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Harrison v Black Horse [2011] EWCA Civ 1128

The Court of Appeal judgment was handed down on 12th October 2011 in this case which arose from the sale of policies of payment protection insurance (“PPI”). In 2003 and 2006 the Harrisons took loans from the Defendant together with policies of PPI.

As the policy premiums were lump sum premiums payable up front, further loans were advanced for their payment, with associated credit charges. The 2006 loan had a repayment term of 23 years whereas the PPI policy ran for just 5 years. The 2006 loans were discharged in 2009. The cost of the PPI in 2006 was £10,529.70 with the lender having earned commission of £8,887.49, a staggering 87% of the premiums paid. Neither the fact of the commission nor the amount, were disclosed at the time of the sale.

The claim alleged (i) breach of statutory duty under s.150 of the Financial Services and Markets Act 2000 for the breach of the FSA’s Insurance Conduct of Business Rules (“ICOB”), (ii) negligence, and (iii) “unfair relationship” within s.140A of the Consumer Credit Act 1974. The claim was dismissed at first instance on the basis that the Harrisons had not been told that the PPI was compulsory, that they had taken PPI before and knew what they were purchasing, and because they had the opportunity of understanding the terms and freely accepted them.

On appeal, Judge Waksman QC, sitting as a High Court judge, dismissed the appeal, finding that while the judge below erred as to compliance with ICOB, there had been no breach as to consideration of cost and as to breach in relation to the policy length, causation had not been established. The unfair relationship argument was also rejected. Judge Waksman considered that the judge below had not dealt with the issue of the large commission, observed that it was very large and that it was a matter that the Harrisons may have been interested to learn of. However, the view of His Honour Judge Platts in Yates & Lorenzelli v Nemo Personal Finance, 14th May 2010, Manchester CC, that if disclosed, information as to the amount of a commission might well affect a customer’s assessment of whether they want to accept advice from a broker, was dealt with by distinguishing Yates as there had been a clear misrepresentation on its facts and as that case involved a broker. It is perhaps difficult to see why the disclosure of commission would not be relevant even if the product is sold by someone other than a broker as it could still result in a decision to seek advice or products from another source. Judge Waksman also dismissed the unfair relationship claim because of a lack of evidence as to causation.

The Court of Appeal was asked to consider the question of the non-disclosure of commission and its bearing on the s.140A claim of unfair relationship. The appeal was dismissed on the basis that no duty to disclose the fact or amount of commission arose, as ICOB did not require disclosure. That conclusion is perhaps surprising given that disclosure of a commission of that size could well have a bearing on a decision to purchase PPI or even to borrow from that lender. Logically that should apply equally to any insurance intermediary in receipt of a commission. The effect of the decision is to remove the issue of commission from the factors that are relevant to a s.140A assessment, at least in relation to a case to which ICOB applied (it has since been superseded by the FSA’s Insurance Conduct of Business Sourcebook) notwithstanding that s.140A(2) casts an extremely wide net, providing that the court should be entitled to take into account all matters that it thinks relevant.

A petition has been lodged with the Supreme Court seeking leave to appeal.

/ 1st Dec 2011


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