Scotland v British Credit Trust Ltd

The Court of Appeal dismissed the appellant's challenge to a county court finding that the creditor-borrower relationship was unfair under section 140A of the Consumer Credit Act 1974. The court held that antecedent negotiations conducted by a supplier/broker which were deemed by section 56(2) to be conducted as agent for the creditor could be taken into account under section 140A(1)(c). The salesmen's misrepresentations and breaches of the ICOB rules (including rule 2.2.3 and rules 4.3.1, 4.3.2 and 4.3.6) induced the borrowers to purchase payment protection insurance (PPI) they otherwise would not have bought, and those matters were relevant to the fairness assessment.

The court also accepted that the broader interpretation of "on behalf of" in Plevin v Paragon Finance meant that conduct by intermediaries that materially brings about the credit agreement may be considered under section 140A. The judge's exercise of discretion under section 140B to vary the loan and order repayment in respect of the PPI-related element was not overturned.

This was an appeal from a Leicester County Court judgment (HHJ Hampton, 19 November 2012) in which the claimants, Mark Scotland and Emma Reast, succeeded in obtaining relief under the unfair relationships provisions of the Consumer Credit Act 1974 after being sold PPI in connection with a 2005 loan.

Background and nature of the claim:

• The claimants were visited in their home by salesmen acting for Zenith Staybrite who arranged a loan from British Credit Trust Limited (BCT) to buy double-glazed windows and to pay for PPI. The salesmen wrongly told the claimants they had to buy PPI to secure the loan; the loan term was ten years but the PPI covered only five years. The claimants commenced proceedings in 2011 alleging improper execution, misrepresentation and unfair relationship; only the unfair relationship claim under ss.140A–B remained for trial.
• The county court found Zenith had misrepresented the need for PPI and breached ICOB rules; the judge concluded those matters were antecedent negotiations within s.56(1)(c), deemed by s.56(2) to be conducted as agent for BCT, and therefore capable of being taken into account as "any other thing done (or not done) by, or on behalf of, the creditor" under s.140A(1)(c). The judge ordered variation under s.140B and repayment of the PPI premium and related interest.

Procedural posture: The judge originally refused permission to appeal; permission was granted and the appeal transferred to the Court of Appeal (Bean J under CPR 52.14) because an important point of principle was engaged. The Court of Appeal heard extensive argument, invited further submissions in light of intervening authority (notably Plevin v Paragon Finance), and restored the county court outcome.

Issues before the Court of Appeal:

• whether antecedent negotiations under s.56(1)(c) and the deeming in s.56(2) could be relied on in an assessment under s.140A;
• the effect of this court's decision in Plevin on the meaning of "on behalf of" in s.140A(1)(c);
• whether the PPI agreement was a "related agreement" or linked transaction invoking s.140A(1);
• whether misrepresentations or breaches of ICOB should be excluded from, or be determinative of, an unfair relationship assessment; and
• the proper overall approach to discretionary relief under s.140B.

Court's reasoning and conclusions:

• The court held the salesmen's representations about the PPI formed part of the antecedent negotiations in relation to the package deal (windows plus PPI) and therefore fell within s.56(1)(c); s.56(2) deems those negotiations to have been conducted as agent for the creditor, rendering them relevant to s.140A(1)(c).
• The court considered and applied Forthright Finance Ltd v Ingate and Jarrett v Barclays as supportive precedent for the broad construction of antecedent negotiations under s.56. It rejected the appellant's argument that s.56 performs only a definitional function or that s.140A excluded matters covered by s.75; nothing in the Act precludes consideration under s.140A of matters for which separate remedies may exist.
• The Court of Appeal accepted the Plevin approach to "on behalf of" under s.140A(1)(c): conduct by intermediaries that an ordinary observer would regard as having played a material part in bringing about the credit agreement can be considered. Nonetheless, discretionary relief remains open to the court to refuse in appropriate cases.
• The ICOB rules were relevant as a benchmark for assessing the broker's conduct. The judge was entitled to take the misrepresentation and ICOB breaches into account when assessing unfairness and to exercise discretion in awarding limited relief under s.140B. The appeal was dismissed.

Appeal dismissed. The Court of Appeal held that antecedent negotiations by the supplier/broker which are deemed by section 56(2) to have been conducted as the creditor's agent can be taken into account under section 140A(1)(c) when assessing whether a creditor-debtor relationship is unfair. The court also accepted the broader construction of "on behalf of" in Plevin, and concluded that the salesmen's misrepresentations and breaches of ICOB rendered the relationship unfair in the circumstances, justifying the county court's exercise of discretion under section 140B to vary the loan and order repayment related to the PPI.

Appeal from Leicester County Court (HHJ Hampton) judgment of 19 November 2012. Permission to appeal initially refused by the trial judge; Bean J granted permission and directed transfer to the Court of Appeal under CPR 52.14. Appeal accepted by the Court of Appeal on 23 April 2013 and heard before the Court of Appeal (judgment handed down 10 June 2014).