On 4 October 2023, the UK Supreme Court handed down its judgment in Smith & Another v Royal Bank of Scotland  UKSC 34, on appeal from  EWCA Civ 1832.
The 2 cases under appeal raised a question about the time limit for applying to the court for an order under section 140B of the Consumer Credit Act 1974 to remedy unfairness in a debtor-creditor relationship. The Supreme Court unanimously allowed the appeal, holding that both claims had been brought before the relevant time limit had expired.
The 2 cases under appeal were small claims brought against the Royal Bank of Scotland plc, (the ‘bank’), by former credit card holders who had been sold payment protection insurance, (‘PPI’), policies by the bank and on which the bank had received large undisclosed commissions.
In each case, the claim had been brought over 10 years after the PPI policy had been terminated and the last payment relating to it had been made, but less than 6 years after the claimant’s credit card agreement with the bank had ended.
In each case, the claimant was successful at the final hearing before a district judge and on the first appeal. However, on the second appeals (brought by the bank) to the Court of Appeal, where the 2 cases were heard together, the appeals were allowed and the claims were dismissed on the ground that the relevant time limit had expired before the proceedings had commenced.
The claimants appealed to the Supreme Court.
Bank’s Position before the Supreme Court
The bank did not contest that its failure to disclose the commission it received for selling PPI made the debtor-creditor relationship unfair. Rather, its main arguments before the Supreme Court were:
- The claimants’ claims were brought too late, (the ‘First Argument’).
- Although the relationship continued after the claimants had made their last PPI-related payment, once the claimants stopped paying for PPI, the relationship was no longer unfair, (the ‘Second Argument’).
- The claims were excluded by the transitional provisions, which applied when sections 140A-C of the Consumer Credit Act, (the ‘CCA 1974’), were brought into effect in 2007, (the ‘Third Argument’).
The Supreme Court allowed the appeal, holding that both claims had been brought before the relevant time limit had expired, and restored the decision of the district judge in each case.
Under the regime brought in by sections 140A-C of the CCA 1974, the court must first determine whether the relationship between the parties arising out of a credit agreement is unfair to the debtor. The date on which the court is to assess fairness is either the date of the hearing if the relationship is ongoing, or the date on which the relationship ended if it has, in fact, ended.
If the court finds that the relationship is unfair, or was unfair when the relationship ended, then the court has a broad discretion to decide what, if any, remedy to grant. The purpose of the remedy is to remove the causes of any such unfairness (if they are still continuing) and to reverse any damaging financial consequences of that unfairness so that the relationship as a whole can no longer be regarded as unfair.
The bank contended that the claimants’ claims were barred by section 9 of the Limitation Act 1980; they were claims to recover money that had been brought after the expiration of 6 years from the date on which the cause of action accrued. The bank’s case was that the cause of action (i.e., the right to claim a remedy) accrued when the payments for PPI were made. In the case of Ms Smith, her last PPI-related payment was made in April 2006; in the case of Mr Burrell, March 2008. Therefore, in each case, the limitation period expired 6 years after the last PPI-related payment had been made, which was long before each claim had been brought.
Like the Court of Appeal, the Supreme Court rejected the First Argument.
As explained in paragraph 65 of the judgment of Lord Leggatt, under the CCA 1974, when the relationship has ended, the right to claim a remedy depends on whether the relationship was unfair at the time when it ended. In both cases under appeal, the claimants’ relationship with the bank ended long after the PPI policy had been terminated. Thus, it was when the relationship ended that the claimant’s right to claim a remedy arose and when the 6-year period for bringing a claim began. As both claims were brought within this 6-year period from the end of the relationship, both claims had been brought in time.
Unlike the Court of Appeal with which the Second Argument found favour, the Supreme Court rejected it.
The Court of Appeal had held that there was no financial effect or consequence of the PPI agreement that persisted after the claimants had made their last payments towards such, so the relationship was not unfair when it ended.
However, in paragraphs 64-67 of his judgment for the Supreme Court, Lord Leggatt set out that the position of the Court of Appeal was wrong. His Lordship stated that while “no more payments for PPI cover were made” out of which the bank received further commission, the bank did not at any time before the relationship ended “repay the sums” which the claimant had paid for PPI cover, with this being a financial effect of the PPI agreement that persisted. Further, at no point, did the bank “disclose … the existence let alone the amount of the commission it had received out of those payments” so the relationship was still unfair at the time when it ended.
As such, the Court of Appeal was “clearly wrong to say that there was “no case, alleged or proved, that any economic effect or consequence of the PPI” persisted after the end of the PPI policy or when the relationship between the parties ended. Rather, the economic consequence was that the claimant was “financially worse off as a result of having paid PPI premiums which [the claimant] would never have paid if the bank had disclosed the amount of its commission”.
The Supreme Court rejected the Third Argument.
The Supreme Court allowed the appeals, holding that both claims had been brought before the relevant time limit had expired, and restored the decision of the district judge in each case.
In these 2 cases, the relevant relationship was that arising out of the credit card agreement between the bank and the claimant, which continued after the PPI policy came to an end. In these circumstances, the period of limitation begins to run only when the relationship ends and it expires after 6 years. As these claims were brought within that 6-year period, neither was time-barred.
Commentary on Judgment
Fairness of Debtor-Creditor Relationship
The judgment sets out that the date on which the court is to assess the fairness of the debtor-creditor relationship is either:
- if the relationship is ongoing, the date of the (final) hearing; or
- if the relationship has ended, the date on which the relationship ended.
When making its “broad and holistic assessment” of the fairness of the relationship, the court shall have regard to all matters it considers relevant.
In the event that a court finds that a relationship is unfair, or was unfair when the relationship ended, the court retains the broadest possible remedial discretion in deciding what order, if any, to make under section 140B.
The judgment affirms that the usual 6-year period in which a debtor may bring a claim based upon an unfair relationship begins to run only once the relationship ends.
The judgment does not impact upon claims that have been brought more than 6 years after the relevant relationship has ended. In such circumstances, any debtor seeking a remedial order under section 140B would need to discharge the burden imposed by section 32 of the Limitation Act 1980, should they wish to overcome the defence of limitation.
For further information:
- the case details as set out on the website of the UK Supreme Court can be found here
- the full judgment of the UK Supreme Court can be found here; and
- the video of the judgment as handed down by Lord Leggatt can be found here
Written by Meg Cochrane