Scottish Sheriff Court Decisions

A1522/05

 

FIAT AUTO FINANCIAL SERVICES v MR LAURENCE CONNELLY SNR

 

 

GLASGOW 19th December, 2006. The Sheriff, having resumed consideration of the cause,

FINDS-IN-FACT:-

(1) On 27 October 2003 the parties concluded a credit agreement regulated by the Consumer Credit Act 1974. The document No. 5/1 of process is a copy of the agreement ("the credit agreement"). The total amount payable under the agreement is stated to be £18,050.60. The credit agreement was a debtor-creditor-supplier agreement within the meaning of the Act. The credit agreement was entered into in order to finance a transaction between the defender and Arnold Clark Automobiles Ltd ("Arnold Clark") in terms of which the defender purchased from Arnold Clark a Fiat Stilo motor vehicle, registration No. STD53 URY ("the vehicle"). The defender took delivery of the vehicle on or about 17 October 2004. The progress of the defender's account with the pursuers is detailed in a customer statement dated 10 February 2005 No. 5/2 of process. The customer statement shows a balance due by the defender to the pursuers of £15,575.52. The statement records payments from the defender to the pursuers made on the 27th of each month from October 2003 to June 2004 inclusive. After June 200 the defender made no further payments to his account with the pursuers.

(2)               The transaction between the defender and Arnold Clark followed upon negotiations, which took place shortly prior to 17 October 2004. These negotiations occurred at 43 Allison Street, Glasgow between the defender and Arnold Clark's salesman, Robert Cochrane. When the defender attended at 43 Allison Street he was initially interested in purchasing a Fiat Diablo. He disclosed to Mr Cochrane that the particular purpose for which he wished to buy such a motor vehicle was with a view to using it as a private hire taxi. Mr Cochrane encouraged the defender to transfer his interest towards purchasing a Fiat Stilo. Mr Cochrane represented that such a vehicle was especially suited to the particular purpose for which the defender wished to buy a motor vehicle.

(3)               In the course of negotiations with Robert Cochrane the defender was shown a Fiat Stilo motor vehicle which was fitted with air conditioning, a CD player and a refrigerated cool box. Robert Cochrane informed the defender that he could purchase a vehicle in a different colour with an identical specification. The transaction between the defender and Arnold Clark proceeded on the basis of that representation.

(4)               When the defender took delivery of the vehicle it was discovered that it was not fitted with a CD player, nor with air conditioning nor a refrigerated cool box. The defender raised the matter with Robert Cochrane who initially indicated that he would look into arranging for the supply of these items. Over a period of time the defender continued to press Mr Cochrane in regard to the missing items. Eventually, the defender was told, by another Arnold Clark employee Gary Connor, that if he wished these items he would require to pay for them.

(5)               The vehicle is fitted with a computerised engine management system. Within three days of taking delivery of the vehicle the defender experienced difficulties with the engine management system, which caused poor engine performance. On 27 October the vehicle broke down. The defender called out the AA who recovered the vehicle and took it to Arnold Clark's garage at Allison Street. Arnold Clark investigated the problem. The cause of the fault was not diagnosed. The vehicle was returned to the defender. The vehicle was able to be driven but the defender continued to experience intermittent difficulties with the engine management system which were manifested in the display of warning lights and loss of power on occasions when the defender was attempting to accelerate. The fault persisted throughout the period of the defender's possession of the vehicle.

(6) On a number of occasions when the defender experienced problems with the engine management system he attended at Arnold Clark's Service Department at Allison Street in order to afford Arnold Clark's mechanics an opportunity to diagnose the fault. Although tests were made on the vehicle Arnold Clark's mechanics were not able to establish the cause of the fault. These visits were not recorded in Arnold Clark's record system.

(7) At the 12,000 mile service of the vehicle, which took place in January 2004, two tyres required to be replaced. The tyres had worn unevenly. Following the service it was noticed that the vehicle showed a tendency to veer to the left. The defender complained and on about 10 June 2004 Arnold Clark replaced the rear axle. By this time the vehicle had travelled 36,000 miles. The problems, which had given rise to this repair, persisted and became worse: the vehicle continued to pull to the left when driven and showed excessive and uneven wearing of its tyres. These faults persisted throughout the whole of the remainder of the defender's period of possession.

(8)               The headlamps of the vehicle developed a fault. The headlamps were replaced by Arnold Clark on 7 April 2004.

(9) The windscreen wipers of the vehicle developed a fault. Arnold Clark replaced the linkage on 28 June 2004. At around this time the clutch of the vehicle developed a fault. Arnold Clark replaced the clutch master cylinder on 28 June 2004.

(10) On 24 May 2004 the defender sought to reject the vehicle. The defender was persuaded by Arnold Clark to allow them to effect further repairs as described above. On 15 July the defender wrote to Arnold Clark rejecting the vehicle (No. 5/8/32 of process). At the same time the defender wrote to the manufacturers of the vehicle Fiat Auto UK ("Fiat") informing them of the difficulties which he had experienced with the vehicle and further informing them that he was rejecting it (No. 6/2 of process).

(11) The defender did not immediately return the vehicle to Arnold Clark. Fiat replied to his letter of 15 July 2004 indicating that they were investigating matters. Following his letter to Arnold Clark of 15 July the defender had a number of meetings with Gary Connor who held himself out to be the Branch Manager at Allison Street. Gary Connor proposed that a joint meeting be arranged among the defender, Gary Connor and a Mr Jim Hamilton whom the defender was given to understand was a representative of Fiat. The purpose of the proposed meeting was to seek a solution to the defender's difficulties with the vehicle. The defender agreed to the proposed meeting. Thereafter the defender made a number of efforts to contact Gary Connor by telephone. Being unable to do so, on 27 September 2004 the defender, in the company of his son Laurence Connelly, attended Arnold Clark's premises at Allison Street. The defender and his son met Gary Connor who informed them that the proposed meeting with Fiat in regard to the vehicle had taken place in their absence. Neither Fiat nor Arnold Clark were offering any solution to his problems. The defender confirmed his earlier decision to reject the vehicle and handed over both sets of keys to Gary Connor who accepted them. The defender then wrote and sent the letter dated 27 September 2004 (No. 6/8/33 of process) again confirming his rejection of the vehicle.

(12) As at 15^th July 2004 there was a defect in the engine management system in respect of the relationship between the stop lamp switch, the brake and the accelerator. The effect of this was to cause the vehicle on occasions to suddenly lose power. Also at this date there existed a defect in the rear axle of the vehicle in that there were gaps between the bushes and the axle mounting points. This defect had an adverse effect on the vehicle's steering.

(13) During the defender's possession of the vehicle it travelled in excess of 40,000 miles.

(14) The pursuers served a default notice on the defender on 9 October 2004. On 24 February 2005 the Pursuers demanded repayment of the balance outstanding in terms of the credit agreement.

 

FINDS-IN-FACT-AND-IN-LAW:-

(1) That it was an implied term of the contract between the defender and Arnold Clark that the vehicle would be of satisfactory quality.

(2) That the defender having made known to Arnold Clark that the vehicle was being purchased for use as a private hire taxi, it was a further implied term that the vehicle would be fit for that purpose.

(3) The vehicle was neither of satisfactory quality nor fit for purpose.

(4) Arnold Clark being in breach of the implied terms the defender was entitled to reject the vehicle.

(5)               The defender's right to reject the goods subsisted at 15 July 2004.

The defender effectively rejected the goods on that date.

(6)               The defender did not lose his right of rejection in the period between

15 July and 27 September 2004.

 

FINDS-IN-LAW:-

The credit agreement being a debtor/creditor/supplier agreement entered into for the purpose of financing the sale transaction between the defender and Arnold Clark and the defender being entitled, by virtue of Arnold Clark's breach of contract, to reject the vehicle and to rescind the contract of sale, accordingly by virtue of section 75 of the Consumer Credit Act 1974 he has a like claim to rescind the credit agreement.

 

THEREFORE Sustains the defender's first and second pleas‑in‑law; Repels the pursuers' first, second and fourth pleas‑in‑law and Assoilzies the defender from the crave of the Initial Writ and Finds the pursuers liable to the defender in the expenses in the cause as taxed; Allows an account to be given in and Remits the same when lodged to the Auditor of Court to tax and to report.

 

 

NOTE:

Introduction

In this action the pursuers a finance company seek payment of the balance due to them in terms of a credit agreement entered into with the defender. Pursuant to that agreement the pursuers granted the defender a loan to finance the defender's purchase of a motor vehicle. Including finance charges the total amount payable under the credit agreement was £18,050.60. The transaction financed by the credit agreement was a sale transaction in terms of which the defender purchased the vehicle from Arnold Clark. The defender resists the pursuers' claim for payment on the grounds, that he is entitled to reject the vehicle and to rescind the contract of sale. He asserts that these rights of rejection and rescission arise through certain breaches of the implied terms concerning quality and fitness which were imported into the contract by virtue of section 14 of the Sale of Goods Act 1979. The defender contends that the right to reject the vehicle and to rescind the contract of sale affords him a shield against the pursuers' claim for payment under the separate credit agreement. This defence is said to arrise by virtue of section 75(1) of the Consumer Credit Act 1974 which provides as follows:-

 

"(1) If the debtor under a debtor/creditor/supplier agreement falling within section 12(b) or (c) has, in relation to a transaction financed by the agreement, any claim against the supplier in respect of a misrepresentation or breach of contract, he shall have a like claim against the creditor, who, with the supplier, shall accordingly be jointly and severally liable to the debtor."

 

The defender's position is that by virtue of this statutory provision, then, should he succeed in establishing a right to reject the goods and to rescind the supply contract, he is in turn entitled to rescind the credit agreement. In the debate on the evidence Mr Craik, for the pursuers, conceded that this proposition was accepted by them. Presumably this was on the footing that the pursuers agree that the Court should follow the decisions in United Dominions Trust Ltd v Taylor 1980 SLT (Sh Ct) 28 and Forward Trust Ltd v Hornsby and Windermere Aquatic Ltd 1995 SCLR 574.

Again, when it came to the debate on the evidence, Mr Craig did not seriously dispute that at 15 July 2004 when the defender first gave a written notice of rejection to Arnold Clark the vehicle was materially defective in regard to the engine management system and the rear axle. By the close of the proof therefore the issue between the parties had resolved itself into a question of whether the defender had lost the right to reject the vehicle both by reason of actings which the pursuers contend were inconsistent with the ownership of the vehicle by Arnold Clark and by lapse of time. This argument was made by reference to sub sections 35(1) and (4) of the Sale of Goods Act 1979 which are in the following terms:-

 

 

"(1) the buyer is deemed to have accepted the goods subject to sub‑section (2) below -

(a) when he intimates to the seller that he has accepted them, or

(b) when the goods have been delivered to him and he does any act in relation to them which is inconsistent with the ownership of the seller.

 

(4) The buyer is also deemed to have accepted the goods when after the lapse of a reasonable time he retains the goods without intimating to the seller that he has rejected them."

 

The Evidence:

On the morning of the proof the parties lodged a Joint Minute of Admissions which agrees the following matters:-

 

(1) On or about 27 October 2003 the pursuers and the defender entered into a credit agreement numbered 42606110046.

(2) Copy credit agreement no. 5/1 of process is a true copy.

(3) The pursuers served a default notice on 9 October 2004.

(4) The pursuers demanded payment of the balance outstanding in terms of the credit agreement on 24 February 2005.

(5) The balance outstanding in terms of the credit agreement is £15,575.52.

(6) The vehicle was supplied to the defender on or about 17 October 2003.

(7) During the defender's possession of the vehicle it travelled in excess of 40,000 miles.

 

I heard oral evidence from Colin Philips, currently Arnold Clark's General Manager at Allison Street and Alistair Craig, Arnold Clark's Customer Services Manager. These witnesses spoke to documents lodged as No. 5/8 of process recording various work carried out by Arnold Clark on the vehicle prior to the defender's rejection of it in July 2004. Neither of these witnesses had been involved with matters prior to rejection. Mr Craig informed me that he was not responsible for day‑to‑day record keeping on the workshop floor. He conceded that he was not therefore able to say whether other dealings of the defender with Allison Street had taken place in regard to his difficulties with the vehicle beyond those covered by the records lodged. None of the Arnold Clark employees who had dealings with the defender during the period of his possession of the vehicle were called as witnesses.

The defender and his son Laurence Connelly Jnr gave evidence, which substantially confirmed Finding­‑In-Facts Nos. (2) to (12) inclusive. I found them to be both credible and reliable. The defender gave evidence that, in addition to the work carried out on the vehicle as recorded in the Arnold Clark paperwork, he had attended at Allison Street on several other occasions. He had done so in the hope of identifying the source of the difficulties in regard to the engine management system and the steering problem in order that these could be repaired. Although the defender could not specify the precise dates and number of occasions on which he attended at Allison Street I found his account in this respect to be plausible. I was prepared to believe that the defender made several more visits than are recorded in Arnold Clark's documentation. In correspondence the defender asserts that the vehicle was in for repair on ten occasions, which suggests something of the order of 5 more visits than are recorded. I also believed the defender's account of his dealings with Gary Connor in the period after 15 July regarding a possible solution through the assistance of Fiat.

I heard evidence from the defender's expert Mr Robin Cant. Mr Cant is a Consulting Mechanical Engineer with considerable experience as an independent assessor for insurance companies. He was a most impressive witness. I found him to be credible and reliable. He gave evidence broadly in line with his report No. 6/1 of process. His evidence disclosed that the computer diagnostic equipment, which had been connected to the on‑board computer for the purposes of his inspection, did not reveal that there had ever been a malfunction indicating engine overheating. That explanation was recorded in the Arnold Clark paperwork in relation to the breakdown, which had occurred in October 2003. This suggested that Arnold Clark's records in this respect were incorrect. I consider that on a balance of probabilities the fault in the engine management system, which Mr Cant found, was the same fault as had caused the vehicle to break down within days of the defender's purchase of it. Mr Cant's evidence indicated that the vehicle had been stored by Arnold Clark in the period from 27 September through to the date of his inspection on 26 April 2006. It seems more than likely that the faults identified by Mr Cant had existed at the date of rejection, 15 July 2004.

Mr Cant's evidence also confirmed the evidence of the defender and his son that 40,000 was a relatively modest mileage for a private hire taxi over the period of the defender's possession of the vehicle.

 

 

 

Decision:

When it came to the debate on the evidence Mr Craik's position had come to one of acceptance that the vehicle was at the date of its rejection neither of satisfactory quality nor fit for purpose. Indeed he was quite prepared to concede that when the vehicle first broke down a few days after purchase the fault in the engine management system was such as would have entitled the defender to reject the vehicle at that stage. It was Mr Craik's contention that the defender had lost his right to rejection. Firstly this was so by virtue of section 35(1)(b) of the Sale of Goods Act, which provides that the buyer is deemed to have accepted the goods "...when the goods have been delivered to him and he does any act in relation to them which is inconsistent with the ownership of the seller." To have used the car as a private hire taxi from September of 2003 through to at least July of 2004 and to have travelled in excess of 40,000 miles in the vehicle was inconsistent with the ownership of the seller. Moreover in terms of section 35(4):

 

"The buyer is also deemed to have accepted the goods when after the lapse of a reasonable time he retains the goods without intimating to the seller that he has rejected them."

 

The policy behind section 35 was to provide finality of transactions and accordingly a reasonable time must be a matter of weeks after the purchase. It could not be 10 months as in the present case.

What does it mean to say that there is deemed acceptance when the buyer does any act in relation to the goods which is inconsistent with the ownership of the seller? The effect of section 35(1)(b) is that the buyer must be taken to have accepted the goods if he acts in a way which is inconsistent with rejection and thus denying the possibility of the re‑vesting of ownership of the goods in the seller. This notion of re‑vesting ownership was identified by Devlin J in Kwei Tek Chow v British Traders and Shippers Ltd [1954] 2 QB 459. Devlin J's explanation was expressly approved in the context of the current version of the section by Lord Justice Morritt V-C at paragraph 39 in Clegg v Anderson T/A Nordic Marine [2003] EWCACIV 320 to which I was referred by Mr Craik:

 

"...Mr Justice Devlin explained that in cases where as in this case, property in the goods has passed to the buyer, the ownership of the seller with which the buyer must not act inconsistently is the reversionary interest of the seller which remains in him arising from the contingency that the buyer may reject the goods."

 

Throughout the period of his possession, the defender was engaging with the sellers regularly and often in regard to his complaints and concerns over the vehicle's quality and fitness for purpose. Against that background, I am unable to accept that his continued use of the vehicle necessarily amounted to acts inconsistent with the ownership of the sellers, Arnold Clark. Also relevant in this context are his efforts to obtain the specified extras, which were missing from the vehicle delivered to him. The key issue is whether the defender lost the right to reject by lapse of time.

What in the context of the present case may be said to be a reasonable time for rejection? By virtue of section 39 of the Act this is a question of fact, however, section 35 does offer guidance as to how the question is to be approached. Section 35(5) provides:

 

"The questions that are material in determining for the purposes of sub‑section 4 above whether a reasonable time has elapsed include whether the buyer has had a reasonable opportunity of examining goods..."

 

Section 35(6) provides:

 

"The buyer is not by virtue of this section deemed to have accepted the goods merely because -

(a) He asks for, or agrees to, the repair by or under an arrangement with the seller."

 

In Clegg Lord Justice Morritt comments on these two sub‑sections as follows:

 

"Thus sub‑section (5) provides that whether or not the buyer has had a reasonable time to inspect the goods is only one of the questions to be answered in ascertaining whether there has been acceptance in accordance with sub‑section (4). Sub‑section 6(a) shows that the time taken merely in requesting or agreeing to repairs, and, I would hope for carrying them out, is not to be counted.

 

In these circumstances I consider that time taken to ascertain what would be required to effect modification or repair is to be taken into account in resolving the question of fact which arises under sub‑section (4)."

 

This passage appears to me to be authority for the proposition that the right to reject is not lost during any period where the purchaser is waiting for information to make an informed judgement as to whether to accept or reject the goods or to seek a repair.

Similarly the following passages from the judgment of Lady Justice Hale in the same case, make it plain that in certain circumstances the clock may stop ticking against the buyer so that deemed acceptance is delayed:-

 

"75. The buyer loses the right to reject if he informs the seller that he has accepted the goods, or if he acts inconsistently with the seller's reversionary interest in the goods, or if he leaves it too long before telling the seller that he rejects them: s. 35(1), (4). The first two of these are subject to his having a reasonable opportunity of examining the goods to ascertain whether they conform to the contract, including the implied terms in s. 14; whether he has had such an opportunity is also relevant to the third: s. 35(2), (5). And a buyer does not accept the goods simply because he asks for or agrees to their repair: s. 35(6). It follows that if a buyer is seeking information which the seller has agreed to supply which will enable the buyer to make a properly informed choice between acceptance, rejection or cure, and if cure in what way, he cannot have lost his right to reject.

 

76. This was a buyer who was told very early on that something was not right with his brand new boat and given one suggesting for curing it. When he sought time and information for reflect upon the best way forward the sellers agreed to supply the information required. When they eventually produced this, they not only made it clear that there was no "do nothing" option, but presented two very different options for putting it right, each different from the one they had originally proposed. In my view, time only began to run then and the three weeks it took the buyer to inform the seller that he was rejecting the boat were not more than an reasonable time."

The quoted sections from each judgement support the view, that in a case such as the present one, the actings of the seller in relation to dealing with defects and attempts to cure defects may postpone deemed acceptance. That may be particularly so where the goods involve complex technology and the seller is the only available source of information as to the nature of the defect and any potential remedy. It was apparent from Mr Cant's evidence that examination of the engine management system was dependent upon access to an appropriate diagnostic computer system.

In relation to latent defects it seems clear that section 35 may prevent rejection where a defect, which if known of at the outset would have justified it, emerges only after a period of time. Thus, if the fault in the engine management system had been satisfactorily resolved in October 2003, when the vehicle was first returned to Arnold Clark for repair, then it may have been difficult to argue, that it was still open to the defender to reject, when, in May 2004, the rear axle problem emerged. I consider that in this case the door to rejection was kept open because when the initial repair was not effective, Arnold Clark and the defender continued to engage with one another in attempts to ascertain what would be required to cure the difficulty. This initial chapter of attempts to resolve the problem with the engine management system overlaps with and it seems became overshadowed by the emergence of the steering problem, itself a symptom of the rear axle fault.

In the period between the initial failed attempt to repair the engine management system and 27 May 2004 the clock had stopped running against rejection. Thereafter I considered the clock never re‑started. This was because the period from May through to the letter of rejection issued on 15 July 2004 was very much taken up with the defender requesting repairs, Arnold Clark agreeing to carry them out and then when repairs were not effective, with efforts to ascertain what might be done to resolve the problem. In the peculiar circumstances of this case I have therefore held that when the defender came to reject the goods in July 2004 this was a rejection made within a reasonable time.

The question which next arises is whether by retaining possession of the vehicle in the period from 15 July to 27 September 2004 the defender finally lost his right to reject by acting inconsistently with its rejection and therefore with the possibility of ownership re‑vesting in Arnold Clark. I would observe firstly that there was no evidence that the defender continued to use the vehicle after 15 July. It appears to me that Mr Ireland's submission that the defender was entitled to rely on section 36 of the Sale of Goods Act 1979 is correct. That section provides as follows:-

 

"Unless otherwise agreed where the goods are delivered to the buyer, and he refuses to accept them, having the right to do so, he is not bound to return them to the seller, but it is sufficient that he intimates to the seller that he refuses to accept them."

 

The letter of 15 July from the defender to Arnold Clark is a clear intimation of refusal to accept the goods.

Of equal importance in relation to this question is the defender's unchallenged evidence of Arnold Clark's behaviour in this period. To put it colloquially Arnold Clark appear to have been stringing the defender along.

Contrary to Mr Ireland's submission I do not agree that the acceptance of the keys by Mr Connor is necessarily of much significance. Anyone in the defender's position would have expected that Mr Connor would require to have referred the matter to a higher authority.

I did not find the case of J and H Ritchie Ltd v Lloyd Ltd 2005 1 SC 155 to be of much assistance. There the pursuers had allowed the sellers to carry out a repair and the pursuers had not led evidence that in its repaired state the goods were still defective. Following the repairs to the engine management system and the rear axle the vehicle remained defective in respect of both these matters.

Again, I did not find the case of Lamara v Capital Bank Plc [2006] CSIH 49 (XA405) to be of assistance. That case was concerned with issues of quality and fitness for purpose rather than loss of the to the right of rejection.

In summary, I conclude that, notwithstanding the mileage, the use made of the vehicle and the lapse of the time, the defender was entitled to reject the vehicle on 15 July 2005. Further that his right of rejection was not lost by virtue of the fact that the vehicle was not returned to the sellers until sometime after formal rejection. In light of Mr Craik's concession in regard to the effect of section 75 of the Consumer Credit Act I have sustained the defenders first and second pleas-in-law and have granted absolvitor in favour of the defender. I was not addressed on the question of expenses. I have therefore assigned a hearing on expenses. There appears to be no question of divided success and accordingly parties may regard such a hearing as unnecessary. In the event that parties are agreed on the matter of expenses they are welcome to e-mail me and I will simply issue a further interlocutor discharging the hearing of and making an award.

 

 

 

 

 

 

 

 

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