England and Wales Court of Appeal (Civil Division) Decisions

Case No: B2/99/1183

IN THE SUPREME COURT OF JUDICATURE

COURT OF APPEAL (CIVIL DIVISION)

ON APPEAL FROM NEWCASTLE COUNTY COURT

(Judge Faulks)

(District Judge Powell)

Royal Courts of Justice

Strand, London, WC2A 2LL

Thursday 21^st December 2000

LORD JUSTICE BROOKE:

1. This is an appeal by the claimant Michael Ketley from a judgment of Judge Faulks at the Newcastle-upon-Tyne County Court on 6th October 1999 when he allowed an appeal by the defendant from an order of District Judge Powell on an assessment of damages in the same county court on 17th August 1999, who had directed that judgment be entered for the claimant for £2,078.63 inclusive of costs.

2. The order of Judge Faulks, which simply states that the appeal of the Applicant (sic) was allowed, is ineptly drawn. As the Judge made clear, the appeal from the District Judge's order was limited to a challenge to part of his award, in the sum of £684.54 (together with interest), in relation to Mr Ketley's claim for a replacement vehicle while his car was being repaired following a road traffic accident.

3. This appeal was listed to be heard with a number of other appeals which raised different issues that had been troubling the lower courts since the decisions of the Court of Appeal and the House of Lords in the leading case of Dimond v Lovell ([2000] 1 QB 216 CA; [2000] 2 WLR 1121). In the event the other appeals were compromised without the need for a hearing, and the present appeal was the only one which calls for a decision of the court, following full argument by leading counsel on both sides.

4. The underlying facts of the case are relatively straightforward. Mr Ketley was driving his car in Darlington, County Durham on 27th June 1998, when it was struck from behind by the defendant's car. His car was rendered temporarily unroadworthy, and he entered into a written agreement on 30th June 1998 with an accident hire company, 3 Arrows Ltd, whereby he hired a car from them for 17 days. The hire charges amounted to £27.77 per day for 17 days, plus a collision damage waiver charge of £6.50 per day. Together with VAT of £101.95, the charges totalled £684.54, and this was the amount which was in issue before Judge Faulks.

5. Clause 5(1) of the agreement provided that:

"5. Where the hire is consequent upon the Hirer's own vehicle being unroadworthy as a result of a car accident:

(1) The hire and other charges including Value Added Tax will be repaid by the Hirer to the Owner by a single payment when the claim against the party the Hirer alleges to be responsible for the accident (hereinafter called the Third Party) for damages for loss of use of the Hirer's own vehicle is satisfied or on the expiry of 12 months starting with the date of this agreement, which-ever is earlier." (Emphasis added)

6. The issue at the heart of this appeal is whether this was a regulated agreement within the meaning of the Consumer Credit Act 1974. If it was, its formalities did not comply with the requirements of the Act, and on the authority of the House of Lords in Dimond v Lovell the accident hire company would be unable to recover its charges from Mr Ketley and consequently would not be entitled to rely on rights of subrogation to recover them from the defendant (or her insurers).

7. The main issue on the appeal is whether the agreement is an unregulated agreement by virtue of the Consumer Credit (Exempt Agreements) Order 1989. Article 3(1) of that Order provides that:

"The [Act] shall not regulate a consumer credit agreement which is an agreement of one of the following descriptions, that is to say (a) a debtor-creditor-supplier agreement being either (i) an agreement for fixed-sum credit under which the total number of payments to be made by the debtor does not exceed four, and those payments are required to be made within a period not exceeding 12 months beginning with the date of the agreement..." (emphasis added)

8. It will be noticed that whereas the Order is in these terms, the agreement at the heart of this appeal used the slightly different language "by a single payment ... on the expiry of 12 months starting with the date of this agreement".

9. The Judge ruled in favour of the defendant, saying that the words "on the expiry of 12 months", meant in plain English "after 12 months have been exceeded". He added that if there had been any doubt about this interpretation, he would have held that the wording was at best ambiguous, and that the claimant had failed to satisfy the burden of proof that lay on him to show that the agreement came within an exemption permitted under the 1974 Act (see the Unfair Terms in Consumer Contracts Regulations 1994, regulation 6).

10. The contending arguments can be summarised briefly in these terms. Mr Brindle, QC, for the claimant, says that the clause in the agreement is clear and unambiguous and that it means that the liability to pay arises coincidentally with the termination of the period of 12 months. He relies on a number of decided cases in support of this proposition, including the judgment of Warrington J in English v Cliff [1914] 2 Ch 376, 380-381, a case concerned with the rule against trusts in perpetuity. He therefore contends that the relevant liability arose within a period not exceeding 12 months, because it arose exactly on 12 months, at the termination of the period of 12 months. He also argues that, in this context, the expression "on the expiry of" is synonymous with the word "within", and not, as the Judge appeared to find, with the expression "after the expiry of". For these reasons he argues that the agreement is within the terms of the exemption and is enforceable.

11. Miss Heilbron, QC, for the defendant, says that under this rental agreement payment cannot be made until the 12 months have expired. Thus the hirer has to pay on the day following the expiry of 12 months. The agreement therefore falls outside the exemption. From a different perspective she says that, in order to comply with the exemption, if an agreement starts on 1st January, the payment must be made at the latest on 31st December, if it is to be required to be paid "within a period not exceeding 12 months". If the payment has to be made on 31st December at the latest, then it is not made on the expiry of 12 months. She also adds that, if the clause is ambiguous, it must be construed in favour of the consumer.

12. She says that earlier decided cases are of little relevance, because the clauses in a particular agreement must be construed in context. She observes, generally, that cases like the present where a positive act, such as payment, is required, are distinguishable from cases where something happens automatically on the expiry of a time limit, as occurred in English v Cliff.

13. On first impression Miss Heilbron's arguments appeared to be soundly based. If something has to be done on the expiry of a person's life, it seems to be an abuse of language to say that it may be done within his lifetime. It is necessary, therefore, to examine with some care the authorities on which Mr Brindle relied.

14. The first of these cases was the judgment of Warrington J in English v Cliff. This case was not concerned with the terms of an agreement or with the terms of primary or secondary legislation. It arose out of the rule against perpetuity which provides that where there are not lives or a life in being to be taken into account, an estate or interest must arise not later than 21 years from its creation in order to be valid.

15. Warrington J found that many well-known text-books stated the principle that in order to escape the rule against perpetuity the estate or interest or other limitation must arise "within" the period allowed by law. He said, however, at pp 380-381:

"...I am quite willing to accept that statement as being for all practical purposes a sufficient statement of the rule, but when I come to consider what that statement means and to apply it to such a case as the present, then, in my opinion, the trust which is to arise `at the expiration' of the term of twenty-one years does arise `within' the period of twenty-one years, because I should have to resort to all sorts of subtle calculations and distinctions unless I were to hold that an estate or a trust to arise coincidently with the termination of the period of twenty-one years was a valid estate or trust.

To put an analogous case which occurred to me in the course of the argument, there must be many cases in which a testator has fixed the period of twenty-one years from his death as that at which a class of beneficiaries is to be ascertained, for example a trust for such members of a class of persons as shall be living at the expiration of twenty-one years from his death. I think that any lawyer dealing with such a limitation as that would say without doubt that it was a good limitation, and yet in that case it is necessary to wait until the last infinitesimally small fraction of a minute has expired before it can be said whether a certain number of persons will be living or not at the expiration of that moment of time.

The trust in the present case is to arise at the expiration of the term of twenty-one years, and if looked at from one point of view that trust arises coincidently with the last moment of the term, although. if looked at from another point of view, it may be said to arise at some infinitesimally small fraction of time after the last moment of the term. In my opinion, however, the only sensible view to be taken of such a limitation is that the term determines and the trust arises at the very same moment of time, and if looked at in that way it is impossible to say that the trust arises at a later period than that allowed by law. It seems to me therefore that the term determines and the trust arises at mathematically and identically the same moment, and so far as that objection goes I am of opinion that the trust is a good one."

16. The issue which Warrington J was concerned to resolve was so different from the issue which has arisen in the present case that I do not derive any assistance from this judgment. He was concerned not with an express obligation to require a payment to be made within a period not exceeding 12 months (if a credit agreement was to be an exempt agreement) but with a rule against perpetuity, expressed without the precision of a statute or a term in a contract, which he found to be consistent with the fair result that a trust should not be declared invalid if it arose at the very same moment in time as the expiry of 21 years from the date when it was created.

17. Mr Brindle relied, next, on cases concerned with the interpretation of notices to quit in relation to periodic tenancies, of which Sidebotham v Holland [1895] 1 QB 378, 384 is an early example. In that case a house was let to the defendant as a yearly tenant "commencing on May 19 instant", and on 17th November the landlord served a notice to quit "on 19th May next". The majority of the court, AL Smith LJ doubting, held that this was a good notice, ending as it did on the anniversary of the term. Lindley LJ, with whom Lord Halsbury agreed, accepted that a notice to quit expiring on 18th May would have been a good notice. He added, however, at p 383:

"But, although a half-year's notice to quit on the 18th would be correct, it does not follow that a notice to quit on the 19th, which is the anniversary of the day on which the tenancy commenced, is bad, and I am clearly of opinion that it is not. I have looked at all the decisions which were referred to in the argument and at many more, and I can find none in which it has been held that a half-year's notice to quit on the anniversary of the day on which the tenancy commenced is bad. I should be very much surprised to find such a case. The validity of a notice to quit ought not to turn on the splitting of a straw. Moreover, if hypercriticisms are to be indulged in, a notice to quit at the first moment of the anniversary ought to be just as good as a notice to quit on the last moment of the day before. But such subtleties ought to be and are disregarded as out of place. There are several decisions in which notices like the present have been held sufficient."

18. While doubting the correctness of this decision, AL Smith J did not press his doubts to a formal dissent. He said at pp 388-9 that it could not be denied that the law on notices to quit was highly technical, and he therefore adopted a pragmatic approach, saying that he did not desire to add one more technicality to a notice to quit unless compelled to do so.

19. A more modern example of a case concerned with the termination of a periodic tenancy is Manorlike Ltd v Le Vitas Travel Agency and Consultancy Services Ltd [1986] 1 All ER 572.

20. In that case a landlord was entitled to terminate a lease of business premises at any time by giving the tenant "not less than 3 months' previous notice in writing". The notice whose validity was in dispute required the tenant to vacate "within a period of three months" from the date of service of the notice, and the tenant took the singularly unmeritorious point, which failed to attract the master or the Judge on appeal, that the notice had the effect of giving him less than three months' notice.

21. The point was unceremoniously brushed aside in the short judgment of Nourse LJ at p 575. He said:

"The question is a short one. The landlord has the right to determine the lease by giving to the tenant `not less than 3 months' previous notice in writing expiring at any time'. On 22nd May the landlord serves a notice on the tenant requiring it to vacate the premises `within a period of three months from the date of service of this notice'.

It is not in dispute that a period of three months from 22nd May expires at midnight on 22-23 August. What then is the effect of a requirement that the tenant shall vacate the premises `within' that period? Does it have the effect of giving to the tenant less than three months' previous notice? The tenant answers that question in the affirmative, contending that if someone is required to do something within a period of months he must do it before midnight on the last day of the period and that he may not do it at midnight on that day. To put it in another way, the tenant contends that the import of the word `within' is that there is to be some outside wall of time, however thin, on the near side of midnight.

Like Kerr LJ, I reject the tenant's contention on grounds both of language and of common sense. The precise meaning of a preposition such as `within' depends on the context in which it is used. Here it is used in a legal document and it is applied to a period of three months' notice. In such a context I see no difference between the meanings of `within' and `during'. In my view if someone is required to vacate premises within or during a specified period, he will comply with the requirement by walking out of the door either before, or on, the stroke of midnight on the last day of that period. So much for language pure and simple. As for common sense, I need say no more than that the tenant's contentions, if correct, would attribute to the landlord the extremely bizarre intention to differentiate between midnight on the one hand and the nearest measurable point of time before midnight on the other."

22. In his leading judgment in that case Kerr LJ dealt with the same point at greater length at pp 573-4. He said:

"Counsel for the tenant submitted that there is a material difference between the words `not less than' and the word `within' when used in the context of a period of time, in this case three months ... [He] accepted (I think rightly) that if this notice had required the tenants to leave the premises by or at midnight on 22-23 August it would have been a good notice. He referred us to a number of cases, including one on which the judge relied, Eastaugh v Macpherson [1954] 3 All ER 214, [1954] 1 WLR 1307, in which it was held that a requirement to vacate by a certain date means on or before that date and therefore includes the last day.

It is clear that the tenant was entitled to a period which included the stroke of midnight of 22-23 August, because he was entitled to not less than three months' notice. We were referred in that connection to Lester v Garland (1808) 15 Ves 248, [1803] All ER Rep 436 and Page v More (1850) 15 QB 684, 117 ER 618. It is also clear, and was not disputed by counsel for the tenant, that the moment at which the tenant's right to remain in the premises ended must be precisely coterminous with the moment at which the landlord's right to resume possession began. It is for all those reasons that counsel for the tenant conceded that a notice expiring precisely at midnight on 22-23 August would have been a good notice.

Accordingly, all that one is left with is the question whether the words used in this notice, to vacate the premises `within a period of three months', excludes the stroke of midnight on 22-23 August. To my mind the word `within', used in the context of a period of time, is capable of meaning `before or at the expiry of' that period, as counsel for the landlord submits; it is not necessarily shorter than the period itself. Counsel for the landlord derives some assistance for that submission from one of the definitions of the word `within' in the Oxford English Dictionary, where under no 6 the word `within' is defined as follows: `In the limits of a period of time (most usually), before the end of, after not more than'. It is difficult to think of examples where the word `within' would be used synonymously with the much more complex expression "after not more than'. However, what emerges from the illustration of the meaning of the word `within' by the expression `after not more than' is that in common parlance `within' is capable of including the final moment of a period of time. If a person is required to do something within a week, or in a week, he has the full week to do it, as it seems to me, including the last moment of that week, and he is not required to complete the task in less than a week. To construe the wording of this notice so that it connotes a period of less than three months, because possession must be given `within' three months with a consequent failure to allow a full period of three months, appears to me to strain the language in a hair-splitting and wholly artificial manner. Moreover, as pointed out by counsel for the landlord, the present notice referred expressly to clause 7 of the lease, because it required the tenant to vacate the premises in accordance therewith. Any doubt whether there could have been any intended difference (which I think as a matter of ordinary English there is not) between ` not less than three months' and `within three months' would in my view be resolved by that reference.

This is a notice to quit commercial premises. I am fully aware that over many decades, and perhaps hundreds of years, there have been many cases of a highly technical nature on notices to quit. But if the present appeal were allowed on this point (which had not even occurred to the tenants when these proceedings started) I think that the reasoning of the court in cases of this kind would rightly be regarded as wholly artificial, if not absurd. I fully accept the principle that a notice to quit is a highly important legal document which requires to be strictly construed. But, even bearing that in mind, I cannot bring myself to conclude that there is any sensible difference between the terms of this lease and the words used in the notice to quit, either as a matter of ordinary English or common sense."

23. In Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1995] 1 WLR 1508 Nourse LJ said at p 1514 that the judgment of Lindley LJ in Sidebotham v Holland established a special rule for determining periodic tenancies at common law. Although the House of Lords ([1997] AC 749) reversed the decision of this court in that case Lord Steyn expressly approved this dictum of Nourse LJ (see his speech at p 767). It follows that no real assistance can be derived from cases concerned with periodic tenancies.

24. Mr Brindle then showed us a judgment of Houser J, sitting in the District Court of Appeal in California in Washburn v A F Gilmore Company 2 P 2d 506, 507 (1931), in which the court was concerned with an obligation on the part of the lessee and its assignees to "cover up all sump holes on the expiration of the lease". The Judge held that the obligation devolved on them at the same instant that the lease expired, "or contemporaneously therewith". He said that the fact that from a practical standpoint the work of filling the sump holes could not be instantly executed should not relieve the lessee's assignees from performance.

25. It appears to me that the court was simply providing a commonsense interpretation of an obligation in a lease, read in its context, and that this obligation required the lessee to cover up the sump holes a reasonable time after the lease expired, since they could not cover them all up at the very moment of its expiry. Much the same conclusion was reached by McMullin J in Aetna Life of Australia and New Zealand Ltd v Grace Bros. [1975] 2 NZLR 577, a case concerned with a rent review clause in a lease which provided for the review by the lessor "at the expiration of five years from the commencement of the said term". The court held that these words meant "within a reasonable time of" the expiration of the term, on the basis that if the provision was to have any business efficacy some latitude must be allowed to the parties in invoking the review clause. Other cases in which courts have permitted some flexibility for compliance with time limits are Beard v Rhodes (1872) 28 LT 168, 169 and Scott v Scott [1921] P 107, 120-121.

26. It appears to me that none of these cases (and one might add Larter (Inspector of Taxes v Skone James [1976] 1 WLR 607) provide any assistance to Mr Brindle. If the words of the agreement could be flexibly interpreted to permit payment a reasonable time after the expiry of 12 months (since it could not reasonably be expected that the hirer would make payment on the stroke of midnight), such payment was not required to be made within a period not exceeding 12 months, as was necessary if exemption was to be afforded to this agreement pursuant to the 1989 Order.

27. In other words, I consider that the Judge was right, for the reasons he gave. It is not necessary to have recourse to regulation 6 of the 1994 Order or to the rule, in cases of doubt, that a written instrument should be interpreted "contra proferentem", but if there had been any doubt in the interpretation of the agreement that doubt would have to be resolved in favour of Mr Ketley as the hirer, so as to render the agreement unenforceable.

28. Mr Brindle sought to advance a further argument to the effect that if this was not an exempt agreement, the Judge should have nevertheless ordered that it was enforceable pursuant to Sections 65(1) and 127(1) of the Consumer Credit Act 1974. Detailed reasons in support of this submission are set out in paragraphs 10-21 of his original skeleton argument. This point was not taken on the pleadings, and no evidence was adduced in relation to it before the District Judge, who seems only to have been concerned with the preliminary point in relation to the enforceability of the hire agreement to which this judgment has been directed. Neither the District Judge nor Judge Faulks referred to the point in their judgments. In these circumstances we told Mr Brindle that we could not entertain this point for the first time on the hearing of this appeal. If it is still open to the claimant to take it in the court below (as to which we express no opinion, not having been shown the procedural direction, if any, which preceded the hearing before the District Judge) then it should be properly formulated and any necessary evidence adduced before a Judge is invited to decide the point.

29. For these reasons I would dismiss this appeal.

LORD JUSTICE ROBERT WALKER:

30. I agree.

MASTER OF THE ROLLS:

31. I agree that this appeal must be dismissed for the reasons given by Brooke L.J. On analysis this is not a decision which turns on splitting the second that spans the last day of the 12 month period and the day immediately following that period. This case is not concerned with the precise moment of the vesting of a right, or the incurring of an obligation. It is concerned with when the act of making a payment had to be performed.

32. An obligation to make payments within a period can only, in practice, be complied with by making the final payment before the period expires. The Consumer Credit (Exemption Agreements) Order 1989 exempts from the regulation of the 1974 Act agreements under which payments are to be made "within a period not exceeding 12 months beginning with the date of the agreement" - that is before the expiry of that period. An agreement permitting the final payment to be made "on expiry" of that period permits the final payment to be made after the 12 month period has expired. Such an agreement does not fall within the terms of the 1989 Order.

1.

2.