Powerful encouragement to ADR

Posted: 1st August 2013

Extension in constructionIn a case with critical implications for alternative dispute resolution (ADR), a couple who were mis-sold payment protection insurance (PPI) have had their case struck out on the basis that they had unreasonably refused to accept an ADR award of full monetary compensation but which did not embrace their legal costs.

The couple, who had borrowed money to fund home improvements, claimed that they were told by the lender that it was compulsory to take out PPI. They pursued the free ADR route provided by the Financial Services Authority and the lender was directed to pay them a little short of £9,000, comprising the total of PPI premiums they had paid, plus interest.

However, the couple, who had engaged solicitors to pursue their claim, refused to accept the ADR award which did not make provision for the payment of their legal costs. They persisted in litigation against the lender who, in turn, applied to strike out the couple’s claim on the basis that the ADR award amounted to full compensation for their loss and that the continuation of proceedings therefore amounted to an abuse of process.

The County Court refused to strike out the couple’s claim after accepting their plea that they might be awarded further damages under section 140(A) of the Consumer Credit Act 1974 on the basis that their relationship with the lender had been unfair and that the latter had taken advantage of its position as a credit provider to sell an over-priced and unsuitable product on which it could charge interest.

Allowing the lender’s appeal against that decision and striking out the couple’s claim, the High Court noted: “The moral of this case is that litigants should ordinarily follow the ADR route when it is a perfectly good scheme that offers speedy justice and full redress”.

The Court had no hesitation in finding that the only advantage that the couple had sought to achieve by pressing ahead with the litigation was the recovery of legal costs, which were ‘merely an adjunct’ to the monetary claim. The ADR process had afforded the couple full economic redress and, in circumstances where that award remained open to them to accept, the only correct course was to strike out their claim.

The Court noted that the case had raised ‘truly important issues about the strike-out jurisdiction of the Court’ and that its ruling would impact on many PPI mis-selling cases and was likely to have wide applicability to other forms of ADR.

Giving guidance for the future, the Court concluded: “Where there is a perfectly good ADR scheme, and it is free, which will provide, or has already provided, proper redress, the Court should seek to encourage ADR in advance and, if there is an award but it has not been accepted, then the Court is left with no alternative but to say that the claim is not being brought reasonably and is also an abuse of the process of the Court.”