Further guidance has now been issued by the court in the decision of the Queen's Bench Division in the case of Axton v GE Money Mortgages Ltd which was issued on 22 May 2015. This case highlights some important points in relation to unfair relationships and in particular the potential implications of a broker's involvement.
Axton were borrowers under a series of loan agreements they had entered into with a lender, GE Money Mortgages Ltd ("GE") from 2000 to 2004. Axton had been introduced to GE through a broker. Axton had purchased payment protection insurance ("PPI") from the broker in respect of all but one of the loan agreements. The PPI was paid for using part of the sum advanced under the loan agreements. The PPI policies were provided by a third party insurance provider and were sold by the broker. GE neither provided nor offered PPI to Axton however GE's documentation did recommend that PPI was purchased.
Axton subsequently alleged that the policies were unsuitable and argued that they were "related agreements" for the purposes of section 140(1)(a) of the Consumer Credit Act 1974 (the "Act") and that their terms gave rise to an unfair relationship between Axton and GE. This claim was dismissed by summary judgement on the grounds that recommendation of PPI alone was not sufficient to cause Axton to enter the policies. The court went further and decided this was true even if it was assumed that the terms of the policies would not be favourable to Axton. The court also concluded that it would not be proven that the broker's handling of the sale could amount to them acting on behalf of GE for the purposes of section 140A(1)(c) of the Act. Axton appealed.
The appeal from Axton was dismissed for the following reasons as set out by Swift J.
1. The burden of proof placed on the creditor via section 140B(9) of the Act to prove that the unfair relationship did not exist, did not mean that summary disposal should never take place where an unfair relationship was alleged.
2. The judge had also given proper consideration to all the relevant criteria set out in section 140A(1) of the Act.
3. The difficulty for Axton was establishing whether a real relationship existed between Axton and GE for the purpose of the PPI policies. GE had effectively had no role in the provision of those PPI policies except that they paid the premiums to the broker out of loans provided to Axton.
The first strand of the judgement is a reference to section 140B(9) of the Act which states the following:
"(9) If, in any such proceedings, the debtor or a surety 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."
The concern regarding a summary judgement in these circumstances is that the judge is being asked to test the creditor's position in respect of an unfair relationship on skeletal evidence hence a mini trial is arguably carried out. In Axton, Swift J rejected this concern and held that the judge had not carried out a mini-trial. The judge was entitled to dispose of the matter on the basis of his interpretation of legislation and on the basis of assumptions which arose from facts which were not in dispute. This approach is favourable for creditors who risk having allegations of an unfair relationship made against them. Where the creditor deems the allegation to be frivolous then the claims can be dealt with early by summary judgement which is likely to save time and money.
The second strand of Swift J's judgement concerns the considerations which should be taken into account when deciding whether an unfair relationship exists. Section 140A(1) states that
"(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)."
Axton had argued that the judge had erred in basing his decision on causation and that the reason the relationship was unfair was because of the terms of the policies. Axton argued further that the relationship was also unfair because GE did not disclose the commissions which they are said to have earned from selling the policies. The argument by GE was that for a relationship to be unfair there must exist a relationship between the creditor and the debtor in terms of the policies. GE also referenced the previously mentioned case of Plevin which found that the unfairness "must arise from one of the three categories of cause", listed in section 140A of the Act. Swift J was satisfied that the judge had considered each of these points in turn and had paid proper regard to this test.
The final strand of the judgement was that Axton were unable to satisfy the court that a relationship existed between Axton and GE in respect of the PPI policies. The fact that GE were said to have earned a commission from the referral to the third party was insufficient to establish a relationship. Swift J decided that this limited involvement could not constitute a relationship in respect of the policies and ultimately Axton's argument did not meet this criteria. Swift J also considered the decision in Plevin and decided that GE were not involved enough to constitute the "standard of conduct reasonably to be expected of the creditor".
This judgement is a useful guide to the court's approach to the considerations to be made under section 140A of the Act. The judgement also details the factors which must be taken into account to establish whether a relationship exists between two parties even before any alleged unfairness can be deemed to have occurred.