When a customer is made bankrupt, whose knowledge is relevant to start time running under the extra three-year time bar rules in DISP 2.8.2R(2)(b)?

Although this issue was recently considered by the Court of Appeal, there is still no clear answer to this question. The Court of Appeal overturned the High Court’s declaration that it was the trustee’s knowledge which was relevant (see our earlier article here) - and declined to make a declaration on the issue in the case of The Official Receiver v Shop Direct Finance Company Limited [2023] EWCA CIV 367.

The Court of Appeal has, however, provided some useful guidance on the issue in a minority judgment by Lord Justice Nugee. In this article, we explore what this means for financial institutions. First, we briefly explain the background and why it matters.

Time limits under DISP

The time bar rules for complaints are set out in DISP 2.8. This provides that the FOS cannot normally consider a complaint if the complainant refers it to the FOS:

  • More than six months after the firm sent its final response letter; or
  • More than: (a) six years after the events complained about, or (b) three years from the date on which the complainant became aware (or ought reasonably to have become aware) that he had cause for complaint.

These rules are in place to stop very stale complaints being brought. The “plus three years” rule is to ensure that a customer has a window to bring a complaint after the initial six years has passed from the period that they became aware, or ought reasonably to have become aware, that they had cause to complaint. The rules are similar (but not quite the same) as the limitation rules for court claims (particularly for claims in negligence under section 14A of the Limitation Act 1980).

What was this claim about?

When a customer is made bankrupt, who is the complainant?

In this claim, the lender (Lender) sought a declaration that the complainant was the customer’s trustee in bankruptcy (the Trustee), who was the Official Receiver in this case. The Trustee argued that the complainant was the customer. The High Court had declared that the complainant was the Trustee; this meant that a complaint could not be brought more than three years after the Trustee acquired the relevant knowledge, even if the customer never acquired it.

But the Trustee appealed this decision and argued that the customer should always be the complainant. There were a number of grounds of appeal, but in this note we only focus on the key points.

The wider context was that the Trustee had made a significant number of PPI complaints prior to the backstop date for bringing complaints. The determination of this issue would therefore have been relevant to decide whether or not these complaints were brought in time.

What did the Court of Appeal decide?

The Court of Appeal agreed with the Trustee that they would not (necessarily) be the complainant. But they refused to declare that the complainant was (necessarily) the customer. The leading judgment was given by Singh LJ.

The key points to note are:

  • There is no definition of complainant in the FCA Handbook (although there is a definition of eligible complainant). The use of the word in DISP is clearly often intended to refer to the person who may have suffered loss (i.e. the customer).

  • DISP envisages that a complaint may be brought on behalf of an eligible complainant. Whilst “on behalf of” might normally import agency, in this context it could mean “in the place of”.

  • The High Court’s declaration that the complainant means the Trustee would have absurd consequences: it would mean that even if the three-year clock started for a customer two years and 364 days ago, if they were made bankrupt it would start again when the Trustee acquired the relevant knowledge. The Court concluded that this can’t have been the intention of DISP.

  • But they also indicated that if the relevant awareness was always the customer’s, then it could also lead to some unexpected results - as it could mean that time never starts running in some circumstances.

  • Ultimately the Court of Appeal did not feel comfortable deciding the issue conclusively based only on assumed (hypothetical) facts.

  • The Court of Appeal hinted that it saw some attraction in the Lender’s alternative case that if the customer was made bankrupt during the three-year period, then that time would need to be aggregated with the Trustee’s after the bankruptcy date. However, this argument was not properly pursued. As a result, the Court of Appeal did not express a concluded view on the point.

What guidance did the Court of Appeal provide?

Nugee LJ provided a minority judgment in which the following guidance was given:

He said that the wrong question was asked by the lender and the issue is not a binary one. He said that the rules in DISP were drafted with the paradigm case in mind: that is where the complaint is brought by the person who suffered the damage - the customer. But the rules are not drafted clearly with the non-paradigm case in mind and a purposive interpretation is therefore required to make them work coherently.

This means that who the complainant is depends on the rule in question: it must sometimes mean the customer and sometimes it must mean the Trustee. He provided examples in DISP which must mean the customer and others which must mean the person bringing the complaint (the Trustee). In summary, he said who the complainant is depends on the context of the particular rule in question. In particular, he concluded that:

  • Time starts running if the customer, while alive and not bankrupt, becomes or ought to become aware that he has cause for complaint. In such a case “the complainant” in DISP 2.8.2R(2)(b) means the customer.
  • If time starts running under the first bullet point above, it continues to run as against not only the customer but if he dies or becomes bankrupt against his personal representatives or Trustee, so that they are barred when he would have been barred.
  • If time does not start running under the first bullet point above, the relevant complainant (whose knowledge is relevant) is the Trustee or personal representative.

Put simply, Nugee LJ stated that in DISP 2.8.2R “the complainant”  means “the person who for the time being has both the right to bring the complaint and an interest in doing so”.

What it means for you

As the Court of Appeal merely set aside the High Court’s decision and did not make a declaration, there remains uncertainty regarding the start date for time bar under DISP 2.8.2R(2)(b).

Nugee LJ’s reasoning was not adopted by the majority and so does not form part of the main judgment. But it will no doubt be relied upon by parties in future disputes on this issue. It provides useful clarification for parties and seeks to avoid the extreme examples which might result from a binary choice. It does, however, require a different meaning to be taken of complainant in DISP depending on the rule being read and the circumstances, which is not ideal.

It remains to be seen if Nugee LJ’s analysis is adopted if or when this issue comes before the Court again or if the provisions in DISP are perhaps revisited before then to provide greater clarity.

Although the underlying issue relates to PPI claims, it will equally apply to any form of complaint which the Trustee, or OR, might seek to pursue against financial institutions. If you have any questions on how this might impact on your approach to handling complaints, please reach out to the author.

The judgment of the Court of Appeal can be found here.

Authors: Sam McCollum and Amy Earlam

This publication is intended for general guidance and represents our understanding of the relevant law and practice as at June 2023. Specific advice should be sought for specific cases. For more information see our terms & conditions.

Date published

29 June 2023


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