In Smith v Royal Bank of Scotland Plc [2024] AC 955; [2023] 3 WLR 551 ('Smith') on 4.10.23, Lord Leggart (within whom Lord Briggs, Lord Hamblen, Lord Kitchin JJSC agreed; Lord Hodge DPSC giving a concurring judgment) set out the law of unfair relationships under sections 140A to 140C of the Consumer Credit Act 1974, under the heading 'Legislation'. In Smith, there were two appeals before the Supreme Court. Each involved a former credit card holder ('Claimant') bringing a small claim against the Royal Bank of Scotland ('Bank'). Each Claimant had been sold payment protection insurance (PPI) policy by the Bank, without the Bank disclosing it was receiving a very large commission. 'In each case the claim was brought over ten years after the PPI policy was terminated and the last payment relating to it was made, but less than six years after the claimant's credit card agreement with the bank had ended.' (paragraph 1).
Under the subheading 'The key provisions', Lord Leggart in Smith said, at paragraphs 12 to 13:
'12. Sections 140A–140C were added to the Consumer Credit Act 1974 by the Consumer Credit Act 2006 and came into force on 6 April 2007. They replaced an earlier regime which gave the court power to re-open “extortionate credit bargains”. As Briggs LJ explained in Plevin v Paragon Personal Finance Ltd [2014] Bus LR 553, para 52, the earlier regime was regarded as having been too technical, and as having set the bar for court intervention too high. The new scheme was intended to provide consumers with greater protection based on the concept of an “unfair relationship”.
13. So far as relevant, section 140A states:
“Unfair relationships between creditors and debtors
“(1) The court may make an order under section 140B in connection with a credit agreement 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 has 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 (including matters relating to the creditor and matters relating to the debtor).”
“(4) A determination may be made under this section in relation to a relationship notwithstanding that the relationship may have ended.”
14. Section 140B(9) places the burden of proof on the creditor. It provides that, where “the debtor … alleges that the relationship between the creditor and the debtor is unfair to the debtor, it is for the creditor to prove to the contrary”. Section 140B(1) sets out a list of things which an order under section 140B may do. It gives the court a wide range of powers. The key provision for present purposes is section 140B(1)(a) whereby an order may “require the creditor … to repay (in whole or in part) any sum paid by the debtor … by virtue of the [credit] agreement or any related agreement …”
15. Section 140C contains definitions of terms used in sections 140A and 140B. It is common ground in these cases that the credit card agreements were “credit agreements” as defined in section 140C and that the PPI policies were “related” agreements.'
Under the subheading 'How the regime operates', Lord Leggart in Smith said, at paragraphs 14 to 22:
'16. It can be seen that, in dealing with a claim by a debtor under these provisions, the court is required to follow a two-stage process. The first stage is to determine whether the relationship between the creditor and the debtor arising out of the credit agreement is unfair to the debtor because of one or more of the matters specified in section 140A(1). If the court finds that the relationship is unfair for that reason, the court must then proceed to the second stage and decide what, if any, order to make, selecting from the list of options in section 140B(1).
17. Some further general points may be made which are apparent on the face of sections 140A–140C.
18. First, under section 140A(1) it is not the fairness or otherwise of the credit agreement which the court must determine: it is whether the relationship between the creditor and the debtor arising out of the credit agreement (on its own or taken with any related agreement) is unfair to the debtor. A relationship, by its nature, extends over a period of time and may continue for as long as there is any sum payable or which will or may become payable under the credit agreement.
19. Second, the question to be determined under section 140A(1) is not whether the relationship between the creditor and the debtor was unfair to the debtor when the credit agreement was made or at some other time in the past. It is whether the relationship is unfair to the debtor, i e at the time when the determination is made. This is reinforced by section 140B(9), quoted at para 14 above, which is likewise framed in the present tense.
20. If nothing further had been said, it might have been thought impossible to make a determination of unfairness under section 140A if the relationship between the creditor and the debtor has ended before the hearing takes place. But this contingency is catered for by subsection (4). That provides that a determination may be made under section 140A in relation to a relationship “notwithstanding that the relationship may have ended”. The logical implication is that, in a case where the relationship has ended, although the court cannot decide whether the relationship is (currently) unfair to the debtor, it must do the closest thing and determine whether the relationship was unfair to the debtor at the time when it ended.
21. If section 140A(1) had required the court as the general rule to determine whether the relationship between the creditor and the debtor was unfair to the debtor at some past time (such as when the credit agreement was made or when money became payable or was paid by the debtor), then subsection (4) would have been unnecessary. Its inclusion in section 140A confirms that the use of the present tense in subsection (1) is deliberate and that, subject to the exception created by subsection (4), the requirement to determine whether the relationship “is” unfair to the debtor means what it says.
22. A third point which is apparent on the face of the provisions is the breadth and open-ended nature of the assessment required by section 140A. The court is not left entirely at large, as subsection (1) requires the court to decide whether the relationship is unfair to the debtor because of one or more of three specified matters. These three possible causes of unfairness are, however, extremely broad. They include not only (a) “any of the terms of the [credit] agreement or of any related agreement” and (b) “the way in which the creditor has exercised or enforced any of his rights under the agreement or any related agreement”, but also (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)”. It would be hard to cast the possible causes of unfairness more broadly than this. What is more, subsection (2) makes it clear that there is no restriction on the matters to which the court may have regard in deciding whether the relationship is unfair to the debtor, provided only that the court thinks them relevant. Subsection (2) also makes it clear that, if any matter is thought relevant, the court not only can but must have regard to it. The breadth of the matters that may be thought relevant is illustrated by a list of examples given by Hamblen J in Deutsche Bank (Suisse) SA v Khan [2013] EWHC 482 (Comm) at [346].
23. Fourth, the descriptions of the possible causes of unfairness in section 140A(1)(a)–(c) demonstrate that, for the purpose of deciding whether the relationship is now (or was when it ended) unfair to the debtor, the court must consider the whole history of the relationship—going back not only to the making of the credit agreement but to any relevant act or omission of the creditor before the making of that agreement or any related agreement. This is so without any limit on how long ago the credit agreement or any related agreement was made. The matters to which the court is obliged to have regard under subsection (2) because it thinks them relevant are likewise not limited in time.
24. This is an important point to bear in mind when considering the time bar defence asserted by the bank in this case. As I noted in Patel v Patel [2010] 1 All ER (Comm) 864, para 64, in a passage approved by the Court of Appeal (Kitchin LJ, with whom Underhill and Moore-Bick LJJ agreed) in Scotland v British Credit Trust Ltd [2014] Bus LR 1079, para 82:
“in determining whether, at the relevant date, the relationship is or is not unfair, the court is required to have regard to certain matters specified in section 140A(1) and to all other matters it thinks relevant, whenever those matters occurred. There is no possibility, therefore, if the court is entitled to make the determination of fairness at all and is not barred by limitation from doing so, of restricting the temporal scope of the inquiry.”
25. Fifth, as well as requiring the court to make a very broad and holistic assessment to decide whether the relationship between the creditor and the debtor is unfair to the debtor, the legislation also gives the court, where a determination of unfairness is made, the broadest possible remedial discretion in deciding what order, if any, to make under section 140B. Section 140B gives the court an extensive menu of options from which to select but says nothing at all about how this selection may or should be made. On the face of the legislation the court's discretion is entirely unfettered. It is, I think, clear that the court is not in these circumstances required to engage in the kind of strict analysis of causation, loss and so forth that would be required, for example, in deciding what remedy to award in a claim founded on the law of contract or tort. Some constraint is, however, imposed by consideration of the general purpose of an order under section 140B. In principle, the purpose must be to remove the cause(s) of the unfairness which the court has identified, if they are still continuing, and to reverse any damaging financial consequences to the debtor of that unfairness, so that the relationship as a whole can no longer be regarded as unfair.'
Under the subheading 'Plevin v Paragon Finance', Lord Leggart in Smith said, at paragraphs 26 to 29:
'26. This last point is confirmed by the decision of this court in Plevin v Paragon Personal Finance Ltd [2014] 1 WLR 4222, a case which, like the present cases, involved the non-disclosure of commissions received out of premiums paid for PPI cover. The claimant had borrowed money to pay off existing debts and fund some home improvements. The loan, which had a ten year term, was arranged by a broker who recommended PPI. The PPI premium was all paid upfront and added to the amount of the loan. Of the PPI premium, 71.8% was taken in commissions by the broker and the lender. The claimant was told that commission was paid but not the amount of the commission nor who received it.
27. During the period of the loan the claimant brought proceedings against the lender which included an allegation that her relationship with the lender was unfair within section 140A(1)(c) of the 1974 Act because of the non-disclosure of the amount of the commission. On an appeal to the Supreme Court, the claimant succeeded on this issue. Lord Sumption JSC (with whom the other Justices agreed) said, at para 18:
“Any reasonable person in her position who was told that more than two thirds of the premium was going to intermediaries, would be bound to question whether the insurance represented value for money, and whether it was a sensible transaction to enter into. The fact that she was left in ignorance in my opinion made the relationship unfair.”
28. Lord Sumption JSC then considered whether this unfairness was due to anything “done (or not done) by, or on behalf of, the creditor” so as to fall within section 140A(1)(c). There was nothing which the creditor had positively done to cause the unfairness, so the question was whether the unfairness resulted from the creditor's failure to do something. On this point Lord Sumption JSC said, at para 19:
“Bearing in mind the breadth of section 140A and the incidence of the burden of proof according to section 140B(9), the creditor must normally be regarded as responsible for an omission making his relationship with the debtor unfair if he fails to take such steps as (i) it would be reasonable to expect the creditor or someone acting on his behalf to take in the interests of fairness, and (ii) would have removed the source of that unfairness or mitigated its consequences so that the relationship as a whole can no longer be regarded as unfair.”
29. Applying this test, Lord Sumption JSC considered that, given the size of the commissions paid and their potential significance for the claimant's decision whether to purchase PPI cover, it would have been reasonable to expect the lender in the interests of fairness to have disclosed to her the amount of the commissions. Had this been done, this source of unfairness would have been removed because the claimant would then have been able to make a properly informed judgment about the value of the PPI policy (para 20). The Supreme Court concluded that this was a sufficient reason to justify reopening the transaction and remitted the case to the county court to decide what, if any, remedial order to make under section 140B.'
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