HOUSE OF LORDS

OPINIONS OF THE LORDS OF APPEAL FOR JUDGMENT

IN THE CAUSE

Stewart (AP) (Respondent) v. Perth and Kinross Council (Appellants) (Scotland)

[2004] UKHL 16

LORD STEYN

My Lords,

    1. I have had the advantage of reading the opinions of my noble and learned friends Lord Hope of Craighead, Lord Rodger of Earlsferry, Baroness Hale of Richmond and Lord Carswell. I agree with their opinions. I would also dismiss the appeal.

LORD HOPE OF CRAIGHEAD

My Lords,

    2. The respondent has for many years carried on business as a dealer in second-hand motor vehicles. The place where he carries on this business is within the area for which the appellants are the local authority and, as such, the licensing authority for the purposes of Part II of the Civic Government (Scotland) Act 1982 ("the 1982 Act"). Section 9 of the 1982 Act enables a licensing authority to resolve that the carrying on in its area of any of the activities mentioned in sections 10 to 27 and 38 to 44 of the Act requires to be licensed in accordance with the provisions of that Act and is to be regulated by those provisions. Among the activities mentioned in Part II is the carrying on of a business as a second-hand dealer. On 4 December 1985 the Property and General Purposes Committee of the appellants' statutory predecessors, Perth and Kinross District Council ("the District Council"), resolved that all dealers purchasing or selling second-hand motor vehicles within the District would require to be licensed with effect from 1 February 1986.

    3. The respondent first applied for a licence for his second-hand motor vehicle business in 1986. His application was granted, and a licence was issued to him which was valid until 31 July 1987. The licence was subsequently renewed until 31 July 1990. During 1990 the respondent applied for a renewal of the licence, and a further licence was issued to him. It was valid until 31 July 1993. In 1993 he applied for a further renewal of his licence. His application was considered by the District Council's General Purposes (Licensing) Sub-Committee at meetings which were held on 4 and 18 February 1994. The Sub-Committee refused to renew the respondent's licence on this occasion, on the ground that he was not a fit and proper person to hold a licence. Among the reasons that were given for the refusal was the following:

"He consistently failed over a long period of time to observe the conditions of the licence in respect of pre-sales information sheets and pre-sales inspection reports despite having these matters drawn to his attention on several occasions. The Sub-Committee regard the ability of a licensee to comply with the conditions of a license to be an essential part of the licensing system."

    4. On 13 February 1995 the sheriff pronounced an interlocutor remitting the respondent's application for the renewal of his licence to the District Council for reconsideration. On 6 December 1995 the sheriff's interlocutor was recalled by the Court of Session. On 4 May 2000 the respondent presented a petition to the Court of Session for judicial review of the decision of the District Council to refuse to renew his licence on the ground that its decision was ultra vires. On 15 June 2001 the Lord Ordinary refused the petition. On 1 October 2001 an Extra Division (Lords Coulsfield and Johnston, Lord McCluskey dissenting) recalled the Lord Ordinary's interlocutor, granted the prayer of the petition and declared that the decision to refuse renewal of the licence was ultra vires of the District Council and taken without legal warrant.

    5. The only live issue at the end of the hearing before the Extra Division was whether the 1982 Act conferred power upon the licensing authority to subject the respondent's licence to a condition which had been inserted in the licences which were issued to him. The condition was in these terms:

"2.5(a) If the licence holder intends to display for sale/sell any vehicle to a member of the public he must -

(i) carry out an inspection and prepare a full Inspection Report on the vehicle prior to it being displayed for sale/sold and make a copy of the Report available for inspection by any prospective purchaser while the garage/showroom is open, in accordance with the sample Inspection Report issued and in a style approved by the Council (see Appendix 2 and Note 3);

(ii) display a summary Information Sheet in a prominent position in the vehicle displayed for sale so that it is clearly visible indicating that the vehicle has been inspected, that a full Inspection Report may be consulted in the office/showroom prior to sale and that the purchaser will receive a copy of the Report at the time of sale, in accordance with the sample Information Sheet issued and in a style approved by the Council (see Appendix 3);

(iii) complete all sections of the Inspection Report as appropriate and provide the purchaser with a copy of the Inspection Report, which should be signed by both the purchaser and the dealer and dated, at the time of sale; and

(iv) retain one copy of the above Inspection Report as part of his records for at least three years."

    6. The sample Inspection Report in Appendix 2 is headed "Used Vehicle Pre-Sales Inspection Report". It requires details of the make, model, colour and certain other details of the vehicle to be inserted. A box is provided in which the odometer reading is to be inserted, against which a statement must be made as to whether it is correct or unverified. Alongside it is another box in which the approximate true mileage is to be inserted, if different from the odometer reading. Beneath these boxes there appear three columns by which provision is made for a detailed examination of various parts of the vehicle to be carried out as listed in column 1, for any defects outstanding to be noted in column 2 and any work carried out before delivery to be stated in column 3 alongside the list of the parts to be examined which are set out in column 1. Beneath these columns the form states: "The findings of the above report take into account the age and price of the used vehicle described. To be completed on sale of vehicle". Provision is then made for the price to be inserted, beneath which there are spaces for the signature of the purchaser and the dealer. Above the space for the purchaser's signature there are these words: "I acknowledge receipt of a copy of this inspection report." Beneath the spaces for the signatures the purchaser is told: "If you purchase this vehicle it is in your interest to keep this report." Three copies are to be made of this form: a white copy for the purchaser, a yellow copy for the dealer's showroom and a blue copy for the dealer's workshop. Note 3 of the Notes attached to the licence states:

"The defects listed in column 2 of the Report do not need to be rectified before the vehicle is displayed for sale, provided any work carried out at the time of sale is detailed in column 3 and the vehicle is sold in a roadworthy condition and complies with the provisions of the Road Traffic Acts."

    7. The sample Information Sheet in Appendix 3 is headed "Used Vehicle Pre-Sales Information Sheet". It requires details of the make, model and colour of the vehicle, the number of owners, the date of its first registration and certain other details to be inserted, as well as the odometer reading. It requires a statement to be made as to whether the odometer reading is correct or unverified. It provides a space for any other comments. It then states: "A full report has been completed on this vehicle and is available in the showroom/office. A copy of this report will be given on the day of delivery."

    8. The power which is given to the licensing authority by the 1982 Act to attach conditions to a second-hand dealer's licence is set out in section 24(4), which provides:

"Without prejudice to paragraph 5 of Schedule 1 to this Act, a licensing authority may, after consultation with the chief constable, attach conditions to a second-hand dealer's licence requiring the keeping of records in relation to the dealer's stock-in-trade; and conditions so attached may, without prejudice to the authority's power under this subsection, include provision as to -

(a) the information to be included in these records;

(b) their form;

(c) the premises where they are to be kept; and

(d) the period for which they are to be kept."

    9. Paragraph 5(1) of Schedule 1 to the 1982 Act provides:

"Where an application for the grant or renewal of a licence has been made to a licensing authority they shall, in accordance with this paragraph -

(a) grant or renew the licence unconditionally;

(b) grant or renew the licence subject to conditions; or

(c) refuse to grant the licence."

Paragraph 5(2) of Schedule 1 provides:

"The conditions referred to in sub-paragraph (1)(b) above shall be such reasonable conditions as the licensing authority think fit and, without prejudice to that generality, may include -

(a) conditions restricting the validity of a licence to an area or areas specified in the licence; and

(b) in relation to the grant of a licence, where that licence is intended to replace an existing licence, a condition requiring the holder of the existing licence to surrender it in accordance with paragraph 13 below."

Paragraph 13(1) of the Schedule provides that a licence may be surrendered to the licensing authority at any time and that it shall thereupon cease to have effect.

    10. Condition 2.5(a) falls within the power which is given to the licensing authority by section 24(4) of the 1982 Act, to the extent that it requires information to be included in the dealer's records, the form which that information is to take, the premises where the information is to be kept and the period for which it is to be kept. But it is plain that the condition does more than require the dealer to record and keep information. It also requires the dealer to give information to the purchaser.

    11. The power in section 24(4) to attach conditions to the licence is stated by the opening words of that subsection to be without prejudice to paragraph 5 of Schedule 1. Paragraph 5(1)(b) of the Schedule gives a general power to licensing authorities to grant or renew a licence subject to conditions. Two conditions are mentioned in paragraph 5(2) which have nothing to do with the giving of information by a second-hand dealer to the purchaser. But these conditions are stated to be without prejudice to the generality of the opening words of the sub-paragraph. Those words give power to the licensing authority to attach "such reasonable conditions" to the licence as it may think fit. It is to those words that one must go if one is to discover whether those parts of condition 2.5(a) which require information to be given to the purchaser are within the power to attach conditions that is given by the 1982 Act to the licensing authority.

    12. Two questions then require to be addressed and answered. The first requires a close analysis of condition 2.5(a) and its effect. The second requires an examination of the scope of the power which the Act gives to the licensing authority. If the effect of the condition is to require the second-hand car dealer to do more than a licensing authority is empowered to require him to do, the condition must be held to be ultra vires of the District Council which attached it to the respondent's licences.

What is the effect of condition 2.5(a)?

    13. The effect of condition 2.5(a) depends in the first place upon what it requires the dealer to do. This matter is best addressed by looking at those things that go beyond tasks relating to the recording and keeping of keeping of information which fall within the scope of the licensing authority's power to impose conditions on second-hand dealers in section 24(4). It is convenient to identify these additional tasks in the order in which they appear in the sub-paragraphs of condition 2.5(a).

    14. Sub-paragraph (i) requires the dealer to "make a copy of the Report available for inspection by any prospective purchaser." Sub-paragraph (ii) requires him to "display" the Information Sheet "in a prominent position in the vehicle displayed for sale so that it is clearly visible." Sub-paragraph (iii) requires him to "provide the purchaser with a copy of the Inspection Report, which should be signed both by the purchaser and the dealer." These provisions have to be read together with the contents of the Report and the Information Sheet. The Information Sheet is the document that will be seen first by the prospective purchaser. It contains a representation as to whether the odometer reading is correct or unverified, an assurance that a full report has been completed on the vehicle and a promise that a copy of it will be given to the purchaser on the day of delivery. The Report contains representations as to whether the odometer reading is correct or unverified and its approximate true mileage, representations about the state of the vehicle following an examination of the matters listed in column1 taking into account its age and price, and advice to the purchaser that it is in his interest to keep the Report.

    15. The next question is what effect, if any, these additional tasks have on the dealer's contract with the purchaser. The contract is one of sale to which the provisions of the Sale of Goods Act 1979 apply. That Act was amended in various important respects in relation to contracts made on or after 3 January 1995 by the Sale and Supply of Goods Act 1994. As the licence which is under review in this case was issued to the respondent in 1990, its effect at the time that it was issued must be judged in the light of the provisions of the Sale of Goods Act 1979 as they were prior to their amendment by the 1994 Act.

    16. The relevant provisions of the Sale of Goods Act 1979 are these:

"13. Sale by description.

(1) Where there is a contract for the sale of goods by description, there is an implied condition that the goods will correspond with the description."

"14. Implied terms about quality or fitness.

(1) Except as provided by this section and section 15 below and subject to any other enactment, there is no implied condition or warranty about the quality or fitness for any particular purpose of goods supplied under a contract of sale.

(2) Where the seller sells goods in the course of a business, there is an implied condition that the goods supplied under the contract are of merchantable quality, except that there is no such condition -

(a) as regards defects specifically drawn to the buyer's attention before the contract is made; or

(b) if the buyer examines the goods before the contract is made, as regards defects which that examination ought to reveal.

(3) Where the seller sells goods in the course of a business and the buyer, expressly or by implication, makes known -

(a) to the seller…

any particular purpose for which the goods are being bought, there is an implied condition that the goods supplied under the contract are reasonably fit for that purpose, whether or not that is a purpose for which such goods are commonly supplied, except where the circumstances show that the buyer does not rely, or that it is unreasonable for him to rely, on the skill or judgment of the seller …

(6) Goods of any kind are of merchantable quality within the meaning of subsection (2) above if they are as fit for the purpose or purposes for which goods of that kind are commonly bought as it is reasonable to expect having regard to any description applied to them, the price (if relevant) and all the other relevant circumstances."

    17. It should be noted in passing that section 14 of the 1979 Act as amended by the Sale and Supply of Goods Act 1994 now provides that, where the seller sells in the course of a business, there is an implied term that the goods supplied under the contract are of satisfactory quality and that, for the purposes of the Act, goods are of satisfactory quality if they meet the standard that a reasonable person would regard as satisfactory, taking account of any description of the goods, the price (if relevant) and all other relevant circumstances: subsections (2) and (2A) as substituted for the former subsection (2) by section 1(1) of the 1994 Act. As the law now stands, the description of the vehicle in the Inspection Report is one of the circumstances to be taken into account in a consideration as to whether or not the vehicle meets the required standard.

    18. There was no requirement at common law or under the Sale of Goods Act 1979 for the dealer to make any representations to the purchaser about the mileage, condition or state of repair of the vehicle. If nothing was said on either side, the position under the law as it stood in 1990 was that the dealer was bound only by the implied condition in section 14(2) of the 1979 Act that the vehicle which he supplied under the contract was of merchantable quality within the meaning that is given to that expression by section 14(6). But the mere fact that there were defects in the vehicle at the time of delivery would not necessarily mean that it was not of merchantable quality, bearing in mind that the standard to be achieved depends on the market at which the vehicle is aimed and that deficiencies might be acceptable in a vehicle which is being sold as a second-hand vehicle: Rogers v Parish Ltd [1987] QB 933, per Mustill LJ. If the purchaser made known to the dealer that he wanted to purchase the goods for use as a vehicle, so as to show that he relied on his skill or judgment, the dealer would be bound also by the implied condition in section 14(3) that it was reasonably fit for the purpose as a vehicle to drive along the road: see Bartlett v Sidney Marcus Ltd [1965] 1 WLR 1013, 1016C per Lord Denning MR. It is obvious that there was a considerable overlap between these two implied conditions.

    19. But if, on the other hand, the dealer said something which could be construed as a representation on which the purchaser relied and which induced him to enter into the contract, different consequences might well follow. The effect of attaching condition 2.5(a) to the licence was to require the dealer to make a series of representations in writing about the mileage, condition and state of repair of every vehicle which was exposed for sale in his premises. Statements which a vendor makes at or about the time of the completion of an agreement may be treated as representations on which the purchaser was entitled to rely and, as such, as part of the agreement: see Scott v Steel (1857) 20 D 253, 257, per Lord Wood. In that case a purchaser who bought a horse upon a representation by the horse-dealer that the horse was steady in harness and quiet to ride was held to be entitled to return the horse and to repayment of the price when it turned out not to be.

    20. It is also not inconceivable that an honest dealer might take less than ordinary care in the carrying out of the inspection of the vehicle and the recording of the relevant details on the Inspection Report - in other words that he might carry out these tasks not fraudulently, with the intention of misleading the purchaser, but negligently. The effect of the condition was to expose him to the risk of providing the purchaser in that event with a remedy in damages in circumstances where the purchaser would not have had a remedy for a breach of one or other of the warranties in section 14 of the Sale of Goods Act 1979.

    21. It was at one time the law in England that an innocent misrepresentation gave no right to damages: Heilbut, Symons & Co v Buckleton [1913] AC 30. That rule was modified in England by section 2(a) of the Misrepresentation Act 1967. A similar rule to that which had applied in England was also part of Scots law: Manners v Whitehead (1898) 1 F 171; Eastern Marine Services (and Supplies) Ltd v Dickson Motors Ltd, 1981 SC 355; Twomax Ltd v Dickson, McFarlane & Robinson, 1983 SLT 98. In Eastern Marine Services (and Supplies) Ltd v Dickson Motors Ltd the pursuer agreed to purchase a second-hand car from a car dealer on the basis of an assurance that the mileage shown on the odometer was genuine. It was alleged that this assurance was false and that the pursuers were entitled to damages. The action was dismissed on the ground, among others, that in an action founded on misrepresentations inducing contract the representations had to be fraudulent and that the pursuers' pleadings contained no such averment.

    22. This rule was abolished by section 10(1) of the Law Reform (Miscellaneous Provisions) (Scotland) Act 1985, on the recommendation of the Scottish Law Commission. Section 10(1) provides:

"A party to a contract who has been induced to enter into it by negligent misrepresentation made by or on behalf of another party to the contract shall not be disentitled, by reason only that the misrepresentation is not fraudulent, from recovering damages from the other party in respect of any loss or damage he has suffered as a result of the misrepresentation; and any rule of law that such damages cannot be recovered unless fraud is proved shall cease to have effect."

    23. By the date when the condition was attached to the respondent's licence it was sufficient to entitle the purchaser to a remedy in damages that he was induced to enter into the contract by the seller's representations and that these representations were negligent.

    24. It seems to me to be clear in these circumstances that the effect of attaching the condition to the licence was to affect the contractual relationship between the dealer and the purchaser in a way that, in the event of a dispute about the condition of the vehicle when it was purchased, could prove to be highly material. As Lord Coulsfield said in the Extra Division, a report authenticated and handed over to the purchaser as the condition requires is bound to have considerable importance in any dispute: 2003 SC 551, 557G-H, para 15. The dealer cannot escape from these consequences without refraining from making these representations, which he cannot do without breaching the condition. Any attempt by him to exclude his liability for any innocent misrepresentation contained in the Inspection Report will be void against the consumer in the case of a consumer contract if it was not fair and reasonable to include the term in the contract: section 16(1)(b) of the Unfair Contract Terms Act 1977.

What does para 5 of Schedule 1 permit?

    25. The question that must now be addressed is whether a condition which has this effect requires the dealer to do more than the licensing authority is empowered to require him to do. Does the 1982 Act permit the licensing authority to impose conditions on the second-hand motor vehicle dealer which regulate the terms on which he trades with his customers?

    26. This question raises an issue of statutory construction. Where an authority which is clothed with statutory powers orders something to be done and accompanies this with some sanction or penalty for a failure to do it, this restricts the freedom of action by persons who are affected by it, who would otherwise be free to do as they pleased: Kruse v Johnson [1898] 2 QB 91, 96 per Lord Russell of Killowen CJ. It is a general rule of construction that, while the legislature may make whatever changes to the law that it likes, subordinate legislative authorities can make only such changes in the law as Parliament has empowered them to make. This rule was applied in Rossi v Magistrates of Edinburgh (1904) 7 F (HL) 85, where conditions in an ice-cream vendors' licence which restricted their right to open their shops when they liked and sell what they pleased were held to be ultra vires of the licensing authority; see also Spook Erection Ltd v City of Edinburgh District Council, 1995 SLT (Sh Ct) 107. It was also applied in Mixnam's Properties Ltd v Chertsey Urban District Council [1965] AC 735, in which it was held that the local authority was not entitled under the Caravan Sites and Control of Development Act 1960 to lay down conditions relating to the licensee's powers of letting or licensing caravan spaces to its customers. At p 763 Lord Upjohn said that freedom to contract is a fundamental right, and that if Parliament intends to empower a third party to make conditions which regulate the terms of contracts to be made between others then, even where there is an appeal to a court of law against such conditions, it must do so in clear terms. In the same case at p 755 Lord Reid said that it appeared to him to be a fundamental difference between prescribing what must or must not be done on a caravan site and restricting the site owner's ordinary freedom to contract with his licensees on matters that did not relate to the manner of use of the site.

    27. The opening words of paragraph 5(2) of Schedule 1 to the 1982 Act give power to the licensing authority to attach "such reasonable conditions" to the licence as it may think fit. As I said earlier, it is to those words that one must go if one is to discover whether those parts of condition 2.5(a) which require information to be given to the purchaser are within the power to attach conditions that is given by the 1982 Act to the licensing authority. At first sight they give a wide discretion to the licensing authority. It requires a very strong case for a court to interfere with the discretion which has been vested in a body of that kind, which legislates in the interests of the community: Nicol v Magistrates of Aberdeen (1870) 9 M 306, 308, per Lord President Inglis; Da Prato v Magistrates of Partick 1907 SC (HL) 5, per Lord Loreburn LC. As Lord Russell of Killowen CJ said in Kruse v Johnson [1898] QB 91, 99, legislation of this kind ought to be supported if possible, looking to the character of the body which is legislating, the subject matter and the nature and extent of the authority which is given to the body to legislate in matters of this kind.

    28. But it is clear that the discretion which is vested in the licensing authority is not unlimited. The authority is not at liberty to use it for an ulterior object, however desirable that object may seem to it to be in the public interest: Pyx Granite Co Ltd v Ministry of Housing and Local Government [1958] 1 QB 554, 572 per Lord Denning; Newbury District Council v Secretary of State for the Environment [1981] AC 578, 599, per Viscount Dilhorne. The scope which is to be given to the words "such reasonable conditions" must be ascertained from their context. The search is for some indication that it was the intention of Parliament that licensing authorities should be able to regulate not only the records which dealers were to keep to enable checks to be carried out on their activities but also the contracts which they entered into with their customers.