Durkin v DSG Retail Limited and another

Consumer Credit Act 1974 section 75 makes a creditor concurrently liable for a supplier’s misrepresentation or breach of contract. It does not itself confer a right to rescind the credit agreement.

A credit agreement restricted to financing a specific supply transaction contains an implied condition that it depends upon the survival of that transaction. A debtor who rescinds the supply agreement for repudiatory breach may invoke that condition to rescind the linked credit agreement.

A creditor which knows that the debtor asserts rescission must investigate before reporting a default. If it cannot reasonably resolve the dispute, it should refrain from reporting until resolution. An inaccurate report made without reasonable grounds breaches the creditor’s duty of care.

The appellant bought a laptop from PC World using a restricted-use credit agreement with HFC Bank plc. He returned the laptop the next day because it lacked an agreed internal modem. PC World disputed his right to reject it, while HFC treated the credit agreement as continuing and reported defaults to credit reference agencies without investigating his asserted rescission.

The sheriff declared that both agreements had been rescinded and awarded damages for injury to credit, additional interest and a lost opportunity to acquire property. On appeal, the First Division of the Inner House, [2010] CSIH 49, held that section 75 of the Consumer Credit Act 1974 did not permit rescission of the credit agreement, rejected the delictual claim and removed the additional awards.

The Supreme Court considered whether the credit agreement had been rescinded, whether HFC breached a duty of care when reporting the default, and whether damages exceeding £8,000 were recoverable.

1. Appeal allowed. Lord Hodge, with whom Lady Hale, Lord Wilson, Lord Sumption and Lord Reed agreed, held that the appellant was entitled to rescind and had validly rescinded the credit agreement. HFC was liable for £8,000 for injury to his credit, but the additional damages claims failed.

2. Section 75(1) of the Consumer Credit Act 1974 gives a debtor with a claim against the supplier a like claim against the creditor. It creates concurrent liability for the supplier’s misrepresentation or breach of the supply contract. Its language, the associated joint and several liability, the creditor’s right of indemnity under section 75(2), the legislative history and its application to unrestricted-use credit all showed that it does not itself confer a right to rescind the credit agreement.

3. A section 12(b) credit agreement tied exclusively to a specified supply transaction has no independent purpose. The law therefore implies a term that the credit agreement is conditional upon the survival of the supply agreement. Where the debtor accepts the supplier’s repudiatory breach and rescinds the supply agreement, the debtor may invoke that condition to rescind the credit agreement. Similar reasoning would apply to a section 12(c) agreement where the loan is contractually tied to a particular transaction. The appellant’s reliance on this common law analysis was a permissible reformulation of his existing case.

4. The appellant’s written communication to PC World was effective notice under section 102(1), because PC World was deemed HFC’s agent for receiving notice of rescission. In any event, HFC had received direct notice through the appellant’s earlier telephone calls.

5. HFC knew that rescission was asserted and that an adverse credit entry could cause damage. It was obliged to investigate and reasonably satisfy itself that the credit agreement remained enforceable before reporting a default. If enquiries revealed a contested rescission which HFC could not resolve, it should refrain from reporting until the dispute was determined. HFC made no enquiries and therefore reported the alleged default without a reasonable basis, in breach of its duty of care.

6. Section 32(5) of the Court of Session Act 1988 confined the appeal to matters of law. No legal error was shown in the Inner House’s amended findings that the evidence failed to establish the claimed additional interest loss or a causal connection with the lost property purchase. The Supreme Court could not revisit those factual findings.

1. United Kingdom Supreme Court: Allowed the appeal from the First Division, declared that the appellant had validly rescinded the credit agreement and restored damages of £8,000 for injury to credit, while rejecting the additional damages claims.
2. First Division of the Inner House: In [2010] CSIH 49, held that section 75 of the Consumer Credit Act 1974 did not entitle the appellant to rescind the credit agreement, rejected the delictual claim, removed the findings supporting the additional losses and granted decree of absolvitor to HFC.
3. Aberdeen Sheriff Court: Declared that the sale and credit agreements had been rescinded. It awarded £8,000 for injury to credit, £6,880 for additional interest and £101,794 for the lost opportunity to acquire property.