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

The Court of Appeal considered whether the Consumer Credit Act 1974 as amended (in particular ss140A–140C and s140B remedies) and the transitional provisions in Schedule 3 to the Consumer Credit Act 2006 prevent a debtor from obtaining repayment of payment protection insurance (PPI) premiums where the PPI (a "related agreement") ended before the transitional period expired, and whether such claims are time barred under section 9 of the Limitation Act 1980.

The court held that the unfair relationship assessment under s140A may take account of related agreements even if those related agreements ended before the end of the transitional period, but that paragraph 16 of Schedule 3 excludes such related agreements from the remedies in s140B unless the sums claimed were also paid by virtue of the credit agreement itself. The court further held that the cause of action under s140A accrues in time with the state of the relationship and, on the facts, the unfair relationship in Ms Smith's case terminated when the PPI ceased (April 2006) so the claim brought in 2019 was statute barred under s9. The same limitation outcome applied to Mr Burrell's claim.

Background and parties: The appeals arise from claims by Karen Smith and Derek Burrell against the Royal Bank of Scotland for repayment of PPI premiums paid in connection with credit card agreements. The respondents sought repayment under the Consumer Credit Act 1974 (as amended) on the basis that the relationship was unfair because the bank had not disclosed substantial commissions on PPI.

Procedural history: Ms Smith's claim was heard by DJ Stone (Bodmin), allowed; the bank's appeal to HHJ Gore QC was dismissed. Mr Burrell's claim was heard by DDJ Crow and upheld on appeal by HHJ Murdoch. The bank appealed to the Court of Appeal.

Nature of relief sought: Repayment of all PPI premiums paid (with interest) for periods when PPI was in force; remedies under s140B of the 1974 Act for an unfair relationship under s140A.

Issues framed: (i) Whether the transitional provisions in Schedule 3 to the Consumer Credit Act 2006 prevented relief in respect of related agreements which had ended before the end of the transitional period; (ii) whether the respondents' claims were time barred under section 9 of the Limitation Act 1980; (iii) whether, on the facts, the relevant relationship remained unfair at the date at which the court must assess fairness.

Court's reasoning and conclusions: The court concluded: (a) s140A requires assessment of the relationship arising out of the credit agreement taken with any related agreement; the transitional provisions (Schedule 3 para 16) remove references to certain related agreements from the remedies in s140B but do not remove related agreements from the fairness assessment in s140A; (b) therefore a related agreement that ended before the end of the transitional period can be taken into account when assessing whether the relationship is unfair, but the statutory power to order repayment under s140B does not extend to sums paid only by virtue of a related agreement excluded by the transitional provision unless those sums were also paid by virtue of the credit agreement itself; (c) the accrual question under the Limitation Act depends on when the cause of action (the unfair relationship) can be pleaded — the fairness of the relationship is assessed at a relevant point in time (for a terminated relationship the date it ended), and the cause of action is continuing day to day until that point; (d) on the facts the court found that in Ms Smith's case the unfair relationship ceased when the PPI ended in April 2006 so the six-year limitation under s9 expired before proceedings were issued in 2019; Mr Burrell's claim was likewise time barred. The appeals were therefore allowed in part (statute-barred), and dismissed in part (transitional point).

Appeal allowed in part. The Court of Appeal held that (i) s140A permits the court to take into account related agreements that ended before the end of the transitional period when assessing whether a relationship is unfair, but (ii) Schedule 3 paragraph 16 excludes such related agreements from the remedies in s140B unless the sums were also paid by virtue of the credit agreement itself. Applying the law to the facts, the court found that the unfair relationship in Ms Smith's case ended when the PPI ceased in April 2006; accordingly her claim issued in 2019 was statute barred under section 9 of the Limitation Act 1980. The same limitation outcome applied to Mr Burrell. The bank's argument that the transitional provisions wholly precluded consideration of ended related agreements was rejected.

First-instance and intermediary appeals: Ms Smith's claim was heard by District Judge Stone (Bodmin) and allowed; the bank's appeal was dismissed by HHJ Gore QC. Mr Burrell's claim was heard by DDJ Crow and the bank's appeal dismissed by HHJ Murdoch. Both matters were then before the Court of Appeal (this judgment: [2021] EWCA Civ 1832).