High Court allows lender to sue UK law firm operating a claims management business model

TMS Legal Limited, a UK firm of solicitors, has failed to get a claim brought by Vanquis Bank Limited against it struck out. The claim in Vanquis Bank v TMS Legal is for damages for causing loss to Vanquis by unlawful means; namely, the submission of significant volumes of unmeritorious complaints to the bank on behalf of TMS' clients.

TMS applied to the court to have Vanquis' claim struck out on the basis that the claim would be an inappropriate extension of the economic tort and that, if Vanquis had complaints about TMS' conduct, the appropriate action would be to complain to TMS' applicable regulatory body the Solicitors Regulation Authority (SRA).

On 25 June, Mr Justice Jay found no difficulty in dismissing TMS' applications to strike out the claim, allowing Vanquis's case to proceed on what he said were well-established legal principles albeit applied to a novel factual pattern.

Vanquis v TMS: the facts

Vanquis specialises in lending to individuals with low or adverse credit histories. TMS is an SRA-regulated law firm that specialises in filing financial misselling complaints or claims, including "irresponsible lending" claims, on a "no win no fee" basis (up to 45%, then 30% following the SRA cap, of any redress obtained).

"Irresponsible lending" claims are typically based on allegations that a lender has failed adequately to assess a customer's ability to repay the credit, before granting them credit, potentially causing them financial hardship. 

If TMS' client was not satisfied with Vanquis’ response to their complaint, they could escalate it by referring it to the Financial Ombudsman Service (FOS). Importantly, after the first three complaints to the FOS each year, a firm is required to pay a case fee of £650 per case, regardless of the outcome.

In October 2022, Vanquis started to receive a significant number of "irresponsible lending" complaints from TMS in relation to its customers credit cards. By 31 August 2024, Vanquis had received around 33,000 such complaints, of which around 17,500 were referred to the FOS.

Less than 8% of complaints made were upheld by Vanquis under its internal complaints handling process (either for substantive reasons or because Vanquis considered the claims to be time-barred) and of the complaints referred to the FOS, over 83% were either rejected by the FOS, or were withdrawn or closed. This was in circumstances where, according to Vanquis, it had explained its reasons for upholding or rejecting complaints in its final response letters, which reasons TMS allegedly did not engage with in referring the complaints to the FOS, merely stating that it was "not satisfied that the complaint had been handled fairly or correctly" by Vanquis. 

Vanquis' claim

Vanquis' claim is based on the tort of causing loss by unlawful means. There are four essential elements of this tort as applicable to the facts.

• Unlawful acts used against and independently actionable by TMS' clients against TMS. Vanquis claims that, by submitting complaints on behalf of clients to Vanquis, without first obtaining sufficient information from the client and determining that the complaint was properly arguable on the facts of the particular case, TMS was acting in breach of the contractual, tortious, regulatory and fiduciary duties it owed to its client.
• Interference with the actions of TMS' clients, in which Vanquis has an economic interest. Vanquis claims that, by submitting unmeritorious complaints to Vanquis, TMS was interfering with the credit relationship between Vanquish and its borrowers because, in line with market practice and Vanquis' regulatory obligations, Vanquis was required to suspend the provision of credit to customers who claim their borrowing was unaffordable.
• Intention to cause loss to Vanquis by the use of those unlawful means against TMS' clients. Vanquis claims that, as causing loss to Vanquis was an inevitable consequence of the claims being made, TMS intended to cause loss to Vanquis.
• Loss in fact caused to Vanquis. The lender claims it incurred significant losses amounting to over £12 million, including the cost of engaging additional temporary members of staff to deal with unmeritorious claims, wasted management time, lost profits and – importantly – over £9 million in FOS fees.

The decision

Mr Justice Jay found no difficulty in rejecting TMS' application to strike out Vanquis' claim, including its argument that the existence of regulatory oversight by the SRA, FCA and FOS precluded a private law remedy. He noted that these frameworks do not provide compensation to Vanquis.

In addressing each of the four elements of the claim Mr Justice Jay found that:

• TMS' alleged breaches of contractual, fiduciary and regulatory breaches to its clients could constitute "unlawful acts" for the purposes of the tort.
• It was at least arguable that causing a customer of Vanquis to lodge an irresponsible lending complaint against Vanquis amounts to interference with the relationship with the customer (particularly if it is without foundation) and that doing so, in circumstances where the impact of that complaint is that Vanquis will suspend the customer's credit, amounts to interference with the customers relationship with Vanquis.
• It was plausible that TMS acted with the intent to cause loss to Vanquis as TMS knew that was the virtually certain result, even if it is was not TMS' specific aim or purpose - although this would need to be tested at trial.
• The loss pleaded by Vanquis is of the type of loss that may have been sustained by TMS' actions.

TMS' client questionnaire, which its clients completed and signed as part of the claims submission process, included the statement: “I only recently understood that I had cause to complain when [TMS] represented my interest regarding irresponsible lending. I considered my financial issues to be the problem and I didn’t link it to any irresponsible lending by the lender". Vanquis claimed this was included purportedly to bring the complaint within the three-year extension period applied by the FOS in determining whether complaints are time-barred. Mr Justice Jay felt able to express an opinion and stated that "the statement is entirely leading and […] clients should not have been asked to sign it in these terms".

Osborne Clarke comment

Financial services firms have been struggling with handling the huge volume of poorly investigated and put together complaints by claims management companies (CMCs), and law firms operating under the CMC business model, for years.

Their criticisms have been getting louder and louder and there has been a notable shift among the regulators and government to scrutinise and expose poor conduct of CMCs and their legal counterparts. These measures have included the recent introduction of FOS fees for CMCs and other professional representatives on 1 April this year and the increasingly strident guidance coming from both the FCA and the SRA about the need for CMCs properly to investigate the validity of complaints before bringing them on behalf of financial services firms' customers. 

If ultimately successful, the Vanquis case could significantly impact CMCs and law firms operating under the CMC business model and expose those firms to potential risk of action from financial institutions that face high volumes of unmeritorious complaints.  Although the case has not yet been decided, this interim decision by the High Court may encourage financial institutions to hold complaints handling firms that engage in reckless and unethical practices more to account.

Mr Justice Jay was clear that in dismissing TMS' applications he was not "expressing any view as to whether Vanquis' case is right". TMS has since filed its defence, which challenges a number of the factual assertions made by Vanquis as well as making arguments in respect of the legal position and criticising Vanquis' complaints handling process. It claims that "rather than seeking to engage with the substance of the complaints and resolve the underlying issues at Vanquis which have led to the submission of the complaints, […] Vanquis is instead wrongfully seeking to stifle the ability of these individuals to bring such complaints". The implication in Mr Justice Jay's judgment was that Vanquis' may well have a viable claim under the tort. 

The case will now proceed to trial.