Landmark Supreme Court pro-consumer decision impacting financial services operators

November 15, 2023

On 15 November 2023 the Supreme Court (SC) has handed down Judgment in Canada Square Operations Ltd v Potter [2023] UKSC 41. In a nutshell, this Judgment is a landmark, pro-consumer decision which signals to financial services operators that the deliberate concealment of wrongdoing will not be tolerated by the Country’s highest court.  In this article, we will explain the issues that required a determination, how the SC reached its decision and what it means practically going forwards.

The Facts

In July 2006, Mrs Potter entered into a loan for £16,953 with Egg Banking plc, which later changed its name to Canada Square.  A PPI premium of £3,834.24 was  also taken out.  Unknown to Mrs Potter, 95% of the premium cost was made up of commission, which was not disclosed to Mrs Potter.  Mrs Potter redeemed the loan in March 2010 and issued a PPI claim in 2019, pursuant to the “unfair relationship” provisions under section 140 of the Consumer Credit Act 1974.  The main issues which arose at trial was whether the claim was time barred pursuant to section 32 of the Limitation Act 1980 (LA).

At first instance, Canada Square was held to have deliberately concealed the existence of commission, meaning that section 32 of the LA extended the limitation period, and the claim was not time barred.  Canada Square appealed to the Court of Appeal and lost its appeal there, so further appealed to the SC.

The Issues in the Supreme Court Appeal

In summary, the SC was required to consider three issues, all concerning the meaning of phrases in sections 32(1)(b) and 32(2) of the LA, being “deliberately concealed” and “deliberate commission of a breach of duty”, respectively.  Canada Square decided not to appeal the Court of Appeal’s finding that it had been reckless as to whether it was under a duty pursuant to the LA  to disclose the commission, nor that the creation of a section 140A unfair relationship amounted to a breach of duty pursuant to section 32(2) LA.

Regarding section 32(1)(b), Canada Square brought two grounds of appeal, being:

1) That the word “concealment” required a legal duty to make a disclosure (and it was under no such legal duty); a simple regulatory duty to disclose was insufficient for the purpose of finding concealment; and

2) The words “deliberate concealment” required actual knowledge or wilful blindness as to whether Canada Square was (a) under a duty to disclose commission and (b) whether commission was relevant to a cause of action against it; in other words, although Canada Square accepted it was reckless in its conduct with Mrs Potter, its appeal to the SC asserted that recklessness was insufficient for the purpose of 32(1)(b).

Regarding section 32(2), a single ground of appeal was brought, being:

3) That the wording “deliberate concealment” required a higher bar of knowledge than reckless conduct when concealing a breach of duty for section 32(2) to apply; in other words, Canada Square argued it should not be held accountable for its admittedly reckless conduct because the phraseology of the relevant section required a greater degree of actual knowledge.

The Supreme Court Judgment

The unanimous SC Judgment was handed down by Lord Reed.  The Judgment contained a detailed examination of the background to the relevant sections of the LA  (including prior Acts and Committee reports), as well as a thorough case law review.

Section 31(1)(b)

As to ground 1), Lord Reed stated that in examining the plain English meaning of the word “concealment”, the embellishment added to section 31(1)(b) by previous CoA authorities is not necessary.  Lord Reed stated [para 98] “[…] the word “conceal” means to keep something secret, either by taking active steps to hide it, or by failing to disclose it.”  The Judgment goes on to make it clear that while the existence of a duty (legal or otherwise) could inform a finding of deliberateness, “it has to be emphasised that this is not to say that the question of deliberate concealment can either be reduced to, or is dependent upon, a breach of duty” [para 100].  After considering several CoA authorities, the Supreme Court rejected the effective assertion by Canada Square that the word “concealment” implies the requirement that a legal duty to disclose first exists.

As to ground 2), Lord Reed concluded that Parliament’s use of the word “deliberate” renders recklessness an insufficient measure of knowledge as far as section 31(1)(b) is concerned.  His reasoning for this is explored below in discussion of section 32(2).

In conclusion, Lord Reed restated the requirements of section 31(1)(b) that must be met by a Claimant to rely upon it for an extension of limitation, being: 1) there must be a fact relevant to a claimant’s right of action; 2) that fact must have been concealed from a claimant by a defendant, either by a positive act or by withholding information; and 3) the defendant must have intended to conceal.

Section 32(2)

As to ground 3), Lord Reed broadly rejected the CoA’s finding that “deliberate” acts include those borne out of recklessness.  In doing so he again looked at the simple meanings of each word, noting that the two words hold very distinct meanings.  He agreed with Lord Hamblen’s words in Grant v International Insurance Co of Hanover Ltd [2021] UKSC 12 that the word deliberate connotes the conscious performance of an act intending its consequences.  It is a different state of mind to recklessness.

Lord Reed’s Judgment also observes that other pieces of legislation treat the words “deliberate” and “reckless” as distinctly different, and this should inform the Court’s interpretation of 32(2) (and, in turn, 31(1)(b)), contrary to the CoA’s approach in its consideration of Canada Square’s appeal.

Finally, Lord Reed analysed the reliance placed upon parliamentary materials by the CoA, and alleged practical considerations raised by counsel for Mrs Potter in asserting that, in effect, recklessness must be sufficient since in a number of situations it could not be said with certainty that a Defendant knew of a legal wrongdoing until a Court had made a determination at trial.

In conclusion, the Supreme Court confirmed that the word “deliberate” in section 32(2) does not include “reckless”, in the main due to the clear words used by parliament in the drafting and the ordinary meaning given to them, which is the cornerstone of interpretation in English law.

The Present Case

The application of these determinations to the facts of the case is said to be straightforward in Lord Reed’s Judgment.  Regarding section 31(1)(b), and following the framework restated in paragraph 109 of the Judgment: 1) the existence and amount of commission were facts relevant to Mrs Potter’s right of action; 2) those facts were concealed from Mrs Potter by Canada Square; and 3) Canada Square did so deliberately by consciously deciding not to disclose them.

Regarding section 32(2), it must have been shown by Mrs Potter that Canada Square knew it was committing a breach of duty, or intended to commit a breach of duty.  Prior to the appeal, Mrs Potter conceded that she could not meet that test.

Practical Considerations

In effect, the Supreme Court has held that although the CoA’s reasoning was wrong in its conclusion that Canada Square could not rely on a limitation defence pursuant to section 31(1)(b), it was correct to hold that 31(1)(b) applied to the case for other reasons explained in Lord Reed’s SC Judgment.  Regarding section 32(2), the CoA was incorrect in concluding that Canada Square could not rely upon section 32(2).

Canada Square was successful in appealing the wide definition of “deliberate” applied by the CoA and in doing so has removed its inclusion of any concept of recklessness when considering the applicability of both sections 31(1)(b) and 32(2).  In that regard, the Supreme Court’s decision can be said to have diminished consumer rights to some extent.

However, the Supreme Court has confirmed absolutely that there is no requirement for the existence of a legal duty to disclose when considering the applicability of section 31(1)(b) of the Limitation Act 1980 (and, by extension, the meaning of the word “concealment” in English law generally).  This is a landmark, pro-claimant decision that will open the door for many claims to be brought that would otherwise have been deemed time barred for limitation purposes.

In summary, the test now set by the SC makes it easier for claimants to rely upon legislation that was intended by parliament to preserve their ability to issue a claim in circumstances where a fact relevant to their right to bring that claim has been concealed from them by the defendant.  It is now categorically the case that the defendant does not need to be under a duty to disclose a relevant fact before a claimant can rely upon section 31(1)(b), which delays the start of the time limit for bringing a claim to the point at which they discovered (or could reasonably have discovered) the relevant fact that was concealed.

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