Feldarol Foundry Plc v Hermes Leasing (London) Ltd & Anor

For the purposes of Unfair Contract Terms Act 1977, a company may deal as a consumer. The question is whether it made the contract in the course of a business, judged by the statutory language and binding authority. A company’s use of goods for business purposes, or a declaration to that effect, does not by itself show that it contracted in the course of its business. Rejection or acceptance is a broad objective question of fact. Prompt complaint, return of the goods and correspondence showing that payments were maintained only to preserve a replacement arrangement may establish rejection rather than affirmation.

Feldarol Foundry plc entered into a hire-purchase agreement with Hermes Leasing (London) Ltd for a Lamborghini intended for its chairman and managing director. The vehicle had defective steering, brakes, air conditioning and other components. It was returned to the dealer, and Feldarol later notified Hermes that it rejected the vehicle.

The Bournemouth County Court, before Mr Recorder Barrie, held that Feldarol dealt as a consumer, so Hermes could not rely on its exclusion clauses; that the vehicle was not of satisfactory quality; and that rejection had occurred without affirmation. Hermes appealed each conclusion, including the alternative finding that the exclusion clause was unreasonable. The central issues were whether a public company could deal as a consumer and whether the vehicle had been rejected or accepted.

1. Appeal dismissed. The county court’s judgment was upheld, with costs assessed as claimed without VAT.
2. Feldarol dealt as a consumer within section 12 of the Unfair Contract Terms Act 1977. Conditions concerning Hermes’s business and the type of goods were common ground. The decisive question was whether Feldarol neither made the contract in the course of a business nor held itself out as doing so. R & B Customs Brokers Co Ltd v United Dominion Trust Ltd [1988] 1 WLR 321 was binding on the Court of Appeal. Its approach was not displaced by Stevenson v Rogers [1999] QB 1029, which concerned a different statutory provision and could be reconciled with R & B.
3. The company’s declaration that the car would be used for its business purposes addressed the intended use of the goods. It did not identify the capacity in which Feldarol contracted, nor show that buying cars was an integral part of its business or that such transactions occurred with the necessary regularity.
4. It was unnecessary to decide whether the exclusion clause satisfied the requirement of reasonableness. The court nevertheless observed that there was much force in Hermes’s argument that it was reasonable, for reasons similar to those given in R & B.
5. The vehicle breached the implied term under section 10(2) of the Sale and Supply of Goods (Implied Terms) Act 1973. Defective steering and brakes which made the car potentially unsafe meant that it could not be of satisfactory quality, even though repair costs were relatively modest. The term was a condition under section 10(7), so breach entitled Feldarol to reject.
6. Rejection or acceptance under a contract of sale or supply is a broad question of fact. It is determined objectively from the buyer’s or hirer’s words and conduct, without technicalities. Feldarol complained promptly, returned the car within days, and explained that continued payment was intended to keep the agreement alive for a replacement vehicle. Those circumstances showed rejection. The fact that the precise reasons for rejection emerged later did not alter that conclusion.

• Court of Appeal (Civil Division): [2004] EWCA Civ 747 dismissed Hermes Leasing (London) Ltd’s appeal and upheld the judgment of Mr Recorder Barrie in the Bournemouth County Court.