A LANDMARK ruling has said that banks will be able to re-duce amounts of compensation paid to customers who claim they were mis-sold payment protection insurance to recover debts.
The Court of Sessions in Edinburgh found that the Royal Bank of Scotland were entitled to reduce the discharge of a customer’s Trust Deed.
Banks will be allowed to limit compensation due in circumstances where a customer entered into a Trust Deed having been unable to repay borrowings to the bank but, makes a PPI complaint after the Trust Deed process has concluded.
It follows a UK Supreme Court ruling that determined debtor had a right to compensation from the trustee after the trust deed had been discharged. However, it left open the possibility of a remedy in the law of reduction and the final sum might be reduced.
The initial case that was referred was in 1997 when Alison Donnelly borrowed money from RBS between 1997 and 2003 but was unable to repay the sums.
She entered into a protected trust deed and appointed an insolvency practitioner as trustee to administer her estate to pay off her debts. The trustee paid a first and final dividend to the bank and granted Donnelly’s discharge.
She later raised a PPI complaint with RBS through a claim management company, which both parties settled for approximately £11,000. RBS paid one installment of £1,000 and Donnelly raised legal proceedings over the unpaid balance.
Following the Supreme Court’s decision, the Inner House of the Court of Session decided that as Donnelly had been discharged in respect of the unpaid balance owed to RBS, this sum could not be set-off against the outstanding sum owed to her by the bank.
RBS raised a new action seeking reduction of the trust deed’s discharge. This hearing heard that the PPI claim was not included as an asset of her estate, which was a material mistake and would have led to a reduction. Donnelly was unaware of this and at the time she could have raised the PPI claim during the trust deed process.
Insolvency disputes expert Joanne Gillies of Pinsent Masons, who acted for RBS, said the court finding provides much needed clarity and will be welcome news for creditors and insolvency practitioners who discover liabilities previously owed to a debtor after they have discharged a trust deed.
Ms Gillies said: “This is particularly relevant to creditors facing PPI claims from customers who have a history of insolvency. The Court of Session confirmed that the discharge of a trust deed for creditors can be reduced. This finding leaves open the possibility for sums subsequently found due to the debtor to be set off against amounts remaining owed to the creditor.
The court also found that the trustee’s decision to grant the discharge did not involve any discretionary or qualitative judgement but was instead an administrative decision, challengeable on grounds including material error.
While the Court decided not to grant reduction in this case, due to the unique circumstances which included a long running Court action with the bank, the judgment of Lady Wolffe is clear that the remedy would be available to the bank in other cases.