Plevin v Paragon Personal Finance Limited

Compliance with regulatory rules does not determine whether a debtor-creditor relationship is unfair under section 140A of the Consumer Credit Act 1974. The court must assess the relationship and all relevant circumstances. Unfairness does not require a breach of legal duty.

Non-disclosure of commission may make a relationship unfair where the commission is so large that withholding it creates an extreme inequality of knowledge and prevents an informed assessment of value. A creditor is normally responsible for such an omission where reasonable steps would have removed or sufficiently mitigated the unfairness.

For section 140A(1)(c), conduct undertaken “on behalf of” a creditor ordinarily means conduct by its agent or another person whose conduct engages its responsibility. Participation in arranging the transaction, benefit to the creditor or receipt of commission does not alone suffice.

Mrs Plevin borrowed £34,000 from Paragon and financed a single-premium payment protection insurance policy costing £5,780. Of that premium, 71.8% was retained as commissions by the independent broker, LLP, and Paragon. Neither the amount nor the recipients of the commissions were disclosed.

She claimed that her relationship with Paragon was unfair under section 140A(1)(c) of the Consumer Credit Act 1974. She relied on the undisclosed commissions and on the alleged failure to assess whether the insurance suited her needs. The Recorder dismissed the claim. The Court of Appeal, [2013] EWCA Civ 1658, reported at [2014] Bus LR 553, held that the broker’s acts or omissions could have been undertaken on Paragon’s behalf and remitted the claim for rehearing.

The central issues were whether regulatory compliance precluded a finding of unfairness, whether the undisclosed commissions made the relationship unfair, and whether the broker acted “on behalf of” Paragon.

1. Disposition. The Supreme Court unanimously dismissed Paragon’s appeal, although for reasons different from those of the Court of Appeal. Lord Sumption delivered the judgment, with which Lady Hale, Lord Clarke, Lord Carnwath and Lord Hodge agreed. The transaction could be reopened because non-disclosure of the commissions made the relationship unfair. The case was remitted to the Manchester County Court solely to determine relief under section 140B of the Consumer Credit Act 1974, unless agreed.

2. The statutory standard of unfairness. Section 140A is deliberately broad and supplies no precise or universal test. The court must assess all relevant facts and determine whether the relationship, rather than merely particular conduct, was unfair. Ordinary inequalities of financial knowledge between commercial lenders and private borrowers do not alone justify reopening their agreements. The unfairness must arise from one of the statutory causes in section 140A(1).

3. Regulatory compliance. Harrison v Black Horse Ltd [2012] Lloyd’s Rep IR 521 was wrongly decided. The Insurance Conduct of Business Rules provide evidence of reasonably expected commercial conduct, but they do not determine fairness under section 140A. Those rules impose predefined duties and minimum standards. Section 140A instead permits a fact-sensitive judicial assessment of a particular relationship and does not require any breach of duty.

4. Undisclosed commission. A sufficiently extreme inequality of knowledge and understanding is a classic source of unfairness. Although Mrs Plevin knew that some commission would be paid, she did not know that commissions consumed 71.8% of the premium. That information was critically relevant to whether the insurance represented value for money. Paragon knew both commissions and could reasonably have been expected to disclose them. Disclosure would have removed this source of unfairness by enabling an informed decision.

5. Responsibility for omissions. A creditor is normally responsible for an omission making the relationship unfair where it fails to take steps which it would be reasonable to expect in the interests of fairness and which would remove the unfairness, or mitigate it sufficiently that the relationship as a whole ceased to be unfair.

6. Suitability advice and the broker. Paragon could not reasonably have been expected to conduct its own needs assessment. The regulatory scheme assigned that function to LLP, the intermediary dealing directly with the customer. LLP was Mrs Plevin’s agent, not Paragon’s. The words “by or on behalf of the creditor” ordinarily require agency or another relationship engaging the creditor’s responsibility as if it had acted itself. Conduct benefiting the creditor or helping to produce the transaction is insufficient.

7. Voluntary codes. The FLA and FISA codes had no statutory or contractual force and did not make LLP Paragon’s agent or create shared responsibility for each regulated function. At most, they were evidence of reasonable commercial standards. The court did not decide whether the insurance policy was a “related agreement”, because that issue was not pursued.

1. United Kingdom Supreme Court: Paragon’s appeal was dismissed unanimously. The general remittal ordered below was varied, and the case was remitted to the Manchester County Court solely to determine relief under section 140B of the Consumer Credit Act 1974.
2. Court of Appeal: In Plevin v Paragon Personal Finance Ltd [2013] EWCA Civ 1658 , reported at [2014] Bus LR 553, the court held that LLP’s conduct was capable of falling within section 140A(1)(c) and remitted the claim for rehearing generally. It considered itself bound by Harrison v Black Horse Ltd [2012] Lloyd’s Rep IR 521 on undisclosed commission.
3. Manchester County Court: The Recorder dismissed the claim against Paragon, treating the absence of a regulatory duty as conclusive and applying the binding Court of Appeal authority on commission disclosure.