Credit Hire Newsletter

The Unenforceability of

Credit Hire Agreements Revisited

by Andrew Hogan1

1
Barrister-at-law, 24 The Ropewalk, Nottingham, NG1 5EF andrewhogan@ropewalk.co.uk
Introduction

1. On the 10th September 2010 at the Cambridge County Court sitting in Norwich, His
Honour Judge Moloney QC handed down judgment in the case of Chen Wei -v- Cambridge
Power and Light Limited on appeal from a decision of a District Judge sitting in the
Cambridge County Court, holding that the Claimant’s claim for damages for credit hire
charges with Accident Exchange, incurred in the aftermath of a road traffic accident was
unsustainable as the Credit Hire Agreement at the heart of the case failed to comply with the
Cancellation of contracts made in a Consumer’s Home or Place of Work etc, Regulations
2008 and was unenforceable.

2. The measure of the Claimant’s liability to the credit hire company accordingly being
nil, in turn nothing could be recovered from the Defendant in a clear analogy drawn between
the instant case and the well known House of Lords decision of Dimond -v- Lovell (2002)
1AC 384.

The Cancellation of Contracts made in a Consumer’s Home or Place of Work etc

Regulations 2008

3. These Regulations came into force on the 1st October 2008 and have particular
resonance for road traffic accident litigation in that they apply both to Conditional Fee
Agreements made between a client and a Solicitor in certain circumstances and also to
Credit Hire Agreements made between a credit hire company and a customer in certain
circumstances. The scope of the Regulations is set out in Regulation 5 which says this:

“These Regulations apply to a contract, including a Consumer Credit Agreement,

between a consumer and trader which is for the supply of goods or services to the
consumer by a trader and which is made:-

(a) During a visit by the trader to the consumers home or place of work, or to the
home of another individual;

(b) During an excursion organised by the trader away from his business
premises; or

(c) After an offer made by the consumer during such a visit or excursion.

4. Pursuant to Regulation 7 of the 2008 Regulations, a consumer has a right to cancel a

contract to which those Regulations apply within the cancellation period. Regulation 7(2)
provides that the trader must give the consumer written notice of his right to cancel the
contract and that notice must be given at the time the contract is made, even in so far as it is
a Regulation 5(c) in which case the notice must be given at the time the offer is made by the
consumer.

5. The notice itself must be in a prescribed form pursuant by Regulation 7(3) and
Schedule 4 of the said Regulations, in effect providing a form by which the consumer may
quickly and easily cancel the contract if he should change his mind in respect of the contract.
6. The principal sanction as far as civil proceedings are concerned is set out in
Regulation 7(6) which provides:

A contract to which these Regulations applied shall not be enforceable against the
consumer unless the trader has given the consumer a notice of the right to cancel
and the information required in accordance with this Regulation.

It should however, be noted that in a sense this can be the least of the traders worries as
pursuant to Regulation 17 failure to give due notice of the right to cancel is a criminal
offence punishable on summary conviction by a fine not exceeding level 5 on the
standard scale.

The Cambridge Power and Light Limited Company Case

7. In the case which Judgment was given on the 10th September 2010, the Learned
Judge accepted the District Judge’s primary findings of fact that the replacement hire
vehicle, in that case a Mercedes C220, was delivered to the Claimant’s home and at the time
it was delivered to the home the Claimant had signed the standard form credit hire
agreement.

8. He then went on to consider whether it was open as a mixed question of fact in law
for the District Judge to conclude that the contract was made at the time the vehicle was
delivered.

9. He concluded and was surely right that the contract was so concluded at the time of
the visit stating that it was merely a matter of commercial convenience to the credit hire
company to combine two purposes namely delivery of the vehicle and signing of the contract
rather than what could be described as a more logical order of first procuring the agreement
and then performing it by delivery.

10. He also noted that there was an entire agreement clause contained within the
standard forms which put the matter beyond doubt that the binding agreement between the
parties was made when the agreement was signed.

11. The Learned Judge went on to hold that the Credit Hire Agreement was accordingly
caught by the 2008 Regulations and went on to consider whether there had been
compliance of Regulation 7.

12. In that respect he went on to find that there had been no compliance of Regulation 7
and the agreement was unenforceable as between the parties to it.

13. An attempt was made to argue affirmation of the contract on the part of the Claimant
but this was roundly rejected by the Judge because he made the point that the affirmation
argument if right would enable traders to driver a coach and horses through the Regulations
and was on analysis no more than an attempt to take improper advantage of the
consequences of the loan breach.
14. He also went on to reject an argument that because a claim for loss of use as a head
of general damage would undoubtedly subsist, sums or any substantial sums could be
awarded in lieu in effect of the claim for special damages quantified and particularised as
credit hire charges.

The Effect of the Decision

15. The Claimant in this case, either did not have an insurance policy, insuring him
against the requirement to pay credit hire charges, at the end of the hire period, or elected
not to use it. Had he done so, it is unlikely a problem would have arisen, as an
unenforceable agreement, is not a void or illegal one and if the charges had been paid by
the Claimant he could have recovered them from the Defendant.

16. Thus the case may not have much significance in respect of well known schemes
such as Help Hire or Accident Exchange, where there is usually an insurance policy in place.
Other smaller credit hire companies may not be in the same position however.

17. Although in terms of considerable significance for the immediate future, the effect of
the agreement and indeed the 2008 Regulations may prove to be short lived. This is
because undoubtedly credit hire companies will revise their documentation to include the
required prescribed notice, the incidence of non-enforceability of such agreements is likely to
prove to be a flash in the pan.

18. Perhaps of more significance is to what extent it is open to credit hire companies to
seek retrospectively to validate the credit agreements that they have undoubtedly made. Or
to novate agreements and enter into fresh agreements in respect of what, on one analysis,
might be termed past consideration. Again, the difficulty posed by the case, can be avoided
by the Claimant paying the charges in full, perhaps by way of a loan, before proceedings are
issued.

19. There will also be instances where credit hire companies have attempted to comply
with the Regulations and in such circumstances where compliance falls short of what might
be a strict or literal reading of the Regulations, seems likely that arguments of substantial
compliance or the application of the principle of des minimis non curat lex will also fall to be
taken.

20. Undoubtedly what is however perhaps the most interesting argument will be as and
when a challenge is made to the actual legality of the Regulations on public law grounds.

21. Those familiar with consumer credit legislation will recall the case of Wilson and
Others -v- Secretary of State for Trade and Industry (2003) UKHL40, where Section 127(3)
of the Consumer Credit Act 1974 survived a challenge that it was a measure incompatible
with a lenders rights under Article 1 of the First Protocol of the European Convention of
Human Rights being a disproportionate restriction of the right to property.

22. Comfort would be drawn by a credit hire company that the 2008 Regulations may be
incompatible in the way that Section 127(3) was not. As Lord Nicholls served when
confronted with an argument that Article 1 of the First Protocol was not engaged, rejected a
proposition to that effect stating at paragraph 41:
 “.....this proposition is stated too widely and too loosely to be acceptable. Clearly, the
expiry of a limited interest such as a licence in accordance with its terms does not
engage Article 1. That is not this case. Here the transaction between the parties
provided for repayment of the loan and for the car to be held as security. What is in
issue is the lawfulness of overriding legislation. The proposition advanced by the
Secretary of State would mean that however arbitrary or discriminatory such
legislation might be, if it was in existence when the transaction took place the Court
enforcing human right values would be impotent. A convention right guaranteeing a
right of property would have nothing to say. That is not an attractive conclusion”.

He also had this to say at paragraph 68:

“I turn now to consider whether 127(3) of the Consumer Credit Act is compatible with
the rights guaranteed by Article 1 of the First Protocol. Inherent in Article 1 is the
need to hold a fair balance between the public interest and the protection of the
fundamental rights of creditors such as First County Trust. It is common ground that
Section 127(3) pursues a legitimate aim. The fairness of a system of law governing
the contractual rights of private persons is a matter of public concern. Legislative
provisions intended to bring about such fairness are capable of being in the public
interest, even if they involve the compulsory transfer of property from one person to
another: see the Lease Hold and Franchise in the case of James -v- United Kingdom
.... More specifically, persons wishing to borrow money are often vulnerable. There
is a public interest in protecting such persons from exploitation”.

He went on to hold that the restriction in 127(3) was a proportionate interference with the
creditor’s human rights but did so in circumstances where it was noted that the prescribed
financial limit was £25,000 and, of course, this applied in the context of a statutory scheme
which was meant to contain/deal with the potential social evil of money lending.

23. It can be noted by way of contract that the ambit of the Regulations is unlimited:
contracts which might be worth £250 or £250,000, can be caught by their provisions.

24. It should also be noted that the contracts which are caught by the Regulations are
any and all contracts which fall to be concluded in a consumer’s home. Thus small
tradesmen are as likely to be caught by the Regulations as are the giants of the credit hire
world.

25. It remains to be seen whether this point will be taken up in appropriate cases by
seeking to have the matter transferred from the County Court to the Administrative Court, the
Secretary of State given the appropriate notification and the matter argued as a point of
public law.

Andrew Hogan

September 2010
*Grateful thanks to Ben Williams of 39 Essex Street, for his thoughts on the 2008
Regulations. All errors of fact and law remain mine alone.

Andrew Hogan is Counsel from Ropewalk Chambers – andrewhogan@ropewalk.co.uk

For further information on Ropewalk

Chambers generally please contact the
Senior Clerk, Tony Hill, on (0115) 983 8000.

This commentary is intended as a general

overview and discussion of the subjects
raised herein. It is not intended, and should
not be used, as a substitute for taking legal
advice in any specific situation. Neither
Ropewalk Chambers nor the author(s)
accept any responsibility for any actions
taken or not taken on the basis of this
commentary.