Scottish Court of Session Decisions

LORD PRESIDENT (Clyde).—This is an action arising out of a hire purchase agreement relating to a motor car. The agreement was entered into between the Twentieth Century Banking Corporation Limited who have assigned their rights under the contract to the pursuer on the one hand, and the first defender on the other. Under this contract the corporation hired the motor car to the first defender in respect, inter alia, of a certain deposit and subsequent monthly payments. The pursuer avers that the first defender has failed to pay the instalments and has terminated the agreement, and the present action has been brought for the return of the motor car and for payment of the outstanding sum due under the agreement. The action was raised in the Sheriff Court against the first defender and also against another party in. respect of an alleged cautionary obligation. The Sheriff-substitute has dismissed the action against the second defender as irrelevant, and no argument upon that matter has been presented to us. So far as the first defender is concerned, the Sheriff-substitute, after debate, pronounced a finding that the contract was governed by English law and allowed a proof before answer. On appeal, the Sheriff recalled the Sheriff-substitute's interlocutor and dismissed the action upon the ground that the Hire Purchase and Small Debt (Scotland) Act, 1932, applied to the transaction. The pursuer has now appealed to the Court of Session and seeks the restoration of the decision of the Sheriff-substitute.

The issue before us is within a narrow compass. Under section 2 of the Hire Purchase and Small Debt (Scotland) Act, 1932, certain conditions are laid down in regard to hire purchase contracts, compliance with which is declared to be necessary if a contract to which the Act applies is to be binding on the hirer. Admittedly these conditions were not satisfied in the present case, and it necessarily follows that the contract in question would be void and unenforceable if this section of the Scottish Act applies to it. But the pursuer contends that this Act does not apply to the present case which, according to him, is governed by the law of England and by an English Hire-Purchase Act passed in 1938. His argument is that the Twentieth Century Banking Corporation is a company registered in England, that they executed their part of this contract in England, that it falls to be performed in England, and that in the contract there is inserted an express provision whereby the parties agreed that the law of England was to apply. The protection afforded by the Scottish Act of 1932therefore, on this contention, cannot be invoked by the first defender. The issue is accordingly whether or not the Act of 1932,, the Scottish Act, applies to this contract.

Section 11 of that Act provides:—

"This Act may be cited as the Hire Purchase and Small Debt (Scotland) Act, 1932, and shall extend to Scotland only."

Section 1 of the Act (which is amended by the Hire-Purchase Act, 1954, in a respect which is not material to the present question) provides:—

"This Act shall apply to any contract entered into after the passing of this Act, notwithstanding anything contained in such contract, in whatsoever terms it may be expressed and whether it be truly one of sale or of hire, if it is a contract whereby …"

certain provisions are made which admittedly apply to the present case.

In the first place it appears to me to be clear, in the light of the express statutory provision in section 1, that Parliament intended that parties should not be able to contract out of the Act, if it applied; and this seems to me to be confirmed by the provisions of section 9 of the Act whereby "any contract or agreement by virtue of which any right conferred by this Act on the hirer, purchaser, cautioner or guarantor under a contract to which this Act applies, is taken away or limited shall to that extent be void." Accordingly, if the contract in question is one to which the Act applies, the fact that parties have agreed to invoke the law of England will not displace the obligations imposed in regard to the contract by the Scottish Act.

In the second place, therefore, I must consider whether the Scottish Act applies or not. It is quite true that in general under private international law it can be said that the validity of a contract is governed by the proper law of the contract, namely, by the law which the parties intend or may fairly be presumed to have intended to invoke—see Dicey, Rules 153 and 148. But that general rule is displaced where an Act of Parliament has expressly provided otherwise, and has applied certain conditions as necessary for the validity of the contract. The situation might have been different if the statutory provisions had not been mandatory—see Vita Food Products Inc. v. Unus Shipping Co.

In the present case, however, the statutory provision contained in the Scottish Act of 1932 (as amended in 1954) is mandatory. The object of section 2 of the Scottish Act is to lay down certain conditions precedent for valid hire purchase contracts, designed to ensure that persons who hire goods under them are properly certiorated of the conditions contained in the agreements into which they are entering. The Act is a piece of social legislation designed for the protection of certain persons, i.e., members of the public who hire articles through companies such as the Twentieth Century Banking Corporation Limited. It is not intended to benefit nor to protect these companies. The way the protection operates is the avoidance of the contract of hire if certain statutory safeguards in the hirer's interest are not satisfied. Hence it follows that the test for the applicability of the Act, which under section 11 extends only to Scotland, is whether or not the contract was entered into in Scotland (see section 1), irrespective of where that contract is ultimately completed or is to be executed. The first defender in the present case undoubtedly entered into this contract in Scotland, and it necessarily follows that the Scottish Act therefore applies. If so, the general rules of private international law applicable to contracts are superseded by this express statutory provision. Such a situation is envisaged by Dicey in Rule 149.

In these circumstances, in my opinion, the Sheriff arrived at the correct conclusion and the appeal should accordingly be refused.

LORD CARMONT .—I agree.

LORD SORN .—The defence here arises under section 2 of the Scottish Act of 1932 which lays down certain conditions for the validity of hire purchase contracts. These conditions amount to the imposing of what might be described as prerequisites for a valid contract. What the section plainly sets out to do is to give a protection to the hirer at the time when he is committing himself to a contract and at the time his signature is obtained—whether that signature be the actual completion of the contract or only a step in that direction. The Act is made to apply to Scotland, and the natural meaning to take out of section 2 is that the protection is intended to be given to the hirer who signs a contract of this kind in Scotland. The question is:—have we been shown any reason for not extending the protection of section 2 towards the defender in this case? The argument has been that clause 13 imports the law of England as the law which the parties chose to govern the contract, and no doubt this has the result of making the law of England the proper law of the contract. But, in my opinion, that does not have the effect at all of displacing section 2 of the Act, and I say this particularly because of the words to be found in section 1 which are as follows:—

"This Act shall apply to any contract entered into after the passing of this Act, notwithstanding anything contained in such contract …"

To hold that clause 13 had the effect of superseding section 2 would, it seems to me, be to ignore these words and to ignore the manifest purpose of the Act which was to give to persons entering into hire purchase contracts in Scotland a measure of protection against those persons with whom they are dealing. This just means that, if financiers from the other side of the Border wish to do valid business with hirers in Scotland, they must do so with due regard to the Scottish Act, and that they cannot get round the Act by putting in a clause to the effect that some other law is to apply to the contract.