Court of Appeal ruling clarifies the validity of PPI settlements in Unfair Relationship Claims

On 26 September 2024, the Court of Appeal issued an important ruling in the joined cases of Self v Santander Cards UK Limited and Harrop v Skipton Building Society. These appeals involved claims related to undisclosed commissions on Payment Protection Insurance (PPI) policies, following the precedent set by Plevin v Paragon Personal Finance. The ruling gives guidance on the finality of PPI settlement agreements and the application of unfair relationship provisions under the Consumer Credit Act 1974 (CCA).

Background and Issues

In both cases, the claimants (Self and Harrop) had accepted redress offers from their financial institutions—Santander and Skipton—under guidelines set by the Financial Conduct Authority (FCA). These offers were made as full and final settlements of claims related to undisclosed commission payments on PPI policies.

However, the claimants later sought to challenge these settlements, claiming additional redress under the unfair relationship provisions of Section 140A of the CCA.

Specifically, the claimants argued that:

• They were not advised to seek legal advice, and this made the settlement vulnerable to being re-opened;
• The settlements lacked valid consideration because the financial institutions were already under a legal duty to offer redress under FCA rules.
• The courts should reopen the settlements, arguing that the redress provided did not fully resolve the unfairness in the relationships between the parties.

Court of Appeal’s Findings

The appeals raised two main legal questions:

1. Can PPI claims be settled through redress schemes?

2. If a settlement is reached, can it exclude the court’s jurisdiction to re-examine the fairness of the relationship?

The Court of Appeal, led by Stuart-Smith LJ, dismissed both appeals, providing several key conclusions:

1. Consideration and FCA Rules: The claimants’ argument that there was no valid consideration because the FCA required financial institutions to offer redress was firmly rejected. The court rejected the argument that financial institutions had a mandatory obligation to offer redress, stating that the DISP rules do not oblige the payment or the offering of a specific sum. Rather it provided a process that is intended to lead to the making of an offer of redress if the defendant thinks it appropriate. “The process of referring redress which may or may not be accepted by the claimant falls into the territory of negotiated consensual settlements”. The Court further ruled that any settlement reached offered claimants something they were not previously entitled to—an enforceable right to payment. This constituted valid consideration, regardless of FCA guidance.

2. Validity of settlements: The Court confirmed that settlements under the FCA’s redress scheme can be legally binding and enforceable if the terms of the offer are clear, the parties intend to create legal relations, and there is valid consideration.

The Court held it is for the court to determine what weight to give to factors such as obtaining legal advice. There was no reason to assume that legal advice is required in every case of legal compromise. Two factors will be highly relevant: (1) the complexity and clarity of the settlement terms and its consequences; and (2) whether the party has access to any necessary advice on the contemplated compromise from people other than lawyers i.e. paid specialist advisers. The Court held, that in circumstances such as where in the case of Self, parties reached a bona fide settlement and whilst not obtaining legal advice, Mrs Self had access to paid specialist advice (from her claims management company), the court should be very slow to go behind the compromise.

3. Court’s jurisdiction post-settlement: The Court clarified that while it retains jurisdiction to assess fairness under Section 140A of the CCA, it will generally avoid interfering with settlements reached voluntarily and in good faith, especially when the terms are clear and both parties understood the agreement.

Implications for future PPI claims

This ruling sets an important precedent for PPI-related litigation, particularly for cases where consumers attempt to re-open ‘full and final’ settlements reached under FCA redress schemes.

The decision confirms that:

• PPI claims can be validly settled through FCA-guided redress, provided the terms are clear and unambiguous.
• Such settlements will generally prevent further court involvement unless there is strong evidence of unfairness in the settlement process.
• The ruling provides greater legal certainty for financial institutions, protecting them from challenges to clearly worded settlements once accepted by claimants.

In conclusion, the Court of Appeal’s judgment in Self v Santander and Harrop v Skipton reinforces the importance of properly drafted settlement agreements in PPI cases. For financial institutions, it limits the risk of repeated claims, and for consumers, it underscores the need to carefully consider settlement offers before accepting them, as further claims may be barred.

Written by Waj Hussain