PPI still working its way through the courts as the Supreme Court motor finance commissions judgment looms

AXA France IARD SA (and another) v Santander Cards UK Limited (and another) [2025] EWHC 1881 (Comm)

This commercial (rather than coverage) dispute saw AXA pursuing Santander for recovery of payments made to customers who were mis-sold payment protection insurance (PPI) on store cards more than 20 years ago. On the specific facts of AXA v Santander, the Judge found that liability for pre-2005 sales rested with the credit lender and not with the insurer as a result of a contractual indemnity provision. Judgment was accordingly given for AXA. This judgment highlights that customer compensation may only be the first stage in cases of systemic retail mis-selling; the commercial and financial fallout for the firms involved can take decades to conclude.

Background

Briefly, a customer would take out a retailer-branded credit card, to which PPI could be added. Premium was charged monthly and added to the credit balance. Generally, 95% of the premium, after payment of claims, was paid to the credit lender, with around 5% retained by the insurer.

The PPI policies at issue were underwritten by various predecessors of AXA and the policies were sold as an adjunct to store cards by various predecessors of Santander.

Interestingly, the predecessor entities – involved both in the credit lending and the underwriting – were all part of the GE corporate group. GE Capital Bank, which sold the PPI policies to customers, was acquired by Santander in 2009. Companies in the GE Capital group also underwrote the PPI policies, before being transferred to Genworth in 2004 and later acquired by AXA in 2015.

This case concerned PPI policies sold prior to 2005, some of which dated back as far as the 1970s. That is because, from January 2005, credit lenders became regulated entities in relation to their insurance mediation activities and the credit lenders were therefore responsible for complaints relating to later policies. Santander accordingly handled and paid compensation in relation to customer complaints relating to post-2005 PPI policies amounting to some £235 million and did not seek recovery from AXA for that.

With respect to pre-2005 PPI policies, in July 2017, Santander advised Genworth that it would no longer handle and pay claims relating to these. Absent customer information from which to handle those complaints itself or appoint another firm, Genworth eventually entered into a claims handling agreement with Santander, pursuant to which Santander agreed to continue to provide claims handling services for a fee but with all redress and costs to be borne by Genworth. That is despite Genworth having received just 5% of the premium, none of the interest charged by the credit lenders on the premium, and yet been liable to customers for statutory interest on both premium and interest.

When AXA acquired Genworth, not knowing the full scope of Genworth’s liability for PPI mis-selling, terms were discussed and eventually a compromise entered into pursuant to which Genworth would bear the liability. It is therefore Genworth, rather than AXA, that stands to benefit from AXA’s claim against Santander. Redress costs relating to pre-2005 sales amount to almost £500 million, plus more than £70 million in respect of fees payable to FOS, in addition to internal costs.

AXA’s claims against Santander

AXA claimed against Santander: (i) that pursuant to the terms of a (disputed) settlement agreement between them, Santander are liable for all the compensation of any mis-selling prior to 2005; (ii) that Santander is obliged to indemnify AXA against any liability arising out of its predecessors' acts or omissions pursuant to an indemnity clause contained in an agency; (iii) for contribution, under the Civil Liability (Contribution) Act 1978 on the basis that both AXA and Santander were liable to the customers whose claims were paid by AXA; and/or (iv) in negligence for breach of duties owed by Santander’s predecessors, as agent of AXA’s predecessors.

Santander counter-claimed: (i) in relation to a profit share arrangement; and (ii) for recovery and apportionment of sums previously paid by Santander in the event that AXA’s claim for contribution succeeded.

The High Court findings

In relation to the second claim, the Judge held that Santander was liable to indemnify AXA under the agency agreement, which stated, at clause 12.2: “Subject to the Insurer complying with their duties under this agreement, GE-CB [GE Capital Bank – the insurer’s agent] will indemnify the Insurer against any liability which they may incur by reason of any act or omission by GE-CB (including negligence) while performing their duties under this agreement.”

That indemnity was found to extend both to redress payments and FOS fees. Santander had argued that there was not a “liability” for the purpose of the indemnity but the Judge held that Santander is liable for “all the regulatory consequences” of the mis-selling “irrespective of whether individual complaints would have succeeded in a court of law" [313]. As the Judge put it:

“[The insurers] were under a binding regulatory obligation, which had statutory force, to pay such redress as was appropriate under the relevant rules. The sausage which came out of the regulatory machine was accordingly a liability to pay redress and if [the insurers] had failed to do so, not only could the regulator have taken enforcement action against them, but the customer had a civil route by which it could secure payment, even if only indirectly by way of damages.” [292]

With respect to FOS complaints, the Judge was of the view that it was a “distinction without a difference” if the insurers compensated customers “on the basis of a provisional decision rather than a final award”. “The decision of the FOS may have been provisional, but it was still a decision which stood unless and until challenged by either party. I am therefore satisfied that payment pursuant to such a decision was also a liability for the purposes of the indemnity.” [294]

As for causation, the Judge held that “there can be no doubt that the redress payments and FOS fees are liabilities which were proximately and effectively caused by the mis-selling”. [298]

As for AXA’s other causes of action, AXA’s claims under the settlement agreement failed as the Judge held that any agreement that may have been reached was subject to contract. Further, the Contribution Act claim failed. With respect to the “same damage” requirement of a claim under the Contribution Act, AXA accepted that FOS fees and administrative costs are not sums for which Santander was “liable” within the meaning of the Contribution Act but AXA argued that there was such a liability for redress payments. Interestingly, while the Judge rejected Santander’s argument that a regulatory liability to pay redress was not a “liability” for the purposes of the indemnity claim, the Judge accepted Santander’s argument that a regulatory liability to pay redress was not a “liability” to the customer that the customer could enforce directly for the purpose of the Contribution Act claim: “Section 1(6) [of the Contribution Act 1978] contemplates that the action brought by the person who suffered the damage must be one which has established or is capable of establishing the liability. However, the only civil claims that could have been asserted by consumers would have been for breach of rules 1.4.1 or 1.4.4 of DISP and, far from being in breach these rules, AXA/Genworth appear to have observed them meticulously. Likewise, it may be that AXA/Genworth were under a regulatory liability to pay redress or satisfy FOS awards, but that was because of an obligation owed to the regulator, not because they were under any liability to the consumer which the consumer could enforce directly. Moreover, the obligation under rule 1.4.1 is to pay redress when the insurer decides it is appropriate to do so. It is difficult to see how an action for breach of 1.4.1 can prescribe positively how that discretion should have been exercised. The same difficulty arises in relation to the obligation under rule 1.4.4 to satisfy FOS awards.”

Finally, AXA’s claim against the credit lender in negligence succeeded in principle, and without deduction for contributory negligence, although subject to limitation (AXA accepted that most of this head of claim was time-barred, surviving only for policies sold after 7 December 2002).

The Judge held that the credit lenders (the agents) owed the insurers (their principal) a duty to avoid putting the insurers in breach of their regulatory obligations. As to the scope of this duty, the Court rejected Santander’s argument (which cited Manchester Building Society v Grant Thornton UK LLP [2021] UKSC 20) that losses resulting from the fact that a statutory redress requirement was established in 2010 were unforeseeable and fell outside the scope of any duty altogether because there was no sufficient nexus between the loss and the subject-matter of GECB's duty - the so-called "duty nexus" requirement in the MBS judgment. The Judge held that regulatory consequences flowing from systemic non-compliance fell within the scope of the duty: it was obvious that regulatory standards evolve and that breaches could trigger complaints and regulatory remedies.

The credit lenders breached that duty by failing to exercise all reasonable skill and care in the performance of their duties, causing loss in the form of redress payments, FOS fees and potentially costs that were not too remote from the credit lenders’ breaches.

Santander has indicated that it seeks to appeal the judgment.

Comment

This judgment is a timely reminder that the payment of customer compensation may only be the first step in determining interested parties’ respective liabilities and contributions. PPI, like motor finance, was sold over decades under changing regulatory requirements. PPI and motor finance are, of course, fundamentally different products. PPI was (or at least should have been) an optional add-on, whereas motor finance is in most cases an essential element to the purchase without which the sale could not go ahead. However, the financial implications of both products are estimated to be in the tens of billions, with many of the same lenders impacted. This case serves as a warning that if the Court of Appeal decision against motor finance lenders is upheld or largely upheld by the Supreme Court on Friday, the Chancellor does not intervene, and the FCA responds accordingly, the resolution of customer complaints may only be the first step. Satellite litigation between the lenders and brokers, or between original and acquiring entities, including in relation to commercial and contractual arrangements, could run on for years to come.