A string of recent alleged supplier fraud cases have lead to
re-examination of old rules
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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.
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By GlobalData“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.”
Andy Thomson
Case book
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.”
