Stewart v. Perth and Kinross Council

The House of Lords held that condition 2.5(a) attached to a second-hand motor vehicle dealer's licence by the licensing authority was ultra vires. The condition required dealers to carry out pre-sale inspections, prepare a detailed inspection report, display a summary information sheet and provide a copy of the report to purchasers. The court analysed (i) the effect of the condition on the contractual relationship between dealer and purchaser (including its potential to create representations or contractual terms and expose dealers to liability for misrepresentation or breach) and (ii) the statutory scope of the licensing power under the Civic Government (Scotland) Act 1982 (notably section 24(4) and paragraph 5 of Schedule 1).

The court concluded that Parliament had not authorised local licensing authorities to attach conditions that operate to regulate the terms of contracts between dealers and customers; the statutory powers were directed primarily at record-keeping and matters connected with licensing and crime prevention. Because condition 2.5(a) risked interfering with freedom of contract and went beyond those powers, it was ultra vires.

Background and parties: The respondent, a long-standing dealer in second-hand motor vehicles within the area of the appellants (the local licensing authority), applied for renewal of his second-hand dealer's licence. The District Council sub-committee refused renewal on fitness-to-hold-licence grounds and relied in part on the dealer's failure to observe licence conditions including condition 2.5(a). The respondent sought judicial review in the Court of Session challenging the validity of the condition(s) as ultra vires. The Court of Session Extra Division (majority) allowed the petition and reduced the refusal; the local authority appealed to the House of Lords.

Nature of the claim / relief sought: Judicial review challenging the validity of a licence condition (condition 2.5(a)) on the ground that the licensing authority lacked power under the Civic Government (Scotland) Act 1982 to impose conditions which regulated the contractual relationship between dealer and purchaser.

Issues framed by the court:

• What is the legal effect of condition 2.5(a) (its practical consequences for dealer–purchaser relations)?
• Does the 1982 Act (in particular section 24(4) and paragraph 5 of Schedule 1) give licensing authorities the power to impose a condition of that effect?

Court's reasoning (concise): The court analysed the wording and practical operation of condition 2.5(a) and the sample inspection report and information sheet. It found the condition required dealers to make express written statements about mileage and the condition of vehicles, make reports available to prospective purchasers, supply purchasers with copies and retain records. Those acts went beyond mere record-keeping: the statements could be treated as representations or, depending on circumstances, terms of sale, exposing dealers to remedies for misrepresentation or breach and thereby substantially affecting the contractual relationship.

On statutory construction, the court examined section 24(4) (power to attach record-keeping conditions to a second-hand dealer's licence) and paragraph 5 of Schedule 1 (power to grant licences subject to "such reasonable conditions" as licensing authorities think fit). The court reviewed legislative materials and the statutory scheme and concluded that Parliament intended the licensing provisions principally to address record keeping and public-order/crime-prevention-related concerns (for example odometer records under section 24(5)). There was no clear indication that Parliament intended to empower local authorities to regulate the terms of contracts between dealers and customers by licence condition. The House of Lords applied the established test that conditions must fairly and reasonably relate to the licensed activity and must not interfere with freedoms (including freedom to contract) unless Parliament’s intention is clear. Applying authority such as Mixnam's Properties v Chertsey and Newbury, the court concluded the condition was beyond the conferred powers.

Wider context: The court noted the condition pursued a laudable consumer-protection purpose and had local democratic support and wide local uptake, but emphasised that consumer protection of this kind is normally achieved by primary legislation enacted nationally rather than by local licence conditions. The decision leaves scope for licensing authorities to frame conditions for consumer protection so long as they do not impinge on contractual terms.

Appeal dismissed. The House of Lords held that condition 2.5(a), which required pre-sale inspection reports to be made available to prospective purchasers and supplied to purchasers, was ultra vires because it risked regulating the contractual terms between dealer and purchaser and the 1982 Act did not give licensing authorities clear power to impose conditions that interfere with the parties' freedom to contract; the authority's power was directed primarily at record-keeping and licensing-related matters.

The application for renewal was refused by the District Council's General Purposes (Licensing) Sub-Committee (February 1994). The sheriff pronounced an interlocutor remitting the application (13 February 1995) which was later recalled by the Court of Session (6 December 1995). The respondent presented a petition to the Court of Session for judicial review (May 2000). The Lord Ordinary refused (15 June 2001). An Extra Division (Lords Coulsfield and Johnston, Lord McCluskey dissenting) recalled the Lord Ordinary's interlocutor, granted the petition and reduced the refusal (reported 2003 SC 551; cited in the House of Lords as originating from [2002] ScotCS 268 (01 October 2002)). The case then proceeded to the House of Lords which dismissed the appellant's appeal.