This case was a landmark judgment in that it provided an overview of the facts/circumstances surrounding this complex area. It is a lengthy decision and I have summarised the case below:-
Circumstances
The plaintiff, whose car had been damaged as a result of the defendant's negligence, signed a form of agreement with a specialist vehicle hire company for the hire of a replacement car whilst hers was being repaired. Under the agreement the company had the conduct of any litigation necessary to recover the damages and the payment of the hire charges was postponed until any such claim was concluded. The defendant's insurers refused to pay the sum claimed as hire charges on the ground that the agreement was a regulated consumer credit agreement for the purposes of the Consumer Credit Act 1974 but was unenforceable for failure to comply with the requirements of that Act. The insures had also argued that the hire charges were far in excess of the market rate (aka the "spot hire" rate) for vehicle hire.
Decision
Held , dismissing the appeal, that:-
(i) The only obligation on the hire company under the agreement had been to provide the car and, in the absence of credit, the company would have been entitled to payment during or at the end of the hire;
(ii) that all the provisions concerning the pursuit of the claim were express or implied conditions deferring the right to recover the hire and therefore constituted a granting of credit;
(iii) That since there was only one obligation on the hire company the agreement did not constitute a multiple agreement under section 18 of the 1974 Act but was a regulated agreement within the meaning of the Act;
(iv) That Parliament intended that if such an agreement was improperly executed it would be unenforceable and the debtor should not have to pay;
(v) That it would be contrary to that intention to apply the doctrine of unjust enrichment or to allow the plaintiff to sue the defendant as trustee for the company;
(vi) That the only way the plaintiff could recover damages for the notional cost of hiring a vehicle which she had actually had free was under an exception to the rule against double recovery and there was no reason of policy why there should be such an exception;
(vii) Accordingly, the agreement was unenforceable and a claim for damages for loss of use of the plaintiff's own car failed.
(vii) Where an agreement with a specialist accident hire company is enforceable the plaintiff will not be able to recover the full amount charged since, although it is reasonable for a plaintiff to use the services of such a company, he obtains more from the agreement than the cost of a replacement car and the additional benefits (e.g. the provision of credit and the loss of risk of pursuing a claim in the courts) are not recoverable against the defendant. The recoverable loss after allowance has been made for the additional benefits which a specialist accident hire company provides will normally be the market rate (aka 'spot hire' rate) for hiring a car from an ordinary car hire company.
The Key Points from Lord Hoffman's Decision
(vii) Where an agreement with a specialist accident hire company is enforceable the plaintiff will not be able to recover the full amount charged since, although it is reasonable for a plaintiff to use the services of such a company, he obtains more from the agreement than the cost of a replacement car and the additional benefits (e.g. the provision of credit and the loss of risk of pursuing a claim in the courts) are not recoverable against the defendant. The recoverable loss after allowance has been made for the additional benefits which a specialist accident hire company provides will normally be the market rate (aka 'spot hire' rate) for hiring a car from an ordinary car hire company.
The Key Points from Lord Hoffman's Decision
Lord Hoffman delivers the key decision in this case. He elaborates on some of the overriding themes of credit hire and his judgment should be read by anyone with an interest in this area. I have taken some of the main points from his judgment and can summarise as follows:-
The Need for Accident Hire Companies
"The services...offered by an accident hire company, in providing the car on credit and assuming the burden and risk of pursuing the claim, have filled a gap in the market. Many comprehensive motor insurance policies cover damage to the vehicle but not the cost of hiring a replacement. The owner of a damaged car can arrange for his car to be repaired in the knowledge that the bill will be sent to the insurance company. Whether his company meets the cost itself or recovers it from the other driver's insurer is (apart from the question of a no-claim bonus) not a matter which need concern him. If, however, he wants to hire a replacement vehicle, he will have to make the arrangements at his own expense and claim the cost from the other driver himself. Faced with such a prospect, many drivers will make do without a car while their vehicle is off the road. Accident hire companies enable them to have a replacement car without cost, trouble or risk."
The Impact on the Insurance Sector
"The accident hire business has increased the cost of third party claims against motor insurance companies.... Motorists not only hire replacement cars when they would not previously have done so but also, since they are not themselves paying, do not necessarily exercise the closest scrutiny over the rate that is being charged. Partly for this reason and partly because the companies have to be compensated for the credit and additional services that they provide, claims by accident hire companies are generally at rates substantially above the market or "spot" rates that an ordinary hire company would have been willing to offer for ready money. Motor insurance companies have therefore tried to resist such claims."
The Impact on the Insurance Sector
"The accident hire business has increased the cost of third party claims against motor insurance companies.... Motorists not only hire replacement cars when they would not previously have done so but also, since they are not themselves paying, do not necessarily exercise the closest scrutiny over the rate that is being charged. Partly for this reason and partly because the companies have to be compensated for the credit and additional services that they provide, claims by accident hire companies are generally at rates substantially above the market or "spot" rates that an ordinary hire company would have been willing to offer for ready money. Motor insurance companies have therefore tried to resist such claims."
Credit Hire Agreements - The Consumer Credit Act 1974
Section 65(1) of the Act provides: "An improperly-executed regulated agreement is enforceable against the debtor or hirer on an order of the court only."
"There has been no court order for the enforcement of Mrs Dimond's hiring agreement and...it is accepted on both sides that on the facts of the present case the court would not have jurisdiction to make one. It is also accepted that, for reasons which I shall explain, the agreement was improperly executed. So the only question for your Lordships' decision on this part of the case is whether the hiring agreement was a "regulated agreement" within the meaning of the Act."
(a) "Regulated agreement"
The Act has a definition of a "regulated agreement" in section 189(1) . It means: "a consumer credit agreement, or consumer hire agreement, other than an exempt agreement."
A "consumer credit agreement" is defined in section 8(2): "A consumer credit agreement is a personal credit agreement by which the creditor provides the debtor with credit not exceeding [a sum specified by regulation, which at the time of the hiring agreement was £15,000: see the Consumer Credit (Increase of Monetary Limits) Order (SI 1983 No 1878) ]."
This definition sends one to the definition of a "personal credit agreement", which is to be found in section 8(1) : "A personal credit agreement is an agreement between an individual ('the debtor') and any other person ('the creditor') by which the creditor provides the debtor with credit of any amount."
The definition chase ends with the meaning given to "credit" by section 9(1) : "In this Act 'credit' includes a cash loan, and any other form of financial accommodation."
"[I]t seems to me that one emerges from these statutory thickets holding onto a very simple question. Did...[the company]...provide Mrs Dimond with credit? If so, the hiring agreement was a personal credit agreement and, since it was for a good deal less than £15,000, a consumer credit agreement and thus (subject to the question of exemption) a regulated agreement."
Lord Hoffman then goes onto look at the terms of the hire agreement:-
"The only obligation of...[the company]...under the agreement was to provide the vehicle. In the absence of credit, it would have been entitled to payment during or at the end of the hire. All the provisions about the pursuit of the claim were express or implied conditions that deferred the right to recover the hire and therefore constituted a granting of credit. In addition, of course, the pursuit of the claim by..[the company]...on behalf of Mrs Dimond may have given rise to further obligations to her, such as the obligation to indemnify her against a liability."
"[If the] first argument was rejected and the hiring agreement not construed as an entire contract, then it..[was argued that it]...became a multiple agreement within section 18. One part was the hiring of the car and the other the provisions for pursuit of the claim.....The difficulty I have with this argument is that it seems to sever the provisions that create the debt (hiring the car) from the provisions that allow credit for payment of the debt. Whatever a multiple agreement may be, one cannot divide up a contract in that way. The creation of the debt and the terms on which it is payable must form parts of the same agreement. The truth of the matter is that I accept that the hiring agreement was a single contract. But I do not accept...[the]...submission as to what that contract was. He argues that it involved multiple obligations on the part of...[the company]..that had to be performed over a period starting when the car was hired and ending when the damages were recovered. I consider, on the contrary, that the only primary obligation of...[the company]...was to provide the car. The rest of the agreement dealt with the conditions upon which it would be entitled to recover the hire. To such an agreement section 18 has, of course, no relevance. "
Section 65(1) of the Act provides: "An improperly-executed regulated agreement is enforceable against the debtor or hirer on an order of the court only."
"There has been no court order for the enforcement of Mrs Dimond's hiring agreement and...it is accepted on both sides that on the facts of the present case the court would not have jurisdiction to make one. It is also accepted that, for reasons which I shall explain, the agreement was improperly executed. So the only question for your Lordships' decision on this part of the case is whether the hiring agreement was a "regulated agreement" within the meaning of the Act."
(a) "Regulated agreement"
The Act has a definition of a "regulated agreement" in section 189(1) . It means: "a consumer credit agreement, or consumer hire agreement, other than an exempt agreement."
A "consumer credit agreement" is defined in section 8(2): "A consumer credit agreement is a personal credit agreement by which the creditor provides the debtor with credit not exceeding [a sum specified by regulation, which at the time of the hiring agreement was £15,000: see the Consumer Credit (Increase of Monetary Limits) Order (SI 1983 No 1878) ]."
This definition sends one to the definition of a "personal credit agreement", which is to be found in section 8(1) : "A personal credit agreement is an agreement between an individual ('the debtor') and any other person ('the creditor') by which the creditor provides the debtor with credit of any amount."
The definition chase ends with the meaning given to "credit" by section 9(1) : "In this Act 'credit' includes a cash loan, and any other form of financial accommodation."
"[I]t seems to me that one emerges from these statutory thickets holding onto a very simple question. Did...[the company]...provide Mrs Dimond with credit? If so, the hiring agreement was a personal credit agreement and, since it was for a good deal less than £15,000, a consumer credit agreement and thus (subject to the question of exemption) a regulated agreement."
Lord Hoffman then goes onto look at the terms of the hire agreement:-
"The only obligation of...[the company]...under the agreement was to provide the vehicle. In the absence of credit, it would have been entitled to payment during or at the end of the hire. All the provisions about the pursuit of the claim were express or implied conditions that deferred the right to recover the hire and therefore constituted a granting of credit. In addition, of course, the pursuit of the claim by..[the company]...on behalf of Mrs Dimond may have given rise to further obligations to her, such as the obligation to indemnify her against a liability."
"[If the] first argument was rejected and the hiring agreement not construed as an entire contract, then it..[was argued that it]...became a multiple agreement within section 18. One part was the hiring of the car and the other the provisions for pursuit of the claim.....The difficulty I have with this argument is that it seems to sever the provisions that create the debt (hiring the car) from the provisions that allow credit for payment of the debt. Whatever a multiple agreement may be, one cannot divide up a contract in that way. The creation of the debt and the terms on which it is payable must form parts of the same agreement. The truth of the matter is that I accept that the hiring agreement was a single contract. But I do not accept...[the]...submission as to what that contract was. He argues that it involved multiple obligations on the part of...[the company]..that had to be performed over a period starting when the car was hired and ending when the damages were recovered. I consider, on the contrary, that the only primary obligation of...[the company]...was to provide the car. The rest of the agreement dealt with the conditions upon which it would be entitled to recover the hire. To such an agreement section 18 has, of course, no relevance. "
"It is conceded that the agreement was not an exempt agreement. It is however worth noticing that article 3(1)(a) of the Consumer Credit (Exempt Agreements) Order 1989 (SI 1989 No 869) exempts consumer credit agreements such as this one if the total number of payments to be made by the debtor does not exceed four and: "those payments are required to be made within a period not exceeding 12 months beginning with the date of the agreement."
"[The company]" can therefore obtain exemption from the Consumer Credit Act 1974 if they include a clause that requires that the hire should in any event be paid (if at all) within 12 months. But the hiring agreement executed by Mrs Dimond was a regulated agreement within the meaning of section 65(1) ."
(b) Improperly executed
Although it is conceded that the agreement was not properly executed, I think I should briefly explain why. By section 61(1) , a regulated agreement is not properly executed unless, among other things:
"(a) a document in the prescribed form itself containing all the prescribed terms and conforming to regulations under section 60(1) is signed in the prescribed manner both by the debtor or hirer and by or on behalf of the creditor or owner."
"Schedule 6 provided that certain terms were to be "prescribed terms" which the document had to contain for the purposes of section 61(1). These were, in the case of a consumer credit agreement to finance the acquisition of services by the debtor (such as the provision of the car to Mrs Dimond), "a term stating the amount of the credit, which may be expressed as the total cash price of the ... services". It is conceded that no such term appeared in the agreement signed by Mrs Dimond. The agreement was therefore improperly executed."
(c) Order of the court
"Section 65(1) provides that an improperly executed agreement shall be enforceable only "on an order of the court". Section 127 gives the court power to make orders for the enforcement of agreements that are, for various reasons, improperly executed. But subsection (3) provides that a court shall not make an enforcement order for an agreement that does not comply with section 61(1)(a) unless the debtor signed a document containing "all the prescribed terms". The hiring agreement in this case did not and is therefore irredeemably unenforceable."
Unjust enrichment
"[It was argued that] if the hiring agreement is unenforceable, Mrs Dimond has been unjustly enriched. She has had 8 days use of a Ford Mondeo for nothing. She has certainly been enriched at the expense of...[the accident hire company]....The real difficulty, as it seems to me, is that to treat Mrs Dimond as having been unjustly enriched would be inconsistent with the purpose of section 65(1). Parliament intended that if a consumer credit agreement was improperly executed, then subject to the enforcement powers of the court, the debtor should not have to pay. This meant that Parliament contemplated that he might be enriched and I do not see how it is open to the court to say that this consequence is unjust."
"[The company]" can therefore obtain exemption from the Consumer Credit Act 1974 if they include a clause that requires that the hire should in any event be paid (if at all) within 12 months. But the hiring agreement executed by Mrs Dimond was a regulated agreement within the meaning of section 65(1) ."
(b) Improperly executed
Although it is conceded that the agreement was not properly executed, I think I should briefly explain why. By section 61(1) , a regulated agreement is not properly executed unless, among other things:
"(a) a document in the prescribed form itself containing all the prescribed terms and conforming to regulations under section 60(1) is signed in the prescribed manner both by the debtor or hirer and by or on behalf of the creditor or owner."
"Schedule 6 provided that certain terms were to be "prescribed terms" which the document had to contain for the purposes of section 61(1). These were, in the case of a consumer credit agreement to finance the acquisition of services by the debtor (such as the provision of the car to Mrs Dimond), "a term stating the amount of the credit, which may be expressed as the total cash price of the ... services". It is conceded that no such term appeared in the agreement signed by Mrs Dimond. The agreement was therefore improperly executed."
(c) Order of the court
"Section 65(1) provides that an improperly executed agreement shall be enforceable only "on an order of the court". Section 127 gives the court power to make orders for the enforcement of agreements that are, for various reasons, improperly executed. But subsection (3) provides that a court shall not make an enforcement order for an agreement that does not comply with section 61(1)(a) unless the debtor signed a document containing "all the prescribed terms". The hiring agreement in this case did not and is therefore irredeemably unenforceable."
Unjust enrichment
"[It was argued that] if the hiring agreement is unenforceable, Mrs Dimond has been unjustly enriched. She has had 8 days use of a Ford Mondeo for nothing. She has certainly been enriched at the expense of...[the accident hire company]....The real difficulty, as it seems to me, is that to treat Mrs Dimond as having been unjustly enriched would be inconsistent with the purpose of section 65(1). Parliament intended that if a consumer credit agreement was improperly executed, then subject to the enforcement powers of the court, the debtor should not have to pay. This meant that Parliament contemplated that he might be enriched and I do not see how it is open to the court to say that this consequence is unjust."
Res inter alios acta
"[The next argument] was that it did not matter whether Mrs Dimond was liable to pay for the hire of the Ford Mondeo. The fact was that Mr Lovell had negligently deprived her of eight days' use of her Suzuki. This was her loss and the fact that she had been lucky enough to obtain the use of another car for nothing was, as one used to say, res inter alios acta. It should not affect Mr Lovell's liability, any more than if a friendly neighbour who happened to be going on holiday had put his car at her disposal. The neighbour would be surprised to learn that his generosity had been for the benefit of Mr Lovell."
"The courts have realised that a general principle of res inter alios acta which assumes that damages will be paid by "the wrongdoer" out of his own pocket is not in accordance with reality. The truth is that virtually all compensation is paid directly out of public or insurance funds and that through these channels the burden of compensation is spread across the whole community through an intricate series of economic links. Often, therefore, the sources of "third party benefits" will not in reality be third parties at all. Their cost will also be borne by the community through taxation or increased prices for goods and services."
Argument that Payment Should be Made to Mrs Dimond as Trustee for the Hire Company
"The courts have realised that a general principle of res inter alios acta which assumes that damages will be paid by "the wrongdoer" out of his own pocket is not in accordance with reality. The truth is that virtually all compensation is paid directly out of public or insurance funds and that through these channels the burden of compensation is spread across the whole community through an intricate series of economic links. Often, therefore, the sources of "third party benefits" will not in reality be third parties at all. Their cost will also be borne by the community through taxation or increased prices for goods and services."
Argument that Payment Should be Made to Mrs Dimond as Trustee for the Hire Company
"This case is....far away from the gratuitous provision of services (usually by a relative) which was considered suitable for recovery as trustee in Hunt v Severs [1994] 2 AC 350. If Mrs Dimond is allowed to sue Mr Lovell as trustee for...[the accident hire company]...the effect will be to confer legal rights upon...[the accident hire company]...by virtue of an agreement which the 1974 Act has declared to be unenforceable. This would be contrary to the intention of the Act. The only way, therefore, in which Mrs Dimond could recover damages for the notional cost of hiring a car which she has actually had for free is if your Lordships were willing to create another exception to the rule against double recovery. I can see no basis for doing so. The policy of the 1974 Act is to penalise...the accident hire company...for not entering into a properly executed agreement. A consequence is often to confer a benefit upon the debtor, but that is a consequence rather than the primary purpose. There is no reason of policy why the law should insist that Mrs Dimond should be able to retain that benefit and make a double recovery rather than that it should reduce the liability of Mr Lovell's insurers."
Damages
"I consider that the claim for damages for loss of the use of the car failed and should have been dismissed.The unenforceability of the agreement is a technical defect which more sophisticated drafting can easily correct. But the principles upon which damages are calculated are vital to the future profitability of the accident hire business....I would accept....that Mrs Dimond acted reasonably in going to...[an accident hire company]...and availing herself of its services. I am sure that any of your Lordships in her position would have done the same. She cannot therefore be said not to have taken reasonable steps to mitigate her damage."
"But that does not necessarily mean that she can recover the full amount charged by..[the accident company]. By virtue of her contract, she obtained not only the use of the car but additional benefits as well. She was relieved of the necessity of laying out the money to pay for the car. She was relieved of the trouble and anxiety of pursuing a claim against Mr Lovell or...[his insurer]...She was relieved of the risk of having to bear the irrecoverable costs of successful litigation and the risk, small though it might be, of having to bear the expense of unsuccessful litigation. Depending upon the view one takes of the terms of agreement, she may have been relieved of the possibility of having to pay for the car at all."
"My Lords, English law does not regard the need for any of these additional services as compensatable loss...[but]...How does one calculate the additional benefits that Mrs Dimond received by choosing the...[accident company]...package to mitigate the loss caused by the accident to her car? The hiring contract does not distinguish between what is attributable simply to the hire of the car and what is attributable to the other benefits. But I do not think that a court can ignore the fact that, one way or another, the other benefits have to be paid for. [The accident company]...have to bear the irrecoverable costs of conducting the claim, providing credit to the hirers, paying commission to brokers, checking that the accident was not the hirer's fault and so on. A charge for all of this is built into the hire."
"How does one estimate the value of these additional benefits that Mrs Dimond obtains? It seems to me that prima facie their value is represented by the difference between what she was willing to pay...[the accident company]...and what she would have been willing to pay an ordinary car hire company for the use of a car....[The accident company]...charged more because they offered more. The difference represents the value of the additional services which they provided. I quite accept that a determination of the value of the benefits which must be brought into account will depend upon the facts of each case. But the principle to be applied is that in the case of a hiring from an accident hire company, the equivalent spot rate will ordinarily be the net loss after allowance has been made for the additional benefits which the accident hire company has provided."
"I consider that the claim for damages for loss of the use of the car failed and should have been dismissed.The unenforceability of the agreement is a technical defect which more sophisticated drafting can easily correct. But the principles upon which damages are calculated are vital to the future profitability of the accident hire business....I would accept....that Mrs Dimond acted reasonably in going to...[an accident hire company]...and availing herself of its services. I am sure that any of your Lordships in her position would have done the same. She cannot therefore be said not to have taken reasonable steps to mitigate her damage."
"But that does not necessarily mean that she can recover the full amount charged by..[the accident company]. By virtue of her contract, she obtained not only the use of the car but additional benefits as well. She was relieved of the necessity of laying out the money to pay for the car. She was relieved of the trouble and anxiety of pursuing a claim against Mr Lovell or...[his insurer]...She was relieved of the risk of having to bear the irrecoverable costs of successful litigation and the risk, small though it might be, of having to bear the expense of unsuccessful litigation. Depending upon the view one takes of the terms of agreement, she may have been relieved of the possibility of having to pay for the car at all."
"My Lords, English law does not regard the need for any of these additional services as compensatable loss...[but]...How does one calculate the additional benefits that Mrs Dimond received by choosing the...[accident company]...package to mitigate the loss caused by the accident to her car? The hiring contract does not distinguish between what is attributable simply to the hire of the car and what is attributable to the other benefits. But I do not think that a court can ignore the fact that, one way or another, the other benefits have to be paid for. [The accident company]...have to bear the irrecoverable costs of conducting the claim, providing credit to the hirers, paying commission to brokers, checking that the accident was not the hirer's fault and so on. A charge for all of this is built into the hire."
"How does one estimate the value of these additional benefits that Mrs Dimond obtains? It seems to me that prima facie their value is represented by the difference between what she was willing to pay...[the accident company]...and what she would have been willing to pay an ordinary car hire company for the use of a car....[The accident company]...charged more because they offered more. The difference represents the value of the additional services which they provided. I quite accept that a determination of the value of the benefits which must be brought into account will depend upon the facts of each case. But the principle to be applied is that in the case of a hiring from an accident hire company, the equivalent spot rate will ordinarily be the net loss after allowance has been made for the additional benefits which the accident hire company has provided."
Note
As you can see, this is a detailed decision and it is worthwhile reading the original in detail. Many of the themes outlined in Lord Hoffman's judgment are frequently encountered in the world of credit hire law and I shall be exploring them further in future posts.
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