The UK High Court recently refused to allow a claim to proceed in relation to mis-selling of an insurance product on the basis that the claimants had already been offered full redress under a formal ADR scheme established in relation to such complaints.   The decision is a further example of the UK courts’ support for ADR and illustrates that the courts’ artillery in this regard is not limited to imposing costs sanctions at the conclusion of litigation (Christopher and Claire Binns v Firstplus Financial Group Plc [2013] EWHC 2436 (QB)).  

In 2011, following an explosion of complaints and litigation in relation to the alleged mis-selling of payment protection insurance (PPI), an industry-wide scheme for the handling of such complaints was established under the auspices of the UK Financial Services Authority (‘the FSA scheme’).   The claimants (through their solicitors) had made a complaint under the FSA scheme, while expressly reserving their right to litigate.  The complaint was effectively accepted by the firm in question and resulted in an offer of full compensation for the cost of the PPI premiums plus interest (but without any amount in respect of legal costs).  The claimants did not accept the offer and commenced a County Court claim for damages, asserting that they would be entitled to additional compensation in court proceedings.   The defendant applied to strike out the claim under Civil Procedure Rules  Part 3.4(2)(a), which empowers a court to strike out a statement of case if it appears to the court that it “discloses no reasonable ground for bringing … the claim” or  is “an abuse of the court’s process”.  The offer under the FSA scheme remained open for acceptance.

At first instance, the judge in the County Court allowed the claim to proceed (albeit reluctantly) on the basis that the court action included a claim under a statutory provision which she considered potentially entitled the claimants to further damages, beyond the amount offered in the FSA scheme.

However, on appeal to the High Court, the judge disagreed that the statutory provision carried any potential for additional compensation and concluded that the only potential advantage to the claimants in bringing the litigation was the possibility of an additional award in respect of legal costs.   He considered the likelihood of such an award highly speculative but, more importantly, held that even if there was such a possibility, it was irrelevant because a costs claim was not part of the substantive claim itself but ‘adjunctive to it’ and did not by itself justify the pursuit of the litigation.  Accordingly, the claim was struck out on the basis that the claimants had already been offered ‘full redress’  (within the Court’s interpretation) and that the claim was therefore brought without reasonable grounds and was an abuse of the Court’s process.

It is of course well established in the UK that a claimant who presses ahead with litigation having unreasonably failed to engage in available ADR options may ultimately be sanctioned by the court in the form of a costs order.  That approach was applied in the context of the PPI scheme in Andrew and others v Barclays Bank PLC and Carroll v Egg Banking PLC [2012] EWHC B13 (Mercantile).   However, in the present case, where ADR had in fact already taken place and what the Court regarded as full redress had been offered, the Court considered that it was not necessary for it to wait until the conclusion of the proceedings and that it could and should use its strike out powers to prevent an inappropriate use of the Court’s resources.

As succinctly put by the judge, “the moral of this case is that litigants should ordinarily follow the ADR route when there is a perfectly good scheme that offers (i) speedy justice; and (ii) full redress”   –  bearing in mind that ‘full redress’ will not necessarily include legal costs.      

It should of course be noted that under other ADR redress schemes in relation to other types of complaints, quantification of the loss suffered by a complainant may not always be as straightforward as with PPI claims and it may therefore not be so clear cut when an offer of “full redress” of the substantive claim has been made.    However, the case serves as a further clear illustration of the courts’ continued support for ADR, including such formal schemes, as a valuable means of reducing the pressure on the court system.