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	England and Wales Court of Appeal (Civil Division) Decisions
You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Saville v Central Capital Ltd [2014] EWCA Civ 337 (24 March 2014) URL: http://www.bailii.org/ew/cases/EWCA/Civ/2014/337.html Cite as: [2014] EWCA Civ 337

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IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM MANCHESTER COUNTY COURT
DISTRICT JUDGE HARRISON
Claim No.: 1MA03594

		Royal Courts of Justice Strand, London, WC2A 2LL
		24/03/2014

Lord Justice Floyd:

Introduction

1. In the spring of 2006 Michael and Patricia Saville ("the Savilles") decided to take out a loan to re-finance their existing indebtedness. They did a search on the internet. They came across the second defendant, Central Capital plc ("Central"), a credit broker, and made an enquiry. They were contacted by Central and ultimately entered into a loan agreement with the first defendant lender ("FirstPlus") to borrow a total sum of £54,500 repayable over 25 years. At the same time, also through the mediation of Central, the Savilles entered into a contract of payment protection insurance ("PPI") which protected them in the event of Michael Saville being unable to make the capital repayments and pay the interest on the loan by reason of his sickness or losing his job. The policy also covered the eventuality of the Savilles' deaths. The term of this insurance was 5 years. It was paid for by a lump sum premium, payable in advance and financed by a sum added to the loan. The PPI premium added £13,347.05 to the loan, which was subject to interest in the same way as the advance.
2. The Savilles raised a number of claims in connection with the sale to them of the PPI. All those claims came before District Judge Harrison in the Manchester County Court who, by an order dated 26 February 2013, dismissed them. Prominent amongst the claims at trial was the Savilles' assertion that Central impliedly represented to them that the PPI was compulsory if the loan was to be taken out. The Savilles' primary case was that they did not want PPI at all, but thought they had to take it. The District Judge did not accept the Savilles' evidence that they did not want PPI. He concluded that, when they entered into the contract, the Savilles were aware of the fact that the PPI was optional and that they could have contacted the insurers seeking further quotes without insurance.
3. The Savilles' secondary case was founded on their assertion that, if they had wanted insurance at all, they would have wanted the cover to last for the full period of the loan, and not just for the first 5 years. The District Judge found their evidence in this respect to be so contradictory that he was free to reject it.
4. It was common ground at the trial that in the course of selling the PPI policy to the Savilles, Central had not complied with certain of the Insurance Conduct of Business Rules then in force ("the ICOB rules"). The Savilles relied on the right of action conferred by section 150 of the Financial Services and Markets Act 2000 ("FSMA") which, at the material time, provided that:

"contravention of a rule is actionable at the suit of a private person who suffers loss as a result of the contravention, subject to the defences and other incidents applying to actions for breach of statutory duty."

5. At the commencement of the trial Central accepted that it was in breach of certain ICOB rules in the course of arranging the PPI contract for the Savilles. I set these rules out below, but it is sufficient at this stage to say that the rules are those which impose a general duty to ensure that any recommended insurance policy meets the demands and needs of the customer, as well as more specific duties to carry out a process of seeking out and assessing relevant information about the customer's requirements. As they had failed to make any enquiries at all of the Savilles as to the period for which the Savilles would wish to have PPI, the concession was obviously correctly made.
6. The District Judge's conclusion about the Savilles' claim that they did not want the insurance at all was expressed in the following way (at paragraph 46 of his judgment):

"I can think of no rational explanation, the Claimants having read the documentation, understood the terms of the insurance and entered into the agreement, no rational explanation for them doing so other than that is what they chose. That is what they wanted. So leaving aside any issues of breach of regulation admitted or otherwise, the Claimants got what they wanted and understood it fully."

7. Turning to the claim for breach of statutory duty, in paragraph 48, the Judge pointed out that the action conferred by section 150 was not one of strict liability, but involved the ordinary rules of causation in tort. Applying the reasoning from the passage quoted in the previous paragraph of my judgment, he said that causation was not established because the Savilles purchased the policy in full knowledge of its terms.
8. The narrow issue raised by this appeal, brought with the permission of Lewison LJ, is whether the judge was right to conclude that the Savilles had not established any loss causally attributable to Central's breach of statutory duty.

The facts in more detail

9. In about April 2006 the Savilles had need of a loan in order to consolidate their existing indebtedness with the objective of reducing their total monthly repayments of capital and interest, for example by spreading their indebtedness over a longer period. Their consequent search on the internet led to them being contacted by Central. There followed a series of telephone conversations between Michael Saville and representatives of Central. The broad sequence of events was that there was an initial conversation in which the Savilles' basic financial circumstances were enquired into. There was then a follow-up conversation in which more detailed information was elicited. Loan and insurance documentation was then sent out to the Savilles. Following receipt of the documentation the Savilles reconsidered their position and decided to apply for a larger loan. This led to a third telephone conversation between Mr Saville and Central to discuss the new loan details. There was a final conversation with the lender, FirstPlus, the purpose of which was for FirstPlus to be reassured that the Savilles wished to proceed with the loan as set out in the documentation which they had signed. Mrs Saville participated in this last call, but not the earlier ones, but no point is taken on this.
10. The Savilles' original request was for a loan of only £26,000. At the end of the first call, Central's representative said that the Savilles definitely would have lenders available to them. A customer account manager would call them on the following day. In the second call Mr Saville was interviewed by means of Central's sales script. At the outset he was asked this rolled-up question (although the script required answer to both parts of it):

"Now if you were unable to work, I assume like everyone else you would like to know that your loan repayments would be made. Now do you have any existing arrangements that would provide this?"

11. Mr Saville's response was that he did not have cover for that amount. He was then asked a similar rolled-up question about life insurance. He replied that he did have life insurance and it was sufficient to cover the new loan.
12. After some further questions, the representative explained that Central's computer system takes into consideration everything Mr Saville had told them in the first call "to get you the best deal possible". FirstPlus was willing to lend the £26,000 over 10 years at a cost of £415.93 per month. Mr Saville was told that FirstPlus could also offer a loan of £47,500 over 25 years which would refinance all their credit except for their mortgage. The repayments would be £517.30 per month. Both arrangements would represent a significant saving over the cost of their current borrowings. The representative mentioned that the larger loan could be over 25, 20 or 15 years subject to larger repayments for shorter terms. He then said that "all these come with payment protection" and with "life insurance for both of you". He also explained that after 5 years, if there was no claim on the PPI and the Savilles did not default by three consecutive monthly payments, all of the premiums could be claimed back. In the event, the Savilles' payment history did not permit them to reclaim this sum. The representative then gave a summary of the terms of the PPI. In this explanation he said:

"Now I also need to make you aware that the term of this policy is five years, as I said, which enables us to keep the costs down to a minimum. Now if you redeem the policy early you are entitled to a rebate on the premium. Now the rebate is not directly proportionate to the time left on the policy, but it means that you will not end up paying for something you have not used. Now in this case, like I said, you put a claim into First Plus after five years, you get it all back. That's £11,632.00 all right?" (emphasis supplied)

13. The documentation was sent out in the post, offering a loan in the sum of £47,500 over periods of 25, 20 or 15 years, to which the PPI premium would be added. Having discussed matters with his wife, Mr Saville phoned and asked Central for a further £7,000 to be added to the loan, in his words "so that we could have some money left over that we could use". This led to a further set of documents being sent out offering the revised sum of £54,500 over varying periods of 25, 20 or 15 years.
14. On 17 May 2006 the Savilles signed and returned the loan application for the increased sum over the term of 25 years. This showed that they were in fact borrowing £13,347.05 for the PPI insurance premium in addition to the £54,500 loan, making a total of £67,847.05. The repayments totalled £593.53 per month, of which £116.76 was the monthly repayment on the portion of the loan represented by the PPI premium. Over the 25 years of the loan, the total cost of having taken out the PPI policy was therefore in excess of £30,000.
15. The PPI term of 5 years was that fixed by the only PPI policy that Central could offer with the FirstPlus loan. The Central script shows that other lenders had policies which had different terms, namely 3 years and 10 years. The statement that the term of the PPI enabled Central "to keep costs down to a minimum" was also made in the script in relation to these shorter and longer terms. It is difficult to see in what sense the term of the policy enabled Central to keep costs down to a minimum. They had plainly not chosen the length of the policy, or indeed chosen it at all, given that FirstPlus did not, or at least did not offer through Central, any other term of PPI. The selection of FirstPlus as lender effectively determined the length of the PPI cover that could be offered by Central.
16. Included in the documentation supplied to the Savilles was a sheet headed "Key facts about our insurance services", a further sheet headed "Information about our recommendation" and a third document headed "Important information". The first Key Facts document included a statement that "We can only offer products from a single insurer for accident, sickness, unemployment and non investment life assurance." It also stated:

"We will advise and make a recommendation for you after we have assessed your needs for

– accident, sickness and unemployment

– non investment life assurance".

17. The second sheet, signed by the Central representative who spoke to Mr Saville, stated:

"Based on the information provided by you I have recommended the following policy made available from your proposed lender FIRSTPLUS FINANCIAL GROUP PLC."

18. To the extent that this statement suggested that the policy had been selected from amongst a number of policies as that which most fitted the Savilles' financial circumstances, it would of course be incorrect. The second sheet also stated that details of the policy were contained in a third document. It emphasised that the third document was important and should be read carefully. It continued:

"In particular you should ensure that you understand the limitations of the cover provided (including the term of the cover) and the exclusions applicable to the policy."

19. In a box preceded by the words "During our discussions we established that", are a number of bullet points. Included under "Payment Protection Insurance" were:

"You would both like the certainty of knowing that your loan repayments would be covered if you were unable to work as a result of accident or sickness or involuntary unemployment.

You do not have existing arrangements to provide money to pay your loan repayments in the event you were unable to work as a result of accident or sickness or involuntary unemployment.

You do not have sufficient existing arrangements to provide money to pay your loan repayments in the event you were unable to work as a result of accident or sickness or involuntary unemployment.

You would like to provide this cover for Mr and Mrs Saville."

20. The document continued with the reasons for the recommendation:

"I have recommended this policy because:

It provides payment protection for Michael Saville

It provides life insurance for Mr Michael Saville and Mrs Patricia Saville"

21. The document went on to explain that the Savilles were not required to arrange the insurance as a condition of the proposed loan; that they were not required to accept any recommendation; that they were entirely free to make such arrangements as they considered appropriate which might include the selection of different life cover to that recommended.
22. A Key Facts document relating to the PPI explained that the insurance had a duration of 60 months or 5 years. It explained that the premium would be refunded if the policy was cancelled within 30 days. Thereafter a rebate would be given, but not pro-rata to the unexpired period of the loan. Thus if the policy is cancelled in the first 12 months only 25% would be refunded. In the second third and fourth years the refunds would be 14%, 6% and 2%.

The ICOB rules

23. The ICOB rules were made pursuant to the power in (the now repealed) section 138 of FSMA which gave the Financial Services Authority ("the FSA") power to make rules applying to authorised persons with respect to the carrying on by them of regulated activities "as appear to it to be necessary or expedient for the purpose of meeting any of its regulatory objectives". One of the regulatory objectives imposed on the FSA by FSMA (see section 2(2)(c)) was "the protection of consumers".
24. The rules were published in the FSA's handbook, which included guidance in addition to the rules themselves. By way of background, the FSA handbook included a set of principles numbered 1-11. Principles 6 and 7 are:

"6. Customers' interests. A firm must pay due regard to the interests of its customers and treat them fairly.

7. Communications with clients. A firm must pay due regard to the information needs of its clients, and communicate information to them in a way which is clear, fair and not misleading."

25. The introduction to Chapter 4 of the rules explained, under the rubric "Purpose" that the chapter amplifies, amongst other things, Principles 6 and 7. It went on to say that:

"The purpose of this chapter is to ensure that:

(1) customers are adequately informed about the nature of the service that they have received from an insurance intermediary in relation to non-investment insurance contracts. In particular, insurance intermediaries need to make clear to customers the scope and type of products and insurance undertakings on which their service is based;

(2) where a personal recommendation is made it is suitable for the customer's demands and needs. The nature of the steps an insurance intermediary will need to take to ensure that the customer receives a personal recommendation that is suitable will vary depending on the demands and needs of the customer, the type of non-investment insurance contract being offered and the type of customer (retail customer or commercial customer);

(3) customers receive a statement of their demands and needs and the reasons for any personal recommendation made by an insurance intermediary."

26. Rule 4.2.2 required the insurance intermediary to provide the information scheduled in rule 4.2.8 to the customer in a durable medium before the conclusion of the contract unless a specific exemption applies. Amongst the information to be so provided was whether the insurance intermediary has provided or will provide advice or information on the basis of (a) a fair analysis of the market; or (b) from a limited number of undertakings; or (c) from a single undertaking. This is the requirement which led to the Key Facts document I have referred to at [16] above. Central was only offering insurance from a single undertaking, at least by the time they had identified FirstPlus as the lender.
27. Rule 4.4.1 provided that where the insurance intermediary arranges for a customer to enter into a non-investment insurance contract, it must, subject to certain exceptions, before the conclusion of the contract, provide the customer with a statement "in a durable medium" that:

"(a) sets out the customers demands and needs;

(b) confirms whether or not the insurance intermediary has personally recommended that contract; and

(c) where a personal recommendation has been made, explains the reasons for personally recommending that contract."

This is the rule which led to the document which I have referred to at [17] to [21] above. So far as sub-paragraph (a) is concerned, the document confirmed that the Savilles would like their payments protected in the event of unemployment etc. and did not have existing protection of this kind. In relation to (b), the document confirmed that a personal recommendation had been made. The reasons for the recommendation were simply that it provided PPI.

28. I set out the rules central to this appeal below:

Rule 4.3.1:

(1) An insurance intermediary must take reasonable steps to ensure that, if in the course of insurance mediation activities it makes any personal recommendation to a customer to buy or sell a non-investment insurance contract, the personal recommendation is suitable for the customer's demands and needs at the time the personal recommendation is made.

(2) The personal recommendation in (1) must be based on the scope of the service disclosed in accordance with ICOB 4.2.8 R (6).

(3) An insurance intermediary may make a personal recommendation of a non-investment insurance contract that does not meet all of the customer's demands and needs, provided that:

there is no non-investment insurance contract within the insurance intermediary's scope, as determined by ICOB 4.2.8 R (6), that meets all of the customer's demands and needs; and

the insurance intermediary identifies to the customer , at the point of at which the personal recommendation is made the demands and needs that are not met by the contract that it personally recommends.

Rule 4.3.2

In assessing the customer's demands and needs, the insurance intermediary must:

(1) Seek such information about the customer's circumstances and objectives as might reasonably be expected to be relevant in enabling the insurance intermediary to identify the customer's requirements. This must include any facts that would affect the type of insurance recommended, such as relevant existing insurance.

Rule 4.3.6

In assessing whether a non-investment insurance contract is suitable to meet a customer's demands and needs, an insurance intermediary must take into account at least the following matters:

(1) whether the level of cover is sufficient for the risks that the customer wishes to insure;

(2) the cost of the contract, where this is relevant to the customer's demands and needs; and

(3) the relevance of any exclusions, excesses, limitations or conditions in the contract.

29. The combined effect of these rules seems to me to be that there is, first, an enquiry phase, in which the intermediary must take reasonable steps to discover the customer's demands and needs. Demands and needs are different things. If that were not so the reference to "needs" would be superfluous. The intermediary must take reasonable steps to find out both demands and needs.
30. Having obtained information as to the demands and needs of the customer, there is then an assessment phase. The intermediary, whose sole responsibility this is, must address his mind to the information and assess whether the cover he intends to recommend is suitable for those demands and needs. This involves an active comparison of the policy or policies it can offer with the demands and the needs of the customer. If he concludes he has a suitable policy, he may recommend it. If, on the other hand he concludes that the policy is not suitable, he may only recommend it in the limited circumstances provided for in rule 4.3.1(3). There must be no policy within his "scope" (i.e. of providing advice or information from a single insurance undertaking) which meets all of the customer's demands and needs. Further, when he makes the recommendation he must qualify it by expressly drawing attention to the demands and needs which are not met by the policy.

Causation

31. In Harrison and another v Black Horse Limited [2010] EWHC 3152 (QB); [2011] Lloyd's Law Reports (Insurance and Reinsurance) 455, the bank had lent the borrowers a sum of money and arranged a 5 year PPI policy to cover the repayments and interests. The loan was a re-financing of an earlier loan also accompanied by PPI. One of the borrowers' claims was that the PPI policy was sold to them in breach of ICOB 4.3, because no information as to the desired length of cover had been sought from the borrowers.
32. HHJ Waksman QC, sitting in the Mercantile Court, held at [28] that the period of cover required by the customer clearly formed part of the customer's demands and needs. He went on to hold at [29], in my view correctly, that the fact that the borrowers had known about the key terms of the insurance did not address the separate question of the suitability of the policy for their demands and needs. He held at [30] that, because information about the length of cover had not been sought, there was a breach of rule 4.3.2(1). As the information had not been sought there was also a failure by the bank to consider whether the level of cover was sufficient and thus a breach of 4.3.6(1). The only alternative was that the bank did consider that 5 years was enough, because that is what they recommended, but if that were the case, the bank had no basis on which to make that recommendation, which would put them in breach of the overarching duty in 4.3.1(1) and/or the assessment duty under 4.3.6(1). However, as there was no evidence that the PPI would not have been taken out if the bank had not been in breach of duty, the claim failed for failure to establish the necessary causative link. In this latter respect it had been part of the borrowers' case that the bank should have appreciated from the earlier loan which was refinanced that the borrowers would wish to refinance the new loan during the term of the PPI. In fact that is what happened. The judge concluded that it was "far from clear and certainly not proved that if the borrowers had been asked specifically for how long they wanted the PPI or whether five years would be sufficient they would have answered in the negative."
33. The borrowers appealed. The judgment of the Court of Appeal (Lord Neuberger MR, Patten and Tomlinson LJJ) notes the judge's rejection of the case based on ICOB 4.3.2(1) and 4.3.6(1) on the grounds of causation. However the main focus of the appeal lay elsewhere. There was no appeal against the judge's finding on the causation issue. Neither side invited us in this case to depart from the approach adopted to causation by HHJ Waksman QC.
34. The hypothetical questions proposed by HHJ Waksman in the passage I have cited from his judgment are fairly open-ended: "how long?" or "is 5 years sufficient?" Given the background to the ICOB rules, with its consumer- oriented objectives and requirements for fair communication, it seems to me that it would be wrong to assume that the hypothetical question is asked in a leading way. They should, in my judgement, be considered to have been asked openly and fairly.
35. It is also important to bear in mind that the rules are directed to establishing not only what the customer thinks that he wants in terms of cover, but also, following an assessment by the intermediary, what cover meets his needs. Obtaining the answer "5 years", even to an open and fair question, is not determinative of the question of whether 5 years meets the customer's needs.
36. The test to be applied to the issue of causation in an action for breach of statutory duty is to ask whether, if the duty had not been breached, the damage would have occurred. In this case, that question involves asking whether the Savilles would have purchased the PPI policy if Central had not broken the ICOB rules.

The arguments on appeal

37. The appellants submit that the District Judge approached the issue of causation incorrectly. They submit that the rules required insurance intermediaries who are going to recommend an insurance contract to seek information in order to identify the consumer's demands and needs (rule 4.3.2(1)). In assessing whether the insurance is suitable to meet a customer's demands and needs the intermediary must take into account whether the level of cover, which includes its length, is sufficient for the risks the customer wishes to insure (rule 4.3.6(1)). It is common ground that Central failed to enquire as to the Savilles' desired length of cover. This was a plain breach of rule 4.3.2(1). Further, Central cannot have satisfied itself that the policy was in fact suitable for the Savilles' demands and needs in accordance with rule 4.3.1(1) or taken into account whether the level of cover was sufficient for the risks that the Savilles wished to insure (rule 4.3.6(1)).
38. Turning to causation, the Savilles submit, firstly, that the judge should have asked himself what the Savilles' response would have been to an enquiry "How long do you want the PPI to last?", the answer would have been: "For the full length of the policy". The policy provided did not meet this aspect of the Savilles' demands and was therefore unsuitable in this respect. If Central had complied with the rules, the evidence showed that Central would not have sold the policy.
39. The appellants further submit that the 5 year PPI policy sold to the Savilles was in fact unsuitable for their demands and needs. The judge made no express finding on this issue, but if the judge was impliedly deciding that 5 years cover was suitable he was plainly wrong to have done so. There was no material from which it could be properly deduced that a 5 year policy was suitable for the Savilles' demands and needs.
40. The respondent submitted that the judge was right essentially for the reasons he gave. The judge was entitled to conclude that the Savilles' claim to have wanted PPI to cover the whole loan period was irrational. Moreover the policy was in fact suitable for the Savilles. It was an over-simplification to compare the length of the loan with the length of the PPI. Because of the rapid decay over time of the rebate on the PPI premium on redemption of the loan, one would not want to carry the risk of the loss of a much larger premium by taking on a longer PPI term. Because the loan was on flexible redemption terms, the borrower is better off if he buys shorter periods of PPI. The judge was in fact concluding or entitled to conclude on the evidence that the PPI policy was suitable.

The judge's findings on causation

41. Unlike in Harrison, in the present case there was some evidence as to what term of insurance the Savilles would have said that they wanted if they had been asked about it by Central. Both Mr and Mrs Saville had expressly said that, if they had wanted to take out PPI at all, they would have wanted to do so for the full period of the loan.
42. The cross examination of Michael Saville proceeded along the following lines:

"Q: … You say in your witness statement that effectively it should have been the same length as the loan?

A: If you're going to give insurance then yeah. But the key word is "if"

Q: And I think as you have said to me a moment ago, the whole thrust of your case is, you did not want insurance. Not five years, not any?

A: Correct

Q: You cannot seriously say that well, if you had wanted it, you would have wanted it for 25 years, can you?

A: But there you go again, I say it's if you want it."

43. Mr Saville therefore did not abandon the evidence he gave in his witness statement. The judge concluded that this evidence was irrational, given the tension with the Savilles' primary case that they did not want PPI at all, and the Savilles' overall desire to keep repayments to a minimum. In paragraph 42 he said:

"So the Claimants' case appears to be "We did consider insurance. We didn't want insurance at all, but we said nothing of this. We wanted to keep our monthly payments down as far as possible. We were aware that insurance increased the cost. If we had known that insurance was optional we would not have taken it. But if we had wanted insurance we would have wanted it for the full period of the loan, notwithstanding that this would have increased the monthly payments which we would have to make. With respect, that is so irrational it has to be discounted by the court."

44. I feel considerable unease at the judge's characterisation of that evidence as so irrational that he was entitled to reject it. The judge was entitled to conclude that the Savilles wanted the policy which they had been offered and purchased. It is at least questionable whether he was entitled to conclude that they did so in actual knowledge of its terms. It had been Michael Saville's evidence that he had not read the documentation. Mr Butters showed us the cross-examination of Michael Saville on this issue which only went as far as suggesting that he had been careless in not reading it. But Mr Butters realistically did not invite us to say that the judge was not entitled to reach the conclusion that they must have read the documents. He showed us the material as a basis for his submission that it could not be suggested that the Savilles had been untruthful in giving their accounts. Given that such a suggestion was not squarely put to them, that is a submission which I unhesitatingly accept.
45. Rather than dismissing the Savilles' evidence as irrational, which in my judgment it was not, the judge should, in accordance with the principles discussed above, have asked himself what the Savilles would have said if Central had made open and fair enquiries directed to the level (in particular the length) of cover. On the one hand the judge had the Savilles' evidence that they would have wished the cover to last for the entire period of the loan. He was by no means bound to accept that evidence, but he should have weighed it against such evidence as there was that the Savilles would in fact have only wanted a policy with a five year term.
46. The judge appears to have been strongly influenced by the fact that the Savilles knew of the length of cover provided by the policy, and yet went ahead and purchased the policy. This knowledge, does not, to my mind, indicate conclusively the term of policy that they wanted. Knowing about some characteristic of a complex product or contract is a different thing from wanting that characteristic if given a free choice. I may want, overall, to buy a second-hand car, whilst at the same time knowing about but not wanting some of its features, which I would not have specified if I had a free choice. Moreover the judge does not appear to have taken any account of the fact that the Savilles were told that 5 years had been chosen in order to keep costs down. That fact renders it unsafe, in my judgment, to place weight on the fact of the purchase of the policy in determining what the Savilles' answer to the open and fair question might have been. It is as if the Savilles had been asked "Given that you cannot get longer cover for the same or less money, are you content with only five years?" That is not in my judgment an example of an open and fair question designed to elicit the Savilles' demands. The fact of purchase in those circumstances is of marginal weight in deciding what the Savilles' response would have been.
47. The judge's reliance on the Savilles' concern to reduce costs also does not, to my mind, withstand scrutiny. His reasoning appears to be that he should reject the Savilles' evidence that they wanted longer cover because (a) longer cover would be more expensive and (b) the Savilles wanted to keep their monthly payments to a minimum.
48. To the extent that this reasoning involves giving credence to Central's statement that the policy was chosen in order to reduce costs, I have already indicated why I consider that statement to be inaccurate. Moreover, the notion that longer cover would be more expensive had no basis in the evidence. So far as Central is concerned, there simply was no other term of cover (and hence alternatively priced policy) which it could offer. If it were material to consider cover available from elsewhere, there is no reason to suppose that it would necessarily have been more expensive. It might have been cheaper and substantially so. We simply do not know because there was no evidence about it.
49. I think the judge was clearly wrong to reject the Savilles' evidence that given a free choice of term they would have wanted it for the full length of the loan. The evidence to the contrary does not withstand scrutiny.
50. Mr Butters submits that the consequence of that finding inevitably meant that his case on causation is made out. That submission is based on the evidence of Ms Cooke, the only witness called on behalf of Central. Ms Cooke did not have direct knowledge of the circumstances surrounding the sale to the Savilles, but was called to produce transcripts of the various conversations and exhibit the relevant documentation. In her witness statement she took the opportunity to express her view that all the Savilles' allegations in the action were "wrong" or "obviously wrong". As Central's litigation team leader, her evidence in this regard, if it is to be described as evidence at all, was of no value. She did however purport, as a Central employee, to have some knowledge of the way in which Central's business model worked. So for example she said in paragraph 16 of her statement that Central "always makes it clear" that they could only offer insurance from a single insurer. She was a competent witness, therefore, to give evidence on what would or should have happened in the event that a customer had wanted a PPI policy of a length which Central could not offer.
51. Ms Cooke's cross-examination on what would have occurred if the Savilles had said they wanted insurance for a longer period went like this:

"Q. So if, as you accept Central Capital ought to have done, if the sales representative or Alan Mining in this case had asked "Well, if you were to cover your payments, how long would you want the cover to last for?" or something along those lines?

A. Mm, mm.

Q. And the Claimants had said, or Mr Saville had said, "Well, the full term of the loan", that would render the five year policy unsuitable, would it not?

A. Yes.

Q. And the consequence of that would be that the sales representative would simply not sell the insurance to the Claimant?

A. Yes, or potentially he might say, "We don't do 25 years, but we have a five-year policy", and presumably a conversation would ensue from that. But, broadly speaking…

Q. There is nothing in the script is there?

A. No.

Q. And therefore, I understand why you have made that assumption, that you cannot say, based on the script, that anything would happen other than that the sales representative simply not selling the insurance?

A. Yes.

Q. And so if the question had been asked, "How long would you like your payment protected for if you (inaudible) cover?" and the answer was "Well, the full term of the loan", or any number of years above five presumably.

A. Yeah.

Q. We agree that the policy would be unsuitable, you agree that that would likely result in the insurance not being mentioned?

A. Yes

Q. And when we move to the offer screen, the offer figures that are presented to the Claimants, the monthly repayment figures, would not include PPI?

A. Correct."

52. There was some debate between the parties on this appeal as to whether these answers are undermined because the Savilles would have been asked an open question of the kind identified in this cross-examination, or would instead have been asked a more closed, leading question, such as "you are happy with 5 years are you not?". I have already explained why in principle an open and fair question is the right one. Ms Cooke had in fact earlier accepted that an open question should have been asked. Central seek on this appeal to put in a second witness statement from Ms Cooke in which she seeks to contradict her earlier evidence, and say that, having considered the matter again, the question would not be an open one "given the level of service that [Central] was able to provide (a single policy with a five year term)".
53. I do not think that the formulation of the question was something on which Ms Cooke could give evidence. The hypothetical question is one designed fairly to elicit the information which Central was under a duty to elicit. Central's suggestion that they should ask the question in a way directed to obtaining the answer they wished for is not in my judgment an example of such a question. I would refuse this aspect of the application to adduce further evidence on the ground that the evidence is not relevant.
54. A similar peripheral dispute developed over the point in the script at which the question would be asked. Ms Cooke again accepted in cross-examination that the question should have been asked at the initial stage of the script when questions were being asked about the risks the customer wished to insure. She again sought to falsify her evidence in a second witness statement which Central wish to put in on this appeal. She says Central would not have asked the question at that stage because it would not at that stage have concluded that the customer was suitable for a loan or known what PPI was available in connection with the loan to be offered.
55. I do not think this point is relevant to any issue we have to decide in this appeal. The stage at which the question is asked does not impact on Central's duty to elicit the information about the term of the loan fairly. I would again refuse permission to rely on the further evidence on the grounds of irrelevance.
56. Ms Cooke's cross-examination which I have set out in paragraph [51] demonstrates that the effect of following the script with a fair question designed to elicit the Savilles' demands on the length of policy would have resulted in the insurance not being sold. Her suggestion that an off-script discussion might possibly have led to some other result was not pursued. On that narrow basis the case of causation was made out, and I would allow the appeal on this ground.
57. Mr Butters also submitted that he should succeed on this appeal on the ground that the policy was in fact unsuitable for the Savilles. This alternative way of putting the case on causation avoids reliance on the evidence of Ms Cooke as to the consequences of following the script. He submits that if, after a proper assessment, Central had concluded that the policy was not suitable, Central would not have been able to recommend it without the health warning that ICOB rule 4.3.1(3) mandates, and the sale would, again, not have been made. This alternative case is answered by Mr Hardwick by saying that the policy was in fact suitable.
58. The judge made no finding about whether the policy in fact met the Savilles' demands and needs so as to be suitable for them. He did conclude that the Savilles knew exactly what they were getting, but this falls far short of a finding that this policy was in fact suitable for their demands and needs. If that were an adequate basis for a finding that a policy was suitable, the responsibility for assessing whether the policy is suitable would be shifted from the intermediary, where it belongs, to the customer, where it does not. The resolution of the issue of suitability cannot turn simply, as Mr Butters submits, on a mis-match between the term of the loan and the term of the PPI. It may be that the arguments advanced by Mr Hardwick as to the desirability of having a short period of PPI to match the flexibility of the redemption terms of the loan have some validity. The answer in any particular case must depend on the individual financial circumstances of the borrowers. The judge's findings fell far short of an adequate basis on which to conclude whether the 5 year policy was in fact suitable or unsuitable for the Savilles.
59. I have concluded that in order to make findings on suitability the case would have to be remitted to the County Court. Many other cases may depend on a resolution of this or similar issues. It would be profoundly unsatisfactory to approach this issue without a proper evidential foundation and in the absence of findings of fact. As I have proposed allowing the appeal on the first ground, remission to the County Court is not necessary in this particular case.
60. I appreciate that taking this course does mean that it is possible that the Savilles were sold a policy which was in fact suitable. Whether or not that is so, the fact remains that they would not have been sold the policy based on what we know of Central's selling procedure, if they had been asked open and fairly, in accordance with Central's statutory duty, about the level of cover they wanted.

Conclusion

61. In the end I can summarise my conclusions as follows. Central should have elicited the genuine demands of the Savilles as to the policy term by means of an open and fair question. The judge should not have rejected as irrational the Savilles' evidence that they would have wanted the PPI to last for the period of the loan. The preponderance of the evidence was against the conclusion that the Savilles would have wanted a term of 5 years. The fact that the Savilles knowingly purchased a 5 year policy in the face of assurances about lower cost does not establish that 5 years would have been their answer to a fairly posed enquiry. Further, it does not assist to arrive at that answer to say that the Savilles were concerned about cost, in the absence of any evidence about the cost of other policies. Based on the script, the evidence of Ms Cooke shows that the policy would not in those circumstances have been sold.
62. I conclude that the breach of the ICOB rules in the present case was causative of loss to the Savilles. They would not have purchased this PPI policy had the rules been complied with, and Central could not have sold them any other.
63. I would, for my part, allow the appeal.

Lord Justice Christopher Clarke

64. I agree.

Sir Stanley Burnton

65. I also agree that this appeal should be allowed for the reasons so clearly given by Lord Justice Floyd.
66. In these circumstances, it is unnecessary to decide whether, once the issue is fairly raised (as it was in this case), it is for the intermediary to prove that he complied with the requirements of the rules, and in particular that he properly established that the insurance contract was suitable for the demands and needs of the customer, or for the customer to prove that it was unsuitable. I incline to the view that the burden of proof is on the intermediary to show that he complied with the Rules.