England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM BOURNEMOUTH COUNTY COURT
(MR RECORDER BARRIE)

		Royal Courts of Justice Strand London, WC2
		11 May 2004

1. LORD JUSTICE TUCKEY: In July 2002 the respondent, Feldarol Foundry plc, agreed to hire-purchase a Lamborghini Diablo for use by its chairman and managing director, Mr Beresford, from the appellant, Hermes Leasing (London) Ltd, a finance company. The car was defective and Mr Beresford returned it to the dealer, which later went into liquidation.
2. In the Bournemouth County Court Mr Recorder Peter Barrie found that the respondent hire-purchased the car as consumer and so the appellant could not rely on the exclusion clauses in its agreement and that the car was not of satisfactory quality so the appellant was entitled to reject it, and had rejected it. The judge gave permission for the appellant to challenge each of these findings and his conclusions that even if it could rely on its exclusion clauses they were unreasonable, and that the appellant had not affirmed the contract.
3. There is now no dispute about the primary facts which can be shortly stated. The respondent carries on business as an aluminium foundry on an industrial estate in Dorset. Mr Beresford, as the judge said, "is an enthusiast for high powered sports cars, and his company provides the means by which he indulges his enthusiasm". The Lamborghini was to replace a Ferrari which the appellant had also financed through the agency of a credit broker, TCA. The Lamborghini had been manufactured in 1992 but little used. The hire-purchase agreement is dated 5 July 2002 and was again arranged through TCA. The respondent's obligations were guaranteed by its holding company and Mr and Mrs Beresford. The cash price of the car was £64,995 of which the appellant was to provide £51,295. The balance owing to the dealer was to be paid by the appellant by banker's draft which Mr Beresford was to hand over after the car had been delivered to him by the dealer and he was satisfied with it. This took place on 6 July at Mr Beresford's home.
4. Mr Beresford did not drive the car before completing the transaction. When he did so, he quickly became dissatisfied with it. There was something wrong with the geometry of the steering which made it unpleasant to drive and potentially unsafe at speed. The brakes pulled to the left and the air conditioning was not working. There were a number of other minor defects. The defect in the steering was capable of being repaired relatively easily and the judge concluded that all the defects could have been repaired at a cost of £1,000. However as the judge found -

" ..... Mr Beresford's strong and genuine enthusiasm for the Lamborghini quickly turned to dust when he found that it handled badly, and his disappointment with this car quickly led him to think that he did not want a Lamborghini Diablo at all."

5. Mr Beresford complained immediately about the car to the dealer, who agreed to take it back. It was returned on 24 July. The intention was that the dealer would resell the car and provide Mr Beresford with a replacement. This remained a possibility until the end of August, but, for reasons which remain obscure, came to nothing.
6. In the meantime, on 22 July, Mr Beresford wrote to TCA saying that the car "does not really suit me", explaining the arrangement he had made with the dealer and saying that he would like "to seek to roll the deal over on this car to the replacement". TCA copied this letter to the appellant. The respondent made the first payment due under the agreement on 5 August. On 9 August, after taking legal advice, Mr Beresford wrote to the dealer, saying:

"The car was returned to you following my rejection of it."

He added that the arrangement they had made for a substitute was without prejudice to his rights and remedies following rejection. Mr Beresford copied this letter to the appellant on 12 August. In his accompanying letter he explained the arrangement he had made with the dealer and that everyone was working hard to ensure a satisfactory outcome. He was therefore "maintaining payments under this agreement". Mr Beresford did not tell TCA that the car had been defective until 19 August. This information was passed on to Hermes that day, and on 23 August the respondent's solicitors wrote to the appellant saying that the car had been rejected because it was defective. No further instalments were paid under the agreement which the appellant purported to terminate before re-possessing the car from the dealer.

7. The financial consequences of what had happened were agreed at trial. If the respondent had validly rejected the car it was entitled to £15,616 from the appellant. If it was not, the appellant was entitled to recover £16,798. If the dealer had remained solvent it would have been liable to whoever was the unsuccessful party.
8. The first point to consider is what were the terms of the agreement between the appellant and the respondent. Clause 4.1 of the terms and conditions of the agreement stated:

"(1) It is expressly agreed and acknowledged that no representation, condition or warranty has been given by or on behalf of the owner in respect of any of the goods or about the quality, description merchantability, fitness or correspondence with description of the goods or otherwise of the goods. All such representations, conditions and warranties whether express or implied by law are excluded apart from those incapable of exclusion by virtue of any statutory enactment."

9. Section 10 of the Sale and Supply of Goods (Implied Terms) Act 1973 states that -

"(2) Where the creditor ..... hires goods under a hire-purchase agreement in the course of a business, there is an implied term that the goods supplied under the agreement are of satisfactory quality."

10. Section 6 (2) of the Unfair Contract Terms Act 1977 states that:

"(2) As against a person dealing as consumer, liability for breach of the obligations arising from -

(a) .....

(b) section ..... 10 ..... of the 1973 Act .....

cannot be excluded or restricted by reference to any contract term."

It goes on to say:

"(3) As against a person dealing otherwise than as consumer, the liabilities specified in sub-section (2) above can be excluded or restricted by reference to a contract term, but only in so far as the term satisfies the requirement of reasonableness."

11. The first question is whether in this transaction the respondent was a person dealing as consumer. If he was, the term implied by Section 10 of the 1973 Act could not be excluded. Section 12 of the 1977 Act states that -

(1) A party to a contract 'deals as consumer' in relation to another party if -

(a) he neither makes the contract in the course of a business nor holds himself out as doing so; and

(b) the other party does make a contract in the course of a business; and

(c) in the case of a contract governed by the law of ..... hire purchase ..... the goods passing under or in pursuance of the contract are of a type ordinarily supplied for private use or consumption."

In this case it is common ground that conditions (b) and (c) are met: the appellant made the contract in the course of its business and the goods were of a type ordinarily supplied for private use.

12. In dealing with this question the judge said:

"On first considering this question, it seemed to me that [the respondent] must have been acting in the course of its business. It is a company, which was purchasing a motor car for the purpose of providing the motor car to its managing director as a part of the rewards of his employment. It also seemed to me that [the respondent] had held itself out as acting in the course of its business by the terms of the agreement which provide a statement of the nature of the business and the number of years it has been established, which was signed by Mr Beresford in his capacity as director, and which includes a declaration under which Mr Beresford signed 'I confirm that I/we have selected the goods and that they will be used for the purposes of my/our business."

However, he went on to hold that he was bound to conclude that the respondent had dealt as consumer by the decision of this court in R & B Customs Brokers Co Ltd v United Dominion Trust Ltd [1988] 1 WLR 321. The facts in that case could not be realistically distinguished from those of the present case.

13. In R & B a company had bought a car for use by one of its directors from a finance company under a credit sale agreement. The company was a freight forwarder and shipping agency. The car was defective and the company claimed damages against the finance company for breach of the fitness for purpose term implied by Section 14 (3) of the Sale of Goods Act 1979. The finance company sought to rely on exclusion clauses in its agreement, to which Section 6 of the 1977 Act applied, if the company bought the car as consumer. In reserved judgments Dillon and Neil LJJ held that it could not do so because the company had dealt as consumer within the meaning of Section 12 of the 1977 Act. At page 328 H Dillon LJ said:

"In the present case there was no holding out beyond the mere facts that the contract and the finance application were made in the company's corporate name, and in the finance application the section headed 'Business Details' was filled in to the extent of giving the nature of the company's business as that of shipping brokers, giving the number of years trading and the number of employees, and giving the names and addresses of the directors. What is important is whether the contract was made in the course of a business.

In a certain sense, however, from the very nature of a corporate entity, where a company which carries on business makes a contract, it makes that contract in the course of its business; otherwise the contract would be ultra vires and illegal. Thus, where a company which runs a grocer's shop buys a new delivery van, it buys it in the course of its business. Where a merchant bank buys a car as a 'company car' as a perquisite for a senior executive, it buys it in the course of its business. Where a farming company buys a landrover for the personal and company use of a farm manager, it again does so in the course of its business. Possible variations are numerous. In each case it would not be legal for the purchasing company to buy the vehicle in question otherwise than in the course of its business."

Dillon LJ went on to refer to the decision of the House of Lords in Davies v Sumner [1984] 1 WLR 1031, a case which was decided under the provisions of the Trade Descriptions Act 1968, where the House of Lords held that a self-employed courier who sold his car and falsely represented its mileage had not supplied a false trade description "in the course of a trade or business", so it had not been guilty of an offence under the Act. Lord Keith had delivered the only speech in that case. He relied on the fact that the car had not been sold as an integral part of the defendant's business and that a degree of regularity was required before it could be shown that something had been done in the course of a trade or business. Dillon LJ continued at page 330 G:

"I find pointers to a similar need for regularity under the Act of 1977, where matters merely incidental to the carrying on of a business are concerned, both in the words which I would emphasise 'in the course of' in the phrase 'in the course of a business' and in the concept, or legislative purpose, which must underlie the dichotomy under the Act of 1977 between those who deal as consumers and those who deal otherwise than as consumers.

This reasoning leads to the conclusion that, in the Act of 1977 also, the words 'in the course of business' are not used in what Lord Keith called 'the broadest sense'. I also find helpful the phrase used by Lord Parker CJ and quoted by Lord Keith, 'an integral part of the business carried on'. The reconciliation between that phrase and the need for some degree of regularity is, as I see it, as follows: there are some transactions which are clearly integral parts of the businesses concerned, and these should be held to have been carried out in the course of those businesses; this would cover, apart from much else, the instance of a one-off adventure in the nature of trade, where the transaction itself would constitute a trade or business. There are other transactions, however, such as the purchase of the car in the present case, which are at highest only incidental to the carrying on of the relevant business; here a degree of regularity is required before it can be said that they are an integral part of the business carried on, and so entered into in the course of that business.

Applying the test thus indicated to the facts of the present case, I have no doubt that the requisite degree of regularity is not made out on the facts."

Neill LJ agreed. In his judgment, at page 336D, he said:

"It is of course true that section 1 of the Trade Descriptions Act 1968 creates a criminal offence whereas the other sections to which I have referred create no more than obligations in the civil law. Nevertheless, it would be unsatisfactory in my view if, when dealing with broadly similar legislation, the courts were not to adopt consistent construction of the same or similar phrases."

14. Mr Richard Maurey QC, for the appellant, makes a number of submissions on this part of the case. In ascending order of ambition they are:

(1) that the judge should have distinguished R & B on the facts;

(2) R & B was the decision of a two-man court which conflicts with the more recent decision of this court in Stevenson v Rogers [1999] QB 1029, and so should not be followed;

(3) that R & B was wrongly decided; and

(4) this court should hold that a company can never deal as consumer for the purposes of this legislation.

15. I think Stevenson v Rogers provides the answer to a number of these submissions. In that case a fisherman had sold one of his fishing boats to the plaintiffs who claimed damages for breach of the implied term as to merchantable quality in Section 14 (2) of the Sale of Goods Act 1979 in its unamended form. The question was whether the sale had been made by the defendant "in the course of a business". In allowing the appeal, this court held that it had. The judge had relied on R & B. After an exhaustive analysis of the legislative history of Section 14 (2), including a Pepper v Hart excursion, Potter LJ concluded that free of the restraints of precedent the words were intended to have their wide face value meaning. At page 1040 E he said:

"The question thus becomes, in my view, whether the decision in R & B ..... albeit relating to a separate section of the Act of 1979, is effectively binding upon us on the basis that the term 'in the course of a business' must be interpreted so as to bear the same meaning as between the different sections of the codifying Act in which it appears. While I recognise the force of that argument, I do not think it should prevail.

The Act of 1979 forms a single code: however that is upon the basis simply that it consolidates and enacts within one statute and without material amendment a number of disparate statutes previously governing the field of sale of goods. While, in the first instance, a consolidating Act is to be construed in the same way as any other, if real doubt as to its legal meaning arises, its words are to be construed as if they remained in the earlier Act. Thus, in terms of the proper construction of its provisions, the Act of 1979 is not to be regarded as more than the sum of its parts.

That being so, I would observe as follows in respect of the R & B ..... case. First, the ratio of the decision is limited to its context, namely the application of section 12 of the Act of 1977. Second, save for passing reference in the obiter dicta of Neill LJ to which I have referred, the meaning of the phrase 'in the course of business' in that section was not treated as coupled with, or dependent upon, the meaning of the phrase in section 14 (2). Thus the court gave no consideration to whether or not the legislative history of section 14 (2) might require it to be distinguished from section 12 of the Act of 1977 or, alternatively, if a common interpretation was called for, whether the construction of Section 12 should not be subordinated to that of section 14 (2). Third, the obiter dicta of Neill LJ which might suggest that the observations of Lord Keith should be applied generally in the case of a seller of goods lacked the benefit of contrary argument in relation to section 14 (2) and, not least (at a date well preceding Pepper v Hart ..... ) any reference to Hansard or the First Report of the Law Commission, of which this court has had the advantage.

It is of course desirable that, when identical phrases occur in associated sections of a statute, they should be construed to similar effect. I have little doubt that such was the original intention of the Law Commission and of Parliament in relation both to the modification of section 14 (2) made by section 3 of the Act of 1973 and the amendment to section 55 of the Act of 1893 made by section 4 of the Act of 1973, which referred to a 'seller in course of a business' when defining a 'consumer sale.' However, the latter provision did not survive for long. It was repealed and replaced by section 12 of the Act of 1977, which put in place a different formula in respect of exemption clauses, based upon either party 'dealing as consumer,' rather than upon a 'consumer sale' defined principally by reference to the seller. In my view, had the court in R & B ..... been concerned not with the Act of 1977, but with the definition of a consumer sale under the Act of 1973, it might well have concluded that the phrase 'in the course of a business' in section 55 of the Act of 1893, as amended, required to be construed in harmony with, and subject to, the proper construction of section 14 (2).

As to the proper construction of section 14 (2), given the clear view which I have formed, I do not consider it right to displace that construction simply to achieve harmony with a decision upon the meaning of section 12 of the Act of 1977. Section 14 (2) as amended by the Act of 1973 was itself a piece of consumer protection intended to afford wider protection to a buyer than that provided in the Act of 1893. Indeed, there is a sense in which the decision in the R & B case can be said to be in harmony with that intention. It dealt with the position of consumer buyers and the effect of adopting the construction propounded in Davies v Sumner ..... in relation to section 12 (1) (a) of the Act of 1977 was to further such buyers' protection. In the context of its statutory history, section 14 (2), as amended by the Act of 1973 and re-enacted in the Act of 1979, is the primary provision in the overall scheme of increased protection for buyers which the Act of 1973 initiated. To apply the reasoning in the R & B case ..... in the interests only of consistency, thereby undermining the wide protection for buyers which section 14 (2) was intended to introduce, would in my view be an unacceptable example of the tail wagging the dog. Accordingly, I would hold that there was an implied term ..... in the contract [in that case]."

Butler Sloss LJ and Sir Patrick Russell agreed with Potter LJ.

16. It is clear from this decision that the court felt bound by R & B. The fact that it was a decision of a two-man court is not to the point. It was and is a decision which is binding on this court. Secondly, the decision is not inconsistent with R & B. Lord Justice Potter explains in the passage I have cited at length how the two decisions can be reconciled. An interpretation of the words "deals as consumer" in the 1997 Act, which gave increased protection for consumer buyers, was consistent with the wide meaning which the court gave the words "seller in the course of a business" in the 1979 Act.
17. This disposes of Mr Maurey's second, third and fourth submissions. In argument this morning he subjected R & B to sustained criticism: no reason is given as to why the meaning of words in the Trade Descriptions Act should be the same as in the 1977 Act; "integral part of the business" and "regularity" do not appear in the statute: application of such tests will produce anomalous results. Far better, he said, to go for a root and branch solution which was simply to say that a company can never be a consumer for the purpose of this legislation. This was consistent with other consumer protection legislation and regulations where consumers are defined as natural rather than legal persons.
18. But none of this answers the point that R & B is binding on us. It is a reported decision that has stood unchallenged for more than 15 years, during which time the relevant provisions in the 1977 Act have stood unamended. If harmonisation of the various provisions dealing with consumer protection is required, that is Parliament's job. If R & B is to be challenged, that cannot be done in this court.
19. It is only therefore Mr Maurey's first submission which survives in this part of the case. Here he relies on a number of points which he says distinguish this case from the facts in R & B. R & B was a one-man private company. The respondent is a public company. The car must have been put through the company's books and treated as part of its assets. But I do not think that these factors enable us to distinguish this case from R & B which was not decided on a one-off basis or related specifically to the size of the company. The car in that case must also have been put through the company's books.
20. Mr Maurey however does have a further point of distinction. He says that by its declaration in the agreement signed by Mr Beresford that "I/we confirm that I/we have selected the goods and they will be used for the purposes of my/our business" and the acknowledgment by the hirer in the terms themselves that "the goods will be used for his own business purposes", the respondent had held itself out as making the contract in the course of a business within the meaning of Section 12 (1) (a) of the 1977 Act.
21. I do not accept this submsision. Neither the declaration or the acknowledgment are directed to the capacity in which the respondent is dealing. They deal with the use to which the car is intended to be put. They say nothing about whether the buying of cars is an integral part of the company's business or the regularity of such transactions.
22. It follows from what I have said that I think the appellant's first and main ground of appeal fails. This makes it unnecessary to consider whether the judge was right to conclude that clause 4 of the terms and conditions failed to satisfy the requirement of reasonableness. Suffice it to say that I think there is much in the appellant's argument that it was reasonable for much the same reasons as Dillon LJ gave for reaching the same conclusion in R & B.
23. This therefore brings me to the arguments about breach, rejection and affirmation. The appellant first says that the judge should not have held that there was a breach of Section 10 (2) of the 1973 Act. In reaching his conclusion that the defects in the car were sufficiently serious as to amount to a breach, the judge attached too much weight to Mr Beresford's view of the car when it was the respondent company which was the hirer. Applying the objective standard demanded by Section 10 (2) (2A) and (2B), there was no breach as demonstrated by the relatively small cost of repairing the defects.
24. I disagree. There was ample evidence to justify the judge's conclusion. Whether the car is a company car or individually owned, if it is potentially unsafe to drive because of defects in its steering and brakes it cannot be described as being of satisfactory quality. As the implied term was a condition of the contract - Section 10 (7) of the 1973 Act - its breach entitled the respondent to reject the car.
25. The appellant however says that the respondent did not reject the car or attempt to do so, at least until after he had affirmed the contract by accepting it. This he did by his arrangement to substitute the car, by his correspondence with TCA and the appellant and by paying the first instalment under the agreement after he knew of the defects.
26. The judge found that the respondent rejected the car on the ground that it was not of satisfactory quality when the appellant received the respondent's solicitor's letter of 23 August, to which I have referred. The appellant says this was too late. In reaching his conclusion that there had been rejection, the judge should have ignored the respondent's dealings with the dealer since the agreement made it clear that the dealer was not the appellant's agent.
27. Whether a buyer or a hirer has rejected or accepted goods under contracts of sale or supply of this kind is a broad issue of fact which does not depend upon technicalities or legal niceties. What the court must determine objectively from what the buyer or hirer has said or done is whether he has accepted or rejected the goods tendered in performance of the seller's or owner's contractual obligation to deliver goods of the contract quality.
28. Judged in this way, I think there was only one answer in this case. As the appellant was told within a very short time of delivery, the respondent had expressed his dissatisfaction with the Lamborghini and within days had returned it to the dealer. In his letter to the appellant of 12 August Mr Beresford made it clear that he had rejected the car and payment had been made under the agreement to keep it alive so that it could be rolled over for use with the substitute car which he was still expecting to be provided. In these circumstances, I fail to see how the appellant or anyone else could possibly have thought that the respondent had accepted the Lamborghini or, to put it another way, affirmed the agreement under which that car was to be hire-purchased by the respondent. The Lamborghini had self-evidently been rejected. The fact that the reasons for doing so emerged later is not to the point.
29. For these reasons I reject Mr Maurey's arguments about rejection and affirmation.
30. It follows that I think this appeal should be dismissed. The judge's judgment, to which I should pay tribute, should be upheld.
31. LORD JUSTICE KAY: I agree.
32. LORD JUSTICE KENNEDY: I also agree.

Order: Appeal dismissed with the costs assessed as claimed without VAT