Category: Court decisions

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FCA issues statement on its next steps in its motor finance review

Earlier today, on 11 March 2025, the UK Financial Conduct Authority (the FCA) published a statement on its next steps in its motor finance review. The FCA says:

– If, taking into account the Supreme Court’s forthcoming decision on the appeal from the Court of Appeal’s decision in Johnson v FirstRand Bank Limited (London Branch) t/a MotoNovo Finance [2024] EWCA Civ 1282, it concludes motor finance customers have “lost out from widespread failings by firms, then it’s likely we will consult on an industry-wide redress scheme“;

– Under a redress scheme, “firms would be responsible for determining whether customers have lost out due to the firm’s failings. If they have, firms would need to offer appropriate compensation. We would set rules firms must follow and put checks in place to make sure they do“;

– The FCA no longer plans to make a further announcement in May 2025. Instead, the FCA will confirm its position “within 6 weeks of the Supreme Court’s decision if we are proposing a redress scheme and if so, how we will take it forward“; and

– The FCA’s next steps on non-discretionary commission arrangements will also be informed by the Supreme Court’s decision.

There are some interesting points from this statement:

– The statutory test under Section 404 of the Financial Services and Markets Act 2000 refers to it appearing to the FCA “that there may have been widespread or regular failure by relevant firms to comply with requirements applicable to the carrying on by them of any activity“. The FCA’s statement that it may (depending on the circumstances) consult on such a scheme is therefore a simple re-statement of part of the test for a consumer redress scheme under the statutory provisions.

– It is unsurprising that the FCA will not make an announcement in May 2025: this seemed inevitable once the lenders were given permission to appeal by the Supreme Court in December 2024.

– There is no mention of the appeal to the Court of Appeal from the High Court’s decision in R (Clydesdale Financial Services Limited) v Financial Ombudsman Service [2024] EWHC 3237 (Admin). This has a ‘hear by’ date of 8 December 2025 and the Court’s consideration of the FCA’s rules and guidance in the Consumer Credit Sourcebook must (it is submitted) be part of the FCA’s wider consideration of whether there has been “widespread or regular failure“.

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High Court finds no unfair relationship arising out of a commercial bridging loan agreement

On 2 March 2021, the High Court handed down judgment in Credit Capital Corporation Limited v Watson [2021] EWHC 466 (QB) where a borrower (who had entered into an exempt bridging loan agreement) alleged his relationship with the lender was unfair under Sections 140A to 140C of the Consumer Credit Act 1974 (the ‘unfair relationship provisions’).

The facts

In essence, the borrower, Mr Watson, had entered into two exempt bridging loan agreements: (a) one for a loan of £1,475,000 with Credit Capital Corporation Limited (‘CCL’) and (b) one for £47,500 with Market Financial Solutions Limited (‘MFS’). Both agreements contained a business use declaration and therefore fell outside of the definition of a regulated credit agreement or a regulated mortgage contract.

The allegations of unfairness

Mr Watson made a number of allegations to say that his relationship arising out of the agreements was unfair under the unfair relationship provisions. The allegations included the following claims:

– a commission was paid to the broker without Mr Watson’s consent;

– rolling up the first year’s interest and deducting it from the advance was unfair;

– pressure was put on Mr Watson and a property was sold because of a false representation over the buyer’s identity; and

– there was a sale at an undervalue for one of the properties.

The Court’s finding on unfairness

Whilst the Court was critical of the evidence put forward by all of the parties, and the lack of evidence from a director of the lenders (particularly where one of the directors was heavily involved), it decided there was no unfairness. The key findings were:

– Mr Watson knew a commission would be paid and there was sufficient disclosure of it;

– there was nothing unfair in rolling up interest for the first year and deducting it from the advance (a common practice in bridging loans);

– whilst pressure was put on Mr Watson, it was not enough to make the relationship unfair;

– whilst there had been a misrepresentation over the identity of the buyer of one of the properties, Mr Watson found out the true position before exchange of contracts so this did not, on its own, make the relationship unfair; and

– there was no clear evidence to show that the properties were sold at an undervalue.

Comment

This is another example of the Court being slow to find unfairness where the borrower is a commercial or business borrower. The Court correctly identified that earlier decisions have not found enforcement unfair unless it has been done in an arbitrary or exploitative way.

The Court also correctly found there was no unfairness where a misrepresentation was made but the true position was discovered before exchange of contracts. It is submitted that this should also be the position in unfair relationship provisions involving consumers. Whilst the unfair relationship provisions do not require an actionable legal wrong to have taken place, it must be the case that there can be no unfairness if the borrower finds out the correct position before entering into the agreement.

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UK Supreme Court to consider RyanAir’s decision to pay compensation directly to a complainant and not to a law firm

On 27 October 2020, a panel of five Justices of the UK Supreme Court will hear the appeal of law firm, Bott & Co, against the Court of Appeal’s decision that the law firm had no equitable lien for fees over any compensation paid directly to a complainant.

The UK Supreme Court’s decision may have an impact for motor finance firms receiving complaints from law firms, or claims management companies, on a complainant’s behalf.

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European Court of Justice says there is a duty to consider the cumulative effect of all terms

On 10 September 2020, the European Court of Justice gave judgment in A (Sous-location d’un logement social) (Case C-738/19) EU:C:2020:687. The issue before the ECJ was whether the Court must, under the Unfair Contract Terms Directive, consider only the unfairness of clauses relating to those challenged by the consumer, or the cumulative effect of all terms. In a perhaps unsurprising decision, the ECJ decided the Court’s duty is to consider the cumulative effect of all terms.

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High Court hands down judgment saying appointed representative does not enter into contracts as agent for their principal under the Financial Services and Markets Act 2000

On 9 April 2020, the High Court handed down judgment in Silvercloud Finance Solutions Limited t/a Broadscope Finance v High Street Solicitors Limited [2020] EWHC 878 (Comm). 

Financial services practitioners will be pleased to see His Honour Judge Pearce did not accept the Defendant’s argument that “the Financial Services and Markets Act 2000 renders every “appointed representative” in the position of the Claimant as an agent for the purpose of the law of contract when contracting with potential clients”. 

This was because:

– the “word “agent‘ is not used in that Act, nor is any such unqualified modification of contractual status asserted in Section 1 of the Act”; and

– of the Court’s earlier decisions in R (TenetConnect Services Limited) v Financial Ombudsman [2018] EWHC 459 and Ovcharneko v Investuk Limited [2017] EWHC 2114 (both of which decided the statutory scheme in Section 1 is to create an additional liability on the part of the ‘principal’ “without more generally affecting the rights and obligations of third parties”).

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Judicial Review of PPI Ombudsman Decision Dismissed

On 13 November 2019, the High Court dismissed a customer’s judicial review of an Ombudsman’s decision not to uphold a PPI complaint in R (Critchley) v Bank of Scotland (t/a Halifax) & Another EWHC 3036 (Admin).  This is a welcome decision that supports the long standing view that the duty of utmost good faith does not apply to the simple lender and borrower relationship.

Background

The Claimant complained her bank had mis-sold payment protection insurance (PPI).  The bank rejected her complaint so she referred it to the Financial Ombudsman Service.  After rejecting an adjudicator’s decision that the PPI had not been mis-sold, the complaint was referred to an ombudsman.

The Ombudsman’s decision

The ombudsman decided the bank had (a) not acted fairly or reasonably with the Claimant and (b) failed to sufficiently advise her on the PPI.  However, the ombudsman also decided the PPI had been suitable for the Claimant, and even if she had been properly advised, she would have still have bought it.

The Claimant’s application for judicial review

The Claimant applied for a judicial review of the Ombudsman’s decision.  Her grounds of challenge were that the Ombudsman:

– had misinterpreted DISP Appendix 3, or had failed to apply it correctly (particularly the presumption in DISP App 3.6.2R);

– failed to have proper regard to all of the evidence and erred in concluding that the policy had been suitable for the Claimant;

– erred in failing to find a breach of the duty of utmost good faith because of the bank’s failure to disclose the policy’s limitations and poor value; and

– failed to give adequate reasons.

Decision

The Claimant’s application was dismissed. The judge gave the following reasons:

– There was nothing to suggest the ombudsman had misinterpreted DISP App 3.   He had fully referred to it in his decision and, given his experience, he was well aware of its provisions.  The Ombudsman considered his approach and his findings were consistent with DISP App 3.  The Ombudsman did find significant failings with the sale of the PPI and, in consequence, it was substantially flawed in accordance with DISP App 3.6.2R.  However, he found there was evidence to rebut the presumption and decided it was likely the Claimant would have still purchased the PPI despite the flaws.

– The Ombudsman found the bank had recommended the PPI to the Claimant and did not act with reasonable care and skill in establishing whether the PPI was suitable for her.  However, the ombudsman found the PPI was suitable for her.  The judge concluded the ombudsman was entitled, after his careful analysis of the PPI’s costs and his detailed reasons for his decision, to decide (a) the PPI had been suitable for the Claimant, (b) it had not been poor value and (c) the Claimant would have purchased the PPI anyway.

– The Claimant said the bank was in breach of its duty of utmost good faith because (a) the exclusions and limitations of the PPI were not drawn to her attention and (b) the low claims ratio should have been disclosed as a matter of reasonableness and commercial decency.  The Ombudsman was not persuaded by the Claimant’s views of what the duty of utmost good faith required and the judge agreed.  The judge said the Claimant’s case on the scope of an insurer’s pre-contractual duty of utmost good faith was misconceived.  The duty was contrary to the underlying basis for the Court’s decision in Plevin v Paragon Personal Finance Limited [2014] UKSC 61.  The only duty was to disclose ‘circumstances which decrease the risk to the assured’.

Summary 

This is a welcome well-reasoned and detailed decision.  We have recently seen a resurrection of the allegations of the duty of utmost good faith in Claimant’s statements of case.  This decision reaffirms our view that this duty (a) applies to contracts of insurance between the insurer and the insured (and not a simple relationship of creditor and borrower) and (b) the disclosure is limited to matters material to the risk being insured or the recoverability of a claim under the policy. 

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ECJ decides an employer offering a loan to an employee is a supplier for the purposes of the Unfair Contract Terms Directive

On 21 March 2019, the European Court of Justice gave its decision in Pouvin v Electricité de France (Case C 590/17) on whether a French electricity provider (EDF) was a supplier for the purposes of the Unfair Contract Terms Directive (93/13/EEC) (the UCTD).  EDF provided a loan to one of its employees and his spouse to buy a house.  The ECJ decided EDF was acting for purposes relating to its “trade, business or profession” and was therefore a supplier for the purposes of the UCTD.  

Because the employee was classed as a consumer, the French court must therefore consider if the terms of the loan are fair under France’s laws implementing the UCTD.  The broad interpretation of the definition of “supplier” helped achieve the UCTD’s objective of protecting the consumer (as a weaker party) and making sure there was balance in the relationship.