On 4 September 2006, the then Financial Services Authority (FSA) published its first Final Notice in respect of Payment Protection Insurance mis-selling. In the years that followed, the fines got larger, bank pay-outs to customers reached approximately £50 billion and the range of issues being litigated expanded. However, following the expiration of the deadline for PPI complaints almost two years ago, one might be forgiven for thinking that the days of PPI claims are behind us. And yet, the Court of Appeal's decision in Canada Square Operations Ltd v Mrs Beverley Potter [2021] EWCA Civ 339, handed down in March 2021, may have opened the door to future claims in respect of undisclosed commissions received by insurance intermediaries for many years to come.
Background
Mrs Potter took out a regulated fixed-sum loan with Canada Square Operations ("CSO") on 26 July 2006. When CSO offered Mrs Potter the loan, it suggested that she take out a PPI policy, which Mrs Potter accepted. Mrs Potter was provided with Key Financial Information in respect of the PPI policy, which explained that the 'payment protection premium lent' was £3,834. However, she was not told that only about 4.7% of this was the actual premium for the PPI policy, whereas over 95% of the amount paid (and therefore a substantial proportion of the interest payable on the loan of that sum) was a commission to CSO for the sale of that policy.
The agreement came to an end on 8 March 2010. Four years later, the Supreme Court found in Plevin v Paragon Personal Finance Limited [2014] UKSC 61 that non-disclosure of a very high commission to the borrower made the relationship between the creditor and the borrower 'unfair' for the purpose of s.140A of the Consumer Credit Act 1974 (the "CCA"). After almost four more years, in April 2018, Mrs Potter complained to CSO that the PPI policy had been mis-sold to her. She received £3,160 in compensation. That did not cover all of the loss she had suffered. In December 2018, relying on s.140A CCA, Mrs Potter issued proceedings and sought to recover the balance of the premium, plus interest. CSO defended the claim, in part, on the basis that it had been brought more than six years after the relationship between the parties ended. Mrs Potter did not dispute that the relevant limitation period was six years. However, she claimed that she did not find out about the commission until November 2018. She argued that the effect of s.32 Limitation Act 1980 was that the start of the limitation was postponed until then on the basis that:
- S.32(1)(b) provides that, where "any fact relevant to the plaintiff’s right of action has been deliberately concealed from him by the defendant […] the period of limitation shall not begin to run until the plaintiff has discovered the fraud, concealment or mistake (as the case may be) or could with reasonable diligence have discovered it." and
- S.32(2) provides that for the purpose of s.32(1), "deliberate commission of a breach of duty in circumstances in which it is unlikely to be discovered for some time amounts to deliberate concealment of the facts involved in that breach of duty."
The first instance judgment and appeal
At first instance, Recorder Murray Rosen QC held that Mrs Potter's claim was not time barred and that both ss.32(1)(b) and 32(2) LA applied. On appeal, Jay J found that, in respect of s.32(2), "conduct where the actor knows that what he is doing may well be a wrong but takes the risk of it being so" was sufficient to constitute deliberateness. However, Jay J found that s.32(1)(b) only operates where a duty to disclose arises under the general law (for example, through a contractual, fiduciary or tortious duty), and that no such free-standing duty to disclose the commission arose in this case. Accordingly, s.32(1)(b) could not postpone the limitation period.
The Court of Appeal judgment
The Court of Appeal considered:
- for the purpose of s.32(2), whether the creation of an unfair relationship within the meaning of s.140A CCA amounted to a breach of duty;
- for the purposes of s.32(1)(b), whether CSO's failure to disclose the existence and size of the commission was a 'concealment';
- if there was a breach of duty and/or a concealment, whether CSO's conduct was 'deliberate' within the meaning of ss.32(1)(b) and 32(2).
1. S.32(2) – breach of duty
CSO asserted that in the absence of a breach of any specific rule or legal duty, the creation of an unfair relationship does not necessarily indicate that there has been a breach of duty for the purpose of s.32(2) of the Limitation Act. The Court of Appeal disagreed and found that the creation of an unfair relationship by CSO was a breach of duty on which Mrs Potter could rely for the purposes of s.32(2). Particular reliance was placed on the Court of Appeal judgment in Giles v Rhind and another (No 2) [2008] EWCA Civ 118, in which it was stated that s.32(2) should be interpreted widely to encompass a legal wrongdoing of any kind, giving rise to a right of action. In this regard, the Court of Appeal agreed with Jay J.
2. S.32(1)(b)– concealment
It was common ground between the parties that CSO had not actively concealed the commission. Accordingly, the CA considered the following points.
a. Is s.32(1)(b) limited to cases of active concealment?
In short, Rose LJ found that s.32(1)(b) of the Act was not limited to active steps of concealment. On the contrary, Rose LJ referred to the judgment of Lord Scott in Cave v Robinson Jarvis & Rolf (a firm) [2002] UKHL 18, which stated that a claimant can rely on s.32(1)(b) "if he can show that some fact relevant to his right of action has been concealed from him either by a positive act of concealment or by a withholding of relevant information, but in either case with the intention of concealing the fact or facts in question" (Rose LJ's emphasis added).
b. Is reliance on a failure to disclose limited to circumstances where there is a free-standing legal duty of disclosure?
Rose LJ, in relying on Buxton LJ's judgment in AIC Ltd v ITS Testing Services (UK) Ltd: The Kriti Palm [2006] EWCA Civ 1601, held that for the purpose of the Limitation Act (LA), a duty to disclose information could arise, regardless of whether there was a pre-existing legal duty of disclosure. In particular, she noted that s.32(1)(b) LA "does not refer to a duty to disclose, it refers only to concealment. Inherent in the concept of 'concealing' something is the existence of some obligation to disclose it. To construe section 32(1)(b) as being satisfied only if there is a pre-existing legal duty to disclose seems to me to add an unwarranted and unhelpful gloss on the clear words of the statute" and that in this context, the obligation to disclose "need only be one arising from a combination of utility and morality".
c. Was CSO under a duty to disclose the commission, such that failure to do so amounted to concealment for the purpose of s.32(1)(b)?
CSO's case was essentially that, if a claimant relies on s.32(1)(b), the concealment must be some conduct other than the elements of the right of action itself i.e. if the concealment of the commission gave rise to the right of action under s.140A CCA, that same concealment could not be relied upon for the purpose of s.32(1)(b). Rose LJ disagreed, and found that there was no reason why, as a matter of principle, "the claimant should be in a worse position when seeking to establish concealment of a fact when the right of action turns on that very act of concealment, than he is where concealment is not an element in the right of action". Accordingly, Rose LJ held that "[t]he obligations to act fairly imposed on [CSO] by section 140A [of the CCA] were sufficient to mean that their failure to disclose the commission amounted to a concealment of that commission within the meaning of section 32(1)(b)".
3. Was CSO's concealment 'deliberate'?
Having determined that CSO's failure to disclose to commission to Mrs Potter amounted to concealment for the purpose of s.32(1)(b), the Court considered whether that concealment was 'deliberate'. In the absence of a 'natural' meaning of 'deliberate' in this context and "inconclusive" case law on s.32, the Court considered case law interpreting s.26 of the Limitation Act 1939. In doing so, Rose LJ held that "recklessness was a sufficient mental element under the old section 26. The claimant did not have to show that the defendant knew that the conduct he was concealing gave rise to a cause of action; it was enough that the concealment was unconscionable and it would be unconscionable if he concealed the fact, being reckless as to whether or not he had committed an actionable wrong."
Rose LJ concluded that it was not necessary to show that CSO had actual knowledge that the failure to disclose the commission made their relationship with Mrs Potter unfair. Instead, Mrs Potter could rely on:
- S.32(2) if she could show that CSO "realised that there was a risk that their failure to disclose the fact and extent of the commission resulted in their relationship with her being unfair within the meaning of section 140A, and it was not reasonable for them to take that risk of creating an unfair relationship"; or
- S.31(1)(b) if she could show that CSO "realised that there was a risk that they had a duty to tell Mrs Potter about the commission charge, such that their failure to do so meant that they deliberately concealed that fact from her".
The Court then considered whether:
- there were any 'warning signs' in the market that non-disclosure of a large commission might make CSO aware of the risk that (a) the credit relationship was unfair (for the purpose of s.32(2)) and/or (b) CSO was under a duty to disclose commission (for the purpose of s32(1)(b)); and if so
- it was reasonable for them to take that risk by not disclosing the commission.
With regard to the 'warning signs', Rose LJ listed a number of reports from the Office of Fair Trade, Competition Commission, and the Parliamentary Commission on Banking Standards that considered a range of issues regarding the mis-selling of PPI. She notes that those reports concerned "a wide range of mis-selling practices" and that "non-disclosure of commission was not among the most serious of the unfair practices that comprised what became known as the 'PPI mis-selling scandal'". Nevertheless, she concluded that:
- The investigations into PPI mis-selling were being carried out throughout the period in which the agreement between Mrs Potter and CSO was in place, such that CSO's suggestion that the judgment in Plevin "came to them as a bolt of lightning out of a clear blue sky simply because the ICOB Rules did not require disclosure of commission is very far from a fair portrayal of what took place".
- CSO "must, subjectively, have been aware that there was a risk that the non-disclosure of the commission made the relationship with Mrs Potter unfair" and that CSO must have appreciated that if they decided not to tell Mrs Potter that the PPI policy was valued at £182.50, despite her being charged £3,834, there was a risk that the credit relationship between them would be regarded as unfair.
- CSO "must have realised that there was a risk that they ought to disclose the commission to her because to do otherwise would conceal from her a fact that was relevant to her right of action against them under section 140A".
- There was "no reason why a reasonable person, apprehending the risk that Canada Square must have apprehended, would have decided not to disclose the commission to Mrs Potter".
In conclusion, Rose LJ held that Mrs Potter could rely on s.32(1)(b) because CSO deliberately concealed the existence and extent of the commission it received, which was relevant to her right of action under s.140A CCA. Accordingly, the limitation period did not begin to run until she discovered the concealment in November 2018 and so her claim was not time barred.
What does this mean for PPI claims?
The Court of Appeal's judgment sets out a broad interpretation of s.32 of the Limitation Act that is likely to encompass a raft of further PPI mis-selling claims in circumstances where an intermediary received, and failed to disclose, a high commission.
Rose LJ concludes that CSO must have been aware that the commission it received rendered the contract unfair for the purpose of s.140A CCA and/or that it ought to disclose the commission, such that it was therefore deliberately concealed for the purpose of s.32(1)(b). That conclusion is based, at least in part, on the fact that, from as early as 2007, there were a number of high-profile investigations into the mis-selling of PPI, of which CSO must have been aware. It is therefore hard to imagine circumstances in which an intermediary could be deemed not to be aware that the failure to disclose a commission was unfair or that it was under a duty to disclose that commission. The consequence of that appears to be a presumption that any insurance intermediary that failed to disclose the receipt of a high commission will fall within the ambit of s.32(1)(b).
Further, although not considered in detail in the judgment, it is notable that the date on which the limitation period was deemed to commence was November 2018, when Mrs Potter received advice from her solicitors and became aware of the commission. One must assume that there are a number of potential claimants who remain unaware that they paid a high commission on PPI policies because that commission was not disclosed to them. If that is correct, it appears that their individual limitation periods have not yet begun, let alone expired, such that this judgment might be the catalyst for a new generation of PPI mis-selling claims.
Finally, the Court of Appeal's conclusion that a 'duty to disclose' can exist even if there is no free-standing legal duty of disclosure, and that a duty to disclose instead arises "from a combination of utility and morality", is striking, and likely to have consequences far beyond PPI mis-selling claims. In this regard, it is noteworthy that in referring to the duty arising "from a combination of utility and morality", Rose LJ was quoting Rix LJ in AIC Ltd v ITS Testing Services (UK) Ltd: The Kriti Palm [2006] EWCA Civ 1601. However, as Rose LJ acknowledged, Rix LJ went on to say that such an approach "is in theory applicable to every conceivable kind of contract". While that conclusion may be a slight exaggeration, it seems likely that this judgment will embolden many claimants who were previously unable to rely on s.32 of the Limitation Act because of the inability to identify a legal duty of disclosure.