Man told PPI payments would be set-off against discharged trust deed debt loses appeal against prescription of claim

About this case:

• Citation:
  [2024] SAC (Civ) 15
• Judgment:
  External link
• Court:
  Sheriff Appeal Court
• Judge:
  Sheriff Principal Aisha Anwar

John McIvor was told by the Royal Bank of Scotland that sums he was due for mis-sold PPI had been set-off against an earlier loan debt under a protected trust deed, although in 2019 the Court of Session ruled that the respondent could not do this. He argued that correspondence from the respondent in 2019 had interrupted the prescriptive period, thus allowing the action he raised in 2022 to be competent.

The appeal was heard by Sheriff Principal Aisha Anwar. Dailly, solicitor advocate, appeared for the pursuer and appellant and Smith, solicitor, for the defender and respondent.

Considering its options

After the appellant was sold the PPI policies, he became insolvent and entered into a trust deed in terms of the now repealed Bankruptcy (Scotland) Act 1985, which later became protected. The respondent was a creditor under the trust deed and submitted claims to the trustee in relation to loan sums owed to it by the appellant. It received a dividend of 8.47 pence in the pound, leaving an unpaid balance of over £35,000. The trust deed terminated on 28 March 2008 with the appellant discharged from all his debts.

In 2016, the appellant complained to the respondent that the PPI policies had been mis-sold to him. By letters dated 27 January 2016 and 14 July 2016, the respondent upheld those complaints and made offers to pay four sums of £1,969.15, £6,245.00, £2,487.98 and £1,981.26 respectively. He accepted the offers, but the respondent refused to pay the sums, claiming by letters dated 24 March and 1 April 2016 that they were set-off in full against the loans advanced by the respondent to him.

The Inner House found in a 2019 test case that the respondent did not have the right to set-off protected trust deed debts. On 2 December 2019, the respondent’s legal counsel wrote to the appellant’s solicitor stating that it was considering its options in light of the judgment. It was the appellant’s position that this letter, and an email dated 6 December, constituted a relevant acknowledgement for the purposes of section 10(1)(a) of the 1973 Act and interrupted the prescriptive period.

The sheriff accepted that an obligation to make payment had been created in 2016. However, he took the view that the 2019 correspondence, looked at in context, did not amount to performance towards implementation of the obligation nor an unequivocal written admission that the obligation still subsisted.

It was submitted for the appellant that the sheriff was wrong in law to treat the respondent’s position as a denial of the existence of the obligation. Any ambiguity ought to be resolved in favour of the appellant. For the respondent it was submitted that the appellant had misunderstood the sheriff’s decision, and the test in section 10(1)(a) had nonetheless not been met.

Position made clear

In her decision, Sheriff Principal Anwar said of the applicable law: “I respectfully agree with Lord Docherty’s observation in Huntaven Properties Ltd v Hunter Construction (Aberdeen) Ltd (2017) that the test for performance must be a fairly high one. Similarly, the language used in section 10(1)(b) suggests that the test for an unequivocal written admission clearly acknowledging that the obligation still subsists is also a high one. The use of the word ‘clearly’ in both sections 10(1)(a) and (b) supports that interpretation.”

She continued: “Performance can consist of a positive act such as payment or part payment of a debt, or the carrying out of remedial works, or, as provided for in section 10(4) of the Act, it can consist of refraining from doing something or permitting or suffering something to be done or maintained. The task for the court is to examine the surrounding circumstances and to consider the terms of any correspondence in that context.”

Looking at the correspondence in this case, the Sheriff Principal said: “The respondent sought to exercise a right of set-off. Parties disagreed whether it was legitimate to do so. While during submissions, there was much discussion of whether the exercise of a right of set-off involves an acknowledgment of a subsisting underlying obligation, I agree with the sheriff; that discussion was misconceived. The respondent had made its position clear.”

She concluded: “The parties exchanged correspondence in which the appellant referred to the possibility of raising court proceedings to seek payment of the sums due on account of the respondent’s refusal or delay to pay. The respondent had indicated that it would defend any such proceedings and seek to have them sisted. An exchange of that nature does not readily, less so clearly, permit an inference that there has been an indication or an acknowledgment that an obligation to pay still subsists.”

The appeal was therefore refused.