Karen Smith & Anor. v The Royal Bank of Scotland Plc

Under s140A of the Consumer Credit Act 1974, the court assesses whether the creditor-debtor relationship is unfair at the relevant date, having regard to all relevant matters. A related agreement that ended before the transitional period may still inform that assessment. The transitional provisions instead restrict the remedies available under s140B.

However, unfairness does not necessarily persist throughout a continuing credit relationship. Non-disclosure of PPI commission creates unfairness when the customer decides to enter the policy and while liabilities or economic consequences arising from it continue. Once those consequences have ended, continuing ignorance alone does not preserve the unfairness. The cause of action accrues day by day, and time runs when the unfair relationship ends.

RBS brought second appeals in two PPI compensation claims under the Consumer Credit Act 1974. Karen Smith’s PPI policy ended in 2006, while her credit agreement ended in 2015. Derek Burrell’s PPI policy ended in 2008, while his credit agreement continued until 2019.

The first-instance courts found the relationships unfair because RBS had failed to disclose its PPI commissions. Those decisions were upheld on appeal. RBS challenged the conclusions that the transitional provisions preserved a cause of action and that the claims were not barred by limitation. The oral argument focused on Ms Smith’s case. The central issues were whether an ended PPI agreement could contribute to unfairness under s140A and when the statutory cause of action accrued.

The appeals were allowed on limitation grounds. The remaining transitional-provision grounds were dismissed.

1. Scope of the fairness assessment. Section 140A of the Consumer Credit Act 1974 concerns the fairness of the creditor-debtor relationship, not merely the fairness of the credit agreement. The court must consider all relevant matters. Consistently with Plevin v Paragon Personal Finance [2014] UKSC 61 and Scotland v British Credit Trust Ltd [2014] EWCA Civ 790, that assessment may include matters arising from a related agreement which ended before the relevant date.
2. Effect of the transitional provisions. Schedule 3 paragraph 16 of the Consumer Credit Act 2006 restricts the references to certain ended related agreements in the remedy provisions of s140B. It does not amend s140A or prevent the related agreement from being considered when assessing unfairness. Where payments were made both by virtue of the related agreement and by virtue of the continuing credit agreement, s140B did not prevent an order for repayment. RBS’s transitional argument therefore failed.
3. Limitation. A s140A claim is a claim for relief from an unfair relationship. The cause of action accrues when the facts necessary to establish unfairness at the relevant date exist. The relationship may change over time, so day-to-day accrual does not simply project past unfairness into the future. The analysis in Patel v Patel [2009] EWHC 3264 (QB) was accepted in substance, subject to the qualification that the relevant date is not invariably the date on which the relationship ends.
4. Application. Under Plevin, the unfairness arose from non-disclosure of a material commission when the customer decided whether to enter the PPI policy. In Ms Smith’s case, it persisted while PPI-related liabilities were being incurred and paid, but ended in April 2006 when the policy-related liability and economic consequences ceased. Continued non-disclosure did not make the relationship unfair in 2015. Ms Smith’s claim was therefore barred by s9 of the Limitation Act 1980. Mr Burrell’s claim was likewise issued more than six years after the relevant unfairness ended.
5. The possible relevance of continued non-disclosure to s32 of the Limitation Act 1980 did not arise for decision.

• Court of Appeal (Civil Division): Allowed RBS’s appeals on limitation grounds. Dismissed the transitional-provision grounds.
• Plymouth District Registry: HHJ Gore QC dismissed RBS’s appeal from the decision in Ms Smith’s claim.
• Northampton County Court and Family Court: DJ Stone upheld Ms Smith’s claim. DDJ Crow found for Mr Burrell, and HHJ Murdoch upheld that decision on appeal.