On 13 November 2019, the High Court dismissed a customer’s judicial review of an Ombudsman’s decision not to uphold a PPI complaint in R (Critchley) v Bank of Scotland (t/a Halifax) & Another EWHC 3036 (Admin). This is a welcome decision that supports the long standing view that the duty of utmost good faith does not apply to the simple lender and borrower relationship.
Background
The Claimant complained her bank had mis-sold payment protection insurance (PPI). The bank rejected her complaint so she referred it to the Financial Ombudsman Service. After rejecting an adjudicator’s decision that the PPI had not been mis-sold, the complaint was referred to an ombudsman.
The Ombudsman’s decision
The ombudsman decided the bank had (a) not acted fairly or reasonably with the Claimant and (b) failed to sufficiently advise her on the PPI. However, the ombudsman also decided the PPI had been suitable for the Claimant, and even if she had been properly advised, she would have still have bought it.
The Claimant’s application for judicial review
The Claimant applied for a judicial review of the Ombudsman’s decision. Her grounds of challenge were that the Ombudsman:
– had misinterpreted DISP Appendix 3, or had failed to apply it correctly (particularly the presumption in DISP App 3.6.2R);
– failed to have proper regard to all of the evidence and erred in concluding that the policy had been suitable for the Claimant;
– erred in failing to find a breach of the duty of utmost good faith because of the bank’s failure to disclose the policy’s limitations and poor value; and
– failed to give adequate reasons.
Decision
The Claimant’s application was dismissed. The judge gave the following reasons:
– There was nothing to suggest the ombudsman had misinterpreted DISP App 3. He had fully referred to it in his decision and, given his experience, he was well aware of its provisions. The Ombudsman considered his approach and his findings were consistent with DISP App 3. The Ombudsman did find significant failings with the sale of the PPI and, in consequence, it was substantially flawed in accordance with DISP App 3.6.2R. However, he found there was evidence to rebut the presumption and decided it was likely the Claimant would have still purchased the PPI despite the flaws.
– The Ombudsman found the bank had recommended the PPI to the Claimant and did not act with reasonable care and skill in establishing whether the PPI was suitable for her. However, the ombudsman found the PPI was suitable for her. The judge concluded the ombudsman was entitled, after his careful analysis of the PPI’s costs and his detailed reasons for his decision, to decide (a) the PPI had been suitable for the Claimant, (b) it had not been poor value and (c) the Claimant would have purchased the PPI anyway.
– The Claimant said the bank was in breach of its duty of utmost good faith because (a) the exclusions and limitations of the PPI were not drawn to her attention and (b) the low claims ratio should have been disclosed as a matter of reasonableness and commercial decency. The Ombudsman was not persuaded by the Claimant’s views of what the duty of utmost good faith required and the judge agreed. The judge said the Claimant’s case on the scope of an insurer’s pre-contractual duty of utmost good faith was misconceived. The duty was contrary to the underlying basis for the Court’s decision in Plevin v Paragon Personal Finance Limited [2014] UKSC 61. The only duty was to disclose ‘circumstances which decrease the risk to the assured’.
Summary
This is a welcome well-reasoned and detailed decision. We have recently seen a resurrection of the allegations of the duty of utmost good faith in Claimant’s statements of case. This decision reaffirms our view that this duty (a) applies to contracts of insurance between the insurer and the insured (and not a simple relationship of creditor and borrower) and (b) the disclosure is limited to matters material to the risk being insured or the recoverability of a claim under the policy.
