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Brendan McNeany, Partner, Samuel Phillips
Whilst the financial services sector has come under criticism for a variety of reasons of late, by far the most well-known complaint is that of Payment Protection Insurance (PPI) mis-selling. Millions of customers were offered PPI by lenders to cover potential circumstances whereby the customer would, at some point in the future, be unable to make repayments in accordance with the terms of the loan. Whilst there is no intrinsic problem in obtaining insurance of this nature, it has since become apparent that many customers were either provided with policies which were inappropriate for their needs, or simply told, wrongly, that the offer of credit was contingent upon them entering into a PPI policy. The net result of all of this is that lenders have had to reimburse their customers billions of pounds by way of redress.
Unsurprisingly, some solicitors have been quick to jump on the PPI bandwagon and there are now many firms marketing themselves as “PPI specialists”. The PPI scandal has effectively created an industry of its own and hardly a day goes by when we aren’t subjected to TV or radio advertising, or worse, cold calling by companies keen to sign-up clients who may have been mis-sold PPI. There is a view that, rather than acting in their clients' best interests, some firms of solicitors have sought to milk the system for all its worth and where legal costs often amount to over ten – and sometimes as high as thirty – times the redress it isn’t difficult to see how this view has arisen. Such legal costs are all the more surprising when it is borne in mind that there is a free ADR service available to anyone who thinks they may have been mis-sold PPI and which involves nothing more than completing a form.
The case of Binns & Binns v Firstplus Financial Group PLC  EWHC 2436 (QB) illustrates a fairly common issue that is encountered within PPI cases. The Claimants had entered into two loan agreements with the Defendant together with two PPI policies in respect of the same. The Claimants alleged that the PPI policies had been mis-sold by the Defendant and sought recovery of the sums paid accordingly. Solicitors were instructed and a letter of complaint was sent to Defendant requesting that the matter be investigated in accordance with the ADR Scheme set up by the Financial Services Authority. (The need to follow the ADR scheme was emphasised by HHJ Waksman QC in Andrew & Others v Barclays Bank PLC  EWHC B13 (Mercantile).) The Defendant subsequently upheld the Claimant’s complaint and full redress was offered. No offer was made for the Claimant’s legal costs. The Claimants sought to recover their legal costs in addition, but this was rejected by the Defendant and the Claimants made the decision to issue a Claim.
Particulars of Claim were settled in broadly similar terms to the initial letter of complaint, save for an additional pleading of an unfair loan under s.140A Consumer Credit Act 1974. The Defendant sought to strike out the Claim on the basis that the offer made represented the most that the Claimants could ever expect to receive and that the Claim represented an abuse of process. The District Judge declined to strike out the Claim (largely on the basis that there was a prospect of further damages under the s.140A claim) but made it clear that the Claimants may be exposed to an adverse costs Order if they were unable to recover more than had been offered under the FSA Scheme.
The decision was appealed by the Defendant. The Defendant argued that the Claimants had already been provided with full redress under the ADR scheme and as such there were no reasonable grounds for bringing the Claim. The Claimant maintained that they would be entitled to further damages under the s.140A claim and that the legal costs had been reasonably incurred and represented a material advantage to be gained.
Having considered the arguments, HHJ Richardson QC struck out the Claim in its entirety finding that there were no reasonable grounds for bringing the Claim. The Court rejected the Claimants’ submissions in respect of the s.140A claim and concluded that the Claim had been issued solely in the pursuit of costs. HHJ Richardson QC stated:
In the result I have not the slightest hesitation in saying the only advantage in pressing on with this case is the possibility (far from a probability) of an award of costs. I feel that is, however, a highly speculative adventure in any event given that it is highly likely no more will be achieved by way of damages than under the FSA scheme and there almost certainly would be a determination at trial that the claimant should have used ADR and will be disallowed all – or nearly all – the costs. Even if there was a possibility of an award of costs – that is an illegitimate factor as it is not a part of the claim itself, but adjunctive to it.
In my judgment the moral of this case is that litigants should ordinarily follow the ADR route when there is a perfectly good scheme that offers (i) speedy justice; and (ii) full redress. In appropriate cases the court should and will strike out cases where there has been full redress already. Full redress relates to matters intrinsic to the case not costs adjunctive to it. Using the language of CPR Part 3.4 (2)(a) there is truly no reasonable ground for bringing the claim . How can it be reasonable to bring a claim when the claim has succeeded in every way via ADR? The court needs to encourage good ADR and not allow claims that have succeeded to carry on. I dare say this case will be fact specific to the PPI litigation, but there may be wider applicability to other forms of ADR. I do not see a potential costs advantage as being a legitimate reason to press on with a case of this kind. The mosaic presented to me in this case admits, in my judgment, of one answer – strike-out.
This Judgment not only serves to remind parties of the need to fully utilise ADR where appropriate, but also serves as a warning to Claimants that the Courts will not entertain Claims issued purely with a view to recovering legal costs. In the context of PPI, where the FSA has done much to create a standardised complaints procedure to allow litigants to obtain redress at no cost, potential Claimants may wish to consider whether it is in their best interests to instruct solicitors whilst the ADR is available.