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 them that 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. 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
PC World and HFC were not amused. The decision of the Sheriff was appealed by Mr Durkin and cross-appealed by both defenders to the Inner House of the Court of Session (see Durkin v DSG Retail Ltd and HFC Bank [2010] CSIH 49) 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!
Julie Hamilton is a Partner in the Dispute Resolution Group at MacRoberts LLP: julie.hamilton@macroberts.com
