Claimants, claimant law firms and other ancillary mis-selling businesses were celebrating last week after The Court of Appeal handed down judgement in Canada Square Operations Limited v Potter [2021] EWCA CIv 339.
In summary, deliberate concealment was established as an additional ground for extending the existing limitation period under section 32 of the Limitation Act 1980, where any fact relevant to the plaintiff’s right of action has been deliberately concealed from him by the defendant then limitation shall not begin to run until the fact has been discovered or could have been “with reasonable diligence.” Further, s. 32(2) provides that, for the purposes of sub-s. (1), “deliberate commission of a breach of duty in circumstances in which it is unlikely to be discovered for some time amounts to deliberate concealment of the facts involved in that breach of duty.”
Background To The Case
This point was successfully argued in Canada Square Operations Ltd v Potter [2020] EWHC 672 (QB). The case involved an allegation of an unfair relationship arising from the non-disclosure of commissions taken by the lender following the sale of a PPI policy that was a related agreement to the Claimant’s fixed-sum loan agreement. The relationship between the parties came to an end in March 2010 when the loan was repaid early in full thus also terminating the PPI policy. The Claimant brought her claim for repayment of all PPI premiums paid and associated interest pursuant to Section 140B(1) of the Consumer Credit Act. The claim was issued in January 2019, almost 9 years after the relationship ended.
The Claimant sought an extension to the 6 year limitation period on the grounds that the non-disclosure of commissions was a deliberate breach of duty for the purposes of s32 of the Limitation Act and that the breach was not discoverable with reasonable diligence until November 2018, when she first became aware of the existence of the commission payments in relation to her PPI policy.
The Claimant relied on the following two limbs of s32 of the Limitation Act:
s32(1)(b): The facts relevant to the Claimant’s action were deliberately concealed from the Claimant by the Defendant. Therefore, the period of limitation doesn’t begin to run until the Claimant discovered the concealment; and
s32(2): For the purposes of subsection (1)(b) above, deliberate commission of a breach of duty in circumstances in which it is unlikely to be discovered for some time amounts to deliberate concealment of the facts involved in that breach of duty.
At first instance, Mr Recorder Rosen QC found that Canada Square must have known that it was acting unfairly through its non-disclosure of the commission generated through the sale of the PPI policy. The non-disclosure was found to be deliberate and that there had been a breach of duty under section 32 of the Limitation Act at the point the Agreement began. Accordingly, it was held that the claim was in time.
At the appeal hearing, Justice Jay dismissed the lender’s appeal against a finding that s. 32 of the Limitation Act 1980 applied to an unfair relationship claim brought under Section 140A of the Consumer Credit Act 1974 (“CCA”) so as to extend the relevant limitation period.
Following this decision, consumers have been bringing claims against lenders under s140A of the Consumer Credit Act 1974, often citing the case of Potter to argue that the limitation period begins to run from the date of knowledge (usually, the date of the “Stage 2 redress letter” informing the consumer that a proportion of the PPI policy premiums paid as part of the credit or loan agreement consisted of previously undisclosed commission payments).
The Appeal
It is no surprise that Canada Square wanted to appeal this decision for a second time. Whilst the decision brings clarity for Claimants on the issue of limitation, the scope is much wider than affecting just PPI claims and will affect all types of credit-related claims such as Plevin and mortgage mis-selling claims.
Was There A Breach of Duty?
The first ground to Canada Square’s appeal was that there was no legal duty on Canada Square under s140A, defining breach of duty in a traditional and restrictive sense, which could be distinguished from an otherwise “multifactorial assessment” of whether the relationship was unfair. Further, the Claimant and Defendant’s relationship was created on 26 July 2006, prior to unfair relationship provisions of the Consumer Credit Act 1974 coming in to force.
The Court of Appeal dismissed the first ground by applying the judgement of Arden LJ in Giles v Rhind at paragraph 37 “…the expression “breach of duty” in section 32(2) was merely “obverse” of the expression “right of action” in section 32(1)(b), by which he meant legal wrong doing of any kind, giving rise to a right of action”. Consequently, the creation of an unfair relationship by Canada Square was found to be a breach of duty for the purposes of s32(2). [p60]
Was There a Concealment?
Canada Square sought to argue that S32(1)(b) does not apply to the Claimant’s circumstances, as there had been no “deliberate concealment” from the Claimant by the Defendant.
The parties were in agreement that there was no “active concealment” by Canada Square and the Court of Appeal dismissed Canada Square’s submissions that active steps of concealment were a prerequisite for satisfying Section 32(1)(b). The decision of the Court of Appeal is neatly summarised in the judgement Rix LJ in AIC Ltd v ITS Testing Services (UK) Ltd: The Kriti Palm [2006], which the Court of Appeal referred to: “321.
It appears therefore that there must be either active and intentional concealment of a fact relevant to a cause of action, or at least the intention concealment by omission to speak of a fact relevant to a cause of action which the defendant knew himself to be under a duty disclose. There is no decision that anything less than a duty to disclose will suffice in the absence of active concealment”. [p68]
The Court of Appeal went on to state that for something to be considered as concealment, there must have been a duty to disclose the thing being concealed. To suggest that there must also be a legal duty to disclose only served to add “an unwarranted and unhelpful gloss on the clear words of the statute”. [p75] The focus instead should be on the conduct that formed the basis of the concealment
“and an analysis of whether the defendant was at that point, under a sufficient obligation to disclose for its failure to amount to the concealment” [p76] meaning that that a “defendant cannot rely on the limitation defence if he has only himself to blame for the for the failure of the claimant to bring the action sooner”. [p78]
In response to Canada Square’s submission that if the Claimant relies on s32(1)(b) then the concealment must be “some conduct other than the elements of the right of action itself” in order to be within s32(2), the Court of Appeal dismissed this submission stating that
“I do not see why as a matter of principle the claimant should be in a worse position when seeking to establish concealment of a fact when the right of action turns on that very act of concealment, than he is where concealment is not an element in the right of action.”.
The significance of the concealment was that it was continuous throughout the relationship between the Claimant and the Defendant and not, as Canada Square attempted to argue, only operative at the time the agreement between the parties was executed. By failing to disclose the commissions even after the unfair relationship provisions came in to force, the claim fell within the remit of s32(1)(b).
Was The Concealment “Deliberate”?
The Court found that the existing case-law defining the word “deliberate” in s32 of the Limitation Act was inconclusive [p106]. It was necessary for the Court to satisfy itself that there was a mental element contributing to the deliberateness, for the purposes of both s32(1)(b) and s32(b), that is, that Canada Square realised that the commissions should be disclosed to the Clamant, but made a decision not to disclose it [p85].
Jay J’s application of recklessness as a sufficient mental element was accepted, and in order to rely on s32(2) the Claimant would need to show that there was a risk that Canada Square’s failure to disclose lead to the creation of an unfair relationship under s140A of the CCA, and that taking such a risk was not reasonable.
Alternatively, the existence of a deliberate concealment could be found under s32(1)(b) if the Claimant could show that Canada Square realised the risk that there was a duty to disclose, but failed to disclose. The absence of actual knowledge of the risk that an unfair relationship could be created by the failure to disclose was not a prerequisite for relying on s32(1)(b) and s32(2).
Owing to a lack of evidence submitted by Canada Square, the Court considered the surrounding circumstances as to what Canada Square appreciated as risks of non-disclosure. Canada Square did not contest a finding that they must have deliberately decided not to disclose the existence of the commissions during the relationship between the parties.
Therefore, Canada Square must have appreciated there was a risk from the April 2007 when they became aware of the new s140A provisions, irrespective of whether other financial institutions were also concealing commissions [p159]. Further, from a regulatory perspective the ICOB Review Interim Report in March 2007 (as one example) discussed PPI and the risk this posed to customers who did not typically shop around on combined loan and PPI cost. [p148].
In Conclusion
The general point made by the Court of Appeal accordingly set the tone for yesterday’s judgement. In applying the Supreme Court case of Test Claimants in the F11 Group Litigation case the Court of Appeal explained that the Limitation Act 1980
“strikes a balance between the competing aims of protecting defendants from stale claims but allowing claimants to overcome the expiry of the ordinary time limit where the statute so provides”. As stated in the Test Claimants case “228….It would be unfair for time to run against a claimant before they could reasonably be aware of the circumstances giving rise to his right of action”.
The Court of Appeal advised this applied equally to s32(1)(b) and s32(2). [p29]
The judgement is a welcome relief for those seeking clarity on the interpretation of s32 of the Limitation Act and cases of a similar nature will ultimately turn on the discoverability of the concealment and the period of limitation for the purposes of s140A will run from the date of that discovery. Cases affected by an issue of limitation should therefore always ask the following questions:
Was the Claimant aware of the existence and level of commissions at the date of the Agreement was entered in to?
If not, using the guidance provided by this Court of Appeal judgement, decide if the Defendant’s failure to disclose the existence and level of commission was a “deliberate breach of duty in circumstances in which it is unlikely to be discovered for some time” pursuant to s32(2) of the Limitation Act 1980?; and
When did the Claimant discover the concealment?
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