Richard Durkin wins Supreme Court appeal – beware lenders!

[Michael Browne]

Summary from Compass Chambers:

 

Durkin v DSG (Trading as PC World) and HFC Bank - Supreme Court Judgement 26/3/14

 

This case arose from an appeal from the First Division of the Inner House to the Supreme Court in which the appeal was successful on the Pursuer’s behalf. The Pursuer was represented by Andrew Smith QC and Richard Pugh, both of Compass Chambers. The Defender (HFC) was represented by Alastair Clark QC and Fintan McShane.

 

The facts have attracted a lot of publicity in the popular press, but turned on the whether when a consumer bought goods with credit, if the goods were validly returned to the supplier did the contract of credit also fall thus relieving the consumer from the obligation to make any further payments under the contract of credit?

 

The second issue for determination was what obligations there were on a creditor under such a contract to investigate the existence of the debt (which would fly off in the event that the principal argument was correct that the contract of credit fell simultaneously with the fall of the contract of supply of the goods) and whether a report could be made to a credit reference agency.

 

The Supreme Court held that once the contract of sale fell (for example because of the goods being faulty or not conform to contract) then the contract of credit automatically fell too, thus relieving the consumer from any obligation to make further payments under the contract of credit. Further, the court held that the creditor was under an obligation to investigate whether a debt existed prior to making any report to credit reference agencies. In the event of disputed debt, they must not make a report until the existence of the debt is adjudicated upon by a court if necessary, but whilst there is such dispute, they must make no report to the agencies.

 

This case will cause a major shift in the practices of creditors and debt collection agencies. Instead of using the threat to report bad debt to the agencies as a means of forcing payment from a consumer, the creditors are now prohibited from making a report until the debt is actually established. An example may assist.

 

A consumer purchases a computer and has credit provided for its purchase. It develops a fault and he takes it back to the shop. The shop refuses to accept it is faulty.

 

Usually the creditor would, if payments under the credit agreement are stopped by the consumer, threaten to report the consumer to a credit reference agency. This dramatic and effective threat would often result in the consumer paying for goods that were faulty.

 

In the light of the Durkin judgment, the creditor must investigate whether the debt is due – and that means investigating whether the goods were validly rejected by the consumer. If there is a dispute – other than a plainly ridiculous one – there can be no report unless and until the matter is determined by agreement of the parties or by court action. The court action envisaged by the Court is either an action for payment by the Creditor (where the Debtor can defend on the basis that the goods were validly rejected), or an action by the consumer (for example against the supplier for refund of sums already paid.

 

It is highly likely that there are many consumers who have been subjected to damage to their credit, or paid sums under threat that it now appears were not in fact validly extracted who now have claims for past losses.

 

The judgment is a major victory for consumers which restores power to the consumers which was intended when the 1974 Act was passed, but eroded by creditors using threats to extract sums without resorting to litigation.

 

Andrew Smith and Richard Pugh were asked to review the papers via the Free Legal Services Unit, and thereafter when accepting the instructions did so without charging any fee to Mr.Durkin. A copy of the judgement can be found here.

 

http://www.compasschambers.com/news/durkin_v_dsg_trading_as_pc_world_and_hfc_bank_supreme_court_judgement_26_314