Barnes & Anor v Black Horse Ltd

A lender selling a single-premium payment protection insurance policy alongside a loan does not assume fiduciary or tortious duties merely because the insurer belongs to a voluntary industry scheme, general guidelines refer to the borrower’s best interests, or the lender offers the policy as the insurer’s agent. An unfair relationship under Consumer Credit Act 1974 is broader than breach of fiduciary duty, contract or negligence. Earlier related agreements may be considered when assessing whether the current agreement creates an unfair relationship, even where transitional provisions prevent direct relief in respect of those earlier agreements. The statutory restrictions on orders under section 140B do not create an equivalent exclusion from the section 140A evaluative exercise.

The claim concerned three loans made by Black Horse to the claimants, each incorporating or refinancing a single-premium payment protection insurance policy. The first agreement was made in 2002, the second in 2003 and the third in 2004. The claimants alleged, among other matters, that the insurance had been represented as compulsory, that commissions were undisclosed, and that the arrangements created an unfair relationship.

The court determined applications to re-amend the particulars of claim. It also finally determined two legal issues concerning the transitional provisions for the replacement of the extortionate credit bargain regime by the unfair relationship regime: whether proceedings brought against one debtor excluded a later unfair relationship claim by another debtor, and whether completed earlier agreements could be considered in assessing unfairness arising from the extant agreement.

1. Fiduciary duty. The proposed fiduciary duty claim was unarguable and was refused. The relationship of lender and borrower is not fiduciary merely because a lender offers payment protection insurance. The voluntary GISC Code, the OFT Non Status Lending Guidelines and the alleged agency relationship did not establish the single-minded loyalty required for fiduciary obligations. No advice or recommendation was alleged, and there was no factual basis showing that Black Horse had undertaken to act for the claimants. The reasoning in Bristol and West Building Society v Mothew [1998] Ch 1 was applied.
2. Duty of care and contract. The pleaded duty of care was also unarguable. The GISC Code and OFT Guidelines could not themselves create such a duty, and no case-specific assumption of responsibility was pleaded. A possible negligent misstatement based on saying that insurance was compulsory was not pleaded. The alleged incorporation of the GISC Code into the policy contract was likewise unarguable. The reference to Lloyds’ membership did not make the Code a contractual term, and the Code contemplated complaints to GISC rather than contractual rights under the Contracts (Rights of Third Parties) Act 1999.
3. Unenforceability. The claim that the first agreement was improperly executed because the insurance premium should have formed part of the total charge for credit was arguable, subject to proof that the insurance was represented as a condition of obtaining the loan. Similar issues concerning the later agreements involved questions of fact and inference. Further particulars were ordered.
4. Unfair relationship. The exclusionary effect of Schedule 3 paragraphs 14 and 15 of the Consumer Credit Act 2006 applied to Mr Barnes, who was a defendant to the creditor’s enforcement proceedings before issuing his own claim. It did not apply to Mrs Barnes, who had not become a party to those proceedings when she issued the unfair relationship claim. The later joinder could not retrospectively bar her claim.
5. The first and second agreements were related agreements under sections 140C(4), (7) and (8) of the Consumer Credit Act 1974. Schedule 3 paragraph 16(4) prevented direct relief under section 140B in respect of those completed agreements, but it did not prevent the court from considering them under section 140A when deciding whether the relationship arising from the third agreement was unfair. The court rejected the contrary interpretation and held that the relevant aspect of Soulsby v First Plus was clearly wrong if it had decided otherwise.
6. The unfair relationship allegations could proceed in a limited and particularised form. The amendments concerning fiduciary duty, negligence and breach of contract were refused, while the unfair relationship and narrow unenforceability claims were allowed to continue. Further particulars were required, including particulars of the alleged compulsory nature of the insurance and commissions.

Not an appeal. The judgment determined interlocutory applications to re-amend the particulars of claim and finally determined specified points of law.