Court of Appeal clarifies jurisdiction to re-open settled unfair relationship claims under s.140A of the Consumer Credit Act 1974

The Court of Appeal has dismissed claims brought by two individuals against two banks seeking further redress for the mis-selling of payment protection insurance (PPI) policies, finding that the claims were effectively precluded by earlier settlements which were deemed bona fide, fair and reasonable: Self v Santander Cards UK Ltd [2024] EWCA Civ 1106.

The decision is significant for financial institutions handling complaints about the mis-selling of financial products. It is a reminder that, while the court retains jurisdiction under sections 140A and 140B of the Consumer Credit Act 1974 (CCA) to consider questions of unfairness and redress even after parties have compromised their claims under these sections, it will be slow to look behind a bona fide settlement which is fair and reasonable.

In the present cases, the individuals had accepted the banks' redress offers, made in line with the Financial Conduct Authority's (FCA) Dispute Resolution Complaints (DISP) Scheme, in full and final settlement of their complaints regarding the mis-selling of PPI. After accepting these redress offers and receiving the payments, the claimants pursued additional claims, invoking sections 140A and 140B of the CCA, arguing that the settlements did not preclude further claims.

The Court of Appeal concluded that the settlements were legally binding and covered both the individuals' complaints under the DISP Scheme and any further civil claims. Endorsing the approach in Holyoake v Candy [2017] EWHC 3397, the Court of Appeal acknowledged that a settlement agreement does not act as a jurisdictional bar to the court considering questions of unfairness under sections 140A and 140B of the CCA. However, provided the compromise is bona fide, the terms of the settlement agreement itself will be the focus of the court's fairness investigation. In finding that the settlements were fair and reasonable in the present case, the Court of Appeal was influenced by the banks’ adherence to the FCA’s guidance on handling complaints about the mis-selling of PPI (as set out in DISP). This compliance with regulatory best practice was seen as evidence of the defendants’ fair conduct, and so the burden of showing that the relevant relationships were not unfair was discharged.

We consider the decision in more detail below.

Background

This case involves two separate appeals, both related to the mis-selling of PPI. The claimant individuals in each case had purchased PPI from the respective defendant banks or their predecessors and had made recurring premium payments. They were not informed that a significant portion of these payments was commission and profit share for those selling the policies. This lack of disclosure, referred to as "recurring non-disclosure", is a common issue in many PPI mis-selling cases.

In both cases, the claimants sought repayment of all sums paid for the PPI. The defendants offered smaller sums as redress, calculated according to the FCA's DISP Scheme.

After accepting these redress offers and receiving the payments, the claimants brought further claims in the County Court for additional amounts, based on sections 140A and 140B of the CCA. The defendants argued that there had been a bona fide settlement of the claims on terms which precluded further claims being made.

The claims were unsuccessful and the claimants appealed to the Court of Appeal on two grounds:

1. The process by which the defendants offered and the claimants accepted the redress sums did not result in a binding settlement of any claims arising out of the mis-selling of the PPI, including claims arising out of the "recurring non-disclosure".
2. Even if the settlements were supported by consideration, it was not open to the parties to exclude the court's jurisdiction to examine and act upon the unfairness of the relationship between them pursuant to the court's powers as set out in sections 140A-140C of the CCA.

Decision

The Court of Appeal found in favour of the defendants and dismissed the appeals. The key issues which will be of interest to financial institutions are set out below.

Were the settlements legally binding agreements?

The Court of Appeal found that the claimants' acceptance of the redress offers resulted in legally binding agreements, which not only settled the complaints advanced under the FCA's DISP Scheme but also compromised any claims arising from an unfair relationship under section 140A of the CCA.

The Court of Appeal noted that the terms of the agreements pursuant to which the defendants made their payments to the claimants were legally binding compromises provided there was good consideration. The Court of Appeal rejected the argument that there was no consideration for the agreement because the defendants were already under a legal duty to offer and/or pay the redress sum pursuant to DISP.

The Court of Appeal highlighted that under the DISP rules and guidance, responsibility for assessing a complaint and deciding what to do about it rests throughout on the respondent. That responsibility may extend to making an offer of redress, if the respondent concludes it is appropriate to do so. If the parties agree on an offer of redress or remedial action, the respondent is then obliged to comply promptly. However, in the absence of agreement, there is no obligation (legally enforceable or otherwise) upon the respondent to make payment or to provide any other redress or remedial action. Furthermore, there is nothing in DISP or elsewhere which either says or implies that a person may not attempt to achieve a binding settlement of present or future claims when making an offer in conformity with its obligation under DISP.

Did the settlement agreements exclude the court's jurisdiction under sections 140A and 140B of the CCA?

The Court of Appeal adopted and endorsed the court's approach in Holyoake v Candy, which confirmed that the court retains jurisdiction to consider questions of unfairness and redress under sections 140A and 140B of the CCA, even after parties have compromised any claims they might have under those sections. A settlement agreement does not act as a jurisdictional bar to the court considering whether the relationship was unfair, but a settlement agreement will not just be ignored as if it did not exist. The court will consider the terms of the settlement agreement itself in determining whether the relationship was unfair (rather than investigating the whole matter, ie the period prior to the settlement). If the court is satisfied that the terms are fair and reasonable, then the compromise should be binding, unless there is evidence that the compromise was not bona fide. The court should look at the matter broadly to see if a bona fide compromise has been reached on legal advice, and if so, should be very slow to go behind it.

The Court of Appeal added that it is for the court to determine what weight (if any) to attribute to particular factors as they apply to the facts of the case. However, in its view, two factors will be highly relevant: (i) the complexity and clarity (or otherwise) of the terms of the contemplated compromise and its consequences; and (ii) whether the party has access to any necessary advice on the contemplated compromise from people other than lawyers.

The Court of Appeal found that the settlement agreements were bona fide and there was nothing to suggest that the terms were not fair and reasonable. Accordingly, the defendants discharged the burden of showing the relationship was not unfair for the purpose of s.140A CCA. The factors considered by the Court of Appeal are set out below:

• Transparent, voluntary and consensual settlement. The settlements were entered into voluntarily and consensually by the claimants. Also, the redress offers were clearly explained, and the defendants provided detailed and clear explanations of how the settlement amounts were calculated. Moreover, the claimants were informed of their rights to reject them if they believed them to be inadequate and pursue further action through the Financial Ombudsman or litigation.
• Availability of independent advice. Both claimants had the benefit of independent advice from claims management companies, which provided them with the necessary support and information to make informed decisions about accepting the settlements. Advice from claims management companies was deemed sufficient and advice from qualified lawyers for the claims in question was not considered necessary.
• Adherence to FCA Guidance. The defendants had followed the FCA's guidance on handling complaints about the mis-selling of PPI (as set out in the FCA's DISP Scheme). This compliance with regulatory best practice was seen as evidence of fair conduct by the defendants.
• General policy of law to encourage settlement. As per Mionis v Democratic Press SA & Ors [2017] EWCA Civ 1194, it is the general policy of the law to encourage settlements. Also, the objectives of the FCA scheme included the promotion of settlements to reduce the impact of long-tail PPI claims on the Financial Ombudsman Service and the courts. Furthermore, the guidance from Holyoake supports the view that a settlement should not be set aside or superseded except for good reason.
• No evidence of unfair advantage. There was no evidence that the defendants took unfair advantage of the claimants. The nature of the FCA Scheme, the transparency of the explanations provided by the defendants, and the DISP-based rationale for the figure which was offered and voluntarily accepted all supported this conclusion. Furthermore, the claimants had adequate support from the claims management companies acting for them.

Accordingly, the Court of Appeal found in favour of the defendants and dismissed the appeals.