Saville v Central Capital Ltd

The Court of Appeal held that breaches of the Insurance Conduct of Business rules (ICOB) by a credit broker were causative of loss under section 150 of the Financial Services and Markets Act 2000 because, had the broker complied with the ICOB enquiry and suitability obligations, the customers would not have purchased the five-year payment protection insurance (PPI) offered. The court emphasised the intermediary duties in ICOB 4.3.2(1), 4.3.6(1) and 4.3.1(1) to elicit a customer’s demands and needs (including the desired term of cover), to assess suitability and to base recommendations on the disclosed scope of service. The judge at first instance erred in dismissing the causation case by treating the customers’ evidence as irrational and by placing undue weight on their having proceeded to purchase the PPI; instead the appellate court directed that a fair, open enquiry would likely have prevented the sale and therefore the breach caused the loss.

Background and parties: Michael and Patricia Saville obtained a loan via Central Capital, who also arranged a lump‑sum, five‑year PPI policy added to the loan. Central conceded breaches of ICOB rules in its sale of the PPI. The Savilles sued under section 150 FSMA seeking to recover loss resulting from those breaches.

Nature of the claim / relief sought: The claim was a private action under s.150 FSMA for loss caused by contravention of ICOB rules; the practical relief sought was a finding that the breaches caused loss and consequent remedies flowing from that finding.

Procedural posture: The action was dismissed by District Judge Harrison in Manchester County Court (order dated 26 February 2013). The Savilles appealed to the Court of Appeal with permission.

Issues framed:

• Whether Central breached ICOB rules by failing to enquire about the desired term of cover and failing to assess suitability.
• Whether any breach was causative of loss under the ordinary rules of causation applicable to actions for breach of statutory duty under s.150 FSMA.
• Whether the five‑year policy was in fact suitable for the Savilles’ demands and needs.

Court’s reasoning and outcome: The Court of Appeal endorsed the structure of ICOB duties: an enquiry phase (to identify demands and needs) and an assessment phase (to determine suitability, including whether the level and term of cover meet needs). The court rejected the District Judge’s characterisation of the appellants’ evidence as irrational and held that knowing the terms of a product is not equivalent to demonstrating that, if fairly asked, the customer would have chosen that characteristic. Evidence from Central’s witness (Ms Cooke) and the sales script supported the conclusion that a fair, open question about the term would have led to the insurance not being sold. The court therefore allowed the appeal on causation grounds, concluding the breach caused the loss because the Savilles would not have purchased that PPI had Central complied with the ICOB rules. The court noted that suitability remained an issue that would require findings of fact if pursued further, but remission to the County Court was unnecessary for the causation ground on which the appeal succeeded.

Appeal allowed. The Court of Appeal concluded that Central breached ICOB rules by failing to elicit and assess the Savilles' demands and needs as to the term of PPI; the District Judge was wrong to dismiss the causation link. On the evidence, a fair open enquiry would have shown the five‑year policy to be unsuitable and it would not have been sold, so the breach causally led to loss under section 150 FSMA.

On appeal from Manchester County Court (District Judge Harrison), Claim No: 1MA03594; appeal heard in the Court of Appeal (Civil Division) and allowed [2014] EWCA Civ 337.