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

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    53. For example, the authority can refuse a licence if the premises are not suitable or convenient for the conduct of the business of dealing in second-hand motor-vehicles, having regard inter alia to the safety of the public and the location, character or condition of the premises. These provisions take the licensing authority far beyond any narrow concern with the possibility of opportunities for reset. For example, where second-hand cars are involved, the possibility of road safety concerns in relation to cars going to or from the premises is obvious. But it would also be open to a licensing authority to refuse an application for a licence if the showroom or site was not suitable for selling second-hand cars because it was inadequately lit and customers would not be able to see to inspect the cars before buying them. It must follow that the authority has power under paragraph 5(1)(b) to grant a licence subject to a condition that the premises should be adequately lit for this purpose.

    54. Indeed, once a licence has been granted, the only way that a licensing authority can regulate the manner in which any activity is carried on is by attaching appropriate conditions to the licence. So, for instance, Parliament has not enacted that second-hand dealers must keep a record of their stock. It is a matter for the licensing authority. If they want dealers to do so, they must attach conditions in terms of section 24(4). Since, however, the power to attach those conditions in section 24(4) is without prejudice to paragraph 5(1) of schedule 1, authorities must be able to use conditions that they attach in reliance on that general provision to regulate other aspects of the business.

    55. The critical question is the extent of this power in the case of dealers carry on their business as dealers in second-hand motor vehicles. The test is not in dispute. Guidance can be found in the approach that Viscount Dilhorne summarised for conditions attached to planning permissions in Newbury District Council v Secretary of State for the Environment [1981] AC 578, 599:

    "It follows that the conditions imposed must be for a planning purpose and not for any ulterior one, and that they must fairly and reasonably relate to the development permitted. Also they must not be so unreasonable that no reasonable planning authority could have imposed them."

That approach was approved by Lord Keith of Kinkel in Grampian Regional Council v Secretary of State and Aberdeen District Council 1984 SC (HL) 58, 66. Here, therefore, the conditions attached to the licence must be for a licensing purpose and not for any ulterior purpose. They must also fairly and reasonably relate to the business that the licence holder is permitted to carry on as a dealer in second-hand cars. In addition, they must not be so unreasonable that no reasonable licensing authority would have imposed them.

    56. Mr Bovey did not contend that condition 2.5(a) was so unreasonable that no reasonable licensing authority would have imposed it. Since it appears that about two-thirds of the authorities that license second-hand motor vehicle dealers have imposed a similar condition, that concession was perhaps not surprising. Nor was it suggested that the licensing authority had any ulterior purpose in attaching the condition. The nub of the case is therefore whether the condition fairly and reasonably relates to Mr Stewart's business as a dealer in second-hand motor vehicles.

    57. In Mixnam's Properties Ltd v Chertsey UDC [1965] AC 735 the council issued a licence authorising the use of land as a caravan site under the Caravan Sites and Control of Development Act 1960. The legislation allowed the council to issue the licence subject to such conditions as they might think it necessary or desirable to impose on the occupier of the land in the interests of persons dwelling thereon in caravans, or of any other class of persons, or of the public at large. The legislation then went on to list a number of possible conditions, all of which related to the situation on the site. The council imposed conditions which regulated inter alia the rent that the site owner could charge caravan occupiers and the security of the occupiers' tenure. The House held that these conditions were ultra vires. Lord Reid, who was applying the same kind of test as Viscount Dilhorne enunciated in the Newbury District Council case, summarised his decision in this way, at p 752:

    "In the present case there appears to me to be a fundamental difference between prescribing what must or must not be done on a site and restricting the site owner's ordinary freedom to contract with his licensees on matters which do not relate to the manner of use of the site. Conditions can make the site owner responsible for the proper use of the site and it is then for him to make such contracts with his licensees as the general law permits. I can find nothing in the Act of 1960 suggesting any intention to authorise local authorities to go beyond laying down conditions relating to the use of sites, and in my opinion the general words in section 5 cannot be read as entitling them to do so."

Similarly, Lord Upjohn said, at p 763E - G:

    "In my opinion, however, the powers of local authorities are subject to the limitation that Parliament never intended to empower them to lay down any conditions which entitle them to prescribe the actual terms and stipulations which must be included in or omitted from any contract between the occupier and a caravan owner. Of course, it cannot be disputed that the local authority can indirectly fetter the freedom of contract of the occupier, for example, by prohibiting caravans of a certain size on the site, but the scheme of the Act, in my opinion, falls far short of empowering them to dictate the terms of contracts."

He went on, at p 764A - C:

    "Secondly, freedom to contract between the subjects of this country is a fundamental right even today, and if Parliament intends to empower a third party to make conditions which regulate the terms of contracts to be made between others then even when there is an appeal to a court of law against such conditions, it must do so in quite clear terms.

    There are no such terms in section 5. Indeed, although the ejusdem generis rule has no application I should have thought that had Parliament intended to empower local authorities to exercise such a right it would have done so in a clear sub-paragraph. Nothing in my view could be more dangerous than to assume by inference that Parliament intended that a very large number of local authorities all over the country should be clothed with such arbitrary and all-embracing powers unless it has given them a clear mandate to do so. I find no such clear mandate in the Act."

These passages suggest that paragraph 5(1) is not to be interpreted as conferring on the licensing authority an implied power to attach a condition that would interfere with the parties' freedom to settle the terms of the contract by which the dealer will sell, and the customer will buy, a car. If Parliament had intended licensing authorities to have that power, it would have said so expressly - as in the case of taxi fares under section 17.

    58. On behalf of the licensing authority Mr Peoples QC submitted that condition 2.5(a) does not go that far. It first requires the dealer to inspect the cars that he intends to sell. In itself, that does not touch on the dealer's relationship with the buyer. The condition then requires that a prospective customer should have access to the report before buying a car and should be given a copy to keep when he buys it. In his submission, these requirements regulate the circumstances in which the parties contract, but do not prescribe the terms on which they contract. All that condition 2.5(a) does is to require the dealer to give the customer certain information about the state of the car, based on the inspection. This may well be information that the dealer would otherwise not have provided and, doubtless, if the statements are inaccurate, the purchaser may seek to avoid the contract or, if they have been made fraudulently or negligently, to claim damages in delict. But that is not the same as interfering with the parties' freedom of contract. Mr Bovey, on the other hand, submitted that, given that the condition has these potential effects, in reality, it does actually interfere with the parties' freedom of contract and so is ultra vires.

    59. The point is a narrow one, but I have come to the view that condition 2.5(a) is indeed ultra vires. I start by accepting that, looked at objectively, the purpose of the condition is not to prescribe the terms on which dealers may contract with their customers. In this respect, it is different from the conditions in Mixnam's Properties Ltd v Chertsey UDC which were designed to prescribe the nature of the relationship between the occupier of the site and the people living in the caravans. Here the purpose of the condition is, rather, to affect the way that dealers conduct their businesses by requiring them to provide information which their customers can take into account in deciding whether to buy a car. In other words, it limits the dealer's common law freedom to keep quiet about the state of the car that his customer is thinking of buying. In itself a limitation on a common law freedom is not an unusual feature of a condition: indeed, as Viscount Radcliffe suggests in the Mixnam's Properties case, at p 754G, restricting common law freedoms is of the essence of conditions. It is what they are designed to do. If that were, in substance, the only effect of the condition, then it would be unobjectionable.

    60. In reality, however, the effects of condition 2.5(a) are liable to extend further. If the information provided by the dealer is accurate, no problem will arise. But there is a substantial risk that, from time to time, the dealer or his mechanic carrying out the test may overlook a defect, with the result that the report will be inaccurate. In that event, by inviting the customer to have regard to the report, the dealer will be misrepresenting the state of the car to him. Leaving aside fraud, if it can be said that the misrepresentation was negligent, then the dealer will be liable in damages for any loss that the customer suffers as a result. More importantly for present purposes, perhaps, even if the misrepresentation in the report is not negligent, a customer who can show that he relied on the report may well be able to avoid the contract. So, in that respect, the operation of the condition is liable to have a considerable impact on the contracts between the dealer and his customers.

    61. In some cases the impact may be still greater and more direct, however. The condition requires the dealer to make a series of statements to the prospective purchaser about the state of the car. Those statements are made at the time when the customer is contemplating the purchase. On the very form that the customer reads, he is told that, if he buys the car, it is in his interest to keep the report - suggesting that he may be able to exploit the information in it to his advantage after the purchase is complete. Moreover, a copy of the report will be one of the papers that the customer has to sign and take away when he buys the car. In these circumstances, it is at the very least arguable that, depending on the facts, and looking at the matter objectively on the totality of the evidence, the statements will fall to be treated not merely as misstatements but as terms of the contract, warranting the state of the vehicle: Hyslop v Shirlaw (1905) 7 F 875, 881 per Lord Kyllachy; Dick Bentley Productions Ltd v Harold Smith (Motors) Ltd [1965] 1 WLR 623; Heilbut, Symons & Co v Buckleton [1913] AC 30, 51 per Lord Moulton. In that event, the effect of the operation of condition 2.5(a) is indeed to oblige the dealer to include a very important term or terms in the contracts that he makes with his customers.

    62. The relevant events in the present case arose before the amendments to section 14 of the Sale of Goods Act 1979. It is none the less worth noting that, in terms of section 14(2) and (2A), the statements made by the dealer in the inspection report would be among the "circumstances" to be taken into account when determining whether a car was of "satisfactory quality".

    63. In these circumstances the operation of condition 2.5(a) is liable to interfere with the dealer's freedom to settle the terms of his trade with his customers. I am satisfied that Parliament cannot have intended local licensing authorities to have the implied power to attach a condition with such a significant effect on the commercial contracts of dealers, such as Mr Stewart.

    64. For these reasons, as well as for those given by my noble and learned friends, Lord Hope of Craighead, Baroness Hale of Richmond and, subject to the observation of Lord Hope, by Lord Carswell, I would dismiss the appeal.

BARONESS HALE OF RICHMOND

My Lords,

    65. My noble and learned friends, Lord Hope of Craighead and Lord Rodger of Earlsferry, have already set out the relevant legislation and the facts. The simple issue is whether the power, in para 5(1)(b) and (2) of Schedule 1 to the Civic Government (Scotland) Act 1982, to grant a second hand motor dealer's licence on "such reasonable conditions as the licensing authority think fit" gives the authority power to insist on a detailed inspection report being made available to all purchasers. I agree with them, for the reasons they give, that it does not.

    66. It might be a very good thing for second hand motor dealers to be subject to such requirements. This local authority imposed these particular requirements after widespread local consultation and with the support of the local chamber of commerce. The authority is the democratically elected body responsible for local government. These are the strongest possible indications that the local population agrees with what their local council has done. Other local authorities have followed their lead. But the fact that this is a good thing, which the public locally support, is not enough to bring it within the statutory powers of the licensing authority.

    67. There are several reasons why it would be surprising if it were within their powers to impose these particular conditions. First, consumer protection of this type is normally achieved by legislation, such as the Sale of Goods Act 1979, the Consumer Credit Act 1974, and the Consumer Protection Act 1987, which applies not only throughout Scotland but throughout the United Kingdom. These requirements have not been imposed by national or even local legislation but by the insertion of locally devised conditions into licences to trade.

    68. Second, the effects of doing it in this way, viewed from the point of view of the individual consumer, are entirely arbitrary. If she buys a second hand car from a second hand car dealer in this locality she will enjoy this extensive protection. (Indeed, it would theoretically be possible for the authority to insert these condition in some traders' licences and not in others, but that might leave them open to challenge on other grounds.) If she buys a second hand car from a second hand car dealer in another locality she may not. Nor will she enjoy this protection if she buys a second hand car, even from a dealer in this locality, if his main business consists of selling new cars but he also, as is usual, sells second hand cars which have been taken in part exchange for new ones.

    69. Third, it is clear that the original purpose of requiring second hand dealers to be licensed or registered with the local authority was to insist upon their keeping records which would help in tracing stolen goods and deter them from accepting goods of doubtful provenance. There is no national equivalent to these powers in England and Wales, but there are numerous local Acts of Parliament giving such powers to particular local authorities. Recent examples are in the Kent County Council and Medway Council Acts of 2001, the purpose of which (as explained by Mr Paul Clark on third reading in the House Commons on 22 March 2001) is 'to regulate the second hand trade, with the aim of reducing the amount of acquisitive crime, such as burglary, by making it harder to dispose of stolen goods and turn them into cash. Home Office research, supported by police intelligence, shows that a large proportion of stolen property passes through unregulated second-hand dealers'. The Scottish legislation clearly goes some way beyond this, but the question is how far.

    70. The general principles are well established. The courts are slow to interfere with what the local representative authority has decided for the benefit of the locality: see Kruse v Johnson [1898] 2 QB 1. All regulatory activity involves some interference in the freedom to carry on whatever business one wants in the way that one wants.

    71. Nevertheless, conditions imposed by local authorities must (a) be for the purpose of regulating the activity requiring to be licensed and not for any other purpose; (b) fairly and reasonably relate to the activity being licensed; and (c) be reasonable in the modern public law sense of that word: see Newbury District Council v Secretary of State for the Environment [1981] AC 578, 599. This is a question of statutory construction, but this statute gives only limited help. Little can be made of the reference in the long title to 'the preservation of public order and safety and the prevention of crime', because this is apt to describe Part IV, which deals with a variety of criminal offences, rather than Parts I to III, which deal with licensing certain activities. The condition-imposing power in Schedule 1 is common to all the activities which can or must be licensed under Parts I and II. It is impossible to discern a single or uniform purpose even from the licensing provisions themselves, because the trades regulated are so disparate, the techniques used so different, and the mischiefs at which each licensing regime is aimed so various. Paragraph 5(2) gives two limited examples of the type of conditions which might be imposed, as to geographical area and giving up a previous licence. Paragraph 5(3) details the circumstances in which a licence may be suspended or revoked, in particular because the person concerned is unfit or the premises unsuitable. This suggests that conditions may be aimed at ensuring that the traders are fit and their premises suitable. The activity licensed is 'carrying on business as a dealer in second hand goods or articles' (s 24(2)). But there is a distinction between how one carries on a business and the terms upon which one trades.

    72. This brings us to the third and most important principle: a power to license and impose conditions upon the conduct of a business will not without more include a power to impose the terms upon which the trader contracts with his customers: see Mixnam's Properties Ltd v Chertsey Urban District Council [1965] AC 735, in particular Lord Upjohn at 763E-G. The respondent in the case before us relies heavily on the Chertsey principle. The appellant does not dispute the principle but says that it does not apply in this case. All that the disputed conditions require is that the dealer gives his customers certain information about the state of the vehicle at the time when it is sold. This may be useful evidence should a dispute arise. But it does not dictate the terms upon which dealer and customer contract with one another, unlike the Chertsey case, in which the local authority imposed upon the caravan site occupier the equivalent of Rent Act protection for its caravan dwellers.

    73. To an English lawyer, the appellant's argument is quite unreal. Even if the statements made in the inspection report were not terms of the contract of sale, they are representations of fact. Under the Misrepresentation Act 1967, even innocent misrepresentations can give rise to liability in damages. Under section 3 that liability cannot be excluded unless the exclusion term satisfies the test of reasonableness introduced by the Unfair Contract Terms Act 1977. Clearly, therefore, a requirement that a trader makes certain detailed representations to his customers affects the legal relationship between them in a way which it will be difficult for the trader to avoid. But it is also quite possible that the contents of the report will be regarded as contractual terms. In an ordinary hire purchase transaction, where the vehicle is bought by a finance company and hired to the customer, such statements are generally construed as collateral warranties to the consumer and would be antecedent negotiations under section 56 of the Consumer Credit Act 1974. In an outright sale, they are highly relevant to construing the content of the condition now implied by section 14(2) of the Sale of Goods Act 1979 that the goods are of 'satisfactory quality' and were among the circumstances relevant to deciding whether the goods were of 'merchantable quality' under the previous version. This condition cannot be excluded in consumer sales: Unfair Contract Terms Act 1977, s 6(2)(a).

    74. Hence, had this been an English case, I would have had no difficulty in concluding that it fell the wrong side of the Chertsey line. As my noble and learned Scottish friends have both reached the same conclusion, I have no difficulty in agreeing with them that this appeal should be dismissed.

LORD CARSWELL

My Lords,

    75. I have had the advantage of reading in draft the opinions of Lord Hope of Craighead and Lord Rodger of Earlsferry, and for the reasons which they give I would dismiss the appeal. In so agreeing, however, I should like to add a few words expressing my views about the scope of the Civic Government (Scotland) Act 1982 (the Act).

    76. In so far as it has been argued that the object and purpose of the Act, in its application to second-hand dealers, is to prevent crime, by keeping track of second-hand goods on sale to the public and reducing the risk that such goods may have been stolen, I should not be willing to accept that the scope of the Act is so limited. Lord Hope of Craighead and Lord Rodger of Earlsferry have concluded that condition 2.5(a) of the conditions prescribed by the respondent Council is to be regarded as ultra vires on the ground that the operation of that condition could have the effect of interfering with the contractual relations between a dealer and his purchaser. I accept the correctness of that conclusion, but regard the Act as having a somewhat broader scope than the prevention of crime, the preservation of public order and safety and the protection of the environment, the objects mentioned in paragraph 3 of the circular sent out on 22 February 1983 by the Scottish Development Department.

    77. In my opinion the scheme of the whole Act shows that its thrust is fairly wide, extending to the regulation of various trades for a variety of purposes, one widely applicable objective (though not the only one) being the protection of the public from dishonest or unscrupulous trading. In that respect I agree with the view expressed by Lord McCluskey when he said at paragraph 7 of his judgment that the purpose of licensing by a public authority is to enable the public to be reasonably assured that their legitimate interests are being safeguarded by the public authority in respect of those traders who are granted licences. It is apparent from perusal of the Act and consideration of the wide variety of activities to which the licensing schemes may apply that the precise mischief to which the control of traders is directed will vary materially according to the trade which is concerned. So the type of consumer protection (for this in effect is what it is) required in the case of boat hire or the operation of taxis will differ from that material to the sale of second-hand clothes, which in turn differs from that needed to protect the purchaser of second-hand jewellery.

    78. The appellant council will have, in the light of the decision of the House, to reconsider the terms of the licences which it grants to second-hand car dealers, as will other councils in Scotland who grant such licences under the powers contained in the Act. My object in expressing the views which I have set out in this judgment, however, is to make it clear that they can exercise those powers for the purposes of consumer protection, so long as they do not interfere with the terms of trade between dealers and customers. I think that that still leaves them with a good deal of scope to fulfil the objects of the legislation by suitably framed conditions.

 
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