B e f o r e :
|- and -
|(1) PARAGON PERSONAL FINANCE LIMITED
(2) LL PROCESSING (UK) LIMITED (IN LIQUIDATION)
FOLLOWING TRIAL lst to 3rd OCTOBER 2012
Crown Copyright ©
1. This is a claim by the Claimant, Mrs Susan Plevin, arising out of the sale to her of payment protection insurance ("PPI") in respect of a loan taken out by her in March 2006. The claim was commenced in January 2009 against the lender, the First Defendant, Paragon Personal Finance Limited ("Paragon") and the broker who arranged the loan, the Second Defendant, LL Processing (UK) Limited ("the broker"). By the time proceedings were commenced, the broker was in liquidation. The Claimant's claim against the broker was settled in February 2010 on the basis that she would accept £3,000 in full and final settlement. That sum was paid to the Claimant by the Financial Services Compensation Scheme ("FSCS"). Accepting that she would have to give credit for the sum received in respect of her claim against the broker, the Claimant continued with her claim against Paragon. Having heard evidence and submissions on that claim, this is my judgment.
2. The basic facts of this case are simple. In or about February 2006, Mrs Plevin received an unsolicited leaflet from the broker advertising loan deals. At the time, she was aged 61, widowed and employed as a college lecturer (teaching courses in hair and beauty). She lived alone in the house she had shared with her late husband. She had a mortgage on that home and various unsecured debts in the form of loans and credit card borrowing. She was thinking about making some home improvements with a view to then selling her house. Upon receiving the leaflet, she was attracted by the idea of obtaining a loan that would allow her both to fund the home improvements and to consolidate her existing liabilities. However, as Mrs Plevin makes clear in her supplemental statement, she was not desperate for a loan. She telephoned the number on the leaflet and expressed her interest in a loan. Mrs Plevin is now unable to remember much about the discussion that took place but she recalls insurance being mentioned and thought that this would be "the norm" with a sizeable loan. She understood that the loan and the insurance would be "part of the package". In giving evidence, she drew a comparison with the mortgage that her husband had taken out, which had life insurance linked to it.
3. Following that telephone conversation, Mrs Plevin recalls receiving a document with some figures completed. However, contrary to what is said at paragraphs 8 and 9 of her statement of 28th March 2011, this was not a "pre-populated" application form. Mrs Plevin was referred to a letter from the broker dated 27th February 2006 (trial bundle page 513). She was unable to say whether or not she had seen that letter before proceedings were commenced (I note it appears in her list of disclosure). The telephone conversation with the broker seems to have taken place on 24th February, three days before the date of that letter. The letter is correctly addressed and I find that the overwhelming probability is that Mrs Plevin received it. There is no reason to think that a letter generated by the broker's system would not have been posted in the usual way and this fits with her recollection of receiving documentation before she completed the application form.
4. The letter is headed "Payment Protection Information" and advises Mrs Plevin to read the Policy Summary carefully to ensure she is eligible and that the PPI provides the required level of cover. It continues:
"Please read the following STATEMENT OF PRICE so that you are aware of the cost of this optional insurance premium that will cover your payments on your secured loan facility."
There are then details of the agreed loan, showing a principle loan of £34,000 and an insurance premium of £5,780.00. The two are added together to show a total loan of £39,780 with a term of 120 months and an APR of 7.3%.
It is said that the insurance premium is valid for 60 months and there is a statement as follows:
"The purchase of this optional insurance is not a requirement for purchasing your loan."
The Statement of Price comes next and shows an insurance premium of £5,780 with interest thereon of £2,310.40 giving a total price of the insurance of £8,090.40.
5. It is not clear whether the application form was sent with this letter or subsequently but what is now clear is that it was left to Mrs Plevin to fill in the necessary details. While her statement suggests that the form had been completed by the broker so that she only needed to sign and return it, Mrs Plevin readily confirmed in cross-examination that the handwriting on the form dated 6th March 2006 (page 348) is hers. She completed the boxes to show that she required £34,000 repayable over 10 years. Under a heading "Payment Protection", Mrs Plevin ticked the box next to the phrase "YES, I/we want my loan to be covered against sickness accident and redundancy" and another box indicating that "single cover" was required. She did not tick the alternative box for "NO, I/we do not require payment protection and understand that it is my/our responsibility to keep up payments if I am/we are made redundant or become too ill to work." The form was returned to the broker.
6. At the time, there was an arrangement between Paragon and the broker (and other approved brokers) whereby the broker could enter details of a loan application onto a computer system known as "Astra" and obtain a computer generated response as to whether Paragon were likely to accept the application. Having gone through the Astra system and received a positive response, the broker forwarded the paperwork to Paragon. This was checked by Paragon's underwriting team and seemed to be in order. An employee of Paragon then contacted Mrs Plevin by telephone, a standard step in the process, known as a "Speak With" and designed to confirm the customer's details and the details of the loan and insurance required. The document generated from that call is headed "Money Laundering Details" so it seems that, at least in part, compliance with money laundering regulations lay behind this procedure. I was told that the call also checked that the broker had not charged an upfront application fee (since that would be in breach of the Finance Industry Standards Association ("FISA") codes which Paragon had agreed to be bound by). It was not however a sales call, the team handling it comprised underwriters not salespeople. If any questions were raised by the customer they would be referred back to the broker since the broker was the interface between Paragon and the customer. As the check was in order, the application went to Paragon's completion department.
7. The agreement was completed and a welcome pack containing a copy of the agreement and the insurance certificate were sent out on 21' March 2006. The agreement again showed the amount charged for the PPI and the length of the cover. This repeated the information given in the letter of 21st February 2006. Within a box headed "Your Insurance" it was recorded:
"There are no additional fees or taxes payable in respect of the premium other than interest on the premium loan shown in (B). Assuming you keep to the term of the agreement and the interest rates do not vary, this interest will be £2310.40. The total price you will pay is £8090.40."
The policy document sent with the agreement included a heading "Changing Your Mind — Cancellation Rights" and indicated that if the policy included life cover (as this did) there was a right to cancel exercisable during the period of 30 days from receiving the certificate of insurance.
8. The day after the loan agreement was signed a "Cashback Certificate" was issued. This indicated that, provided certain terms were met, an amount equivalent to the premium loan amount would be repaid on the tenth anniversary of the loan. The prospect of obtaining this "cashback" does not seem to have induced Mrs Plevin to enter into the agreement. She does not recall such an incentive being offered to her.
9. The loan was secured on Mrs Plevin's home. In August 2006, an opportunity arose for her to move house to be nearer her family. She wrote to Paragon asking whether the security could be transferred to the new home. Paragon agreed to this. Through an administrative mistake, Paragon treated the original agreement as a regulated agreement and issued a modifying agreement. However, I think it is now agreed that neither Paragon nor Mrs Plevin had any intention of changing the legal nature of the original agreement. It was simply intended to transfer the security for the loan from one property to another.
10. Having moved house, Mrs Plevin decided that she wished to do some improvements to her new home. In April 2007, she decided to approach Paragon for another loan, dealing with Paragon directly rather than through a broker. This time, she was seeking a smaller sum, namely £6,000. She did not take out PPI in connection with that loan. She cannot remember whether insurance was discussed on that occasion. However, when giving evidence, she appeared to draw a distinction between what she described as a "mortgage sized loan" and one for a smaller amount, suggesting that she would not have expected to have insurance for a smaller sum but would for a big amount.
The Claimant's case
11. Against that perfectly straightforward factual matrix, the claim has been grossly overcomplicated by the way in which it has been presented by the Claimant's legal representatives. In my judgment, the true issues in the case could, and should, have been narrowed by the pleadings, allowing the matter to proceed as a straightforward fast-track trial concluding within a day. Instead, it was presented as a matter of such complexity that the District Judge was persuaded to allocate it to the multi-track and to allot 4 days of court time to it. At its highest, the claim against Paragon has a value of about £5,000 (after deduction of the settlement with the broker). I am told that the Claimant's cost estimate is £320,000 (including a substantial ATE premium). The First Defendant has in turn run up a huge costs bill in defending the claim. There can really be no justification for the course this litigation has taken.
12. The original Particulars of Claim drafted by Counsel (Paul Brant) and served in July 2009 alleged:
(i) breach of statutory and/or fiduciary duties by the Second Defendant, of which the First Defendant had actual or constructive knowledge;
(ii) that the agreement was a multiple agreement and that the part related to the provision of credit for PPI was an improperly executed regulated agreement and as such unenforceable;
(iii) an unfair relationship between the Claimant and the First Defendant within the
meaning of section 140A of the Consumer Credit Act 1974 such as entitled her to an order under section 140B.
The Particulars of Claim were amended in 2010, adding in some general and vague allegations about PPI cases in general which were in no way specific to the facts of this case. By then the claim against the Second Defendant had been settled but the claim against the First Defendant was broadened to include breach of fiduciary duty and misrepresentation. In May 2011, the Particulars of Claim were re-amended to add new claims relating to the modifying agreement; alleged breaches under the Unfair Contract Terms in Consumer Contract Regulations 1999 and breaches of various codes of conduct. The result of these two amendments was to produce something that really was not a proper pleading but rather contained lengthy narrative and argument from which it was hard to discern the Claimant's true case.
13. On 1St May 2012, District Judge Relph dismissed an application to amend the Particulars of Claim still further. The possibility of making essentially the same application was floated at the start of the trial but that course was not pursued. The Case Summary produced for trial was not agreed and did nothing to define the issues, simply throwing in still more argument. The Skeleton Argument and oral opening of Mr John Campbell, who appeared for the Claimant at trial, was not much clearer. When the time came for his closing submissions, Mr Campbell indicated that he felt unable to address me on the legal issues without adjourning overnight. I reluctantly agreed to this so as not to prejudice the Claimant but I am afraid I was left with the over-riding sense that even by the end of trial the Claimant's legal representatives had been unable to clearly identify what her true case was. It certainly did not help that her evidence at trial was materially different to that contained in her witness statement. While I have to wonder why she signed a witness statement that was patently wrong, her demeanour at trial and the straightforward way in which she answered questions suggested that the difference is not to be attributed to any dishonesty on her part. It seemed to me that despite generating vast costs, her solicitors' preparation had simply failed to get to the bottom of her factual case. Faced with uncertainty as to the Claimant's case, Mr Ian Wilson, who appeared for the First Defendant, did his best. I understand the need he felt to cover all possible bases but the result was a 32-page skeleton argument in relation to what was in reality a simple and modest value claim.
14. Happily after adjourning overnight, Mr Campbell was able to identify and confine the legal issues to essentially two major areas. First, he said that there was an unfair relationship between the Claimant and the First Defendant within the meaning of section 140A of the Consumer Credit Act 1974. He relied upon sub-section 1(c) as catching conduct by the Second Defendant "on behalf of the First Defendant. This, Mr Campbell said gave me a "wide discretion" to make an order under section 140B. Secondly, he claimed that the agreement was a multiple agreement and that the part related to the PPI loan was a distinct agreement falling under the financial limit for a regulated agreement under the Consumer Credit Act 1974. It was not properly executed and as such was unenforceable. While he did not address me in detail as to the appropriate remedy should I make such a finding, I note that his Skeleton Argument suggests the Claimant would be entitled to repayment of all money already paid. As the Claimant's case finally crystallised into these two parts, other allegations which at one time appeared to be presented as separate causes of action fell to be considered only as part of these two claims. For example, allegations of misrepresentation and breaches of various codes of conduct fell within the argument under section 140A. The brief argument advanced in paragraph 29 of the Claimant's Skeleton Argument that commission paid to the broker was a bribe was not maintained in the end.
15. Under section 140A of the Consumer Credit Act 1974, the court may make an order under section 140B if it determines that the relationship between the creditor and the debtor arising out of the agreement is unfair to the debtor because of one of 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;
(c) any other thing done (or not done) by, or on behalf of, the creditor.
17. The Court of Appeal considered the wide-ranging powers given to the court under section 140A and B in the context of a PPI claim in the case of Harrison v Black Horse Limited  EWCA Civ 1128. Both parties have helpfully referred me to passages in that judgment and that of the judgment below of HHJ Waksman QC (sitting as a Judge of the High Court)  EWHC 3152 (QB). I have had regard to the case of Harrison in reaching my decision.
18. The reasons why the relationship in this case was said to be unfair were identified by Mr Campbell as:
(i) There was a misrepresentation to the Claimant that the PPI was compulsory or "part of a package" with the loan.
(ii) The Claimant was not properly advised that the cost of the PPI was to be paid by an upfront premium which would bear interest for 10 years.
(iii) There was inadequate disclosure about the cost of the PPI premium and the fact that Paragon and the lender would each receive commission from it. It was not disclosed that the premium would be split with the insurer (Norwich Union) taking the smallest share, Paragon taking the largest share and the broker taking something in between. The Claimant was misled that the broker would take no fee when in fact the commission was really a fee. The cash price was misleading as to the true cost of the premium and as to the cost of credit. Further the provision of commission to the broker created an "unwholesome incentive" to drive borrowers into PPI.
(iv) Unsuitability of the PPI for the Claimant in that she already had cover for sickness and redundancy through her employment and had life insurance.
(v) The policy itself was unfair. It only covered half the term of the loan. It created an imbalance between the Claimant and Paragon and was not entered into in good faith. Further, the terms of the cashback deal were unfair.
19. Mr Campbell relied in some detail on alleged breaches of various Codes of Conduct including the Insurance Conduct of Business Rules "ICOB", then in force; the Finance Industry Standards Association "FISA" Codes; the Finance and leasing Association "FLA" Lending Code and the Office of Fair Trading "OFT" Guidelines for Non-status Lending (although he conceded that this was not a non-status lending case). He accepted that no causes of action arose directly under those Codes but said that the Codes illuminated the conduct upon which he relied in respect of the claim under section 140A. I do not propose to go through each and every section to which I was referred but I note the general requirements for transparency and accuracy in the information provided to a customer as well as the need to act with integrity, skill, care and diligence and to manage conflicts of interest.
20. Mr Wilson for Paragon highlighted the regulatory delineation of responsibilities of different insurance intermediaries in a chain such as this, which comprised more than one link between the customer and the insurer. Crucially, he relied upon the fact that ICOB provided that only the insurance intermediary who was actually dealing with the customer was bound to comply with the substantive requirements of the rules. This, he said, was the broker and not Paragon. The only contact paragon had with Mrs Plevin was the "Speak With". Mr Wilson pointed me to a first instance decision of HHJ Maloney QC in Conway v Paragon (unreported, 5 July 2011) in which the idea that the "Speak With" procedure was sufficient customer contact to render Paragon subject to the requirements of ICOB was rejected. While that decision is in no way binding authority, I have considered and entirely agree with the reasoning of HHJ Maloney QC as set out in the passages quoted at paragraph 23 of Mr Wilson's Skeleton Argument. I adopt that reasoning without repeating it here. In the end, I did not understand Mr Campbell to be arguing otherwise. His argument was rather that the broker could be said to be acting "on behalf of Paragon within the meaning of section 140A(1)(c). He claimed that it did not matter therefore whether it was Paragon or the broker who was responsible for non-disclosure or misrepresentation. That was an "irrelevant distinction" when I came to consider whether there was an unfair relationship between the Claimant and the First Defendant.
21. However, Mr Campbell's argument does not stand up to analysis in light of the Court of Appeal decision in Harrison v Black Horse. It is clear from the judgment in that case that the unfair relationship test is not to be considered in some wide, open-ended way without reference to the underlying legal or regulatory structure. At paragraph 58, Tomlinson LJ said "the touchstone must in my view be the standard imposed by the regulatory authorities pursuant to their statutory duties, not resort to a visceral instinct that the relevant conduct is beyond the Pale". In considering whether nondisclosure by the lender of the receipt of commission gave rise to a finding of unfairness under section 140A, Tomlinson LT said it would be surprising if a lender were forced to disclose this to escape section 140A yet not obliged to do so under the statutorily imposed regulatory framework, implemented after due consultation and consideration. Likewise, if Paragon was not obliged as a matter of regulation to step into the fray and consider and advise the Claimants as to the suitability of their PPI product and to accept responsibility for any inaccurate statements made by the broker, it cannot be right that they are effectively required to take on such responsibilities in order to avoid a finding of unfairness under section 140A.
22. In my judgment, in order to find that something was done (or not done) by the broker "on behalf of Paragon, I would have to find that the broker was acting as Paragon's agent. For that, I would need to have "exceptional factual material" and "clear evidence" that the broker was acting as the lender's agent. That is not the case here.
Misrepresentation that PPI was compulsory
23. The allegation that the PPI was misrepresented as being compulsory is simply not supported by the factual evidence. It was not Mrs Plevin's evidence that she was told that PPI was compulsory. She had virtually no recollection of the initial conversation with the broker. Contrary to the approach taken in her statement, she was anxious to avoid saying anything in oral evidence that might not be entirely accurate. Her answer to most questions about the transaction was that she simply could not recall matters. The Claimant's case that there had been a misrepresentation relied heavily on the broker's "Demands and Needs Statement" at page 511. It was said that insofar as this purported to record her answers to questions establishing the need for insurance it could not be right as the word "Insurance" had simply been recorded against all four questions, including one relevant only to the self-employed, which Mrs Plevin was not. I agree that this document is of some relevance and put it into the balance but I look also at what Mrs Plevin said in giving evidence and the other
documents in the case. Mrs Plevin was really not sure whether the broker had
suggested that PPI was compulsory. She said "I don't remember whether they said I had to have it." Later, she said "I don't recall one way or another whether he said insurance was optional." What she did say on a number of occasions was that she thought insurance was mentioned "in a package way".
24. Her evidence suggested to me that, at least in part, her understanding that insurance was part of a package with the loan may have come from her previous experience of having a mortgage with life insurance attached. She suggested that she expected to have insurance with a "mortgage sized loan". Indeed, her evidence suggested she may have wanted to have such insurance in place whereas this would not be the case with a smaller loan. She said "I understood insurance was part of borrowing a large amount of money". Indeed, at one point in her evidence, she suggested she may have asked for insurance for something as big as a loan of £34,000. I do not accept that there is any evidence that Mrs Plevin was told that insurance was compulsory. Insofar as an ambiguous impression may have been created in the initial call, there could be no such misunderstanding in light of the documents which I have found were subsequently received by Mrs Plevin. The letter of 27th February 2006, to which I have already referred set out in the clearest possible terms that PPI was optional and was "not a requirement for purchasing your loan". Mrs Plevin referred to that document when completing the application form, having regard to the figures within it, which she found acceptable. When she filled out the details on the application form a few days later, she ticked the relevant box to indicate that she wanted payment protection. At paragraph 9 of her statement, this is the very thing she complains she was not required to do when she says "had I realised at the time [that cover was optional] or had I been required to perform a positive act i.e. to sign a option box if I wished to take PPI I would have certainly declined the cover as I had sufficient cover in place and did not require PH. As the PPI was already stated on the face of the agreement I believed it formed part of the agreement. In light of her oral evidence, this argument fell away completely. It was clear that the Claimant did make a positive choice to tick the "yes" box. Further, all documentation subsequently sent to her reiterated that PPI was optional. Insofar as she did not read the documentation or take in the contents, blame cannot be said to attach to the broker, still less to Paragon. It may be that Mrs Plevin did not really think through the options but she clearly had been given the option as to whether or not to apply for PPI. In light of the evidence, it cannot be said that PPI was misrepresented as being compulsory.
The Commission Arrangements
25. It is not in dispute that from the premium of £5,780, the insurer, Norwich Union, received only £1,630. The balance comprised commission payments to the broker and to Paragon. The broker took £1,870 by way of commission from the premium and Paragon received £2,280. That meant that less than 30% of the premium actually went to the insurer to cover the risk. Mrs Plevin complains that this fact was not disclosed to her and that had it been she would have "certainly questioned this". In her evidence, she did not go so far as to say that she would not have taken out the insurance had she known about the commission arrangements. She said that the details of what she was required to pay represented "the package I expected to receive". Asked whether she had been happy that the monthly payments, even with insurance, were lower than those she had been paying while also giving her money to do her house up and allowing her to consolidate her loans into one, she replied "That's exactly why I did it."
26. While I am not impressed by the size of the commission payments in this case and am sympathetic to the notion that a premium split in this way does not appear to represent good value for money for the services actually being provided, that is not the test I am required to apply. I note from the judgment in Harrison v Black Horse that the OFT found that median average commission rates for PPI for retail credit were 70% and that in the case of Harrison the commission was as high as 87%. However, as Tomlinson LJ observed at paragraph 61 "There is no suggestion in the extended discussion of the topic [in the FSA report] that rates of commission of this order generate a duty of disclosure which if not discharged, is productive of unfairness in the relationship between lender and borrower."
27. It is clear from Harrison that the ICOB rules do not require the disclosure of commission arrangements and that even where it might be thought that the conduct of the creditor or broker in taking such a large commission was "beyond the Pale" that would not be enough in itself to give rise to a finding of unfairness in the relationship between the lender and the creditor.
28. Here, the Claimant was given clear information about the total payment for the PPI. She knew what the product cost and the limit of its cover. She was content that the total she was being asked to pay in respect of the loan and the insurance was acceptable. She agreed to pay the total price asked for the PPI. With hindsight, I have no doubt that she has "buyer's remorse" and would if in the same situation again give the matter much more thought. However, as Tomlinson LI said at paragraph 59 "a seller is not ordinarily obliged to warn his buyer that his product is expensive" and likewise a seller is not usually required to provide a breakdown of how the cost of his product is arrived at. There is no basis for saying that the non-disclosure of the receipt of a large commission is sufficient to create unfairness in the relationship between the Claimant and the First defendant. To that extent, the case is caught squarely by the Court of Appeal decision in Harrison.
29. Mr Campbell sought to distinguish Harrison by comparing this case to the case of Yates v Nemo Personal Finance, a decision of HHJ Platts in this Court on 14th May 2010. However, I note that the Court of Appeal in Harrison did not accept that HHJ Platts' "open-ended approach" was quite what was required by section 140A (see paragraph 30). Mr Campbell sought to place great reliance upon the fact that there was a tight script followed in the initial dealings with the claimant in Harrison which could not allow for misrepresentation. I was not sure how the script was said to be relevant to points being made in relation to the commission. I think that Mr Campbell's submission was that insofar as the commission to the broker could create an "unwholesome incentive" to the agent dealing with the customer on the telephone that concern could be overcome by the use of a script that would not allow the agent to be improperly influenced by the commission payments. To that extent, the commission could not be said to be driving a customer into PPI in a case such as Harrison. Here (said Mr Campbell) the broker had no such tight script and the documentary evidence of the initial conversation suggest that no proper procedure was followed. To take that argument through to its natural conclusion, Mr Campbell would have to be suggesting that the availability of commission did in fact induce misrepresentation on the part of the broker and in turn lead to the Claimant entering the agreement unfairly.
30. It may well be that Yates would be decided differently today, following Harrison. Even if not, I do not think Yates allows me to reach a different decision on the commission point to that in Harrison. I have considered carefully whether these large commission payments and the fact that they were not disclosed to the Claimant created an unfair relationship between her and Paragon. On the facts of this case, where she was given clear written advice that the PPI was optional and did not affect the making of the loan and where she was given a clear total price with which she was content, I cannot see that the fact of the commission payments led to any misrepresentation on the part of the broker that was in turn relied upon by Mrs Plevin. Further, I find that she probably did receive the "FISA Borrower Information Guide" at page 281 of the bundle, although as she readily admits she did not read all documents sent to her carefully. She is an educated and articulate woman and could readily have understood the information had she chosen to read it. At page 296 there is a section covering payments to credit brokers which indicated that "If your broker is FISA registered you can assume he will be receiving a commission for arranging your loan". That section also made it clear that this may include an element for any insurance product sold with the loan.
31. It is alleged that the PPI was unsuitable for the Claimant because she already had effective cover attached to her employment and through life insurance. Insofar as that is right, it plainly gives rise to a claim against the broker and, of course, such a claim has already been settled. It was not entirely clear from Mrs Plevin's evidence that she would not have required PPI in any event. She did suggest at one point in her evidence that she would have wanted, and may even have requested, insurance for what she considered to be a mortgage sized loan. I am not wholly persuaded that the fact that she had certain existing cover would automatically mean that she would not want additional cover specifically to provide for this loan. However, even if the product was unsuitable for her, in circumstances where ICOB imposes no duty on Paragon to independently establish that the product is suitable, this is not a factor that can be relied upon to allow me to find that the relationship between the Claimant and First Defendant was unfair.
32. The additional point relied upon namely that the terms of the cashback were unfair has no real foundation. The Claimant was apparently not aware that a cashback incentive was being offered. It cannot have induced her to enter the agreement. Had she been able to take advantage of it, this would have been an unexpected bonus for her. The fact that the terms were stringent and she apparently did not become eligible to take advantage of it cannot now assist her in her claim that I should find unfairness under section 140A.
Conclusion on the Unfair Relationship Argument
33. For all these reasons, I am unable to accept the Claimant's submissions that the relationship between the parties was unfair within the meaning of section 140A. It follows that I am not empowered to make any order under section 140B and this aspect of the claim must be dismissed
34. The next issue is whether the PPI element of the agreement was a distinct agreement which was by its nature a regulated agreement which did not comply with the Consumer Credit (Agreement) Regulations 1983 and as such is unenforceable. This was pursued by the Claimant very much as a secondary point, Mr Campbell having identified in opening that the primary focus of the Claimant's case was the unfair relationship argument. Nevertheless, it is a matter that I have considered carefully.
35. Counsel were able to agree the legal principles and the fact that this was a "multiple agreement". The question for me is whether it was, as the First Defendant alleges, a "unitary agreement" comprising two categories and falling within section 18(3) of the Consumer Credit Act 1974 or alternatively whether distinct parts exist that should properly be separated into distinct agreements, as the Claimant alleges. On the latter analysis, the amount of credit for the PPI falls below the limit for a regulated agreement. There is no dispute that the requirements for a regulated agreement were not complied with. Paragon naturally says this is because it was not a regulated agreement. However, even if I find that the PPI element was a separate regulated agreement, Mr Wilson submits that this does not mean that the agreement is irredeemably unenforceable. The agreement would not be enforceable without an order of the court but the court must consider whether to make an enforcement order under section 127 of the Act and should do so in the absence of evidence of prejudice or culpability resulting from the non-compliance.
36. Mr Wilson helpfully referred in his Skeleton Argument to commentary from Professor Goode's "Consumer Credit Law and Practice" and rightly identified that determining whether the agreement is a "unitary" or "multi-part" agreement is not an easy question. Both parties have referred me to the case of Southern Pacific v Heath  EWCA Civ 1135 in which the Court of Appeal considered the provisions relating to multiple agreements in some detail, albeit in a different context, adopting the general terminology and approach of Professor Goode.
37. The Court of Appeal identified at paragraph 41 that:
"The starting point is that it is from the terms of the agreement that one must find out whether the agreement is one under which there are two or more parts, in different categories, or whether it, or part of it, falls into two or more categories. It is not correct to start from the proposition that more than one disparate category is concerned, and to conclude from this that the agreement must fall into two or more parts."
Applying that, Lloyd LJ concluded (paragraphs 52-53):
"...the appellant had from the respondent the offer of a single facility, which could only be drawn down as a whole... Assuming, in the appellant's favour, that... part of the credit... was restricted-use credit, nevertheless I find nothing in the terms of the agreement which permit a conclusion that part of the agreement is to be placed in one category (restricted-use) and part in another (unrestricted-use). It is a single agreement which cannot be dissected into separate parts. ...it is not possible to collect from the document as a whole what amount to the respective terms of two or more separate agreements. ... It was a unitary agreement, in Professor Goode's language".
38. I have weighed the factors advanced on each side in the balance. To do so it is necessary to go to the terms of the agreement itself. The terms treat the loan being advanced as a single loan with a single interest rate and single monthly repayments, and on one single set of terms. The principal loan is over the limit for a regulated agreement. It is not the case that two separate sums both falling within the limit are being separated out in order to avoid the provisions for regulated agreements. The PPI loan could not and would not exist in isolation from the main loan. It was taken out as an adjunct to the principal loan. Without the principal loan, the PPI loan would not exist. As against those points, there are said to be different legal consequences and different legal rights created between the creditor and debtor when the two loans are compared. In particular, the PPI element and the loan for it can be terminated on notice whereas the main loan cannot. I have considered the reasoning of HHJ Platts in the case of Yates to which I have already referred in which he found that the PPI element was a separate agreement and as such was a regulated agreement. Nevertheless, my analysis in this case differs. Although I agree that the PPI loan was separate in that the main loan could have been taken without it and to that extent the PPI was "separate and additional", the same argument does not work in reverse for the reasons articulated by Mr Wilson. Without the main loan, the PPI loan would not have existed. It could not stand alone. In my judgment, once the offer of PPI was accepted by the Claimant, it was subsumed into the main loan, becoming part of it. The capital advanced for the PPI was amalgamated with the capital for the main loan and interest was charged and repayments taken on the basis of the total sum. The fact that the loan comprised a restricted-use and unrestricted use element did not of itself place the Agreement within section 18(2) of the Act. Certainly, the agreement as a whole falls within more than one category but that does not make it an agreement that is to be dissected into different parts. I adopt the reasoning set out by Professor Goode at paragraph 25.107 and helpfully set out for me at paragraph 57 of Mr Wilson's Skeleton Argument. I will not repeat the passage here but having considered it carefully I accept the submissions made at paragraph 58 of Mr Wilson's Skeleton Argument. I also accept Mr Wilson's arguments that the fundamental purpose of section 18 is anti-avoidance and that avoidance of the regulations did not lie behind the treatment of the principle loan and the PPI loan as one agreement.
39. If I had reached a different conclusion under section 18 and found that the PPI loan was a distinct, regulated agreement, I would have gone on to consider whether it was an agreement which ought to be enforced. I would have had to consider whether the Court was prevented from making an order under section 127(3), by looking at whether there had been compliance (only) with Schedule 6 of the Agreements Regulations.
40. The only pleaded complaint relating to Schedule 6 was a reference to paragraph 5 of Schedule 6. This was not further advanced at trial but what paragraph 5 says is as follows:
"A term stating how the debtor is to discharge his obligations under the agreement to make the repayments, which may be expressed by reference to a combination of any of the following -
(a) number of repayments
(b) amount of repayments
(c) frequency and timing of repayments
(d) dates of repayments
(e) the manner in which any of the above may be determined or in any other way, and any power of the creditor to vary what is payable."
41. The Agreement does in fact set out the number of repayments, their frequency and other details. While it does not, give a separate figure for the monthly repayments that are to be made specifically in relation to the PPI loan that is not required on the face of the provision. In Wilson v Hurstanger  EWCA Civ 299, the Court of Appeal said that paragraph 5 gave "a significant degree of flexibility about the way in which the agreement may deal with the debtor's obligations", and in particular there is no need to state the amount of the repayment as opposed to sufficient information (such as a rate of interest) for the amount to be ascertained. I would therefore have found that the Agreement was compliant with Schedule 6 and not irredeemably unenforceable.
42. Looking at all the facts of the case as I have analysed them above in relation to the question of unfairness, I do not think the Claimant would have suffered prejudice through the non-compliance. She was given sufficient information to understand the extent of her obligations and the cost of the PPI and of the loan to cover it.
43. Even if I was wrong about both the nature of the agreement and the issue of enforceability, questions as to the consequences of non-enforceability and the remedy for the Claimant would arise. Here, I do not consider it would be right to order repayment of all payments made for the PPI in circumstances where the Claimant's evidence suggested she wanted, and perhaps specifically requested, the cover for her large loan. She has had the benefit of such cover over the term to which she agreed. Had I considered that it was right not to enforce the PPI part of the agreement, I would have considered ordering that the First Defendant could not enforce future repayments related to the credit for the PPI. However, as Mr Wilson points out at paragraph 74 of his skeleton argument, when the settlement from the Second Defendant is taken into account, the difference this would make would be extremely modest.
44. However, for the reasons set out I do not consider that the unenforceability argument succeeds and I dismiss this aspect of the claim also.
45. Despite the length of the Re-Amended Particulars of Claim, no other basis for finding for the Claimant was ultimately maintained on her behalf by the close of trial. It follows that I must dismiss this claim in its entirety.
RECORDER AMANDA YIP QC
RECORDER AMANDA YIP QC
4th October 2012