Comply or Die?
A recent trend set by Defendant’s in road traffic accident cases is to deny credit hire claims on the basis that the hire agreement is unenforceable as it fails to comply with The Consumer Credit Act 1974.
The provision of credit has long been heavily regulated and to avoid the many constraints of the Act credit hire companies have historically strived to make their agreements exempt.
The Consumer Credit (Exempt Agreements) Order 1989, was amended by the Consumer Credit (EU Directive) Regulations 2010 so as to impose further conditions for exemption. The previous two conditions remain (that the credit must be repaid: i) within 12 months, and ii) in no more than 4 installments) and in addition for agreements entered into after 1 February 2011 the credit provided under the agreement must iii), be provided without interest or any other charges.
The astute and perspicacious credit hire companies removed their contractual interest clauses well in advance of the Regulations coming into force however, some were not so quick to change and in fact interest clauses still lurk in some agreements even now!
Where there is an interest clause in the agreement Defendants have argued:-
1) That the agreement is not exempt from the Consumer Credit Act 1974;
2) It therefore falls to be regulated by the Act and;
3) That it is not ‘properly executed’ (within the meaning of the Act) rendering it unenforceable by the hire company as against the Claimant and consequently unenforceable by the Claimant as against the Defendant.
Many of the interest clauses in question do not operate to impose interest until the provision of credit has ceased and a significant period of time has elapsed. A Claimant may therefore respond initially by arguing that a proper construction of such a term must lead to the conclusion that the credit was in fact provided without interest and so the agreement is exempt from the Act.
If that (often difficult) argument fails the agreement is likely to be a ‘regulated agreement’. To be automatically enforceable a regulated agreement must have been ‘properly executed’*. A further set of regulations have stipulated a number of prescribed terms that must be included in a credit agreement as well as a prescribed form for such agreements in order that they may be ‘properly executed’**.
As the main aim of credit hire companies has been to avoid regulation by the Act it comes as no surprise to find that most of their agreements are not in the prescribed form nor do they contain all of the prescribed terms. The consequence is that most credit hire agreements will be held not to have been properly executed.
Fortunately for Claimant’s this is not the end of the matter. Hire agreements are no longer irredeemably unenforceable’ *** and pursuant to section 65(1) of the Act the Court has the power to make an enforcement order so as to make an improperly executed agreement enforceable against the hirer.
District Judges sitting on the Northern Circuit have tended to allow Claimant’s to make applications for enforcement orders orally in the face of the court despite arguments that it is for the hire company to make the application (given that it is their agreement and their debt).
In the case of an application for an enforcement order:
Éthe court shall dismiss the application if, but only if, it considers it just to do so having regard to
(i) prejudice caused to any person by the contravention in question, and the degree of culpability for it; and
(ii) the powers conferred on the court by subsection (2) and sections 135 and 136.
(2) If it appears to the court just to do so, it may in an enforcement order reduce or discharge any sum payable by the debtor or hirer, or any surety, so as to compensate him for prejudice suffered as a result of the contravention in question****.
The statute seems to be Claimant friendly with a starting position whereby the application should be allowed and providing only restricted circumstances where it may be refused.
The difficulty for Claimants is that the prejudice caused by the contravention of the Act and the culpability for it is generally all the hire company’s and Defendants will argue that they should face the consequences of their own mistake with there being no comeuppance for the Claimant if the application is dismissed given that the agreement will be unenforceable against them.
Having scrutinised one too many extortionate hire bill District Judges may be lacking in sympathy for hire companies in general although it may be unjust not to compensate them for providing a valuable service to victims of negligence.
Successful arguments for Claimants have focused on the justice of the situation taking a contextual and rounded view of the case as a whole. A winning submission has been to avoid giving the Defendant tortfeasor a windfall by allowing them to escape paying for hire charges that were properly incurred. A Claimant’s position will be strengthened if enforceability is the only issue between the parties and liability for the charges is otherwise conceded.
Pursuant to sub-section 2) above, the Court can reduce the debt that is enforceable as against the hirer under the agreement and this may be a way of penalising the hire company for their failures.
As these cases are only just coming through to the Courts there is yet to be a precedent set on the issue. For now each case must be assessed on its own merit and the extent of the loss in the profits of offending hire companies remains to be seen.
* See sections 60 and 61 of the Act
** The Consumer Credit (Agreements) Regulations 1983
*** Dimmond v. Lovell  1 AC 384
**** Consumer Credit Act section 127