IN THE LIVERPOOL COUNTY COURT 

Case No: 1BD03151

2nd August 2012

Trial Hearing: 16th May 2012

BEFORE:

HIS HONOUR JUDGE WALLWORK

B E T W E E N :

MR MELVYN VAUGHAN DAVIES
Claimant
-and-

BLACK HORSE LIMITED
Defendant

APPROVED JUDGMENT

APPEARANCES:

For the Claimant:	Mr Nathan Banks
St. James’s Chambers, 68 Quay Street, Manchester  M3 3EJ
Instructed by Eatons, Solicitors 
The Old Library, 34 Darley Street, Bradford.   BD1 3LH

For Defendant:	Mr James Ross
Gough Square Chambers, 6-7 Gough Square, 
London EC4A 3DE
Instructed by Wragge & Co LLP,
55 Colmore Row, Birmingham.  B3 2AS

JUDGMENT

1.	On the 29th April 2008 the Claimant took out a secured loan for £10,000 together with payment protection insurance in the sum of £4,583.98.  The Claimant maintains that he was mis-sold the payment protection insurance in that the Defendants led him to believe that the insurance was mandatory and in so doing were in breach of their statutory duty, their fiduciary duty and the common law duty and care owed to the Defendant. The Claimant maintains that the Defendant failed to communicate with the Claimant in a way which was clear, fair and not misleading contrary to 2.2.2R of “Insurance Conduct of Business Source Book” (ICOBS) Rules and/or 6.4.2(R) of the FSA handbook.  He says that the policy was portrayed as mandatory and is necessary in order to obtain the loan and in pre-sales discussion the true nature, exclusions, suitability and costs were not adequately explained to him.  It is his position that in the first phone call there was no mention of the PPI element.  The Defendants signed the loan agreement without signing the box indicating his agreement to the PPI but after he had submitted his application the document was returned to him with the requirement that he sign the PPI box.  In the circumstances the Claimant alleges that the Defendant failed to provide him with price information relating to the PPI in a way calculated to enable the Claimant to relate it to a regular budget.  In short the PPI was not mentioned in negotiation but included in all quotes.  This is contrary to ICOBS 6.4.6R.  The Defendant it is alleged also failed to provide the Claimant with price information to enable the Claimant to understand the additional repayments relating to the purchase of the policy and its total cost contrary to ICOBS 6.4.9R.

2.	The Claimant maintains that he would not have entered into the PPI agreement had the ICOBS been adhered to and therefore by virtue of Section 150 of the Financial Services and Market Act 2000.  He seeks:  the cost of PPI insurance premium and interest and such other compensation as he is entitled to under the Act.  Further or in the alternative the Claimant maintains that the PPI gave rise to an “unfair relationship” pursuant to Section 140A Consumer Credit Act 1974.  The Claimant alleges that the Defendants failed to ensure the suitability of the insurance having regard to the Claimant’s needs.  Given the Claimant’s employment benefits and his impending retirement the specific cover provided it is maintained was unsuitable. 

3.	The final area of claim relates to whether the agreement was improperly executed.  The Claimants aver that the amount loaned under the PPI agreement should properly have been included as part of the total charge for credit pursuant to Regulation 4(C) of Consumer Credit (Total Charge for Credit) Regulations 1980.  The Claimant therefore maintains that the loan agreement was improperly executed in breach of Section 61 and 127 of the Consumer Credit Act 1974 and is therefore unenforceable and the Court is invited to make a declaration of unenforceability together with ancillary orders.  The menu of orders sought is fully particularised at paragraph 38 of the amended particulars of claim.  

4.	There is fundamental dispute of fact as to the content of the negotiation and discussion prior to the execution of the agreement.  The Defendant’s then employee Mr Marc Charmin was the person who conducted those discussions on behalf of the Defendant.  He is no longer with the Defendant Company but the Defendant’s logs have been produced.  Evidence has also been given as to Mr Charmin’s experience, record and reliability as an employee.  The Defendants maintain that their employees are fully aware of the fact that PPI is not compulsory and that they have a script employed in their discussion with prospective Applicants.  The script is compliant with ICOBS and has, in other cases, been ruled to be so in rulings binding on this Court.  The loan application forms make it clear that the PPI is voluntary.  

5.	I remind myself that it is for the Claimant to prove the breaches alleged and to do so on the balance of probabilities.  

Background
6.	The Claimant has taken out previous loans with the Defendant Company.  Two have been taken out in 2003, each accompanied by a personal protection plan.  In 2007 the Claimant had obtained a mortgage with London & Scottish and had used the services of a Broker.  The mortgage had been accompanied by Personal Protection Insurance.  The Black Horse loan was taken out for home improvements but a sufficient sum was taken out to discharge the mortgage with London & Scottish.  The first matter therefore is: Has the Claimant proved on the balance of probabilities that the Defendants failed to explain the optional nature of the insurance?  The Claimant’s witness statement is at page 53 of the bundle and this was confirmed by him on oath.  Everything was arranged over the telephone.  He says:
“At no point during the telephone call to arrange the loan was PPI ever mentioned to me.  I completed the loan documents and sent them back to Black Horse.  I was surprised when Black Horse sent the documents back and I telephoned them to ask why they had not processed my loan.  The adviser told me that the documents had been sent back as I had not signed for Payment Protection Insurance and if I wanted to take out the loan, I had to take out the insurance”.

7.	In cross-examination it was put to the Claimant that he had spoken with an employee of the Defendants on the 8th April 2008.  This is logged in the Defendant’s records.  He said that he didn’t remember that telephone conversation.  He was referred to a document entitled Initial Disclosure Statement which is used by the Defendants in telephone discussions.  It is a script and those parts of it printed in bold are to be read to the prospective customer.  It opens with the phrase:
“Mr/Mrs/Miss…thank you for your patience, I am pleased to confirm that your loan has been agreed (etc) as part of our discussion about your loan Mr/Mrs…., we would like to discuss our Payment Protection Insurance plan.  We offer a product from Lloyds TSB General Insurance Limited and Scottish Widows PLC for PPI.  Those Companies and Black Horse are all part of the Lloyds TSB Group.  This product is optional”.  
He replied:
“I don’t agree.  It may be he confirmed the loan had been agreed.  I don’t remember him discussing it.  I don’t remember the Payment Protection being mentioned once”.  
He was then referred to page 128 of the bundle which is entitled “Demands and Needs Questionnaire”.  That questionnaire has been completed and the Claimant was asked about the responses recorded.  The first question on the questionnaire is:  “Will you be under 75 at the end of the finance agreement?”  And the answer is “Yes”.  The Claimant said he couldn’t remember whether he was asked whether he would be under 75 or asked his age.  He did however recall being asked his employment status.  The document which records a number of other answers provides a recommendation of cover for life – accident and sickness and involuntary unemployment but no critical illness cover.  There is also a statement in the following terms: “You agree to our personal recommendation” (re-insurance) and the recorded answer is “Yes”.  The Claimant was unequivocal in saying Payment Protection was not mentioned during this conversation.  

8.	He was taken to pages 123 and 124 of the bundle dealing with the exclusions under a policy and payment details which are set out at page 124.  In line with this it was put to the Claimant that he was given a total monthly instalment “of £215.16 of which £147.88 related to loan repayment”.  The Claimant replied: “No he had not been taken to this”.  He confirmed he was told that he would be sent documentation in the post.  He said he’d signed the loan agreement and sent it back.  He said he’d also spoken to Black Horse some 3 or 4 days after the loan document had been returned to him.  He did not accept that he’d spoken to Black Horse on the 9th April to tell them he’d requested a settlement figure in relation to the London & Scottish mortgage.  He denied that he’d received the document at page 128 (the demands and needs statement) which according to Black Horse documentation is sent out as part of the document pack.  He said “I know for a fact there wasn’t one for PPI”.  He was asked;  “The credit agreement you received referred to PPI didn’t it”?  He replied “No”.  He was shown the agreement at page 87.  On the form there is a box with the statement “I wish to purchase optional Payment Protection Plan”.  This is ticked and signed.  The monthly cost of the insurance is stated as a separate amount on this document.  The Claimant’s response was that the first agreement he’d signed did not have any reference to PPI on it.  He then corrected this and said that the initial was identical to that at page 87 but he didn’t sign for PPI (this is undisputed).  He then said: “There could have been other documents sent but I don’t signing for PPI”.  

9.	He was taken to page 105 which is entitled “A Guide to Your Payment Protection Plan” and he said “It could have been sent to me”.  He confirmed that he was happy with the monthly payment figure of £215.16 and he said it was the only figure given and that it didn’t surprise him how expensive it was.  He added: “I thought I was only paying for the loan”.  He again added he was under the impression that he had to take out insurance.  He said he had read the back of the agreement at page 88 but was unaware that he could cancel the PPI.  He confirmed that he knew what PPI was and repeated that he did not want it.

10.	Mr Dan Jackson was called for the Defendant and he confirmed his statement at page 55 of the bundle.  He is an employee and an analyst in the business improvement and sport team.  His responsibilities include examining the processes undertaken by Black Horse in relation to the selling of PPI.  He was able to provide evidence as to whether the Defendant had breached its duty to comply with ICOBS.  In his statement he refers to the Claimant’s loan history with the Defendant and the two previous unsecured loans taken out by him, each accompanied by PPI.  In relation to the present agreement I shall repeat paragraphs 11 and 12 of his statement:
Paragraph 11:	I am able to see from the diary archive for loan 3 that the application on behalf of the Claimant was referred to the Defendant on the 7th April 2008 by a Broker called Unsecured Credit Company PLC.  The Broker is identified in the diary archive by reference DL11716.  The original application was for an advance of £4,000.  Based upon information supplied by the Broker, cheques were made on the Claimant’s name, capacity and credit worthiness before contact was made with the Claimant.  Marc Charmin a sales person based at the Defendant’s Branch in Wolverhampton contacted the Claimant by telephone on the 8th April 2008 at 9.52am to progress the application.  Mr Jackson changed the time to 9.41am.
Paragraph 12:	At 11.06am on the 8th April 2008 an advance of £10,000 was approved for 10 years with PPI for Life, Accident, Sickness and Involuntary Unemployment.  Following approval of the loan an advance copy of the loan agreement was sent to the Claimant’s home address from the Defendant’s central office at Cardiff.  This is because the Consumer Credit Act requires that borrowers have 7 clear days to consider the agreement before being sent a further copy of his signature.  The advance copy of the loan agreement included all of the terms of the loan agreement.  It was sent under cover of a letter dated the 8th April 2008 including copies of the mortgage deed and demands and needs questionnaire.  A copy of the letter is attached…this was followed on the 16th April 2008 with the agreement for signature together with further copies of the initial disclosure statement demands and needs questionnaire, PPI policy summary, a direct debit mandate and mortgage deed.  Mr Charmin’s record with the Defendant he deposed was exemplary and unblemished.  He had undertaken all the continuing education required of him and was fully au fait with Company Marketing Procedures.  It is also important to note that Mr Charmin would not receive any personal gain or benefit from the sale of insurance cover.  

11.	The documents were returned on the 21st April 2008 and the Claimant had not signed the PPI section.  The document was sent back to him by an administrative employee and the fully signed loan agreement was received on the 25th April 2008.  Mr Jackson says at paragraph 16 of his statement:
“The Defendant takes its role as a responsible lender very seriously.  Also staff are required to follow an approved script which ensures compliance with the Defendant’s statutory obligations.  By following the script the sales person made an initial disclosure statement.  By making this statement the sales person was required to inform the Claimant that the Defendant:
•	Would only offer products from Lloyds TSB General Insurance Limited.
•	Is authorised and regulated by the FSA.
•	Is part of the Lloyds TSB Group of Companies.
By following the script, all employees were required to inform borrowers that PPI was optional; an assessment was made of demands and needs and were PPI was recommended borrowers were informed of the cost of the loan with and without PPI.  Borrowers were also informed of the benefits and exclusions under the policy”.

12.	  I propose to make findings in relation to the factual dispute before turning to consider the impact of my findings upon the claim as a whole.

13.	I regret to say that I found the Claimant unimpressive as a witness.  I did not think, however, that he was dishonest.  It appeared to me that his memory was selective at best and that his recollection was far from clear. 

14.	Whilst the Defendant could not call Mr Charmin it seemed to me that at this remove even had he been called it is unlikely that he would remember a specific conversation which inevitably would have been one amongst many and would have been reliant upon the logs and records which Mr Jackson was able to produce.

15.	Although the burden is on the Claimant I have regard to the Defendant’s procedures as being highly pertinent.  I have no hesitation in finding that the script is clear in so far as it outlines the voluntary nature of any insurance. 

16.	The next question is: Was that script adhered to?  In light of the evidence given as to Mr Charmin’s record, it seems unlikely that he would have departed from the script and gone on “a frolic” of his own.

17.	I must, however, consider the testimony of the Claimant.  His is the only live testimony as to any discussion and he remains adamant that insurance was never discussed.

18.	I bear in mind that each time he had taken out a loan previously he had also taken out insurance cover.  He did understand the nature of the cover provided.  On the one hand he said that he thought the entire payment of £215.66 per calendar month was a loan repayment and he did not jib at this.  He also says that he read the loan agreement including the terms and conditions on the reversible.  The document sets out as a separate figure the amount to be paid for insurance.  He knew that the agreement had been sent back to him in order for him to sign his acceptance of the insurance cover which he maintains he believed to be compulsory.  In the circumstances why did he believe the entire monthly payment related to loan repayments?

19.	Taking all these factors into account the Claimant has not satisfied me on the balance of probabilities that the Defendants did not fully explain and discuss the optional nature of insurance and his requirements for cover.

20.	If the Claimant had read the agreement as he maintains and yet he believed that the insurance was compulsory he could have asked why it was stated to be optional on the face of the agreement.

21.	In light of these findings I turn to consider the alternative heads of claim. 

Unfair Relationship
22.	Section 140A of the Consumer Credit Act 1974 provides that the Court may make an order under Section 140B of the Act 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 is 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…
23.	The Claimants in addition to the alleged breaches of duty which I have found unproved maintain that:  “The Defendants failed to ensure the suitability of the Payment Protection Insurance to the Claimant’s needs including suitability in terms of cost and fail to consider suitability properly or at all in view of the breaches of statutory duty set out at paragraph 18 (which I have found unsubstantiated) and “failing to ensure the suitability of the Payment Protection Insurance to the Claimant’s needs, including suitability in terms of costs and fail to consider suitability properly or at all in view of the Claimant being employed and being entitled to full pay for 6 months followed by ½ pay for a further 6 months in the event of falling sick and in view of the fact that the Claimant intended to retire in September 2009”.

24.	In considering the above I have regard to the demands and needs questionnaire at page 128 of the bundle, which I find is likely to have been completed in discussion with the Claimant.  Whether the Claimant had other sources of income in the event of sickness does not mean that the insurance is otiose: the insurance also included life cover.  On the basis of the questions answered the recommended cover is not unreasonable.  I am satisfied that the PPI is described as “optional” twice on the face of the agreement.  In light of my findings as to the compliance with ICOBS and my finding that it is likely that the script was delivered and as I also find that the documents sent to the Claimant provided all relevant information coupled with the fact that the Claimant has had the benefit of life cover since 2008 and could have cancelled the agreement without charge within 30 days, I do not find that the charge of unfair relationship arises on the basis of the agreement in this case.
Finally;  Unenforceability
25.	The Claimant has not satisfied me that he was told by the Defendant, its employees or agents, that it was a mandatory pre-condition to the approval of the loan that he purchase PPI.  The Claimant’s aver that it would be just to dismiss any application to enforce the loan as by virtue of: 
“i)	The prejudice caused to the Claimant by virtue of the mis-statement of the amount of credit and the total charge for credit in that the cost of credit being the principle loan appears on the face of the agreement to be considerably less expensive than the reality of the transaction.
ii)	The culpability of the Defendant for breach of Section 61 (1)(a) of the Consumer Credit Act 1974 in that contrary to its general policy in relation to light loans it led the Claimant to believe that the PPI was a condition of being accepted for finance under the loan agreement”.

26.	I accept the Defendant’s submissions that the agreement provided credit of £10,000 in relation to the personal loan and credit of £4,583.98 in relation to PPI.  I accept the submission regarding categorisation that the correct approach “is to consider the terms of the agreement in order to determine whether there are 2 or more parts in difference categories”.  The agreement is clearly in 2 parts:  the personal loan and the PPI part.  The financial information relating to the 2 parts is set out in 2 separate schedules under the headings “Personal Loan” and “Payment Protection Plan”.  I note that under the agreements of 2003 only one signature was required on an agreement relating to both loan and cover, however in 2008 there are clearly 2 parts to the agreement and 2 signatures required.  The combined monthly payment is set out near the bottom but I find that the document is unequivocal in setting out the separate parts.

27.	In conclusion I do find that the agreement was properly executed and enforceable.  The claim in each part thereof is dismissed.  The Claimant shall be liable for the Defendant’s costs.  I will allow submissions as to the quantum of costs to be made if so advised and would be prepared to have a telephone hearing, however, without having heard submissions I can indicate that I can at present see no reason why costs should not be on an indemnity basis.  

BERNARD WALLWORK
2ND AUGUST 2012