Harrison & Anor v Black Horse Ltd

Under sections 140A and 140B of the Consumer Credit Act 1974, the court assesses whether the creditor–debtor relationship arising from a credit agreement is unfair, having regard to all relevant matters, including matters relating to both parties. A very high, undisclosed PPI commission does not, by itself, establish unfairness. In a regulated insurance market, the applicable regulatory standards are a significant touchstone. Where those standards impose no general duty to disclose commission, section 140A should not be used to create such a duty merely because the commission is large. An expensive product, freely accepted with its principal features known, does not ordinarily make the relationship unfair. Cost under the ICOB suitability rules must be considered where the customer has indicated that it is relevant to their demands and needs.

Mr and Mrs Harrison refinanced an existing loan with Black Horse in 2006 and purchased single-premium payment protection insurance. The premium was £10,200, of which Black Horse retained £8,887.49 as commission. The commission was not disclosed.

The District Judge dismissed the claim. Judge Waksman QC dismissed the appeal in the High Court, reported at 2010 EWHC 3152 (QB). The borrowers appealed to the Court of Appeal, principally alleging that the undisclosed commission made the relationship unfair under sections 140A and 140B of the Consumer Credit Act 1974. They also challenged conclusions concerning compliance with the ICOB Rules. The central issue was whether the size and non-disclosure of the commission, together with the sales arrangements, made the relationship unfair.

The appeal was dismissed. The Master of the Rolls and Patten LJ agreed with the judgment of Tomlinson LJ.

1. Statutory framework. Section 140A of the Consumer Credit Act 1974 concerns the relationship arising from the credit agreement, rather than the agreement viewed in isolation. The court may consider the terms, the exercise or enforcement of rights, and anything else done or not done by or on behalf of the creditor. It must have regard to all relevant matters, including matters relating to both creditor and debtor.
2. Regulatory compliance and appellate review. Compliance with the regulatory regime is a significant touchstone when assessing unfairness. The court should not substitute instinctive disapproval for the statutory evaluation. The assessment and balancing of relevant factors are primarily matters for the first-instance judge. Appellate intervention is justified only for recognised errors of law or evaluation, or where the conclusion was unavailable on the facts.
3. ICOB suitability rules. Cost under Rule 4.3.6(2) was relevant only if it was relevant to the customers’ demands and needs. The evidence did not show that cost was a concern for the Harrisons. The rule therefore did not require Black Horse to undertake a comparative price exercise under Rule 4.3.7(1).
4. Commission and unfairness. The ICOB regime did not impose a general duty to disclose either the receipt or amount of commission. The size of the commission was startling, but it did not by itself establish an unfair relationship or a conflict affecting the recommendation. The PPI price and principal features were disclosed, there was no pressure to purchase, and the commission could not have influenced the recommendation in the circumstances found. The court could see no principled basis for treating a freely accepted expensive product as creating an unfair relationship merely because a substantial part of the price rewarded the lender.
5. Further arguments. A new argument concerning the Initial Disclosure Document was not permitted because it had not been raised below and required factual investigation. In any event, the document was considered compliant with the single-provider disclosure requirements. The decision in Yates was materially different because it involved a broker’s misrepresentation that PPI was compulsory and a distinct incentive structure. The appeal was accordingly dismissed.

1. Court of Appeal (Civil Division) — dismissed the appeal.
2. High Court, Mercantile Court — Judge Waksman QC dismissed the appeal from the District Judge; the decision is identified as 2010 EWHC 3152 (QB).
3. Worcester County Court — District Judge Marston dismissed the borrowers’ claim after trial.