England and Wales Court of Appeal (Civil Division) Decisions

IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM BRENTFORD COUNTY COURT
His Honour Judge Powles Q.C.
OWX01265

		Royal Courts of Justice Strand, London, WC2A 2LL
		20th November 2013

Lord Justice Moore-Bick :

1. This is the judgment of the court.

Introduction

2. This appeal concerns the operation of The Cancellation of Contracts made in a Consumer's Home or Place of Work etc. Regulations 2008 ("the Regulations") in the context of a credit hire agreement.
3. On 28^th April 2009 the appellant, Mr. Salat, was knocked off his motorcycle by the respondent, Mr. Barutis when the latter carelessly opened his car door. The bike was damaged and in the event turned out to be beyond repair. However, Mr. Salat needed a replacement immediately to enable him to get to work, so while the possibility of repair was being investigated he hired one from a credit hire company, BLD Group Ltd. It seems that Mr. Salat's insurers told BLD that he might wish to hire a bike and that on 7^th May someone at BLD telephoned him to discuss his needs. Having satisfied itself that Mr. Salat had not been at fault, that he needed a replacement and did not have the means to obtain one, it agreed to make a bike available to him on credit.
4. On 9^th May 2009 an employee of BLD brought a motorcycle to Mr. Salat's home address. Mr. Salat completed the necessary paperwork, including a credit hire agreement, and was then given possession of the bike under the terms of the agreement. The bike remained in Mr. Salat's possession under the credit hire agreement until 24^th June 2009 when the hire was terminated. The agreement had lasted for 47 days; the total amount due under it came to £5,718.53 (including a policy excess charge of £500).
5. Under the terms of the agreement BLD had the right to pursue a claim against Mr. Barutis in the name of Mr. Salat. Having failed to persuade Mr. Barutis's insurers to pay the claim, on 21^st December 2010 it began proceedings in Mr. Salat's name against Mr. Barutis. In practical terms, therefore, the present action involves a claim by a credit hire company against an insurer, but it is necessary to bear in mind that in legal terms it is a claim by one individual against another – motorcyclist against car driver.
6. On 1^st December 2011 District Judge Jenkins dismissed the claim on the grounds that BLD's failure to comply with the Regulations rendered the credit hire agreement unenforceable against Mr. Salat, who had therefore suffered no loss which he could recover from Mr. Barutis. On appeal His Honour Judge Powles Q.C. upheld that decision. The matter now comes before this court on appeal from the decision of Judge Powles.

The Regulations

7. The Regulations are primarily designed to implement the provisions of Council Directive 85/577/EEC, the purpose of which is to protect consumers from unfair commercial practices in connection with doorstep selling and similar activities. The remedy provided by the Directive is to give the consumer who enters into a contract at his home or place of work for the supply of goods or services a right to cancel within seven days. Under articles 4 and 5 traders are required to give consumers written notice of their right of cancellation at the time the contract is made. Article 4 also requires Member States to ensure that national legislation lays down appropriate measures to protect consumers if a notice of that kind is not given.
8. The Directive expressly excludes from its scope contracts entered into in the course of a visit by a trader to a consumer's home if the visit took place at the consumer's request and the regulations by which it was originally implemented were to a similar effect. However, in 2007 Parliament enacted the Consumers, Estate Agents and Redress Act 2007, section 59 of which gave the Secretary of State power to make regulations entitling a consumer to cancel a contract entered into with a trader at his home in the course of a visit which he had expressly requested. The Regulations in their current form both implement the Directive and exercise the power conferred by section 59 by treating (with a few exceptions) all contracts made in the course of a visit to a consumer's home in the same way, irrespective of the fact that the visit may have been expressly requested by the consumer for the very purpose of entering into the agreement in question. It is this aspect of the Regulations that has given rise to difficulty in this and other cases.
9. The Regulations expressly provide as follows:

"5. These Regulations apply to a contract, including a consumer credit agreement, between a consumer and a trader which is for the supply of goods or services to the consumer by a trader and which is made—

(a) during a visit by the trader to the consumer's home . . .

. . .

7. (1) A consumer has the right to cancel a contract to which these Regulations apply within the cancellation period.

(2) The must give the consumer a written notice of his right to cancel the contract and such notice must be given at the time the contract is made . . .

. . .

(4) Where the contract is wholly or partly in writing the notice must be incorporated in the same document.

. . .

(6) A contract to which these Regulations apply shall not be enforceable against the consumer unless the trader has given the consumer a notice of the right to cancel and the information required in accordance with this regulation."

10. Regulation 17 makes failure to comply with regulation 7(2) a criminal offence punishable by a fine.

The agreement

11. The agreement in this case contained many of the standard provisions to be found in contracts of this kind. It provided that the period of hire was not to exceed 85 days and that the total amount of the charges incurred should not exceed £25,000. The hirer agreed to pay the company the full amount of the charges in one single instalment within twelve months of the date of the agreement. (Between them these provisions ensured that the agreement did not constitute a regulated consumer credit agreement for the purposes of the Consumer Credit Act 1974). Importantly for present purposes, however, it did not contain a cancellation notice of the kind contemplated by regulation 7(2).

The judgments below

12. Judge Powles and District Judge Jenkins both held that the contract in this case had been made at Mr. Salat's home when he signed the paperwork. Accordingly, the contract was subject to the Regulations and since it did not include a cancellation notice as required by regulations 7(2) and (4), it was unenforceable against Mr. Salat. He could therefore not be required to pay the hire, and, having had the use of the motorcycle, had suffered no damage from not having his own available. Therefore, following the decision in Dimond v Lovell [2002] 1 AC 384, he had no claim against Mr. Barutis for damages for loss of use.

The issues

13. Regulation 5 provides that the Regulations apply to a contract made during a visit to a consumer's home. Mr. Edis Q.C.'s first submission was that, if regulation 5 was directed to the time and place at which the parties entered into a legally binding agreement, the contract in this case had not been made at Mr. Salat's home but in the course of the telephone conversation two days earlier. On that occasion, he argued, the parties had entered into a legally binding agreement for the hire of a motorcycle on BLD's standard terms, those terms to be formally recorded in a document that would be signed by Mr. Salat when the bike was delivered. Accordingly, the Regulations had no application in this case.
14. We are unable to accept that submission, which seems to us to be at odds with both commercial common sense and everyday experience, as well as being unsupported by the evidence. There was no evidence that either Mr. Salat or the person to whom he spoke at BLD thought that he was entering into a contract on the telephone or that they intended to do so. We doubt whether anyone entering into a contract for the hire of a valuable machine of this kind would expect to do so in such an informal manner. It would be obvious that an agreement of some kind would have to be signed by the hirer and that until that had happened neither party would be legally bound. In our view, therefore, what passed between the parties on the telephone were no more than preliminary negotiations. We agree with Mr. Prynne Q.C. that when BLD brought the bike to Mr. Salat's home address and presented him with the documents it made an offer to enter into a credit hire agreement, which Mr. Salat accepted by signing the contract.
15. Mr. Edis's next submission was that the word "made" in regulation 5 is to be understood as encompassing the entirety of the exchanges between the parties that culminate in a concluded agreement. In the present case the parties dealt with some important matters in the course of their telephone conversation on 7^th May, not least whether Mr. Salat bore any responsibility for the accident and whether he could afford to obtain a replacement bike without resort to some outside help. That information, said Mr. Edis, was of critical importance to BLD, which would not have been willing to enter into an agreement with Mr. Salat unless it had been satisfied on both points. This was not a case of "cold-calling", or even of a trader's persuading a customer to allow him to visit the customer's home in order to sell him something. In this case the trader and the customer had entered into substantive negotiations on the telephone on matters that provided the essential foundation of the contract. In order to give a sensible meaning to the Regulations they should not be interpreted as applying to a case of this kind.
16. We accept that there is an obvious practical distinction between a case of "cold-calling", in which a trader telephones a potential customer and obtains an invitation to visit him in his home for the purpose of selling him goods or services, and a case such as the present, in which the purpose of the trader's visit is to complete a transaction that began on the telephone, possibly at the instigation of the customer. However, in the light of the language of the Regulations we find it difficult to accept that they admit of that distinction. As Mr. Prynne said, when people speak of a contract being "made" they normally mean that the parties have entered into a legally binding agreement and we can see nothing to indicate that the word has been used in a different sense in regulation 5. The suggestion that "made" should be read as meaning "negotiated and entered into", so as to exclude any case in which some kind of serious discussion has taken place elsewhere than in the consumer's home, runs counter to the policy of the Regulations and creates as many difficulties as it solves. It is easy enough in principle to understand the concept that a contract is "made" when the parties enter into a legal relationship, even if it can be difficult in some cases to determine exactly when and where that occurred. It is quite another matter, however, to determine whether, and if so when and where, something of significance to one or other of them passed between the parties before the occasion on which they entered into the contract. To give the word "made" in regulation 5 the extended meaning for which Mr. Edis contended would, in our view, be a recipe for confusion. Whenever there had been some contact between the parties before the home visit took place it would be open to the trader to argue that something of significance had passed between them.
17. Quite apart from all that, however, the argument faces the difficulty that it is inconsistent with the decision of this court in Swift (trading as A Swift Move) v Robertson [2012] EWCA Civ 1794, [2013] Bus LR 479. The claimant in that case, Mr. Swift, ran a removals business. The defendant, Dr. Robertson, telephoned him and asked him to provide a quote for moving his belongings to a new house. The claimant went to Dr. Robertson's home the next day to assess the size of the job and following a discussion the two of them agreed on a price. Following that visit Mr. Swift sent a formal quotation and acceptance form together with a copy of his standard conditions to Dr. Robertson by email and later the same day he returned to Dr. Robertson's house to complete the transaction. In the course of that visit Dr. Robertson signed the acceptance form and gave Mr. Swift a deposit. Unfortunately, neither of the documents included a notice of the kind required by regulation 7(2). Two days later Dr. Robertson cancelled the agreement and, when Mr. Swift sought payment of the cancellation charge for which the contract provided, he refused payment on the grounds that regulation 7(6) rendered the contract unenforceable against him.
18. Much to its regret this court held that Dr. Robertson was right. The first question for decision concerned the meaning of regulation 5(a). Mr. Swift submitted that the Regulations applied only if the contract had been negotiated and entered into in the course of a single visit and did not apply where there had been negotiations in the course of a previous visit (an argument which has obvious similarities to that put forward by Mr. Edis in this case). However, the court rejected that argument and held that a contract is "made" for the purposes of regulation 5 when and where it is concluded, regardless of the fact that negotiations had taken place during a previous visit to the consumer's home. It is true, as Mr. Edis submitted, that the specific argument he sought to advance was not considered by the court in Swift v Robertson, but in view of the meaning the court gave to regulation 5 the same conclusion must follow in a case where previous negotiations have taken place by telephone.
19. Mr. Edis rightly pointed out that regulation 17 makes it a criminal offence for a trader to enter into a contract to which the Regulations apply without giving the consumer notice of his right to cancel in accordance with regulation 7 and submitted that the Regulations should therefore be construed narrowly. If regulation 5 reasonably admitted of two possible constructions there would be a lot of force in that argument, but in our view it does not. For all these reasons we are unable to accept this part of Mr. Edis's argument.
20. The effect of failing to comply with regulation 7(2) is that the contract is unenforceable against the consumer. In Dimond v Lovell the House of Lords considered a claim which arose in circumstances very similar to those of the present case. In litigation conducted in her name by a credit hire company Mrs. Dimond sought to recover from the defendant who had driven into the back of her car the cost of hiring a replacement vehicle while her own was being repaired. The defendant (whose insurers were conducting the proceedings in his name) argued that the credit hire agreement was unenforceable under the Consumer Credit Act 1974 and that Mrs. Dimond had therefore suffered no recoverable loss in respect of the period during which her car was off the road. (Nothing turns on the fact that the contract was described by Lord Hoffmann as "irredeemably" unenforceable, which simply reflected the fact that the court's power to order enforcement did not apply to the case.) Their Lordships held that since Mrs. Dimond had had the use of a car at no cost to herself she had suffered no loss and the claim failed.
21. In W v Veolia Environmental Services (UK) plc [2011] EWHC 2020 (QB), [2012] 1 All E.R. (Comm) 667 the claimant's car was damaged by a lorry operated by the defendant. The claimant hired a replacement car under a credit hire agreement with Accident Exchange Ltd ("AE"), which he signed at his home when the replacement vehicle was delivered to him. The defendant's insurers refused to pay AE's charges and AE therefore looked to W for payment. Once the point on the Regulations had been raised W's insurers paid the charges and in proceedings brought in his name sought to recover them from the defendant. The defendant argued that the Regulations rendered the credit hire agreement unenforceable against W, because it did not contain the notice required under regulation 7(2), and that in paying AE's charges W had failed to mitigate his loss. His Honour Judge Mackie Q.C., adopting and applying the reasoning of His Honour Judge Moloney Q.C. in the Cambridge County Court in Chen Wei v Cambridge Power and Light Ltd (unreported), held that the Regulations applied to the contract between W and AE so that it was unenforceable against him and that a claim to recover the charges from W would have failed for the reasons set out in Dimond v Lovell, had he not paid the hire. However, Judge Mackie held that W was to be treated as having paid the hire charges himself and therefore as having suffered a loss in obtaining a replacement vehicle. Having had the use of the vehicle, it was not unreasonable for W to pay the hire charges, even though he was not legally liable to do so, and accordingly he had not failed to mitigate his loss. He was therefore entitled to recover from the defendant.
22. Comparable questions of causation and mitigation do not arise in the present case because BLD's charges have not been paid by Mr. Salat or his insurers on his behalf. On the face of it, therefore, the position is the same as it was in Dimond v Lovell unless that decision can be distinguished. One way in which Mr. Edis sought to distinguish it was to argue that Mr. Salat had affirmed the contract by giving a witness statement and actively supporting the proceedings. A similar argument was advanced in W v Veolia, prompted, it seems, by a comment made by Advocate General Trstenjak in Martin v EDP Editores SL Case C-227/08, [2009] ECR 1-11939 to the effect that the consumer must be able to decide for himself whether to maintain in force for the benefit of both parties a contract which does not contain a notice of the right to cancel. However, the judgment of the court itself is silent on that point, which did not arise for decision, and we doubt whether the dictum provides much assistance to the claimant in this case. Whether the Regulations, properly understood, allow a consumer to affirm a contract that would otherwise be unenforceable against him so as to render it enforceable depends on the intention of the legislation. Judge Mackie clearly thought that they do not. We are inclined to agree, but it is unnecessary to decide the point in order to dispose of the present appeal and we prefer not to do so. In order for any affirmation to occur it would be necessary at least for the consumer to know that the contract was unenforceable and, in that knowledge, to express in unequivocal terms his willingness to be bound. In the present case Mr. Salat did not become aware that the contract was unenforceable until the point was raised in the defence and nothing he did after that could possibly be regarded as amounting to an unequivocal statement that he was willing to be bound. That is not surprising, because he was not willing to incur liability for BLD's charges, which would be an inevitable consequence of any affirmation. In our view, therefore, for these reasons alone this attempt to distinguish Dimond v Lovell fails.
23. Next, Mr. Edis submitted that the arrangements between Mr. Salat and BLD were entirely collateral to Mr. Salat's relationship with Mr. Barutis. Mr. Salat, he said, had a right to recover general damages for the loss of use of his motorcycle and his arrangements with BLD were nothing to do with Mr. Barutis, to whom therefore it was of no interest whether the hire charges were recoverable or not. This argument was also considered and rejected by Judge Mackie in W v Veolia for the simple reason that it was inconsistent with the decision in Dimond v Lovell. In that case their Lordships considered whether to recognise an exception to the rule against double recovery precisely on this ground and held that it would not be appropriate to do so: see per Lord Hoffmann at pages 398-400. The fact that Mr. Salat had a claim for damages for loss of use of his own motorcycle makes no difference, whether the claim be classed as one for general or special damages, because he has received a full indemnity for that loss from BLD.
24. Mr. Edis placed some reliance on the case of King v Victoria Insurance Co [1896] AC 250 for the proposition that if two parties to a contract have performed it reasonably and in good faith it is not open to a tortfeasor to question its validity. It is true, as he submitted, that the case was not considered in Dimond v Lovell, but that is not surprising because it was concerned with a different question, namely, whether an insurer which had reasonably settled a claim (and thus incurred a loss), could recover that loss in its own name from the tortfeasor. It was not a case in which the party seeking to recover had already been fully indemnified by a third party to whom he was under no liability. In any event, we do not think that Mr. Salat has performed the contract with BLD in any relevant sense, since neither he nor his insurers have paid the hire stipulated for under it. For all these reasons, therefore, we are unable to accept that the legal position between Mr. Salat and BLD must be disregarded.
25. It is convenient next to consider the argument based on the European Convention on Human Rights ("the convention"). Mr. Edis submitted that if the Regulations rendered the contract unenforceable they were incompatible with Article 1 of Protocol 1 and for that reason should be disregarded. As is well-known, Article 1 prohibits a public authority from depriving a person of his possessions except in the public interest and subject to conditions provided by law. He submitted that BLD had a right to receive, or any rate a legitimate expectation of receiving, payment in respect of the use of the motorcycle hired to Mr. Salat, which amounted to a possession for these purposes. It was incompatible with Article 1 for the state to render that right unenforceable by legislation.
26. A similar question arose in Wilson v First County Trust Ltd [2003] UKHL 40, [2004] 1 AC 816, to which Mr. Prynne helpfully drew our attention. In that case the claimant had pawned her car as security for a loan. When the lender demanded repayment she began proceedings to recover the car claiming that the loan agreement was unenforceable by virtue of the Consumer Credit Act 1974. Their Lordships held that since the events in question had taken place before the Human Rights Act 1998 had come into force the court had no power to make a declaration of incompatibility, but they also dealt fully with the effect of Article 1 of Protocol 1. Lord Nicholls, with whom Lord Rodger agreed, considered that the Act did interfere with the lender's rights of property in the broadest sense, although he recognised that whether that interference was justified was a separate issue. Lord Hobhouse thought that much depended on whether the lender had obtained possession of the car; if it had not, it was merely seeking to enforce a contractual right which in truth it had never acquired. Lord Scott was of the view that the lender had not acquired a right to enforce the loan. Lord Hope was of the view that the agreement was from the outset subject to restrictions on its execution and that in those circumstances the lender's rights under Article 1 were not engaged. A helpful summary of their Lordships' reasoning on this point is to be found in the judgment of Lawrence Collins L.J. in Conister Trust Ltd v John Hardman & Co. [2008 EWCA Civ 841, [2009] C.C.L.R. 4. Despite the differences of analysis, however, they were all of the view that the provisions of sections 65 and 127(3) of the Consumer Credit Act 1974, which rendered an improperly executed regulated agreement unenforceable against the debtor, were not incompatible with the convention.
27. No distinction can be drawn for these purposes between the effect of sections 65 and 127(3) of the Consumer Credit Act 1974 (as originally enacted) and that of regulation 7(6). In each case the contract is rendered unenforceable from the outset as a result of the lender's having failed to comply with the documentary requirements of the legislation. The majority opinion in Wilson v First County Trust is authority for the proposition that there is no violation of BLD's rights under Article 1 of Protocol 1 because it did not acquire any effective rights against Mr. Salat. That conclusion is, in our view, unaffected by the decision of the European Court of Human Rights in Stretch v United Kingdom (2004) 38 E.H.H.R. 12 (decided shortly before Wilson v First County Trust, but not cited to their Lordships), to which our attention was also drawn, because in the present case BLD must be taken to have been aware of the effect of the Regulations at the time it entered into the agreement. It can therefore have had no legitimate expectation of being able to enforce the agreement against Mr. Salat if it did not comply with regulation 7(2). The question of proportionality therefore does not arise.
28. Mr. Edis submitted that, since they do not contain an exception in favour of small tradesmen who are called out by householders to provide services for which there may be an immediate need (e.g. plumbers, electricians etc), the Regulations are capable of working injustice. He therefore argued that they should be construed restrictively so as to limit their application to doorstep selling, cold-calling and similar unfair commercial practices. Swift v Robertson is a good example of how extending the Regulations to solicited visits generally can have surprising and unsatisfactory consequences. However, we are not concerned with cases of the kind to which Mr. Edis referred and prefer to express no opinion on them. They are very different from the kind of credit hire contract with which we are concerned. It is sufficient for present purposes to say that it is not possible in our view to read the Regulations in a way which excludes from their ambit contracts of the present kind.
29. For these reasons we have reached the conclusion that the appeal must be dismissed.