Smith and another v
Background
On
Key transitional provisions limiting the power of the court to grant relief under the 1974 Act (contained in Schedule 3 to the 2006 Act) include:
- A transitional period of one year from
6 April 2007 (the date of commencement) (paragraph 14(4)). -
The court cannot grant relief in connection with a credit agreement which became a 'completed agreement' (that is, one in respect of which no further sums are due) before
6 April 2008 (the expiry of the transitional period) (paragraph 14(2)). -
References to a 'related agreement' in section 140B shall not include such agreements that were made before
6 April 2007 and ceased to have any operation before6 April 2008 (paragraph 16(4) to (5)).
In Smith and another v
In each claim, the court found for the claimant at first instance, and those conclusions were upheld on the first appeal brought by the RBS. The matter came before the
- The effect of the transitional provisions, properly applied, is that the claimants had no cause of action at all.
- In any event, the claims were time-barred by section 9 of the Limitation Act 1980 (the 1980 Act).
(1) What effect did the transitional provisions have on the causes of action?
RBS's case was that the transitional provisions precluded the court from determining that there was an unfair relationship if the alleged unfairness arose from a related agreement (such as a
Birss LJ (with whom Coulson and Macur LJJ agreed) first considered the legislation as a whole and the policy behind it. He agreed with the analysis in Scotland v
Birss LJ considered that the transitional arrangements made no difference to this analysis. Section 140A(1) provides that the relationship to be considered is the one arising not only out of the credit agreement but also "the agreement taken with any related agreement" (paragraph 46, judgment). He held that the qualification in paragraph 16(2) of Schedule 3 to the 2006 Act in respect of related agreements that ceased to operate before the end of the transitional period only applied to section 140B. As there was no comparable qualification for section 140A; reference to a 'related agreement' therefore included any such agreements that ceased to operate before
Accordingly, the trial judge had been entitled, in determining whether there had been an unfair credit relationship within the meaning of section 140A, to take into account
(2) Were the claims time-barred?
It was common ground that claims under section 140A were subject to a six-year limitation period under section 9 of the 1980 Act.
The issue was the date on which the cause of action accrued (the date at which "all the facts necessary to be proved to make that claim can be pleaded") (paragraph 53, judgment).
As a preliminary point, Birss LJ considered that, as long as the relevant date on which unfairness was found remained within the limitation period, the claim was not time-barred. However, given that a relationship is "something which continues over time", Birss LJ considered that the fact that unfairness had occurred in the past would not always be relevant to assessing whether the relationship is unfair subsequently (paragraph 54, judgment). Furthermore, Birss LJ could see nothing in the 1974 Act which meant that once a credit relationship was unfair for some reason it was always unfair: "the fact that a relationship was unfair yesterday is not same fact as the relationship being unfair today. The facts necessary to make a claim for the unfairness on that given date cannot be said to have occurred until that given date" (paragraph 54, judgment).
Thus, the critical question was, in the words of Leggatt QC (as he was then) in Patel v Patel: "what is the relevant date at which the fairness or otherwise of the relationship has to be determined?" (Paragraph 55, judgment.)
It was common ground that, following Plevin v
At first instance, the trial judge considered that the unfairness persisted beyond the date when the
Birss LJ, however, considered this a misapplication of the law stated in Plevin: rather, the unfairness derives "not simply from being deprived of information on its own, but from the customer being kept in ignorance, of what was a material fact, at the point in time that they were deciding whether to enter into the
Birss LJ therefore considered that the relationships ceased to be unfair when the claimants ceased making
Accordingly, the court allowed the appeal on the grounds that both claims were time-barred by section 9 of the 1980 Act. In the first claimant's case, Birss LJ also expressed the provisional view that, "since the unfair relationship ended before the coming into force of [sections 140A to 140C], an action for what was an unfair relationship in 2006 does not come within the 1974 Act at all" (paragraph 70, judgment) (although the appeal was not argued on this basis).
Conclusions and comment
This case is a victory for banks facing numerous claims in the county courts arising from historic
It would seem, at first blush, that this decision has laid rest the argument that the transitional provisions prevent a claim to recover premiums paid under a
Article first published for Practical Law.
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