non-disclosure of commissions received from payment under a PPI policy, which the court held to be unfair within the meaning of section 140A(c) of the 1974 Act, such a position would not be viable. Thus, the central issues in the case were those of limitation and the persistence of an unfair relationship. To this extent, RBS advanced two key arguments:
First, the cause of action accrued for Smith and Burrell in 2006 and 2008, respectively, and that section 9 of the Limitation Act 1980 expired their claims six years after those dates. Broadly, the ’cause of action’ refers to the set of facts that entitles one person to claim a remedy from another; the cause of action accrues when the factual circumstances are sufficient so that the essential elements of an action can be established. The submissions of RBS hinged on the argument that the cause of action in the present case accrued when the final PPI payments that Smith and Burrell are seeking to recover were made out in 2006 and 2008. Based on this reasoning, the time limit imposed for monetary claims under the Limitation Act was activated on those dates and ran out six years following that point. Accordingly, it would be incompetent for Smith and Burrell to raise actions seeking repayment in 2019. The Supreme Court rejected this argument. Leggatt identified that the critical flaw in this reasoning is that as long as the credit relationship persists, the debtor cannot have a completed cause of action before a determination of unfairness can be made. Since no such finding can occur before the relationship has ended, in the present case, the cause of action can not accrue until the credit agreement with RBS and Smith and Burrell concluded in 2015 and 2019, respectively. As such, their claims against RBS fell within the limitation periods of the Limitation Act.
The second argument was that even if the cause of action had not accrued upon issuance of the final PPI payment, the relationship between RBS and the debtors nonetheless ceased to be unfair at this point and that there is accordingly no basis for alleging unfairness when their credit agreements subsequently ended years later. In other words, the question is whether the relationship was unfair once Smith and Burrell made their last PPI payments. The Court of Appeal considered that there is nothing in the 1974 Act that means once a credit relationship becomes unfair for whatever reason, unfairness must always and necessarily persist for the duration of that agreement; accordingly, the Court of Appeal held that once Smith and Burrell made their final PPI payments, there was ‘no case’ that adverse economic impacts for these parties continued from this date. Although the Supreme Court concurred with the Court of Appeal’s assessment of the law, there was disagreement with how it was applied to the present case. Leggatt argues that the relationship remained unfair throughout the agreement because RBS did not repay the sums that Smith and Burrell put towards PPI cover and still failed to disclose to these parties the existence or amount of commission they received from these payments. Accordingly, Leggatt concluded that the credit relationship still had an unfair character despite ending the PPI agreement, which remained the position when Smith and Burrell’s credit relationship concluded in 2015 and 2019.
Therefore, the appeal was allowed.
This case confirms that creditors cannot raise a limitation defence on the basis that the cause of action occurred during the relationship; as this decision makes clear, the limitation period will run from the end date of the agreement, and any claims arising from an unfair relationship under the 1974 Act will not expire until six years after that date. However, in a concurring opinion, Lord Hodges made some concessions on this matter to not expose creditors to ‘stale claims’. Given the heightened public awareness of PPI mis-sales and related compensation schemes, there are fears of some debtors’ sitting on [their] hands’ in the knowledge of the relevant facts’. Hodges addressed this matter, highlighting the discretion courts possess to determine whether a remedy should be granted to state that it would be ‘inconceivable’ to make such an order in these circumstances. Therefore, whether this decision will see a rise in claims against lenders by debtors with active or recent credit agreements to which PPI arrangements were attached, as well as how the court will go about interpreting the appropriateness of an order, remains to be seen.
Written by Solomon Mayers