Saville v Central Capital Limited [2014] EWCA Civ 337

Court of Appeal finds credit broker liable for breach of statutory duty on the basis that had they met ICOBS requirements, a PPI policy would not have been sold to the customer. The case considered the issue of causation in cases concerning a breach of statutory duty.

The Court of Appeal has allowed an appeal by a couple who took out Payment Protection Insurance (PPI) with a loan, overturning the previous decision by Manchester County Court. In his judgment Floyd LJ considered the obligations of intermediaries to ensure that recommendations to buy insurance policies meet the customers’ demands and needs. Following Harrison v Black Horse [2010] EWHC 3152 (QB) Floyd LJ set out the test to be applied to the issue of breach of a statutory duty in a sale of PPI. The correct approach is to ask whether, if the obligations set out in ICOBS had not been breached, would the damage have occurred? In other words, would the customer have purchased the particular PPI policy if the intermediary had followed the requirements of ICOBS which seek to ensure that products meet the demands of the customer and their needs.

The facts

In 2006, Mr and Mrs Saville decided to take out a loan to refinance their existing debts. They found a credit broker, Central Capital (Central), following an online search. Central offered the Savilles a sum repayable over 25 years. A separate contract was arranged by Central for PPI to protect against the event of loss of income. The policy also provided term life cover. The term of the policy was 5 years. The premium of £13,347.05 was added to the underlying loan of £54,500.

The Savilles had two main arguments in their case before the District Court: they had not wanted to buy PPI but believed they were obliged to in order to get the loan; and, if they wanted any insurance cover for the loan they would want it to cover the entire 25 year period of the loan. It was common ground that Central had not complied with ICOBS rules when selling the PPI to the Savilles. The question before the Court of Appeal was whether the District Court judge had been right to conclude that the Savilles had not established any loss causally attributable to Central’s breach of the statutory duty to ensure the product sold met the customers’ demands and needs.

The decision of the court

Distinguishing the facts of the case from those in Harrison v Black Horse, Floyd LJ found that there was evidence that the breach of ICOBS did have a causative impact on the purchase of PPI. The trial judge should have asked what the Savilles would have done had Central made open and fair enquiries directed at the level of PPI cover required. Although the Savilles knew that they were offered a 5 year policy, Floyd stated that knowing about some characteristic of a complex product or contract is a different thing from wanting that characteristic “if given a free choice”.

The trial judge was wrong to place the reliance upon the Saville’s general concern to reduce costs. His decision to reject the Savilles’ evidence that they wanted cover to last for the full duration of the loan on the basis that longer cover would have been more expensive to them was wrong.

The judge at first instance had made no assessment of whether the PPI policy sold met the Saville’s demands and needs in order to be suitable for them. Although the Saville’s understood what they were in fact sold, Central fell short in their duty to ensure that the PPI policy met their demands and needs. To determine otherwise would have the unwelcome result of shifting the responsibility for assessing suitability to the customer.

Central should have discovered the demands of the Saville’s as to the policy term by means of “an open and fair question”. Furthermore, the fact that the Savilles purchased a 5 year policy in the context of their desire to reduce costs does not establish that, had they been asked about the length of term they wanted, they would have chosen the 5 year period rather than a policy to cover the full term of the loan.

The breach of ICOBS rules (in particular ICOBS 4.3.1R) was causative of the loss to the Savilles who would not have paid £13,347 for PPI had the rules been complied with.

Our thoughts on the case

Saville v Central Capital demonstrates the need for intermediaries to ensure that they have recommended products to customers which meet a genuine need. It is not good enough to argue that simply because the customer knew that they had bought a product ipso facto, it must have been suitable for them. In order to meet the duty to ensure that products meet the customers’ demands and needs in ICOBS, the intermediary must ensure that both the demands and the needs of the customer are given sufficient consideration.

Floyd LJ was willing to establish a causal link between breaching a requirement of ICOBS and the loss suffered through payment of the premium for unwanted PPI. Furthermore, the judgment determines that it is the responsibility of the intermediary to prove that they have complied with the requirements of ICOBS and that they established that the policy sold was suitable.

The case should alert intermediaries to the need to evidence for each policy sold how a decision was reached about suitability. Firms should ensure that sales scripts provide for open questions about the type and level of cover sought. It will be imperative to be able to evidence that the customer made a free choice about whether or not to purchase the product and this choice should be evidenced if firms are to avoid facing responsibility for unwanted policies down the line.

View Saville v Central Capital Limited [2014] EWCA Civ 337, 24 March 2014