Hire agreement terminated due to 3rd party customer due diligence check

[DK85]

Hi, I am hoping someone can help me.

Back in June, I entered a Hire agreement for a credit card terminal for my business. In the beginning, everything was ok with the machine, but I was unable to receive my cash (payments taken from the credit card terminal) from the supplier due to an inconsistency in my customer due diligence check. The issue was a arising that the brand name on the front of my shop not being the same as the name on the contract and they deemed me to be a high risk client. In order to overcome this issue I temporarily changed my sign so the contract name and the sign were aligned. After a couple of days this was also rejected by the supplier and its 3rd party vendor. Then the supplier refused to hand over my cash unless I cancelled my account or changed my entire shop branding to the name on the contract. As I deemed this very unfair, I cancelled the contract and asked for my funds. In doing so, the supplier has now demanded the remaining payment of the hire agreement and a restock fee. They have now entered a money claim online. I have complained to the ombudsman but they have not come back to me yet.

To defend this, I believe there are two ways:

1) either the ombudsman votes in my favor for unfair treatment

or

2) I use the Force Majeure clause in the contract that states you can cancel the contract in the event of a pandemic (which we are in and is continuous without any penalty). The clause states the following:

Under Clause 9 of the contract “Force Majeure Event” the customer shall have the option to terminate the agreement without notice or penalty in the event of a Force Majeure Event and continuing to occur for a continuous period of at least six months.

1. The contract states the definition of a Force Majeure event as the following: Any event beyond a party’s reasonable control, including strikes, lock-outs or other industrial disputes (whether involving its own workforce or a third party’s), failure of energy sources or transport network, acts of God, war, terrorism, riot, civil commotion, armed conflict, malicious damage, breakdown of plant or machinery, nuclear, chemical or biological contamination, explosions, fires, floods, storms, earthquakes, epidemics or similar events, natural disasters or default of suppliers or subcontractors.
2. As we are currently experiencing an “epidemic or similar event” in the UK for longer than six months and the government is continuing to apply stricter measures, the contract can be terminated as defined above without notice or penalty.

Please can somehow help me on how to get out of this unfair predicament.

[R0b]

Hello

Let's clear up the first two questions you have.

1. The Ombudsman will not look at disputes where legal proceedings have commenced. You would have to make an application to stay proceedings to allow for the Ombudsman to consider your case, which would involve you making an application at £255.

2. Based on what you have mentioned in your post, you never terminated the contract because of a pandemic, rather you terminated because you didn't receive your cash. You can't retrospectively terminate under force majeure and the onus is on you to prove that is the basis of your termination. Nevertheless, you also have to show your business was not able to operate for a continuous period of 6 months in order to terminate the contract and most businesses have, at least to some extent, been able to open at some point in the last 6 months so again, it's down to you to prove this was not the case.

Anyway, those points aside, I'm a little confused as to why the supplier said you must cancel your account because you are deemed high risk. The first point as always is to check the terms and conditions, specifically about whether they can withhold funds, is the contract subject to satisfactory due diligence, and termination rights. If you (or the supplier) haven't validly terminated the contract then one of you is at fault and will be treated as ending the contract for wrongful termination.

If you are able to upload a copy of the terms with any personal info redacted that would be a starting point. We would also like to see the particulars of claim so we can understand what the supplier is alleging.

Finally, if you haven't already, you should log in to MCOL and acknowledge the claim but not file a defence. it means you will have 33 days from the date of the claim form being issued to file a defence.

Once you've given us the above information, then we can look at your options.

[DK85]

Hello,

Thank you for your feedback.

Just to give you an update on the proceedings. I have already submitted my defence as the time limit already had passed (below I have written what I did). I am now in the finalising the draft of my witness statement with all the evidence. This needs to be submitted by the 18th January. Can I set aside now or is it too late?

Let me explain further why the supplier asked me to close the account to release the funds. When initially signing the contract, there was no mention that there needed to be due diligence checks as part of the anti-laundering "know your customer" criteria. After I had received the approval of the contract, the Claimant said I need to provide evidence of ownership of the business and marketing materials. I sent them what they needed (e.g. bank statement, invoices, screenshot of marketing material on front of my business) and then waited for a response. In the meantime, I continued to use the credit card terminal. However, after a few email exchanges and telephone conversations, the Claimant said that the marketing material did not match the name on the contract and the signage on the front of my business. I found this very strange as I have never been denied credit based on this. On the advice of the claimant, I then made a new sign so that the marketing material and contract name was the same. I resent the photo as they requested. Then a few days later, the 3rd party supplier of the Claimant refused the new marketing material saying it was only a temporary measure and that I still posed a risk. The Claimant then said that I would need to change all my marketing material to get the issue resolved. I refused this request as it would cost me thousands to change. I then asked the Claimant to release my money held by the third-party supplier. The Claimants response was that the only way to receive the funds was if I closed the account. I then asked them to close the account and they released my funds. Now they ask us to pay the penalty for closing the account despite them asking me to close it.

In my witness statement, I am requesting a rescission of the contract based on two points i) Law of Frustration based on a unilateral mistake and ii) force majeure.

As you mentioned, force majeure is difficult. However, I can prove that sales dropped significantly. Is this not enough?

Below is the reason for the claim from the Claimant. Please note that clause 6.3.1 does not exist in the contract. I think the Claimant made a mistake.

3.1. The named merchant took out a fixed-term contract for the provision of Payment Processing Services, which is some way of taking card payments
through a terminal, either physical or virtually from a cardholder.
3.2. Under Clause 6.1 the merchant has failed to make the agreed payments when due as set out in the contract.
3.3. Therefore as per clause 6.3.1 of the agreement all sums are now due and owing.
3.4. We seek the remedy of full payment of the amount owed



Below, is the text I wrote in my defence:

1. Each and every allegation in the Claimants Reason for Claim is DENIED unless specifically admitted in this Defence.

2. It is DENIED that Under Clause 6.1 the defendant has failed to make the agreed payments when due as set out in the contract. The Defendant has paid the agreed monthly payments until Clause 9 “Force Majeure Event” was invoked on the 8th August 2020.

3. It is ADMITTED that the Defendant took out a fixed contract for the provision of Payment Processing Services which is some way of taking card payments through a terminal, either physical or virtually from a card holder. However, the Defendant will invoke the Doctrine of Frustration under Law Reform (Frustrated Contracts) Act 1943. The Hire Agreement has become impossible (or illegal) to perform from which the defendant originally contemplated at the time of entering into it, by reason of an unforeseen event which has occurred without the default of either party to the contract.

4. In the Reason for Claim 3.3 “Therefore as per clause 6.3.1 of the agreement all sums are now due and owning” it is DENIED that the Defendant owes any amount. The Clause 6.3.1 does not explicitly exist in the Hire agreement and on request, the Claimant has failed to reply and has not disclosed any documents relating to this clause. This fact stated in the Reason for Claim is untrue and a negligent misstatement.

5. A financial complaint has been raised on the 18th October with the FCA Ombudsman for unfair treatment and mis-selling. The Defendant is a Sole Trader and protected under the Consumer Credit Act 1974 and can exercise the right to an investigation.

I have attached the original contract redacted.

Thank you for your help.

[R0b]

To be honest, I think you are barking up the wrong tree with your defence but it is what it is.

First of all (and in my view) it is not good enough to say that because your sales have dropped means there is a force majeure. How has the drop in sales prevented you or otherwise delayed you in performing your obligations? It is well established by the courts that additional costs in performing your obligations under a contract is not a force majeure type event so I think your drop in sales is likely to be viewed in the same way, but it is up to you to argue otherwise.

Frustration is difficult to get the court to agree but as a starting point, you can't rely on frustration if the force majeure clause already covers it. If you can somehow overcome that hurdle, there may be some force in arguing that the contract is frustrated because they're asking you to change all of your marketing material by the third party supplier which was something not foreseen by either party to this contract.

However, if I was in your shoes, I think there might have been stronger arguments for the following:

1. The contract was mutually terminated by both parties. You wanted your money and they said you had to close your account, therefore it was implied by that request they did not object to you ending the contract and walking away.

2. Even if there is cause for them to claim breach of contract on your part, did they give you notice that they were terminating the contract based on your breach? The T&Cs said if a default event occurs, then they will give notice to terminate. If no notice was given, then by bringing the claim, they have terminated the agreement unlawfully themselves.

To be honest, your defence doesn't look great and you are looking to rely on two of the hardest defences. You can make an amended defence but you need permission from the court and will come at your own cost plus if the court gives permission then there might be further costs you have to pay for from the claimant as a result of the amended defence e.g. they may wish to amend their particulars or provide a reply.

Not sure I can help you anymore other than wish you good luck as you are already pretty far into proceedings.

[DK85]

TThank you for your feedback.

Yeah i know, I screwed up on my defence, however, I am detailing all the evidence and timeline in my witness statement that I am currently drafting. I still believe I have a chance of redeeming myself and still have a week before I need to submit.

On the Force Majeure defence, I agree with your comments. I believe this will be difficult to use as a defence based on performance as you mentioned. I will not focus on this too much.

On the Law of Frustration, I have detailed in my witness statement the evidence and tried to argue the point you mention above " there may be some force in arguing that the contract is frustrated because they're asking you to change all of your marketing material by the third party supplier which was something not foreseen by either party to this contract". This is my main argument plus explaining the extensive effort I went to try and resolve this issue (e.g. changing the sign name, providing more identification). I have detailed as much as I can in my witness statement to argue this.

Having now read your other arguments, they are exactly what I wanted to say but you have structured it much better. I will add these to my witness statement with supporting evidence.

Is there any possibility you can give my witness statement a review before I submit?