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Fifteen years, two months, three weeks and six days ago Richard Durkin popped into PC World to buy a laptop. The computer was priced at £1,499 (a frankly alarming £2,369.69 in today's money).
Whilst in the Aberdeen shop, he told the sales assistant that he was quite keen that it should contain an internal modem.
The assistant wasn't sure whether it contained one, so agreed that Mr Durkin could take the computer home and return it if it didn't. Mr Durkin agreed that this was a most agreeable way to carry on, handed over a £50 deposit and signed a credit agreement with HFC Bank plc for the remainder of the purchase price.
When Mr Durkin got home that evening, he should have been worrying about the impending Millennium Bug (obviously); instead, upon opening the sealed box, he became more concerned about his laptop's lack of a modem. So the next day at 9am, he took the laptop back to the store, asked for his £50 back and demanded that the credit agreement be torn up. Unfortunately, the store manager didn't want to play ball and refused to accept Mr Durkin's rejection of the IT goods and took no steps to contact HFC Bank to cancel the credit agreement.
And this is where 15 years of fun started for Mr Durkin.
At no point during this 15-year saga did Mr Durkin pay any money to HFC Bank under the credit agreement—not because he was a spiteful man or fancied a bit of 'argy-bargy' with a financial services firm—rather he believed that the credit agreement had been rescinded and he had intimated this fact to HFC Bank.
HFC Bank subsequently wrote to Mr Durkin warning him that if he did not resume payments under the credit agreement he might have difficulty obtaining credit given that HFC Bank made monthly reports to various credit reference agencies. HFC Bank added that if he did not respond to the letter the bank would serve a default notice on him under the Consumer Credit Act 1974.
Eventually HFC Bank issued a default notice against Mr Durkin and intimated to credit reference agencies that Mr Durkin had been in default of his obligations under the credit agreement since 14 January 1999.
Mr Durkin went to court—in fairness, he went to many, many courts—and eventually in 2008 succeeded in having the laptop contract of sale rescinded.
However, things were not as simple regarding the credit agreement. In 2004, he claimed damages from HFC for its negligence in representing to the credit reference agencies that he had defaulted. He did so under three heads:
These losses, according to Mr Durkin, turned out to be quite a tidy sum (c £250,000).
However, the case then ping-ponged between various courts who struggled to determine the losses for which Mr Durkin could claim.
In today's judgment, Lord Hodge decided that Mr Durkin was entitled to rescind the credit agreement and did so validly by giving notice to HFC Bank in about February 1999.
It is worth quoting his reasoning at paragraph 26 of today's judgment, where he states:
It is inherent in a debtor-creditor-supplier agreement under section 12(b) of the [Consumer Credit Act 1974], which is also tied into a specific supply transaction, that if the supply transaction which it financed is in effect brought to an end by the debtor’s acceptance of the supplier’s repudiatory breach of contract, the debtor must repay the borrowed funds which he recovers from the supplier. In my view, in order to reflect that reality, the law implies a term into such a credit agreement that it is conditional upon the survival of the supply agreement [our emphasis]. The debtor on rejecting the goods and thereby rescinding the supply agreement for breach of contract may also rescind the credit agreement by invoking this condition. As the debtor has no right to retain or use for other purposes funds lent for the specific transaction, the creditor also may rescind the credit agreement. It appears to me that similar reasoning would apply to a section 12(c) agreement where the credit agreement tied the loan to a particular transaction.
In other words, simply put, if the underlying supply contract is lawfully terminated then the connected credit agreement may also be terminated. A reading of the case, however, suggests that this right is not one which is automatic.
As for the case against HFC for it breaching of its duty of care to Mr Durkin. Lord Hodge decided that HFC Bank had indeed breached its duty to Mr Durkin. HFC Bank should not have intimated the default of the consumer credit agreement:
without a reasonable basis for the belief that it had occurred.
As for the loss that Mr Durkin suffered, the Supreme Court was not as helpful as Mr Durkin would have liked in that it was unable to restore to him the full damages that were previously awarded to him in a lower court. Despite the fact that the Supreme Court was sympathetic to his position, it did not have the power to adjudicate on this part of the case.
Despite this, the BBC this morning quoted Mr Durkin as being pretty happy:
This decision is a great victory for all consumers and I am proud to have been the driving force behind it.
It is now clear that retailers and any firms which provide consumer credit to them need to have proper and robust systems in place to ensure that consumer credit agreements can be terminated properly and that retailers and firms communicate effectively with one another in this respect (taking care, of course, to ensure compliance with other laws such as those relating to data protection).
Consumer credit firms should also be aware of their duty of care to debtors and should ensure that they do not intimate a default to any credit reference agencies without having a reasonable basis for believing that a default has taken place. Again, proper systems should be in place to ensure this.
As for the laptop, we have been unable to find much further concrete information about it. Rumour has it that it has been converted to run on diesel fuel and has retired to the Maldives, eking out its final years on a moribund version of Windows 95. Or possibly not. We just don't know, to be fair...
The press summary of the case from the Court is available here; with the full judgment here. And if you are feeling really au fait with technology, the judgment is also available on You Tube below:
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