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PPI Compensation Test Case Victory

Themis Member Michael Upton represented the respondent in Royal Bank of Scotland v. Alison Donnelly, who on Thursday 21st November successfully opposed an appeal by the Bank. The Second Division dismissed the Bank’s appeal from the Sheriff Appeal Court in an action of payment for £10,000 which began in Glasgow’s Commercial Court in 2014. It is said by the Bank to be a test case on which for it alone c. £10-12 million depends. Other banks may have comparable liabilities.

Mrs. Donnelly executed a trust deed for creditors at a time when she owed credit-card debts to the Bank, but also had a potential claim against it for mis-selling P.P.I. In the insolvency trust, the Bank was paid only a dividend towards Mrs. Donnelly’s credit-card debts. After six years’ insolvency, her trustee terminated the trust and discharged her from her debts, including her debts to the Bank. She then claimed the compensation, which the Bank agreed was payable, but which it declined to pay. Instead it asserted a continuing right to set off the larger sums which she had borrowed, claiming that since such an insolvency set-off was valid under the insolvency trust, it was unaffected by her discharge from insolvency.

The Sheriff Appeal Court held that on the authority of Dooneen Ltd. v. Mond (in the Inner House and thereafter the Supreme Court), on the wording of the trust deed used in both cases (and also in many others), the debtor’s discharge re-invested the debtor with the right to the P.P.I. compensation. In Mrs. Donnelly’s case, the Second Division has applied that and, further, held that on the discharge of the debtor, any right of the Bank to set off her pre-insolvency credit-card debts was extinguished: › search-judgments › judgment

The Herald has reported the case in more detail at