Unfair Relationships – A Brief History

The decision in Plevin was a turning point in terms of the unfair relationship provisions. It showed that they could be used as a sword by debtors.

Cases after Plevin

After Plevin, the Court has considered the issue of unfair relationship on several further occasions.

In McMullon v Secure The Bridge Limited [2015] EWCA Civ 884 the defendant provided short term closed bridging finance to the claimant to reduce her credit card debt. However, applications for further loans were rejected on the basis of previous defaults in relation to loans taken from another lender who had links to the defendant.

The claimant stated that she would not have taken out the bridging loan if she had been aware that the defendant would reject her future applications for further loans. However, the Court declined to find there was an unfair relationship. It was found that the claimant was aware of the links between the defendant and the other lender but decided to pursue the loan with the defendant anyway.

In Brookman & Brookman v Welcome Financial Services Limited (2015) Unreported, County Court at Cardiff, 6 November 2015, the claimants entered into three regulated credit agreements with the defendant, each of which consolidated the previous agreement.

They also took out PPI policies in relation to the first and second credit agreement, which were each funded by an increase in the loan sum. The result was that, despite each PPI policy being cancelled upon consolidation, the outstanding proportion of the PPI premium was also consolidated, meaning that the claimants continued to pay the premiums despite the policies having been cancelled.

The defendant also received 45% of the premium paid as commission, plus an additional sum pursuant to a profit share arrangement with the insurer, neither of which were disclosed to the claimants.

The Court determined that the non-disclosure of the commission payments gave rise to an unfair relationship. The high price of the premiums and the manner in which the agreements interacted to consolidate the outstanding premiums were also factors in this decision. The defendant was ordered to repay the sums which exceeded what monthly ‘pay as you go’ PPI would have cost on the basis that the claimants would still have taken out some form of PPI even if the commission had been disclosed.

In Verrin v Welcome Financial Services Limited [2017] ECC 7 the claimants entered into a loan agreement with the defendant. The claimant also took out PPI and 85% of the PPI premium was taken as commission by the defendant. Whilst the fact of commission was disclosed, the amount of commission was not.

The Court determined that, whilst the claimant had been informed that the PPI policy was optional, it was likely that he had been led to believe that it would assist his loan application if he agreed to purchase the PPI. Therefore, if the amount of commission had been disclosed to the claimant, he would not only have declined to take out the policy, but he would not have sought any alternative insurance either. Accordingly, the relationship was deemed to be unfair.

In Nelmes v NRAM Plc [2016] EWCA Civ 491, the borrower owned a portfolio of buy-to-let properties and engaged a broker to source a loan to refinance existing mortgages and for the purchase and improvement of other properties.

The lender paid a procurement fee to the broker which was not disclosed. The relationship was found to be unfair, on the basis that the borrower had been deprived of the disinterested advice of the broker as the result of an undisclosed procurement fee paid to the broker by the defendant.

The Court of Appeal held that, whilst there was no unfairness on account of the broker and the defendant allegedly co-operating to mislead the claimant as to the precise terms of the loan, the payment of the undisclosed procurement fee resulted in there being an unfair relationship.

As the broker was acting as his agent, the claimant was entitled to the broker’s undivided loyalty and disinterested advice, which he had been deprived of due to the defendant’s actions. Accordingly, the claimant was entitled to damages from the broker or the defendant and, accordingly, the defendant was ordered to account for all the commission it had paid to the broker with interest from the date of payment.

In Holyoake v Candy [2017] EWHC 3397 (Ch) the claimant took out three loans to purchase a property to develop, including an unsecured personal loan of £12 million from one of the defendants. It was a term of the loan that the claimant would demonstrate to the defendant that he was worth at least £120 million. Shortly afterwards, the defendant alleged that the claimant was in default as a result of overstating his worth.

To allay the defendant’s threats of litigation, the claimant entered into supplemental agreements to reschedule the loan. However, the claimant defaulted on the further payments and sold the property to repay the monies owed to the defendant, which now totalled £37 million (comprising of the loan, interest and extension fees).

Although the claimant was unable to provide an adequate explanation as to the calculation of extension fees and whether such fees were common in the industry, the Court held that they did not render the relationship unfair. In this case, the borrower was found to be a sophisticated user of financial services. Therefore, despite disingenuous conduct by the lender, the unfair relationship provisions of the CCA were not intended to interfere with commercial negotiations between parties.

Finally, in Carney & Others v NM Rothchild & Sons Ltd [2018] EWHC 958 the claimants took out loans to allow them to make investments aimed at reducing their exposure to the Spanish equivalent of inheritance tax.

The loan agreements all included exclusions as to the suitability of the product and that no advice had been provided. The investments subsequently underperformed and the claimants issued proceedings alleging that an unfair relationship had arisen as a result of misrepresentations made by the defendant.

However, the Court found that no unfair relationship could be said to arise: the defendant had not given any material advice and had not assumed an advisory role (the claimants had an IFA to advise in that respect). In such circumstances, no unfair relationship could be said to arise.

Summary

Although (by legislative standards) s140 remains in its infancy, it has resulted in a number of notable cases. Whilst judicial interpretation of the legislation has, on the whole, seemed to shift in favour of debtors, the nature of the lending relationship must be considered.

It is clear that the Courts have remained wary of interfering in relationships which involve more sophisticated consumers and in cases where the unfair relationship provisions have been used as a remedy where one might not otherwise exist.

However, non-disclosure still remains a key ‘unfair’ theme, and it will be interesting to see whether upcoming judicial decisions continue this trend.