1. MARK WILLIAMS 2. KAREN WILLAMS v BLACK HORSE LIMITED [2011] EW Misc 21 (CC)

IN THE IPSWICH COUNTY COURT
[2011] EW Misc 21 (CC)Case No Claim No 0LV 3351
Between
1. MARK WILLIAMS 2. KAREN WILLAMSClaimantsBLACK HORSE LIMITEDDefendants
Before
HHJ MoloneyJohn Pugh (instructed by Donns LLP Solicitors, Manchester) for the ClaimantsJames Ross (instructed by SCM Solicitors, Barnet) for the DefendantDate 7 December 2011
[1]a. A. Introduction This is a claim by borrowers to recover the sums paid by them to the lender in respect of a Payment Protection Insurance (PPI) policy associated with their loan. The claim is put on two main grounds: i. misrepresentation that the policy was not genuinely optional, but rather had to be taken out as a condition of the loan or at least would improve their chances of getting it; ii. breach of statutory duty/negligence in respect of the obligations imposed on the Defendant as an insurance intermediary by the Insurance Conduct of Business Rule Book (ICOBS), in particular in respect of its failure to advise them of the disadvantages (in terms of cost and otherwise) of taking out an expensive single premium policy from itself rather than seeking a cheaper monthly policy from another provider. (A third head of claim in respect of unfair credit relationship was not pursued at trial.)b. B. Background and Chronology The following facts and matters are not materially disputed.[2]Mr and Mrs Williams were both about 45 at the time of the transactions in question, in June 2008. At that time both were working; his monthly take-home pay was about £2,850 and hers about £650. However, in addition to their mortgage they had fairly substantial debts (around £18,500) which they wished to consolidate; these debts included an earlier loan of £5,000 which Mr Williams had taken out with the Defendant as recently as March 2008, together with a single-premium PPI policy similar to that now in issue.[3]Having made online inquiries they contacted a broker, who took their details and introduced them to the Defendant.[4]At about 5-30 pm on Wednesday 4 June 2008 the Claimants visited the Defendant's Ipswich office by appointment and there met Ms Jessica Day. An interview took place, which concluded not later than 6-10 pm, by which time the Claimants had both signed a standard-form Agreement to borrow £15,000 principal (including repayment of the sum previously borrowed) and a further £4,805 in respect of the PPI premium, those sums to be repaid over 5 years at £356 and £114 per month respectively. What was or was not said by Ms Day in that interview is an important area of dispute in this case. Also disputed is whether they were given copies of various relevant documents on that occasion or (as they maintain) were sent them later in the post.[5]The loan duly went through, and the debts were repaid as planned, but unfortunately the Claimants' financial problems were not resolved, and by February 2009 they had negotiated reduced payment terms which they were still unable to keep up.[6]In July 2009, having made contact with solicitors who are plainly knowledgeable about PPI mis-selling claims, they sent a letter before action, and in May 2010 the Particulars of Claim were served. (The claim was originally allocated to the fast track, but I was assured that it has since been reallocated to the multi track, and for the avoidance of doubt I so reallocated it at the start of this trial.) C. Was there Misrepresentation at the Interview?[7]In their letter before action and in their original Particulars of Claim which they personally signed, the Claimants stated that they were told they had to take out the PPI or they would not get the loan. However, in a later Amended Particulars of Claim, and in Mr Williams's Witness Statement with which Mrs Williams concurred, this clear allegation was omitted, and it was instead said that a "financial advisor" (a man or a woman, they could not recall which) had told them that their application would be looked on "more favourably" if they took out a PPI policy. Having seen the Defendant's case, Mr Williams then served a further Witness Statement saying that he now believed it was the woman, presumably Ms Day, who had said this. (He had also forgotten, until this stage, about the fact that he had been introduced by a broker.)[8]This is not particularly persuasive as a foundation for an oral misrepresentation case. However, the Defendant has failed to produce any eye-witness evidence at all in answer; Ms Day did not provide any witness statement, nor was any explanation given to me as to whether she still worked for the Defendant or whether she had ever been asked for her recollections. Instead a senior officer of the Defendant, Mr Starling, who had not himself been present, gave evidence as to his employer's standard practices and interpreted the disclosed documents. Though I am sure that his evidence was truthful, and it was very helpful as far as it went, it does not take me very far in deciding whether on this particular occasion the standard practices were honoured or (as has been all too common in other cases) bypassed.[9]The burden was on the Claimants to satisfy me to the civil standard that they were told in some fashion that if they wanted the loan they had better agree to take the PPI. So far as Mr Williams' oral evidence was concerned, he described how the young lady, Ms Day, had been bubbly (his wife's word was "flighty"); the meeting had been very quick and informal and she did not appear to be working from the standard script which Mr Starling told me ought to have been used. He firmly maintained that she had "advised" him to take the PPI and that she had said words to the effect that doing so would favourably affect whether they got the loan and how quickly. However, it has to be said that Mr Williams' oral evidence was not given in a persuasive or convincing manner; he seemed vague, distracted and detached throughout, and his recollection of collateral details such as how they had entered the building was very weak. (It emerged that he had been suffering from a severe depression and his medication may have affected his ability to give evidence; but no application was made for an adjournment and his counsel was content to put his evidence before me.)[10]In these circumstances Mrs Williams' evidence assumed particular importance. She did not suffer from any such problems and she gave me the impression of a business-like and generally reliable person. But on the crucial question of whether Ms Day had actually said words to the effect contended for, her evidence under cross-examination differed materially from her husband's. She said that she understood (before the meeting) that PPIs were standard things that you had to take out to get a loan. Her impression was that the girl had recommended them to take out a PPI, but she could not recall her actually saying that doing so would affect whether or when they got the loan; this was something she (Mrs Williams) understood to be the case.[11]In assessing the quality of her recollection, one detail that assisted me related to the fact that the PPI policy (as summarised in the Demands and Needs Statement and the Agreement, both of which the Williamses signed that evening) took effect only if he became unemployed or suffered an accident etc. not if she did. She told me that this was a surprise to her; she had believed at the time that both of them were covered. But the contemporary documents, prepared by Ms Day during the meeting, clearly indicate that this topic was dealt with and a decision made to cover only his inability to work. This makes commercial sense, given that he was the main breadwinner; but if so, then it must also follow that she has very little recollection even of that part of the meeting that most directly affected her.[12]Looking at the Defendant's case, as shown only by the disclosed documents and Mr Starling's explanations, I note that the meeting was indeed a short one, at the end of the working day, and it would be surprising if Ms Day and her colleagues had had time to go fully and carefully through all the formal scripts prepared for such cases. I incline to accept that Ms Day must have whisked through this loan (to an existing customer) as briskly as possible, and may well have cut some corners in doing so. But I note that she had recently been trained in PPI selling, at a time in 2008 when the mis-selling scandal was already emerging, and that according to Mr Starling's unchallenged evidence there was no way in which she or her branch could have benefited financially from the selling of this policy. And I also note that the Agreement, as signed by the Claimants that evening, clearly states that the PPI is optional (including in a box apparently ticked by them). While this is not necessarily enough to fix the borrowers with notice of the point, and would certainly not draw the sting of a positive misrepresentation, it is less likely that a salesperson would make a false statement which was liable to be exposed at once if the borrower read the form carefully.[13]Taking all the evidence together, and being conscious in particular that for whatever reason the Defendant has failed to call its own representative to deny the serious allegations being made against her, I nevertheless conclude that the Claimants have not persuaded me that it is more likely than not that at the meeting Ms Day made any positive oral representation linking the PPI to the granting of the loan. To do so would have been to go against her training and her employer's written directions, for no gain to herself. The Claimants' evidence is weak and changeable, and they now understand what they must prove to win the case. I consider it to be more likely than not that Ms Day did advise them to take the PPI, but that she did not cross the line and positively link it to the grant or timing of the loan. The Claimants may well have made that link themselves, under their own misapprehension that such was the general practice of lenders; but that is not enough to establish misrepresentation. D. Breaches of ICOBS[14]The Defendant company is a lender, not an insurer. The only PII policy it offered at the material time was provided by Lloyds TSB General Insurance, which is part of the same group of companies. Nevertheless, the insurer was willing to pay the Defendant a commission of some £3,300 out of the total premium of £4,800, leaving only £1,500 as the price of the insurance itself. This fact, which was not brought to the borrowers' attention, would shock many people and is a clear example of the reasons why the selling of PPI in this way is no longer permitted. However, the relevant FSA rules did not then, and so far as I am aware do not now, require disclosure of the amount of commission to be paid, and although the Claimants understandably draw my attention to it, it is not of itself a ground for setting aside the transaction. (See the recent decision of the Court of Appeal in Harrison v. Black Horse [2011] EWCA Civ 1128 , which deals with an earlier version of the ICOBS rules.)[15]What is clear is that, by offering to sell an insurance policy provided by another, the Defendant became for this purpose an insurance intermediary. As such it was obliged by the Financial Services and Markets Act 2000 to comply with the rules laid down by the relevant regulatory body, and would be liable in damages for breach of statutory duty if it caused loss by its failure to do so. In this case the regulator is the FSA, and the rules are those set out in the version of ICOBS in force in June 2008.[16]Before turning to the rules said to have been broken in this case, I should deal with a preliminary point made by the Claimants. The FSA has laid down its own disputes procedure for these PPI mis-selling claims, and that procedure directs firms handling complaints to apply certain presumptions, for example as to the likely effect of a breach on the client's decision to buy, and as to the cost of alternative provision. I find this disputes procedure helpful as a guide to good practice and the commercial realities of the insurance market. But it is not intended to apply to cases which go to court, or to supplant the ordinary rules of law as to evidence and causation, and I do not accept the Claimants' suggestion that I should follow it in that way.[17]The main ICOBS rules I was invited to consider (together with their accompanying guidance) were: 2.2.2 When a firm communicates information, including a financial proposal, to a customer…it must take reasonable steps to communicate it in a way that is clear, fair and not misleading. 5.2.2(1) Prior to the conclusion of a contract a firm must specify, in particular on the basis of information provided by the customer, the demands and needs of that customer as well as the underlying reasons for any advice given to the customer on that policy.5.3.1 A firm must take reasonable care to ensure the suitability of its advice for any customer who is entitled to rely upon its judgment.5.3.2 [Guidance] A firm should…(2) take reasonable care to ensure that a policy is suitable for the customer's demands and needs taking into account its level of cover and cost… 6.1.5 A firm must take reasonable steps to ensure a customer is given appropriate information about a policy in good time and in a comprehensible form so that the customer can make an informed decision about the arrangements proposed. 6.1.13 (1) If a policy is bought by a customer in connection with other goods and services a firm must, before the conclusion of the contract, disclose its premium separately…and whether buying the policy is compulsory. 6.4.2 (1) If a firm provides information orally during a sales dialogue with a customer on a main characteristic of the policy, it must do so for all the policy's main characteristics. [The Guidance indicates that one main characteristic is "price information".] 6.4.4 A firm must provide a consumer with a policy summary in good time before the conclusion of a contract. 6.4.5 (1) A firm must draw a consumer's attention to the importance of reading payment protection contract documentation before the end of the cancellation period…(2) This must be done orally if a firm provides information orally on any main characteristic of the policy. 6.4.9(2) A firm must provide price information in a way calculated to enable the customer to understand the additional repayments that relate to the purchase of the policy and the total cost of the policy.[18]In broad summary, I have to consider in the case of each alleged breach relied on:a. was there an omission to provide required information, at the proper time and in the proper manner? (or, if it was provided, was that done in an unclear, unfair or misleading manner?)b. if so, did that failure cause the borrowers to take out the policy? (or, put another way, would they probably have taken it out even if the rule had been fully complied with?)[19]The breaches, as pleaded at para. 30 of the Amended Particulars of Claim (omitting those not pursued at trial) may be summarised as follows, adopting a roughly chronological[20]At the heart of this case is a fundamental difference between the parties about the nature and extent of the duties of an insurance intermediary of the Defendant's sort. The Defendant was not only a "tied" intermediary, confined to selling the products of one insurer only (it is not disputed that this was made sufficiently clear at the outset), but indeed had only one policy to sell, a policy that covered life, accident, sickness and unemployment but not critical illness. The Defendant takes a concomitantly narrow view of the extent of its duties; its staff were trained to explain that policy and advise on whether it was or was not suitable for the borrower, but it was no part of their job to engage in comparisons between that policy and rival products or to advise borrowers to go elsewhere. The Claimants, on the other hand, in effect assert that like any other insurance adviser the Defendant owes its customers a broader duty, in effect to give "best advice" on whether their product was the best suited to these customers' needs or whether they would do better to go elsewhere. In particular they emphasise that in a debt consolidation case like this one it is obvious that the clients' primary "demand or need" is to keep their payments down as much as possible, and that advice on whether the policy they are being offered is good value by comparison with others is indispensable.[21]The Defendant does not even purport to address this version of the duty. Its mode of compliance with the duties imposed by ICOBS 5.2.2,5.3.1 and5.3.2 is to use a standard-form Demands and Needs questionnaire, which is put to the clients and printed out with their answers for signature at the meeting. Such a document was prepared, and signed by the Williamses, at the 4 June meeting. It deals in a brief but proper manner with the matters necessary to decide whether a client needs PPI at all: - Are they employed? Do they have access to other insurance or benefits giving similar protection? Would they like their payments to be met in certain circumstances? Are they currently under medical treatment? On the basis of the answers, it advises cover for Mr Williams only and explains that critical illness is not covered. But it contains no provisions at all about cost. As Mr Starling explained, the Defendant's staff are not familiar with the wider insurance market or the other products available, let alone their costs, and do not go into that area when advising the client about the suitability of their policy. (I am satisfied that they would, and did in this case, establish that the client could afford the overall monthly repayment, including the PPI cost; but they would not go further and ensure that the policy was good value or explain that other products might be better.)[22]Neither party has cited any authority to me on the particular point now in issue, so I have to construe the ICOBS rules in accordance with their text and in such a manner as best gives effect to their purpose, which appears to me to be to protect the consumer against positive mis-selling within the context of the insurance business as then structured. Cautioning myself that it is addressed to a slightly different point and an earlier version of the rules, I find this passage, from para 53 of the judgment of Tomlinson LJ in Harrison (supra) with which the rest of the Court agreed, of great assistance. Having said at para 50 that "cost must be taken into account when the customer has indicated that this is a relevant concern" (which was not the case in Harrison , but certainly is here) he continued at para 53:
"I agree that looked at in the abstract it does not follow from the fact that an insurance intermediary sells only one product that it will not conduct a fair market analysis to determine that such a product is not suitable for its customer's needs. But the Initial Disclosure Document is not to be looked at in the abstract but in the context of the Rule, which makes it clear that being able to sell only one product and giving advice based on a fair market analysis are in this context mutually exclusive. Furthermore, in the real world I do not believe that any reasonable person expects that an insurance intermediary who holds himself out as able to sell only one product will proffer advice as to the suitability of that product by reference to and comparison with other products available in the market."
[23]It appears to me that this passage gives greater support to the Defendant's case than the Claimants. Adopting the same approach as the Court of Appeal, I conclude that here the Demands and Needs questionnaire was adequate to establish what the Williamses wanted and needed so far as the terms of the policy were concerned, and that although cost was plainly a major issue for them the Defendant sufficiently discharged its duties by ensuring that they could afford the premium. To go further and require the Defendant to advise on cost and suitability in an open market context would be inconsistent with its status as a tied advisor (of which the Claimants were aware) and with its whole business model, and I do not consider that the ICOBS rules in their 2008 version, and in the context of the then legislative regime (now changed), lead me to that draconian result.[24]As to the remaining allegation, namely that the Defendant failed to provide a written summary of the policy in good time before the Agreement was signed, it appears from the documentation that at the 4 June meeting a letter was printed off and given to the Claimants which refers to various other documents including one entitled "Important Information" which contains the "Key Facts" about the insurance policy. The Claimants have no recollection of being given this or any other such documents at the meeting and believe they received a pack of material a few days later. If Ms Day had followed her script, she would have taken them through this document before signing. Given that I accept the Claimants' evidence that the meeting was very quick and informal, and given that because of the lateness of the hour much of the documentation was dealt with by Ms Day next day and bears that date, I am prepared to accept that either they were not given this document at all on the 4 th June, or they had no proper opportunity to read and consider it. However, I am firmly of the view that this non-compliance with the rules had no causative effect on loss. It is clear from the Demands and Needs questionnaire that the Claimants did engage with Ms Day in a substantive discussion of some of the main terms of the policy. On their own case, they had the documents soon after, but they do not seem to have kept them or even read them closely. There is nothing in the documents that is likely to have changed their minds about the policy had they read them before signing. I therefore conclude that, had the written Key Facts about the policy been fully explained to them orally before signing, they would still have decided to take the PPI as offered to them.[25]For the above reasons, the claim is dismissed in all respects. ++++++++++++++++++++++++++++++++++

order

a. failure to advise that the policy was optional. This is essentially the same as the misrepresentation point and I reject it for the same reasons.b. failure to obtain a proper Demands and Needs Statement and advise properly in response to it, in particular on the issue of cost/value for money;c. (closely related to (b) above) failure to advise the borrowers that other policies were available elsewhere, and of the disadvantages of the Defendant's single premium policy by comparison with rival monthly products in respect of cost and flexibility;d. failure to advise of the full cost of the loan with and without PPI. Again, I can deal with this briefly; the relevant figures were clearly and separately stated on the face of the Agreement the Williamses signed, and on the basis of their oral evidence it is clear to me that the amount of the monthly payments was a matter of immediate concern to them and one which I am sure they understood before signing.e. failure to provide a written Policy Summary in good time before the signing of the Agreement;f. failure to provide the Agreement in a form which permitted deselection of the PPI policy. This too can be dealt with summarily; there is no such express requirement in ICOBS, and the combined effect of my findings about misrepresentation and the availability of a right to cancel the policy within 30 days is that even if there were no mischief would follow from such an omission.