Bankrupt or trustee's knowledge relevant for limitation period?

Overview

This appeal concerns the running of the limitation period for bringing a complaint to the Financial Ombudsman Service ("FOS") where the consumer has subsequently become bankrupt, and whether the proper complainant is the bankrupt or the Official Receiver (“OR”) in his capacity as trustee in bankruptcy.

Background

From the 1980s, payment protection insurance (“PPI”) was mis-sold to private customers by financial institutions on a massive scale. Customers who were mis-sold PPI are entitled to redress under the Financial Conduct Authority (“FCA”) Dispute Resolution: Complaints Sourcebook (“DISP”). Many individuals who were mis-sold PPI subsequently went bankrupt, with any compensation obtained by way of redress falling into the bankrupt’s estate.

In 2017, the rules in DISP were amended to insert a “backstop deadline” for PPI mis-selling complaints of 29 August 2019.

The OR, as trustee in bankruptcy of hundreds of thousands of bankrupts in that capacity, has referred mis-selling complaints to a large number of financial institutions which sold PPI. By the end of the 2020-21 fiscal year, the OR had recovered over £500m in respect of mis-selling claims.
 
In May 2019, the OR indicated its intention to bring a significant number of PPI mis-selling complaints against Shop Direct Finance Company Limited (“Shop Direct”), seeking compensation for PPI policies held by bankrupts before their bankruptcy orders were made.
 
On 29 August 2019 (the backstop deadline), the OR requested that Shop Direct treat its correspondence as an expression of dissatisfaction in relation to any PPI policy identified as held by the bankrupts prior to their date of bankruptcy.
 
Shop Direct brought a Part 8 claim in the High Court on the basis of DISP 2.8.2R(2)(b), which provides that the Ombudsman cannot consider a complaint if the complainant refers it to the FOS more than three years from the date on which the complainant became aware (or ought reasonably to have become aware) that he had cause for complaint. Shop Direct sought a declaration that the relevant awareness for the purposes of DISP 2.8.2R(2)(b) is that of the OR, and not the bankrupt.

In the alternative, Shop Direct argued that even if it is the bankrupt’s awareness that is relevant, the bankrupt would have, or ought reasonably to have, become aware that he had a cause for complaint at the time of bankruptcy or shortly thereafter, since the awareness of the OR should be imputed or attributed to individual bankrupts.
 
Depending on the answer to this threshold issue, Shop Direct sought further declaratory relief as to the timing of relevant actual or constructive awareness on the part of the OR.

The High Court’s Decision

Mr Stephen Houseman KC, sitting as a Deputy High Court Judge, agreed with Shop Direct and granted a declaration that the relevant awareness is that of the OR, finding that the complainant is the person who refers the relevant complaint with requisite capacity and who has the relevant cause for complaint as the vested holder of the statutory right relating to such complaint. In this scenario, the Judge found that this was the OR, in whom the statutory right to bring the complaint and obtain redress through FOS had vested pursuant to s.436(1) of the Insolvency Act 1986.

The Judge refused to the grant the further declaratory relief sought by Shop Direct as to the timing of the actual or constructive awareness on the part of the OR. The Judge found that there may be some force in some of Shop Direct’s generic criticisms that the OR may have failed to gather sufficient information promptly for bankrupt consumers. However, he ultimately concluded that Shop Direct has the burden of establishing actual or constructive awareness of relevant cause for complaint more than three years before the date of referral in mid-2019. This inevitably involves questions of fact, and it was not appropriate to determine this issue under CPR Part 8 or declare in the wholesale manner sought by Shop Direct.

The OR appealed, arguing that the Judge should have concluded that the relevant awareness is that of the bankrupt. Permission to appeal to was granted by the Judge himself in view of the importance of the legal issue and the fact that there was no previous authority on it.

The Court of Appeal’s Decision

All three judges agreed that the appeal should be allowed and the High Court’s declaration set aside. Lord Justice Singh delivered one set of reasons with which Lady Justice Carr agreed. Lord Justice Nugee concurred in the result, delivering his own set of reasons.
 
In his reasons, Lord Justice Singh stated that the primary issue was the interpretation of the limitation provision in DISP. The overall thrust of DISP is that the subject matter of a complaint focuses on the underlying consumer who bought the PPI policy. This is clear from the definition of “complaint” in the Glossary and from the terms of Appendix 3. Although the word “complainant” is not defined in the Glossary, it is used on numerous occasions to refer to the consumer, even where it is expressly stated that someone else is making the complaint on that person’s behalf.
 
This finding is consistent with the general nature of DISP, which is not like conventional legislation. Its drafting style is different and is intended to create a relatively informal and simple scheme for and on behalf of consumers. It is also not intended for respondents to have to deal with highly complicated legal concepts.
 
Most fundamentally, Lord Justice Singh found that the Judge’s interpretation was unsustainable because of the absurd consequence it would have, particularly in a situation where the bankrupt has had the relevant awareness for perhaps as long as two years and 364 days. On that interpretation, the time limit would start to run again for three years once the OR was in post as the trustee in bankruptcy. That could not have been the intention of DISP.

Ultimately, Lord Justice Singh concluded that, while Shop Direct’s position (that the relevant awareness is that of the OR) was not correct and the appeal should be allowed, he was equally unable to adopt the OR’s position (that the relevant awareness is that of the bankrupt) for two reasons. First, this would have the consequence that in certain cases there would be no time limit at all, for example where the bankrupt person has died and even though the OR has every reason to know that a complaint can be brought but simply sits on it. Second, there may be force in Shop Direct’s alternative argument which was not pursued in the High Court to the effect that, if the rule does refer to the relevant awareness of the bankrupt, nevertheless the awareness of the OR may be attributed or imputed to the bankrupt. Since there are likely to be further proceedings in which the factual and other legal issues will be considered, Lord Justice Singh concluded that, while the appeal should be allowed, and the declaration of the High Court set aside, this Court should decline to make any further order.
 
Lady Justice Carr agreed with Lord Justice Singh’s decision and reasons.
 
Lord Justice Nugee agreed that the appeal should be allowed, but focused his decision on the discoverability of the complaint, finding that the determination of who should bring the complaint depends on whether the underlying consumer became or ought to have become aware of the complaint before becoming bankrupt.
 
Lord Justice Nugee considered various factual scenarios pertaining to the timing of the bankruptcy and potential death of the consumer and ultimately concluded that the following should apply:

1. Time starts running if the underlying consumer, while alive and not bankrupt, becomes or ought to become aware that he has cause for complaint. In such a case “the complainant” in DISP 2.8.2R(2)(b) means the underlying consumer.

2. If time starts running under (1), it continues to run as against not only the consumer but if he dies or becomes bankrupt against his personal representatives or trustee in bankruptcy, so that they are barred when he would have been barred.

3. If time does not start running under (1) and the underlying consumer dies or becomes bankrupt before he becomes (or ought to have become) aware that he has cause for complaint, time starts running when his personal representatives or trustee in bankruptcy become, or ought to become, aware that the deceased or bankrupt consumer had cause for complaint. In such a case “the complainant” in DISP 2.8.2R(2)(b) refers to the personal representatives or trustee in bankruptcy as the case may be.

For these reasons, Lord Justice Nugee agreed that the High Court's decision should be set aside, but that the Court of Appeal should not substitute any alternative declaration.

Judges: Lord Justice Singh, Lady Justice Carr and Lord Justice Nugee

Counsel: Michael Gibbon KC and Maxim Cardew of Maitland Chambers (instructed by Legal Services Directorate, Insolvency Service) for the OR; Javan Herberg KC of Blackstone Chambers and Oliver Assersohn of XXIV Old Buildings (instructed by Weil, Gotshal & Manges (London) LLP) for Shop Direct