A court has limited the scope of what
can be considered ‘consumer hire agreements’ in a recent ruling,
which is expected to have wide-ranging implications for lessors. A
payment system, in which customers only paid for equipment if it
was actually used, did not fall within the definition of these hire
agreements under section 15 of the Consumer Credit Act 1974 (CCA),
a court has ruled.

 

The claimants,TRM Copy Centres (UK) Ltd, Digital 4 Convenience
plc and D4C Finance Ltd, supply photocopiers to retailers using
so-called location agreements.These involve retailers passing money
they receive for each use of the copiers to the claimants, while
retaining for themselves a small commission. Without notifying the
claimants, the defendant, Lanwall, a competing supplier of copiers,
removed photocopiers from the premises of a number of TRM’s
clients, and after promising them a better deal, installed its own
copiers.

TRM sought an injunction last November forcing Lanwall to
disclose the location of photocopiers, and also for them to be
returned.

The defendant, which kept the removed equipment in a central
warehouse, claimed it always intended to return the copiers to TRM.
Lanwall has since returned the majority of the equipment to the
claimants.

The claimants were also seeking a declaration from the court
that Lanwall was not entitled to carry out such actions, and could
not do so in the future, as by doing so they had induced TRM’s
clients to breach provisions of the location agreement.

Lanwall claimed that it could remove the equipment as the
location agreements were “consumer hire agreements”, therefore
giving the retailers the right to terminate the contract at any
time following provisions of the CCA.

A consumer hire agreement tends be associated with small
transactions. Under section 15 of the CCA, such agreements are
defined as involving the bailment of goods for more than three
months. It is distinguished from a hire purchase agreement, and
users do not have to make payments exceeding £25,000.

The court concluded that the location agreements were in fact
the “complete antithesis of the position under a hire
agreement”.

The claimant’s lawyer, Barnaby Laurence, of Sherrards
Solicitors, said the location agreements could only be regarded as
general commercial contracts for the supply of copiers, and not
hire agreements.

Judge Flaux concluded that it could not be described as a hire
agreement as the retailers were not obliged to use the equipment
unless the equipment had been used.

Even if a customer made off without payment,the obligation for
the retailers to pay TRM cannot be considered a payment of the kind
in a hire agreement,but is merely a liability in damages for
failing to fulfill their contractual obligation of collecting the
copy charges.

Barnaby Laurence said: “The purpose of the CCA is to protect
people bound by a burdensome hire agreement, as it gives them the
option to terminate if the equipment is not being used.” In this
sense, the legislation provides a valuable “escape route” for the
hirer.

However, in this case, the commercial risk lay with TRM, as it
would not get paid if the copiers were not used.

The location agreements were deemed to be beneficial to both
parties, as TRM can gain access to members of the public without
having to pay for rental premises, and retailers can earn
commission without paying for the equipment.

The judge concluded that the early termination of the agreements
by the retailers had been a breach of contract. Lanwall, whose
solicitors declined to comment, may be considering applying to
appeal. Meanwhile,TRM is likely to seek damages from Lanwall for
the commercial loss caused by the removal of their copiers.

Barnaby Laurence said about the decision: “It has enabled our
clients to hold Lanwall to account for their actions, and not
permitted them to escape liability through the
CCA.”