Unfair Terms
Cases
Costea
[2015] EUECJ C-110/14_O, ECLI:EU:C:2015:271, EU:C:2015:271
1. The present request for a preliminary ruling from the Judecatoria Oradea (Romania) provides the Court with the opportunity to rule on the definition of consumer within the meaning of Article 2(b) of Council Directive 93/13/EEC of 5 April 1993 on unfair terms in consumer contracts (‘the Directive’), (2) pursuant to which a ‘consumer’ is any natural person who, in contracts covered by the Directive, is acting for purposes which are outside his trade, business or profession.
2. Although judicial interpretations of the term ‘consumer’ have been provided in a number of areas of EU law, the concept has so far not been developed exhaustively in the case-law relating to the specific area of the Directive, (3) the interpretation of which is sought in the present case. In particular, the unusual feature of this case is that it questions whether a legal professional may be regarded as a consumer when he concludes a credit agreement secured on immovable property owned by his law firm. The question thus arises, on the one hand, of the effect of the particular skills and knowledge of a person on his status as a consumer and, on the other hand, of the effect of that person’s role in an ancillary security agreement on his status as a consumer in a principal credit agreement.
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IV – Analysis
17. Bearing in mind the relevant factors which will enable a useful answer to be provided to the question referred for a preliminary ruling by the national court, on which the observations of the participants have also focused, my analysis will entail an examination of the concept of consumer in the Directive and also of the effect of other factors on that concept, such as the reference to dual purpose contracts in Directive 2011/83 and the relationship between the principal agreement (the credit agreement) and the security agreement.
A – The concept of consumer in Directive 93/13
18. The concept of consumer appears across many fields of EU law, beyond the specific instruments on the approximation of laws on consumer protection; examples are the fields of competition law, (9) judicial cooperation in civil matters, (10) the common agricultural and fisheries policies, (11) and other fields where measures to approximate laws exist. (12) In that regard, the many instruments of secondary law aimed at consumer protection do not provide an unambiguous conception of the term ‘consumer’ either. (13) It is, therefore, a notion which is present in many areas of the European Union’s legislative activity but one which has not been specifically defined in primary law, (14) and its application as a category for identifying certain persons is not monolithic but is altered by each of the relevant instruments of secondary law. Thus, the notion of consumer is not defined uniformly in all instruments, which belong to different spheres and have different objectives: it is a working, dynamic notion, which is defined by reference to the subject-matter of the legislative act concerned. (15)
19. In the present case, the Court is required to interpret the term ‘consumer’ in the context of Directive 93/13. It is clear that the starting point for carrying out that task must be the wording of Article 2(b) of the Directive, which sets out the definition of consumer.
20. It is apparent from that provision that, for the purposes of the definition of consumer and the definition of seller or supplier, the sphere in which the individual concerned acts is relevant. Thus, Article 2(b) of the Directive provides that a consumer is ‘any natural person who, in contracts covered by this Directive, is acting for purposes which are outside his trade, business or profession’. By contrast, according to Article 2(c), a seller or supplier is ‘any natural or legal person who, in contracts covered by this Directive, is acting for purposes relating to his trade, business or profession …’
21. In that connection, the case-law of the Court has made clear that the contrast between the concepts of seller or supplier and consumer does not operate in completely symmetrical terms (not everyone who cannot be regarded as a seller or supplier is a consumer), since, in particular, a legal person cannot be regarded as a consumer within the meaning of Article 2 of the Directive. (16) In the present case, there is no doubt that Mr Costea concluded the credit agreement in his capacity as a natural person and not as the representative of his law firm.
22. The uncertainty surrounding Mr Costea’s status as a consumer, which is the reason for the question referred for a preliminary ruling, stems from the fact that Mr Costea is a lawyer by profession. All the participants who submitted written observations and presented oral argument, with the exception of Volksbank, take the view that the profession practised by a natural person has no bearing when it comes to assessing whether a person may be regarded as a consumer within the meaning of Article 2(b) of the Directive. However, Volksbank states that, in order to be able to regard a person as a consumer, in addition to finding that an objective criterion is satisfied — resulting from the wording of Article 2(b) of the Directive — a subjective criterion must also be satisfied, relating to the spirit of the Directive, which is to protect the consumer as the weaker party who is generally not aware of the statutory provisions. Thus, according to Volksbank, the presumption that a consumer is in a position of inequality may be rebutted if that consumer is found to have the experience and information necessary to protect himself on his own.
23. Taking into account the wording of the definition in Article 2(b) of the Directive, interpreted systematically in conjunction with the other provisions of the Directive, and in the light of the judicial interpretation of the concept of consumer in other instruments of EU law, I believe that Volksbank’s reasoning cannot be accepted.
24. The central element of the notion of consumer, as defined in the Directive, is an element which can be clearly circumscribed: the position held by the contracting party in the legal transaction in question. In that connection, as pointed out in Asbeek Brusse and de Man Garabito, it is necessary to take into consideration the fact that ‘[i]t is … by reference to the capacity of the contracting parties, according to whether or not they are acting for purposes relating to their trade, business or profession, that the directive defines the contracts to which it applies.’ (17)
25. The emphasis on the sphere of activity in which the transaction concerned takes place as a factor determining the status of consumer is also confirmed by the case-law of the Court on other instruments relating to consumer protection, which contain definitions of the term ‘consumer’ similar to that in Article 2(b) of the Directive. Thus, in Di Pinto, (18) with regard to the interpretation of the concept of consumer in the context of Directive 85/577/EEC, (19) the Court pointed out that the criterion for the application of protection lay in the connection between the transactions which were the subject of the canvassing of traders — aimed at inducing the conclusion of an advertising contract concerning the sale of a business — and the professional activity of the trader concerned, so that the latter could claim that the directive was applicable only if the transaction in respect of which he was canvassed lay outside his trade or profession. (20)
26. Thus, the wording of the Directive and the case-law interpreting that instrument and Directive 85/577 appear to opt for a concept of consumer which is both objective and functional; therefore, as regards a specific person, it is not an inherent, unalterable category, (21) but is, on the contrary, a quality which may be assessed by reference to a person’s status in relation to a particular legal transaction or operation, among the many which he may carry out in his daily life. As Advocate General Mischo observed in Di Pinto, as regards the concept of consumer in the context of Article 2 of Directive 85/577, the persons referred to in that provision ‘are not defined in abstracto, but rather according to what they do in concreto’, so that the same person, in different circumstances may be sometimes a consumer and sometimes a seller or supplier. (22)
27. That conception of a consumer as an actor in a specific legal transaction, which entails both objective and functional elements as the case may be, is also confirmed in the context of the Brussels Convention, a context in which the Court has also interpreted the term ‘consumer’; however, as I shall point out below, the analogy must be qualified when interpreting the Directive, taking account of the different objectives of the two measures. Thus, in Benincasa, (23) the Court held that, in order to determine whether a person has the capacity of a consumer, ‘reference must be made to the position of the person concerned in a particular contract, having regard to the nature and aim of that contract, and not to the subjective situation of the person concerned. … [T]he self-same person may be regarded as a consumer in relation to certain transactions and as an economic operator in relation to others.’ (24)
28. In short, this is an objective and functional definition which is satisfied on the basis of a single criterion: the legal transaction in particular must form part of activities which are outside a person’s trade, business or profession. As the Romanian Government has observed, the Directive does not lay down any additional criteria for establishing the status of consumer. It is, moreover, a concept which is defined from a situational perspective, in other words, in relation to a specific legal transaction. (25) Accordingly, no one can be deprived of the possibility of being treated as a consumer in relation to a contract which is outside his trade, business or profession by reason of his general knowledge or his occupation, and instead regard must be had exclusively to his position vis-à-vis a specific legal transaction.
29. That conclusion is not called into question by Volksbank’s submissions based on the spirit of the Directive, referring, in particular, to a number of recitals in the preamble to the Directive. (26) Taking a systematic approach to the Directive, the idea that the consumer is vulnerable and in a weak position as regards both his bargaining power and his level of knowledge is the rationale for the Directive, since it is based on a situation in which a consumer agrees to terms drawn up in advance by the seller or supplier without being able to influence the content of those terms. (27) However, those notions of vulnerability and weakness, which generally underlie EU consumer protection law as a whole, (28) were not given concrete form in the legislative expression of the concept of consumer as necessary conditions through its definition in positive law. Thus, neither the definition of consumer nor any other provisions of the Directive make the existence of the status of consumer in a particular situation subject to a lack of knowledge, a lack of information or a genuine position of weakness.
30. It would undermine the practical effect of the Directive if it were possible to call into question the status of consumer in each individual case, based on factors related to the experience, education, occupation and even the intelligence of the consumer. In particular, lawyers (or those with a law degree, and other professionals) would be deprived of protection in many aspects of their private affairs. As the Romanian Government points out, even where the level of knowledge of the person in question may be comparable to that of the lender, that does not alter the fact that his bargaining power is the same as that of any other natural person vis-à-vis a seller or supplier.
31. The Court held in Šiba (29) that ‘[l]awyers display a high level of technical knowledge which consumers may not have’. (30) However, those considerations referred to a situation in which the lawyer in question ‘provides a legal service for a fee, in the course of his professional activities, to a natural person acting for private purposes’ and is, therefore, a seller or supplier within the meaning of Article 2(c) of the Directive. (31)
32. Further, an interpretation of the kind proposed by Volksbank would result in all persons who had legal advice or professional advice of another kind when the contract was concluded being denied the status of consumer. (32)
33. In addition, the effect of the knowledge or specific situation of the person concerned has been rejected by the Court in areas distinct from that of the Directive, when the objective requirement that the activity must be outside the trade, business or profession of the person concerned was not satisfied. That occurred in relation to Directive 85/577, with regard to which the judgment in Di Pinto shows that where a person acts in the context of his trade, business or profession a genuine lack of knowledge in the particular case does not detract from his status as a seller or supplier. (33)
34. In conclusion, I believe that the concept of consumer, within the meaning of Article 2(b) of Council Directive 93/13/EEC of 5 April 1993 on unfair terms in consumer contracts, must be interpreted as including a natural person who practises as a lawyer and concludes a credit agreement with a bank, where a building owned by his law firm is also covered by that agreement as mortgage security, when, in the light of the evidence available to the national court, it emerges that that person acted for purposes outside his trade, business or profession.
B – The concept of consumer in relation to dual purpose contracts
35. In addition to the foregoing considerations, I believe that, in order to reply to the question referred for a preliminary ruling, it is helpful to discuss so-called ‘dual purpose contracts’, in particular in so far as that question refers expressly to a contract in which the purpose of the credit is not specified.
36. In that connection, the Romanian Government and the Netherlands Government have pointed to the usefulness of the judgment in Gruber when it comes to determining whether Mr Costea is a consumer in the present case. (34) For its part, the European Commission drew attention in its written observations and at the hearing to the relevance of recital 17 in the preamble to Directive 2011/83. That recital and the Gruber judgment both refer to dual purpose contracts in different contexts.
37. The criteria for determining whether a contract comes within the private sphere or the trade or professional sphere are different in Gruber and Directive 2011/83. As I shall point out below, I believe that the criterion in Directive 2011/83 is the relevant criterion in the circumstances of the present case.
38. In Gruber, (35) the Court opted for a strict interpretation of the term ‘consumer’ in situations relating to dual purpose contracts. That interpretation makes paramount the criterion of marginality: a person may not rely on the special rules of jurisdiction relating to consumers laid down in the Brussels Convention ‘unless the trade or professional purpose is so limited as to be negligible in the overall context of the supply, the fact that the private element is predominant being irrelevant in that respect’. (36) The Court also held in that context that the burden of proof rests with the person wishing to rely on Articles 13 to 15 of the Convention. (37)
39. Recital 17 in the preamble to Directive 2011/83, which is worded quite differently, opts for a criterion based on the predominant purpose: ‘in the case of dual purpose contracts, where the contract is concluded for purposes partly within and partly outside the person’s trade and the trade purpose is so limited as not to be predominant in the overall context of the contract, that person should also be considered as a consumer’.
40. Thus, whereas, according to the criterion of marginality laid down in Gruber, use for a trade or professional purpose must be so limited that it may be regarded as negligible in order for a contract to fall within the private sphere, Directive 2011/83 opts for a more balanced solution, using the criterion of the predominant purpose in the overall context of the contract.
41. As the European Commission stated at the hearing, the application of the Gruber case-law in connection with the interpretation of the Directive should be treated with caution. The case-law of the Court interpreting the concept of consumer in the context of Article 13 of the Brussels Convention and Article 15 of Regulation No 44/2001 emphasises a restrictive approach, which undoubtedly takes into consideration the fact that those provisions involve exceptions to the general criterion of jurisdiction based on the defendant’s domicile and, therefore, must be interpreted strictly. (38) Thus, it does not appear that it is possible to transfer by analogy the restrictive application of the concept of consumer in dual purpose contracts to the context of special provisions aimed at the protection of consumers, such as the Directive. (39)
42. In addition, the difference between the approach in recital 17 in the preamble to Directive 2011/83 and that taken in Gruber is no coincidence. During the negotiations on that directive, the European Parliament introduced an amendment which expressly proposed the alteration of the definition of consumer so as to widen it to ‘any natural person who … is acting for purposes which are primarily outside his trade, business, craft or profession. (40) During the subsequent negotiations, the European Parliament agreed to retain the definition of consumer, removing the adverb primarily, on condition that in the recital clarifying the definition of consumer, which was originally based on the Gruber judgment, (41) the word ‘limited’ was replaced by the word ‘predominant’. (42)
43. In short, in the light of the different functions of the concept of consumer in the different legislative acts and of the finding which is clear from the preparatory documents, I believe that recital 17 in the preamble to Directive 2011/83 enshrines the criterion of the predominant purpose in the overall context of the contract.
44. As far as the present case is concerned, I, like the Romanian Government and the Commission, incline to the view that recourse to the explanation provided in recital 17 in the preamble to Directive 2011/83 for the purpose of interpreting the concept of consumer is also required in the context of the Directive. That conclusion is justified in the light of the shared objective and the clear link between the two instruments. In that connection, Directive 2011/83 is a measure amending the Directive. (43) Moreover, the wording of the definition of consumer in those two provisions is almost identical, the sole difference being that, whereas the Directive refers only to ‘trade, business or profession’, Directive 2011/83 refers to ‘trade, business, craft or profession’.
45. Accordingly, in order to ascertain whether a person may be regarded as a consumer for the purposes of the Directive in circumstances in which there is evidence that the contract at issue pursues a dual purpose, so that it is not clear that that contract was concluded exclusively for either a private purpose or a trade or professional purpose, the criterion of the predominant purpose provides a tool for establishing, through an examination of the totality of the circumstances surrounding the contract at issue — beyond a purely quantitative criterion — (44) and an assessment of the objective evidence available to the national court, the extent to which the trade or professional purpose or the private purpose is predominant in relation to a particular contract.
46. Although the European Commission and Mr Costea stated at the hearing that the account of the facts provided by the national court does not reveal any evidence suggesting that the agreement at issue is a dual purpose contract, it is for the referring court to clarify the factual situation in relation to the purpose of the loan by means of the evidence available to it, which undoubtedly includes the terms contained in the agreement itself, the subject-matter of which may well underpin the presumption that the loan in question is intended for private purposes.
47. In conclusion, I believe that if the national court takes the view that it is not clear that a contract was concluded exclusively with either a private purpose or a trade or professional purpose, the contracting party in question must be regarded as a consumer if the trade or professional purpose is not predominant in the overall context of the contract, having regard to the totality of the circumstances and an assessment of the objective evidence available to the national court, which it is for that court to evaluate.
C – The relationship between the principal agreement and the ancillary agreement
48. Finally, it remains to be established whether the classification of Mr Costea’s status as that of consumer may be affected by the fact that the principal credit agreement was secured on a building which is used for the borrower’s professional activity.
49. In that connection, the observations submitted by both the Romanian Government and the Commission contend that the security agreement does not affect the credit agreement. Those observations, and Mr Costea’s observations at the hearing, pointed out that the law firm ‘Costea Ovidiu’ has the status of third party in relation to the credit agreement, observing that the mere fact that a building owned by the firm constitutes security for the credit agreement does not mean that that firm becomes a party to the credit agreement.
50. Taking the same view as that put forward in the observations submitted to the Court, I believe that there are two distinct legal relationships: on the one hand, the relationship between Mr Costea, as a natural person — in his capacity as borrower — and the bank, and, on the other hand, the relationship between the law firm ‘Costea Ovidiu’ — as mortgage guarantor — and the bank. The two legal relationships must be considered separately, so that the latter — which, moreover, is ancillary in nature — does not affect the nature of the former.
51. In that regard, the case-law of the Court offers some guidance on the relationship between contracts which may be regarded as ancillary and the respective principal contracts, in the context of both Directive 85/577 and Regulation No 44/2001. Thus, as regards Directive 85/577, the Court held in Dietzinger (45) that, in view of the ancillary nature of contracts of guarantee, ‘on a proper construction of the first indent of Article 2 of Directive 85/577 [which contains the definition of consumer], a contract of guarantee concluded by a natural person who is not acting in the course of his trade or profession does not come within the scope of the directive where it guarantees repayment of a debt contracted by another person who, for his part, is acting within the course of his trade or profession’. (46) The Court took the same view when interpreting Article 15(1) of Regulation No 44/2001, holding in Ceská sporitelna (47) that that provision ‘must be interpreted as meaning that a natural person with close professional links to a company, such as its managing director or majority shareholder, cannot be considered to be a consumer within the meaning of that provision when he gives an aval on a promissory note issued in order to guarantee the obligations of that company under a contract for the grant of credit.’ (48)
52. However, the case before the Court involves the opposite situation. Any professional aspect applies only to the ancillary agreement, in so far as Mr Costea signed the security agreement as the legal representative of his law firm. Accordingly, unlike in Dietzinger and Ceská sporitelna, this case does not involve the application of the maxim accessorium sequitur principale, in the sense that the effects of the ancillary agreement must suffer the same fate as those of the principal agreement, but rather it is necessary to take into account the individual nature of each of these legal relationships in order to be able to identify the different functions which the same person performs in them. The decisive point for the purposes of the present case is not to establish Mr Costea’s status as legal representative in the security agreement, which is the ancillary agreement, but rather to ascertain what his position is in the credit agreement, which is the principal agreement.
53. Thus, the fact that Mr Costea signed the security agreement as the representative of the law firm does not adversely affect Mr Costea’s status as a consumer in relation to the principal credit agreement. On the contrary, based on the case-law cited, it could even be argued that the ancillary security agreement comes under the influence of the principal agreement. (49)
54. For the reasons set out above, I believe that the role of a natural person, in his capacity as the legal representative of his law firm, in the conclusion of an ancillary security agreement does not affect his status as a consumer in relation to a principal credit agreement.
V – Conclusion
55. In the light of the foregoing considerations, I propose that the Court reply as follows to the question referred for a preliminary ruling by the Judecatoria Oradea:
‘The concept of consumer, within the meaning of Article 2(b) of Council Directive 93/13/EEC of 5 April 1993 on unfair terms in consumer contracts, must be interpreted as including a natural person who practises as a lawyer and concludes a credit agreement with a bank, where a building owned by his own law firm is also covered by that agreement as mortgage security, when, in the light of the evidence available to the national court, it emerges that that person acted for purposes outside his trade, business or profession.
If the national court takes the view that it is not clear that a contract was concluded exclusively with either a private purpose or a trade or professional purpose, the contracting party in question must be regarded as a consumer if the trade or professional purpose is not predominant in the overall context of the contract, having regard to the totality of the circumstances and an assessment of the objective evidence available to the national court, which it is for that court to evaluate.
The role of a natural person, in his capacity as the legal representative of his own law firm, in the conclusion of an ancillary security agreement does not affect his status as a consumer in relation to a principal credit agreement.’
1 – Original language: Spanish.
2 – OJ 1993 L 95, p. 29.
3 – The Court interpreted that concept in relation to Directive 93/13/EEC in Cape and Idealservice MN RE (C-541/99 and C-542/99, EU:C:2001:625).
4 – It is apparent from the documents in the case-file that the term in question is included in the ‘special conditions’ section of the agreement and is headed ‘risk charge’; that charge amounts to 0.22% of the balance of the loan and must be paid monthly on the instalment dates throughout the term of the agreement.
5 – Volksbank’s practice of including ‘risk charge’ terms in credit agreements has led to a number of cases before the Court of Justice. In SC Volksbank România (C-602/10, EU:C:2012:443), the Court held that Directive 2008/48/EC of the European Parliament and of the Council of 23 April 2008 on credit agreements for consumers and repealing Council Directive 87/12/EEC (OJ 2008 L 133, p. 66) must be interpreted as not precluding a national measure (in that case, Government Emergency Order 50/2010, Monitorul Oficial al României, Part I, No 389, of 11 June 2010) designed to transpose that directive into domestic law from including in its material scope credit agreements concerning the grant of credit secured by immovable property, even though such agreements are expressly excluded from the material scope of the directive. The Romanian courts have sought preliminary rulings in five other cases which were, however, subsequently removed from the register after the withdrawal of the requests for a preliminary ruling (orders in SC Volksbank România (C-47/11, EU:C:2012:572); in SC Volksbank România (C-571/11, EU:C:2012:726); in SC Volksbank România (C-108/12, EU:C:2013:658); in SC Volksbank România (C-123/12, EU:C:2013:460); and in SC Volksbank România (C-236/12, EU:C:2014:241). In Matei (C-143/13, EU:C:2015:127), the Court had the opportunity to interpret Article 4(2) of Directive 93/13 in relation to certain terms included in credit agreements concluded between a seller or supplier and consumers, which provide for a ‘risk charge’.
6 – Directive 2011/83/EU of the European Parliament and of the Council of 25 October 2011 on consumer rights, amending Council Directive 93/13/EEC and Directive 1999/44/CE of the European Parliament and of the Council and repealing Council Directive 85/577/EEC and Directive 97/7/EC of the European Parliament and of the Council (OJ 2011 L 304, p. 64).
7 – See, inter alia, Melki and Abdeli (C-188/10 and C-189/10, EU:C:2010:363, paragraph 27 and the case-law cited).
8 – See, for example, Traum (C-492/13, EU:C:2014:2267, paragraph 19), and PreussenElektra (C-379/98, EU:C:2001:160, paragraph 40).
Christopher Linnett Ltd v Harding (t/a M J Harding Contractors)
[2017] EWHC 1781 [2017] WLR(D) 509, [2017] EWHC 1781 (TCC)
Nissen QC
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. The short title of the LPA includes the word “commercial” and its long title is:
“An Act to make provision with respect to interest on the late payment of certain debts arising under commercial contracts for the supply of goods or services”
In my view, when set against that purpose, the adjudicator’s agreement can properly be regarded a commercial contract between two parties for the supply of services. Accordingly, I have concluded that it is not necessary to import the “degree of regularity” test into the assessment of whether a contract was entered into in the course of a business for the purposes of the LPA. This also makes practical sense. It would be odd if the question of whether a commercial purchaser was liable to pay statutory interest to a supplier was dependent on the number of occasions on which the purchaser had entered into similar contracts – a matter which the supplier would not necessarily even know.
On that basis, I conclude that the LPA does apply to the adjudicator’s agreement not only because the Defendant was acting in a business capacity but also because he concluded it in the course of a business. It was a commercial transaction. Accordingly, it follows that the fees claimed by Mr Linnett are a qualifying debt for the purposes of s.3 of the LPA.
Allied Irish Bank Plc & anor -v- McGouran & ors
[2016] IEHC 629 Costello J
Discussion
17. In AIB v. Higgins [2010] IEHC 219, Kelly J., held that the subjective view of the Bank in relation to the facility, whether right or wrong, was of no relevance. Therefore the defendants’ argument based upon the attitude of the Bank to the term facilities is of no assistance to them in this case.
18. Mr Justice Kelly also held that it was for the defendants to demonstrate that they borrowed as consumers in order to be beneficiaries of s.30 of the Consumer Credit Act, 1995. He quoted with approval the decision of Hardiman J. in Aer Rianta c.p.t v. Ryanair Ltd. [2001] 4 IR 607 where Hardiman J. in turn cited with approval the observations in National Westminster Bank v. Daniel [1993] 1 W.L.R. 1453:
“…the mere assertion in an affidavit of a given situation which is to be the basis of a defence did not of itself provide leave to defend; the court had to look at the whole situation to see whether the defendant had satisfied the court that there is a fair or reasonable probability of the defendant’s having a real or bona fide defence.”
19. It is thus clear that the mere assertion that the first and second named defendants are in fact consumers is not sufficient on its own to establish that the defendants have raised an arguable defence and the proceedings should be referred to plenary hearing.
20. Thus, the first two grounds advanced by these defendants must be rejected. I turn then to see whether the other grounds advanced on behalf of the defendants can assist their argument.
21. In AIB v. Higgins, Kelly J. construed the word consumer in the Act of 1995. Consumer is defined in the Act as meaning a natural person acting outside the person’s business. The term “business” is defined as including “trade and profession”. A credit agreement is “an agreement whereby a creditor grants or promises to grant to a consumer a credit in the form of a deferred payment, a cash loan or other similar financial accommodation”.
22. He noted the observations of the European Court of Justice in the case of Benincasa v. Dentalkit (Case 269/95) [1997] E.C.R. 337. In the course of its judgment, that court stated:-
“15. As far as the concept of ‘consumer’ is concerned, the first paragraph of Article 13 of the Convention defines a ‘consumer as a person acting ‘for a purpose which can be regarded as being outside his trade or profession’. According to settled case-law, it follows from the wording and the function of that provision that it affects only a private final consumer, not engaged in trade or professional activities….
16. It follows from the foregoing that, in order to determine whether a person has the capacity of a consumer, a concept which must be strictly construed, reference must be made to the position of the person concerned in a particular contract, having regard to the nature and aim of that contract, and not to the subjective situation of the person concerned. As the Advocate General rightly observed in point 38 of his Opinion, the self-same person may be regarded as a consumer in relation to certain transactions and as an economic operator in relation to others.
17. Consequently, only contracts concluded for the purpose of satisfying an individual’s own needs in terms of private consumption come under the provisions designed to protect the consumer as the party deemed to be the weaker party economically. The specific protection sought to be afforded by those provisions is unwarranted in the case of contracts for the purpose of trade or professional activity, even if that activity is only planned for the future, since the fact that an activity is in the nature of a future activity does not divest it in any way of its trade or professional character.” (emphasis added).
23. It seems to me clear that the Court of Justice envisages that each individual contract must be assessed to ascertain whether or not it was concluded for the purpose of satisfying the individual’s own needs in terms of private consumption. The concept of a consumer is one which must be strictly construed. This does not admit the possibility of a dual purpose contract coming within the ambit of the protections afforded to consumers by the Directive. It would involve accepting that a person could at one and the same time and in one contract be entitled to the protection of the Directive as both satisfying their individual private needs and acting in their trade or profession. This is inconsistent with a strict construction of the concept of a consumer. If a person wishes to maximise the protection afforded to him by the Act and the Directive it is open to the person to separate his business or trade dealings from his purely personal dealings. The provisions do not in my opinion apply to dual purpose contracts as argued by counsel (even assuming for the purposes of the argument that the term facilities were dual purpose facilities). Such a construction is without authority. It is inconsistent with the reasoning of the judgment of the Court of Justice. It introduces uncertainty into the application of the Act and the Directive and is not necessary to give effect to the protections to be afforded to consumers.
24. I am, therefore, satisfied that the assertion by the first and second named defendants that they are “consumers” which is contained in the affidavit of the first named defendant is not sufficient to warrant this case being adjourned to plenary hearing. No arguable defence or triable issue has been identified by the defendants on this issue.
25. If I am incorrect in my conclusion that the first and second named defendants are not consumers within the meaning of the Act in respect of the term facilities, I am satisfied that, in fact, the Bank has complied with the requirements of s. 30(1) and (2) of the Act of 1995. Therefore the first and second named defendants have no defence to the claim in respect of the term facilities base upon section 38 of the Act. Section 30 of the Act provides as follows:
……
Discussion
52. The starting point must be the guarantees themselves. The third and fourth named defendants do not deny that they executed the guarantees or that they had the benefit of legal advice and indeed their execution of the guarantees was witnessed by their solicitor. Clause 1 expressly states that the guarantee is in respect of “all sums due”. It is a continuing guarantee (Clause 2). Therefore, on its face, it is not a specific guarantee, as was contended by the third and fourth named defendants. They do not make the case that they agreed with the Bank to provide a specific guarantee rather than an all sums due guarantee and that therefore the documentation did not reflect the terms reached between the parties. They do not state that the Bank represented to them that their guarantees were to be specific guarantees. They state, on the basis of the Bank’s statement in the letters offer of 2nd June, 2010, that the Bank only required a specific guarantee, and not an all sums due guarantee. This is based upon their construction of the security as being restricted to the identified loan account.
53. This is rejected by Mr. Philip Butler on behalf of the Bank. No corroborating document from the Bank to either the third or fourth named defendants has been produced to support this construction of the guarantee which the Bank required from the third and fourth named defendants in the letter of loan offer addressed to the first and second named defendants. There is no evidence to indicate that the Bank did not seek guarantees in the terms of the drafts sent to the third and fourth named defendants’ solicitor for acceptance and execution. In my opinion, the Bank sent out guarantees in the terms it required from the third and fourth named defendants and these terms were accepted by the third and fourth named defendants without demur, and were executed in the presence of their solicitor. Therefore this argument on behalf of the defendants must be rejected.
54. If I am incorrect in this conclusion, the averment by the third named defendant that he and his wife believed that the guarantees were restricted to the particular loan account, on the facts of this case, makes no difference to the Bank’s right to recover judgment against them in these proceedings. It is clear from the documentation that the facilities were extended in 2011. That means that they remain the same facility which, on their own case, the third and fourth named defendants agreed to guarantee to the Bank on 4th June, 2010. Thus, even if the guarantees were not all sums due guarantees, they are continuing guarantees in respect of facilities which still remain outstanding from 2010. These defendants do not deny that the guarantees were continuing guarantees.
55. I also find no merit in a defence based upon the fact that the terms of the 2010 facilities were varied in 2011. Clause 6 of the guarantees expressly acknowledges that the Bank may vary the terms upon which the borrowers borrow money from the Bank and it is not obliged to obtain the consent of the guarantors to any such variation and indeed, is not obliged to notify the guarantors of any such variation. In point of fact, the Bank did notify the third and fourth named defendants of the variations as I have set out above. It is noteworthy that the third and fourth named defendants made no response to these letters and in particular did not object to the variations or claim that they were in any way discharged from their liabilities under the guarantees.
56. I do not accept that the third and fourth named defendants have raised a triable issue in relation to the demands made by the Bank on the third and fourth named defendants on 20th August, 2015. The guarantees provide that service upon the guarantor at his or her residence or place of business shall be deemed sufficient service. It is not required that they be served at that address. The demand was served upon what might be described as a family address. Mr Butler on behalf of the Bank exhibits 14 letters addressed to the third and fourth named defendants at 9 Hillcourt Park in 2014 and there was no indication that these were not received or that either the third or fourth named defendants objected to the use of this address for the correspondence. The crucial point is that the third and fourth named defendants received the demand. In the affidavit of the third named defendant sworn on behalf of himself and his wife he made no complaint regarding receipt of the demand. Specifically, he did not state that it was not received and his affidavit is completely silent on the subject of the demand.
57. Secondly, it is argued that the demand was incorrect in that it referred to the agreements of November, 2011 rather than the original term facilities dated 2nd June, 2010. It is clear that the letters of November, 2011 extended and varied the facilities granted in June, 2010. The first and second named defendants were only in default once there had been a failure to repay the sums advanced in accordance with the extension granted by the letters of November, 2011. While it might have been possible to demand repayment in respect of the agreement of June, 2010 as amended and extended by the agreements of 2011, it does not follow that demanding payment pursuant to the agreements of November, 2011 was incorrect. Certainly, I am not of the opinion that it could give rise to an arguable defence in this case.
58. Finally, as I have rejected the defence of the first and second named defendants based upon s.38 of the Consumer Credit Act 1995, it follows that this defence is likewise not opened to the third and fourth named defendants.
59. Thus the third and fourth named defendants have not established an arguable ground of defence to the Bank’s claim and there is no reason to remit the matter to plenary hearing.
Conclusion
60. The Bank is entitled to judgment against each of the defendants in accordance with the rulings in this judgment. I direct that the Bank file an affidavit setting out the sums due by each of the defendants in accordance with my findings and I adjourn the matter for one week to enable this to be done. Judgment will then be entered in accordance with the updated affidavit against each of the defendants.