Description of Goods Must be Accurate
The recent High Court case of Brewer v Mann and Fortis Lease UK Limited  EWHC 2444 (QB) decided on 14 October 2010 provides a stark illustration of the importance of goods being accurately described in Finance Agreements.
The case involved a prestige vintage car described by the dealer as a “1930 Bentley Speed Six” which the Claimant took on Hire Purchase from Fortis on 6 June 2007. The dealer sold the vehicle to Fortis for £425K less a deposit of £35K. Approximately 14 months later in August 2008 the Claimant decided to have the vehicle valued by a specialist and was horrified to find that it did not match its description of a 1930 Bentley Speed Six, but was an earlier and inferior model.
The Claimant immediately rescinded the Hire Purchase Agreement and brought an action for damages against the dealer and Fortis. Fortis counterclaimed for approximately £456K which was the termination sum due under the Agreement, notwithstanding the fact that after repossession it had sold the vehicle back to the dealer for £425K in July 2009.
The Claimant’s claim against the dealer was brought against the individual who she had dealt with because she was unaware of the fact that he was acting on behalf of a limited company until the very last stage of the transaction, so he was pursued in his individual capacity and in the alternative as the agent of an undisclosed principal. During the trial the Claimant applied for and received permission to add the dealer’s company as an additional Defendant, and as a result Fortis was also allowed to institute a claim against the company for an indemnity based on the contract of sale to Fortis. It is not clear why this indemnity claim was not brought earlier in the usual way.
Hiring by Description
Where under a Hire Purchase Agreement goods are hired by description, section 9 of the Supply of Goods (Implied Terms) Act 1973 implies a term that the goods will correspond with that description, and in dealings with a consumer such a term cannot be excluded as a result of section 6(2) of the Unfair Contract Terms Act 1977.
Fortis argued that this was not a hiring by description, on the basis that the description of the vehicle had in fact been provided by the Claimant herself after she had received it from the dealer. The Court gave short shrift to this argument, notwithstanding the fact that it was indeed the Claimant who gave the relevant description to a finance broker to whom she had been recommended by the dealer, and the broker filled in the details in the Agreement.
The Judge also remarked that in any event the description of the vehicle was an express term and would therefore not have been excluded by Fortis’ exclusion clause which was confined to the exclusion of implied terms.
Right to Reject
The Court had little difficulty in finding that the Claimant had not lost her right to reject the vehicle, since she did so within days of receiving the valuation report which alerted her to the mis-description. A clause in the Agreement to the effect that she had accepted the vehicle on delivery was struck down under the Unfair Contract Terms Act 1977 which limits any contractual provision that excludes or restricts a consumer hirer’s contractual rights.
Fortis’ Claim for Damages
Fortis claimed damages of £456K as the termination sum due under the Hire Purchase Agreement, and surprisingly did not give credit for the £425K which it had received from the dealer company who bought the vehicle back after repossession for the original purchase price. This claim was dismissed for a number of reasons, including that:-
(1) Fortis did not terminate for non-payment of hire, despite the fact that arrears had accrued, but instead terminated in an attempt to pre-empt the Claimant’s intimated claim to rescind the Agreement and to reject the vehicle;
(2) Fortis’ termination notice did not seek to rely on the correct early termination provision in the Agreement;
(3) the Claimant had not repudiated the Agreement despite her arrears; and
(4) Fortis sought to rely on a particular provision in the liquidated damages clause in the Agreement, but that provision expressly required a correctly formulated written demand for payment, which had not been made in the present case.
Return of Payments Made by the Claimant
The Claimant was awarded damages against the dealer, the dealer company and Fortis of £94,555 which was made up of £35K as the deposit and £59,555 being instalments paid to Fortis. Fortis argued that its liability should be restricted to the £59,555 instalments which it had received but the Judge dismissed this argument on the basis that the price stated in the Hire Purchase Agreement included the deposit “and, in any event, the loss naturally flowing from Fortis’ breach of contract includes the unreturned deposit”.
Fortis then argued that a deduction should be made for the fact that the Claimant had had the use of the vehicle for 14 months without any problems. The Judge dismissed this argument shortly:-
“Her claims are for damages for breach of warranty in circumstances in which she was entitled to rescind [the Agreement] and to reject the car. There is no basis for setting up a restitutionary claim for compensation for her use and enjoyment of the car as an off-set to her claims for damages.”
The Judge did however reduce interest payable to the Claimant on her damages so as to exclude the period for which she had use of the vehicle.
The Court ordered the dealer, the dealer company and Fortis to be jointly and severally liable to pay the Claimant damages of £94,555 and her costs, and suggested that how if at all the Defendants were to apportion costs between themselves was a matter for them.
Because Fortis had only brought an indemnity claim against the dealer company during the trial no binding decisions were made in the indemnity action and those proceedings were stayed until after the conclusion of any appeal proceedings in the main action.
This case is an important reminder of the principle that a mis-description of equipment in a Finance Agreement is a breach of a condition which will normally give the hirer the right to the return of all payments made under the Agreement without having to make any allowance for the use of the goods.
Although this case involved a high value vintage motor vehicle the principle applies wherever there is a hiring by description – whether in Hire Purchase (section 9 of the Supply of Goods (Implied Terms) Act 1973) or hire (section 8 of the Supply of Goods and Services Act 1982).
These conditions cannot be excluded when dealing with consumers; in non-consumer transactions attempts to exclude liability may theoretically succeed if they satisfy UCTA’s “requirement of reasonableness”, but it is unlikely that a Court would find any attempt to negate the effects of an express description of goods in a Finance Agreement as satisfying such a requirement and there is no reported authority in support of such a proposition.
There is no magic in a hiring by description, and the Courts will readily find that every element of the description of goods in a Finance Agreement has to be strictly complied with. This includes in particular when goods are described as “new”.
If there is a breach of the term as to description the hirer’s right to rescind the Agreement and claim repayment of all sums paid will only be lost if the hirer acts so as to affirm the Agreement after discovering the mis-description.
Perhaps the most alarming lesson from this decision is the Judge’s refusal to make any allowance for the value to the Claimant of the use of the vehicle, other than in disregarding the period of use in her claim for interest. Although the case report runs to 248 paragraphs it does not appear that any authority on this point was cited to or considered by the Court. It is true that in the 1949 case of Warman v Southern Counties Car Finance Corporation Limited the High Court held that where the Financier was in breach of the implied term as to title in a Hire Purchase Agreement no allowance was to be made for the hirer’s use of the goods when ordering repayment of instalments paid under a rescinded Agreement, but the reasoning in that case turned upon the fact that in a Hire Purchase Agreement the hirer’s ability to exercise the option to purchase “is the whole basis of the agreement” . Whilst some analogy can be drawn to this situation where the Financier’s breach arises from failure of the goods to comply with their description, surely the better analogy is where goods are not of satisfactory quality and particularly in view of the developing law of restitution there should be room for the Court when compensating the hirer to set-off an allowance for the actual value of the use of the goods albeit that they were not the goods actually described.
The key point is that Financiers should try to ensure that descriptions applied on Finance Agreements are accurate and should in certain circumstances consider obtaining original evidence from the dealer possibly in the form of the dealer’s purchase documentation although it may in certain circumstances be appropriate to redact the price paid by the dealer if this is a sensitive issue.