Scottish Sheriff Court Decisions

GRANT MURPHY v. KELLY MADDEN [2000] ScotSC 5 (29th March, 2000)

W978/99

GLASGOW, 29 March 2000.

The Sheriff Principal having resumed consideration of the cause refuses the appeal and adheres to the interlocutors complained of dated 12 and 19 November 1999; finds the pursuer and appellant liable to the defender and respondent in the expenses of the appeal and assigns Monday, 10 April 2000 at 2.00 pm within the Sheriff Court House, 1 Carlton Place, Glasgow as a diet of assessment.

On 19 October 1998 the defender negligently damaged the pursuer's motor car. The pursuer arranged for it to be repaired and entered into a credit hire agreement with 3 Arrows Limited to provide him with an alternative vehicle whilst his own car was off the road. In the course of these proceedings it was accepted that the agreement which the pursuer entered into with 3 Arrows was a Consumer Credit Agreement and on the face of it unenforceable under the provisions of the Consumer Credit Act 1974. Part of the claim in this case involves the hire charges which the pursuer purportedly incurred to 3 Arrows. If their claim against him is unenforceable the pursuer cannot recover these charges from the defender. The principal issue which arises in this appeal is whether the pursuer can avoid the consequences of the 1974 Act by showing that the terms of the hire bring it within an exemption contained in the Consumer Credit (Exempt Agreements) Order 1989 (SI 869-89).

The point is a relatively short one. It is apparent that 3 Arrows entered into the hire agreement with the pursuer in the full knowledge that he was pursuing a claim against the defender and was likely to recover damages. Condition 5 of the Car Rental Agreement, read short, provided that the hire charges would be repaid by the pursuer when the claim against the defender was satisfied "or on the expiry of 12 months starting with the date of this agreement, whichever is earlier". Regulation 3 of the 1989 Order has the effect of exempting from the provisions of the Act agreements "for a fixed sum of 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 from the beginning date of the agreement". The issue as presented by Counsel for the pursuer is whether the words "on the expiry of 12 months" in Condition 5 mean "on the day after the 12 month period ends". The meaning which the pursuer argues for is that "on the expiry of 12 months" means "on the final day of a period of 12 months".

In reaching a conclusion adverse to the pursuer's contention the learned sheriff drew a distinction between the provision contained in Regulation 3 of the 1989 Order requiring a maximum of four payments under the Credit Agreement "to be made within a period not exceeding 12 months beginning the date of the agreement" and the provision in Condition 5 of the Rental Agreement providing for settlement of the hire charges "on the expiry of 12 months starting with the date of this agreement". The sheriff said that whilst the regulation required a payment within the 12 month period the effect of the terms of Condition 5 meant that "the sum is not exigible until a date after the 12 month period has expired". In reaching that conclusion the sheriff took a contrary view to that arrived at by a Deputy District Judge in Gravesend County Court in the unreported case of McCarthy v Goldthorpe (5 October 1999) and to that taken by Judge McKay in the unreported case of Jones & Smiles v Spoors (Liverpool County Court, 2 November 1999). In the latter case the judge placed emphasis on the word "on" and accepted an argument that the "crystallisation of the rights of the parties" occurred within the 12 month period.

I am equally unpersuaded by the terms of these two English decisions or by the ingenuity of the argument advanced before me by Counsel. He contended, and it cannot be disputed, that it is a cardinal rule of interpretation of words contained in a contract that they must be given their ordinary and natural meaning. Certain passages in Bank of Scotland v Dunedin Property Investment Co Ltd, 1999 SLT 470 were cited in support of that, and reference was made to the Stair Memorial Encyclopaedia Vol 17 paras 753-758 and para 19-22 of McBryde on Contract. The word "on" naturally meant at any time within the day or date specified: see McKenzie v Liddle, 1883 10 R 705 Lord Craighill at 714. "Expiry" naturally meant "at the end". The ordinary and natural meaning of the phrase "on the expiry of" meant "on the day when the period ended". This was the interpretation which had been accepted in McCarthy v Goldthorpe and Jones & Smiles v Spoors. The courts had consistently interpreted the word "expiry" as "inclusive" in the sense of including the final day of the period said to expire. Support for that view was said to be found in Easthough & Others v McPherson. 1954 3 All ER 214 and Lipman & Co's Trustees 1893 20 R 818 as well as the case of McCarthy v Goldthorpe.

Counsel's second, and alternative, proposition was that the construction which the defender sought to place on condition 5 ought to be construed against the defender's interests on the contra proferentem principle. Reference was made to Wallker, The Law of Contracts and Related Obligations in Scotland para 24-10 and to McBryde, on Contracts at para 19.26. The nature of the arrangement which had been entered into in the present case was described in a speech of Lord Mustill in Giles v Thomson. 1994 1 AC 142 at 154, quoted in Zoan v Rouamba, (unreported, Court of Appeal, 21 January 2000). What the defender was attempting to do was to escape liability by means of the interpretation sought to be placed on the contract, and the contra proferentem rule should be applied. Further, the court should interpret the contract with regard to surrounding circumstances and in a manner which gave it business efficacy: City of Aberdeen Council v Clark 1999 SLT 613, and should reject meanings which arrived at absurdity. It was absurd to suggest that 2 Arrows would draft a document which excluded their right to payment.

In relation to Counsel's primary submission it appears to me that there is a clear distinction between situations where a contractual provision gives a party a right or permission to take certain steps within a specified period, and provisions which give no such right until the specified period ends. If words such as "at the expiry of" or "on the expiry of" are used it is logical to apply an inclusive interpretation in the first situation and an exclusive interpretation in the second. It appears to me that any consistency in applying an inclusive interpretation has arisen in cases where a period for taking particular action has been allowed. That appears to me to be entirely logical and natural. I cannot with respect find the conclusion arrived at in McCarthy v Goldthorpe and Jones & Smiles v Spoors, an attractive one. It appears to me to result in the conclusion that at some stage on the final day of the 12 month period the owners of the car would have the right to demand payment from the hirer on the basis, to use the words from Jones that "crystallisation of the rights of the parties" had occurred on that date. One is tempted to ask the question, at what time on that date? The more logical answer is that no right to payment on the part of the owner arises until the full period is over. If there is ambiguity, that approach seems to me to be the one which arrives at a conclusion giving the agreement "business efficacy". I have only to add that I am not attracted to the proposition that this is a situation where the contra proferentem rule should apply to the detriment of the defender. The defender was not a party to the contract in question and the contractual provision was not formulated in the defender's interests. Liability for the consequences of her negligence is not avoided by the interpretation which is sought to be placed on the contract on her behalf, but by the operation of the terms of the Consumer Credit Act. It is a matter for the Car Hire Company to formulate their agreement in such a way that this consequence is avoided.

For these reasons I do not consider that this appeal succeeds on the merits. The only remaining issue is the one of expenses. The effect of the sheriff's decision was that the pursuer was awarded £775.27 comprising £725.27 in respect of repairs to the pursuer's vehicle and general inconvenience of £50, both of these figures being agreed in terms of a joint minute lodged at the commencement of the proof. The sheriff appeared to accept an argument advanced on behalf of the defenders that in terms of a letter dated 25 January 1999 an offer had been put forward to settle the case at the sum of £855.27. Upon that view the sheriff took the view that the offer had been beaten by the sum of £80. It was submitted that on a proper construction of the letter only an offer of £725.27 in respect of the repair charges was unconditional. The offer did not meet the required test of constituting one which was "in clear and unambiguous terms which it is open to the other party to accept thereby ending the litigation": Ferguson v McLellan, Salmon & Co Ltd, 1990 SC 45 per Lord McCluskey at p 51. Whatever the validity of that submission the agent for the defenders advised me that a letter had been sent to the pursuers on 14 October 1999, that is to say approximately 10 days before the proof offering to settle the action at the sum of £775.27, that is the amount eventually awarded by the sheriff. It is apparent from that and indeed from the whole manner in which the issues were approached that the only substantive issue was whether 3 Arrows' claim against the pursuer for recovery of the hire charges was enforceable. On that issue the pursuer failed and in consequence it appears to me that the sheriff was correct in holding him liable for the expenses of the cause. A similar consideration applies to the expenses of the appeal.