4.5 Durkin v DSG & another [2014] UKSC 21, Exercises of Spanish

Download 4.5 Durkin v DSG & another [2014] UKSC 21 and more Exercises Spanish in PDF only on Docsity! 1 4.5 Durkin v DSG & another [2014] UKSC 21 The problems of a debtor cancelling a credit agreement were amply illustrated by the above case that commenced in Aberdeen Sheriff Court in 2004 and ended in the UK Supreme Court in 2014. In December 1998, Richard Durkin entered a debtor-creditor-supplier agreement in order to purchase a laptop. He bought the item from PC World (parent company: DSG Retail). The price to be paid by Durkin was £1449 and he took advantage of finance provided under arrangements between DSG Retail and HFC Bank to pay for the laptop (he had to pay a £50 deposit). These arrangements were, of course, a debtor-creditor-supplier agreement in terms of Section 12(1)(b) of the Consumer Credit Act 1974. Durkin was very specific that he wished to purchase a laptop with an internal modem. He was not permitted to open the packaging to verify this by the PC World customer assistant who informed him that such an action was against company policy. The assistant assured Durkin that the goods met with his requirements. This assurance later turned out to be untrue, whereupon Durkin returned the goods to PC World and informed them that he was rejecting the laptop and cancelling or rescinding the credit agreement. The rejection of the goods by Durkin was primarily based on the misrepresentation by the sales assistant. PC World did not inform HFC Bank of these developments. Later, HFC Bank would issue a default notice against Durkin for failure to repay the loans. The Bank also informed credit reference agencies about the situation that led to Durkin’s credit rating being seriously affected: the consequences being that, in the future, he experienced difficulties securing credit from other providers. Eventually Durkin initiated legal action against DSG Retail and HFC Bank at Aberdeen Sheriff Court in order to establish his right to cancel both the sale of goods contract and the credit agreement and to seek compensation for the damage to his credit rating. One consequence of Durkin’s poor credit rating that he alleged was his failure to secure credit to buy a house in Spain that he wished to acquire. Sheriff Tierney found in Durkin’s favour and awarded compensation under a number of headings: 1 The damage to his credit rating; 2 The fact that he could no longer take advantage of 0% credit offers and was, therefore, subject to interest charges on credit agreements 3 The fact that he could pursue the acquisition of the Spanish property In total, Sheriff Tierney held that Durkin was entitled to receive: 1 £8,000 for injury to his credit rating 2 £6,880 for the extra interest that he had to pay and 3 £101, 794 for the loss of capital gain arising from his inability to purchase the Spanish property. Sheriff Tierney stated that he was bound by Sherriff Principal Reid’s opinion in United Dominions Trust Ltd v Taylor 1980 SLT (Sh Ct) 28, which meant that that Section 75(1) of the 1974 Act permitted Durkin to cancel both the sale contract and credit agreement. Sheriff Tierney also observed that HFC Bank had breached its duty of care to Durkin in the matter. Durkin, however, was not happy with the amount of the compensation award and duly appealed to the Inner House of the Court of Session. HFC Bank in turn cross-appealed to the Inner House challenging the decision of Sheriff Tierney on the following grounds: 1 That Durkin had no right to cancel or rescind the credit agreement under Section 75(1) of the Consumer Credit Act 1975 2 2 The bank was not in breach of its duty of care to Durkin and 3 This alleged breach of its duty of care had not caused loss to Durkin in terms of extra interest charges incurred by him or by his failure to acquire the Spanish property. The Inner House rejected Durkin’s appeal: Section 75(1) of the Consumer Credit Act 1974 did not permit him to cancel or rescind the credit agreement. Moreover, the Inner House did not believe that HFC Bank had breached its duty of care to Durkin. Durkin was then given leave to appeal to the UK Supreme Court. Held: in the UK Supreme Court, Lord Hodge, who gave the leading judgement, made a number of points: 1 Section 75(1) makes it clear that a debtor shall have a ‘like claim’ against the creditor who together with the supplier is jointly and severally liable to the debtor, i.e. in this situation, this meant that HFC Bank was potentially liable for the initial misrepresentation by the sales assistant regarding the suitability of the laptop 2 Under debtor−creditor supplier agreements, both the creditor and supplier are jointly liable to the debtor 3 Section 75(1) confers a potential indemnity on the creditor from the supplier as the creditor can be sued for matters over which it has no control 4 Sheriff Tierney’s thoughts were in line with the Report of the Committee on Consumer Credit in 1971 (the Crowther Committee) which lead to the creation of the 1974 Act. The Committee had stated: ‘We therefore recommend that where the price payable under a consumer sale agreement is advanced wholly or in part by a connected lender that lender should be liable for misrepresentation relating to the goods made by the seller in the course of antecedent negotiations, and for defects in title, fitness and quality of the goods.’ 5 The debtor has no general right to cancel a credit agreement in situations where he can use borrowed funds (the credit advanced under the agreement) to obtain alternative goods or services provided that such an action does not breach the terms of the credit agreement. The consequences of the judgement That said, in what may seem to be an excessively technical judgement, what were the consequences of the UK Supreme Court’s decision for Durkin? Firstly, all things considered, Durkin had validly cancelled the credit agreement when he returned the laptop to PC World. The credit agreement contained an implied term that the provision of credit could only continue if the contract of sale continued to exist. By rejecting the goods due to the misrepresentation of the sales assistant at PC World, Durkin had chosen to cancel the credit agreement in a valid and legal manner. In other words, the credit agreement was contingent on the survival or continuing operation of the sales contract. Secondly, the Court did agree with Sheriff Tierney that HFC Bank owed a duty of care to debtors such as Durkin: it should have carried out an investigation into Durkin’s statement that he had validly rejected the goods. By failing to do so, HFC Bank was in breach of its duty of care to Durkin. Durkin was awarded £8,000 in damages in total by the Supreme Court. This sum represented the damage done to Durkin’s credit rating. The sum of £8,000 was well below what Sheriff Tierney had, of course, originally awarded. The Inner House had earlier stated that there was not enough evidence to support Durkin’s claims that he had been subjected to excessive interest charges or that he had failed to secure finance for the