On 4 October 2023, the UK Supreme Court handed down judgment in Smith and another v Royal Bank of Scotland plc [2023] UKSC 34 ('Smith').
The decision in full can be found here.
The Background
The appeal arose out of two similar cases in which the claimants had taken out credit card agreements with Royal Bank of Scotland plc (‘the bank’). The claimants had also been sold payment protection insurance (PPI) by the bank, who had received large undisclosed commissions from the insurers for doing so. In each case the claim was brought more than 10 years after the PPI policy was terminated and the last payment towards it made, but less than six years after the credit card agreements had ended.
Both claimants had brought small claims against the bank seeking relief under section 140B of the Consumer Credit Act 1974. Both had been successful at first instance and first appeal.
The Decision of the Court of Appeal
The Court of Appeal dismissed the bank’s first ground of appeal that the transitional provisions of the relevant provisions of the Consumer Credit Act 1974 meant that the claim was not in scope. Regarding the second ground, that the claims are time-barred by section 9 of the Limitation Act 1980, the Court of Appeal upheld this and dismissed the claims.
Birss LJ, in a judgment with which Macur and Coulson LJJ agreed, stated that after the claimant’s PPI policy, and any economic effect, had ended, the relationship was no longer unfair. Therefore, time started to run from the date that the PPI policy ended, and the claim was therefore statute barred.
The Decision of the UK Supreme Court
The UK Supreme Court unanimously upheld the appeal on both grounds and restored the decision of the district judge in each case.
Lord Leggatt, with whom Lord Briggs, Lord Kitchin and Lord Hamblen agreed, considered first the question of limitation.
The UK Supreme Court concluded that time starts to run for the purpose of limitation from the date on which the relationship ends, not the date on which the PPI policy itself ends. Lord Leggatt stated at paragraph 45:
“A determination that the relationship was unfair to the debtor on the date when it ended can be made on that date or any later date. All the facts relevant to the determination are fixed when the relationships (sic) ends and nothing that occurs subsequently can affect the assessment of fairness. It can therefore be said that a cause of action has accrued so that the period of limitation starts to run.”
Lord Leggatt agreed with Birss LJ’s conclusion, at paragraphs 64 and 65 of the Court of Appeal decision, that there is no reason that “once a credit relationship was unfair for some reason, that unfairness always and necessarily has to persist for all time as long as the credit agreement persists”, stating that such a statement is “indisputable” – at [63]. However, Lord Leggatt went on to state that the Court of Appeal “went wrong at the next step of their reasoning”, because they “conflated the question of when the relationship came to an end with the question of when (if at all before it came to an end) the relationship ceased to be unfair”.
Lord Leggatt went on to explain at paragraph 65:
“If the Court of Appeal is correct that the relationship ceased to be unfair to her in April 2006, then the bank is entitled to succeed, not because the claim alleging unfairness in 2015 was brought after the time limit had expired, but because the relationship was not unfair to Ms Smith when it ended in 2015. So the condition for making an order under section 140B was not satisfied and no remedial order was possible or needed.”
Therefore, it is still possible for there to be 'compartmentalisation' - periods in a relationship where it is fair, and periods where it is unfair - but this is not determinative of when time should begin to run for the purpose of limitation.
Lord Leggatt did not however agree with the Court of Appeal's decision that the relationship ceased to be unfair when the PPI policy payments ended. At paragraph [66] Lord Leggatt applied the test set out in Plevin v Paragon Personal Finance Ltd [2014] UKSC 61 ('Plevin') at [19] of that decision. He held at [66] that the bank had not taken steps (such as disclosing the existence of the commission, or repaying part of the sums paid) which it would be reasonable to expect the creditor to take in the interests of fairness, and were necessary to reverse the consequences of the unfairness.
The judgment then turned to the question of whether the transitional provisions of sections 140A-C of the Consumer Credit Act 1974 meant that the claim is ‘out of scope’. The Supreme Court agreed with the Court of Appeal and also dismissed this argument. At paragraph [82] Lord Leggatt stated:
“The plain intention of the transitional provisions is that, if a creditor wanted to achieve a situation where no repayment could be ordered under section 140B of sums which the debtor had paid by virtue of both the credit agreement and a related agreement, it was not sufficient for the creditor to ensure that the related agreement ceased to have any operation before the end of the transitional period; it was necessary to ensure that the credit agreement became a completed agreement before the end of that period. That did not happen here.”
Lord Hodge added a concurring judgment in which he reiterated the Court's decision that the use of the present tense in s140A(1) - “the relationship...is unfair to the debtor…” - must be given effect by the Court when assessing fairness. The Court must ask whether a subsisting relationship, as at the date of trial, is unfair. Section 140A(4) qualifies s140A(1) only in the circumstance that the relationship has ended. He considered that the wide discretion as to remedy afforded to the Court by s140B answered the concern that creditors may be exposed to stale claims.
Commentary
The decision has affirmed that the relevant date on which the fairness assessment by the Court under s140A must be focused is either (1) the date of the hearing for ongoing relationships, or (2) the date the parties’ relationship ended, for relationships which have ceased before the hearing – at [2] and [20]. It is also a salient reminder that it is the fairness of the relationship between the parties which must be assessed, and not that of any of the agreements that have given rise to that relationship - at [18].
The two-stage process that the Court must follow is outlined at [16]. It is fallacious for a debtor to put the proverbial ‘cart before the horse’, by arguing that the relationship is unfair because they are entitled to a remedy. The entitlement only arises if a determination has first been made under s140A. For a debtor to become entitled to a remedy, it is “never sufficient” to prove that the relationship was previously unfair at an earlier point in time. This is because the Court’s power to grant any remedy under s140B is conditional on a determination under s140A, that the relationship “is” (i.e. at the time the determination is made) unfair – at [19] and [42].
As to arguments relating to limitation, the judgment leaves unaffected credit relationships that ended more than 6 years before the claim was brought. The period of limitation for those relationships began to run when they ended, and expired 6 years later. Any debtor who brought a claim thereafter must necessarily seek to rely upon s32 Limitation Act 1980 if they wish to overcome a defence of limitation.
The judgment is silent on relationships which ended prior to the entry into force of ss140A-C. The obiter view expressed at [70] of the Court of Appeal judgment, that they are out of scope of the 1974 Act altogether, was not addressed by the UK Supreme Court.
It is no longer open to a creditor to argue that the limitation period began to run prior to the end of a credit relationship. However, the decision leaves a limitation defence open to creditors to raise, in all cases where the parties’ relationship ended more than 6 years before the claim was brought. Further, creditors may quite properly argue that when making a “very broad and holistic assessment” - paragraph [25] - of the fairness of the relationship, the Court must, under s140A(2), take into account all matters it thinks relevant, including:
- countervailing factors to the matters relied upon by the debtor which point to unfairness (Scotland v British Credit Trust Ltd [2014] EWCA Civ 790 ('Scotland') at [87], quoted with approval at [56] of the UK Supreme Court's judgment in Smith)
- other matters which put those matters relied on by the debtor into perspective (also Scotland at [87]), including the passage of time (Smith at [56]);
- delay by the debtor in bringing a claim (Smith at [56]);
- what complaint (if any) they made during the relationship (Smith at [56]);
- what attempt (if any) to seek redress they made during the relationship (Smith at [56]); and
- any steps taken by the creditor to remove the source of the unfairness, or mitigate its consequences (Plevin at [19]).
For relationships in which the 'source of the unfairness' (usually the PPI agreement) had long since ended prior to the date of the fairness assessment, this is of course a hugely relevant factor in assessing the overall fairness of the relationship. The Court canvassed this exact possibility at paragraph [56] of the judgment.
Even for cases in which a determination of unfairness is made, there remains wide scope for submissions as to the exercise of the discretion under s140B, especially in any case which involves facts such as delay by the debtor, the absence of any complaint to the creditor, disclosure of the existence and/or amount of commission by a creditor, or any remedial steps taken by the creditor. At [57] and [89], the UK Supreme Court considered the (first-instance) Court's discretion under s140B to be a sufficient 'safety valve' to prevent exposing creditors to stale claims. Debtors who sit on their hands before taking action are by no means guaranteed a remedy, even if their claims may not be time-barred.
This summary was produced by Chris McGeever and First-Six Pupil Alannah Kavanagh.