Court of Appeal rules that acceptance of PPI complaint redress formed a valid compromise (England and Wales)

Summary

Mr Harrop and Mrs Self (together the “Claimants”) pursued separate claims alleging that their relationships in respect of credit agreements held with Skipton Building Society (“Skipton”) and Santander Cards UK Limited (“Santander”) were unfair. The basis of the claims was that the relationships were unfair as a result of undisclosed commission in respect of PPI policies and they relied upon s.140A/B of the Consumer Credit Act 1974 (the “CCA”).

Skipton and Santander argued that the claims had already been compromised. Both Claimants had previously accepted redress payments made in full and final settlement during the complaint process. Those arguments were successful before the county courts, both at first instance and on appeal. The Claimants separately appealed to the Court of Appeal, who granted permission and decided to hear the two appeals at one hearing.

The Claimants argued that there had been no valid consideration for a settlement, on the grounds that the payments offered were in line with the complaint process put in place by the Financial Conduct Authority (the “FCA”) and/or that Skipton/Santander had accepted liability during the complaint process. Both Claimants also alleged that the settlements were themselves unfair and Mrs Self further argued that any settlement only covered a complaint, not a court claim under s.140A of the CCA, in any event.

 The Court of Appeal has dismissed both Appellants’ appeals on a unanimous basis. Giving the main judgment, Stuart-Smith LJ considered that the DISP process did not prevent a valid compromise being entered into and there was no admission of liability by either Skipton or Santander. Mrs Self’s settlement clearly covered a court claim under s.140A of the CCA. In both cases, he was also satisfied that the original judge was entitled to conclude that there was no unfairness, considering that the redress letters were clear and unambiguous.

Background

In 2017, the FCA published Policy Statement 17/3 (“PS17/3”). PS17/3 introduced new rules and guidance for the handling of PPI complaints, which were incorporated into the FCA Handbook: Dispute Resolution Complaints sourcebook (“DISP”). DISP App 3 was amended to include a new process for handling PPI complaints relating to undisclosed commission.

Mr Harrop had entered into a PPI policy in respect of a mortgage held with Skipton and Mrs Self had entered into a PPI policy in relation to a credit card agreement with a predecessor company of Santander. Represented by claims management companies (“CMCs”), Mr Harrop and Mrs Self made complaints in respect of their PPI policies to Skipton and Santander respectively.

Skipton and Santander both rejected their respective customers’ mis-sale complaints but made offers in relation to the undisclosed commission element of the complaints. Both firms explained that the offers were being made in full and final settlement and required their customers to sign and return an acceptance form before making payment. Mr Harrop’s CMC returned the acceptance form signed by Mr Harrop and confirmed that they were instructed by Mr Harrop to accept the offer in full and final settlement of his claim for mis-sold PPI. Mrs Self similarly signed and returned her acceptance form. Payment of the sums offered was then made.

Subsequently, Mr Harrop and Mrs Self brought separate court claims alleging that their respective credit relationships with Skipton and Santander were unfair, as a result of the undisclosed commission in respect of the PPI policies.

Both Skipton and Santander argued that the claims had been compromised and could not be pursued further, as a result of the payments made as part of the complaint process. Skipton applied for summary judgment in respect of Mr Harrop’s claim and Santander defended Mrs Self’s claim to a final trial. In both cases, the judge who heard the claims concluded that the claims had been compromised. Skipton obtained summary judgment on Mr Harrop’s claim and Mrs Self’s claim was dismissed. The Claimants were both unsuccessful on first appeal but obtained permission to appeal to the Court of Appeal, which heard both appeals together in May 2024. Judgment was handed down on 26 September 2024.

The Grounds of Appeal

The Claimants appealed the decisions against them on similar grounds as follows:

1. there was no consideration for the compromise – the Claimants argued that Skipton/Santander were under a duty to offer/pay redress pursuant to DISP and, as such, payment of the redress could not constitute valid consideration, as no more was being offered beyond a payment which Skipton/Santander was obliged to make. In addition, both Claimants argued that Skipton/Santander had accepted liability to pay the respective sums offered and therefore could not rely on such payment as valid consideration

2. Mrs Self argued that the alleged waiver did not cover a civil claim in any event and was limited to complaints under DISP – Mrs Self argued that the wording of her compromise documentation meant that any settlement was limited to the complaint itself, and did not cover a civil claim

3. the settlement was subject to consideration for fairness and was unfair. The basis of this argument included that the settlement was not a bona fide compromise on the grounds that there was no genuine dispute, the terms of the settlement were not clear, and the Claimants did not have the benefit of legal advice at the relevant time

Skipton and Santander opposed the appeal. Their position was that DISP did not prevent an offer from being made to resolve a claim in full and final settlement. The Claimants received consideration because, when accepting payment, the customers gained an enforceable contract giving them an entitlement to payment of a specific sum. There was no admission of liability, and the terms of settlement were not unfair. In respect of Mrs Self’s argument that the waiver only covered a complaint, Santander’s position was that the terms of settlement clearly also covered a civil claim.

The Court of Appeal’s Decision

The Court of Appeal unanimously dismissed the appeals. Giving the lead judgment, Stuart-Smith LJ dealt with each issue as set out below.

Consideration

DISP does not require a firm to make payment of a specific sum. It provides a process which leads to the making of an offer of redress, if deemed appropriate, by the firm concerned. There is nothing within DISP or elsewhere that states or implies that a binding settlement of present or potential claims cannot be proposed when making an offer in conformity with DISP 1.4.1R.

Whilst both Skipton and Santander had used the word “due” in their redress letters, all that meant in context was a reference to the sum produced being consistent with the FCA’s scheme. The use of the word “due” did not create a pre-existing obligation to pay.

As a result, Stuart-Smith LJ concluded that consideration was provided. There was no sum which Skipton/Santander were obliged to pay the Claimants until/unless their offers of redress were accepted. The proper analysis was that good consideration was given for the compromises by the making of an offer of payment which, upon acceptance, created an enforceable contract under which the Claimants were given a right to payment of a specific sum. Further, there was no admission of liability within the redress letters – they were offers to settle an unliquidated claim on terms calculated by reference to DISP.

In terms of the redress letter and acceptance by the Claimants, Stuart-Smith LJ considered that it was clear that Mr Harrop and Mrs Self had both settled claims under section 140A for unfairness based on non-disclosure of excessive commission and profit share, for which good consideration had been given.

Scope of the Waiver

In respect of Mrs Self’s argument that the scope of any compromise was limited to her complaint (and did not cover a civil claim), Stuart-Smith LJ considered the position to be unarguable and misconceived. Mrs Self’s complaint was that, under section 140A, the level of undisclosed commission rendered her relationship with Santander unfair. Both the redress letter and customer acceptance form signed by Mrs Self clearly set out the claim which was being settled, which could only be a claim for undisclosed commission. Accordingly, Mrs Self had settled precisely the claim which she now sought to pursue – a claim for an unfair relationship due to a failure to disclose commission/profit share.

Unfair Relationship

In respect of the allegations that the settlement should be set aside due to unfairness, Stuart-Smith LJ considered Mrs Self’s argument that there was no bona fide compromise to be an “impossible” submission, given the level of transparency in Santander’s explanation of its position, set out in the redress letter and acceptance form. He found that Skipton and Santander were offering to settle at a level supportable by reference to DISP App 3. Neither firm took advantage of the Claimants nor was there anything in the offers which rendered them colourable. A court should be very slow to go behind a compromise reached in these circumstances and the first instance judges were entitled to reach the conclusion that there was no unfairness. Skipton and Santander had discharged the burden of showing the relationship was fair.

Comment

Subject to any further appeal, this decision provides clarity in respect of the Court’s approach to compromise arguments in relation to redress payments made for PPI undisclosed commission. Depending on the terms of the redress letters, there may be good arguments that a payment made during the complaint process created a binding compromise. Claimants will not be able to successfully argue that there was no consideration as a result of the DISP rules.

Eversheds Sutherland acted for Santander Cards UK Limited in this matter.