Factual and Procedural Background
The appeal concerned historic payment protection insurance (“PPI”) sold with store cards from the 1970s until 14 January 2005. The policies were underwritten by predecessors of the Respondents and sold by predecessors of the Appellants. [1]
A written Agency Agreement was executed on 1 December 2000. The Respondents later claimed an indemnity under clause 12.2 for liabilities arising from PPI mis-selling. The trial judge awarded approximately £677 million, including interest, and held that the indemnity applied to policies sold throughout the relationship. [2][3][4]
The Respondents also pursued contribution under the Civil Liability (Contribution) Act 1978. The trial judge dismissed that claim, holding that regulatory redress payments did not amount to liability to consumers for the purposes of the Act. [5][6][7]
The Appellants appealed against the indemnity ruling. The Respondents cross-appealed against the contribution ruling. [8][9]
Legal Issues Presented
- Whether clause 12.2 of the Agency Agreement applied to liabilities arising from policies sold before the Agreement was executed. [8][10]
- Whether the Respondents’ regulatory redress payments constituted liability in respect of the same damage under the Civil Liability (Contribution) Act 1978. [11][12]
Arguments of the Parties
Appellants’ Arguments
- Clause 12.2 was prospective because the indemnity concerned acts or omissions occurring while the Appellants were performing duties “under” the Agency Agreement, which began on 1 December 2000. [13][14]
- Clauses 6, 7 and 17 were also expressed prospectively and did not support retrospective liability. [15][16]
- The trial judge gave excessive weight to introductory provisions, continuity, commercial common sense and alleged asymmetry, despite clause 12 being a new indemnity. [17][18]
- Regulatory redress was not a private-law liability enforceable by consumers and therefore could not support contribution under the 1978 Act. [19][20]
Respondents’ Arguments
- The Agency Agreement governed the parties’ entire insurance relationship from 1 December 2000 and expressly covered historic schemes and existing policies. [21][22]
- Clause 12 contained no express exclusion for policies sold before the Agreement, so the indemnity covered later-incurred liabilities arising from earlier sales. [23][24]
- Regulatory compensation should count as liability because, absent payment, consumers could potentially have obtained equivalent redress through legal proceedings. [25][26]
- The purpose of the 1978 Act would be undermined if contribution depended on whether compensation was paid through regulation or litigation. [27]
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|
| Wood v Capita Insurance Services Ltd | Contractual interpretation requires consideration of the contract as a whole, not merely literal parsing of one clause. | The Court applied a whole-agreement approach but concluded that the contractual wording favoured prospective operation. [28][29] |
| (R) IFG v FOS | The ombudsman’s “fair and reasonable” assessment need not follow the law and may be subjective. | This supported the distinction between regulatory redress and liability enforceable in a civil action. [30][31] |
| AXA S.A. v Genworth Financial International Holdings, Inc | Consumer redress payments were not based on ordinary legal liability. | The Court relied on this description of the regulatory redress regime. [32][33] |
| Royal Brompton Hospital NHS Trust v Hammond (No 3) | Contribution rests on common liability for the same damage; the 1978 Act is not open to the widest possible interpretation. | The Court rejected contribution because the Respondents’ regulatory obligations were not liability for the same damage. [34][35][36] |
| Friends’ Provident Life Office v Hillier Parker May & Rowden | The Contribution Act should receive a broad interpretation. | This approach was treated as disapproved by Royal Brompton Hospital. [37][36] |
| BDW Trading ltd v URS Corporation | A liability capable of being established in proceedings on the existing facts may suffice even if proceedings were not brought. | The Court distinguished the case because the present hypothetical liability could arise only if future events contrary to the actual facts occurred. [38][39] |
Court's Reasoning and Analysis
The Court treated contractual interpretation as an iterative assessment of the Agreement as a whole. [28][40]
Clause 1.2 was not an overarching retrospective provision. Its references to schemes and existing on-risk policies were better understood as governing future sales under existing schemes and the continuing administration of existing policies. [41][42][43][44]
Clause 12.2 referred to acts or omissions while performing duties “under” the Agreement. Those duties arose only from the Effective Date, making the indemnity prospective. Clause 12.1 reinforced this interpretation because the reciprocal duties were limited to the Agreement’s term and run-off period. [45][46]
Clauses 6 and 7 imposed future-facing duties, while clause 17 expressly referred to marketing and sales from the Effective Date. The Agreement therefore spoke with a consistent prospective voice regarding sales and marketing. [47][48][49]
Commercial continuity could not justify retrospectivity because there had previously been no express or implied indemnity. Clause 12 introduced new contractual protection, and the Agreement contained no clear words extending it to decades of earlier conduct. [50][51]
The Court also rejected reliance on commercial asymmetry. Sophisticated commercial parties could allocate risks differently, particularly where the parties had negotiated for a substantial period and had formerly belonged to the same corporate group. [52][53]
Regarding contribution, section 1(6) of the 1978 Act required liability that had been or could be established in an action brought by the person suffering the damage. The PPI customers had made regulatory complaints, not civil claims, and the payments were made because of regulatory obligations rather than directly enforceable consumer liabilities. [54][55][56]
The statutory scheme allowed regulatory bodies to determine what was fair and reasonable and to award or direct redress. That process was distinct from a civil action establishing legal liability. [57][58][59]
The Court rejected the Respondents’ “what if” argument. A possible liability arising only after non-payment, a later determination, acceptance and further proceedings was not a liability existing on the facts at the time of payment. [60][61]
In any event, the alleged liabilities were not for the same damage: a claim against the Appellants would concern damage caused by mis-selling, whereas any claim against the Respondents would concern breach of regulatory rules. [62][63]
Holding and Implications
The appeal succeeded. Clause 12.2 did not apply to policies sold before the Agency Agreement dated 1 December 2000, and the indemnity judgment against the Second Appellant was set aside. [64][65]
The cross-appeal was dismissed. The Respondents’ regulatory redress payments did not establish the liability required for contribution under the Civil Liability (Contribution) Act 1978, and the contingent counterclaim failed for the same reasons. [66][7]
The direct consequence was that the Respondents could not recover the indemnity awarded for pre-Agreement sales and could not obtain statutory contribution on the basis of the regulatory payments. The opinion did not state that a new broader precedent was created.