Case No: A3/2010/2996
Neutral Citation Number: [2011] EWCA Civ 1128
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN’S BENCH DIVISION, MERCANTILE COURT
His Honour Judge Waksman QC, sitting as a Judge of the High Court
2010 EWHC 3152 (QB)
Royal Courts of Justice
Strand, London, WC2A 2LL

Date: 12/10/2011
Before :

THE MASTER OF THE ROLLS

LORD JUSTICE PATTEN
and
LORD JUSTICE TOMLINSON
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Between :

	Harrison and Another	Appellant	
	- and -		
	Black Horse Limited	Respondent	

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Brian Doctor QC and Andrew Clark (instructed by McHale & Co Solicitors) for the Appellant
Nicholas Elliott QC and Ruth Bala (instructed by SCM Solicitors) for the Respondent

Hearing date : 13 July 2011
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Judgment
Lord Justice Tomlinson : 
Introduction
1.	This appeal is brought by two of many borrowers who seek to recover, in whole or in part, the cost of payment protection insurance, “PPI”, which they were sold by a lender, typically although not here a bank, at the same time as they negotiated a loan from that lender.  On this appeal redress is sought under sections 140A and B of the Consumer Credit Act 1974, “the Act”, which gives to the court wide-ranging powers in circumstances where the relationship between a creditor and a debtor has been determined to be unfair to the debtor.
2.	Concern about the conduct of lending institutions in selling PPI has of course been rife for some years, leading to the publication by the Competition Commission in January 2009 of a “Market Investigation into Payment Protection Insurance” and the issue by the Financial Services Authority, “the FSA”, in August 2010 of a Policy Statement “The assessment and redress of PPI complaints”.
3.	The landscape has in consequence changed.  We are concerned with a loan advanced and associated PPI sold in 2006.  Our decision will be relevant to many who seek redress in respect of transactions entered into at around that time.  But since April 2011 the sale of PPI has been prohibited at the point of sale of credit, as has the sale of PPI within seven days before the sale of credit and indeed the sale of single premium PPI policies – see The Payment Protection Insurance Market Investigation Order 2011 issued by the Competition Commission in exercise of its powers under the Enterprise Act 2002.
4.	In view of the wide-ranging nature of complaints concerning the “mis-selling” of PPI, it is worth emphasising at the outset how very narrow is the ambit of this appeal.  It traverses very little if any of the terrain illuminated by the market investigations to which I have just referred, in the latter of which there were identified fifteen common types of failings in PPI sales.  Rather it focuses upon a single aspect of the typical transaction which has not attracted direct regulatory comment, the failure by the lender to disclose to the borrower that it would receive from the insurer a handsome commission upon the sale of the PPI. Indeed, given that typically the cost of the PPI premium was itself advanced to the borrower under the same credit agreement as the principal loan, repayment of which it ostensibly protected, the reality was that the commission simply became a debt payable by the borrower to the lender at the expiry of the term of the loan, on which interest was payable in the interim for so long as the loan remained outstanding.  It should furthermore be noted that it is not the mere non-disclosure of the receipt of commission which is here alleged to provide an avenue to redress.  The argument depends upon the size of the commission.  Whilst in broad terms the borrowers rely upon various aspects of the relationship between themselves and the lender as giving rise to unfairness, what is said to be critical is the circumstance that typically the commission was disproportionate to the actual cost of the insurance.  Here the borrowers were told that the Payment Protection Plan premium was £10,200.  Of that, 87% was retained by the lender.  Put another way, the commission was 677% of the apparent cost of the insurance, although these figures may in truth be misleading as concealing a cross-subsidy between the cost of the PPI and the annual percentage rate or cost of the loan.  In the present case, and presumably it is typical, the PPI insurance was principally provided by an associated company within the same group of companies as the lender.
5.	The unfairness to which these aspects of the transaction is said to give rise is relied upon as investing the court with a power under s.140B of the Act to require the lender to repay to the borrowers all or part of the cost of the PPI.  It is said that the taking by the lender in these circumstances of a commission of this order renders the relationship between the lender and the borrowers arising out of the credit agreement unfair to the borrowers, thereby enabling the court to make a determination to that effect under s.140A of the Act and consequently to grant relief under s.140B thereof.
6.	Before setting out the statutory provisions I must first set out the facts relevant to this appeal, as found in large part by the courts below, and describe the course of the litigation thus far.
The facts
7.	The appellant borrowers are Mr and Mrs Harrison.  The lender in this case, Black Horse Limited, to which I will refer hereafter as “Black Horse”, is not in fact a bank.  It is or was at all material times an authorised lender.  It is or was at all material times a part of the Lloyds TSB Group.  Nothing however turns on its precise status.  The trial took place at Worcester County Court before District Judge Marston on 11 June 2010.  The judge heard oral evidence from the borrowers, Mr and Mrs Harrison, and from a financial consultant, Mr Cook, who gave evidence on their behalf as to the cost of PPI in the contemporary market.  The judge heard evidence also from Patricia Johnston, a secured operations controller with Lloyds Banking Group plc.  Mrs Johnston had had no dealings with Mr and Mrs Harrison.  Essentially she assisted the judge with an educated reconstruction from the documents and from her knowledge of the training given to the Black Horse sales force.
8.	The first appeal was heard by Judge Waksman QC in the Manchester Mercantile Court.   Both parties were represented both at trial and in the first appeal by counsel.  Judge Waksman set out the basic facts with great clarity and I gratefully adopt his account, noting however that he was in error to refer to Black Horse as a bank.  The essential facts are to be found in the following paragraphs of his judgment:-
“2. The basic facts are as follows: in July 2003 the Harrisons took out a loan from the Bank for £46,000 together with a single premium PPI policy which cost £11,500. As was common at the time, that premium was the subject of a separate loan which attracted its own monthly repayments of capital and interest alongside the main loan. 
3. Then, by a further loan agreement made with the Bank on 24 July 2006, the Harrisons borrowed a further sum of £60,000 together with a further PPI policy at a cost of £10,200. Of the sum advanced, £54,815 was applied to discharge the previous loan and cancel its associated PPI. The balance of the 2006 loan went on household improvements and a holiday. The 2006 loan was to be repaid over a period of 23 years. The PPI associated with it would last for the first 5 years only, but was repayable by way of monthly instalments of capital and interest co-terminously with the main loan repayments. In the event, the 2006 loan was discharged by further re-financing on 2 March 2009. At the same time the PPI was cancelled. The total cost to the Harrisons of the PPI by the time of cancellation was £10,529.70. 
4. The PPI was sold by the Bank to the Harrisons as agent for the actual insurer, Lloyds TSB General Insurance Limited ("Lloyds Insurance"). For the purpose of the Insurance Conduct of Business Rules then (but not now) in force ("ICOB") the Bank was an insurance intermediary acting on an advised basis but only in relation to the single product offered, namely this PPI provided by Lloyds Insurance. 
5. The Bank earned a commission from Lloyds Insurance on the sale of the PPI in the sum of £8,887.49. This represents 87% of the premium paid by the Harrisons. It is common ground that the Bank did not disclose either the fact or amount of this commission to the Harrisons.”
9.	I turn next to describe the process pursuant to which the loan was negotiated and the PPI sold.  It was Mr Harrison who made the relevant telephone call in July 2006 which led to the transaction.  By the time of the trial four years later not unnaturally he could not remember the detail of the conversation but it is possible to reconstruct it from the documents and from the records kept by Black Horse.  Mr Harrison made a telephone enquiry to the Black Horse secured loan processing department in Edinburgh on 17 July 2006.  He spoke to Lisa Hutcheson, a customer account manager.  He told Ms Hutcheson that he and his wife wished to refinance their borrowings and to borrow for the purpose of home improvements and a holiday.  From this point, if not before, Ms Hutcheson was obliged to follow a script which was mandatory for employees engaged in the sale of PPI.  The District Judge found that the script was followed.  The conversation first proceeded to the point at which Ms Hutcheson must have made a provisional offer of a loan in the sum of £60,000, subject to proof of income being supplied.  The loan was to be secured by the existing second charge over the Harrisons’ home, which Black Horse had had since 7 July 2003 as security for the first loan.
10.	In accordance with the script, Mr Hutcheson then said, “As part of our discussion about your loan Mr Harrison we would like to let you know about our optional Payment Protection Plan”.  Since the word “optional” is set out in the standard script in bold, italicised and for good measure underlined, one hopes that it will have been given some emphasis and there is no reason to believe that it was not.  The script continues:-
“Black Horse are part of the Lloyds TSB Group and we can only offer a product from the Lloyds TSB General Insurance Limited for Payment Protection Insurance.
Black Horse will only advise and make recommendations to you after we have assessed your needs for Payment Protection.
•	Prompt for Demands and Needs – MUST BE READ IN FULL
I now need to take you through a questionnaire that will help us to recommend the type of cover that you actually need.  This means that if the answers you give me indicate that you don’t need payment protection, I will tell you this.”
11.	Ms Hutcheson then took Mr Harrison through the questionnaire, which included the following:-
“3. Would you like your repayments to be paid for you whilst you are unable to work as a result of an accident or sickness for more than 45 consecutive days?
4. Would you like your repayments to be paid for you, whilst you are unemployed as a result of involuntary redundancy and remain so for more than 60 days?
7. Do you have any type of insurance that would specifically provide cover for the repayment of this agreement?”
12.	The answers given by Mr Harrison were, for himself, “yes” to questions 3 and 4 but “no” to question 7.   On behalf of Mrs Harrison, he answered all three questions in the negative.
13.	Ms Hutcheson then read out the “Personal Recommendation” as follows:-
“If you have answered "no" to question 7 above, this indicates that your demands and needs are those of a credit customer who wishes and needs to ensure that the repayments of your finance agreement are met now and for the first 5 years of the loan.”
14.	Ms Hutcheson then told Mr Harrison that from the answers he had given and bearing in mind his employment status Black Horse was able to determine the appropriate level of cover.  Ms Hutcheson said that the Payment Protection which she recommended the Harrisons to have was joint life, which she explained meant life cover for both of them and illness and redundancy cover for Mr Harrison.  Ms Hutcheson then explained the terms of the policy to Mr Harrison and it is not suggested that the Harrisons were unaware of any of its key features, including the scale of benefits and its five year length.  The overall and separate prices for the main loan and PPI were then given and Mr Harrison was asked if the figures were acceptable.  He must have said that they were.
15.	After the conclusion of the telephone conversation a standard package of documents was sent by Black Horse by post to the Harrisons.  This included a part pre-completed Homeowner Loan Application Form and Direct Debit Mandate.  Some details of income and the estimated value of the home required to be filled in.  The package also included a completed copy of the Credit Agreement ready for signature.  The cost was clearly set out in the single loan agreement which encompassed and set out alongside each other the principal and interest terms for both the main loan and the PPI and the monthly payments to be paid.  This showed that the “Amount of Credit (“the Cash Loan”)” was £60,000, with monthly repayments of £444.10, whereas the “Amount of Credit (“the Payment Protection Plan Premium”)” was £10,200 with monthly repayments of £75.50.  As the judge found, the Harrisons (or certainly Mr Harrison) were aware of all this before they signed.
16.	The package of documents also included a completed version of the questionnaire recording the answers to the questions, the recommendation of joint life PPI cover and the agreement of the Harrisons to purchase of the recommended cover in accordance with the Black Horse recommendation.  There was also a Key Facts document headed “Secured Lending Policy Summary”, and a two-page document containing the full terms of the PPI policy headed “Life, Accident, Sickness, Redundancy and Hospitalisation Policy”.  The scale of benefits and the five year term were clearly set out in these documents.
17.	Under the PPI the Harrisons each had life cover up to a maximum of £75,000. Then, Mr (but not Mrs) Harrison had disability benefits which would commence 45 days after the start of disability which gave payment protection for the loan up to a maximum of 24 months for any one claim and 36 months in total. Redundancy benefits were 12 and 24 months respectively and started after 60 days' unemployment. As noted above the PPI expired after 5 years although, unless the loans were discharged early, the monthly repayments in respect of the premium and interest would continue for the life of the main loan. Had that happened here the total cost of the PPI would have been over £20,000, in fact £20,636, as was shown clearly in the loan agreement.
18.	Mr Brian Doctor QC for the Harrisons points out that the maximum possible benefit under the non-life part of the cover was £18,705.60, i.e. less than the potential cost of the insurance over the full twenty-three year term of the loan.  It is also worth noting that, as appears from both the Key Facts document and the policy terms, the policy is in fact underwritten by Lloyds TSB General Insurance Limited and The Prudential Assurance Company Limited.  We were told that the latter underwrote the life and longer term disability part of the cover, which is likely therefore to have been the more inexpensive part.  It was not therefore strictly accurate to have said that Black Horse could only offer an insurance product from Lloyds TSB General Insurance Limited but subject to one point raised belatedly after the hearing before us, nobody suggests that anything turns on this.  I propose to address the issues on the basis which is for most purposes that most favourable to the Appellants, viz, that the premium was wholly earned by an associated company.
19.	At paragraph 18 of his judgment Judge Waksman recorded as follows:-
“Although the Harrisons said that they thought that the PPI was compulsory if they were to take the loan it was accepted that any such understanding was not caused by anything said or done by the Bank. Indeed, given that the script was followed, they must have been told by Ms Hutcheson that it was optional. The District Judge clearly proceeded on that basis as she was entitled, indeed bound to do. She also found that the Harrisons had taken out several PPI policies before this one, expected there to be one here and paid no particular attention to the information they received.”
20.	Mr Doctor does not challenge that finding but he suggests that the finding made at trial by the District Judge was “more nuanced”.  The finding of the District Judge was:-
“In particular [Mr Harrison] accepted that he was not told that the policy was compulsory and could not explain why in the original particulars of claim it was specified that he was told that it was compulsory.  He just thought he had to have PPI because he had it with previous loans.  However, he also made the point that he was never told that he did not need a PPI but equally he could not recall that he had been told that he did need it.   He confirmed that with the other loans that he had taken out, probably all of them, he had taken out PPI.”
Mr Harrison confirmed to the District Judge that he was familiar with PPI as he had taken out several policies and had not made any claims under them.  The District Judge also found that Mr Harrison did little more than scan read the paperwork.  He did not read the Key Facts document at all.  He agreed that he was put under no pressure.  Mrs Harrison relied upon her husband to read the documents.  She scan read them only.  The Harrisons were at the time in their early fifties and both were in full-time employment.  They had lived in their own home for twenty-four years.  Their evidence was that the refinancing in 2009 pursuant to which the loan was paid off involved re-mortgaging their house.  As at the date of their Witness Statements, December 2009, Mr Harrison had entered into a debt management arrangement and Mrs Harrison had entered into an individual voluntary arrangement.  Not unnaturally both felt that their financial situation had been “made worse as a result of the extra debt incurred in purchasing” the PPI policies.  I do not approach the case on the basis that they were sophisticated in financial matters, but it would be both patronising and unwarranted on the evidence to suggest that they would have had any difficulty in understanding the essential features of the entire transaction.
21.	Finally, there was also unchallenged expert evidence from  Mr Cook that this form of PPI was very expensive when compared against policies with a monthly premium. The equivalent stand alone cover available at the time would have cost the Harrisons £2,083.84 for the period for which they were covered under the PPI purchased. What they in fact paid was £8,445.86 more.
The judgments below
22.	The District Judge handed down her reserved judgment on 19 July 2010.  Although she did not deal in terms with the issue of the commission and its non-disclosure, I would nonetheless pay tribute to the care and clarity with which she made her findings and grappled with the arguments addressed to her, of which the allegation of unfairness and the application of the 1974 Act was only one out of many.  It seems that the Claimants did not run all their pleaded points at trial, although they did argue that the relationship was unfair.  The judge rejected that argument, together with the principal point argued before her, that Black Horse had failed to comply with the Insurance Conduct of Business Rules, “ICOB”, then in force.  Black Horse had a statutory duty to comply with those rules, imposed by s.150 of the Financial Services and Markets Act, “FSMA”, 2000.  The District Judge dismissed the claim.
23.	The Mercantile Court at Manchester has dealt with a number of cases arising out of allegations of PPI mis-selling.   It was for that reason that the appeal to the High Court was transferred into Judge Waksman’s list.  The judge dismissed the appeal.
24.	The judge set out and summarised the immediately relevant ICOB Rules in this way:-
“8. It is common ground that by virtue of s150 of the 2000 Act the Bank was under a statutory duty to comply with the ICOB rules. Rule 4.3.1 sets out an over-arching duty as follows: 
“to take reasonable steps to ensure that any . . . personal recommendation to buy a non-investment insurance contract . . . is suitable for the customer's demands and needs at the time the . . . recommendation is made. . .”
9. Rule 4.3.2 then sets out what information about the customer's demands and needs ("DAN") should be obtained by the Bank: 
“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 insurer and its intermediary to identify the customer's requirements. This must include any facts that would affect the type of insurance recommended, such as any relevant existing insurance;
(2) have regard to any relevant details about the customer that are readily available and accessible to the insurance intermediary, for example, in respect of other contracts of insurance on which the insurance intermediary has provided advice or information . . .”
10. Having established the customer's DAN, Rules 4.3.6 and 4.3.7 set out particular matters which must be taken into account by the Bank when assessing the suitability of the policy: 
"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 . . .

4.3.7 
(1)	where ICOB 4.3.6 R (2) applies an insurance intermediary should take into account the cost of the contract when compared to other non-investment insurance contracts that cover a similar range of demands and needs on which the insurance intermediary can provide advice or information . . .””
25.	The judge rejected the argument that there had been a breach of Rule 4.3.6(2) in that Black Horse had not taken into account the cost of the PPI.  It was not shown that cost was a relevant factor for the Harrisons or that it was a matter of real concern to them. It was not therefore relevant to their demands and needs. Even if Rule 4.3.6(2) had been engaged, the guidance in paragraph 4.3.7(1) showed that Black Horse could be under no obligation to conduct a comparative exercise since there was no other product on which it could provide advice or information.  The judge did consider that the circumstance that the PPI cover was only of five years duration gave rise to a breach of both Rule 4.3.2(1) and Rule 4.3.6(1).  Under the former rule information as to the desired length of the cover should have been sought and under the latter there should have been consideration whether the length of cover was sufficient.  However these breaches did not sound in damages because there was no evidence as to how the Harrisons would have replied to relevant enquiry, and no evidence that had it not been for the breach of duty, the PPI would not have been taken out.  The Harrisons knew that the cover under the PPI was only for five years.
26.	Turning to commission the judge identified the relevant ICOB Rules as:-
“2.3.2  A firm must take reasonable steps to ensure that it . . . does not 
(1) . . . accept an inducement . . .
if it is likely to conflict to a material extent with any duty that the firm owes to its customers in connection with an insurance mediation activity . . .
2.3.7
(1) ICOB 2.3.2 R states that an inducement will only be considered unfair if it conflicts to a material extent with any duty that the firm owes to its customers. This means that the circumstances surrounding an inducement may determine whether or not it is unfair. It is a firm's responsibility to determine this.
2.3.8
(1) Inducements that operate at a distance from the sales process may not be unfair if they do not have an effect on the sales person's selling of a particular product . . .”
The judge accepted that there was no likelihood of any material conflict essentially because any commission was not paid or attributed in whole or in part to the actual sales person Ms Hutcheson and there was no evidence that she even knew the extent of the commission.  Moreover, the “scripted” approach to what she could say to customers meant that there was little or no prospect of her attempting to mislead them into buying the policy.  The size of the commission could make no difference.  The judge specifically rejected a submission that irrespective of the system in place the commission was so large that there was always likely to be a conflict between interest and duty.
27.	Next the judge considered and rejected a claim in common law negligence.  Essentially the argument failed because the judge held that the duty of care assumed could not oblige Black Horse to carry out a cost comparison exercise over and above that required by the guidance at paragraph 4.3.7(1) of ICOB.
28.	Finally the judge turned to unfair relationship.  He noted rightly that the process of assessment of facts and the balancing and weighing of different factors is classically an exercise for the judge at first instance, with which an appellate court should be reluctant to interfere unless the judge below has proceeded upon an erroneous view of the law, taken into account immaterial factors or failed to take into account material factors or simply reached a conclusion not open to him on the facts – cf Aldi Stores Limted v WSP Group plc [2008] 1 WLR 748 at paragraph 16 per Thomas LJ and George Mitchell (Chesterhall) v Finney Lock Seeds Limited [1983] 2 AC 803 at 816 per Lord Bridge of Harwich. The latter is a case particularly in point since there the House of Lords upheld a decision that certain conditions of sale did not satisfy the requirement of reasonableness under s.55 of the Sale of Goods Act 1979 or s.11 of the Unfair Contract Terms Act 1977.
29.	This notwithstanding, the judge addressed the argument in the light of two recent decisions of the County Court and the circumstance that, as already noted above, the District Judge had not in fact dealt with the large commission and its non-disclosure.  Like the District Judge, Judge Waksman rejected the assertion of an unfair relationship.  The cost of the PPI and the features of the cover had been known and accepted.  There had been no pressure to accept PPI.  The Harrisons had a real opportunity to consider whether or not to take it.  They might have been interested to learn of the size of the commission but there was no evidence as to how they might have reacted to that knowledge.  Again, the size of the commission was irrelevant given that there was no likelihood of a conflict of interest arising.
30.	There is a passage in the judge’s judgment in which he suggests that non-disclosure of commission might result in unfairness where “the fact of the commission has led or might have led to some significant misrepresentation on the part of the advisor as HHJ Platts found in Yates”.  I do not entirely follow this.  The judge was concerned to distinguish the decision to which he there referred, a decision in the Manchester County Court dated 14 May 2010 in which the County Court Judge had found an unfair relationship – Yates and Lorenzelli v Nemo Personal Finance.  That was a case in which an independent broker introduced the borrowers to the lender and falsely represented that taking out a policy of PPI, which was “packaged” with the loan, was a condition of being granted the loan itself.  The borrowers were told that the broker would be paid commission, including a commission from the lending company based on a proportion of the premium for the PPI.  They were not told of the extent of the commission.  In that case 57.45% of the PPI premium was retained by the lender as a commission, of which approximately half was paid to the independent broker.  The judge had to deal with an argument that there was an unfair relationship between the parties to the loan agreement.  The judge there said:-
“The argument really is when taking into account the costs of the policy and the cover it offered, together with the fact that both the first and second defendants were earning significant amounts from the sale of the policy which were not disclosed to claimants, that effectively was unfair to the claimants who were the debtors.”
With respect to Judge Platts I do not think that that open-ended approach is quite that required by s.140A of the Act which I set out below. The judge in that case found that the attitude of the borrowers might have been affected if they had known precisely how much commission the broker stood to receive if the PPI was sold.  He also noted that “the real problem here was the behaviour of the broker who told the Claimants that they had to buy the PPI to get the loan” and who failed to disclose his interest in the transaction.   The broker was however insolvent.  The judge concluded:
“Whether the amount of the commission was justified or not or whether it was in accordance with the market at the time, there is bound as a result of it to be an incentive on the broker to sell the product without discharging its proper duties.  In those circumstances, given the nature of the loan which was to consolidate existing debt and the amount of the premium of the PPI compared to what it covers, it seems to me that it would have been in the interests of fairness that the first defendant [the lender] should have satisfied itself that the claimants had given fully informed consent to the agreement knowing what it entailed.
I therefore ask myself the question of whether the defendant has satisfied me that the relationship between it and the claimants was fair and for the reasons given I am not persuaded that it has.”
31.	Judge Waksman was obviously much pressed with this decision and he rightly perceived that it was a very different case (a) because the broker had a considerable incentive to sell PPI and (b) because the broker positively misrepresented that PPI was a condition of the loan.  The decision of Judge Platts owes a lot I think to the circumstance that the broker was insolvent.  The essence of his decision seems to be that the lender, by paying a commission of this size, created a conflict of interest for the broker which in turn cast upon the lender a duty in the interests of fairness to satisfy itself that the broker had disclosed his interest in the transaction to the borrowers.  The reasoning seems to be that if that duty was not discharged then the relationship was unfair.  Again I am not sure that I follow this, but the decision is in any event of little assistance to us in the present enquiry.  It is sufficient to note, as Mr Nicholas Elliott QC for Black Horse accepted, that plainly it is not a pre-requisite to a finding of an unfair relationship that there has been in the course thereof a misrepresentation.  Indeed, the circumstance that there has been a misrepresentation in the course of a relationship is likely, I should have thought, ordinarily to be irrelevant to the question whether that relationship is unfair.  A misrepresentation is likely to generate an entirely different remedy, unavailable in Yates because of the insolvency of the broker.
The appeal to this court
32.	As I have already indicated above the appeal to this court is brought solely in relation to Judge Waksman’s dismissal of the claim under ss. 140A and B of the Act.  However in their Grounds of Appeal and in the argument presented to us the Harrisons challenged two of the judge’s conclusions as to compliance with the ICOB Rules.  Thus the judge erred, they say, in holding that the receipt of the commission by Black Horse did not conflict to a material extent with its duty under Rule 4.3.1 to take reasonable steps to ensure that its recommendation to buy PPI was suitable for the customers’ demands and needs.  He should have found a breach of Rule 2.3.2 in that regard.  Secondly the judge erred, they say, in holding that Rule 4.3.6(2) is not engaged unless cost is shown to be a matter of concern to the borrowers.  Indeed as the argument progressed Mr Doctor became the more concerned to establish that there had been a failure by Black Horse to comply with its duties under the ICOB Rules and in a written submission presented after the conclusion of the oral argument he sought to cast the net wider still, and in particular to withdraw the concession made in the lower courts to the effect that Black Horse had been under no obligation to undertake an exercise comparing the cost of its PPI product with that of other contracts available in the market offering similar cover.
33.	It was I think inevitable that in pursuing this appeal the Appellants would attempt to demonstrate non-compliance by Black Horse with its duties owed under the ICOB regime.  If the “things done or not done by the creditor before the making of the agreement”, cf s.140A(1)(c) of the Act, are in compliance with and involve no non-compliance with the statutorily prescribed regulatory regime, it is not easy to see from where unfairness in the relationship is to be derived.  However before looking in more detail at the nature of the regulatory regime I should first turn to the legislation under which the claim is brought and then explain the circumstances in which the regulatory framework was introduced.
The legislative history
34.	Sections 140A-140D of the 1974 Act were introduced by the Consumer Credit Act 2006 in order to replace the existing provisions contained in sections 137-140 relating to extortionate credit bargains.
35.	The broad scheme of the new provisions is as follows:-
1)  S.140A empowers the court to make an order under s.140B if it “determines that the relationship between the creditor and the debtor arising out of the agreement . . . is unfair to the debtor” in one or more of three identified respects;
2)   S.140B specifies the orders which the court can make, and confers a broad remedial discretion;
3)  S.140C provides for the interpretation of ss. 140A-140B and s.140D provides guidance on the interrelation of ss. 140A-140C and Part 8 of the Enterprise Act 2002 in these terms:-
“The advice and information published by the OFT under s.229 of the Enterprise Act 2002 shall indicate how the OFT expects ss. 140A-140C of this Act to interact with Part 8 of that Act.”
36.	More specifically, s.140A(1)-(2) of the Act provides:-
“(1) The court may make an order under section 140B in connection with a credit agreement if it determines that the relationship between the creditor and the debtor arising out of the agreement (or the agreement taken with any related agreement) is unfair to the debtor because of one or more of the following –
(a) any of the terms of the agreement or any related agreement;
(b)  the way in which the creditor has exercised or enforced any of his rights under the agreement or any related agreement;
(c)  any other thing done (or not done) by, or on behalf of, the creditor (either before or after the making of the agreement or any related agreement).
(2)  In deciding whether to make a determination under this section the court shall have regard to all matters it thinks relevant (including matters relating to the creditor and matters relating to the debtor).”
37.	Three points should be noted at the outset.  First, it is the relationship between the parties which must be determined to be unfair, not their agreement, although it is envisaged that the terms of the agreement may themselves give rise to an unfair relationship.  Second, although s.140A is directed at determining unfairness to the debtor, in reaching that determination the court must have regard to matters relating to the creditor as well as matters relating to the debtor.  Third, unlike provisions such as the Unfair Contract Terms Act 1977, which offers in Schedule 2 “Guidelines for Application of Reasonableness Test” or The Unfair Terms in Consumer Contracts Regulations 1999 (SI 1999 No 2083), Schedule 2 of which is an “Indicative and Non-Exhaustive List of Terms which may be regarded as unfair”, s.140A of the Act offers no guidance in respect of factors which either may or must be regarded as rendering a relationship unfair to the debtor.
38.	In this last respect ss.140A-D of the Act are at variance even with those provisions which they replace, ss.137-140 of the Act as originally enacted, concerned with extortionate credit bargains.  Those provisions contain some guidance as to the factors which should be taken into account in determining whether a credit bargain is extortionate.  That notwithstanding, the regime prescribed was found wanting and in its 2003 White Paper “Fair, Clear and Competitive – The Consumer Credit Market in the 21st Century” (Cm 6040) the DTI stated at paragraph 3.30 the Government’s belief that those provisions had not operated effectively.  The White Paper identified certain factors which might be relevant to the assessment of fairness but none found its way into the ensuing legislation, the Consumer Credit Act 2006, by which ss. 140A-D were introduced into the 1974 Act.  
39.	Those provisions came into force as from 6 April 2007.  Pursuant to the transitional provisions in Schedule 3 of the 2006 Act they are applicable as from 6 April 2008 to a pre-existing agreement such as that between the Harrisons and Black Horse unless the agreement was by then “completed”.  An agreement is completed if there is no longer any sum which is or may become payable thereunder.  This agreement was not completed (discharged) until 2 March 2009.
40.	The advice and information to be published by the OFT foreshadowed in s.140D of the Act came forward in May 2008 in the shape of OFT 854, an OFT guidance document headed “Unfair relationships – Enforcement action under Part 8 of the Enterprise Act 2002”.  The guidance contains the following passages:-
“1.9 The guidance does not seek to define what is an unfair relationship but rather to indicate how Part 8 powers might be used in this area.  It is for a court to determine whether there is an unfair relationship in an individual case.  The courts are not required to have regard to OFT guidance, although they may choose to do so if they consider it to be relevant in the particular case.
. . .
4.44 As noted above, practices can contribute to unfair relationships even if they do not themselves involve any contravention of the law.  In considering the unfairness of such practices the court might have regard to whether they are of a kind that has been identified as unfair in the past (whether by a court or in a regulatory context) or which is recognisably unfair according to established tests of fairness.
4.45  Regulatory guidance on what is or is not acceptable business practice may therefore be helpful in identifying lender behaviour falling within s.140A(1)(b) or (c) and which might attract enforcement action under Part 8 in respect of unfair relationships.
. . . 
Other relevant matters
. . .
4.59  In particular, we would take into account whether there has been a breach of the rules or principles of the Financial Services Authority (FSA), for example in relation to linked insurance products such as payment protection insurance which may have been sold with the loan.”
41.	That guidance is in my judgment significant in that it points one, not unnaturally, in the direction of the regulatory framework specific to the transaction in question.  There was at the relevant time no regulatory guidance specific to the selling of linked insurance products such as PPI.  However, those selling such products were subject to the ICOB Rules, which in turn contain guidance as to their application.  The ICOB Rules, introduced in 2005, had evolved through a process in which specific consideration had been given to the problems thrown up where insurance is sold as a secondary purchase and in particular to the question whether there should be disclosure of the receipt of a commission by an insurance intermediary.
Background to the ICOB Rules
42.	On 9 December 2002 the European Parliament and the Council of the European Union adopted Directive 2002/92/EC on Insurance Mediation.  Its purpose was to regulate those who provide “insurance mediation services to third parties for remuneration”.  Article 12 provides:-
“Information provided by the insurance intermediary
1. Prior to the conclusion of any initial insurance contract, and, if necessary, upon amendment or renewal thereof, an insurance intermediary shall provide the customer with at least the following information:
(a) his identity and an address;
(b) the register in which he has been included and the means for verifying that he has been registered;
(c) whether he has a holding, direct or indirect, representing more than 10% of the voting rights or of the capital in the given insurance undertaking;
(d) whether a given insurance undertaking or parent undertaking of a given insurance undertaking has a holding, direct or indirect, representing more than 10% of the voting rights or of the capital in the insurance intermediary;
(e) the procedures referred to in Article 10 allowing customers and other interested parties to register complaints about insurance and reinsurance intermediaries and, if appropriate, about the out-of-court complaint and redress procedures referred to in Article 11.
In addition, an insurance intermediary shall inform the customer, concerning the contract that is provided, whether:
(i) he gives advice based on the obligation in paragraph 2 to provide a fair analysis, or
(ii) he is under a contractual obligation to conduct insurance mediation business exclusively with one or more insurance undertakings.  In that case, he shall, at the customer’s request provide the names of those insurance undertakings, or
(iii)  he is not under a contractual obligation to conduct insurance mediation business exclusively with one or more insurance undertakings and does not give advice based on the obligation in paragraph 2 to provide a fair analysis.  In that case he shall, at the customer’s request provide the names of the insurance undertakings with which he may and does conduct business.
In those cases where information is to be provided solely at the customer’s request the customer shall be informed that he has the right to request such information.
2.  When the insurance intermediary informs the customer that he gives his advice on the basis of a fair analysis, he is obliged to give that advice on the basis of an analysis of a sufficiently large number of insurance contracts available on the market, to enable him to make a recommendation, in accordance with professional criteria, regarding which insurance contract would be adequate to meet the customer’s needs.
3.  Prior to the conclusion of any specific contract, the insurance intermediary shall at least specify, in particular on the basis of information provided by the customer, the demands and the needs of that customer as well as the underlying reasons for any advice given to the customer on a given insurance product.  These details shall be modulated according to the complexity of the insurance contract being proposed.
. . .
There is no requirement for commission disclosure.  Article 12.3 would seem to be the origin of the somewhat inelegant phrase “demands and needs” which finds its way into the ICOB Rules and the Black Horse script to which I have already referred.   Perhaps it has lost something in translation.
43.	The FSA as the body responsible for regulating the selling and administration of general insurance and non-investment life contracts issued Consultative Paper No. 160 in December 2002 as a first step in developing detailed rules with which insurers and intermediaries would be expected to comply.  Paragraph 1.2 noted that forthcoming legislation and the detailed rules would implement the Insurance Mediation Directive in the UK.
44.	Part II of the paper deals with proposals for regulation and, under that heading, Chapter 11 deals with fair treatment.  Paragraph 11.5 deals with commission disclosure where the intermediary is the agent of the customer (consumer) and thus there exists a fiduciary relationship. In such circumstances, so it is said, the intermediary must disclose the amount it receives from the product provider if asked but need not otherwise do so.  The paper continues:-
“Commission disclosure
11.6	We have considered whether we should reinforce this legal requirement by including it in our rules or whether we should require all firms to disclose commission regardless of whether they are acting as an agent of the customer or whether the customer asks for it.
11.7	There are two reasons why we think commission disclosure for private customers may be not be necessary in the insurance market compared to the investment business market:
•	First, while commission disclosure is necessary for investments so that the customer knows how much of his premium is being invested, the same is not true for insurance as the cover provided is known upfront and not dependent on the commission
•	Second, unlike the investment business market, there are relatively high levels of shopping around for some types of insurance (see Chapter 6) and the transparency of premiums means that it is easier for customers to compare policies and spot poor value products.  An exception is where insurance is sold as a secondary purchase with other goods and services.  For secondary purchase sales, our proposals that the premium is unbundled from the price of the associated goods and services and for consumer education should help consumers spot poor value policies and shop around if they wish.
11.8	There are a number of drawbacks and costs in requiring firms to disclose commissions in the private customer insurance market:
•	Customer confusion.  There is a danger that commission disclosure could confuse customers and make it more difficult for them to shop around.  For example, if the premium for two policies is the same but commission varies, it is not necessarily the right choice for a customer to choose a policy that pays the lowest commission.
•	Risk of information overload.  Our consumer research on other financial products shows that we need to prioritise the information that is disclosed to private customers to avoid information overload.  In terms of priorities, we think product disclosure and firm status disclosure are of greater importance than commission disclosure.
•	Calculation costs for firms.  Because there are often several intermediaries involved in distribution chains for insurance products, any requirements would need to be complex to avoid firms “hiding” commission and would impose additional costs on firms.  Without detailed rules on what costs make up commissions, the amount disclosed will not be comparable because intermediaries perform different functions for insurers (e.g. some carry out claims handling on behalf of insurers while others do not) and the amount they are paid reflects this.  Furthermore, to ensure a level playing field we would need to consider requiring insurers selling directly to disclose a ‘commission equivalent’ and this would also require detailed rules.
11.9	Given these risks, we are minded not to introduce rules on commission disclosure for transactions involving private customers beyond that already required as described in paragraph 11.5 above.  We will, however, keep this under review in the light of our supervision and monitoring work and may decide to consult on a rule requiring commission disclosure in the private customer market at a later date.
Q.25  What are you views on our proposal not to introduce commission disclosure for private customers immediately but to keep this issue under review?”
45.	Following the there envisaged  consultation a further Consultation Paper was published in June 2003, FSA 187, with the title “Insurance selling and administration and other miscellaneous amendments, Feedback on CP160 and draft conduct of business rules”.  That paper contains the following paragraphs:-
“8.2 In CP160, we proposed that commission disclosure    should not be introduced for private customers for two reasons:
•	First, unlike investments, the price of non-investment insurance is transparent.  This is not the case for investments, where commission disclosure is necessary for the customer to know how much of his premium is being invested; and
•	Second, relatively high levels of shopping around for some types of insurance and the transparency of premiums means that it is easier for customers to compare policies and spot poor value products.
8.3	Nothing in the responses to CP160 caused us to change our view.  Although some respondents argued that commission disclosure was needed where insurance was sold with other goods and services to help customers assess value for money, we consider that our product disclosure requirements are likely to be sufficient to mitigate the risks to customers.  Specifically, in Chapter 7, we are proposing that the premium for insurance is shown separately from other goods and services and it is made clear to the customer whether or not the insurance is compulsory.  If, in the light of supervision work, we think commission disclosure is necessary, we will re-consult at a later date.
8.4	Although we are not proposing rules on commission disclosure for retail customers, intermediaries are still subject to agency law which requires that when they are acting as the customer’s agent they must disclose commission if the customer asks. ”
46.	In January 2004 the FSA issued its policy statement 04/01 which reiterated this approach, stating at page 24:-
“4.21 Our response
We continue to believe that requiring disclosure of commission to retail customers would not add to consumer protection.  This is because it will not necessarily help customers make a better choice of product and the disclosure of further information (in addition to that required under ICOB 4 and ICOB 5) could result in information overload.”
47.	The ICOB Rules were introduced in 2005.  Each paragraph in the Handbook in which they are published is suffixed either “R” or “G” to indicate whether it is either a Rule or guidance as to the application of a Rule.  The Rules are made by the FSA under s.138 of FSMA 2000 and thus impose a duty whilst the guidance as to the application of the rules is issued under s.157(1)(a) of FSMA 2000.  For the purposes of the present exercise, which is directed to an evaluation of fairness, I do not think that this distinction much matters, but for the record, of those paragraphs of the ICOB Handbook set out above, paragraphs 2.3.2, 4.3.1, 4.3.2 and 4.3.6 are Rules and paragraphs 2.3.7, 2.3.8 and 4.3.7 are Guidance.  Rule 4.6.1R requires commission disclosure to commercial customers if asked, irrespective of whether there is an agency relationship between the intermediary and the customer.  There is no general requirement to disclose either the receipt of commission or its extent.  There are requirements as to what must be contained within a statement of price – 5.5.14R.  Where a non-investment insurance contract is purchased in connection with other goods or services, the premium for the non-investment contract must be shown separately from all other prices charged in relation to the other goods or services and it must also be stated whether purchase of the non-investment insurance contract is a requirement of purchasing the other goods or services or not.  As already noted, Rule 2.3.2R requires that business must not be conducted in a manner likely to lead to a conflict with the intermediary’s duty to its customer.  There is in point of form no appeal from the judge’s conclusion that there was no breach of this rule although the grounds of appeal in relation to the application of Rule 4.3.1 and in particular 4.3.6 necessarily lead to the conclusion, if made out, that the judge should have found a breach of rule 2.3.2.
The arguments on the appeal
48.	The focus of the appeal was on the non-disclosure of a very large commission and Mr Elliott, for Black Horse, not unnaturally placed much reliance on the considered absence from the ICOB Rules of any requirement for commission disclosure.  After the hearing Counsel for the Harrisons contended in further written submissions that this should permit them to exercise greater scrutiny than heretofore as to the compliance of Black Horse with the rest of the ICOB Rules.  The immediate catalyst for a belated attempt to raise new arguments was the reliance by Black Horse upon paragraph 4.3.7G of the ICOB Rules as demonstrating that it could not be required to carry out a comparative cost exercise since it could only compare with other similar products about which it could provide advice or information, of which there were none, since Black Horse offered only one product.  That point was not argued before the District Judge but it was argued before Judge Waksman, without objection.  Indeed, Mr Andrew Clark, junior counsel for the Harrisons who appeared below, conceded before Judge Waksman that Black Horse was under no obligation to conduct a comparative exercise, although he did submit that paragraph 4.3.7(1) did not exhaustively define any duty in respect of cost that arose under Rule 4.3.6(2), if engaged.  After the hearing before this court Mr Doctor sought to withdraw that concession.  He also sought to rely upon Rule 4.3.1(2).  This provides:-
“The personal recommendation in (1) must be based on the scope of the service disclosed in accordance with ICOB 4.2.8R(6).”
This was he said relevant because it determined the extent of the reasonable steps required to be taken under Rule 4.3.1 and referred back to the disclosure required under Rule 4.2.8(6)R.  Under Rule 4.2.2R an insurance intermediary must provide to the customer the information set out in Rule 4.2.8R in a durable medium at any time before conclusion of a non-investment insurance contract.  That information includes:-
“4.2.8
(4)  Unless the insurance intermediary is an insurer, or a third party processor acting as such on behalf of an insurer, details of any holding, direct or indirect, that an insurance intermediary has that represents more than 10% of the voting rights or of the capital in an insurance undertaking.
(5)  Unless the insurance intermediary is an insurer, or a third party processor acting as such on behalf of an insurer, details of any holding, direct or indirect, that an insurance undertaking or parent of an insurance undertaking has, that represents more than 10% of the voting rights or of the capital in the insurance intermediary.
(6)  In relation to the non-investment insurance contract provided, whether the insurance intermediary has provided, or will provide, advice or information:
(a) on the basis of a fair analysis of the market; or
(b) from a limited number of insurance undertakings; or
(c) from a single insurance undertaking.
If (b) or (c) applies, the insurance intermediary must also disclose whether it is contractually obliged to conduct insurance mediation activity in this way.”
It will be noted that these provisions derive from EU Directive 2002/92/EC on Insurance Mediation.
49.	At no stage in the courts below was any question raised as to the compliance by Black Horse with Rules 4.2.2 and 4.2.8.  The possible impact of Rule 4.2.8(6) arose for the first time in Mr Doctor’s reply before this court.  Mr Elliott then told us on instructions that the Harrisons were given an Initial Disclosure Document which set out the position.  After the hearing we were provided with a proforma of the document said to have been supplied.  It was this which provoked the further submissions from Mr Doctor to which I have referred.  It was not accepted that such an initial Disclosure Document had been sent.  If it had, it was said to be non-compliant in four respects.
50.	Since I agree with Judge Waksman that Rule 4.3.6(2)R was not engaged, the first reason for embarking upon this further enquiry is academic.  Black Horse has no need to rely upon paragraph 4.3.7G.  I was at first inclined to think that cost must be relevant to every customer’s demands and needs, but of course this proves too much.  Rule 4.3.6(2)R presupposes that the cost of the contract will not always be relevant to a customer’s demands and needs.  I agree with the judge that content can sensibly be given to this provision by construing it as meaning that cost must be taken into account where the customer has indicated that this is a relevant concern.
51.	Mr Doctor’s second point is much more far-reaching.  He seeks now to suggest that the entire exercise leading to the making of the personal recommendation was flawed because of the alleged failure of Black Horse to send an Initial Disclosure Document, or the failure to send a compliant document.  There was at trial no factual enquiry directed to this issue.  The trial was conducted upon the basis that Black Horse quite properly made it clear that it could offer only one product. If we were to allow Mr Doctor now to run this point it would deprive this case of any usefulness as a test case to provide guidance in the many other cases which have been stayed pending our decision.  I would not allow this point to be raised for the first time on appeal.
52.	However, I should also add that I see no reason to doubt that the Initial Disclosure Document would have been and was sent to the Harrisons with the package of standard form documentation which was sent to them after the telephone conversation of 17 July 2006 between Mr Harrison and Ms Hutcheson.  The assertion that it would have been does not, as asserted by Mr Doctor, contradict paragraph 27 of Patricia Johnston’s Witness Statement deployed at trial.  It is true that in that paragraph she lists documents that would have been sent, but her list does not purport to be exhaustive of all those sent.  It is also apparently the case that no such document was disclosed in the action until production of the proforma in the circumstances which I have described. Since Black Horse evidently had an Initial Disclosure Document, there is no reason why it would not have been sent unless omitted in error.  The more reasonable assumption at this stage is that it was indeed sent.
53.	Under the rubric “1 Whose products do we offer?”, the Initial Disclosure Document says:-
“We can only offer a product from Lloyds TSB General Insurance Limited for Payment Protection Insurance.”
Under the rubric “2 Which service will we provide you with?”, the Disclosure Document provides:-
“We will advise and make a recommendation for you after we have assessed your needs for: Payment Protection Plan”
Mr Doctor submits that the Initial Disclosure Document does not state whether Black Horse will provide advice or information on any of the bases set out in Rule 4.2.8(6) but I respectfully disagree.  It is true that there is not an exact equivalence between a statement that an intermediary can only offer an insurance product from one source and a statement that an insurance intermediary has provided or will provide advice or information from a single insurance undertaking.  Indeed the latter statement, apparently required by the rule where appropriate, is meaningless or at best ambiguous.  I agree with Mr Doctor that what must have been intended by the word “from” in Rule 4.2.8(6)(b) and (c) is “in respect of”.  However, subject to that point, in my view the language of Rule 4.2.8(6) spells out a clear gradation, from a fair analysis of the market through advice or information in respect of a limited number of insurance undertakings to advice or information in respect of a single insurance undertaking.  It is inherent in the third case that the intermediary will not offer advice or information as to the nature of insurance products offered by other than a single insurance undertaking.  Where sub-paragraph (c) applies the intermediary is additionally to disclose whether it is contractually obliged to conduct insurance mediation in this way.  In my judgment the Initial Disclosure Document supplies the information requested in a compliant manner.  The language “we can only offer a product from Lloyds etc” is in context an indication that Black Horse is under a contractual restraint, underscored by the statement at paragraph 5 under the rubric “Ownership” that Black Horse is part of the LTSB Group of companies.  I agree that looked at in the abstract it does not follow from the fact that an insurance intermediary sells only one product that it will not conduct a fair market analysis to determine that such product is suitable for its customer’s needs.  But the Initial Disclosure Document is not to be looked at in the abstract, but rather in the context of the Rule, which makes clear that being able to sell only one product and giving advice based upon a fair market analysis are in this context mutually exclusive.  Furthermore, in the real world I do not believe that any reasonable person expects that an insurance intermediary who holds himself out as able to sell only one product will proffer advice as to the suitability of that product by reference to and comparison with other products available in the market.
54.	Mr Doctor submits that there is a breach of Rules 4.2.8(4) and (5) in that the Initial Disclosure Document states only that Black Horse is part of the LTSB Group of companies.  We have heard no argument on the question whether Black Horse is a “third party processor acting as such on behalf of an insurer”.  It is not shown that Black Horse has more than 10% of the voting rights or of the capital in Lloyds TSB Group Insurance Limited.  As to sub-paragraph (5), I would infer from the statement in the Initial Disclosure Document as to ownership that the same ultimate parent company controlled both Black Horse and Lloyds TSB General Insurance Limited.
55.	Mr Doctor submits that the Initial Disclosure Document does not comply with Rule 4.2.8(7) since the Harrisons should have been notified of their rights to request a list of the insurance undertakings with whom Black Horse dealt, in particular given that the identity of The Prudential Assurance Company Limited was not disclosed.  This is absurd.  This provision is intended to furnish the customer with information relevant in the event that he wishes to assert that a contract which should have been selected on the basis of a fair analysis of the market has not been so provided.  An intermediary who announces that he will only provide advice or information in respect of a single insurance undertaking can obviously not supply details of other insurance undertakings which he selects or with whom he deals because there are none. 
56.	Finally, given that no point has hitherto been taken as to any significance to be attached to the circumstance that The Prudential participated in the insurance, I would not allow Mr Doctor on this second appeal to impugn the Initial Disclosure Document on any basis connected therewith.
57.	I turn then to the principal argument in the case, and that which was addressed at the hearing.  Mr Doctor had many criticisms of the sales process, pointing out that questions 3 and 4 in the questionnaire were questions to which anyone would be likely to answer “yes”, whilst question 7 could only ever be answered in the negative since no-one could have cover in place specifically linked to a loan agreement which had not yet been concluded.  He also made the point that the effort involved in selling the PPI seems hardly to justify so large a commission, and that Black Horse had made no effort to justify it as in fact involving some element of cross-subsidy or anything of that sort.  Telling though points of this nature are, they do not to my mind point to unfairness in the relationship.  At bottom Mr Doctor’s argument really resolves to a single point that, in the absence of an explanation, the commission is so egregious that it gives rise to a conflict of interest which it was the lender’s duty to disclose.  Only disclosure could give the borrowers the opportunity to decide whether they wished to purchase a product in circumstances where the lender derived so significant a benefit from the purchase.
58.	In the absence of an explanation such as an element of cross-subsidy the commission here is on any view quite startling and there will be many who regard it as unacceptable conduct on the part of lending institutions to have profited in this way.  I struggle however to spell out of the mere size of the undisclosed commission an unfairness in the relationship between lender and borrower.  Moreover the touchstone must in my view be the standard imposed by the regulatory authorities pursuant to their statutory duties, not resort to a visceral instinct that the relevant conduct is beyond the Pale.  In that regard it is clear that the ICOB regime after due consultation and consideration does not require the disclosure of the receipt of commission.  It would be an anomalous result if a lender was obliged to disclose receipt of a commission in order to escape a finding of unfairness under s.140A of the Act but yet not obliged to disclose it pursuant to the statutorily imposed regulatory framework under which it operates. Mr Doctor had no answer to this point.  
59.	Nor do I think that the circle can be squared by arguing that a recommendation of suitability cannot be objective if given by a lender in receipt of a large commission.  The judge rejected that submission on the facts of this case.  There is also the obvious difficulty in deciding where the line is to be drawn.  How large must the commission be before there is held to be a conflict of duty and interest?  The cover was expensive but the lender was in the circumstances for the reasons I have given under no obligation to advise that the same cover could have been obtained more cheaply elsewhere.  A seller is not ordinarily obliged to warn his buyer that his product is expensive when compared to other similar products and in my judgement it is telling that in this heavily regulated market no such obligation has been imposed.  It was irrelevant to the Harrisons that the high price they were paying contained a substantial element of reward for Black Horse.  For the reasons given by the judge the extent of that reward could not have influenced the recommendation given, notwithstanding the perhaps unattractive feature of the prescribed procedure that the Black Horse sales force was exhorted to advise the customer of the applicable features, benefits and exclusions relevant to each of the features of the PPI cover and to “attempt to overcome any objections”.   In any other context the suggestion that the charging of a high price for a product freely and readily available more cheaply elsewhere in the market is indicative of unfairness in the relationship between seller and buyer would be met with incomprehension. I can see no principled basis upon which the suggestion can succeed here, notwithstanding the high price can properly be characterised as involving the non-disclosure of the receipt of a large commission.  
60.	It is said that unbundling of the premium from the cost of the loan did not in fact in this market lead to shopping around to find a cheaper alternative.  However the absence of shopping around was the result of a perception amongst borrowers, shared by the Harrisons, that the PPI offered was a condition of the loan.  In the FSA policy statement of August 2010, to which I referred at paragraph 3 above, it is said that a general failing was that lenders led the consumer to believe that the payment protection policy had to be taken in order to obtain the loan or would improve his prospects of doing so.  In this case that belief was self-induced.  It is not suggested that it gave rise to an unfairness in the relationship.  It is not suggested that Black Horse knew of and exploited this misapprehension.
61.	I am fortified in my conclusion by two further considerations.  In March 2007 the FSA published a report presenting interim findings from its review of consumer experiences and outcomes in general insurance markets.  A section of the report deals specifically with PPI.  It contains the following paragraphs:-
“5.5.8  While respondents claimed to be interested in the price of the PPI, when questioned further it was actually the APR or price of the credit accompanying the PPI that they paid attention to.  44% of the respondents also thought that a loan application was more likely to be approved if they agreed to take out PPI at the same time.   It is clear that the credit purchase is the main, if not sole, focus of a consumer when they take out PPI.
. . .
5.8.10  The lack of competition at point of sale means that consumers may make expensive purchases.  Evidence for this is:
. . .
•	Commission rates – the OFT work found that median average commission rates for single premium policies varied from 50% for first charge mortgages to 66% for those selling unsecured loans and motor finance PPI.  Median average commission rates for regular premium PPI policies varied from 35% for first charge mortgages to 70% for retail credit.  Such commission rates seem difficult to justify in terms of the effort in selling PPI alongside the associated credit product.”
There is no suggestion in this extended discussion of the topic that rates of commission of this order generate a duty of disclosure which, if not discharged, is productive of unfairness in the relationship between lender and borrower.  I appreciate that 87% is greater still than 70%, but (a) that is a median average which presupposes that some commissions must be higher still and (b) it is difficult to see that the increment from an already very high figure can affect the conclusion.
62.	Secondly, and perhaps even more telling, there is similarly no such suggestion in the FSA policy statement of August 2010, a report which was said to stem from the serious concern of the FSA about widespread weaknesses in previous PPI selling practices and the detriment that such selling was likely to have caused to a significant number of consumers, and the industry’s poor handling of the increasing volume of PPI complaints and its neglect of root cause analysis and fairness obligations towards non-complainants.  As I pointed out at paragraph 4 above, non-disclosure of commission is not listed amongst the fifteen common failings which were said to result in detriment or poor outcomes for consumers.  The FSA knew from its earlier work that the median average undisclosed commission in the here relevant retail credit market was 70%.
63.	I would dismiss the appeal.
Lord Justice Patten
64.	I agree.
The Master of the Rolls
65.	I also agree.