TRM Copy Centres (UK) Ltd & Ors v Lanwall Services Ltd [2008] EWCA Civ 382

[2008] EWCA Civ 382Case No A2/2007/1824
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
[2007] EWHC 1738 (QB)
ON APPEAL FROM THE QUEEN’S BENCH DIVISION
FLAUX J
Venue Royal Courts of Justice, Strand, London, WC2A 2LLDate 17/04/2008
Before
SIR MARK POTTERPRESIDENT OF THE FAMILY DIVISIONLORD JUSTICE THOMASLORD JUSTICE HOOPER
Between
TRM Copy Centres (UK) Limited & OrsRespondentLanwall Services LimitedAppellant
(Transcript of the Handed Down Judgment ofWordWave International LimitedA Merrill Communications Company190 Fleet Street, London EC4A 2AGTel No: 020 7404 1400, Fax No: 020 7831 8838Official Shorthand Writers to the Court)
Jonathan Ferris (instructed by Messrs Devereaux) for AppellantBridget Williamson (instructed by Messrs Sherrards) for RespondentHearing Hearing date: 7 February 2008
Judgment

Introduction

[1]The defendant (Lanwall) appeals, with the permission of the single Lord Justice, against the decision of Flaux J dated 18 July 2007 on one of the preliminary issues ordered to be tried by Master Rose on 2 May 2007 in an action brought by the claimants (TRM) against the defendants for inducing breach of a number of contracts in standard form. The form of contracts in question were Location Agreements made between TRM and shopkeepers and sub-post masters (Retailers) to whom TRM supplied photocopiers for installation at their shops or sub-post offices. It was Lanwell’s case that the Location Agreement was, in the case of a Retailer who was an individual, a regulated “consumer hire agreement” for the purposes of s.15 of the Consumer Credit Act 1974; it claimed it would then follow that the Retailer was entitled, after the requisite period specified in the Act, to give no more than 3 months notice of termination under s.101 of the Act and TRM had no right to claim liquidated damages (see s.101 and s.173 of the Act). The preliminary issue which was the subject of this appeal was whether the Location Agreements were consumer hire agreements within s.15. Flaux J decided that they were not – [2007] EWHC 1738 (QB). The issue on the appeal turns on the interpretation of s.15 (on which there is little authority) and its application to the Location Agreements.

The factual background

[2]The background is set out in full in paragraphs 2–7 of Flaux J’s judgment; it can be summarised: a) TRM carry on the business of leasing photocopying machines from a finance company and installing them in sub-post offices and shops by agreement with the Retailers on the terms of a Location Agreement for an initial period of 36 or 60 months. Thereafter, unless notice of termination is given, the agreements automatically renew for successive periods of 12 months, subject to a right of termination on 90 days’ written notice. There were two forms of Location Agreement; it will be sufficient to refer to the June 2002 form of agreement. b) Under the Location Agreement, the Retailer agrees to the installation of a photocopier at a visible and accessible place in his shop; customers of the Retailer are charged for a copy at the rate provided in the Location Agreements. The Retailer then accounts each month to TRM for the sums collected, but is entitled to deduct from those sums commission which increases as a greater number of copies are made. There is no obligation to make rental payments as such and, indeed, no obligation on the Retailer to pay anything to TRM unless the photocopier is used. c) Lanwall operates a business which competes with that of TRM; that business is structured in a completely different way. It supplies copiers to finance companies which lease them to the Retailers; it then services and maintains the copiers. d) These proceedings were commenced when TRM discovered that Lanwall had removed TRM’s photocopiers from the premises of a number of Retailers who were bound by subsisting Location Agreements and had replaced them with equipment supplied by Lanwall. This was done without reference to TRM and without terminating the Location Agreements. e) TRM’s case was that the Defendant’s actions constitute the tort of inducing the Retailers to breach their Location Agreements with TRM. Lanwall’s defence was that the Location Agreements had either been terminated or could be brought to an end under the terms of the Consumer Credit Act.[3]The main provisions of the Location Agreement are also set out in full in the judgment of Flaux J. It provides for the ownership to be retained by TRM, possession to be transferred to the retailer and for the photocopier to be returned on termination (in respect of which there are detailed provisions to the effect I have already mentioned). It is only necessary to set out the clauses of the June 2002 Location Agreement relevant to the matters in issue:
“UK COPIER LOCATION AGREEMENT TRM and the Business [i.e. the Retailer] desire to allow TRM to locate a TRM owned photocopy machine and related products (the “Equipment”) and proprietary promotional material at the retail locations owned and operated by the Business. The Equipment will be available for use by the Business and its customers. TRM and the Business agree as follows: 1. TRM’s Obligations. During the term of this Agreement, TRM will: 1.1 deliver and install the Equipment and promotional material to the Business’ locations owned and operated by the Business as set out in the Schedule 1 of this Agreement (Stores Sites) and such other additional locations as TRM shall agree; 1.2 supply the Business with all the paper, toner and supplies necessary for the operation of the Equipment; 1.3 provide repair and maintenance services for the Equipment and promotional material; and 1.4 provide appropriate training to the Business for the operation of the Equipment. 2 The Business’ Obligations. During the terms of this Agreement, the Business will: 2.1 accept all the supplies necessary to operate the Equipment; 2.2 provide electrical power to operate the Equipment; 2.3 provide a clean, safe and orderly location for the Equipment, which is easily visible and accessible by the Business’ customers; 2.4 provide adequate space for promotional material provided by TRM; 2.5 collect all sums paid for copies made on the Equipment and account to TRM for all monies received from customers using the Equipment, less the Business’ commission in accordance with Schedule 2 below; 2.6 oversee the use and operation of the Equipment by the Business’ customers making best efforts to maximise copier uptime by the timely refilling of supplies, removal of paper jams when possible, and contacting TRM promptly in the event of copier malfunction; 4. Retail Price and Commission Schedule. In consideration of TRM carrying out its obligations set out in this Agreement, the Business will pay TRM monthly for all copies made on the Equipment times the retail price specified in Schedule 2 (the Monthly Revenue), less the appropriate commission applied to all monthly copies as described in Schedule 2, together with VAT thereon. The amount which is payable to TRM shall be computed and paid as follows: TRM will calculate and invoice the Business, monthly, for the amount due for copies made over the previous meter reading. TRM’s invoice shall be paid within thirty (30) days from the invoice date. A late payment charge of 1.5 percent per month, or a minimum of £0.50, shall be added to any unpaid balance. Further, in the event that the business fails to make such timely payment, TRM shall have the right to enter upon the Business location and to terminate this Agreement and remove the Equipment and promotional materials from the Business Location at any time without advance notice. [There was a provision for an increase or decrease in the price per copy] “11. Use of equipment. The Business shall at all times exercise reasonable care in using and supervising the use of the Equipment and shall not remove the Equipment from the Business location, part with the possession of the equipment, or allow the Equipment to be used by anyone other than the Business or its agents, employees and customers. If the Equipment is damaged or destroyed … TRM shall have the right, in addition to any other rights it may have, to deduct the cost of repairing or replacing the Equipment … from the Business’ commission due under this Agreement.” 1.1 deliver and install the Equipment and promotional material to the Business’ locations owned and operated by the Business as set out in the Schedule 1 of this Agreement (Stores Sites) and such other additional locations as TRM shall agree; 1.2 supply the Business with all the paper, toner and supplies necessary for the operation of the Equipment; 1.3 provide repair and maintenance services for the Equipment and promotional material; and 1.4 provide appropriate training to the Business for the operation of the Equipment. 2.1 accept all the supplies necessary to operate the Equipment; 2.2 provide electrical power to operate the Equipment; 2.3 provide a clean, safe and orderly location for the Equipment, which is easily visible and accessible by the Business’ customers; 2.4 provide adequate space for promotional material provided by TRM; 2.5 collect all sums paid for copies made on the Equipment and account to TRM for all monies received from customers using the Equipment, less the Business’ commission in accordance with Schedule 2 below; 2.6 oversee the use and operation of the Equipment by the Business’ customers making best efforts to maximise copier uptime by the timely refilling of supplies, removal of paper jams when possible, and contacting TRM promptly in the event of copier malfunction; “11. Use of equipment. The Business shall at all times exercise reasonable care in using and supervising the use of the Equipment and shall not remove the Equipment from the Business location, part with the possession of the equipment, or allow the Equipment to be used by anyone other than the Business or its agents, employees and customers. If the Equipment is damaged or destroyed … TRM shall have the right, in addition to any other rights it may have, to deduct the cost of repairing or replacing the Equipment … from the Business’ commission due under this Agreement.”

The definition of a consumer hire agreement in the Consumer Credit Act

[4]Section 15 of the Consumer Credit Act 1974, as amended, sets out the definition of a consumer hire agreement:
“(1) A consumer hire agreement is an agreement made by a person with an individual (the “hirer”) for the bailment or (in Scotland) the hiring of goods to the hirer, being an agreement which— (a) is not a hire-purchase agreement, and (b) is capable of subsisting for more than three months, and (c) does not require the hirer to make payments exceeding £25,000. (2) A consumer hire agreement is a regulated agreement if it is not an exempt agreement”
Hirer is further defined by s.189(1):
“ ‘hirer’ means the individual to whom goods are bailed or (in Scotland) hired under a consumer hire agreement, or the person to whom his rights and duties under the agreement have passed by assignment or operation of law, and in relation to a prospective consumer hire agreement means the prospective hirer;” “ ‘hirer’ means the individual to whom goods are bailed or (in Scotland) hired under a consumer hire agreement, or the person to whom his rights and duties under the agreement have passed by assignment or operation of law, and in relation to a prospective consumer hire agreement means the prospective hirer;”
[5]The answer to the preliminary issue is determined by the application of this statutory definition to the transaction set out in the Location Agreement.

The decision of the judge

[6]The judge’s reasons for his conclusion that the Location Agreement was not a consumer hire agreement can also be summarised: a) Under s.15, a consumer hire agreement was a bailment by way of hire under which stipulated payments were made by the hirer to the owner. (“Stipulated payments” was a term used in the decision of Sir Andrew Morritt in Britax International v Commissioners of Inland Revenue [2001] STC 1652 to which I refer below at paragraph 17). b) There was no obligation under the agreement to make stipulated payments under the Location Agreement. c) On the contrary, the provisions of the Location Agreement made clear there was no obligation to make any payment at all unless copies were made. This was the antithesis of a hire agreement where the hirer paid for goods which came into his possession even if he did not use them at all. The essential obligations of the Retailer were to provide space for the photocopier, to ensure that it was located in a prominent place and to account for money received for the use of the machine whilst on his premises, less commission; there was no minimum payment. d) The Retailer’s obligation to provide space for the photocopier was not an obligation normally associated with the obligations of a hirer under a hire agreement. e) Standing back and looking at the nature of the agreement, it would be a complete distortion of language to describe the Location Agreement as a consumer hire agreement.

The issues on the appeal

[7]Lanwall say that the decision was wrong: a) The judge should not have held that a contract under which an individual was granted possession and use of goods could not be a consumer hire agreement for the purposes of s.15 of the Act unless the individual was bound to make a payment in money for the goods. The Location Agreement was an agreement under which possession was passed to the Retailer as a bailee and the bailee had the right to use it for a defined period; in return, the Retailer provided a non-monetary reward to TRM by making space available in his shop or sub-post office and making payments when the copier was used; it had all the ingredients of a hire agreement and was therefore an agreement within s.15. b) If, as the Judge held, a consumer hire agreement required that there be a “stipulated payment” in respect of goods, the Judge should have held that clause 4 of the June 2002 form of Location Agreement provided for a “stipulated payment” to be made, as all that was required was that the terms of payment must have been agreed.[8]It was common ground that application of the statutory definition in s.15 to the Location Agreement required consideration of the terms “bailment” and “hire”. I will consider these terms first.

Bailment

[9]It was accepted on behalf of TRM that there was a transfer of possession to the Retailer under the terms of the Location Agreement; hence a bailment was created.[10]Bailment was once the subject of much learning, particularly in the late eighteenth and early nineteenth centuries, following the decision of Chief Justice Holt in Coggs v Bernard (1703) 2 Ld Raym 909. Professor Palmer, as editor of the section on bailment in Halsbury’s Laws of England (4th edition) Volume 3(1) (2005 reissue), sets out at paragraph 2 the five classes of transaction that have been categorised as falling within the definition of bailment. “(1) the gratuitous deposit of a chattel with the bailee, who is simply to keep it for the bailor;(2) the delivery of a chattel to the bailee, who is to do something without reward for the bailee to or with the chattel;(3) the gratuitous loan of a chattel by the bailor to the bailee for the bailee to use;(4) the pawn or pledge of a chattel by the bailor to the bailee, who is to hold it as a security for a loan or debt or the fulfilment of an obligation; and(5) the hire of a chattel or services by the bailor to the bailee for reward.”[11]That classification is derived from Coggs v Bernard and the classic works: Sir William Jones’ late eighteenth century synthesis of the common law, Roman and civil law: Essay on the Law of Bailments, (Ibbetson edition 2004); Chancellor Kent’s early nineteenth century Commentaries on American Law; and Joseph Story’s Commentaries on the Law of Bailment written in 1832. However, as is noted by Professor Palmer at paragraph 2 of Halsbury’s Laws, modern authority now recognises many variations on these basic models of bailment and many examples that do not fit precisely into these categories. For example, as Professor Palmer points out at paragraph 2 of Halsbury’s Laws and in Palmer on Bailment (second edition, at page 132), certain modern kinds of bailment such as contracts of hire purchase and conditional sales which arise by virtue of a title retention clause do not readily fall within the standard classification. Yet, as set out, bailment by way of hire is a long established category.

A bailment by way of hire

[12]Neither the terms of s.15 nor of s.189 of the Act state in terms that the bailment must be by way of hire. However, the use of the term bailment juxtaposed with hire leads, I think, to the inevitable conclusion that Parliament was intending to encompass within the statutory definition the category of bailment by way of hire. It is clear from the Crowther Report on Consumer Credit (1971) that for some purposes that Committee regarded long term rental agreements for consumer goods (a bailment by way of hire) as if they were credit transactions (see paragraph 2.4.56). It was no doubt for such reasons it was decided to make provision in the Act for such transactions. I agree with the views of Professor Goode in Consumer Credit Law and Practice at paragraph 23.75 that s.15 of the Act was concerned solely with bailment by way of hire.[13]It was not disputed that a bailment by way of hire under s.15 of the Act must include a right of the bailee to use and enjoy the goods, an obligation to return the goods at the end of the period and to pay or provide a reward. The obligation to pay or provide a reward needs more detailed discussion.

The need for payment or other reward

[14]Although the terms of s.15 of the Act were wide, the Judge noted that it was not argued for Lanwall that a gratuitous bailment, namely a bailment under which no consideration was provided by or on behalf of the bailee, could in itself amount to a consumer hire agreement; he considered that the provision in s.15(1)(c) clearly pointed to that conclusion. The judge expressed the view that to the extent the decision of the Epsom County Court in Proudfoot v Cheam High School [2001] CLY 902, relying on s.79(2) of the Act, expressed a contrary view, it was wrongly decided.[15]It was common ground on the appeal that a gratuitous bailment was not a hire agreement within s.15 of the Act; payment to the bailor was needed. Although in s.79 of the Act, a provision dealing with the obligation to provide the hirer under a consumer hire agreement with information, sub-section (2) provides that the obligation does not apply to an agreement under which “no sum is or will or may become payable by the hirer”, that provision, as the judge rightly held, refers to the position at the time the request is made; it has no other effect. In my view, the use of the term hire in s.15 of the Act plainly implies payment or, as I discuss at paragraph 20, reward, and this is made clear by s.15(1)(c).[16]Furthermore it has always been clear that a contract of hire is one requiring payment (or reward): see the judgment of Holt CJ in Coggs v Bernard at 913, Jones paragraphs 56 and 117, and Story (paragraph 374, 9th edition 1878). Professor Goode also expressed the view that payment was required. The common position adopted by the parties was plainly right.[17]The conclusion that the requirement of payment, in addition to the transfer of possession, is necessary if a transaction is to be held to be a hiring of a chattel was implicit in the decision of Sir Andrew Morritt in Britax International v Commissioners of Inland Revenue [2001] STC 1652. It was in this case that the term “stipulated payment” to which Flaux J referred was used. In reaching his conclusion, Sir Andrew Morritt relied upon the definition of a hire of chattels in Halsbury’s Laws of England and the New Shorter Oxford English Dictionary:
“26 In Frazer v Trebilcock (1964) 42 TC 217 one issue was whether the car acquired for use in a driving school was provided wholly or mainly for hire to or for the carriage of members of the public. The Commissioners considered that it was. Buckley J disagreed. He referred to the definition of a hire of chattels in Halsbury’s Laws of England namely: “a contract by which the hirer obtains a right to use the chattel hired in return for the payment...The proprietary interest in the chattel is not changed, but remains in the owner. But upon delivery the hirer becomes legally possessed of the chattel hired, so that if it is lent for a time certain, even the true owner is debarred during that time from resuming possession against the will of the hirer...”
He concluded (page 227) that there was no contract of hire because the pupil “never obtained any right or interest in the car of a kind which could be said to amount to a hiring.” … 27 The normal meaning of hire is, in my judgment, to obtain from another the temporary use of a chattel for a stipulated payment. See New Shorter Oxford English Dictionary (1993) Ed. The concept involves obtaining the right to possession of the chattel for the period of the hire to the exclusion of the hirer. See the definition quoted in paragraph 26. I can see nothing in the terms of Chapter III of Part II of Capital Allowances Act 1990 to suggest that the concept of hiring to which s.35(2) applies is so limited as to give rise to any of the exclusions for which Britax or Standard Chartered contend.” “a contract by which the hirer obtains a right to use the chattel hired in return for the payment...The proprietary interest in the chattel is not changed, but remains in the owner. But upon delivery the hirer becomes legally possessed of the chattel hired, so that if it is lent for a time certain, even the true owner is debarred during that time from resuming possession against the will of the hirer...”[18]The Court of Appeal upheld the approach of Sir Andrew Morritt by concluding that there were no distinctions to be drawn between the legal concept of hiring and the commercial concept of hiring and endorsed his construction: see Jonathan Parker LJ at [2002] EWCA Civ 806 at paragraphs 69-75.[19]The absurdity of the contrary argument is pointed out in an article in [1979] CLJ 180 by Professor Palmer and Professor Yates (as they now are). They point out that if a gratuitous bailment was a consumer hire agreement, a person who persuades a neighbour to look after his budgerigar for six months whilst he visits relations in Australia might find that the agreement was within s.15; so also would be the free loan of a book for a period of time.[20]I accept, as contended by Lanwall, that although the bailee will generally make payment in money, an agreement could be a hire agreement if, instead of money being paid, there was some other form of reward or recompense (the terms used by Holt, Jones, Kent and Story) or a quid pro quo (the term put forward by Lanwall as used Atkinson J in McCarthy v British Oak Insurance [1938] 3 All ER 1 at page 4 in his description of a contract for hire). The use by Sir Andrew Morritt of the term “stipulated payment” was not, in my view, intended as an exclusive definition of the form of reward required under a bailment by way of hire. An agreement has always been regarded as an agreement for hire whether there is payment in money or some other form of reward or recompense: see Jones (paragraph 124), Story (paragraph 377) and Palmer (page 1209).[21]The view that, provided that there is a reward, it need not be in money is carried through into modern legislation: see s.6 of the Supply of Goods and Services Act 1982 where a contract of hire is also defined. “6 The contracts concerned(1) In this Act [in its application to England and Wales and Northern Ireland] a “contract for the hire of goods” means a contract under which one person bails or agrees to bail goods to another by way of hire, other than an excepted contract.(2) For the purposes of this section an excepted contract means any of the following:- a) a hire-purchase agreement; b) a contract under which goods are (or are to be) bailed in exchange for trading stamps on their redemption.(3) For the purposes of this Act [in its application to England and Wales and Northern Ireland] a contract is a contract for the hire of goods whether or not services are also provided or to be provided under the contract, and (subject to subsection (2) above) whatever is the nature of the consideration for the bailment or agreement to bail by way of hire.” Although this is a later enactment, it confirms that Parliament, in modern legislation, did not intend to alter the traditional view that the reward need not be only in money. a) a hire-purchase agreement; b) a contract under which goods are (or are to be) bailed in exchange for trading stamps on their redemption.[22]Lanwell also relied on the definition of “hire purchase agreement” in s.189 of the Act which made specific reference to the requirement for periodical payments in this type of transaction:
“an agreement, other than a conditional sale agreement, under which (a) Goods are bailed or (in Scotland) hired in return for periodical payments by the person to whom they are bailed or hired and …”
It was submitted that, if it had been intended that a consumer hire agreement was confined to cases where periodic or other payments were made, it would have been easy to make a similar provision in the definition in s.15 of the Act. Although as I have stated above, a hiring can be for a reward that is not monetary, I do not consider this follows by making a contrast between s.15 and the definition of hire purchase; that the reward can be other than in money is implicit in a bailment by way of hire.[23]Thus it is clear in my view that a hire agreement under s.15 of the Act must include terms for payment or the provision of other reward by the bailee.[24]It was argued, however, on behalf of TRM that if the agreement was to be a hire agreement within s.15 of the Act it was not enough that there be a simple provision for payment by the hirer; it had to be clear that the purpose of the payment was for possession of the goods as opposed to the use of the goods. Thus in the case of a copier, if the payment was a periodic rental for the possession of the copier at the premises, the agreement was a hire agreement; but if the payment was calculated on the basis of the numbers of copies made, then it was not a hire agreement.[25]I cannot accept that contention. The essence of hire is the right to use the goods bailed; if so, then payment for possession as opposed to use cannot be a factor that distinguishes a hire agreement from other forms of bailment. If payment is made by reference to use, and it is use by the hirer that distinguishes a hire agreement from other types of bailment, then payment by use would point to the contract being a contract for hire. If, for example, possession of a car is taken under an agreement that payment is to be made on the basis of use at a given rate per mile, that would be a hire agreement, even though payment was related to use.[26]Lanwall’s contention was much simpler; it did not contend that the purpose of the payment or other reward was relevant. It contended that all the elements of bailment by way of hire were present in the Location Agreement. It was not in issue that there was a transfer of possession to the Retailer nor that the Retailer had to return the copier at the end of the period of the agreement. Furthermore the Retailer was entitled to use the copier. Finally the agreement provided for a reward either through payment by the Retailer to TRM or by means of a quid pro quo provided by TRM to the Retailer; all that was necessary was that there be payment to the person who had bailed the goods by the person who had possession of them. Even if no payment was made, the Retailer nonetheless provided a reward in the form of a quid pro quo, as he had agreed to provide TRM with space in the shop or sub-post office for the copier which his customers could use for a specified period; that space would otherwise have been used to sell other goods.[27]Nor can I accept that contention. In my view, the nature of the payment and how it was made and the nature of the quid pro quo are all relevant to the issue of whether the agreement is a hire agreement. The terms of the Location Agreement have to be more carefully examined.[28]Under the Location Agreement, it is clear, in my view, that although the photocopier was transferred into the possession of the Retailer, the Retailer was not paying for it to be located in his possession at his shop or sub-post office. On the contrary it was TRM who undertook to pay the Retailer a commission for the use of the space in his shop or sub-post office and for accounting for the monies that were paid. In return, what the Retailer was required to do was to provide space for the machine and account to TRM for the sums paid for the use of the machine by any user at the rate specified by TRM. This was not therefore a bailment where the bailee paid or provided a non-monetary reward either for use or possession of the goods bailed. Although the copier was bailed to the Retailer, as bailee, he was paid commission on the funds collected for the use of space and for the collection of the funds. Such an agreement cannot possibly therefore be characterised as a conventional bailment by way of hire. Is it nonetheless a hire agreement within s.15 of the Act, as Landwall contend, because the Retailer has possession, he in fact would make payments which were derived from the use of the copier and, even though there was no minimum payment, he provided a reward to TRM by making space available for the copier?

The commercial purpose and nature of the Location Agreement

[29]In my view that question is answered not by seeking to place the Location Agreement in a defined category of conventional transactions, by adding together a separate classification of each of the obligations under the Agreement, but by asking whether the Location Agreement given its commercial purpose can be properly described as a hire agreement as defined by s.15.[30]This was essentially the approach taken by the Lord President, Lord Hope, when giving the judgment of the Inner House in Eurocopy (Scotland) plc v Lothian Health Board [1995] SLT 1356. Eurocopy supplied the Health Board with a copier free of charge on the basis that it was paid for a minimum monthly copy volume of 11,000 with additional copies being charged at the same rate of 4.6p per copy. The Health Board was required to purchase photocopy paper from Eurocopy and therefore had to purchase paper every month to satisfy the minimum copy volume. A pleading issue as to the nature of the contract arose on the way the case was pleaded by Eurocopy. The Health Board contended that it was not a hire agreement as the word hire was not used in the agreement and there were no charges for the hire of the machine; it was an agreement for the supply of paper. The Sheriff Principal concluded it was a contract of hire with the cost of the hire being determined by the amount of use made, subject to an agreed minimum. In dismissing the appeal Lord Hope’s conclusion in respect of the Board’s contention, arrived at by a detailed analysis of the terms of the contract, that it was a contract for the supply of paper was set out at page 1360:
“It seems to us however that the result of this analytical approach to the meaning of the contract is far removed from its commercial reality. In Antaios Compania Naviera SA v Salen Rederierna AB at [1985] AC, p 201D, Lord Diplock said that he agreed with a passage in the arbitrators' award in which they stated that a construction should be given to the withdrawal clause in the charterparty which did not defeat the commercial purpose of the contract. He then added these words: "I take this opportunity of restating that if detailed semantic and syntactical analysis of words in a commercial contract is going to lead to a conclusion that flouts business common sense, it must be made to yield to business common sense. Common sense tells us that what this agreement was really designed to do was to regulate the terms and conditions upon which the pursuers were to supply the defenders with the photocopiers.”
After reviewing the terms of the agreement, Lord Hope continued:
“We agree with senior counsel for the pursuers that it would be to turn the agreement on its head to regard it as a contract for the supply of unused paper. Prima facie it is a contract for the hire of the equipment which the pursuers have agreed to supply and service. All the essential elements of a contract for the location of corporeal moveables are present in this agreement.”
Lord Hope then referred to the principles of Scottish law relating to contracts of location of corporeal moveables and continued:
“In this case what the pursuers have chosen to do is to obtain their return by means of a charge which is related to the volume of copies made by the use of the machines. In cl 3 (a) the user is taken bound to purchase the agreed minimum monthly copy volume quarterly in advance at an agreed price. This is in effect a standing charge, measured by a formula which assumes that a minimum volume of copies each month will be produced by the use of the equipment. The fact that the pursuers' return is calculated by an assumed throughput is consistent with their argument that this is the consideration for the supply of the photocopiers, and that the contract should be interpreted as one for the hire of these machines. It does not require the agreement to be read as a contract for the sale of quantities of unused paper.”
Lord Hope added that he considered that the argument was in any event sterile because it was not necessary to attach any label to the agreement. “We agree with senior counsel for the pursuers that it would be to turn the agreement on its head to regard it as a contract for the supply of unused paper. Prima facie it is a contract for the hire of the equipment which the pursuers have agreed to supply and service. All the essential elements of a contract for the location of corporeal moveables are present in this agreement.” “In this case what the pursuers have chosen to do is to obtain their return by means of a charge which is related to the volume of copies made by the use of the machines. In cl 3 (a) the user is taken bound to purchase the agreed minimum monthly copy volume quarterly in advance at an agreed price. This is in effect a standing charge, measured by a formula which assumes that a minimum volume of copies each month will be produced by the use of the equipment. The fact that the pursuers' return is calculated by an assumed throughput is consistent with their argument that this is the consideration for the supply of the photocopiers, and that the contract should be interpreted as one for the hire of these machines. It does not require the agreement to be read as a contract for the sale of quantities of unused paper.”[31]I agree with the approach of the Inner House. It is necessary to look at the commercial purpose of this agreement and ask the question, “Is this a contract of hire?”[32]The essential nature of the agreement was: a) The copier was placed by TRM in a small shop or sub-post office and possession transferred to the Retailer for a defined period of time; the space otherwise available to the Retailer for selling goods was thus made available to TRM. b) The copier was available for use by the customers and the Retailer, but no one was bound to use it. c) Payments were made by any person who used the machine; the Retailer accounted to TRM, as owner and bailor, for those monies. The fact that the sums were computed by reference to the number of copies made on the copier rather than by reference to the monies actually received made no difference; it was plainly the sensible way to account as there would be no argument as to the sum due. Clause 4 was an accounting clause and not a clause under which the Retailer was bound to make pre-determined payments. d) The Retailer was entitled to deduct the agreed commission as his reward for this work and making the space available. e) The Retailer made no payment unless, like a customer, he used the machine. There was no obligation on the Retailer to make any minimum payment; if, like a member of the public, he used the machine, he paid for the copy, getting a proportionate part back.[33]It is of course possible to take the points made by Lanwall – the transfer of possession, the fixed period, the ability to use and the reward - and then to attempt to draw a conclusion that it is a hire agreement on the basis that each of the elements can be said to be present. However, although there was a transfer of possession for a defined period, the terms as to use and reward are not those to be found in a conventional hire agreement for the reasons I have set out. Approaching the matter more generally, it is clear, in my view, that the Location Agreement is a commercial arrangement for placing a copier in a shop or sub-post office under which the owner of the machine pays the owner of the shop or sub-post office a commission based on the use made of the machine by the shop’s customers. In any ordinary and commercial sense of the word, the Retailer is not hiring the machine; he is providing space in the shop for the owner of the machine to install the machine from which they will jointly hope to make money.

Conclusion

[34]Although there was a bailment, it was not a bailment by way of hire and therefore not a hire agreement within s.15 of the Act. It was a species of bailment that can be recognised as one developed by the modern practice of placing machines on premises primarily for use by persons other than the owner of the premises. This type of arrangement can take many forms, but where the owner of the machine and the owner of the premises enter into an arrangement where the owner of the machine bails the machine to the owner of the premises who is paid a commission on its use, it will generally not be that form of bailment known as a bailment by way of hire. In this case it was not a bailment by way of hire. It is another variant of bailment which cannot be readily fitted into the categories developed by Holt CJ, Jones, Kent and Story; the law of bailment (as was pointed out by Turner J in New Zealand in Motor Mart v Webb [1958] NZLR 773 at 780) like any other part of the common law makes incremental developments in this way.[35]In my view, therefore, the judge was right to conclude in answering the preliminary issue that a Location Agreement made with a Retailer who was an individual was not a consumer hire agreement as defined by s.15 of the Consumer Credit Act 1974 as amended.[36]I agree.

Sir Mark Potter:

[37]I also agree.

Cited in 1 later judgment