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IP Briefing: More PPI Issues

Many practitioners will have seen our recent briefing on Lord Jones’s decision in Doneen Limited v Mond. They will recall that in that case it was decided that because a debtor under a protected Trust Deed had been discharged, PPI compensation ought not to be payable to the Trustee under the Trust Deed. In our previous briefing we opined that matters were not necessarily that straight forward, and there were certain Scottish authorities that had not been cited. We understand that Lord Jones’s decision is being reclaimed to the Inner House.

Donnelly v The Royal Bank of Scotland

Donnelly is a decision by Sheriff Reid at Glasgow, issued on 11th February. It takes the contrary view to Lord Jones. Of course, it is entirely possible that the Inner House will agree with Lord Jones in due course, that the construction of the style Trust Deed then used by most insolvency practitioners in Scotland, means that discharge prevents the Trustee being paid PPI compensation. However, the approach that Sheriff Reid takes will be the one preferred by the profession we would think. In this case, a debtor sued the bank paying the PPI arguing they were not entitled to plead set-off, and any compensation ought to be payable to her personally. Sheriff Reid summarises his decision as follows:

“I have concluded… (i) Absent a discharge on composition, the mere discharge of the pursuer from the Trust Deed does not have effect to extinguish any obligation owed by the Pursuer… to pay the unsatisfied balance due under the pre-insolvency contracts of loan; (ii) upon a proper analysis, the indebtedness now sought to be enforced by the Pursuer has its source and origin in a contingent obligation that was in existence prior to the date of the Pursuer’s insolvency; (iii) as a result the Pursuer’s correlative right to enforce that contingent obligation was in existence prior to the date of the Pursuer’s insolvency; (iii) as a result, the Pursuer’s correlative right to enforce that contingent obligation falls within, and forms part of, the Pursuer’s insolvent estate under a Trust Deed; (iiii) the contingencies attaching to the Defender’s obligation were purified, post-insolvency, by the Pursuer submitting claims to the Defender regarding the PPI sales and by the Defender determining those complaints in favour of the Pursuer; (v) the effect of the PPI agreements themselves was merely to ascertain the present value of the pre-insolvency contingent obligation by the Defender; (vi) while the Pursuer has title to sue for payment of that newly ascertained and newly non-contingent indebtedness, she does so as constructive Trustee for the benefit of her creditors under the Trust Deed; (vii) to the extent that there is a greater contra indebtedness owed by the Pursuer to the Defender under the pre-insolvency contracts of loan, the Defender is entitled to set it off… (viii) the Pursuer’s obligations to repay any sums due to the Defender under the contracts of loan have not prescribed because the Defender’s acts in submitting claims to the Trustee under the Trust Deed for implement of those obligations constitute “relevant claims”… and those claims have effect continuously to interrupt or suspend operation of the applicable five-year prescriptive period…”

Conclusion

There is considerable uncertainty about the position meantime because of differing judicial decisions. As we say above, it is hoped that there will be definitive guidance from the Inner House of the Court of Session. They are likely to either conclude that the wording of the standard Trust Deed is all and results in a situation where discharge means effectively termination of the Trust; or on the other hand, construe the wording in the context of wider insolvency common law and conclude that discharge is not the same as absolute discharge (for example on a composition) and follow Sheriff Reid’s reasoning. However, for the time being at least, Trustees will need to take detailed advice on PPI claims.

Contact our Solicitors Today

BBM Solicitors specialise in advising IP's in both contentious and non-contentious matters (including transactional work). Contact: Eric Baijal () or Alasdair Baijal () or via our online contact form. This briefing note is current as at 7th March 2016 and is our understanding of the position described at that date. Legal advice ought to be taken before relying on its terms (particularly to ensure the law has not changed).

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