When looking back at 2011, there are a number of issues on the legal and regulatory front that immediately spring to mind as having received much attention: the new lease accounting rules and the Consumer Credit Directive requirements having gone fully live on 1 February, for example.
But the year also saw a number of other developments, particularly cases.
Leasing
Michael Gerson (Leasing) Ltd v Greatsunny Ltd: Greatsunny (G) let some premises to a tenant, which tenant also took a lease of equipment from Michael Gerson Leasing (MGL). The equipment became fixtures (which would, in law, belong to the landlord). In 2005, the landlord agreed to a waiver in favour of MGL. Under the terms of the waiver, G agreed that in the event it determined the property lease, it would give MGL notice of the termination and after then 28 days in which to remove it.
The tenant became insolvent and the property lease was terminated. On 21 June 2007, there was a telephone conversation between MGL and G, during which G told MGL that the property lease had been terminated. (It was common ground between the parties that the notice could have been given orally and there was no need for it to refer to the waiver). MGL had also terminated its equipment lease and demanded its return. However, it did not take steps to recover the equipment within the 28 day period provided for in the waiver.
In the Court of Appeal MGL sought to argue that the notice given during the telephone conversation was insufficient because it was “casually” given and it had not realised the 28 day period had started to run. The Court of Appeal held that the difficulty with MGL’s submission was that the judge at first instance had accepted that notice had been given and the statement that the lease was terminated had been clearly made.
From a practical perspective, this highlights the significance of requiring written notice in circumstances such as this.
Consumer credit
HSBC Bank plc v Brophy: The Bank sent Mr Brophy an application form for a credit card. The form stated that it was a credit agreement regulated by the Consumer Credit Act 1974 and that he should only sign it if he wanted to be bound. The terms and conditions specified that the credit limit would be determined by the Bank from time to time and notified to him. Mr Brophy signed and returned the form and was issued with a credit card, which he used until the Bank terminated the agreement. He subsequently contended that the debt on the card was unenforceable. Under section 59 of the CCA, an agreement to bind a person to enter into a prospective regulated agreement as debtor is void. Mr Brophy’s position was that the completed application form was such an agreement. In addition, he argued that the agreement did not comply with the requirements of the relevant Regulations under the CCA because it did not contain a term stating the manner in which the credit limit would be determined. He submitted that it failed to identify any of the factors that the Bank would take into account or the manner in which it would evaluate them.
The court held that section 59 of the CCA had no application in this context. By signing the application form and returning it to the Bank, Mr Brophy applied for credit and offered to be bound by the terms and conditions set out in the form.
On the second point, the court’s finding was that the requirement to state the “manner in which the [credit limit] would be determined” was deliberately wide to cover any arrangements for its determination. It held that the clause in the terms and conditions providing for the Bank to determine the credit limit from time to time and notify it to Mr Brophy was covered by this: the manner in which it would be determined was by notification to the debtor.
Interpretation of contracts
ICDL GCC Foundation FZ-LLC v The European Computer Driving Licence Foundation
English law does not define the term “gross negligence”. However, the expression often appears in commercial contracts, particularly in clauses limiting liability. In a case decided by the High Court of Ireland under Irish law (applying principles of interpretation common to both English and Irish law) the court considered whether an alleged breach of contract was “gross negligence” or not.
The case involved a licence to supply computer training in Saudia Arabia. The licence included a limit on the licensor’s liability to €50,000, except for damage “caused by a wilful act or gross negligence”. It was argued that both Irish and English law do not distinguish between “negligence” and “gross negligence”. However, the judge found that as a matter of contract interpretation, in this particular contract, “gross negligence” meant “a degree of negligence where whatever duty of care may be involved that has not been met by a significant margin”.
Although it is sometimes suggested that since English law does not define gross negligence, the courts may have difficulty in giving effect to that expression in a commercial contract, this case lends support to the argument that English courts will give effect to that expression and applying it to determine whether a breach of contract is “gross negligence”.
This article is a general summary only. If you would like advice on any of the issues raised by it, please contact us. Please bear in mind that the law may change from time to time and this article may not be (or have been) updated to reflect those changes. © afl Solicitors
