Clarifying limitation laws in PPI claims

In the recent case of Smith and another v Royal Bank of Scotland Plc, guidelines were established for determining the time frame within which a claimant can file for relief against unfair creditor-debtor relationships. Subsequently, on November 15, 2023, the Supreme Court delivered its judgment in Potter v Canada Square Operations Ltd UKSC 2021/0139, further addressing this issue.

The judgment in Canada Square Operations v Potter has confirmed that a claimant can rely on a lender’s deliberate concealment of commissions relating to payment protection insurance (PPI) in order to extend the time allowed to bring a claim against a lender.

The facts

On 26 July 2006, Mrs Potter took out a regulated fixed-sum loan with Canada Square Operations. Simultaneously, Canada Square suggested Mrs Potter take out a PPI policy with an insurer to ensure that the loan would be repaid if she became unable to make the payments herself. Although Mrs Potter elected to take out the PPI policy, Canada Square failed to disclose the fact that it would be receiving a commission in excess of 95 per cent on the sale of the policy.

The fixed-sum loan came to an end on 8 March 2010. In April 2018 Mrs Potter complained to Canada Square that the PPI policy had been mis-sold to her.

The compensation which Canada Square paid Mrs Potter, following the complaint, did not cover all her loss. This resulted in her instituting proceedings under section 140A of the Consumer Credit Act 1974 to recover the balance of the premium she had paid together with interest on the basis an “unfair relationship” between herself and Canada Square.

The findings

Although Canada Square admitted they had not disclosed the fact that they would receive commission in respect of the PPI policy, resulting in the existence of an “unfair relationship”, it alleged that, as Mrs Potter had instituted proceedings more than six years after the end of her credit relationship with the lender, her claim was time barred under section 9 of the Limitation Act 1980.

Mrs Potter, in reply, alleged that she only became aware of the fact that Canada Square had made a commission after the credit relationship came to an end. Mrs Potter argued that the 6-year time period to bring a claim should therefore be extended by virtue of section 32 of the Limitation Act.

Section 32 of the Limitation Act affords two routes by which a claimant might proceed. Section 32(1)(b) provides that where any fact relevant to a claimant’s right of action has been deliberately concealed by the defendant, the period of limitation does not begin to run until the claimant has discovered the concealment or could with reasonable diligence have discovered it.

Section 32(2) provides that, for purposes of section 32(1)(b), deliberate commission of a breach of duty in circumstances where it is unlikely to be discovered for some time amounts to deliberate concealment of the facts involved in that breach of duty. Mrs Potter pleaded reliance on both limbs of section 32.

Both the High Court and Court of Appeal found that the time period for Mrs Potter to bring her claim should be extended by virtue of section 32 of the Act. In the recent decision of the Supreme Court, the court upheld the two previous decisions and held that the time period for Mrs Potter to bring her claim should be extended by virtue of section 32 of the Limitation Act.

High Court decision

The High Court found that Mrs Potter had brought the claim in time as the commission had been deliberately concealed from Mrs Potter.

Although Mrs Potter had sought to rely on both limbs of section 32, the Court found that Mrs Potter could not rely on section 32(1)(b) of the Limitation Act alone, but only in conjunction with section 32(2).

For the purposes of section 32(1)(b), the High Court found that the concealment of the commission received was an omission, rather than active concealment. The High Court, in referring to Plevin v Paragon Personal Finance [2014] 1 WLR 4222, found that there was no legal requirement for Canada Square to disclose the commission.

In determining the meaning of the term “breach of duty” under section 32(2) of the Limitation Act, the High Court found that the section should be interpreted widely to include any wrongdoing of any kind. As such, the continued non-disclosure of the commission on the part of Canada Square constituted a “breach of duty.” 

Court of Appeal decision

Although the Court of Appeal agreed with the High Court for the most part and dismissed the appeal, it disagreed with the High Court in part and found that Mrs Potter could rely on section 32(1)(b) of the Limitation Act alone.

The court further concluded that the concept of concealing the commission, in itself, meant that there was an obligation to disclose it and therefore failure to disclose the commission was sufficient to fulfil the “concealment” requirement provided for in section 32(1)(b) of the Limitation Act.

When applying the test for recklessness, the court found that the concealment of the commission was deliberate. While Canada Square had not taken any positive action to conceal the commission, it had omitted to do so.

Supreme Court decision

Canada Square appealed the decision of the Court of Appeal on two grounds. Firstly, in considering the meaning of deliberate, would establishing recklessness be sufficient or would there be a need to demonstrate actual knowledge on the part of the wrongdoer? Secondly, in considering the meaning of concealment - was it necessary to prove that Canada Square had breached a legal duty to disclose?

The Supreme Court unanimously held that a commission is concealed if it is kept a secret, either by taking active steps to conceal it or by failing to disclose it. As such, there is no need to show that there was a moral, legal or social duty to do so. It is sufficient to prove that the party deliberately ensured that the claimant did not know about the relevant fact, in this case the commission, and so cannot bring proceedings.

The court rejected the test of recklessness which had previously been considered by the lower courts. It concluded that the only necessity was for the defendant to have contemplated whether to disclose the relevant fact to the claimant and then chose not to do so.

This establishes an equitable equilibrium between the involved parties. If the defendant intentionally withholds a fact from the claimant, they can initiate the limitation period by revealing the fact. However, if the defendant opts to keep the claimant unaware of a crucial fact essential for asserting the claim, it is fair that the defendant forfeits the right to a limitation defence.

The Supreme Court highlighted that should a claimant seek to rely on section 32(1)(b) of the Limitation Act, they must be able to demonstrate there was a fact relevant to the right of action that was deliberately concealed from the claimant. This therefore adds an extra burden of proof on the claimant, however the claimant need not demonstrate that the defendant knew that the fact which was concealed was the fact relevant to the cause of action.

The Supreme Court disagreed with the Court of Appeal's interpretation of the term "deliberate" in relation to section 32(2) of the Limitation Act. According to the Supreme Court, the term "deliberate" in this context does not encompass "recklessness" or an awareness of the defendant being susceptible to a claim. The Supreme Court unanimously dismissed the appeal by Canada Square.

Impact of the decision

The Supreme Court noted that this ruling may likely impact up to 26,000 other cases relating to mis-sold PPI. This judgment will, undoubtedly, send shockwaves through the banking community. In so far as PPI claims which may have otherwise been considered out of time, this landmark case may allow for the time in which to bring such claims to be extended.

The Supreme Court's decision has brought clarity to the interpretation of section 32(2) of the Limitation Act, specifically regarding the definition of "deliberate." However, questions have emerged regarding section 32(1)(b) of the Limitation Act, particularly concerning the disclosure requirement. One key question is how "concealment" can occur in the absence of a deliberate decision not to disclose. While intriguing, it is evident that several questions have surfaced. As is often the case in legal matters, the resolution of these issues in future cases will be of significant interest.

Kerri Wilson is a senior associate and Helen Rainford is a trainee in the banking litigation team at Ontier LLP