Reject the goods and get your money back, but keep paying the loan you took out to buy them? Durkin closed that absurdity. The credit agreement is conditional on the survival of the supply agreement. He won the principle. He did not get the £116,000.
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Full name: Durkin v DSG Retail Ltd and HFC Bank plc
Citation: [2014] UKSC 21; [2014] 1 WLR 1148
Court: Supreme Court
Judgment: 26 March 2014 (unanimous on the point of principle)
Subject: Whether rescinding a supply contract also releases the linked credit agreement
Result: The appeal was allowed on the point of principle. A debtor who rescinds the supply contract may also rescind the linked credit agreement.
Why This Case Matters
Section 75 of the Consumer Credit Act 1974 gives a debtor a claim against the creditor for the supplier’s misrepresentation or breach. What it does not do, on its face, is release the debtor from the credit agreement itself.
That gap produced an absurdity. A consumer who rejected faulty goods and got their money back from the supplier could still be left servicing a loan taken out to buy them, and, if they stopped paying, could find a default registered against their credit file. Durkin closed the gap.
The Facts
In December 1998 Mr Durkin bought a laptop computer from PC World, a DSG Retail store, for £1,499. He had made clear that he needed a machine with a built-in modem. The laptop did not have one.
He financed the purchase with a restricted-use credit agreement provided by HFC Bank, entered into at the point of sale, a classic debtor-creditor-supplier arrangement.
He returned to the store the next day and rejected the laptop. DSG refused to accept the rejection. Mr Durkin took the view that he had validly rescinded the sale, and stopped paying HFC.
HFC treated the account as in arrears and reported a default to the credit reference agencies. The entry remained on his file for years, and he claimed it caused him substantial loss, including the loss of opportunities to buy property.
Procedural History
- Aberdeen Sheriff Court: held that rescission was effective and awarded damages totalling in the region of £116,000, including a sum for injury to credit.
- Inner House of the Court of Session: refused Mr Durkin’s appeal, holding that s75(1) did not permit him to rescind the credit agreement.
- Supreme Court: allowed the appeal on the point of principle, holding that the credit agreement could be rescinded, though not by virtue of s75(1) itself, and the very large damages award did not survive.
The Ratio Decidendi
Why the implied term
The reasoning is one of commercial necessity. A restricted-use credit agreement exists only to finance the particular transaction. Its whole purpose disappears if the transaction is undone. To hold the debtor to it would defeat the object of the arrangement and produce the absurdity the case was brought to address.
The implication is therefore of the kind the law makes to give a contract business efficacy, rather than a statutory consequence. That distinction matters, because it means the analysis depends on the credit agreement being genuinely linked to the specific supply.
The credit reference dimension
Because the credit agreement fell away on rescission, the arrears HFC recorded were not properly due. That engages the creditor’s duty in relation to the accuracy of information reported to credit reference agencies, though establishing recoverable loss flowing from an inaccurate entry proved, on the facts, very much harder than establishing the principle.
Obiter and the Limits
- Damages for injury to credit. The Court’s treatment of the loss claimed illustrates how difficult causation and remoteness are in this territory. Observations about the creditor’s obligations regarding credit reference reporting are important but were not the basis on which the substantial award was resolved.
- Rescission must be valid. The implied condition only operates if the supply agreement was genuinely and effectively rescinded. Where rejection was out of time, or the goods were not sufficiently defective, nothing follows.
- The agreement must be genuinely linked. An unrestricted-use loan used to buy something is not the same as a restricted-use debtor-creditor-supplier agreement financing that specific transaction. The distinction is the same one that defeated the claim in Steiner v NatWest.
- Scottish appeal. The case came from Scotland, but the reasoning on the implied condition and on s75 is treated as applying throughout the United Kingdom.
Practitioner Application
Advising a consumer
- Establish that the rejection was valid before anything else. Timing, the nature of the defect and what was said at the point of sale all matter. Without valid rescission of the supply contract, the implied condition does not engage.
- Notify the creditor in writing and immediately. A debtor who simply stops paying, as Mr Durkin did, invites a default entry and then has to unpick it. A clear written rescission notice to both supplier and creditor puts the creditor on notice and shifts the position on any subsequent reporting.
- Check the agreement is genuinely linked. Restricted-use credit financing the specific purchase engages Durkin. A general loan or an unconnected credit card balance may not.
- Address the credit file separately and early. Dispute the entry with the creditor and the credit reference agencies, and keep the correspondence. Our resource on credit agencies and CIFAS markers sets out the routes.
- Be realistic about damages. Mr Durkin established the principle and lost the money. Loss flowing from an inaccurate credit entry is notoriously hard to prove.
Where Durkin does not reach
- Where the s75 debtor-creditor-supplier link is absent altogether: consider s140A unfair relationship, s56 deemed agency, chargeback, or the Financial Ombudsman Service.
- Where the complaint is about the quality of the credit rather than the supply.
- Where limitation has expired, which should be checked at the outset on every route.
Frequently Asked Questions
If I reject the goods, am I still stuck with the loan?
No. Durkin v DSG Retail Ltd [2014] UKSC 21 holds that where a debtor-creditor-supplier agreement finances a specific supply transaction, the law implies a term that the credit agreement is conditional on the survival of the supply agreement. On validly rescinding the supply contract you may also rescind the credit agreement.
Does section 75 itself let me cancel the credit agreement?
No, and the distinction matters. The Supreme Court held that s75(1) creates a concurrent liability in the creditor for the supplier’s misrepresentation or breach, but does not itself confer a right to rescind the credit agreement. The right comes from a term implied at common law to give the arrangement business efficacy.
Did Mr Durkin get his damages?
No, and this should be explained to clients. The sheriff had awarded around £116,000 including a sum for injury to credit. Mr Durkin won the point of law in the Supreme Court but the substantial award did not survive. The case is authority for the rescission principle, not for the proposition that a wrongly registered default produces six-figure damages.
What should I do rather than just stopping payments?
Send a written rescission notice to both the supplier and the creditor immediately. Mr Durkin simply stopped paying, which produced a default entry he then spent years trying to unpick. Written notice puts the creditor on notice and materially improves the position on any subsequent credit reference reporting.
Does this apply to any loan used to buy something?
No. It applies to restricted-use credit under a debtor-creditor-supplier agreement financing the specific transaction. A general unrestricted loan, or a credit card balance not connected to the purchase in the required way, may fall outside, the same distinction that defeated the claim in Steiner v NatWest. Where the link is absent, consider s140A unfair relationship, s56, chargeback or the ombudsman.