A string of recent alleged supplier fraud cases have lead to re-examination of old rules
Within point-of-sale finance arrangements, allegations arise from time to time that customers have been misled by equipment suppliers. Such complaints may concern either the terms of the lease or the fitness for purpose of the assets. Lessors rely heavily on “hell or high water” or exclusion clauses to disclaim responsibility for any supplier misrepresentations.
The longest-standing precedent relevant to exclusion clauses in UK asset finance is the 1969 House of Lords ruling in the case of Branwhite v Worcester Works Finance. In that case, the finance company in a point-of-sale hire purchase contract successfully upheld its exclusion clause and rebutted the customer’s claim that the supplier acted as the legal agent of the finance company.
Ian Munford, asset finance partner at Bermans, said: “Many trial judges instinctively react against the reasoning in Branwhite, which was a split three-to-two majority ruling by the Law Lords. Our experience is that the precedent nevertheless still stands up in most types of case, though it is continually challenged.”
As an example, Munford cites litigation last year in which Bermans acted for a lessor.
“Initially the trial judge ignored Branwhite and ruled against our client,” he said. “At a three-party mediation conference while an appeal was pending, the lessee’s counsel indicated that he intended to challenge Branwhite all the way to the House of Lords.
“In the event, however, mediation was successful so the case was settled out of court and the legal point was not tested.”
Yasmin Dossabhoy, principal of AFL Solicitors, said: “Exclusion clauses must always satisfy a test of reasonableness under the Unfair Contract Terms Act 1977. In the case of Sovereign Finance v Silver Crest Furniture in 1997, the High Court held that the terms of an exclusion clause were so wide as to be unreasonable.
“However, this case revolved around fitness for purpose of the goods rather than the common law rule of agency as in Branwhite.”
A 1994 ruling by the Court of Appeal effectively set aside Branwhite in the case of “white label” vendor leasing, where a non-captive lessor adopts a trading name related to that of the supplier.
In Purnell Secretarial Services v Lease Management Services, the photocopier manufacturer Canon was held to be acting as an agent of a leasing company in different ownership but trading as Canon South West Finance. Consequently the lessee was allowed to walk away from its lease commitments as a result of the salesman having overstated the performance of the copier.
Joanne Owens, associate of HJB Gateley Wareing, said: “Purnell was an extraordinary case where the facts created an estoppel, so that the lessor could not deny that the supplier had been allowed to act as its agent. Generally Branwhite is still followed by the courts.”