Consumer update

The main judgment in Mark Scotland and Emma Reast v British Credit Trust Ltd [2014] EWCA Civ 790 was handed down by
Kitchen LJ with simple, concurring judgments being given by Underhill and Moore-Bick LLJ on
10 June 2014 on an appeal by the claimant. The trial judgment was that the defendant finance company had to pay the claimants £2,165.52 in damages for the cost of the payment protection insurance (PPI) premium and interest for a £7,430.00 loan in 2005.

The claimants both had modestly paid jobs at the supermarket Asda. After a lengthy meeting in their home with two double-glazing salesmen, they were persuaded to buy a full set of new windows and doors. They needed a loan to pay for this.

Crucially, the salesmen wrongly told them that they would need to take out PPI to get this loan. They also offered a policy with a five-year protection term but a ten-year loan repayment term.

The salesmen also failed to check whether the claimants had any existing payment protection in place. In fact, they did: their jobs with Asda gave them an entitlement to sick pay, so they did not need PPI at all.

The central difference between this case and that of Figurasin is that the misrepresentations were made by the salesmen for the double-glazing company and both the defendant finance company and the insurer were as innocent as the claimants. The issue was whether the defendant ought to be held responsible for the acts of the salesmen whom it did not employ.

The judge at first instance found, as a matter of fact, that the salesmen had misrepresented the need for PPI to secure the loan the claimants needed. She also found that this was a breach of rule 2.2.3 of the insurance conduct of business rules (ICOB).

The failure to ascertain whether the claimants had sick pay entitlement, and the discrepancy between the loan and protection terms, also amounted to breaches of rules 4.3.1, 4.3.2 and 4.3.6. Had these breaches not occurred, the claimants would have been properly advised and would not have taken out PPI. These findings were not appealed.

Appeal issue

What was appealed was the application of the
ICOB rules and the Consumer Protection Act 1974
to these facts. The trial judge used subsection 11(1)(b), 12 and 56(2) of the CPA 1974 to find that the salesmen were deemed agents of the defendant finance company.

The judge then used these findings to find that the salesmen’s conduct was relevant under the ‘things done (or not done) by, or on behalf of, the creditor’ test under section 104A and used this as a basis to find that the misrepresentations they made created an unfair relationship with the finance company.

The trial judge felt able to exercise her powers under section 104B to order repayment of the amount paid and to cancel further repayments. However, the circuit judge disagreed with this, finding that the CPA 1974 could not be used in
this way.

The arguments at trial, and before the circuit judge, essentially centred on section 56 of CPA 1974. In the Court of Appeal, the claimants also relied on the correct meaning of ‘on behalf of’ in section 140A(1)(c) following the guidance of the Court of Appeal in Plevin v Paragon Finance [2013] EWCA Civ 1658 and that, in any event, the PPI policy amounted to a ‘related agreement’ under section 140A(1) (in which case the court could consider a much wider range of conduct of the defendant’s representatives).

The finance company relied on reviewing the underlying statutory basis for these rules assisted by Black Horse Ltd v Langford [2007] EWHC 907, [2007] RTR 38. The cases of Jarrett v Barclays Bank plc [1999] QB1 and Forthright Finance Ltd v Ingate (Carlyle Finance Ltd, third party) [1997] 4 All ER 99 also had
an important bearing on the court’s decision.

Previous law

The Court of Appeal found a lacuna in the defendant’s submissions. In effect, its interpretation ignored the fact that the
salesmen had misled the claimants. This is the
key point in understanding the decision.

Kitchin LJ agreed with the trial judge that the sales negotiations fell within the scope of section 56(1)(c) of the CPA 1974, and that this included the advice given about needing PPI. The earlier cases did not provide contrary authority and were distinguished. They did show that this type of negotiation is deemed, by section 56(2), to create an agency relationship rendering the finance company liable for any misrepresentation by the salesmen and section 56(2) applies this to section 56(1)(c). Prima facie, these representations fall within the section 140A(1)(c) definition.

The post-Plevin interpretation of section 140A(1)(c)’s ‘on behalf of’ meant that there was ‘no doubt’ that the salesmen’s misrepresentations were done on behalf of the finance company. The claimants needed the defendant’s loan to pay for the windows and doors the salesmen had persuaded them to buy and had been told that they could only get this loan with the additional PPI. Without that, there would have been no sale and no loan.

Additionally, the defendant had received interest payments on the loan and commission in respect
of the sale of the PPI policy. The defendant tried to circumvent this by submitting that there was no ‘related agreement’ under section 140C(4)(b) linking the acts of the salesmen to the obligations of the finance company. While this was accepted by the Court of Appeal, it was not a prerequisite of the claimant’s case.

It was open to the court to consider the misrepresentation under section 104A, even
though it did not satisfy the provisions imposing liability for a creditor under section 75 for its supplier’s breaches. The inquiry under section 104A focuses on whether there was an unfair relationship between the creditor and the debtor as a result of the misrepresentation, so the same facts can be relevant to both and result in different outcomes.

The court must consider the entire relationship between the loan provider and the consumer that has arisen from the credit agreement. This includes what was said to persuade the consumer to make the agreement. If that information was wrong and was relied on, it is relevant in determining section 140(A) unfairness, even if it does not satisfy the section 75 requirements.

The breaches of the ICOB rules were also a relevant consideration to be taken into account. They provide a benchmark against which to measure the conduct of the lender (and its agents). It is irrelevant whether the Financial Services and Markets Act 2000 imposes liability on the lender because CPA 1974 imposes a deemed agency relationship on it in these circumstances.

Last insurer

This decision ought to be seen in the context that the claimants were persuaded to enter into the loan after a sales meeting that lasted ‘most of the day’ in their own home. Many consumers find it difficult to say ‘no’ at the end of such meetings
and the majority do not know enough about the workings of PPI to challenge an assertion by the sales team that taking out PPI was a necessary requirement. It is also relatively common to
find that the consumer did not know that the salespeople were being encouraged to sell PPI, whether or not it was actually beneficial to
the consumer.

Unlike Figurasin, it was the underlying law,
not the evidence, which was disputed in this case. Central to this was the question of fairness as neither party was at fault. Nevertheless, the court found that the lender was responsible for the acts of unrelated salespeople by creating a deemed agency relationship under CPA 1974. The concept of the ‘last insurer’ is at play here as Kitchin LJ observed when he said that it would be simple enough for finance companies to cover this risk in a contract with the sales companies they deal with.

The Court of Appeal expressly refers to the
need to apply consumer protection rules not commercial interests. It is now clear that lenders cannot rely on ignorance of what was said or done when the main agreement to purchase goods or services was made.

Any relevant misrepresentation made during
the sale that induced the consumer into taking
out PPI makes the financier liable for the cost of
PPI even where they did not supply it or were not themselves at fault. This decision is a welcome addition to the practitioner’s armoury. SJ

Geoffrey Simpson-Scott is an associate at Colemans CTTS Solicitors