The Supreme Court has handed down judgment in Smith & Anor v Royal Bank of Scotland plc  UKSC 34, on the proper interpretation of Section 140A of the Consumer Credit Act 1974. The decision potentially re-opens the way for claims for mis-sold payment protection insurance (PPI) by those who failed to obtain complete redress under the Financial Conduct Authority's PPI mis-selling scheme, which closed on 29 August 2019.
The joint appeal concerned two claimants, Ms Smith and Mr Burrell. Both had held credit cards with the Royal Bank of Scotland (RBS) and had been sold PPI policies with the cards. Unbeknownst to them, RBS had received large, and undisclosed, commissions in relation to the PPI policies.
Ms Smith made her last payment relating to the PPI policy in April 2006, but her credit card agreement with the bank continued until 2015. Mr Burrell terminated his PPI policy in March 2008, but continued his credit card agreement until 2019.
Both claimants learned of the bank's wrongdoing when they received partial compensation under the FCA's redress scheme in late 2017 and early 2018. In 2019, they each issued small claims against the bank. This was more than six years after termination of their PPI policies, but less than six years after the end of their credit card agreements.
The claims were brought under Section 140A-C of the Consumer Credit Act 1974.
This provides, in particular, that:
"The court may make an order under section 140B in connection with a credit agreement if it determines that the relationship between the creditor and the debtor arising out of the agreement (or the agreement taken with any related agreement) is unfair to the debtor."
At first instance both claimants succeeded in their claims.
However, when the claims reached the Court of Appeal it found in favour of the bank on the grounds that the claims were time-barred by Section 9 of the Limitation Act 1980. This provides for a six-year limitation period for claims for sums recoverable under statute. The Court of Appeal concluded that this period had commenced on the date that the PPI policies had ended (as at this point the relationship had ceased to be unfair).
The Claimants then appealed to the Supreme Court.
The Supreme Court's judgment
The Supreme Court overturned the Court of Appeal's decision.
The Supreme Court held that the 6-year limitation period under Section 9 of the Limitation Act 1980 had, in each case, commenced on the end date of the relevant credit card agreement and not the end date of the PPI policy. As a result, both claims had been brought within the applicable limitation period.
Comments on Section 140A-C
Giving the leading unanimous judgment, Lord Leggatt first made some general points about the regime created by Section 140A – C (at paragraphs 16 – 29), including that:
- It is not the fairness or otherwise of the credit agreement which the court must determine: it is whether the relationship between the creditor and the debtor arising out of the credit agreement (on its own or taken with any related agreement) is unfair to the debtor.
- The question to be determined under Section 140A is whether the relationship is unfair to the debtor at the time the determination is made, not simply whether the relationship was unfair at some past time;
- However, the effect of Section 140A(4) confirms a determination can be made by the court after the relevant relationship has ended; the logical implication of this is that the court should determine whether the relationship was unfair to the debtor at the time it ended.
- The descriptions of possible causes of unfairness in Section 140A(1) demonstrate that the court must consider the whole history of the relationship when deciding whether it was unfair to the debtor, without any time limit on how long ago the credit agreement or any related agreement was made.
- The legislation gives the court broad discretion as to the remedy it may order when making a determination of unfairness, as confirmed by the Supreme Court in Plevin v Paragon Personal Finance Ltd  UKSC 61. This includes considering whether the unfairness was due to anything done, or not done, by the creditor – including steps which it would have been reasonable for the creditor to take to remove the source of unfairness or to mitigate its consequences.
RBS maintained that the claims were time-barred by Section 9 of the Limitation Act 1980 on one of two bases: first, that the Claimants had a complete cause of action once they made their last PPI related payment (the Completed Cause of Action Argument); and, in the alternative, the basis adopted by the Court of Appeal, that a once unfair credit relationship did not mean that unfairness persisted for all time (the No Unfairness Argument). The bank also renewed an earlier argument that the claim should fail due to the effect of transitional provisions regulating the entry into force of Section 140A-C (the Transitional Provisions).
Lord Leggatt rejected RBS's Completed Cause of Action Argument (as had the Court of Appeal). He identified the central flaw in the argument to be that, for as long as the credit relationship is continuing, the debtor cannot have a complete cause of action until the court makes a determination under Section 104A. By corollary, once the credit relationship ends, a determination that the relationship was unfair can only be made as at the date the relationship ended. Accordingly, in the case of a retrospective determination about a relationship that has ended, limitation runs from the date the relationship ended.
Turning to the No Unfairness Argument, which the Court of Appeal had adopted, Lord Leggatt reached a different conclusion. First, Lord Legatt held that the unfairness of the relationship had to be assessed at the date the relationship had ended, and that therefore limitation ran from that date as well. The Court of Appeal had been wrong to hold that limitation could run from an earlier date. Secondly, Lord Justice Leggatt disagreed with the Court of Appeal's analysis that Ms Smith's "unfair relationship came to an end in April 2006" when she made the last PPI payment, pointing to the fact that when credit card agreement ended in 2015, RBS had not repaid those payments to her, or disclosed the amount of commission it had received from her. Applying the Plevin test, those were both steps a creditor should reasonably have taken to reverse the consequences of the unfair relationship. However, the bank had not done so. Accordingly, Lord Legatt considered that the No Unfairness Argument was mistaken, and the Court of Appeal had been wrong to adopt it.
The Supreme Court also dismissed RBS's argument based on the Transitional Provisions as without merit. It therefore allowed the Claimants' appeals on the basis that the relationships were unfair and the claims were not time-barred, and reinstated the orders made by the district judges at first instance in both cases.
In a short concurring judgment, Lord Hodge addressed concerns that the Supreme Court's judgment on this issue might expose financial institutions to stale claims. Such concerns would be on the basis that if the relationship between the parties continues despite the PPI policy having ended years ago, there is no relevant longstop date protecting the creditor.
His Lordship said that the answer to this concern lies in the discretion that the Section 140B gives to the court as to the remedy it may give. Where a debtor has knowledge of the relevant facts that give rise to a claim, but sits on them and takes no action for a long time, it will be unlikely that the court would consider it just to make an order under Section 140B in favour of that individual. Indeed, Lord Hodge points out that the court has that discretion even if the claim is brought within six years of the end of the relationship.
The Supreme Court's decision re-opens an opportunity for claimants to pursue PPI claims against institutions where the credit relationship, such as a loan or credit card, is continuing or came to an end within the last six years. However, the judgment also signals that the courts should examine the point at which a claimant they knew the relevant facts to enable them to bring a claim, as well as the conduct of both parties in the relationship in relation to potential unfairness, and exercise their discretion to make an order accordingly.
This position strikes a fair and sensible balance between consumers who were unable to obtain redress for PPI under the FCA scheme which closed in 2019 due to lack of knowledge, while making clear that the courts hearing these cases should not exercise their discretion to reward previous inaction over known claims. Financial institutions will be considering what steps are open to them to limit potential exposure for unfair relationships under credit agreements which remain in place or have ended in the last six years.