Smith and another v Royal Bank of Scotland plc

What is the time limit for applying to the court for an order under section 140B of the Consumer Credit Act 1974 to remedy unfairness in the relationship between a creditor and a debtor? This question is raised by the two cases under appeal. Both are small claims brought against the Royal Bank of Scotland plc (“the bank”) by former credit card holders who were sold payment protection insurance (“PPI”) policies by the bank on which the bank received very large undisclosed commissions. In each case the claim was brought over 10 years after the PPI policy was terminated and the last payment relating to it was made, but less than six years after the claimant’s credit card agreement with the bank had ended. In each case the claimant was successful at a hearing before a district judge and on a first appeal. However, on second appeals by the bank to the Court of Appeal, where the two cases were heard together, the appeals were allowed and the claims were dismissed on the ground that the applicable time limit had expired before the proceedings were commenced. Because of the general importance of this issue, which potentially affects many other cases, permission was granted for a further appeal to the Supreme Court.

For the reasons given in this judgment, I would allow the appeal and restore the decision of the district judge in each case. In short, a claim for a remedial order under section 140B can be made at any time while the credit relationship said to be unfair to the debtor is continuing. The relevant relationship in these cases was the relationship arising out of the credit card agreement between the bank and the claimant, which continued after the PPI policy came to an end. The period of limitation begins to run only when the relationship ends and expires after six years. Each of these claims was brought within that period. So the claims are not time-barred.

Although the details differ, the facts and timelines of these two cases are similar in all relevant respects.

Karen Smith applied (successfully) for a credit card with the bank in January 2000. The same application form offered her PPI “to protect your … card payments in the event of death, accident, sickness or involuntary unemployment” and stated:

“We [ie the bank] strongly recommend you take out this cover. For cover just tick this box.”

Ms Smith did so. What the bank did not disclose was their financial interest in making this recommendation. In fact, well over 50% of the money paid for PPI did not go to the insurer but was retained as commission by the bank. Even to this day the bank has chosen not to reveal the exact size of its commission.

The customer was entitled to terminate the PPI policy at any time. Ms Smith did so in March 2006 and made her last payment relating to her PPI policy in April 2006. However, her credit card agreement with the bank continued for another nine years until 2015.

The bank never informed Ms Smith that it had received commission out of her PPI payments until February 2018, when it paid her back £529.80 under a redress scheme for PPI mis-selling established by the Financial Conduct Authority (“FCA”). This payment was said to represent the commission received by the bank insofar as it exceeded 50% of the PPI premiums paid by Ms Smith, plus interest on the principal sum refunded.

In August 2019 Ms Smith issued a claim against the bank in the county court seeking relief under section 140B of the Consumer Credit Act 1974. The specific relief asked for was an order requiring the bank to repay all the money paid by Ms Smith for PPI under her credit agreement (less the sum already repaid under the FCA scheme), with interest. The hearing took place before District Judge Stone sitting in Bodmin and I endorse the tribute paid by the Court of Appeal to his exemplary written judgment. He upheld the claim and ordered the bank to pay £1,346.29 (inclusive of interest) plus costs. That decision was affirmed on appeal by the county court judge.

Derek Burrell entered into a credit card agreement with the bank and related PPI policy in April 1998. He terminated the PPI policy some 10 years later in March 2008, when his last payment relating to that policy was also made; but his credit card agreement with the bank continued for eleven more years until 2019. He was first told about the commission retained by the bank from his payments of PPI premium in December 2017, when he was repaid £855.07 (calculated in the same way as the sum paid to Ms Smith) by the bank under the FCA redress scheme. Like Ms Smith, Mr Burrell issued a claim in the county court in August 2019. The deputy district judge decided preliminary issues which included the issues still in dispute on this appeal in favour of Mr Burrell; and that decision was upheld on an appeal to the county court judge.

On its appeal to the Court of Appeal in these cases the bank advanced two grounds of appeal. One was that, by reason of the transitional provisions which regulated the entry into force in 2007 of the relevant provisions of the Consumer Credit Act 1974, the claimants have no claim. The second ground was that the claims are in any event time-barred by section 9 of the Limitation Act 1980.

For reasons given by Birss LJ in a judgment with which Macur and Coulson LJJ agreed, the Court of Appeal rejected the first ground of appeal but upheld the second. The appeals were therefore allowed and the claims dismissed: [2021] EWCA Civ 1832, [2022] 1 WLR 2136.

The two issues argued before the Court of Appeal are raised again on this appeal. Before discussing them, I need to introduce the key legislative provisions.

Sections 140A-C were added to the Consumer Credit Act 1974 by the Consumer Credit Act 2006 and came into force on 6 April 2007. They replaced an earlier regime which gave the court power to re-open “extortionate credit bargains”. As Briggs LJ explained in Plevin v Paragon Personal Finance Ltd [2013] EWCA Civ 1658, [2014] Bus LR 553, para 52, the earlier regime was regarded as having been too technical, and as having set the bar for court intervention too high. The new scheme was intended to provide consumers with greater protection based on the concept of an “unfair relationship”.

So far as relevant, section 140A states:

“Unfair relationships between creditors and debtors

(1)

The court may make an order under section 140B in connection with a credit agreement if it determines that the relationship between the creditor and the debtor arising out of the agreement (or the agreement taken with any related agreement) is unfair to the debtor because of one or more of the following—

(a)

any of the terms of the agreement or of any related agreement;

(b)

the way in which the creditor has exercised or enforced any of his rights under the agreement or any related agreement;

(c)

any other thing done (or not done) by, or on behalf of, the creditor (either before or after the making of the agreement or any related agreement).

(2)

In deciding whether to make a determination under this section the court shall have regard to all matters it thinks relevant (including matters relating to the creditor and matters relating to the debtor).

…

(4)

A determination may be made under this section in relation to a relationship notwithstanding that the relationship may have ended.”

Section 140B(9) places the burden of proof on the creditor. It provides that, where “the debtor … alleges that the relationship between the creditor and the debtor is unfair to the debtor, it is for the creditor to prove to the contrary”. Section 140B(1) sets out a list of things which an order under section 140B may do. It gives the court a wide range of powers. The key provision for present purposes is section 140B(1)(a) whereby an order may “require the creditor … to repay (in whole or in part) any sum paid by the debtor … by virtue of the [credit] agreement or any related agreement ...”

Section 140C contains definitions of terms used in sections 140A and 140B. It is common ground in these cases that the credit card agreements were “credit agreements” as defined in section 140C and that the PPI policies were “related” agreements.

It can be seen that, in dealing with a claim by a debtor under these provisions, the court is required to follow a two-stage process. The first stage is to determine whether the relationship between the creditor and the debtor arising out of the credit agreement is unfair to the debtor because of one or more of the matters specified in section 140A(1). If the court finds that the relationship is unfair for that reason, the court must then proceed to the second stage and decide what, if any, order to make, selecting from the list of options in section 140B(1).

Some further general points may be made which are apparent on the face of sections 140A-C.

First, under section 140A(1) it is not the fairness or otherwise of the credit agreement which the court must determine: it is whether the relationship between the creditor and the debtor arising out of the credit agreement (on its own or taken with any related agreement) is unfair to the debtor. A relationship, by its nature, extends over a period of time and may continue for as long as there is any sum payable or which will or may become payable under the credit agreement.

Second, the question to be determined under section 140A(1) is not whether the relationship between the creditor and the debtor was unfair to the debtor when the credit agreement was made or at some other time in the past. It is whether the relationship is unfair to the debtor, ie at the time when the determination is made. This is reinforced by section 140B(9), quoted at para 14 above, which is likewise framed in the present tense.

If nothing further had been said, it might have been thought impossible to make a determination of unfairness under section 140A if the relationship between the creditor and the debtor has ended before the hearing takes place. But this contingency is catered for by subsection (4). That provides that a determination may be made under section 140A in relation to a relationship “notwithstanding that the relationship may have ended”. The logical implication is that, in a case where the relationship has ended, although the court cannot decide whether the relationship is (currently) unfair to the debtor, it must do the closest thing and determine whether the relationship was unfair to the debtor at the time when it ended.

If section 140A(1) had required the court as the general rule to determine whether the relationship between the creditor and the debtor was unfair to the debtor at some past time (such as when the credit agreement was made or when money became payable or was paid by the debtor), then subsection (4) would have been unnecessary. Its inclusion in section 140A confirms that the use of the present tense in subsection (1) is deliberate and that, subject to the exception created by subsection (4), the requirement to determine whether the relationship “is” unfair to the debtor means what it says.

A third point which is apparent on the face of the provisions is the breadth and open-ended nature of the assessment required by section 140A. The court is not left entirely at large, as subsection (1) requires the court to decide whether the relationship is unfair to the debtor because of one or more of three specified matters. These three possible causes of unfairness are, however, extremely broad. They include not only (a) “any of the terms of the [credit] agreement or of any related agreement” and (b) “the way in which the creditor has exercised or enforced any of his rights under the agreement or any related agreement”, but also (c) “any other thing done (or not done) by, or on behalf of, the creditor (either before or after the making of the agreement or any related agreement)”. It would be hard to cast the possible causes of unfairness more broadly than this. What is more, subsection (2) makes it clear that there is no restriction on the matters to which the court may have regard in deciding whether the relationship is unfair to the debtor, provided only that the court thinks them relevant. Subsection (2) also makes it clear that, if any matter is thought relevant, the court not only can but must have regard to it. The breadth of the matters that may be thought relevant is illustrated by a list of examples given by Hamblen J in Deutsche Bank (Suisse) SA v Khan [2013] EWHC 482 (Comm), para 346.

Fourth, the descriptions of the possible causes of unfairness in section 140A(1)(a)-(c) demonstrate that, for the purpose of deciding whether the relationship is now (or was when it ended) unfair to the debtor, the court must consider the whole history of the relationship - going back not only to the making of the credit agreement but to any relevant act or omission of the creditor before the making of that agreement or any related agreement. This is so without any limit on how long ago the credit agreement or any related agreement was made. The matters to which the court is obliged to have regard under subsection (2) because it thinks them relevant are likewise not limited in time.

This is an important point to bear in mind when considering the time bar defence asserted by the bank in this case. As I noted in Patel v Patel [2009] EWHC 3264 (QB), [2010] 1 All ER (Comm) 864, para 64, in a passage approved by the Court of Appeal (Kitchin LJ, with whom Underhill and Moore-Bick LJJ agreed) in Scotland v British Credit Trust Ltd [2014] EWCA Civ 790, [2014] Bus LR 1079, para 82:

“… in determining whether, at the relevant date, the relationship is or is not unfair, the court is required to have regard to certain matters specified in section 140(A)(1) and to all other matters it thinks relevant, whenever those matters occurred. There is no possibility, therefore, if the court is entitled to make the determination of fairness at all and is not barred by limitation from doing so, of restricting the temporal scope of the inquiry.”

Fifth, as well as requiring the court to make a very broad and holistic assessment to decide whether the relationship between the creditor and the debtor is unfair to the debtor, the legislation also gives the court, where a determination of unfairness is made, the broadest possible remedial discretion in deciding what order, if any, to make under section 140B. Section 140B gives the court an extensive menu of options from which to select but says nothing at all about how this selection may or should be made. On the face of the legislation the court’s discretion is entirely unfettered. It is, I think, clear that the court is not in these circumstances required to engage in the kind of strict analysis of causation, loss and so forth that would be required, for example, in deciding what remedy to award in a claim founded on the law of contract or tort. Some constraint is, however, imposed by consideration of the general purpose of an order under section 140B. In principle, the purpose must be to remove the cause(s) of the unfairness which the court has identified, if they are still continuing, and to reverse any damaging financial consequences to the debtor of that unfairness, so that the relationship as a whole can no longer be regarded as unfair.

This last point is confirmed by the decision of this court in Plevin v Paragon Personal Finance Ltd [2014] UKSC 61, [2014] 1 WLR 4222, a case which, like the present cases, involved the non-disclosure of commissions received out of premiums paid for PPI cover. The claimant had borrowed money to pay off existing debts and fund some home improvements. The loan, which had a 10-year term, was arranged by a broker who recommended PPI. The PPI premium was all paid upfront and added to the amount of the loan. Of the PPI premium, 71.8% was taken in commissions by the broker and the lender. The claimant was told that commission was paid but not the amount of the commission nor who received it.

During the period of the loan the claimant brought proceedings against the lender which included an allegation that her relationship with the lender was unfair within section 140A(1)(c) of the 1974 Act because of the non-disclosure of the amount of the commission. On an appeal to the Supreme Court, the claimant succeeded on this issue. Lord Sumption (with whom the other Justices agreed) said, at para 18:

“Any reasonable person in her position who was told that more than two thirds of the premium was going to intermediaries, would be bound to question whether the insurance represented value for money, and whether it was a sensible transaction to enter into. The fact that she was left in ignorance in my opinion made the relationship unfair.”

Lord Sumption then considered whether this unfairness was due to anything “done (or not done) by, or on behalf of, the creditor” so as to fall within section 140A(1)(c). There was nothing which the creditor had positively done to cause the unfairness, so the question was whether the unfairness resulted from the creditor’s failure to do something. On this point Lord Sumption said, at para 19:

“Bearing in mind the breadth of section 140A and the incidence of the burden of proof according to section 140B(9), the creditor must normally be regarded as responsible for an omission making his relationship with the debtor unfair if he fails to take such steps as (i) it would be reasonable to expect the creditor or someone acting on his behalf to take in the interests of fairness, and (ii) would have removed the source of that unfairness or mitigated its consequences so that the relationship as a whole can no longer be regarded as unfair.”

Applying this test, Lord Sumption considered that, given the size of the commissions paid and their potential significance for the claimant’s decision whether to purchase PPI cover, it would have been reasonable to expect the lender in the interests of fairness to have disclosed to her the amount of the commissions. Had this been done, this source of unfairness would have been removed because the claimant would then have been able to make a properly informed judgment about the value of the PPI policy (para 20). The Supreme Court concluded that this was a sufficient reason to justify reopening the transaction and remitted the case to the county court to decide what, if any, remedial order to make under section 140B.

In the light of the judgment in Plevin, the bank does not dispute that in each of the present cases its failure to disclose the commissions that it received made its relationship with the claimant arising out of the credit agreement (taken with the related PPI agreement) unfair to the claimant. In the case of Karen Smith, the district judge made a finding of fact that she would not have applied for PPI cover if she had known that more than half of her monthly payments would be kept as commission by the bank. The bank cannot and has not sought to challenge that finding. The bank also does not dispute that, if the court was entitled to make an order under section 140B(1)(a) for the repayment of money, the order made requiring the bank to repay all the sums paid for PPI by Ms Smith (insofar as they had not been repaid already), with interest, was an order which the court was entitled to make.

The main argument made by the bank is that the claims are barred by section 9 of the Limitation Act 1980. This provides:

“(1)

An action to recover any sum recoverable by virtue of any enactment shall not be brought after the expiration of six years from the date on which the cause of action accrued. …”

It is common ground that this is the applicable limitation period in the present cases. The dispute is about when “the cause of action accrued”.

The bank contends that the claimant’s cause of action accrued so that time began to run under section 9 when each of the PPI premium payments was made which the claimant is seeking to recover. In the case of Ms Smith, the last such payment was made in April 2006; and, in the case of Mr Burrell, it was made in March 2008. The limitation period therefore expired six years later, in each case long before these proceedings were commenced in 2019.

As stated earlier, it was not until partial redress was offered to the claimants under the FCA scheme - in December 2017 in the case of Mr Burrell and February 2018 in the case of Ms Smith - that the bank disclosed the fact that it had received commission and also that the amount of that commission had exceeded (by a clearly considerable though still undisclosed margin) 50% of the sums paid for PPI cover. Until then, the claimants were kept in total ignorance of these facts by the bank. Indeed, this inequality of knowledge was one of the very matters which, as District Judge Stone found in the case of Ms Smith, made her relationship with the bank unfair for the duration of that relationship. As the claimants did not know about the commissions, they could not reasonably have been expected to bring proceedings seeking an order for repayment.

The bank submits, however, that this would only prevent the claims from being time-barred if it were found that the bank “deliberately concealed” its receipt of commission from the claimants within the meaning of section 32(1)(b) of the Limitation Act 1980. This provision states that, where any fact relevant to the claimant’s right of action “has been deliberately concealed from him by the defendant,” the period of limitation does not begin to run until such time as the claimant has discovered the concealment or could with reasonable diligence have discovered it. It is for a claimant who wishes to rely on this provision in answer to a limitation defence to raise it and prove the facts necessary to establish deliberate concealment.

In another case under appeal to this court, Potter v Canada Square Operations Ltd [2021] EWCA Civ 339, [2022] QB 1, the claimant has alleged deliberate concealment. The facts of that case differ from the present claims, as Ms Potter did not become aware that most of her premium payments for PPI cover for a loan had been retained as commission by the lender until more than six years after her credit relationship with the lender had ended. So by the time she found out about the commission and its non-disclosure and brought proceedings for a remedy under section 140B, the limitation period had on any view expired unless the claimant could successfully rely on section 32(1)(b). The Court of Appeal held that there had been deliberate concealment within the meaning of section 32(1)(b) so that the time when the limitation period began to run was postponed and the proceedings had been brought in time. That decision is the subject of an appeal which has been heard by a different panel of the Supreme Court. The outcome of that appeal, however, will not affect the present cases because neither Ms Smith nor Mr Burrell has made an allegation of deliberate concealment.

If, therefore, the bank is correct that the claimants’ causes of action accrued when the PPI premium payments were made, it follows that the Court of Appeal was right to dismiss the claims on the ground that they were brought after the limitation period had expired.

The Court of Appeal reached that result by a different route from the argument made by the bank. On this appeal, the bank has renewed its argument which the Court of Appeal did not accept and also relies, in the alternative, on the Court of Appeal’s reasoning. It is therefore necessary to consider both approaches. I will consider first the bank’s primary case, which I will call the “completed cause of action” argument. Then I will consider the analysis adopted by the Court of Appeal, which I will call the “no unfairness” argument.

The principal argument made by the bank starts from the well-established definition of a “cause of action” as a set of facts which entitles a person to obtain a remedy against another person from the court: see eg Letang v Cooper [1965] 1 QB 232, 242-243 (Diplock LJ). To identify when a cause of action has accrued, it is thus necessary to identify, first, the remedy sought by the claimant and, second, the material facts which, if proved, would as a matter of law entitle the claimant (subject to any positive defences) to obtain that remedy. The cause of action accrues on the date when all those material facts are first capable of being pleaded.

There are many authoritative statements of this test. For example, in Central Electricity Board v Halifax Corporation [1963] AC 785, 806, Lord Guest said that the date when a cause of action accrues is “the date on which the plaintiff would be able to issue a statement of claim capable of stating every existing fact which, if traversed, it would be necessary for the plaintiff to prove in order to support his right to judgment.”

Where a claim is made by a debtor for an order under section 140B of the 1974 Act on the ground that the relationship arising out of the credit agreement is unfair, the burden is on the creditor to prove that the relationship is not unfair: see para 14 above. This does not, however, mean that the claimant is absolved from pleading particulars of claim which identify concisely the facts on which the claimant relies. Nor does it mean that the claimant can make allegations of fact which the court is bound to accept unless the creditor disproves them; it is still the debtor who has the onus of proving facts on which he or she positively relies: Promontoria (Henrico) Ltd v Samra [2019] EWHC 2327 (Ch), [2019] CTLC 295, para 26.

Applying this approach to the present claims, counsel for the bank point out that the sole remedy sought by both claimants is an order for repayment of sums which they paid in respect of their PPI policies. They submit that, once the last PPI related payment had been made, all the matters which entitled the claimant to an order for repayment had occurred and were capable of being pleaded. The cause of action was therefore complete and time began to run under section 9 of the Limitation Act 1980.

All the courts below, including the Court of Appeal, rejected this argument and, in my opinion, they were quite right to do so. The central flaw in the completed cause of action argument is that, for as long as the credit relationship is continuing, the debtor cannot have a completed cause of action before the time at which a determination of unfairness is made. Proof of facts which made the relationship unfair to the debtor at some earlier point in time is never sufficient to give the debtor an entitlement to a remedy. That is because, as noted at paras 19-21 above, unless the relationship has ended, section 140A makes the power of the court to make an order under section 140B conditional on a determination that the relationship “is” (ie at the time when the determination is made) unfair to the debtor. Necessarily, a right to obtain a remedy for unfairness existing on that day cannot arise before that day comes.

To illustrate this point, take the case of Patel v Patel, which I decided in 2009 when sitting as a deputy High Court judge. The credit agreement in that case was made in 1992. When the trial took place, the relationship between the creditor and the debtor arising out of the credit agreement was still continuing. At the trial I found that the relationship was unfair to the debtor and made an order under section 140B designed to remedy that unfairness. As the credit relationship had not ended, the power to make such an order depended on a determination that the relationship “is unfair to the debtor” when the order was made, which was on 10 December 2009. A finding that the relationship had been unfair on any earlier date would not have satisfied the statutory condition in section 140A(1) for making an order under section 140B; nor could the debtor have been entitled before 10 December 2009 to a remedy for unfairness of the relationship existing on that date.

Thus, for as long as the credit relationship lasts, no cause of action accrues for which the debtor then has a period of time in which to sue for a remedy under section 140B. Any entitlement to a remedial order arises from a set of facts which is complete only at the time when the order is made. In the judgment of the Court of Appeal, at para 54, Birss LJ expressed the point clearly when he said that:

“crucially the fact that a relationship was unfair yesterday is not same fact as the relationship being unfair today. The facts necessary to make a claim for the unfairness on that given date cannot be said to have occurred until that given date.”

Once the credit relationship ends, the position changes. A determination that the relationship was unfair to the debtor on the date when it ended can be made on that date or any later date. All the facts relevant to the determination are fixed when the relationships ends and nothing that occurs subsequently can affect the assessment of fairness. It can therefore be said that a cause of action has accrued so that the period of limitation starts to run.

The reason why in this case the completed cause of action argument may seem appealing at first blush is that the facts resemble quite closely facts which could give rise to a cause of action founded on contract or tort of a type which lawyers are used to analysing in a way that is similar to the approach for which the bank contends. If, when offering PPI cover to a customer, the bank had owed a duty under a statute or at common law to disclose to the customer the existence and amount of commission that it stood to receive, a cause of action based on breach of such a duty would accrue on proof that: (i) the customer entered into a PPI contract and made payments of premium under the contract; (ii) the bank did not disclose before the contract was made or while it remained in force the commission payable out of the PPI premium payments; and (iii) had such disclosure been made, the customer would not have entered into the PPI contract (or would have terminated it immediately if the contract had already been concluded) and therefore would not have made any subsequent payments of premium. In such a case the cause of action would be complete, and the limitation period would therefore begin to run, at the time when the payments were made.

To draw an analogy with a claim of this type, however, is misleading because a claim for relief under section 140B of the 1974 Act is not based on any breach of a legal duty and cannot be analysed in the same way. While the relationship between the creditor and the debtor arising out of the credit agreement is continuing, there is no set of material facts which as a matter of law constitute necessary and sufficient elements of the cause of action such that, if those facts are established, the claimant has an accrued entitlement to a remedy under section 140B. As described at paras 16-25 above, the jurisdiction under sections 140A and 140B does not fit that model and operates in a very different way.

To understand why the regime in sections 140A-C of the 1974 Act was designed as it is, it is instructive to consider the previous regime which these provisions replaced. Under the previous regime, which was contained in sections 137-140 of the 1974 Act, the court had power to reopen a credit agreement “so as to do justice between the parties” if it found that the credit bargain was “extortionate”. In reopening such an agreement, the court had power to grant a range of remedies, including an order requiring the creditor to repay the whole or part of any sum paid under the credit bargain or any related agreement by the debtor. Case law established that the period of limitation for a such a claim depended on the nature of the relief sought. Insofar as the debtor was seeking relief from indebtedness incurred under the credit agreement, the claim was “an action upon a specialty”, for which section 8 of the Limitation Act 1980 prescribes a limitation period of 12 years. Insofar as the debtor was seeking repayment of payments already made under the credit agreement, the claim fell within section 9 which, as already noted, prescribes a limitation period of six years. In each case the cause of action accrued when the credit agreement was made: see Rahman v Sterling Credit Ltd [2001] 1 WLR 496.

From the point of view of limitation, this regime had two palpable defects. First, where a claim was brought more than six years but less than 12 years after an extortionate credit bargain was made, the extent of the relief which the court could grant depended on what sums the debtor had already paid and what sum was still outstanding. This appears arbitrary. In Rahman v Sterling Credit Ltd, for example, the debtor had borrowed £5,000. The loan carried interest at a rate of 32.1% and was secured by a legal charge over the debtor’s property. For some 11 years the debtor made sporadic payments, but his indebtedness gradually increased. By the time the debtor applied to the court for relief, he had paid around £14,000 under the credit bargain but still owed around £13,000. The Court of Appeal held that, insofar as the debtor was seeking relief from the obligation to pay amounts still owing, the action had been brought in time as the applicable limitation period was 12 years; but any claim for repayment of sums of money already paid under the credit agreement would be time-barred. Thus, a debtor who had made greater payments under an extortionate credit bargain was disadvantaged in comparison with a debtor who had paid less and accumulated larger arrears. It is hard to see any logic in this.

Even more unsatisfactory was the fact that a claim for relief of any kind under sections 137-140 became time-barred by reason of section 8 of the Limitation Act 1980 after 12 years. In Nolan v Wright [2009] EWHC 305 (Ch), [2009] 3 All ER 823, para 11, Judge Hodge QC sitting as a judge of the High Court commented on the undesirability of applying a strict limitation period - even one as long as 12 years - to a claim to reopen an extortionate credit bargain. Judge Hodge quoted the witness statement made by the creditor in that case explaining that he often left loans to “run” for more than 12 years before taking proceedings to enforce them. The creditor pointed out candidly that this strategy had the benefit of allowing him to accrue a limitation defence to “the inevitable claims” that the relevant credit agreement was an extortionate credit bargain.

The repeal of sections 137-140 and their replacement by sections 140A-C of the 1974 Act was clearly designed to avoid these defects by giving the court broader and more flexible powers. If the bank is correct, a technical and arbitrary regime has been replaced by one that is no less arbitrary and even more technical. Take a case with facts such as those in Nolan v Wright, where the creditor has allowed more than 12 years to run before taking steps to enforce a credit agreement under which interest is payable at an exorbitant rate. If the debtor then applies to the court for relief under section 140B, determining whether the claim had been brought in time would, on the bank’s case, require a highly complex analysis. If and insofar as the debtor was seeking an order for repayment of sums paid more than six years before the action was brought, it would not be enough to consider whether the credit relationship was unfair to the debtor at the time of the trial (or when the relationship ended) and, if so, what, if any, order for repayment was appropriate. The court would also have to make such an assessment at a point in time six years before the claim was brought. If at that time the debtor could have pleaded all the facts necessary to show that the relationship was unfair and justify an order for repayment of sums that had been paid, the debtor would on the bank’s approach have had a completed cause of action for which time had started to run. The claim would therefore be time-barred insofar as it sought repayment of those sums.

The complication would not end there. If another remedy, such as relief from outstanding indebtedness, was sought and considered by the court to be appropriate, the court would have to conduct a similar exercise to review the state of the relationship between the creditor and the debtor 12 years before the claim was brought. It would be necessary to assess whether or to what extent the relationship was at that time unfair because of one or more the matters specified in section 140A(1) and, insofar as the relationship was unfair for that reason, what order it would have been appropriate to make. That hypothetical order would then need to be compared with the order which the court thought appropriate to remedy the current unfairness of the relationship. To the extent that the relief thought appropriate to remedy the current unfairness would have been granted if an action had been brought 12 years or more before the actual action was brought, the claim for such relief would be time-barred by section 8 of the Limitation Act.

It is impossible to suppose that the regime under sections 140A-C of the 1974 Act was intended to operate in such a technical, complex and unsatisfactory way. And, as discussed already, it is clear on the face of the provisions that this is not how the statutory scheme works. Instead, technicality and strict time limits (until the relationship ends) have been eschewed in favour of a regime which gives the court broad, flexible, discretionary powers.

Counsel for the bank argued that this approach leads to absurdity. They submitted that, if it is correct that a claim for an order under section 140B can be commenced at any time until at least six years after the credit relationship has ended, and that a claim made within this time opens up for consideration the whole history of the relationship, then absurd consequences follow. They posed an example of a claim complaining about interest paid at an unfair rate for only the first year of a 25-year loan. It would, they submitted, be absurd if such a claim could be pursued over 30 years after the interest was paid, despite the fact that the interest rate applied during the last 24 years of the loan was fair.

It is not, I suspect, common for a lender who charges interest at an extortionate rate for the first year of a long-term loan to agree a reasonable rate of interest for the remaining period of the loan. But such a situation is at least theoretically possible and it is legitimate to pose the question whether in such a case a claim brought by the borrower within six years after the relationship arising out of the loan agreement ended, alleging that the relationship was unfair when it ended, could succeed. It follows from what I have already said that such a claim would not be barred by section 9 of the Limitation Act 1980. But this does not mean that the claim would have any real prospect of success. There are, in my view, two reasons why it would not (absent some additional grounds for finding the relationship unfair).

The first is that the date at which the fairness of the credit relationship would need to be assessed is, as discussed, the date on which the relationship ended. On the facts supposed, after the first year of the loan the debtor paid interest at a fair rate for 24 years. Even if the rate of interest payable in the first year would, if viewed by itself, be considered unfair, it is hard to imagine that this would cause the credit relationship, viewed as a whole when it ended, to be seen as unfair. As Kitchin LJ said in Scotland v British Credit Trust Ltd, para 87:

“… if there are matters relied on by the debtor which point to the relationship being unfair the court must clearly take into account any countervailing factors or other matters which put those matters relied on by the debtor into perspective and so may affect the assessment.”

Apart from the rate of interest, other matters capable of affecting the assessment would include what complaint, if any, about the interest charged in the first year or attempt to seek redress the debtor had made during the 25-year history of the relationship. In the absence of some extraordinary explanation, inaction by the debtor over such a length of time is likely to be regarded as an overwhelming factor pointing to the relationship not being unfair when it ended.

Second, even if the court were to find that the relationship was unfair to the debtor when it ended, it is in the court’s discretion whether to make an order under section 140B. If the debtor, with knowledge of the relevant facts, had waited for 30 years after the contested payments of interest were made before making a claim for repayment, it seems inconceivable that the court would think it just to make such an order.

The regime under sections 140A-C of the 1974 Act is not unique in treating the consequence of delay in bringing proceedings as a matter governed partly or even wholly by an exercise of judicial discretion rather than a statutory time limit. There are some types of claim which are not subject to any statutory period of limitation at all. One example is a claim for specific performance, where the only control for delay is the discretion to refuse relief by applying the equitable doctrine of laches: P&O Nedlloyd BV v Arab Metals Co (No 2) [2006] EWCA Civ 1717, [2007] 1 WLR 2288. Another example is a petition for relief under sections 994 to 996 of the Companies Act 2006 on the ground of unfair prejudice in the conduct of a company's affairs. Where there has been delay in issuing such a petition, the court’s approach is to consider how the delay should affect the exercise of the discretion under section 996 to make such order as the court thinks fit. If, in view of the delay and the reasons for the delay, it is unfair in all the circumstances for the petitioners to obtain the relief they seek, the court will exercise its discretion to refuse it: In re Cherry Hill Skip Hire Ltd [2022] EWCA Civ 531, [2023] Bus LR 14, para 36 (approving In re Edwardian Group Ltd [2018] EWHC 1715 (Ch), [2019] 1 BCLC 171 at para 571).

A similar discretionary approach applies in deciding whether to make an order under section 140B in a case where, although the claim is not time-barred, in view of delay by the debtor in making a claim and the reasons for the delay, the court considers it unfair in all the circumstances for the debtor to obtain the relief sought.

In his judgment in the case of Karen Smith, District Judge Stone observed that:

“if the Bank had not continued to keep her in total ignorance, and had written to her more than six years before the commencement of proceedings setting out the commissions it had received, then it would be open to a court either to conclude that after that period of time the relationship is now at the point of determination no longer unfair; or that it should be slow when exercising its discretion as to remedy to order the return of the sums paid.”

I agree with this observation. However, it does not assist the bank since, in fact, the bank did continue to keep Ms Smith in total ignorance until a matter of months before the proceedings were commenced. In these circumstances the fact that she did not make a claim for repayment sooner cannot be held against her. It cannot be said either that her inaction had the result that the credit relationship was no longer unfair when it ended or that it provides a reason why the court in exercising its discretion should decline to order the return of the sums paid. Indeed, for the bank to complain about delay in making the claim seems to me wholly unreasonable.

The Court of Appeal did not accept the argument advanced by the bank that the claimant’s cause of action accrued when payments of PPI premium were made. They considered as I do that the point in time at which the assessment of fairness must be made, and the right to a remedy under section 140B arose, is the time when the relationship came to an end. Birss LJ said, at para 45, that:

“the court in assessing the fairness of the relationship between the debtor Ms Smith and the creditor the bank is entitled to take all relevant matters into account whenever they took place, and that will include a related agreement such as the PPI agreement even if that PPI agreement itself had come to an end before the point in time that the unfairness of the relationship is being assessed. So here, as the courts below did, one is entitled to assess the fairness of the relationship which came to end at the point it came to an end, ie 2015, and in doing so it is appropriate to take into account a related agreement which had ended before that.”

I agree with this statement, save to say that the court is not merely entitled but required to assess the fairness of the relationship between the bank and Ms Smith at the point in time when the relationship came to an end - that is, in 2015.

As Ms Smith issued her claim form within six years from that time, it follows that her claim is not time-barred. The Court of Appeal, however, reached the opposite conclusion. They held that the claims are nevertheless barred by section 9 of the Limitation Act 1980. The reasoning of Birss LJ started, at para 64, from this premise:

“There is nothing in the 1974 Act which somehow means that once a credit relationship was unfair for some reason, that unfairness always and necessarily has to persist for all time as long as the credit agreement persists, as a matter of law and irrespective of the facts.”

Birss LJ went on to say, at para 65, that, just as the court can find that a relationship was fair in the past but then became unfair, so the converse is possible and that, in a case where the relationship was unfair at a point in the past but where the source of that unfairness has ceased to have any effect, then when looking at what the state of the relationship “is” at a later date, the relationship may not still be unfair.

All this seems to me indisputable. As already discussed, the fact that the relationship may cease to be unfair is one of the reasons why a debtor cannot have a completed or accrued cause of action before the date at which the fairness or otherwise of the credit relationship must be assessed.

Where, as I see it, the Court of Appeal went wrong is at the next step in their reasoning. Taking the case of Ms Smith, they held that the relationship arising out of her credit agreement with the bank ceased to be unfair to her in April 2006 once her last PPI related payment was made. In their view, as explained by Birss LJ at para 68:

“The relationship was unfair in January 2000 when Ms Smith entered into the PPI agreement in ignorance of the commission and was unfair up to April 2006 because Ms Smith was still obliged to and was in fact making payments to [the bank] of sums which only arose because of that PPI agreement. However the relationship changed after April 2006 because the PPI agreement ended. There was no case, alleged or proved, that any economic effect or consequence of the PPI agreement for Ms Smith persisted after April 2006 or existed in 2015.”

From this the Court of Appeal drew the conclusion that April 2006 is the date when time started to run for the purposes of limitation.

If it is correct that the relationship between Ms Smith and the bank ceased to be unfair to her in April 2006 when she made her last payment of PPI premium, then the Court of Appeal was right to hold that her claim could not succeed. But that is not because time started to run for the purposes of limitation on that date. In stating, at para 69, that “the relevant unfair relationship came to an end in April 2006,” it seems to me that the Court of Appeal conflated the question of when the relationship came to an end with the question of when (if at all before it came to an end) the relationship ceased to be unfair. The Court of Appeal had previously recognised, correctly, that, after a relationship arising out of a credit agreement has ended, the fairness of the relationship is to be assessed at the point in time when the relationship came to an end. The corollary is that the right to claim relief on the ground that the relationship was unfair at that time arose then and the limitation period began to run. In the case of Ms Smith, this occurred in 2015. Whether the relationship between the bank and Ms Smith was unfair in 2015 is the question which the court had to decide in adjudicating on the merits of her claim. If the Court of Appeal is correct that the relationship ceased to be unfair to her in April 2006, then the bank is entitled to succeed, not because the claim alleging unfairness in 2015 was brought after the time limit had expired, but because the relationship was not unfair to Ms Smith when it ended in 2015. So the condition for making an order under section 140B was not satisfied and no remedial order was possible or needed.

I cannot accept, however, that the relationship between the bank and Ms Smith ceased to be unfair to her in April 2006. Indeed, I think it plain that it did not. It is true that no more payments for PPI cover were made by her after April 2006 out of which the bank received further commission. But the bank did not at any time before the relationship ended in 2015 repay any of the sums which Ms Smith had paid for PPI cover, nor did it disclose to her the existence let alone the amount of the commission that it had received out of those payments. Applying the test articulated in Plevin (see para 27 above), those are both steps which it would be reasonable to expect the creditor to take in the interests of fairness and which were necessary to reverse the consequences of the unfairness so that the relationship as a whole could no longer be regarded as unfair.

The Court of Appeal was, in my opinion, clearly wrong to say that there was “no case, alleged or proved, that any economic effect or consequence of the PPI agreement for Ms Smith persisted after April 2006 or existed in 2015.” To the contrary, the economic consequence that Ms Smith was financially worse off as a result of having paid PPI premiums which she would never have paid if the bank had disclosed the amount of its commission persisted throughout that period of around nine years. Indeed, her loss was exacerbated because she did not have the use of the money during this period. The relationship was therefore still unfair to her at the time when it ended in 2015.

If the approach of the Court of Appeal were correct, I find it difficult to see how a claim for an order under section 140B brought after the credit relationship ended could ever succeed. The relief applicable in such a case will generally if not inevitably be an order requiring the creditor to repay money. Necessarily, the money of which repayment is sought must have been paid by the debtor before the date at which the question whether the relationship was unfair to the debtor is to be assessed. If the fact that the payments had been made meant that they could not be regarded as a cause of any continuing unfairness, no order for repayment would be possible. This result is not only irrational but contrary to the intention reflected in section 140A(4) that the powers of the court to grant relief should be available notwithstanding that the credit relationship may have ended.

I therefore consider that the “no unfairness” argument is also mistaken and that in adopting it the Court of Appeal went down a blind alley. They should have affirmed the conclusions of the courts below that the relevant credit relationships remained unfair to the debtors when they ended and that the claims seeking a remedy for that unfairness were brought in time.

As mentioned earlier, the bank has also renewed on this appeal an argument that the claims must fail because of the effect of the transitional provisions regulating the entry into force of sections 140A-C. This argument was rejected by all the courts below for very good reason.

Sections 140A-C were inserted into the 1974 Act by sections 19 to 21 of the Consumer Credit Act 2006. Those provisions were brought into force on 6 April 2007 by article 3(2) of the Consumer Credit Act 2006 (Commencement No 2 and Transitional Provisions and Savings) Order 2007. The transitional provisions are contained in Schedule 3 to the 2006 Act. They provided for a “transitional period” of one year which ended on 5 April 2008. The evident purpose of the transitional period was to give creditors a window of time in which to bring an existing relationship arising out of a credit agreement to an end if they wished to avoid that relationship being subject to sections 140A-C.

Thus, Schedule 3, para 14(2), provides that the court shall not make an order under section 140B of the 1974 Act in connection with a credit agreement made before section 140B came into force if, before the end of the transitional period, the agreement became a “completed agreement”. A “completed agreement” is defined in para 1(2) as an agreement under which there is no sum that is payable or will or may become payable.

If a credit agreement did not become a “completed agreement” before the end of the transitional period, an order under section 140B of the 1974 Act could subsequently be made in connection with the agreement. The credit agreements in connection with which the present claims are brought did not become completed agreements before the transitional period ended on 5 April 2008. Indeed, sums continued to become payable under those agreements for many years after that - until 2015 in the case of Ms Smith and 2019 in the case of Mr Burrell. Orders under section 140B can therefore be made in connection with both agreements.

Schedule 3, para 16, deals with related agreements and gives the creditor protection against retrospective effect where a related agreement ceased to have any operation before the end of the transitional period even though the credit agreement itself continued. For present purposes the relevant provisions are para 16(4)(a) and (5), which state:

“(4)

In relation to an order made under section 140B after the end of the transitional period in connection with a credit agreement—

(a)

references in subsection (1) of that section to any related agreement shall not include references to a related agreement to which this sub-paragraph applies;

…

and the order shall not under paragraph (g) of that subsection direct accounts to be taken … between any persons in relation to a related agreement to which this sub-paragraph applies.

(5)

Sub-paragraph (4) applies to a related agreement … if—

(a)

it was made … before [6 April 2007]; and

(b)

it ceased to have any operation before the end of the transitional period.”

The effect of these provisions is that where, after the end of the transitional period, a court is considering what order to make under section 140B in connection with a credit agreement, the list of possible orders in section 140B(1) must be read as excluding any reference to any related agreement made before 6 April 2007 which ceased to have any operation before 5 April 2008.

It is common ground that in the present cases the PPI policies were related agreements made before 6 April 2007 (when sections 140A-C came into force) and which ceased to have any operation (because they were terminated and the last payments of premium were made) before 5 April 2008 (the end of the transitional period). It follows that section 140B(1) must be read for the purposes of these claims as if it did not include any reference to the PPI policies as related agreements.

This modification, however, does not affect the claims made by Ms Smith and Mr Burrell. It is notable, first of all, that the only references to any related agreement to which para 16(4) applies are references in section 140B(1). References in section 140A(1) to any related agreement are not affected. In applying section 140A(1) in the present cases, therefore, the PPI policies are still relevant even though they ceased to have any operation before the end of the transitional period. Thus, the relationship which has to be considered in making the assessment of fairness in these cases is not simply that arising out of the credit agreement, viewed on its own; it is the relationship arising out of that agreement taken with the related PPI policy.

The order made in the case of Ms Smith and sought by Mr Burrell is an order under section 140B(1)(a) requiring the bank to repay sums paid by them for PPI cover. Section 140B(1)(a) gives the court power to order the creditor to repay any sum paid by the debtor “by virtue of the [credit] agreement or any related agreement.” Because of the effect of the transitional provisions, the reference to “any related agreement” must be ignored. The court’s power is limited to ordering repayment of sums paid by virtue of the credit agreement between the bank and the claimant. However, the sums paid by Ms Smith and Mr Burrell for PPI cover were paid by them by virtue of their credit agreements with the bank. The court therefore has power to order repayment of those sums.

In the case of Ms Smith, District Judge Stone made a specific finding that all sums paid for PPI cover were paid by virtue of her credit agreement. This finding is unimpeachable. It was based on the facts that: the PPI policy and the credit agreement were entered into at the same time and by completing the same form; the PPI policy could not exist without the credit agreement and could only continue for so long as the credit agreement continued; the PPI premiums were calculated as a percentage of the liabilities incurred under the credit agreement; and the PPI premiums were added to the balance payable under the credit agreement each month and could only be paid by making payments under the credit agreement.

The bank does not dispute that all the sums paid by the claimants for PPI cover were paid by virtue of their credit agreements. It follows that the court has power to order the bank to repay those sums and is not deprived of this power by the transitional provisions.

The bank seeks to avoid this conclusion by arguing that it is not what the drafting of the transitional provisions was intended to achieve. According to the bank, the intended effect of Schedule 3, para 16(4), is that, if a related agreement was made before 6 April 2007 and ceased to have any operation before 5 April 2008, no order may be made under section 140B requiring the creditor to repay any sum paid by the debtor by virtue of the related agreement even if the sum was also paid by virtue of the credit agreement. If this is what had been intended, however, it is what the transitional provisions would have said. It is impossible to read para 16(4) as bearing such a meaning. Indeed, no explanation has even been offered of how the requirement to read references in section 140B(1) to any related agreement as if they do not include references to a related agreement to which para 16(4) applies is capable as a matter of language of being understood to have such an intended effect.

The plain intention of the transitional provisions is that, if a creditor wanted to achieve a situation where no repayment could be ordered under section 140B of sums which the debtor had paid by virtue of both the credit agreement and a related agreement, it was not sufficient for the creditor to ensure that the related agreement ceased to have any operation before the end of the transitional period; it was necessary to ensure that the credit agreement became a completed agreement before the end of that period. That did not happen here.

Clutching at a straw, counsel for the bank tried to make something of the final words of para 16(4) which say that an order under section 140B(1) “shall not under paragraph (g) of that subsection direct accounts to be taken … between any persons in relation to a related agreement to which this sub-paragraph applies”. It was submitted that there is no sensible rationale for a result whereby the court can order repayment of PPI premiums if they were paid “by virtue of” the credit agreement but is prohibited from ordering an account in relation to those premiums. Even if this were the effect of para 16(4), it would not entitle the court effectively to rewrite the transitional provisions to achieve a result considered to be more sensible. But I do not accept that this is the effect of para 16(4). I can see nothing to prevent the court in cases of the present kind from ordering an account to be taken between the bank and its customer of payments of PPI premiums made under the credit agreement. The fact that no such account could be ordered in relation to the PPI policies themselves would not prevent this.

I conclude that the argument made by the bank based on the transitional provisions is without merit.

For these reasons, I would allow the appeals and reinstate the order made by the district judge in each case.