Credit Hire: Latest enforceability update
Credit Hire Aware 2
Once the most contentious area of dispute between credit hire companies and insurers, arguments over the enforceability of credit hire agreements have subsided considerably since the landmark decisions in Dimond v Lovell and Burdis v Livsey.
Without known exception, CHOs now draft their terms so as to exempt them from the Consumer Credit Act, greatly reducing the scope for challenges on the grounds of enforceability. However, a number of enforceability related issues do often still arise, perhaps with surprising regularity, and so a careful review of the contract of hire can still often bear fruit for insurers.
Contractual interest and the Consumer Credit Act
The legislation utilised by hire companies to exempt their agreements from the rigours of the Act, the Consumer Credit (Exempt Agreements) Order 1989, has recently been amended by the Consumer Credit (EU Directive) Regulations 2010. The previous two requirements for the exemption of a credit hire contract; that the credit must be repaid: i) within 12 months, and ii) in no more than 4 instalments, both still remain.
In addition, another requirement now exists as a prerequisite for exemption, which applies to all agreements entered into after 1 February 2011. The additional requirement is that the credit under the agreement must iii), be provided without interest or any other charges.
As envisaged, when the new regulations came into effect, the main CHOs removed their contractual interest terms almost overnight. However, not all hire companies have proved so alive to the changes and hire agreements which still contain interest terms are frequently seen. Such agreements will now be CCA regulated, subject perhaps to arguments in certain cases as to the proper construction of the individual term.
It may for instance be argued that some terms do not operate to impose interest until after the period of credit has expired, and thus the credit is still provided without interest. It is therefore necessary to identify the point at which the clause operates to make the claimant liable for interest.
Any credit hire agreement that is CCA regulated is enforceable against the creditor (hirer) only upon an order of the court. Therefore, any CHO whose agreement was regulated would need to apply to the court for an order that the agreement is enforced against the individual hirer. Whether the court would grant such an order is not entirely clear.
Prior to the commencement of the 2006 Act in April 2007, the court was prevented by s127(3) of the 1974 Act from making such an order. The effect of this was that such an agreement would be ‘irredeemably unenforceable’. The bar on enforcement has, however, now been repealed. This leaves the court with the discretion to enforce, dependent on the circumstances of the case and the level of prejudice caused by the failure to comply with the Act’s requirements.
Nonetheless it remains the position that an improperly executed regulated agreement is not enforceable until or unless a hire company applies for and obtains an enforcement order against the claimant. Discontinuances have been obtained in a handful of recent cases where that argument has been raised, resulting in savings for clients of around £20,000, although we are not currently aware of any court decisions on the issue.
Occasionally one or more of the clauses purporting to exempt the agreement from the Consumer Credit Act might become obscured or be incorrectly worded. This was recently noted in the agreements of a fairly large motorcycle hire company. The standard exemption clauses had been misprinted on a large number of agreements:
“The sum payable under this agreement shall be paid within 11 months instalments.’
The only two ways that this term could realistically be interpreted would appear to be either; that the sums are to be paid by 11 monthly instalments, or that the sums are to be paid within 11 months by instalments. Either way, this means that the agreement would be regulated under the 1974 Act.
A recent discontinuance where the above argument was raised, dealt with by Keoghs’ Complex Credit Hire Team, saw a saving of £47,000.00 plus recovery of legal costs.
The ‘Doorstep’ Regulations
The effect of The Cancellation of Contracts Made in a Consumers Home or Place of Work etc Regulations 2008 is well known in the field of credit hire litigation. Most hire companies, after a long delay in some cases, have since feverishly endeavoured to ensure that their agreements now fully comply with the Regulations. Despite this, some agreements continue to fall foul. It is also worth noting the strict requirements as to the form and content of a notice of the right to cancel.
Occasionally an agreement to which the Regulations apply may simply contain a term stating that the agreement is cancellable on the hirer giving notice to the hire company within a specified period. This alone is not sufficient; the right to cancel must comply with Regulation 7 and the agreement must contain a notice of such a right in the prescribed form. Some of the most important requirements are that the notice must:
- Be given at the time the contract is made
- Be dated
- Be easily legible
- Indicate the right of the consumer to cancel the contract within the cancellation period
- Contain a statement that the consumer has a right to cancel the contract if he wishes and that this right can be exercised by sending the cancellation within the period of seven days starting with the day of receipt of the notice
- Be incorporated in the same document as the written terms of the agreement
Unless an agreement to which the regulations apply complies with the above, it will be ‘irredeemably unenforceable’ against the claimant.
The Regulations often remain an issue in cases where the claimant’s signature is taken by way of PDA device, then stored electronically and transposed onto the hire documentation. Such arrangements might well fall foul of the requirements that a written notice of the right to cancel the contract must be given at the time the contract is made (Regulation 7(2)), and that the notice must be incorporated in the same document as the rest of the contract (Regulation 7(4)).
This is illustrated by the recent Keoghs' case of Arain v Eser (St Albans CC, 18/04/2013), where the claimant was sent the cancellation notice several days after the car was delivered, separately from the rest of the agreement. The agreement accordingly fell foul of Regulations 7(2) and 7(4) and the hire claim was dismissed.
It is common to see hire agreements that are signed after the hire has started, in some cases months or even years after the hire has ended. Does this make the agreement unenforceable?
Whilst there is no binding authority on the issue, the effect of the late signing of the agreement has been considered in detail in three County Court appeals: Carson v Tazaki Foods, Borley v Reed and Call Centre Technology v Sheehan.
The legal principles derived from these cases appear to suggest that late signing alone will not affect the enforceability of the hire agreement, particularly where there is evidence that the claimant made arrangements with the hire company at the outset and was sent the terms thereafter. On the other hand, if there is no such evidence, and the late signing is coupled with the claimant being unaware of any liability to pay for the hire vehicle, it is far more likely that the agreement will not be enforceable and the claim will fail.
Two recent Keoghs' cases illustrate this; Thompson v Williamson (Gateshead CC, 28/02/2013) and Huntley v Webster Millar Ltd (Reading CC 24/05/2013).
In both cases the oral evidence of the claimants was that they were not aware that they could be responsible for the hire charges, they did not receive any paperwork until after the hire had ended, and at no point was there any discussion prior to or during the period of hire about cost. Both claims were dismissed.
Another scenario which occasionally arises is when a claimant does not understand their liability under the agreement because they cannot read English. Are they bound by the terms they have signed in these circumstances? On general contract law principles it is arguable that in certain circumstances, such as where there is also evidence of misleading conduct on the part of the other contracting party, the answer could well be no.
Similar issues arose in another two recent Keoghs' cases: Hussain v Zurich (Clerkenwell & Shoreditch CC, 20/08/2012) and Yorulmaz v Cordwell (Brighton County Court, 06/06/2013).
In both cases the claimant’s could not read English and there was evidence that the hire documentation in the former had been amended by the hire company without the claimant’s knowledge. In Yorulmaz, the claimant’s oral evidence bore little resemblance to his written statement. In both cases the hire claims were dismissed.
Effect of prior payment (Subrogation)
It is important to note that the underlying reason sums due under an unenforceable credit hire agreement cannot be recovered from a defendant is founded on common law rules preventing double recovery. This means that if a claimant has had the use of a hire vehicle which he does not have to pay the hire company for because the hire agreement between them is unenforceable, then the court will not order the defendant to pay the claimant any hire charges due under that agreement. To do so would mean that the claimant has, in effect, received two lots of compensation for the same loss.
Issues of double recovery would not arise where the hire charges have already been paid before the claim comes before the court. Of course, it would be incredibly rare for a claimant himself to pay the charges due under the hire agreement.
However, in the larger hire companies’ contractual arrangements, a separate insurance policy will often lurk in the background which indemnifies the claimant for any unpaid or unrecovered hire charges. In the event that this policy can be proved to have paid off the hire charges due under the agreement on behalf of the claimant, then on the face of it the charges can be recovered from the defendant irrespective of whether the contract between the claimant and the hire company is enforceable.
The claimant’s arguments on this point were accepted by the High Court in W v Veolia, in the context of an agreement found to be unenforceable under The Cancellation of Contracts Made in a Consumers Home or Place of Work etc Regulations 2008. The ‘already paid’ principle would however, appear to apply equally to agreements that are unenforceable for any other reason.