After Mr Durkin's 16 year long battle, the Supreme Court has ruled that he validly rescinded his credit agreement. This article looks at the implications for the decision.
HFC, his Bank, was under a "delictual duty to investigate that assertion in order reasonably to satisfy itself that the credit agreement remained enforceable before reporting to the credit agencies that he was in default".
Mr Durkin purchased a laptop in 1998 and made it clear at the point of purchase that he wanted one with an internal modem. The sales assistant, unable to ascertain whether or not the laptop in question had the requisite internal modem, agreed that Mr Durkin could return it should he find that it had not. Mr Durkin paid a £50 deposit and financed the rest of the laptop by way of credit agreement with HFC Bank Plc.
Mr Durkin subsequently found that the laptop did not have an internal modem and took it back to PC World the following day. The store manager refused to accept the rejection and took no steps to cancel the credit agreement.
Mr Durkin raised an action in the Sheriff Court, which declared that he had validly rescinded the contract of sale.
No monies were paid to HFC and when in February 1999 the Bank requested a payment, Mr Durkin informed them that he had rejected the laptop and rescinded both the contract of sale and the credit agreement.
In July 1999 HFC informed Mr Durkin that if payments were not made, he might have difficulty in obtaining credit as they made monthly reports to credit reference agencies. Further, that if no response was received, they would serve a default notice under the Consumer Credit Act 1974. Mr Durkin repeated his position to HFC, however they failed to make any enquiries and issued a default notice. They informed the credit reference agencies that Mr Durkin had been in default since 14 January 1999. Those entries remained on the registers until 2005/2006.
Mr Durkin recovered his deposit out of court and then raised an action in the Sheriff Court seeking a declarator that both the contract of sale and the credit agreement had been validly rescinded. He also claimed damages of £250,000 under three heads:
- damage to his financial credit
- loss from interest charges as a result of his inability to exploit 0% credit offers
- loss of a capital gain because of his inability to put down a deposit on a Spanish property
Sheriff Court's decision
The Sheriff held that pursuant to section 75 of the Consumer Credit Act 1974, Mr Durkin had been entitled to, and had rescinded, both the contract of sale and the credit agreement. Mr Durkin was awarded £8,000 damages for injury to credit, £6,880 interest and £101,794 in respect of the Spanish property.
Mr Durkin then appealed against the assessment of damages and HFC cross appealed in respect of the section 75 findings. The first division of the inner house of the Court of Session held that the evidence did not entitle the Sheriff Court to find that a breach by HFC of its duty of care, had caused the alleged losses in respect of interest and the inability to purchase the Spanish property. HFC did not dispute the award of £8,000. Mr Durkin appealed.
Supreme Court decision
The Supreme Court in a unanimous decision allowed Mr Durkin's appeal, finding that he was entitled to rescind the credit agreement and had done so in about February 1999.
In reaching that decision, Lord Hodge said that the agreement was a debtor creditor supplier agreement under the Consumer Credit Act 1974. Under section 12(b), where the agreement is tied to a specific supply transaction, if the supply contract is brought to an end by the debtor's acceptance of the supplier's repudiatory breach of contract, then the debtor has to repay the sums borrowed. To reflect that position, the law implies a term into the credit agreement, that it is conditional upon the survival of the supply agreement. Invoking this condition, rejection of the goods and thus rescinding the supply agreement, may also rescind the credit agreement. As a result Mr Durkin was entitled to rescind the credit agreement.
HFC's duty of care
The Court then went on to consider HFC's duty of care. Mr Durkin had asserted to HFC that he had rescinded the credit agreement. HFC had a duty to investigate the position to satisfy itself that the agreement was enforceable before they reported the default to Experian and Equifax. However HFC failed to undertake any such investigations and simply went ahead with registering the adverse entries, in the knowledge that they would damage Mr Durkin's credit rating. As such HFC had breached its duty of care to Mr Durkin.
Mr Durkin's losses
In relation to the damages claimed by Mr Durkin, the Supreme Court rejected his attempt to restore the sheriff's award of damages for the extra interest and for the loss of the capital gain of the Spanish property. This was on the basis that they could not, absent a demonstrated legal error, go behind the findings of fact made by the first division on those heads of loss.
Clearly the judgment establishes that where a consumer is asserting that they have terminated a credit agreement, the lender owes a duty of care to ensure that there is a genuine default of the credit agreement, making appropriate enquiries to establish the exact position as are necessary.
As such lenders will need to be exceptionally careful before informing credit reference agencies that a customer is in default.