Woodchester Lease v Swain & Co 1998 - default notices
Removal of Default & Termination Notices
Accurate Default Notices are vital
Businesses engaged in lending or hiring regulated by the Consumer Credit Act 1974 should be aware of a recent Court of Appeal case highlighting the potential pitfalls of creditors failing to ensure that their documentation complies with the regulations.
In the vast majority of cases, before a lender or hirer can take action against a debtor or borrower, a default notice has to be served. The default notice has to comply with the Act and the relevant regulations (Consumer Credit (Enforcement, Default and Termination Notices) Regulations 1993). If a default notice in the proper form is not served, the action cannot proceed.
In this case*, the defendant hired a photocopier but failed to pay a quarterly instalment of its rent. The plaintiff served a default notice which substantially overstated the arrears which were then due. Despite this, the judge at first instance held that the default notice was valid and entered judgement for the plaintiff.
On appeal, Lord Justice Kennedy held that the Act was enacted to protect consumers, most of whom were likely to be individuals. When contracting with a financial organisation, a consumer was bound to be at a disadvantage. The contract was likely to be in standard form and complex. His Lordship said that if it was said that a consumer had broken the terms of the agreement, the consumer needed to know precisely what had been done wrong and what was needed to put matters right. The lender has the ability and resources to do this and, if it does not do so accurately, it is only right that it should not take the next step. Under s88(1) of the Act there is a requirement that the lender should 'specify' not only the nature of the breach, but also what action is required to remedy it. In the context of this case, that meant specifying with reasonable accuracy what sum the hirer had to pay to remedy the breach.
The Court went on to say that an error that could be described as minimal might be overlooked, but the substantial inaccuracy in this case rendered the default notice ineffective, so the appeal should be allowed.
Tens, if not hundreds, of thousands of default notices are issued every day. This case illustrates how vitally important it is that any default notice is correct in form, as well as in substance. It is likely that the Court would take the same view with regard to the form and contents of regulated agreements.
*Case reference
Woodchester Lease Management Services Ltd v Swain & Co NLD 14 July 1998