MacRoberts Commercial Dispute Resolution e-update 21/07/10
CAVEAT EMPTOR? [Latin for ‘Buyer Beware]
Case Facts
In 1998 Mr Durkin bought a laptop from DSG Retail Ltd, trading as PC World. The laptop was in a sealed box
and he could not establish if it had an internal modem. He proceeded to purchase it, however, on the
understanding that he could return it if it did not have such a modem. He paid £50 as a deposit and signed a
credit agreement offered by HFC Bank plc for the remaining balance of the laptop, being £1,449.
Surprise surprise…the laptop did not have the modem. Mr Durkin tried to return the laptop, but PC World
refused to accept it. Worse still, they refused to refund him his deposit or cancel his credit agreement.
Understandably, Mr Durkin was not amused. He rejected the laptop, leaving it in the store and did not make
payments in terms of his credit agreement. Later, he successfully raised a Small Claims Action for recovery of
his deposit.
All's well that ends well, you might think…well, not so. Because Mr Durkin failed to make payments, HFC placed
him on a credit blacklist. As a result, Mr Durkin could no longer open new credit accounts, enjoy zero rated
interest rates and most importantly, could not purchase a house in Spain…
Once again, Mr Durkin was not amused. He complained repeatedly to HFC, advising he had rejected the laptop
and that he was not going to honour his credit agreement. HFC did not budge and so Mr Durkin raised an action
against both PC World and HFC for declarator that he was entitled to cancel the contract with PC World which,
in turn, cancelled the credit agreement with HFC. He also sought damages in the sum of £250,000 from HFC for
the misrepresentations they had made as to his credit rating.
Sheriff Court
The Sheriff decided that it was an express term of the contract that the laptop had an inbuilt modem and its
absence placed PC World in breach of contract, entitling Mr Durkin to cancel. He also ruled that the contract
between Mr Durkin and HFC was a debtor-creditor-supplier agreement in terms of s.12 of the Consumer Credit
Act 1974. As such, given the material breach, the Sheriff decided that Mr Durkin was also entitled to cancel his
contract with HFC in terms of s.75(1) of the Act. Furthermore, given HFC's actions in negligently placing Mr
Durkin on a credit blacklist without first ascertaining the correct facts, the Court awarded damages of £116,674.
Court of Session Appeal
This time, PC World and HFC were not amused. The decision was appealed by Mr Durkin and cross-appealed
by both defenders to the Inner House of the Court of Session who looked carefully at connected lender liability
in terms of s.75 of the Act. After hearing the facts, the Court ruled that Mr Durkin's cancellation of his consumer
contract with PC World did not automatically cancel the credit agreement contract with HFC. The Court stated
that previous interpretations of the Act were incorrect. Two key statutory expressions in the Act, "linked
transaction" and "a like claim" ultimately decided Mr Durkin's fate. "Linked transaction" refers to, for example, a
sale agreement linked to a credit agreement which is the principal agreement. If the latter falls, the sale
agreement falls too, but not vice versa. Moreover, in terms of s.75(1), in the event of a breach of contract, the
debtor shall have "a like claim" against the creditor who, with the supplier, shall be joint and severally liable. Mr
Durkin's claim relating to the cancellation of a credit agreement was not the same as any claim he would have
made against PC World. Therefore, the Sheriff had erred in deciding that the contract between Mr Durkin and
HFC was the same as the contract with PC World. Had Parliament intended that accompanying credit
agreements would automatically be ended alongside a consumer contract, then it would have drafted the Act
accordingly. It did not. Whilst he had other remedies available to him, Mr Durkin remained bound by his contract
with HFC.
Comment
What does all of this mean? It seems a somewhat paradoxical situation where a consumer has to continue to
pay for something that he has rejected. In poor Mr Durkin's case, he is liable for interest since he signed the
credit agreement in 1998. A bit of advice to consumers…buyer beware! Be clear on what you are signing and
don't be afraid to ask about the implications of exercising your rights. If in doubt – don't sign!
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