Court of Appeal confirms validity of ‘compromise’ defence for banks in PPI claims

The ruling relates to two separate unfair relationship claims against Skipton Building Society and Santander Cards UK Limited concerning undisclosed commissions retained by the banks from selling a PPI policy. The banks successfully defended these claims at first instance on the basis of a compromise defence. They argued that the claimant in each case had accepted an offer of redress made under the Financial Conduct Authority’s (FCA) PS17/3 redress scheme (185-page / 1.56MB PDF) in full and final settlement of their claim in relation to undisclosed commissions, and the terms in the agreements precluded further claims being made. The two claimants appealed the first instance decision, but their appeals were dismissed by the Court of Appeal.

Jacob Hay of Pinsent Masons said that the Court of Appeal decision will be significant to lenders who made offers under the FCA’s redress regime with a view to resolving consumers’ complaints about the commission arrangements arising from their PPI policies. The decision provides important guidance on the finality of these settlement agreements in PPI claims and how the court will approach unfair relationship claims in the context of PPI claims, he said. 

“While cases will turn on an assessment of the offer and acceptance, the court has made clear that these types of settlements are not as a matter of principle vitiated by technical arguments in relation to consideration. The court has underlined that those arguments are based on a flawed reading of the FCA redress scheme rules, which did no more than set out a scheme under which banks could assess complaints and offer redress,” he said.

“In response to arguments that the settlement itself could be re-opened under the unfair relationship jurisdiction, the court made clear that it would be very slow to look behind agreements reached. In particular, it had regard to the fact that the complainants had the benefit of advice from claims management companies when deciding whether to accept the banks’ offers. The court’s decision to uphold the validity of the settlements is unsurprising based on a plain reading of the relevant correspondence, the FCA redress scheme rules and given the court’s wider approach of encouraging alternative dispute resolution,” he said.

Three issues were raised by the claimants before the Court of Appeal, with the first question focusing on whether the compromise agreements related only to a complaint under the FCA redress scheme and had not compromised a civil claim alleging an unfair relationship under section 140A of the Consumer Credit Act 1974. The second issue was about whether the compromise agreements were valid for want of consideration. The claimants argued that the FCA scheme meant that the banks had no choice but to offer redress, so this could not be good consideration for a valid agreement. Lastly, the claimants asked the court to consider whether the first instance judge had wrongly viewed the compromise agreements as being a jurisdictional bar to considering the overall fairness of the relationship.

In the Court of Appeal judgment, Lord Justice Stuart-Smith said that the FCA redress scheme aimed to achieve a package to resolve the “long-tail” of PPI complaints that were emerging after the Supreme Court’s decision in Plevin v Paragon Personal Finance. The FCA redress scheme did not give rise to direct causes of action, but rather created a rebuttable presumption for the purposes of complaint-handling that failure to disclose commission would create an unfair relationship. He said that the relevant bank had responsibility throughout for deciding whether to make an offer, and the offer in this case was firmly in the territory of a negotiated and consensual settlement.

He explained that the FCA redress scheme did not mandate the payment or offering of any specific sum, but instead provided a process to be applied if the bank thought it appropriate. Because the offers of settlement were therefore optional, he said it was wrong to say that there was no good consideration for a settlement.

While it was common ground that the court could consider questions of unfairness even after a settlement was reached, the judge applied the principle established in the 2017 Holyoake v Candy case that the settlement would nevertheless be a highly material fact, and that it should be slow to go behind it. He added that advice given by a claims management company was relevant in considering if a settlement was fair and reasonable, as it removed any basis for supposing that the claimant did not know what he was doing when he was accepting the offer.

The appeal judge concluded that in both cases what was being settled was a claim about an unfair relationship based on non-disclosure of PPI commissions, and it was unrealistic to try to differentiate the complaint made to the bank from the claim the claimants wished to pursue in the court proceedings.

Guidance was also given about the nature of the unfair relationship jurisdiction, emphasising its fact sensitivity and the need for an individualised assessment.

“The court has been very clear that there is no one-size-fits-all remedy for a non-disclosure of commission claim. It is simply not the case that a claimant can allege unfairness and, with no further examination of the circumstances, seek the automatic repayment of all sums that were ever paid in connection with a PPI policy. The particular facts and characteristics of that claimant will always be of significant importance,” said Hay.