The recent case of Smith and another v Royal Bank of Scotland Plc [2023] UKSC 34 has provided guidance on the calculation of the limitation period in which a claimant can seek to bring an order to remedy unfairness in the relationship between a creditor and debtor. By virtue of this ruling however, banks and other creditors and/or lenders find themselves, potentially, exposed to what may, otherwise, have been considered as “stale claims”.
Facts:
Owing to a failure on the part of Royal Bank of Scotland (“RBS”) to disclose the fact that it had received substantial commissions from Payment Protection Insurance (“PPI”) policies which had been purchased by the claimants, the claimants instituted proceedings against RBS under s140B of the Consumer Credit Act 1974 (“CCA”) for payment of all the money paid for PPI under the credit agreements (less sums already repaid under the Financial Conduct Authority PPI mis-selling scheme (“FCA scheme” ) they had entered into with the bank.
Findings:
Limitation Act 1980
Despite the court finding the relationship to be unfair, RBS also put forward an argument that regardless of whether there was an unfair relationship, the claim was brought too late.
By virtue of s9 of the Limitation Act 1980, it is understood that any claimant looking to bring an action to recover any sums, cannot do so after the expiration of six years from the date on which the cause of action accrued. Both claims were brought over 10 years after the Claimants’ respective PPI policies purchased through RBS expired. Accordingly, it was argued by RBS that the time to bring a claim had expired six years from the date on which each of the PPI premium payments had been made which the claimants sought to recover. The claims, however, were brought within six years of the expiry of credit card agreements. It was not until partial redress had been offered under the FCA scheme that the bank disclosed the fact that it had received the commissions. Notwithstanding this, RBS argued that the only way in which the claimants could have persisted with their claims, i.e the claims had not been time-barred, if it was found that the bank had “deliberately concealed” its receipt of the commissions within the meaning of section 32(1)(b) of the Limitation Act.
Given the facts on hand, the Supreme Court ruled that the limitation period only began to run on the expiration of the credit card agreements, rather than the expiry of the PPI payments.
Consumer Credit Act 1974 s140A-C
S140 of the CCA provides the courts with the ability to rectify potential unfairness in an agreement between a borrower (here, the Claimants) and lenders (RBS) and provides examples of such unfairness. Accordingly, if the relationship is unfair, the courts are able to remedy the unfairness, including, but not limited to, payment of compensation. The Supreme Court therefore had to assess the relationship between the Claimants and RBS arising out of the credit agreement and determine if the relationship was in fact unfair.
In assessing whether the relationship was unfair, the court considered the entire history of the relationship between the parties. The assessment was based on whether the relationship was unfair to the Claimants i.e., was it unfair at the time of the assessment (in this case when the agreement ended) not whether it was unfair when the agreement was made.
The Supreme Court therefore concluded that it would have been reasonable and fair to expect RBS to inform the Claimants of the amount of their commission. Had they disclosed this, the unfairness would have been removed as the Claimants would have been able to make a fully informed decision. It is the inequality in knowledge which was one of the factors which made the relationship unfair.
Should the banks be concerned?
Section 140A(4) of the CCA, as confirmed by the Supreme Court, makes it clear that, where a credit/debtor relationship has ended, the relevant time, for the purposes of determining when the limitation period begins to run, is when the relationship ends. This will cause great concern to banks and other creditors and/or lenders who have continuing relationships with debtors. Although creditors may be concerned that debtors may institute claims relating to PPI policies only once the relationship between the debtor and creditor has ended, and long after the dust of the PPI mis-selling scandal has settled, creditors should take comfort in Justice Hodge’s remarks. The court has a discretion in relation to the appropriate remedy, if any, when deciding such claims. If the debtor fails to take action, notwithstanding the fact that the mis-selling scandal has been publicised for some time now, it will be highly unlikely to find the court making an order under section140B of the Act. That said, creditors must ensure that all relevant information has been disclosed to their customers in order to mitigate any risk.
further information
For more information regarding the topics raised in this blog please contact banking litigation expert Kerri Wilson.
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