Supreme Court provides importance guidance on limitation in the context of “unfair relationship” claims under sections 140A-C of the Consumer Credit Act 1974

The recent Supreme Court judgment in Smith and another v Royal Bank of Scotland plc [2023] UKSC34 is an important decision for all lenders in the context of claimants seeking relief as a result of an alleged “unfair relationship” under sections 140A-C of the Consumer Credit Act 1974 (“CCA”). The appeal related to customers who had entered credit card agreements and related PPI policies but the decision has wider implications for all credit agreements subject to the CCA.

The key issues arising from the judgment are as follows:

Limitation and delay

1.   A claim for a remedial order under section 140B CCA can be made at any time while the credit relationship said to be unfair to the debtor is continuing i.e. there will be no limitation defence under section 9 of the Limitation Act 1980 for as long as the credit agreement is continuing.

2.   The period of limitation begins to run only when the credit relationship ends. The limitation period runs for six years thereafter.

3.   A debtor may still be able to bring a claim for a remedial order under section 140B CCA after six years following the credit agreement terminating by relying on section 32(1)(b) of the Limitation Act 1980. This provision states that, where any fact relevant to the claimant’s right of action “has been deliberately concealed from him by the defendant” the period of limitation does not begin to run until such time as the claimant has discovered the concealment or could with reasonable diligence have discovered it. The Supreme Court is due to deliver its judgment in Potter v Canada Square Operations Ltd in the near future (where the claimant has alleged deliberate concealment) and this decision should provide further guidance on this issue.

4.   However, even though a claim for relief under section 140B CCA will not be time-barred under the Limitation Act 1980 whilst the credit relationship continues (and for six years thereafter) claimants cannot sit on their hands and unreasonably delay in bringing a claim. The Supreme Court made clear that the court has a discretion whether to make an order under section 140B of the CCA. If the debtor, with knowledge of the relevant facts, unreasonably delays bringing its claim the court will need to consider whether it is just to make such an order: “If a debtor sits on his or her hands in knowledge of the relevant facts, it would be, as Lord Leggatt states, inconceivable that a court would think it just to make an order under section 140B of the 1974 Act. This is so, both during the currency of the relationship and in the six years after that relationship has ended.” [Lord Hodge, paragraph 89]             

Guidance on the operation of sections 140A-C of the Consumer Credit Act 1974

The Supreme Court provided the following guidance for claims based on the concept of an “unfair relationship”:

1.   In dealing with such a claim, 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).  

2.   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.

3.   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.

4.   The court is required to undertake a broad and open-ended assessment of unfairness pursuant to 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. Further, 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.

5.   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, (para 346). Having reviewed the relevant authorities, Hamblen J confirmed the matters likely to be of relevance included the following:

“(1) In relation to the fairness of the terms themselves:

a. whether the term is commonplace and/or in the nature of the product in question (Rahman [277]);

b. whether there are sound commercial reasons for the term (Rahman [278]);

c. whether it represents a legitimate and proportionate attempt by the creditor to protect its position (Maple Leaf [288]);

d. to the extent that a term is solely for the benefit of the lender, whether it exists to protect him from a risk which the debtor does not face (Maple Leaf [289]);

e. the scale of the lending and whether it was commercial or quasi-commercial in nature (Rahman [275]) (a court is likely to be slower to find unfairness in high value lending arrangements between commercial parties than in credit agreements affecting consumers); and

f. the strength (or otherwise) of the debtors bargaining position (Rahman [275]);

g. whether the terms have been individually negotiated or are pro forma terms and, if so, whether they have been presented on a "take it or leave it" basis (Rahman [275]);

(2) In relation to the creditor's conduct before and at the time of formation:

a. whether the creditor applied any pressure on the borrowers to execute the agreement (if an agreement has been entered into with a sense of urgency it will be relevant to consider to what extent responsibility for this lay with the debtor, as distinct from the creditor) (Maple Leaf [274]);

b. whether the creditor understood and had reasonable grounds to believe that the borrower had experience of the relevant arrangements and had available to him the advice of solicitors (Maple Leaf [274]);

c. whether the creditor had any reason to think that the debtor had not read or understood the terms (Maple Leaf [274]); and

d. whether the debtor demurred at the time of formation over the terms he now suggests are unfair (this point has particular force if he did complain over other terms) (Maple Leaf [274]; Rahman [276]).

(3) In relation to the creditor's conduct following formation and leading up to enforcement:

a. whether any demand was prompted by an "improper motive" or was the consequence of an "arbitrary decision" (Paragon Mortgages [54(b)]);

b. whether the creditor has shown patience and, before leaping to enforcement, has taken steps in the hope of reaching some form of accommodation (for example by attending meetings, engaging in correspondence and/or inviting proposals) (Rahman [280-281]); and

c. whether the debtor has resisted attempts at accommodation by raising unfounded claims against the creditor (Rahman [280-281]).”

6.   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.

7.   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. As to this Lord Leggart said: “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.”

8.   Unfairness can be remedied. An unfair relationship can be made fair by the lender taking action (for example, to pay redress and thereby reversing the unfairness that previously existed).

In summary, this is an important decision that clarifies the applicable limitation rules for “unfair relationship” claims and provides useful guidance as to the operation of sections 140A-C of the Consumer Credit Act 1974 more generally.