On writing

I enjoy drafting documents, including credit hire agreements for use in credit hire contracts and wider consumer credit applications. One has to be methodical and up to date on the applicable legislation in one’s approach to such drafting work however: the law reports are littered with examples of cases where things have gone badly wrong due to deficient drafting.

An interesting question is whether the dangers posed by errors when drafting such  agreements are as great now as they were 20 years ago, or even 10 years ago.

A line of argument that rarely surfaces in credit hire cases these days is the argument that a credit hire agreement is unenforceable, due to failure to comply with various statutory provisions.

In the aftermath of Dimond v Lovell [2002] 1 AC 384 where the insurance industry coupled the formality requirements of the consumer credit regime with irredeemable unenforceability under section 127(3) of the Consumer Credit Act 1974 and the rule against double recovery, to strike down many claims for credit hire, the credit hire companies swiftly revised the terms of their agreements to take advantage of the The Consumer Credit (Exempt Agreements) Order 1989. By drafting agreements which were exempt from the formality requirements of the consumer credit regime, it was hoped that arguments on enforceability could be pushed to one side.

So it largely proved. Attempts to argue that such arrangements were shams largely failed. Section 127(3) itself was repealed, due to concerns that its absolute nature was hard to justify in a legal world newly cognisant of the A1P1 rights protected under the Human Rights Act 1998.

There are respectable arguments that Dimond itself is per incuriam, as irrespective of the enforceability of the agreements, the liability imposed by those agreements remains. If a grateful client pays the full cost of hire under an unenforceable agreement (or more prosaically does so to avoid having his credit score ruined by a vengeful credit hire company) the full cost of hire is recoverable, subject to the usual arguments on mitigation.

In this respect, does it then matter if credit hire agreements comply with the consumer credit legislation any more? Could a credit hire company simply say that any qualified unenforceability is irrelevant to a tortfeasor’s liability? This would be a bold submission to make, particularly at county court level. It remains the case that a prudent hire company will strive to ensure that its agreements do not offend the consumer credit regime.

The Consumer Credit (Exempt Agreements) Order 1989 was repealed some years ago, and in order to draft enforceable credit hire agreements which are exempt from the formality requirements, regard must be now had to the amendments contained in The Financial Services and Markets Act 2000 (Regulated Activities)(Amendment no 2) Order 2013.

It should be noted that these are not identical to the exemptions contained in the 1989 Order: it remains an intriguing possibility that there are credit hire companies out there, still using forms of agreement pre-dating the legislative changes in 2014 and blissfully unaware that there agreements are technically unenforceable.

An interesting point that has arisen over the years, is whether a credit hire agreement can itself contain provisions akin to those contained in a CFA lite: namely a waiver, that the hire charges are only payable by the client to the extent that they are recovered from the tortfeasor. Recent caselaw suggests that this is not problematic: Katherine Ann Irving v Morgan Sindall [2018] EWHC 1147 (QB).

In addition, the swansong on irredeemable unenforceability which was created by the requirement in a further statutory instrument, for cancellation notices to be included on agreements made in a hirer’s home has itself slipped away into legal history and been replaced by another set of provisions, which need to be carefully considered, and where necessary incorporated into hire agreements: The Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013.

In short, I would suggest that there remain traps for the unwary when drafting hire agreements: there are sufficient arguments to still be made on enforceability to make it worth an insurance company’s while, to scrutinise very carefully the terms and conditions of the hire agreements they are being asked to pay for.

4 comments

  1. Hi Andrew

    Your blog is useful as always.

    Just two things please, wouldn’t the 2013 cancellation regulations generally speaking only apply in a credit repair instance? The regulations
    Contain an exemption for services of a credit nature.

    Secondly, many of the large credit hire organisations include an admin fee, this in my view is something which could render a contract unenforceable? (unless it isn’t linked with the credit facility).

    Thank you

    1. A contract for credit hire of a vehicle, is fundamentally a contract for hire of a chattel. The exemptions in relation to credit in the 2013 regulations are in respect of banking services: credit in the sense of a loan. I see no reason why an administration fee would affect the enforceability of a hire agreement.

  2. So helpful many thanks. One question, and perhaps not the most clever, does a credit hire company require to be registered in terms of providing credit?

    I am dealing with a not so credible garage providing hire with older vehicles and I am not convinced they are complying with requirements.

  3. It depends if the credit agreements it is making are exempt or not. Article 60B provides that entry into a credit agreement with an individual is a regulated activity. But there are exemptions in articles 60C-60H which may or may not be capable of application.

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