Consumer Cancellation

Cases

Christopher Linnett Ltd v Harding (t/a M J Harding Contractors)

[2017] EWHC 1781 (TCC)  [2017] WLR(D) 509, [2017] EWHC 1781 (TCC)

Nissen QC

(4)        Did the Defendant have, and exercise, a right to cancel the adjudicator’s agreement?

This issue raises the novel proposition that the adjudicator’s agreement was one which is subject to the Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013 (“the Regulations”). I remind myself that the contract in question is the adjudicator’s agreement between Mr Linnett and the Defendant. The Regulations provide that contracts falling within its ambit can be cancelled upon the provision of notice. On 6 March 2017, the Defendant sent a notice to Mr Linnett purporting to cancel the contract and seeking a refund of the fees paid in the sum of £11,721.60. Mr Linnett replied by stating that the Regulations did not apply to the contract with the Defendant.

The Regulations came into force on 13 June 2014. Their purpose was to bring into effect Directive 2011/83/EU of the European Parliament on consumer rights. The focus of the Directive was to provide certain rights to consumers in respect of contracts which had been concluded in a particular manner.

The material definitions from the Regulations are as follows:

4. “Consumer” and “trader”

In these Regulations—

“consumer” means an individual acting for purposes which are wholly or mainly outside that individual’s trade, business, craft or profession;

“trader” means a person acting for purposes relating to that person’s trade, business, craft or profession, whether acting personally or through another person acting in the trader’s name or on the trader’s behalf.

5. Other definitions

In these Regulations—

“business premises” in relation to a trader means—

(a)        any immovable retail premises where the activity of the trader is carried out on a permanent basis, or

(b)        any movable retail premises where the activity of the trader is carried out on a usual basis;

“distance contract” means a contract concluded between a trader and a consumer under an organised distance sales or service-provision scheme without the simultaneous physical presence of the trader and the consumer, with the exclusive use of one or more means of distance communication up to and including the time at which the contract is concluded;

“off-premises contract” means a contract between a trader and a consumer which is any of these—

(a)        a contract concluded in the simultaneous physical presence of the trader and the consumer, in a place which is not the business premises of the trader;

(b)        a contract for which an offer was made by the consumer in the simultaneous physical presence of the trader and the consumer, in a place which is not the business premises of the trader;

(c)        a contract concluded on the business premises of the trader or through any means of distance communication immediately after the consumer was personally and individually addressed in a place which is not the business premises of the trader in the simultaneous physical presence of the trader and the consumer;

(d)        a contract concluded during an excursion organised by the trader with the aim or effect of promoting and selling goods or services to the consumer;

“on-premises contract” means a contract between a trader and a consumer which is neither a distance contract nor an off-premises contract;

“service contract” means a contract, other than a sales contract, under which a trader supplies or agrees to supply a service to a consumer and the consumer pays or agrees to pay the price.

Part 2 of the Regulations sets out the information requirements for certain types of contract. Subject to exceptions, Part 2 applies to on-premises, off-premises and distance contracts. It is a criminal offence for a trader to enter into an off-premises contract without giving the consumer the relevant information which is listed.

Part 3 of the Regulations contains the right to cancel distance and off-premises contracts between a trader and a consumer subject to other provisions. In particular, Regulation 27(1) of Part 3 states:

“This Part applies to distance and off-premises contracts between a trader and a consumer…”

If applicable, the cancellation period is 14 days after the contract is entered into. However, the cancellation period is extended where there has been a breach of the information requirement in accordance with Part 2. In the present case, since no relevant information was provided to the Defendant, it is not in dispute that the purported cancellation notice given by the Defendant was in time if the Regulations applied.

There is precious little guidance on the application of the Regulations. In disputing their application to this contract, the Claimants focussed their submissions on two points. First, that the Defendant was not a consumer. Second, that this was not a distance or off-premises contract.

The rival contentions in brief

In support of the first submission, Mr Eljadi pointed out that Mr Harding was trading in the name of MJ Harding Contractors. He therefore entered into the building contract as a trader acting for purposes relating to his business and not as a consumer. The adjudication agreement was part of that building contract. The adjudicator’s agreement was necessarily concluded with the Defendant on the same basis.

In response, Mr Davies argued that Mr Harding was a consumer. He was a builder who, it was common ground, had never required the services of an adjudicator until disputes had arisen under this building contract. In his witness statement, the Defendant pithily expressed the point in this way:

“Adjudication has not ever formed any part of my course of trade or business over its 32 years. In all the years I have been building I have not regularly bought adjudication services…Adjudication is not my stock in trade of business. It does not form part of the building process I undertake. I build houses.”

Mr Davies also referred to a series of authorities in which the courts have considered expressions such as “in the course of a trade or business”. He also relied on authorities arising under the Unfair Contract Terms Act 1977, section 6(2) of which uses the phrase “dealing as a consumer”.

As to the second point, it was common ground that the adjudicator’s agreement was not an “off-premises contract”. However, Mr Davies argued that it was a “distance contract” which therefore fell within the scope of Regulation 27(1). On his case, the fact that the nomination of Mr Linnett came from the RICS made it a “distance contract” because the RICS was an organisation which provided for distance sales. Mr Eljadi submitted that it was not a distance contract within the meaning of the definition.

Decision

In my judgment, the Claimants are right in respect of both of these points.

For the purposes of the Regulations, a consumer is an individual acting for purposes which are wholly or mainly outside that individual’s trade or business. In this case, the services which were requested pursuant to the adjudicator’s agreement were commissioned for purposes which were wholly (or at least mainly) inside the Defendant’s trade or business. The Defendant entered into the building contract as part of his business. He is named in the recital to the building contract as “Matthew J Harding trading as MJ Harding Contractors”. The adjudicator is paid to determine the rights and liabilities which the Defendant has under the building contract in that capacity. Mr Davies accepted that all the receipts and expenses relating to the building contract would have formed part of the Defendant’s business accounts. It was very much part of the Defendant’s trade or business to minimise his financial liability to the employers by requesting the provision of adjudication services so as to obtain a favourable decision in that regard. Although he was acting as an individual, he was not entering into the adjudicator’s agreement in his private, personal capacity.

In reaching this conclusion, I have merely applied the normal meaning of the words used in the definition. I was not assisted by any of the authorities relied on by Mr Davies since they were not concerned with the definition within the Regulation itself.

Nor is this a distance contract. A distance contract is one which is “concluded” between a trader and consumer under an organised distance sales scheme. The adjudicator’s agreement between the Defendant and Mr Linnett was not concluded under an organised distance sales scheme. There is apparently no authority on the expression “organised distance sales scheme”. However, I am wholly unpersuaded that a scheme whereby, for a fee, the RICS nominates adjudicators as part of its statutory function as an adjudicator nomination body[1] could be described as an organised distance sales scheme. Moreover, the nomination of Mr Linnett by the RICS pre-dated the conclusion of the adjudicator’s agreement. That adjudicator’s agreement was concluded by an offer and acceptance which only occurred once Mr Linnett had already been nominated by the RICS. The RICS was not a party to the adjudicator’s agreement. In no sense can it be said that that contract was concluded under an organised distance sales scheme.

I am therefore satisfied that, for at least the two reasons described above, the Regulations did not apply to the adjudicator’s agreement. It follows that the Defendant did not have a right to cancel it. His notice which purported to do so was ineffective. I should add, merely for completeness and without criticism, that the Claimants did not mount a full scale submission to the effect that the Regulations should not apply to a contract for the provision of dispute resolution services such as this. Any such point will have to be considered on another occasion.

The postulated counterclaim for a return of fees which the Defendant would have wished to advance had he had a right to cancel the agreement he had made with Mr Linnett would therefore have failed.

(5)        To what sum, if any, is either Claimant entitled in respect of interest?

The claim is based on the asserted right to interest arising from the Late Payment of Commercial Debts (Interest) Act 1998 (“LPA”) and subsequent Regulations applicable thereto. Section 2 of the LPA provides:

“This Act applies to a contract for the supply of goods or services where the purchaser and the supplier are each acting in the course of a business, other than an excepted contract.”

No point arises about an “excepted contract” under section 2(5).

As set out above, the first sentence of clause 9 of the Terms provides:

“Any invoice that is not paid within the time limits specified above shall be subject to the addition of simple interest and compensation, in accordance with the Late Payment of Commercial Debts (Interest) Act 1998, the Late Payment of Commercial Debts Regulations 2002 and the Late Payment of Commercial Debts Regulations 2013.”

On the Claimant’s case, the provisions of the LPA are applicable as a matter of contract because the first sentence of clause 9 of the Terms of the adjudicator’s agreement so provided. On this submission, the Act applies even if it is not a contract where the purchaser and supplier are acting in the course of a business. But, on the alternative case, it is said that the LPA applies because those parties were in fact acting in the course of a business.

The Defendant denies that clause 9 renders the Act applicable in circumstances where it would not otherwise be engaged. He also submits that, as purchaser, he was not acting in the course of a business.

Clause 9 makes clear that any invoice which is not paid shall be the subject of interest “in accordance with” the LPA and the Regulations. It is a question of construction whether this means that the interest which shall be added will be the interest which is due subject to the proper application of the LPA or the interest which would be due in accordance with the LPA whether or not it applies.

Mr Linnett is invariably supplying his services as adjudicator in the course of his own business. He may, occasionally, provide such services to a purchaser who is acting in a private capacity such as a residential owner of a property that is the subject of building works. More frequently, his services will be purchased by someone acting in the course of a business so that the LPA will apply anyway.

Mr Eljadi’s submission is that the purpose of the first sentence of clause 9 is to render the LPA applicable in circumstances where it would not otherwise be. He argued that a provision which rendered the LPA applicable when it was engaged anyway would add nothing.

Whilst I see the attraction of that point, I do not agree with it for two reasons. The first reason is that, in my view, the only interest which is due in accordance with clause 9 is the interest which is due “in accordance with” the LPA. Interest which would be payable by someone not acting in the course of a business would not be interest “in accordance with” the LPA. Quite the reverse.

The second reason is that the whole of clause 9 should be read together and, when that is done, the Defendant’s construction is the more consistent one. The second sentence provides:

“The reasonable costs of recovering the debt, in accordance with section 3 of the Late Payment of Commercial Debts Regulations 2013 shall include all time spent by me in pursuing recovery of overdue sums and shall be invoiced at the hourly rate quoted in part (3) above.”

This sentence repeats the phrase “in accordance with”. In this context it is clear that it assumes that the Act must actually apply rather than be rendered applicable as a matter of agreement. Section 3, to which the clause refers, provides:

“A debt created by virtue of an obligation under a contract to which this Act applies…”

I therefore conclude that the LPA applies only if the statute itself is engaged. I do not agree that this means the first sentence has no purpose. It is there in order to make the position clear what the consequences of late payment will be and to act as means of introducing the purely contractual provision in the second sentence.

In those circumstances, it is necessary to determine whether the Defendant was acting in the course of a business. In this context, the parties largely repeated the submissions they had made in the context of Issue (4). However, in this context Mr Davies relied particularly on R&B Customs Brokers Ltd v United Dominions Trust Ltd [1988] 1 WLR 321. Mr Eljadi again submitted that none of the authorities including that one were relevant to the LPA.

I am satisfied that, in contracting with Mr Linnett pursuant to the adjudicator’s agreement, the Defendant was acting in a business capacity rather than in his personal capacity. As I have already concluded, the role of the adjudicator was being performed at the Defendant’s request so as to determine a dispute arising under a building contract into which the Defendant had entered as part of his business. The services which the adjudicator performed would determine whether the business operated by the Defendant would gain or lose to the extent of the claim made. As Mr Eljadi expressed it, a favourable decision from Mr Linnett would further the Defendant’s business interests. The Defendant was not contracting with Mr Linnett in his private, personal capacity. He was contracting in a business capacity.

However, according to Mr Davies that was not a sufficient basis for the application of the LPA. The question was not merely whether the Defendant was a business but whether he was “acting in the course of a business”, that being the expression used in section 2 of the LPA. In this context, he again relied on a large number of authorities. With two notable exceptions, I did not derive any assistance from those authorities.

The two exceptions were R&B Customs Brokers Ltd v United Dominions Trust Ltd [1988] 1 WLR 321 and Feldarol Foundry plc v Hermes Leasing (London) Ltd [2004] EWCA Civ 747. The first of these was a case in which the phrase “in the course of a business” was considered by the Court of Appeal. That phrase appears in section 12 of the Unfair Contract Terms Act 1977 (“UCTA”) and provides a further definition of when someone is “dealing as a consumer” In that case, the question for the Court was whether the focus should be solely on the nature of the transaction or the degree of regularity with which that transaction had been undertaken. By way of example, a company might purchase a carpet for use in the office. It will do so as a business but that does not determine whether it was purchased “in the course of a business”. In an earlier case under the Trades Descriptions Act 1968, Davies v Sumner, the Court had identified the need to establish a degree of regularity before a transaction had been concluded “in the course of a business”. At p.329G, Dillon LJ said he would be reluctant to conclude that the words “in the course of a business” meant one thing in the UCTA and something significantly different in Trades Descriptions Act 1968. That is because both statutes had consumer protection as their primary purpose. Neill LJ reached a similar view: p.336E. The Court considered that no difficulty would arise when the transaction was clearly an integral part of the business concerned but where the transaction was incidental to the carrying on of the relevant business then a degree of regularity was required before it could be said that the contract had been entered into in the course of that business.

Applying the degree of regularity test to the facts in R&B, evidence that a car was the second or third vehicle acquired on credit terms was not sufficient to show that it had been purchased in the course of a business.

In Stevenson v Rogers [1999] QB 1029, the Court of Appeal said that the ratio of R&B was limited to its context, namely the application of section 12 of UCTA, and was not concerned with the question of whether the same words in section 14(2) of the Sale of Goods Act 1979 should be similarly construed. Whilst recognising the desirability of construing identical phrases in associated sections of a statute in the same way, it was not necessary to do so if the clear intent of the provision suggested otherwise: see p.1040E in which Potter LJ said:

“As to the proper construction of section 14(2), given the clear view which I have formed, I do not consider it right to displace that construction simply to achieve harmony with a decision upon the meaning of section 12 of the Act of 1977. Section 14(2) as amended by the Act of 1973 was itself a piece of consumer protection intended to afford wider protection to a buyer than that provided in the Act of 1893. Indeed, there is a sense in which the decision in the R & B case can be said to be in harmony with that intention. … To apply the reasoning in the R & B case … in the interests only of consistency, thereby undermining the wide protection for buyers which section 14(2) was intended to introduce, would in my view be an unacceptable example of the tail wagging the dog.”

In Feldarol Foundry plc, the question again arose as to whether a person was dealing as a consumer because he had not made a contract “in the course of a business” within the meaning of section 12 of UCTA. The Court of Appeal adopted the reasoning in Stevenson v Rogers. At paragraph 16, Tuckey LJ said:

“It is clear from this decision that the court felt bound by R & B. The fact that it was a decision of a two-man court is not to the point. It was and is a decision which is binding on this court. Secondly, the decision is not inconsistent with R & B. Lord Justice Potter explains in the passage I have cited at length how the two decisions can be reconciled. An interpretation of the words “deals as consumer” in the 1997 Act, which gave increased protection for consumer buyers, was consistent with the wide meaning which the court gave the words “seller in the course of a business” in the 1979 Act.”

Based on these authorities, Mr Davies submits that three adjudications arising out of only one building contract in 32 years does not provide a sufficient degree of regularity for the purposes of the LPA and that, for this reason, I should conclude that the Defendant was not acting “in the course of a business” when he concluded the adjudicator’s agreement.

The JCT Contract which the Defendant concluded with Mr Paice and Miss Springall would be an example of a contract that was integral to the business of acting as a building contractor. However, I agree that a contract for the provision of adjudicator’s services is not an integral part of the business of acting as a building contractor. Rather, it is a contract which is incidental to the carrying on of the relevant business. It is therefore necessary to decide as a matter of principle whether a degree of regularity is required before it could be said to have been concluded in the course of the business for the purposes of the LPA. It is fair to say, without criticism, that the competing arguments on this specific point were not fully developed on either side.

Based on the authorities set out above, it seems to me that before I take into account the fact that the same words have been used in other legislation I must consider the extent to which the intended purpose of both that and the subject legislation are the same or similar.

In my view the shared purpose of consumer protection statutes such as UCTA and the Trades Description Act is quite different from the purpose of the LPA. Whereas their primary function in the case of the first two statutes is to enhance consumer rights and consumer protection, the purpose of the LPA is to provide businesses with a new right to statutory interest which they would not otherwise have had and which they will not acquire as against a consumer.