A case that’s good news
for lenders facing section 75 claims. Russell Kelsall and Jess
Goodman report.
Go deeper with GlobalData
The County Court decision in
Kim Patricia Parker vs Black Horse Limited (BH) vs Browne &
Sons (Loddon) Limited t/a ESS Scooters [2010] on 17 December
2010 makes it clear that whenever a creditor faces a claim from a
supplier under Section 75 of the Consumer Credit Act 1974, it
should be entitled to recover its costs from the supplier even if
the claim is allocated to the small claims track.
S75(1) gives the debtor a
“like claim” against the creditor for misrepresentations or
breaches of contract by the supplier where goods or services have
been financed by certain regulated agreements. S75 typically
applies to restricted-use loans for the supply of goods or credit
cards. It does not apply to hire purchase agreements.
Importantly, s75(2) gives the
creditor a statutory entitlement to be “indemnified by the supplier
for loss suffered by the creditor in satisfying his liability under
[s 75(1)], including costs reasonably incurred… in defending
proceedings instituted by the debtor”.
Mrs Parker bought a scooter
from a local supplier. She paid a deposit but raised the rest of
the money through a restricted-use loan from BH. S75 therefore
applied.
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By GlobalDataMrs Parker complained about
the scooter’s quality. A third party carried out tests but could
not find any issue. Mrs Parker therefore issued proceedings against
BH claiming the scooter was of unsatisfactory quality. BH added the
supplier as a third party and claimed an indemnity under
s75(2).
The claim was heard by the
small claims court and Mrs Parker’s claim was dismissed. Applying
the normal small claims rules, the judge did not order Mrs Parker
to pay costs. BH, however, sought an indemnity for its costs from
the supplier under section 75(2).
The supplier argued s75(2)
was only engaged when a debtor succeeds in a claim. As Mrs Parker
didn’t succeed, the court would (if it accepted BH’s argument)
penalise the supplier for providing a satisfactory
scooter.
Deputy Judge Austin decided
that:
- BH’s argument that its costs
were “reasonably incurred in defending proceedings instituted by”
Mrs Parker (and therefore fell within s75(2)) was
“unimpeachable”; - an Act of Parliament must
prevail over the small claims rules on costs; - the word “liability” refers
to the creditor’s inclusion as a party to proceedings. It was not
limited to cases where the creditor is unsuccessful.
The supplier was therefore
liable for BH costs on the indemnity basis.
We fully endorse the court’s
decision as in these types of disputes the creditor has no control
over the goods or services or the sales process. It is therefore
right that whenever a creditor gets dragged into proceedings, it
should receive a full indemnity (regardless of the outcome) from
the supplier. Suppliers facing such claims should therefore quickly
look, in appropriate cases, to resolve them.
Russell Kelsall and Jess
Goodman are solicitors specialising in asset finance litigation,
particularly involving motor vehicles and consumer credit, at
Squire Sanders Hammonds
