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Lease
Management Services Limited v Purnell Secretarial Services Limited This case has led to a judgement in the Appeal Court
where, not only did the finance company lose, but the court was highly critical
of certain of its practices. The case concerned a photocopier leasing agreement which
was outside the scope of the Consumer Credit Act 1974, because the lessee was a
limited company. However, the court held that the lessor was estopped from
asserting that the sales staff of the supplier had no authority to speak on its
behalf, and that its detailed and comprehensive exclusion clause was not
reasonable. The court also strongly criticised the use by finance
companies of a trading style similar to the name of the supplier of the
equipment which misled their customers. In so doing the court of appeal overturned a decision in
the county court where the judge had upheld the exclusion clause but had held
that the lessee was entitled to an indemnity from the supplier. The case concerned the lease of a photocopier by Lease
Management Services Limited (LMS) to Purnell Secretarial Services Limited (PSS)
which was run by a Mrs Berry and carried on a business of printers and office
suppliers. For many years the company had been a customer of Canon (South West)
Limited, suppliers of photocopying machines and part of the Canon Group. In 1987 Mrs Berry sought to obtain another photocopier.
Mr Mark Brothers, a commercial sales executive in the sales department of Canon
(SW) had sought to interest her in a new model, the Canon NP3525NF. Mrs Berry had made clear that she would not want the new
model unless it made "paper plates" for use in a printing machine, a
cheaper process for long runs than making ordinary photocopies. Mr Brothers had suggested that she should try a
demonstration model and see for herself. Mrs Berry agreed but reiterated that it
had to make paper plates. The demonstration machine was installed and made
excellent paper plates. Mrs Berry ordered a new 3525 and signed a leasing
agreement for 5 years. The lessor was LMS t/a Canon (South West) Finance. The brand new 3525 machine was unable to make paper
plates. In practice some machines of that model would make paper plates and
others would not. Mrs Berry wrote to Canon (SW) saying that she did not wish to
keep the photocopier because it would not make paper plates. She wrote to that
company because she had thought she had leased the machine from them. Eventually
after unsuccessful efforts to sort out the position, the unwanted photocopier
was taken away by LMS. LMS sued PSS in the county court for 5 years rent less
reductions for accelerated payment and the second-hand value of the machine. PSS defended and counterclaimed for the value of the old
machine which Mrs Berry had handed over in part-exchange. It also joined Canon
(SW) as a third party, claiming an indemnity. The County Court had upheld LMS's claim against PSS but
had held that PSS was entitled to an indemnity from Canon (SW) and that Canon
(SW) had to reimburse PSS £900 as the value of the previous copier traded in.
In considering the question of apparent authority and estoppel, the
court took the view that the form of the leasing agreement which Mrs Berry had
been asked to sign was important. The front page was headed "Canon (South
West) Finance" and, below that, "leasing agreement". Below that,
in a large box, beside the word "supplier" appeared "Canon (South
West) Limited" printed in red in large type. The word "Canon" was printed in the distinctive
form of the company's logo. The words were eye-catching and were the most
prominent feature on the page. Further down, much more tightly typed, were the
words "lessor - owner: Lease Management Services Limited trading as Canon
(South West) Finance".
The court held that the inescapable inference from the document was that
Lease Management Services Limited had chosen to adopt the trading style of
"Canon (South West) Finance" with the intention of leading customers
of Canon (SW) into believing that they were dealing with the Canon Group. LMS had expected and intended that the sales staff of
Canon (SW) would produce that form to customers. In other words, put bluntly,
LMS had adopted a misleading trade practice. There was not, however, any
suggestion of any intention to defraud. The court was, however, highly critical
of such a practice and stated that the sooner it stopped the better. The general principle of estoppel by representation was
that if A misled B about an existing state of facts intending that B should act
accordingly, and B did so in reliance on A's misrepresentation, A would be
estopped from asserting the true state of facts. In this instance LMS had
represented to the customers of Canon (SW) that it was part and parcel of the
same group as Canon (SW). Customers had been intended to act on that basis when
deciding whether to sign the leasing agreement form. Mrs Berry had signed the
form in that belief.
Accordingly, LMS was estopped from asserting that it was not part of the
same group as Canon (SW). Hence, and this was the final step, it was estopped
from asserting that the sales staff of Canon (SW) had no authority to speak on
its behalf. For this reason the court held that the disputed term "that the
machine should be suitable for making paper plates" had formed part of the
contract between LMS and PSS.
The agreement between LMS and PSS contained a lengthy clause, quoted in
full in the judgement, which excluded all liability for quality or fitness and
for any representations made by any supplier, dealer or other person not in the
actual employment of the lessor. The court's comments on this exclusion clause
started with the following words:-
"One would like to think that the days of such blanket exclusion
clauses, daunting to anyone and incomprehensible to an ordinary customer, are
past. One would hope that finance companies and suppliers of expensive equipment
no longer use small-print standard conditions as a means to avoid liabilities
otherwise attaching to them for breach of pre-sale representations or breach of
implied warranties. It was to meet conditions of this sort that Parliament
enacted the Unfair Contract Terms Act 1977".
The court then examined the exclusion clause in detail in the light of
ss 3 and 11 of the Unfair Contract Terms Act. It held that LMS could only
exclude liability to the extent that this was reasonable and that its exclusion
clause did not satisfy the reasonableness test. The judgement made the point
that where a condition excluded all liability for breach of any representation
or warranty, express or implied, the burden of proving reasonableness will not
be lightly discharged. In the ordinary run of things the mere presence of an
exclusion clause amongst a series of small-print standard terms will not be
adequate to negate an express assurance given by the supplier.
The court therefore allowed PSS's appeal against LMS, found that it was
not liable to make any payments to LMS and was entitled to payment of £900 as
the agreed value of the part exchange photocopier. Finally, the court noted that Canon (SW) had signed a
letter to LMS warranting that the equipment was in accordance with all
warranties given by Canon (SW) to PSS. The court did not consider whether LMS
had any right of recourse against Canon (SW) since the matter had not been
placed before it. |