HC Deb 12 November 1990 vol 180 cc423-30

Motion made, and Question proposed, That this House do now adjourn.—[Mr. Kirkhope.]

10 pm

Mr. Nigel Griffiths (Edinburgh, South)

The photocopier is as much a part of business in the 1990s a s the telephone. I am grateful to you, Mr. Deputy Speaker, for granting me the opportunity of presenting the House with details of an unscrupulous scheme that is costing British businesses and the public millions of pounds. It is fuelling inflation and therefore harming the economy. Unless action is taken to stop it, it will financially cripple photocopier users and drive honest companies selling photocopiers out of business. It affects not only small and large businesses but health boards, charities, voluntary organisations and education establishments—in short, everyone who requires a photocopier.

Anyone who wants a photocopier has a choice of acquiring and financing it in three ways. First, people can buy it outright and pay between 1 p and 2p a copy for supplies such as toner and parts. A tamper-proof meter is built into the machine and records a monthly or quarterly leasing charge. That is similar to running up miles on a lease car. Secondly, they can lease the equipment, paying a monthly or quarterly leasing charge, which is similar to buying goods on hire purchase, and then paying for toner and parts on the same per copy basis that I outlined.

The third method is to roll together all the leasing or rental costs with the cost of toner, supplies and parts and to work out an all-inclusive per copy cost. That is commonly called copyplan or serviceplan. That third method of paying for photocopies has been the source of so much abuse, and I am asking the Minister to have his Department investigate it.

In April, the magazine What to Buy for Business exposed the copy plan of the Southern Business Group. However, I want to focus the Minister's attention on some of the victims of another company—Eurocopy plc.

Eurocopy's copyplan, serviceplan and rental agreements are among the most restrictive and expensive ways of financing a copier. I have spoken to many charities, businesses and organisations such as health boards that have been duped by Eurocopy. Their losses total millions of pounds. The service plan, rental plan and copy plan operated by Eurocopy is evil. Although there is nothing dishonest about comprehensive per copy arrangements, Eurocopy has used such contracts to amass vast profits from dishonest sales practices. To paraphrase the words of the right hon. Member for Old Bexley and Sidcup (Mr. Heath), the unacceptable face of capitalism has given birth to the unacceptable face of copiers.

Like others in the copying business, Eurocopy realises that the secret of making money from photocopiers lies not in selling 10 copiers and making a modest profit on each copier but in selling one copier and making the biggest possible profit on that machine. A profit of £40,000 on a £2,000 copier is routine for Eurocopy's sales force, and members of the sales staff are frequently paid £100,000 on the basis of selling 25 copy agreements a year.

Here is how it is done. A service plan, which sounds like an innocuous agreement to service the machines, is not what it seems; it is often a leasing agreement and frequently is imposed on equipment that the customer already owns. Nowhere is "lease" mentioned. The customer is asked to estimate the number of copies that will be used each month and is then told by Eurocopy sales staff that the contract runs for 18 months and that the equipment is guaranteed for seven years. In fact, the small print on the Eurocopy contract legally binds the buyer to an eight-year contract because of a compulsory one-year additional termination clause. There is a six-year version of that, too.

However, the eight-year commitment to spend tens and even hundreds of thousands of pounds on Eurocopy's equipment is only the beginning of the customer's nightmare. After 18 months, the customer frequently has to pay for all servicing, parts and toner, which can add £500 a year to the bill for a modest machine. Then there is the annual price hike of 15 per cent. on almost every contract.

On 14 July, the Eurocopy group legal director, Mr. Colin Gilbert, sent me the company's latest rental agreement for the wholly owned subsidiary, Purdie arid Kirkpatrick. Buried in the small print of no fewer than 28 subclauses is the annual permissable increase of 15 per cent. It is not displayed on the front of the agreement, the part that the customer signs. I want the Minister's Department to investigate the highly inflationary aspects of Eurocopy and other companies' contracts.

It is company policy to add 15 per cent. every year on all costs, including any lease payments. Since the lease costs are fixed at the beginning of the contract, Eurocopy and Purdie and Kirkpatrick can pocket the difference. In fact, Eurocopy leases are set at far higher rates than the standard market rate but, because the leasing costs are buried in the per copy cost, the customer is not aware of the rate that he or she is paying.

More fine print in another contract allows Eurocopy to add 9 per cent. to all bills every six months for the duration of an eight-year contract, so the Eurocopy client finds himself tied to an eight-year contract, not an 18-month one. He finds his costs rising by 15 per cent. or more every year, doubling during the course of the contract. Finally, Eurocopy starts charging him for all supplies after the first 18 months, even though the customer thinks that he has already paid for them. The form that the client signs is designed to mislead. The 18-month trip, after which all costs of toner, supplies and parts are heaped on the back of the hapless customer, is not called a "free supplies period". No, it appears on the Eurocopy form as an "equipment changeover option", and the Eurocopy sales force is thus able to mislead customers into believing that they have an 18-month contract.

I pay tribute to Gareth David of The Sunday Times, to David Cameron and Peter Woodifield of The Scotsman and Alan MacDermaid of the Glasgow Herald for their sterling investigative journalism on this matter of public concern. I have read with worry the statements in the press of Eurocopy. They have implied that only a handful of customers of recently acquired companies have complaints and that they are being treated sympathetically. They are wrong on all counts. Up to half of all Eurocopy customers are on serviceplan-type agreements, although many do not realise that a bombshell will drop on their bank accounts after 18 months.

Far from being treated sympathetically, Eurocopy customers are at best resigned to new long-term contracts at rates far higher than those originally signed for. As the company is expanding by taking over existing photocopying business, it is acquiring lists of new customers all the time. In south Wales, it recently took over two photocopy companies. In the past three months, the Eurocopy sales force has been going round stating that its members have taken over the servicing agreements and require a signature for the routine transfer of the paperwork. Firms have then found that the office junior has signed a six-year contract, with built-in price rises soaring above inflation. Those contracts are legally binding. Without help from the Minister's Department, firms will find their expansion plans blighted as Eurocopy sucks out ever-increasing amounts of their profits.

It is worth looking at the history and evolution of copyplan. In two short years, that contract has been refined and modified to ensure the Eurocopy has always kept one step ahead of its potential customers. The original copyplan rolled up all costs and divided them into the number of copies so that the customer received a monthly or quarterly billing on the basis of the number of copies produced. The contract was drafted legally to bind the customer to paying for a minimum number of copies over a fixed period—as long as seven years—whether he actually used them or not. The company then modified the contract to insert the "initial term" or "termination" clause, which obliged the customer to pay for the service for a whole year after the expiry of the original contract.

Then copyplan changed its name to serviceplan. The sales force simply walked into offices and said, "This is a service agreement." No mention was made of leasing or ownership of equipment, and some firms signed over the photocopier that they owned outright without realising it. A further modification to the contract inserted an 18-month equipment change option. That allowed sales staff to pretend to customers that the contract was of only 18 months', as opposed to eight years', duration. It also meant that Eurocopy could start charging for all toner and parts on an additional per copy basis after 18 months. Finally, it allowed the companies' sales force to visit the hapless victims when bills started soaring at 18 months, and to offer to reduce those soaring costs in return for a further eight-year contract.

Those are the basic ingredients of the Eurocopy contracts and those of its subsidiaries, Equipu in England and Wales and Purdie and Kirkpatrick in Scotland. The scheme has been so successful in Scotland that it is known in the trade as the "Glasgow rip-off" or the "Glasgow stitch-up". It is important for the Minister to note that other photocopier and office supply companies are enforcing similar contracts. They are not illegal, but they should be.

Mr. Cyril Gay, Eurocopy's managing director, contends that his firm inherited all its problems from Equipu. That is not the case. The hon. Member for Gloucestershire, West (Mr. Marland) has a letter from his county council, which he has passed to me. It warns that schools operating local management schemes have also fallen victim to Eurocopy. The letter states that, after Equipu was taken over by Eurocopy, there was a mass resignation of salesmen who were unwilling to adopt the practices dictated by the new company.

My hon. Friend the Member for Bishop Auckland (Mr. Foster) has a letter relating to a photocopier worth £4,000, which was installed in a local school. In September this year, the school was paying £5,769 a year for the machine including £585 for supplies. By the end of a seven-year period, the school will be paying more than £14,000 a year. The machine will not even last another five years. The senior staff member had a visit from Mr. Gay's "sympathetic" staff to discuss the contract. His letter sums it up: These people are bandits who say that it would cost £46,000 to buy out of the agreement. They should be put out of business. The firm involved is WDC Office Systems and Supplies Ltd. It is a member of the Eurocopy group, just like Purdie and Kirkpatrick, Equipu, Impress Office Machines Ltd. and Copy Consultants.

The leading British charity representing Britain overseas had a visit from Purdie and Kirkpatrick. Its director writes: I too fell victim to the misrepresentations and sharp business practice of this firm, which resulted in a substantial loss"— to his organisation— and for me very serious damage to an otherwise unblemished 25 year career record. Other staff have not been as fortunate. Lothian health board had a visit from Purdie and Kirkpatrick. It was signed up for 11 machines, at terms so crippling that three members of staff lost their jobs, and the bill for the machines is adding to Lothian's multi-million pound deficit, to the detriment of patient care. The Greater Glasgow health board is another victim, as is Grampian health board. In a memo dated 18 May, the chief internal auditor of Grampian states: officers inexperienced in procurement had been persuaded to sign agreements for up to 8 years at charges which can only be described as extortionate. The memo continues: The companies involved are all members of the same group and include Equipu Finance plc, Eurocopy plc, Purdie and Kirkpatrick Limited and Impress Office Machines Ltd. It appears that the only experience that the Eurocopy sales staff require of their customers is the ability to sign their name. It does not matter how junior they are. It is left to the Eurocopy lawyers to demonstrate that the signature of almost any employee is legally binding.

Mr. Gay has told his shareholders and the press that he inherited the problem. He has not. He has said that it affects only very few customers. It does not. I have seen the minutes of a board meeting of Mr. Gay's company held on 5 March this year. Mr. Gay was at the meeting and was told "Complaint levels are high." His fellow director, Mr. McCall, outlined the problem: Our customers costs have always risen as each upgrade occurred but nothing like the 200 per cent. to 300 per cent. that will impact the figures now. The minutes continued to the effect that that can only lead to more questions being asked. The minutes note that the company was receiving so many complaints that the firm's solicitor, Mr. Joe d'Inverno, could not cope.

On the question of leasing companies being given invoices vastly in excess of the equipment's value, Mr. Gay was told at the meeting: Invoice values are now at a level where a leasing company would think twice about accepting the deal. What is the company's solution? It is not the withdrawal of its contracts that are designed to mislead or an offer to help the unwitting customers who find themselves plunged into debt. Instead the minutes record the action to be taken: another lawyer is to be employed to handle clients who complain. The minutes also record the problems of recording the profits. They note: With provisions and massaging the accounts we can show any figures, but everything is short-term, with no plans for the long-term. The sad thing about the minutes is the lack of concern for the organisations, charities, health boards and businesses that have fallen foul of those methods. There is no compassion or contrition. The minutes record: We would continue to operate under the principle of maximising today's profit. Eurocopy has acquired a number of other companies and that gives its sales force the chance to go in and sign up unsuspecting clients, as is happening now in south Wales and throughout England and Scotland. The salesmen are peddling the various Eurocopy customer plans with six or eight-year contracts, 18-month triggers and highly inflationary six-monthly or annual cost hikes.

It would not be such a problem if Eurocopy was the only firm using such methods. Unfortunately, it has already spawned a host of imitators in the sale of office equipment. On 12 September the Director General of Fair Trading announced that the Monopolies and Mergers Commission would be examining allegedly monopolistic practices in relation to the supply of toners and parts. I welcome that investigation, but I fear that it will not get to the heart of the problem that I have described.

We need firm action from the Government. First, the scope of the MMC's present inquiry should be extended to cover all practices relating to misleading copyplan agreements. The Department of Trade and Industry should investigate the activities of the Eurocopy group and other businesses adopting similar practices and the Minister should invite evidence from people who feel that they have been the victims of unfair contracts, whether legally binding or not. The Department should ensure that all such existing contracts are renegotiated and it should prepare legislation to void existing contracts if the photocopying firms fail to co-operate. The Minister should publish the findings of his and other Government Departments on the claiming of regional development grants by the Eurocopy group and its satellite companies.

The Office of Fair Trading and the DTI should draw up a fair contract that is transparent and sets out clearly all the costs over the whole duration of the contract, and that model contract should be binding.

Finally, I am concerned at the role of leasing companies in the matter. It appears that Lloyds Bowmaker, Anglo Leasing and others have been providing two leases on the same piece of equipment and recognising leases for vastly inflated sums—far more than the worth of the equipment or its life span.

I hope that organisations affected by unfair contracts will write to me and to the Minister. In short, we need firm action now by the DTI to protect businesses, public services, charities and the public. I hope that the Minister can guarantee that action will be taken without delay.

10.18 pm
The Parliamentary Under-Secretary of State for Corporate Affairs (Mr. John Redwood)

I have listened with great interest to what the hon. Member for Edinburgh, South (Mr. Griffiths) has said. I shall ensure that my hon. Friend the Minister for Industry arid Consumer Affairs sees the record of this debate, as some of it will be of interest to him.

I am a little surprised that the hon. Gentleman has not yet sent me any evidence of the malpractices he has described. It would have been more usual and more helpful had he sent his evidence in confidence to me at the Department before raising the matter on the Floor of the House. It is also a pity that he has seen fit to mention by name certain companies, one of which is still traded on the stock market, before submitting evidence to the appropriate authorities. Nonetheless, I will do my best to answer the points that the hon. Gentleman has raised. I will, of course, with my Department look carefully at the record of what he said when it is available.

The law already affords considerable protections against the sort of malpractices that have been described. Many of the contracts we are discussing were placed with companies. The direct protection of the Consumer Credit Act 1974, in particular in respect of cooling-off periods, is therefore unlikely to apply. But that does not make that Act entirely irrelevant. A licence under the Act is required by any person or company wishing to carry on a consumer hire business. A company may have its licence suspended or revoked by the Director General of Fair Trading if he believes that that company is not fit to engage in the activities covered by the licence.

The director general is already considering the allegations that have been made regarding certain types of photocopier leasing contracts, and he is seeking further information from trading standards departments arid other sources. I am sure that he would be interested to see any further evidence that may be produced by the hon. Member for Edinburgh, South. I shall ensure that he, too, sees the record of proceedings this evening.

I make it clear that I am willing to consider any evidence that the hon. Gentleman may have which might warrant an inquiry under the Companies Acts. I have received no evidence so far, but if the hon. Gentleman provides any evidence, I will look very carefully at it. But, for reasons of confidentiality, I will not be able to confirm whether we or any other authority are conducting an investigation.

I am sure that the hon. Gentleman will understand why that is. Most of the investigations that my Department carries out or other authorities sometimes carry out are done on a confidential basis, because we need to use the confidentiality provision to see whether allegations are well-based. It would not be fair to conduct publicly an investigation into a company or companies where the allegations turned out to be not soundly based. It takes a long time to clear a name, and damage is done in the meantime.

There are, of course, remedies in law for misrepresentation. Under English law—I think that Scots law has a broadly similar effect—misrepresentation may constitute an actionable tort in certain circumstances as well as providing grounds for relief in the law of contract. If the misrepresentation if fraudulent and a person has entered into a contract as a result of it, that person may rescind the contract, or claim damages, or both. He may also plead misrepresentation in defence if the other party seeks to enforce the contract.

In certain circumstances, fraudulent misrepresentation may amount to a criminal offence. If a misrepresentation is negligent, that too can be pleaded as a cause of action or a defence. Whether any particular company has indulged in fraudulent or negligent misrepresentation would be a matter for the courts, but it is something that the hon. Gentleman should consider when advising those who come to see him.

I understand that the company that was mentioned by the hon. Gentleman may be involved in actions pending before the Scottish courts. Those matters are therefore sub judice, and I am afraid that I cannot comment further on them in view of that.

Substantial safeguards therefore already exist against disreputable selling practices. We should remember that we are not dealing here with the uninformed consumer. We are mainly dealing with professional businesses and large organisations—people who should reasonably be expected to know what they are doing when they enter into contracts. The hon. Gentleman may reply that, in this case, he believes that they were misled. If that was so, as I have tried to indicate, those who signed a contract as a result of misrepresentation have a remedy at law.

In certain circumstances, where a very junior employee is asked to sign a document on behalf of a business or organisation, that business may not be bound by the transaction, because the junior employee may have had no authority to act.

Meanwhile, the working of the market has already begun to remedy the situation. For example, the activities of the Southern Business Group, as mentioned by the hon. Gentleman, were very thoroughly analysed by the magazine What to Buy for Business in April of this year. Four months later, that same magazine reported that the management of the Southern Business Group had changed most, if not all, of the practices that had been causing problems, and that many of the companies that had complained had obtained redress. I am sure that we all welcome and approve of that.

The proposal that questionable sales practices should be banned raises formidable difficulties of definition, interpretation and enforcement, while the suggestion that the Director General of Fair Trading be empowered to impose a code of practice ignores the fact that it is the essence of codes of practice that they are freely entered into and policed by the industry concerned; for them to be anything else would raise quite fundamental questions about the nature of contract law and its enforcement.

The hon. Gentleman has suggested that we should go even further and dictate specific types of contract. That would have other implications for the development of the marketplace and the offer of services to customers by bona fide businesses, which I suspect that the hon. Gentleman has not thought through in their entirety and which could well work to the detriment of many of the consumers of those goods and services.

I have stated that remedies already exist and I have demonstrated that, as all the serious malpractices that have been described are either illegal or can be made the subject of legal remedy, there is no need for any precipitate change in the law. We are looking at what has taken place and whether the law can be used to right any wrongs that may have been perpetrated.

As I have said, market forces are already making their contribution to remedying the problem. The business community is now alert to what has been going on—the debate will further help that process—and it seems likely that, in future, the business community will exercise greater care over agreements in respect of photocopying. There is evidence that, in some cases where there have been abuses, the industry is putting its house in order. May that continue to be the case.

In conclusion, the Director General of Fair Trading and I will, of course, study what the hon. Gentleman has said, and any further evidence that he chooses to send us to see whether we need to take action under companies legislation or the Consumer Credit Act and whether some authority or body needs to be involved.

10.26 pm
Mr. Merlyn Rees (Morley and Leeds, South)

One of the firms that has been mentioned employs 600 people in my constituency. I wish to raise only one point—indeed, there are sub judice aspects to this in which I cannot become involved. If the Minister is going to consider what has been said in this debate, could he possibly consider the views of that firm, and what it can do to give its point of view?

Mr. Redwood

With your permission, Mr. Deputy Speaker, I should like to reply to the right hon. Gentleman. I am grateful for his contribution and for the permission granted to him by the hon. Member for Edinburgh, South. The right hon. Member for Morley and Leeds, South (Mr. Rees) has already written to me pointing out that there is nothing wrong with the general philosophy of leasing, and stressing that it is up to the purchasers to decide what arrangements suit them best. In normal cases, that is a perfectly good argument. The right hon. Gentleman is welcome to send me anything that he thinks that I and my Department should consider before making any decisions.

Question put and agreed to.

Adjourned accordingly at twenty-seven minutes past Ten o'clock.