SCS & Creation Loan

Re: SCS & Creation Loan

[5.145]

75 Liability of creditor for breaches by supplier

(1) If the debtor under a debtor-creditor-supplier agreement falling within section 12(b) or (c) has, in relation to a transaction financed by the agreement, any claim against the supplier in respect of a misrepresentation or breach of contract, he shall have a like claim against the creditor, who, with the supplier, shall accordingly be jointly and severally liable to the debtor.

(2) Subject to any agreement between them, the creditor shall be entitled to be indemnified by the supplier for loss suffered by the creditor in satisfying his liability under subsection (1), including costs reasonably incurred by him in defending proceedings instituted by the debtor.

(3) Subsection (1) does not apply to a claim--
(a) under a non-commercial agreement, or
(b) so far as the claim relates to any single item to which the supplier has attached a cash price not exceeding [£100] or more than [£30,000] [or] [(c) under a debtor-creditor-supplier agreement for running-account credit--

(i) which provides for the making of payments by the debtor in relation to specified
periods which, in the case of an agreement which is not secured on land, do not exceed three months, and
(ii) which requires that the number of payments to be made by the debtor in
repayments of the whole amount of the credit provided in each such period shall not
exceed one]

(4) This section applies notwithstanding that the debtor, in entering into the transaction, exceeded the credit limit or otherwise contravened any term of the agreement.

(5) In an action brought against the creditor under subsection (1) he shall be entitled, in accordance with rules of court, to have the supplier made a party to the proceedings.

Commencement

The section came into force on 1 July 1977, but only in relation to regulated agreements made on or after that day: see CCA 1974, Sch 3, para 15. In relation to running-account debtor-creditor-supplier agreements
(eg 'three-party' credit cards) it seems that the section applies in respect of any purchase made from a recognising supplier on or after 1 July 1977, even if the credit agreement itself was first entered into before that date.

Amendment

Sub-s (3): sums in square brackets substituted by SI 1983/1878, arts 3, 4, Schedule, Parts I, II.
Sub-s (3): in para (a) word "or" in italics repealed by SI 2010/1010, regs 2, 24(a). Date in force (for certain
purposes): this regulation applies on a date on or after 30 April 2010 and before 1 February 2011 in relation
to a prospective consumer credit agreement and any subsequent agreement where certain conditions are
satisfied: see reg 101. Date in force (for remaining purposes): 1 February 2011: see SI 2010/1010, reg 99(1).
Sub-s (3): in para (b) word "or" in square brackets inserted by SI 2010/1010, regs 2, 24(c). Date in force (for
certain purposes): this regulation applies on a date on or after 30 April 2010 and before 1 February 2011 in
relation to a prospective consumer credit agreement and any subsequent agreement where certain
conditions are satisfied: see reg 101. Date in force (for remaining purposes): 1 February 2011: see SI
2010/1010, reg 99(1).
Sub-s (3): para (c) inserted by SI 2010/1010, regs 2, 24(c). Date in force (for certain purposes): this
regulation applies on a date on or after 30 April 2010 and before 1 February 2011 in relation to a prospective
consumer credit agreement and any subsequent agreement where certain conditions are satisfied: see reg
101. Date in force (for remaining purposes): 1 February 2011: see SI 2010/1010, reg 99(1).

General effect

This section applies to all debtor-creditor-supplier agreements in which the creditor and the supplier are not one and the same person (and see the note 'Hire-purchase, etc' below). Thus, for example, it applies to the ordinary tripartite arrangement between a seller, a purchaser and a finance house under which the finance house makes an advance to finance a purchase from the seller (see also CCA 1974, s 12(b) and (c)); it applies also to trading check transactions and to many credit card agreements under which the card-holder is able to use the card to make purchases from recognising suppliers. The effect of the section is to give the
purchaser (the debtor) a right of action against the creditor (ie in the examples mentioned above, the finance house, the trading check company and the credit card company) whenever he complains of misrepresentation or breach of contract on the part of the seller (ie the 'supplier'). Such a claim must, however, be a claim 'in relation to a transaction financed by the agreement', ie the sale or supply of services
financed by the creditor. Although there are certain financial limits on the application of the section (see
sub-s (3)), once the section applies there is no limit on the amount which may be claimed (eg for destruction
of property through the supply of defective goods). The liability of creditor and supplier is joint and several, so
that the debtor may choose to sue either or both of them; an unsatisfied judgment against one is no bar to an
action against the other (Civil Liability (Contribution) Act 1978, s 3). If the debtor successfully sues the
creditor, the creditor may claim an indemnity from the supplier, (sub-s (3)), and the supplier may be joined as
a defendant (sub-s (5)). Thus the court will be able in a single action to dispose of all liability which arises.

The creditor's statutory right of indemnity may, however, be excluded by agreement between the creditor and the supplier (sub-s (3)).
The nature of the 'like claim' under sub-s (1) Claims for damages may be brought against a supplier who has committed a breach of the supply contract,
or made a fraudulent misrepresentation, or a misrepresentation attracting liability under the Misrepresentation Act 1967, s 2(1). There is no difficulty in treating the debtor's rights under sub-s (1) as a 'like claim' against the creditor. Since the creditor's liability mirrors the supplier's it follows that, to the extent
that the supplier has successfully excluded or limited his liability, the creditor may shelter behind that
exclusion or limitation. Conversely, the creditor's right to repayment is so closely connected with the supply
contract, and the debtor's statutory rights under sub-s (1), that the debtor may assert a right of set-off in
diminution or extinguishment of his liability to the creditor, and as a defence in proceedings brought by the
creditor (with or without a counter-claim). Any attempt to exclude the right of set-off will fall foul of CCA 1974,
s 173(1) (and would in any case fall within the Unfair Contract Terms Act 1977, s 13(1)(b), as to which see
V[22.1]).
The debtor may also be entitled to rescind the financed transaction by reason of misrepresentation, or to
terminate it by reason of a repudiatory breach or breach of condition by the supplier. There is no difficulty in such circumstances in construing sub-s (1) as enabling him to assert his restituionary claim for payments
already made against the creditor, as well as against the supplier.
A more difficult question is whether 'claims' other than claims for money may be asserted under sub-s (1).
Suppose, for example, that the debtor is entitled to reject goods, and terminate the supply contract, because
the goods tendered or supplied fail to comply with Sale of Goods Act 1979, ss 13 or 14. Does it follow that
the debtor's 'like claim' against the creditor entitles him to terminate the credit agreement - and with what consequences? In United Dominions Trust Ltd v Taylor 1980 SLT (Sh Ct) 28, [1999] GCCR 333 it was
indeed held that the credit agreement might be terminated (or rescinded). With respect, this decision cannot
be supported, though it is not the only Scottish decision to the same effect (see Forward Trust Ltd v Hornsby
and Windermere Aquatic Ltd [1996] CCLR 18, Sh Ct). The supply contract is a linked transaction within CCA
1974, s 19(1)(b), and the whole thrust of the Act is that linked transactions follow the financing agreement,
not vice versa; see, in particular, CCA 1974, ss 19(3), 57, 69(1) and 96. More particularly, the words 'like
claim' refer to a claim in relation to the financed supply agreement, not a claim in relation to the financing
credit agreement. There must be the sort of claim which can be transferred from one to the other as a 'joint
and several liability' - and it is impossible to characterise the supplier's liability to a claim to rescind or
terminate the supply agreement as joint or several with a claim to rescind or terminate the credit agreement.
Suppose, moreover, that the debtor's claim is not for rescission or termination but for equitable relief. It is, for
practical reasons, impossible to transfer such a claim as a 'like claim', from supplier to creditor. It is simply
meaningless to treat a buyer of goods with (unusually) a claim for specific delivery against his supplier as
having a 'like' claim against the financing creditor.
'Claim', therefore, is a word describing the right, not the remedy. This construction of sub-s (1) is supported,
albeit in a very different context, by Morritt LJ in Jarrett v Barclays Bank plc (see Note, Foreign supply
contracts, below). Delivering the judgment of the Court of Appeal, he said:
''The reference to the like claim in s 75 ... must refer to the like cause of action. Plainly the remedies
cannot be the same, for the remedies available to the debtor against the supplier may include
injunctions or orders for specific performance which could not lie against the creditor.''
The creditor could, nevertheless, properly be made a party to an action in which the debtor sought rescission
Page 257
or a declaration that the financed transaction had been terminated, together with financial relief in the form of
restitution or damages. The question arises whether the debtor should tender return of any goods to the
creditor or to the supplier, which may be of considerable importance if the latter is insolvent. Even if, by
discharging his liability under CCA 1974, s 75, a creditor could claim to be subrogated to the debtor's rights
against the supplier, this would add little to his statutory right of indemnity and would give no claims over
goods revesting in the supplier by reason of the rescission or termination. Accordingly it seems that the
debtor should tender the goods to the supplier or his trustee in bankruptcy or liquidator. The section gives the
debtor no lien on the goods to secure the satisfaction of his claim under CCA 1974, s 75.
Hire purchase, etc
The section does not apply to debtor-creditor-supplier agreements to which the same person is in law the
creditor and the supplier (see CCA 1974, s 189(1)); thus agreements within CCA 1974, s 12(a) rather than
CCA 1974, s 12(b) or (c) are excluded. Thus, for example, the common form of 'three-party' hire-purchase or
instalment sale transaction (in which the creditor purchases the goods from the dealer before himself
supplying them to the debtor) is not within this section. Indeed, the inclusion of such agreements would be
unnecessary, since the purpose of CCA 1974, s 75 is to extend to certain other debtors the protection
already afforded to debtors under CCA 1974, s 12(a) agreements (under the Supply of Goods (Implied
Terms) Act 1973, the Sale of Goods Act 1979 and the Supply of Goods and Services Act 1982 (V[16.1] ff,
V[26.1] ff, V[28.1] ff) but see Porter v General Guarantee Corpn Ltd [1982] RTR 384, [1999] GCCR 573.
Claims of third parties
The imposition of liability under CCA 1974, s 75 removes an immunity which the creditor previously enjoyed
by reason of the doctrine of privity. It is not absolutely clear how far the doctrine continues to apply so as to
restrict the debtor's remedy under the section, which applies where the debtor has a claim against the
supplier. Generally, this formulation causes no difficulties but situations may occur where on a literal
interpretation of the section there may be a gap in the statutory protection. The most obvious example arises
where credit cards are issued to A, as debtor, and B, as authorised user but not as A's co-debtor (see DIV I,
PT C, CH 23). If B makes a purchase giving rise to a claim against the supplier has A any standing under
CCA 1974, s 75 to assert that claim against the card issuer? A second and probably less common example
arises where the creditor extends what is apparently a debtor-creditor-supplier loan to A, but it is actually B
who signs the sale agreement with the supplier and who acts, on the face of it, as the purchaser. Again the
question arises whether A's position can be accommodated within CCA 1974, s 75 if the supplies prove
defective.
The obvious answer is to examine the relationship between A and B to determine whether the purchase
relates to their joint affairs; if so it may be regarded as in substance a joint purchase or at least as a
purchase made by B acting in part as A's agent. In that case A, the debtor, therefore does have a claim
against the supplier. It may also be that A's 'interest' in the claim against the supplier should be presumed in
these sorts of cases in the absence of contrary evidence. This it is submitted would not only accord with the
policy of the section but would properly reflect the fact that the creditor's business is to make advances of a
type which prima facie attract liability under the section. It is at least consistent with Citibank Trust Ltd v Allen
[1999] GCCR 1617. In this case the loan was made to A while the signature on the documents for the
purchase of central heating equipment was that of B, A's sister, who lived with A. The Court of Appeal upheld
as a reasonable exercise of discretion the trial judge's refusal to allow a late amendment to the pleadings
withdrawing an admission that A had contracted with the supplier and denying that CCA 1974, s 75 applied.
The court appears to contemplate that if the point had been raised in time the evidence would have to be
examined to determine whether B was to be treated as A's agent.
If on all the evidence B's purchase is one which cannot in any way be attributed to A (or, indeed, if the courts
were to refuse to investigate the domestic arrangements of the parties at all) it may well be that there is no
redress under this section. A cannot, on normal principles, ratify B's purchase because in all probability B will
have contracted as principal (and it is by no means certain that A would be entitled to ratify after the claim
Page 258
against the supplier has arisen). It is possible for B to assign his claim to A. Whether a court would treat an
assigned claim as a 'debtor's claim' is an open question. On the one hand it can be argued that CCA 1974, s
75 imposes a special liability which should not be extended to cases to which it does not clearly apply,
particularly if the real reason for turning to the creditor is his deeper pocket; on the other that if the creditor
has lent on the assumption that he may incur liability for a supplier's breaches of contract or
misrepresentations, a refusal to apply CCA 1974, s 75 would simply confer a windfall upon him.
It should be noted that underlying this analysis is a matter of definition. If indeed the advance is not financing
a transaction between the supplier and the debtor, it appears not to fall within CCA 1974, s 11(1)(b), or CCA
1974, s 12(b) or (c), and is not in fact a debtor-creditor-supplier agreement within CCA 1974, s 75 in the first
place. Again, it is submitted that substance should prevail over form, and that if the creditor has structured
his lending as debtor-creditor-supplier credit the court should be slow to recategorise it unless it is shown
that the precise identity of the purchaser had some significance for the parties.
Electronic debits
Modern systems by which a debtor's bank account may be debited at the point of purchase do not attract the
operation of CCA 1974, s 75, since such systems do not involve any debtor-creditor-supplier credit. See the
note to CCA 1974, s 12.
Indemnified
By analogy with the rules governing a surety's right to indemnity from the principal debtor (for which, see 20
Halsbury's Laws (4th edn) (Reissue) para 152 ff) it is submitted that the creditor's right arises only after he
has paid the claim, and that he is entitled to pay without consulting the supplier, if he is convinced on
reasonable grounds that there is no defence to the claim. Subject to this and to any contrary agreement
between the creditor and the supplier, the right of indemnity arises as soon as the creditor has satisfied his
liability to the debtor and there is no need for judgment to have been given against the creditor first. It seems,
however, that costs reasonably incurred in dealing with or defending the debtor's claim may themselves be
claimed by way of the statutory indemnity.
The position is different where the creditor has bought goods from a dealer before supplying them to the
debtor under a 'three-party' hire-purchase or instalment sale agreement. Even if there is no contractual
provision expressly governing the creditor's rights against the dealer if the goods are defective or in the event
of a misrepresentation by the dealer, the creditor himself is a purchaser of the goods and will, in most cases,
be able to rely against the dealer on the terms implied by the Sale of Goods Act 1979 (see V[26.1] ff). This
remedy will normally be restricted to damages, since he will have accepted the goods and will therefore,
have lost the right to reject them: see Goode Hire Purchase Law and Practice (2nd edn), pp 644-646. But
such a creditor has no need of a statutory indemnity against the dealer, and CCA 1974, s 75, which clearly
does not apply to agreements falling within CCA 1974, s 12(a), does not give him any such right. For this
reason the award of an indemnity in Porter v General Guarantee Corpn Ltd [1982] RTR 384 cannot, it is submitted, be supported.

£100
This limit is prescribed by the Consumer Credit (Increase of Monetary Limits) Order 1983, arts 2 and 3, with effect from 1 January 1984 (formerly £30).

£30,000
This limit is prescribed by the Consumer Credit (Increase in Monetary Limits) Order 1983, arts 2 and 4, with effect from 20 May 1985 (formerly £10,000).

Exemptions

The section does not apply to the types of claim specified in sub-s (3). The £100 limit will clearly exclude
many small purchases made by credit card or trading check and the upper limit of £30,000 will exclude, inter
alia, many topping-up loans for high-value domestic or commercial goods. There are, however, considerable
difficulties in construing 'any single item'; and there may be hard cases, eg, where an 'item' with a cash price
of £100 or less causes loss or damage exceeding that sum.
'Creditor'
This will include the creditor's assignee, by virtue of CCA 1974, s 189(1), unless the context otherwise
requires. It is not clear whether this is intended to be the case for the purposes of CCA 1974, s 75; even
assuming, however, that the debtor may not claim directly against the creditor's assignee, the latter is subject
to the debtor's claim in the form of a set-off if he seeks to enforce the agreement against the debtor since as
an assignee he takes subject to equities.
Debtor-creditor-supplier agreements
Since such an agreement must be a regulated agreement, CCA 1974, s 75 does not apply to any agreement
which is an exempt agreement by or under CCA 1974, s 16.
Foreign supply contracts
(a) Where the financed transaction is governed by a foreign law
Credit provided under a CCA 1974, s 12(b) or (c) agreement may be financing a transaction entered into
abroad and governed by a foreign law. In the test case of OFT v Lloyds TSB [2004] EWHC 2600 (Comm),
[2004] GCCR 5061, Gloster J held (at para 59):
''... on its true construction, section 75(1) does not apply to foreign contracts, where the contracts
between the debtor and the supplier of goods or services has the following characteristics: (1) the
contract was made wholly outside the United Kingdom; and (2) the contract was governed by a foreign
law; and (3) the goods delivered, or the services were supplied, outside the United Kingdom.''
(b) Jurisdiction
In Jarrett v Barclays Bank plc [1999] QB1, [1997] 2 All ER 484, [1999] GCCR 2151, CA, a number of
consumers had entered into overseas timeshare agreements in respect of which there were various claims
for misrepresentation and/or breach of contract. The defendant banks sought to resist liability in English
actions brought against them by the consumers pursuant to CCA 1974, s 56 and CCA 1974, s 75. The
defendants relied upon the Brussels Convention, art 16, part of English law by virtue of the Civil Jurisdiction
and Judgments Act 1982, s 2. The Brussels Convention, art 16 gives exclusive jurisdiction to the court of the
contracting state in which the property is situated 'in proceedings which have as their object tenancies in
immovable property'.
Basing itself upon the jurisprudence of the European Court of Justice, the Court of Appeal concluded that the
timeshare agreements were indeed 'tenancies', and that accordingly the overseas courts had exclusive
jurisdiction over proceedings directly relating to those agreements. That, however, was insufficient to exclude

the English court's jurisdiction over the claims brought under the CCA 1974. In the first place, when sub-s (1)
refers to 'like claims' it presupposes some differences between the claim against the supplier and the claim
against the creditor, and could not be read as importing into the latter any jurisdictional requirement applying
to the former. More importantly, and again having regard to decisions of the European Court, the statutory
claims were based on the credit agreements, not the timeshare agreements. In asserting the statutory claims
conferred by CCA 1974, ss 56 and 75, therefore, the consumers were not bringing proceedings whose
'object' was the tenancies.
(c) General
The Jarrett decision concerns jurisdiction, and thus has no direct bearing on the issue canvassed in para (a)
above. The banks appear not to have raised that issue. It is very difficult, however, to imagine that the local
courts would have applied anything but local law to resolve the dispute relating to the financed timeshare
agreements themselves, and this appears to have troubled the court no more than it troubled the banks' legal
advisers.
Subsection (4)
Whilst the general effect of sub-s (4) is clear, it presents some difficulties. Since sub-s (1) is expressly
confined to a 'transaction financed by the agreement' (in contrast to CCA 1974, s 56(1)(c)) the subsection
cannot apply where, owing to the debtor's contravention, the creditor has in fact refused to finance the
transaction. Where, however, the creditor has waived the irregularity to the extent that he has provided credit
(and in many cases he will have no choice, having incurred a commitment to the supplier to make payment
by virtue of the standing arrangement between them), sub-s (4) prevents the creditor from claiming that the
irregularity takes the transactions outside CCA 1974, s 75. But sub-s (4) does not in so many words prevent
the creditor from counter-claiming for breach of contract and (presumably) seeking as damages the amount
for which he has been rendered liable under this section. It is not completely obvious that he could prove that
this loss was caused by the debtor's breach (rather than the supplier's); assuming he could do so in whole or
in part it may be said that to construe sub-s (4) as depriving him of all redress by mere implication would be
going very far. Yet if the creditor is able to counter-claim, CCA 1974, s 75 will in such circumstances be
rendered of not practical effect and sub-s (4) would be nugatory. Consequently, it seems that the debtor's
breach merely entitles the creditor to pursue his other contractual remedies (eg, to terminate the credit
agreement and recover the amount advanced) without being able to treat his CCA 1974, s 75 liability as a
recoverable loss.

No contracting out

The CCA 1974, s 75 cannot be excluded by any agreement: see CCA 1974, s 173(1). See, however, the note 'Any claim' above.

Rules of Court
See CCA 1974, s 189(1). At the time to going to press, the County Court Rules contain no provision made expressly for the purposes of this section, but the creditor may join the supplier by issuing a third party notice
against him under CCR 1981 Ord 12, r 1.

For Scotland, see Act of Sederunt (Consumer Credit Act 1974) 1985, SI 1985/706, s 67

Definitions
Credit limit: CCA 1974, s 10(2).
Debtor-creditor-supplier agreement: CCA 1974, ss 12, 189(1).
Cash, costs, creditor, debtor, finance, non-commercial agreement, rules of court, supplier: CCA 1974, s
189(1).

Thats what goode says about s75

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