UK: Taking The Credit - A Recent Decision On Credit Hire Agreements

Disputes involving credit hire agreements continue to come before the courts and this article looks at the recent decision in W v Veolia Environmental Services [2011] EWHC 2020 (QB) in which a number of issues were considered.

The Background

The claimant's car, a 21 year old Bentley worth about £16,000, was damaged when it was struck by the defendants' bin lorry. The claimant entered into a credit hire agreement for a modern Bentley at a rate of £860 per day. He claimed that he had to have an impressive car to reflect the appropriate image for his profession as an actuary. The non credit rate or "spot rate" would have been £485 a day but the claimant maintained that, because of his poor financial position, he could not afford to pay this from his own funds.

The hire company delivered the car to the claimant's home where he signed the hire documents and also an application for insurance for the hire charges. The limit of indemnity under the insurance policy was £100,000. The claimant went on to incur hire charges in the massive amount of £138,000, which the defendants' insurers refused to pay. The hire company then sought payment from the claimant and proceedings were raised against the defendants.

The defendants argued that the charges were irrecoverable as a result of the provisions of the Cancellation of Contracts made in the Consumer's Home or Place of Work etc Regulations 2008 and on that basis neither they nor the claimant was liable to pay the charges. The Regulations provide that the trader (in this case the insurance company) must give the consumer (the claimant) a cancellation notice setting out his right to cancel the agreement. In this case, that had not been done. The defendants argued that the fact that the claimant had not been provided with a cancellation notice made the credit hire agreement unenforceable and on that basis the claimant had not suffered any loss in relation to that agreement.

At that stage the insurance company paid the hire charges in full to the hire company, notwithstanding the fact that the charges exceeded the limit of indemnity and it is worth noting that the court expressed surprise that that the amount of the hire charges claimed had not been challenged in the court proceedings.

Effect of the hire charges having been paid

The court was asked to consider the effect of the hire charges having been paid already and whether this would produce a double recovery - an issue that hadn't arisen in any previous reported case. The court accepted that the claimant had suffered a loss that represented a settled head of claim and that, even though the hire charges had not been paid by the claimant directly, but through his insurers, payments are often made in this way and are treated as having been made by the claimant. On that basis, the claimant had paid the hire charges and, whether or not he had incurred a liability to do so, payment had been made to the hire company. As a result, this was not a case in which there could be double recovery.

Did the 2008 Regulations make the hire agreement unenforceable?

The court accepted that the 2008 Regulations applied to a credit hire agreement signed at the claimant's home. The lack of a cancellation notice required under the Regulations meant that the hire company could not enforce the hire contact against the claimant.

Had the claimant mitigated his loss?

The court considered whether the claimant's duty to mitigate his loss meant that he had to challenge the hire charges under the 2008 Regulations on the basis that the hire agreement was unenforceable. The court held that the claimant had complied with his duty to mitigate his loss by hiring a car, incurring the hire charges and then paying them. If he had not done so, the claimant would have had a claim for loss of use.

In light of the claimant's impecuniosity, were the full credit hire charges recoverable?

It was noted that, although, in practice, the case was a dispute between insurance companies, the claimant's financial position was relevant. The court was satisfied on the evidence that the claimant was impecunious. The test applied in reaching this conclusion was the one set out in the well known case of Lagden v O'Connor [2003] UKHL 64. The court held that the claimant had had no choice but to take the credit hire car as he could not have paid the lower non credit or spot rate himself. On that basis, the full amount of the credit hire charges was recoverable and not simply charges based on the spot rate. It was acknowledged that the impecuniosity exception was not designed for drivers of Bentleys (presumably on the assumption that Bentley drives are not normally considered to be individuals who are likely to be impecunious!) but the claimant's car was an old model and was not worth any more than a modest up to date car.

Comment

The decision reiterates that the 2008 Regulations apply to hire agreements and that, where there is no insurance cover to meet the charges and the appropriate cancellation notice hasn't been issued, it can be successfully argued that the hire charges are not recoverable.

The decision also provides a useful overview of previous significant decisions in credit hire cases.

Although this is an English court decision and so is not binding on the Scottish courts, in view of the Scottish courts' willingness to follow English court decisions in other credit hire cases, it will almost certainly be considered and given weight by a Scottish court in future cases concerning similar credit hire issues. Having said that, permission to appeal the decision was granted so there may be further judicial consideration of this case.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.