This analysis was first published on Lexis®PSL on 26 June 2023 and can be found here (subscription required):

Restructuring & Insolvency analysis: The case focused on the proper interpretation of a limitation provision in the Financial Conduct Authority’s (FCA) Dispute Resolution Handbook (DISP) concerning the referring of complaints. The particular question was (when a customer is bankrupt) whose ‘awareness’ matters to start the time for making a complaint running under DISP 2.8.2R(2)(b)—the customer’s or the trustee in bankruptcy’s? The judge at first instance, giving judgment for Shop Direct, had declared that the relevant awareness is that of the official receiver (the OR) as trustee in bankruptcy. The Court of Appeal, on appeal by the OR, overturned that declaration. Written by Maxim Cardew, commercial chancery barrister specialising in insolvency, at Maitland Chambers.

The Official Receiver v Shop Direct Finance Company Ltd [2023] EWCA Civ 367

What are the practical implications of this case?

While the case focused on limitation in the context of payment protection insurance (PPI) complaints, the decision itself applies to all complaints made under DISP where the customer (or other complainant) has subsequently become insolvent. The decision is therefore likely to be of widespread interest to financial institutions, insolvency practitioners and their advisors.

The Court of Appeal re-emphasised that, when interpreting and applying DISP, the emphasis is on the consumer and a purposive approach is to be adopted–a point that will need to be borne in mind whenever advising a potential complainant or a respondent financial institution.

More directly, in overturning the first-instance decision that it was the trustee in bankruptcy’s awareness that matters, banks and other financial institutions may in future find it more difficult to rely on the potentially greater ‘sophistication’ of a trustee in bankruptcy to shorten limitation in such contexts.

However, the Court of Appeal decision does not finally resolve the dispute. Both Lord Justice Singh and (particularly) Lady Justice Carr (whose judgments represented the ratio) emphasised that limitation is generally best considered in the context of specific facts, not as an abstract legal question.

Finally, the decision, while it rejected an insolvency-heavy analysis, also contains useful guidance on the meaning of ‘property’ in the Insolvency Act 1986 (IA 1986) and the role of a trustee in bankruptcy in bringing complaints under DISP, which are likely to be of broader relevance.

What was the background?

The case arose against the backdrop of the PPI mis-selling scandal, which has been described by the FCA as by far the largest consumer redress exercise in the UK’s history.

The OR is the trustee in bankruptcy of hundreds of thousands of bankrupt customers of financial institutions and, in that capacity, has referred mis-selling complaints to a large number of institutions which sold PPI. These institutions included Shop Direct, which is the UK financial services arm of The Very Group, which from the mid-1980s to 2014 sold various forms of PPI to its customers.

Shop Direct brought proceedings seeking declarations. At first instance, it sought and obtained a declaration that it was the awareness of the OR (as trustee in bankruptcy) that was relevant. It also sought a declaration that the OR’s complaints were already time-barred. This latter argument was rejected by the judge at first instance and not appealed.

What did the court decide?

The central provision in the case was DISP 2.8.2R(2)(b), which provides that the Ombudsman cannot consider a complaint if the complainant refers it to the Financial Ombudsman Service (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…’ (emphasis added). The issue in the case was whether the reference to ‘complainant’ in that provision is a reference to (1) the bankrupt, or (2) the OR, in his capacity as trustee in bankruptcy.

DISP also provides that a complaint may only be dealt with by FOS if it is brought ‘by or on behalf of an eligible complainant’ (DISP 2.7.2R). ‘Eligible complainant’ includes a consumer (DISP 2.7.3R(1)).

The ratio is found in the judgments of Lord Justice Singh and Lady Justice Carr. Lord Justice Singh, giving the main judgment (with which Lady Justice Carr agreed), held that the overall thrust of DISP, the definition of ‘complaint’, and the uses of ‘complainant’ (while the latter is not defined) was to focus on the underlying consumer, ie in this case the bankrupt.

He also held that the general nature of DISP was to create a relatively informal scheme for consumers that was not meant to involve highly complicated legal concepts. While Lord Justice Singh was ‘prepared to accept’ that a right to complain under DISP was ‘property’ for the purposes of insolvency law (particularly IA 1986, s 436(1)), the OR as trustee in bankruptcy was not himself the complainant. Instead, the OR was ‘authorised by law’ to bring a complaint ‘on behalf of’ a bankrupt.

A trustee in bankruptcy could bring a complaint ‘on behalf of’ a bankrupt without introducing the whole body of insolvency law, and without that being an agency relationship (as to the latter, see Plevin v Paragon Personal Finance Ltd [2014] UKSC 61; [2014] 1 WLR 422).

Lord Justice Singh made clear that, when construing legislation (including DISP, which was secondary legislation), earlier consultation materials could only be relied on to identify mischief and could not be used for a wider interpretative purpose (citing Re Lehman Brothers International (Europe) No 2 [2010] EWCA Civ 917).

Lord Justice Nugee agreed with the result but differed in his reasoning. He suggested that the relevant awareness was that of the person ‘who for the time being has the right to bring a complaint and an interest in doing so’. This had not been the subject of argument before the court, it not being either party’s case either at first instance or on appeal. His reasoning is not the ratio of the decision, and it is respectfully suggested that his approach cannot readily be reconciled with the reasoning of the majority (Lord Justice Singh and Lady Justice Carr) or the wording of the relevant provisions.

Case details

• Court: Court of Appeal, Civil Division

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

• Date of judgment: 5 April 2023