Liverpool: 0151 224 0500   |   Manchester: 0161 827 4600   |   Email: info@bermans.co.uk   |   Twitter Icon  |  Linkedin Icon
bermans_logo

Hire Purchase Customer sues Supplier

The title of this article does not quite rise to the level of “Man Bites Dog”, but it refers to a rather unusual case which was reported recently and which provides a welcome albeit relatively unusual example of a dissatisfied customer accepting its liability under Hire Purchase Agreements and seeking its remedy against the supplier of the defective equipment.

New York Laser Clinic Limited v Naturastudios Limited [2019] EWHC 2892 (QB) involved the supply of a large quantity of laser equipment to the claimant for use in its laser hair removal business, following oral representations made by the supplier as to the performance of the equipment upon which the claimant made detailed profit projections which formed the basis of its business case put to 3 financiers.

As a result, 3 financiers funded the equipment and entered into Hire Purchase Agreements with the claimant – Shawbrook as to approximately £115,000, Close Bros as to approximately £80,000, and Lombard as to £36,000, a total funding of £232,000.

It soon became clear that the equipment was seriously defective, and in addition to failing to deliver the promised performance it caused burns on some patients and pain in many others, to the extent that the claimant had to discard the equipment to the point that it was worthless.

Collateral contracts

In a situation such as this there is no direct contract between the supplier and the customer, because of course the supplier sells to the financier under a contract of sale and the financier then enters into the Hire Purchase Agreement with the customer.

All Hire Purchase or lease agreement in these circumstances will normally contain exclusion clauses seeking to absolve the financier of any liability for the defective performance of the equipment, but in business transactions these attempts to exclude liability are subject to the “requirement of reasonableness” imposed by the Unfair Contract Terms Act 1977.

In assessing the question of reasonableness, trial judges are to have regard to all the relevant circumstances, and one important point which we have consistently argued in these cases is the availability to the customer of a collateral warranty by the supplier which should entitle the customer to pursue its remedy in relation to defective equipment against the supplier.

The well-established example of this which we have traditionally used in our legal arguments is the case of Andrews v Hopkinson [1957] 1 QB 229. In this case, the claimant paid a deposit for a second-hand car to the defendant, a motor dealer, and the defendant then sold the car to a finance company. The finance company then made a Hire Purchase contract with the claimant. Upon receiving the car from the finance company, the claimant signed a note saying he was satisfied as to its condition. However, the steering mechanism was badly at fault and caused an accident involving the claimant a week later. Before entering into a Hire Purchase agreement with the finance company, the defendant had said to the claimant, who had no mechanical knowledge, that “It’s a good little bus, I would stake my life on it. You will have no trouble with it.”

In that case McNair J held that the claimant could recover damages from the defendant for breach of the undertaking that the car was in a good condition. McNair J stated, in relation to the collateral warranty claim, that:

“I am satisfied (1) … that if the transaction between the [claimant] and defendant had been in law a sale, the words deposed to by the [claimant] as being the words used by Mr. Hopkinson, junior, could properly be held to be words of warranty, i.e., an affirmation made at the time of sale intended to be a warranty; (2) that the words amounted at least to a warranty that the car was in good condition and reasonably safe and fit for use on a public highway; and (3) that the [claimant] acted upon this warranty in the sense that without it he would not have accepted delivery of the car or entered into the hire-purchase agreement.”

The judge in the New York Laser case took the same view:

“The claimant contends that the defendant made warranties about the performance and qualities of the Magma Lasers, intending them to have contractual force, and that the claimant relied upon these warranties, and provided consideration by paying a deposit and by procuring the Hire Purchase companies to enter into contracts with the defendant to purchase the six Magma Lasers, thereby suffering losses, as the Magma Lasers turned out to be defective, at least for the purposes for which they were intended. The claimant says that consideration for the contractual warranties took the form of the claimant paying a deposit and persuading the Hire Purchase companies to buy the Lasers from the defendant”.

He went on to conclude that a number of warranties were given to the claimant by the defendant in advance of the Hire Purchase agreement. These warranties consisted of a number of representations about the performance and results to be expected from the lasers and were made both orally and also in a brochure given to the claimant by the defendant. The judge concluded that the warranties were not mere representations but were intended to have contractual force and this led to the claimant relying on the warranties to enter into the Hire Purchase contracts to purchase the lasers. The Hire Purchase companies supplied consideration as they paid the defendant directly for the lasers (and in addition the claimant paid deposits straight to the defendant). The evidence showed clearly that the warranties were inaccurate and as a result the claimant suffered significant financial loss.

In the event the claimant succeeded on its loss of profits claim for approximately £3.9 million, but it is interesting to note that when analysing the alternative wasted expenditure claim the judge would have allowed the whole of the £232,000 paid by the claimant to the three financiers under the Hire Purchase agreements.

This therefore appears to be a rather unusual case in which despite the fact that it was clear within a short time of delivery that the equipment was seriously defective, the customer accepted its liability to the financiers on the Hire Purchase agreements in its entirety, did not seek to challenge the exclusion clauses in the Hire Purchase Agreements, and turned to pursue its remedy against the supplier despite the absence of any direct contract with the supplier.

 

Sign up for Bermans Newsletters