Plevin v Paragon Personal Finance (1) Limited

The Facts

Mrs Plevin took out a personal loan with Paragon Personal Finance Ltd through LLP Processing (UK) Ltd (LLP)
LLP proposed that Mrs Plevin take a £34,000 loan, repayable over 10 years, and that she take out PPI for 5 years with Norwich Union, Paragon’s designated insurer
The PPI premium of £5,780 was payable at the outset and was added to the amount of the loan
71.8% of the premium was made up of commission (£1,870 LLP, £2,280 retained by Paragon)
Mrs Plevin was advised by way of FISA guide provided by LLP that ‘commission is paid by the lending company’
Mrs Plevin was not advised of the amount of the commission or the identity of the recipients.

The Supreme Court Decision

When the matter was considered by the Supreme Court in the leading Judgment, Lord Sumption held that the non-disclosure of commission was a source of unfairness by reason of ‘sufficiently extreme inequality of knowledge and understanding’. He stated that there is a tipping point where commission becomes so excessive that it renders the relationship between the borrower and lender unfair.

The Supreme Court acknowledged that identifying this tipping point is difficult, but in this case 71.8% was ‘a long way beyond it’. The only party who could have known the size of both commissions was Paragon, and their decision to withhold disclosure also contributed to the relationship being unfair.
Each case will be decided upon its own merits. The Court accepted that there is an inherent imbalance between the creditor and debtor, but that this is not in itself enough to constitute an unfair relationship.

The matter was referred back to the Manchester County Court to consider the appropriate remedy.

The Remedy – His Honour Judge Platts at the Manchester County Court

His Honour Judge Platts concluded that the Courts have a very wide discretion in deciding a remedy. The matter of Patel correctly summarises the position that the Court must have an overriding regard to what is proportionate to the type and extent of unfairness.

He acknowledged that the circumstances in this case are very different from the leading authorities in this area, namely; Harrison v Black Horse Limited [2011] EWCA Civ 1128, Conlon v Black Horse and Patel (U.R.) v Patel (V.B.) [2009] EWHC (QB) 3264; GCCR 9701, Bevin v Datum Finance Limited [2011] EWHC 3542 (Ch) and Link Financial Limited v North-Wilson [2014] EWHC 252 (Ch).

The Court placed great emphasis on Yates v Nemo as it deals specifically with non-disclosure of commission. However, Mrs Plevin’s circumstances are distinguishable as she made a voluntary choice to accept the PPI offered to her.

Therefore taking matters in the round, His Honour Judge Platts ordered a full refund of the commission paid and no part of the PPI premium itself.

The impact of the decision
Whilst the decision comes as a welcome relief for lenders and financial intermediaries, it is important to bear in mind it is only persuasive as to the approach to be adopted generally in proceedings.
With very little guidance given by the Court on how to deal with issues concerning non-disclosure of commission, lenders will be required to make their own business assessment as to the rates of commission and the extent to which they are disclosed.

The Court recognises that there is an inherent inequality in the relationship between the creditor and debtor however, this alone should not lead to a finding of unfairness.

In this case, the Court only decided to refund the element of commission, but it is clear that the Court will also consider refunding the premium, depending on the facts.

For further information please contact Kearns Solicitors

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