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1994 WL 1062726 Page 2 [1994] C.C.L.R. 127 Times, April 1, 1994 Official Transcript [1994] C.C.L.R. 127 Times, April 1, 1994 Official Transcript (Cite as: 1994 WL 1062726)

Purnell Secretarial Services Ltd. & Another v Lease Management Services Ltd. No. CCRTF 92/0045/C, CCRTF 93/0294/C Court of Appeal (Civil Division) The Vice-Chancellor, Lord Justice Hirst, and Lord Justice Waite Thursday, 24th March 1994 Representation Mr. C. Koney and Mr. Fletcher (instructed by Messrs. Risdon Hosegood , Taunton) appeared on behalf of the Appellants. Mr. Keane (instructed by Messrs. Thomson Bowers , Surrey) appeared on behalf of the Respondents. sales executive in the sales department of Canon (South West), called on Mrs Berry. She was looking Judgment for another photocopying machine. Mr Brothers sought to interest her in a new model, the Canon NP The Vice-Chancellor: 3525NF. This model had a variety of new functions, such as double-sided printing. Mrs Berry was interThis case affects consumers. It concerns the hire of a ested, but she made clear she would not want the new photocopying machine. Purnell Secretarial Services model unless it made paper plates. Mr Brothers had Ltd (Purnell) carries on a business of printers and no idea what Mrs Berry was talking about. He sugoffice suppliers at Bridgwater in Somerset. gested she should try the demonstration model and see for herself. Mrs Berry said she would try the maThe company is run by Mrs Marion Berry. The busichine, but reiterated that it must make paper plates. ness has been established for 20 years, and for many Within a day or so the demonstration model was inyears the company has been a customer of Canon stalled and Mrs Berry tried it out. She was delighted. (South West) Limited (Canon (South West)). The machine did everything that was claimed for it, Canon (South West) is based in Exeter and supplies and it made excellent paper plates. So when she saw photocopying machines. It is part of the Canon Mr Brothers again she ordered a new 3525. She group. Over the years Purnell has bought several phosigned a leasing agreement in February 1987, agreetocopiers from Canon (South West). In 1986 Purnell ing to hire the machine for five years at a monthly was using a Canon 400 machine, which was four or rental. five years old. This machine was capable of producing photo plates or paper plates. This was important for Purnell. Cardboard photo plates can be used to make multiple copies from an offset litho machine, a cheaper process for long runs than making ordinary photocopies. In January 1987 Mr Mark Brothers, a commercial The brand-new 3525 was delivered. Mrs Berry traded in her Canon 400 in part exchange. Then the difficulty arose. Unlike the demonstration model, the new 3525 did not produce paper plates. The ability to make paper plates was not part of the specification of the 3525 model but, so we were told, in practice some machines of this model will make paper plates and oth

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ers will not. Mrs Berry complained at once. Within three days she telephoned, and asked Canon (South West) to take away the new machine and bring back her old one. On 26th February she wrote to Canon (South West) saying she did not wish to keep the photocopier because it would not make paper plates. She said: As you know, this was the condition when we purchased this machine. She made no payments of the monthly hire. Mrs Berry wrote to Canon (South West) because she thought she had leased the machine from that company. When she signed the leasing agreement she thought she was dealing with Canon (South West) as the local Canon people. This is not surprising. A customer would need to go through the leasing agreement with the finest of toothcombs to discover this was not so. In fact Mrs Berry had signed an agreement to lease the copier from Lease Management Services Ltd (LMS), a company based in Esher, Surrey. LMS carries on business as a finance company leasing office equipment. It is not part of the Canon group. The proceedings Eventually, after unsuccessful efforts to sort out the position, the unwanted photocopier was taken away by LMS. LMS sued Purnell in Taunton County Court for five years' rent, less a discount for accelerated payment and a deduction for the secondhand value of the repossessed machine. Purnell resisted, and counterclaimed for the value of the old machine Mrs Berry had handed over in part exchange. The Canon 400 could make paper plates, whereas the new Canon 3525 could not. Purnell joined Canon (South West) as a third party, claiming an indemnity. On 6th December 1991 Judge Neville found in favour of LMS, for damages agreed at 6,326 including interest. Although the machine supplied could not do the very thing Mrs Berry had insisted upon and which she had tried out on the demonstration model, LMS could rely on the exclusion clauses in the leasing agreement. As the judge graphically said, the

leasing agreement contained virtually every exclusion clause that the mind of mankind could invent. LMS could rely on those clauses because it really had played no part in the matter save as finance company. The judge also held that Purnell was entitled to an indemnity from Canon (South West) and, further, that Canon (South West) had to reimburse Purnell 900 as the value of the Canon 400 machine traded in by Purnell in part exchange. The judge held that Canon (South West) was in breach of a collateral contract under which it had promised to deliver a copying machine making photo plates just as the demonstration model had done. The overall result, therefore, was that the loss was borne by Canon (South West), the third party. Against that decision Canon (South West) appealed. To protect its position, Purnell in turn lodged an appeal. The demonstration model Purnell's defence to LMS's claim is founded on what took place before Mrs Berry placed her order for a Canon 3525. Mr Brothers had provided a demonstration machine for a week's trial so that Mrs Berry could find out for herself whether this model satisfied her requirements, in particular her requirement that the machine could produce paper plates. If she was satisfied, she would place an order. She would do so believing she would receive a machine with the same capabilities as the demonstration machine. There was no point in a trial run on a demonstration machine unless this was to be a reliable guide to the performance of that model of machine. This stands to reason, but for good measure the evidence of Mr Higgin, the area sales manager of Canon (South West), was that he allowed the demonstration machine to go out on trial to Purnell, knowing that Mrs Berry wanted to see if it would make paper plates, and knowing she would rely upon that demonstration machine in placing an order. On those facts, when Mrs Berry placed her order with (as she thought) Canon (South West), it was on the basis that the machine supplied would have the same capability to produce paper plates as the

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demonstration model. Further, the sales staff of Canon (South West) knew that Mrs Berry was placing her order on this basis. Accordingly, had the order resulted in a contract with Canon (South West), it would have been a term of the contract that the machine supplied would have that capability. I shall refer to this as the disputed term. As already noted, the order did not result in a contract of sale or hire between Canon (South West) and Purnell. The other party to the leasing agreement was LMS, not Canon (South West). LMS denies that the disputed term became an implied term of that agreement. Canon (South West) and its staff, the argument runs, had no authority from LMS to give any warranties or the like on its behalf. They had no actual authority, either express or implied. Nor did they have any ostensible authority. They had not been clothed by LMS with an appearance of authority so as to estop LMS from denying they had been authorised to act on behalf of LMS. Apparent authority and estoppel It was common ground that the staff of Canon (South West) had no actual authority to give warranties or enter into commitments on behalf of LMS. I turn to the question of apparent authority and of estoppel in general. On this the form of the leasing agreement Mrs Berry was asked to sign is important. It is a folded two page document, with printing on the four sides. The front page is headed Canon (South West) Finance and, below that, Leasing agreement. Below that, in a large box, beside the word Supplierappears Canon (South West) Limited, with addresses in Bristol and Exeter. The words Canon (South West) Limitedare printed in red in large type. The word Canon is printed in the distinctive form of that company's logo. These words are eye-catching and are the most prominent feature on the page. Further down, much more tightly typed, are the words LessorOwner: Lease Management Services Limited trading as Canon (South West) Finance, with an address in Esher. There are then boxes for filling in

the details of the lease, the model number of the equipment, and the name and address of the lessee. There is a space for the lessee's signature. The substantive part of the form is a request by the lessee, which starts: To Canon (South West) Finance (the Lessor): I/We the above named Lessee hereby request you to purchase the said Equipment and agree to lease the same from you There is a space for an acceptance to be signed For and on behalf of Canon (South West) Finance. Set out on the inside pages of the agreement are 22 terms and conditions. A schedule of the equipment appears on the back page. This is a bewildering document. Canon (South West) trades under its own name: Canon (South West) Limited. LMS uses as one of its trading styles the confusingly similar name of Canon (South West) Finance. LMS has adopted this trading style, with the consent of Canon (South West), to facilitate its finance company business with customers of Canon (South West). I have to say that I find this quite extraordinary. The use of this trading style is bound to lead customers of Canon (South West) into believing they are signing a leasing agreement with Canon (South West). If they were unusually observant, or were lawyers, and noticed the word Finance in LMS's trading style, they would still believe they were dealing with an associate company within the Canon group. This impression is heightened by the prominence given to the Canon logo and to the name of Canon (South West) as the supplier. The name and logo of Conon (South West) are given this prominence on the form even though this company is not a party to the leasing agreement. Further, the inescapable inference from these facts is that LMS chose to adopt this trading style and format of document with the intention of leading customers of Canon (South West) into believing they are dealing with the Canon group. LMS expected and intended that the sales staff of Canon (South West) would produce this form to customers. LMS itself does not deal directly with the customers. In other words, put bluntly, LMS has adopted a misleading trading practice. I hasten to add there is no suggestion of any intention to defraud.

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1994 WL 1062726 Page 5 [1994] C.C.L.R. 127 Times, April 1, 1994 Official Transcript [1994] C.C.L.R. 127 Times, April 1, 1994 Official Transcript (Cite as: 1994 WL 1062726)

What happened in this case is as one would expect. Mrs Berry thought she was signing an agreement with Canon (South West), the company with which she had had dealings in the past, and with whose sales staff she had arranged this transaction. Mr Brothers went through the figures with her and completed the details, and she signed the form. Mrs Berry was not told that LMS was a different company, outside the Canon group. In my view, having conducted its business in this way, and having deliberately led Mrs Berry, a customer of Canon (South West), into believing LMS was not a different trading body, LMS cannot be heard to distance itself from what was known and done by the salesman of Canon (South West) when negotiating the transaction. Mrs Berry thought she was entering into a lease agreement with the people who had given her the demonstration model to try out, who knew of her insistence that the machine must be able to produce paper plates, and who knew she was placing the order only because the demonstration model fulfilled this requirement. Having chosen to identify itself with Canon (South West), and Mrs Berry having proceeded on that basis, LMS is estopped from asserting that it is a different body from Canon (South West) and that Mr Brothers had no authority to speak for it. Mr Keane submitted that for there to be apparent authority there must be a representation by the principal about the agent's authority, and that representation must be relied upon by the third party. There is no room for the application of that doctrine where the third party does not know of the representation because he deals with the agent as principal. Further, Mrs Berry did not rely on any representation made by the leasing agreement because she had already decided to place her order before she saw the document. I cannot accept the conclusion for which Mr Keane contends. It is correct that when Mrs Berry signed the agreement she did not know of LMS, and that accordingly she did not rely upon any representation by LMS that Canon (South West) was its agent. But that is not the end of the matter. Mrs Berry signed the

document in the mistaken belief she was entering into an agreement with Canon (South West). In fact she was not. That mistake was fostered and encouraged by LMS, for its own purposes. LMS did so by providing Canon (South West) with a confusing and misleading form of document to put before the customers of Canon (South West). Having sought to encourage this mistake, and to obscure and conceal the true position, the burden must be on LMS to establish that Mrs Berry would have signed the leasing agreement even if it had contained none of its misleading features. LMS did not discharge that burden. In the result the case is not a classic example of an agent who lacks actual authority being clothed with an apparent authority by the principal. Rather, it is an application of the wider, general principle of estoppel, of which the doctrine of apparent authority is a particular application. In Rama Corporation Ltd v Proved Tin and General Investments Ltd [1952] 2 QB 147 , 149, Slade J observed that ostensible authority is merely a form of estoppel. Diplock L J's well known analysis in Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480 , 503, was to the same effect: An apparent or ostensible authority, is a legal relationship between the principal and the contractor created by a representation, made by the principal to the contractor, intended to be and in fact acted upon by the contractor, that the agent has authority to enter on behalf of the principal into a contract of a kind within the scope of the apparent authority, so as to render the principal liable to perform any obligations imposed upon him by such contract The representation, when acted upon by the contractor by entering into a contract with the agent, operates as an estoppel, preventing the principal from asserting that he is not bound by the contract. The wider, general principle of estoppel by representation is that if A misleads B about an existing state of facts intending that B shall act accordingly, and B does so in reliance on A's misrepresentation, A will be estopped from asserting the true state of facts: see the authorities referred in Chapter 1 of Spencer Bower and Turner on Estoppel by Representation (3rd ed). The books are replete with examples of the

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working out of this general principle in an infinite variety of particular types of circumstances. In the present case LMS represented to customers of Canon (South West) that it was part-and-parcel of the same group as Canon (South West). Customers were intended to act on that basis when deciding whether to sign the leasing agreement form. Here Mrs Berry did sign the form in that belief. Accordingly LMS is estopped from asserting that it is not part of the same group as Canon (South West). Hence, and this is the final step, it is estopped from asserting that the sales staff of Canon (South West) had no authority to speak on its behalf. It is no answer for LMS to say that Mrs Berry had already decided to place an order before she saw the form. This is beside the point. Mrs Berry had decided to order a Canon 3525 from Canon (South West). When she signed LMS's leasing agreement she believed she was doing so. Had she done so, she could have relied upon the disputed term as part of Purnell's contract. She could have pointed to the demonstration model and to her discussions with Mr Brothers. LMS seeks to shrug its corporate shoulders, express regret that Mrs Berry was mistaken, and take advantage of that mistake. That is the mischief remedied by the estoppel. For these reasons I am of the view that the disputed term formed part of the contract between LMS and Purnell. Personalised forms and trading styles LMS uses the trading style Canon (South West) Finance when doing business with customers of Canon (South West). LMS adopts corresponding trading styles when doing business with customers of other suppliers around the country. We were told that the use of personalised forms by finance houses is common in the trade. This is a matter for concern. Personalised documentation comes in many different shapes and sizes. Some are unobjectionable. Suppliers' brochures are often over-printed with the local dealer's name and address. And we are all familiar with unsolicited ad-

vertising literature which is personally addressed. What is unsatisfactory in this field, and objectionable, is literature designed to give a supplier's customer the impression that a transaction of hire or hire-purchase is proceeding in-house when it is not. Presumably this impression is sought to be created so as to ease the transition from the known supplier with whom the customer is dealing to an unknown finance house. The customer might ask questions, or become uneasy, if told that the supplier will not hire the equipment but that it can make arrangements for an outside finance company to do so. Whether this is so or not, and whatever be the reason, customers are entitled not to be misled. If this is a general practice, the sooner it stops the better. The exclusion clauses I turn now to condition 5 on which LMS relies to exclude liability for breach of the disputed term. Condition 5 of the leasing agreement, headed Representations and Warranties, reads: Representations and Warranties The Lessor shall use its best endeavours to procure for the Lessee the benefit of any guarantee warranties and service(s) which may be given by the manufacturers and/or suppliers of the Equipment but the Lessor shall not incur any liability and the Lessee shall not possess any right or immunity in respect of any conditions warranties or representations relating to the condition of the Equipment or to its merchantable quality or suitability or fitness for the particular or any purpose for which it may be required whether such conditions warranties or representations are express of implied and whether arising under this Agreement or under any prior agreement or in oral or written statements made by or on behalf of the Lessor or its agents in the course of negotiations in which the Lessee or its representative may have been concerned prior to this Agreement. The Lessor shall be under no liability for any loss or damage whatsoever (including delay in delivery) in respect of or arising from or in connection with the Equipment or any part thereof or any defect therein howsoever caused. Any supplier dealer or other person not in the actual employment of the Lessor by or through whom this transaction may have been introduced negotiated or

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conducted is not the agent and has no authority to act as the agent of the Lessor who shall under no circumstances be held liable for any statement condition warranty or representation express or implied made or given by such supplier dealer or other person at any time. 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 . Before turning to the Act, I should note that condition 5 is apt, as a matter of interpretation, to exclude liability for a breach of the disputed term. If one digs hard, one finds that this condition provides that LMS incurs no liability, and Purnell possesses no rights, in respect of any condition, warranty or representation relating to the suitability or fitness of the equipment for any purpose for which it may be required. The Unfair Contract Terms Act This case falls within section 3 of the Act. Section 3 applies where one of the contracting parties deals as consumer or on the other's written standard terms of business ( section 3(1) ). The first limb of this subsection does not apply. Purnell did not deal as consumer, because the contract was made by Purnell in the course of a business: see section 12(1) . However, the case falls within the second limb of section 3(1) , because the leasing agreement incorporated LMS's written standard terms of business. Hence, as against Purnell, LMS cannot by reference to condition 5 exclude or restrict liability in respect of its breach of contract except in so far as condition 5 satisfies the requirement of reasonableness ( section 3(2)(a) ).

Condition 5 not only excludes LMS from liability for breach of any condition or warranty. In its quest to leave no possible loophole, condition 5 also excludes Purnell from having any right in respect of such a breach. This latter restriction, which is really no more than the counterpart of the former restriction, is caught by section 13(1)(b) . It, too, is valid only to the extent it passes the test of reasonableness.

11(1)

Reasonableness is defined in :

section

& the requirement of reasonableness is that the term shall have been a fair and reasonable one to be included having regard to the circumstances which were, or ought reasonably to have been, known to or in the contemplation of the parties when the contract was made. It is for those claiming that a contract term satisfies the reasonableness requirement to show that it does ( section 11(5) ). I am in no doubt that condition 5 fails to satisfy this test. Condition 5 embraces virtually all liability for any shortcomings in the equipment, irrespective of seriousness and irrespective of how the warranty or condition arose. Self-evidently it cannot be reasonable to exclude liability for breach of a warranty or condition which has been expressly given. Otherwise the customer will find himself snared: he is given an express warranty and he relies on that and binds himself to take the equipment. Later when a breach comes to light, he is told that, hidden away in the obscure small print on page 2 which he did not read and could not sensibly be expected to read, there is a clause enabling LMS wholly to disregard the express warranty. Similarly with the disputed term in the present case. This may be an implied rather than an express term but, as Canon (South West) knew, it was fundamental to the transaction so far as Mrs Berry was concerned. It cannot be fair or reasonable to exclude liability for breach of such a term. For reasons already explained, the knowledge of Canon (South West) is to be imputed to LMS. LMS is estopped from asserting that the sales staff of Canon (South West) were not authorised to speak for LMS. Mrs Berry is an experienced

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businesswoman, and she must have known that the document she signed included standard terms and conditions. She chose not to read them. But neither she nor the sales staff could sensibly have envisaged that these terms would have the effect of requiring Mrs Berry to take a machine which did not have the same capability of producing photo plates as the showroom machine she had tried out. We were taken through the statutory guidelines for application of the reasonableness test set out in schedule 2. Section11(2) obliges the court to have regard in particular to those guidelines. However, section 11(2) is not in point in this case. Here Purnell can rely on section 3. Purnell does not need to rely on section 7(3) . The schedule 2 guidelines are applicable only for the purposes of sections 6 and 7 : see section 11(2) . The judge's decision Judge Neville reached a contrary conclusion on this part of the case. His attention was drawn to a passage in the judgment of Dillon L J in R& B Customs Brokers Co Ltd v United Dominions Trust Ltd [1988] 1 WLR 321 , 332. That case concerned a credit sale agreement relating to a secondhand Colt Shogun car. There was the usual tripartite arrangement between a dealer, a finance company and the plaintiff buyer. The roof of the car leaked, and the buyer rejected the car and claimed damages from the finance company. The court held the finance company was in breach of the statutory implied term of fitness for purpose, and that the plaintiff was dealing as a consumer. Accordingly liability could not be excluded and the question of reasonableness did not arise: see section 6(2) of the Unfair Contract Terms Act 1977 . Dillon L J added that, had reasonableness been an issue, he would have held that the reasonableness test was satisfied. The most obviously important factors were that, on this footing, the plaintiff buyer would have been dealing in the course of

business, the principal director was not devoid of commercial experience, and the finance company had never been in possession of or inspected the car. Neill L J expressed no view on this point. In the instant case the judge seems to have been influenced by Dillon L J's observations when finding that condition 5 was reasonable. The only reason the judge gave was the fact that LMS really had no part to play in this matter save as a finance house. I have to differ from the judge. I am unable to accept, as a general proposition, that an exclusion clause which would be unreasonable in a contract for sale by a supplier will be reasonable as between a hirer and a finance company because of the latter's non-inspection of the goods and its non-participation in negotiations preceding the transaction. If there were such a general proposition, acquisition by hire from a finance company rather than by purchase from a supplier would become a trap. A customer would not expect his rights regarding defects to differ according to which of these two acquisition routes he chooses to follow. In my view each case must depend on its own facts. All the circumstances must be taken into account. In the R & B Brothers case the buyer was aware of the leak when he signed the contract and the conditions of sale were sufficiently drawn to his attention. In the instant case Purnell had no opportunity to inspect or test the machine supplied before deciding whether to accept it. As soon as Mrs Berry had tried it, she rejected it for non-compliance with the disputed term. LMS did not see or test the machine, but neither did Purnell. I have in mind that by imposing a reasonableness test Parliament envisaged that a condition such as condition 5 is not necessarily unreasonable. There may be circumstances where it is reasonable. But where the condition excludes 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 way the buyer would need to have brought home to him clearly that, for instance, although the seller had expressly given him an oral assurance about the goods, the assurance was of no legal effect and was wholly negatived by the conditions of sale. In other words, that what had been

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given by the one hand had been taken back by the other. In the ordinary run of things, the mere presence of an exclusion clause among a series of small-print standard terms will not be adequate for this purpose. It will not be adequate because it is not reasonable to suppose that a buyer will appreciate that such terms override statements expressly made by the seller with the intention the buyer shall rely on them. Conclusion In the result I would allow Purnell's appeal against LMS. The disputed term formed part of the leasing agreement and LMS was in breach of that term. Purnell was entitled to reject the Canon 3525 supplied. The machine was not able to make paper plates. Purnell is not liable to make any payments to LMS, and it is entitled to payment of 900 as the agreed value of the old photocopier taken in part exchange. Since LMS's claim against Purnell fails, the third party proceedings fall away. Purnell does not need to look to Canon (South West) for an indemnity against LMS's claim. Canon (South West) is entitled to be paid its costs of defending the third party proceedings. Mr Keane accepted that, in this event, Purnell's costs will include the costs incurred by it, or ordered to be paid by it, in the third party proceedings. The only exception to this might be any costs thrown away because the third party claim was originally framed as a claim in misrepresentation. It was only during the course of the trial that the third party notice was amended to include a claim for breach of a collateral contract. I would hear any further submissions the parties wish to make on this point.

I add a final observation. One of the terms set out in LMS's order for the purchase of the photocopier from Canon (South West) was that Canon (South West) warranted to LMS that the equipment accorded with all warranties given by Canon (South West) to Purnell. Whether LMS has any right of recourse against Canon (South West) under this term is not a matter arising in this case, and so I shall say nothing about it. Lord Justice Hirst I agree. Lord Justice Waite I also agree. THE VICE-CHANCELLOR : For the reasons set out in the judgment, the defendants' appeal against the plaintiff appeal will be allowed. (Plaintiff to pay, with one exception, all costs including costs of the third party proceedings and the costs of the third party which the third party has incurred. Exception in respect of the costs of one day below, where the plaintiff will get his costs and respondent will get none. Costs of the application by the defendant for leave to present its cross-appeal out of time against the third party and to give a Respondents Notice out of time to be paid by the third party. Money in court to be paid out in satisfaction of that part of the costs which go to the third party and thereafter to solicitors, together with interest.) END OF DOCUMENT

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