Credit Hire Newsletter

Chen Wei.v.Cambridge Power and Light Limited: A paper tiger ?

By Andrew Hogan, Barrister at law

Introduction

1. The decision in Chen Wei.v.Cambridge Power and Light Limited (HH

Judge Moloney QC Cambridge County Court 10th September 2010) has come to

the consideration of those representing liability insurers, and numerous cases

have now been argued across the country, with varying results, favouring either

the credit hire company or the liability insurer.

2. The purpose of this further paper is to consider the arguments, which

might in turn be used to defeat a defence, based on the Cancellation of

Contracts in the Consumers Home or Place of Work Regulations 2008, both in

terms of distinguishing the key existing authority and by reason of construction

of the Regulations themselves.

The end of Dimond.v.Lovell ?

3. The principle underlying the arguments that unenforceability of a contract

between credit hire company and hirer, relieves a third party tort-feasor of

liability to pay credit hire charges is that of the rule against double recovery

expressed most pertinently in the case of Dimond.v.Lovell [2002] 1 AC 384,

namely that a hirer whose contract is unenforceable, should not be allowed to

recover substantial compensation and yet be under no obligation to pass the

damages onto the hire company.

4. This case was decided in circumstances where pursuant to section 127(3)

of the Consumer Credit Act 1974, the hire contract in that case was

irredeemably unenforceable. That provision was repealed by the Consumer

Credit Act 2006 and now non-compliance with the Consumer Credit Act 1974,

and the Regulations made under it, renders a consumer credit agreement

unenforceable, but the court has a discretion to permit its enforcement,

potentially on terms. Under the 2008 Regulations, an agreement which is

unenforceable is irredeemably unenforceable, so it may seem that the position

should be the same per Dimond

5. But the law has moved on in the decade since Dimond: there is a wider

point here: even if an agreement is unenforceable, in the sense that a money

judgment cannot be obtained against the debtor, it does not necessarily follow in
2011, that the rule against double recovery would be offended if the hirer

recovered damages from a third party tortfeasor.

6. Unenforceability of a contract, is very different from the notion that there

is a relief of liability from obligations which parties owed under the contract.

The hirer under an unenforceable contract remains liable on the contract and

per the decision of the High Court in McGuffick.v.Royal Bank of Scotland

[2009] EWHC 2386, for failure to pay his obligations can be reported to credit

reference agencies and suffer reputational damage to his credit worthiness.

7. Damage to an individual’s credit worthiness has long been recognised, as

head of damage, which if caused by negligence or breach of contract would

attract an award of substantial damages.

8. The authority which established this position is the case of Wilson .v.

United Counties Bank Limited [1920] AC 102 where Lord Birkenhead Lord

Chancellor said this at page 112:

The objection was taken by the Defendants that this finding of the Jury cannot be supported without proof of

special damage. In deciding this point, I do not lay down a rule of general law, but I deal with the exceptional

language of an exceptional contract. The Defendants undertook for consideration to sustain the credit of the

trading customer. On principle the case seems to me to belong to that very special class of cases in which a

banker, though his customer’s account is in funds, nevertheless dishonours his cheque. The ratio decidendi in
such cases is that the refusal to meet the cheque, under such circumstances, is so obviously injurious to the

credit of a trader that the latter can recover, without allegation of special damage, reasonable compensation

for the injury done to his credit.

9. Accordingly recovery in such a case would not offend the rule against

double recoverability, as the hirer has a real liability he needs to discharge with

the damages claimed, or suffer adverse consequences. On the facts of such a

case, there is no double recovery.

The European Convention on Human Rights

10. The Draconian nature of the sanction contained in the Regulations,

irredeemable unenforceability, gives pause for thought. There is little doubt,

that the human rights of both the hirer and the credit hire company are engaged

in such a transaction, particularly under article 1 of the First Protocol. As such,

human rights become a relevant consideration. The European Convention on

Human Rights was incorporated into United Kingdom law by the Human Rights

Act 1998.

11. Article 1 of the European Convention on Human Rights provides:

Article 1
Protection of property
Every natural or legal person is entitled to the peaceful enjoyment of his possessions. No one shall be deprived
of his possessions except in the public interest and subject to the conditions provided for by law and by the
general principles of international law.

The preceding provisions shall not, however, in any way impair the right of a State to enforce such laws as it
deems necessary to control the use of property in accordance with the general interest or to secure the payment
of taxes or other contributions or penalties.

12. Section 3 of the Human Rights Act 1998 provides

3 Interpretation of legislation.

(1)So far as it is possible to do so, primary legislation and subordinate legislation must be read and given effect
in a way which is compatible with the Convention rights..

(2)This section—.
(a)applies to primary legislation and subordinate legislation whenever enacted;.
(b)does not affect the validity, continuing operation or enforcement of any incompatible primary legislation;
and.
(c)does not affect the validity, continuing operation or enforcement of any incompatible subordinate legislation
if (disregarding any possibility of revocation) primary legislation prevents removal of the incompatibility..

13. The effect of section 3 has been considered by the courts in many cases

over the last ten years cf R.v.A (No.2) [2002] 1AC45 at 44

In accordance with the will of Parliament as reflected in section 3 it will

sometimes be necessary to adopt an interpretation which linguistically

may appear strained. The techniques to be used will not only involve the

reading down of express language in a statute but also the implication of

provisions.

14. And in Ghaidan.v.Godin-Mendoza [2004] 2 AC 557 at 30:

…the mere fact the language under consideration is inconsistent with a

Convention-compliant meaning does not of itself make a Convention-

 compliant interpretation under section 3 impossible. Section 3 enables

language to be interpreted restrictively or expansively. But section 3 goes

further than this. It is also apt to require a court to read in words which

change the meaning of the enacted legislation, so as to make it

Convention-compliant. In other words, the intention of Parliament in

enacting section 3, was that to an extent bounded only by what is

“possible”, a court can modify the meaning, and hence the effect of

primary and secondary legislation.”

The sanction imposed by the 2008 Regulations

15. The sanction imposed by the Regulations is stated to be:

Right to cancel a contract to which these Regulations apply

7.—(1) A consumer has the right to cancel a contract to which these Regulations apply within
the cancellation period.
(2) The trader must give the consumer a written notice of his right to cancel the contract and
such notice must be given at the time the contract is made except in the case of a contract to which
regulation 5(c) applies in which case the notice must be given at the time the offer is made by the
consumer.
(3) The notice must—
(a) be dated;
(b) indicate the right of the consumer to cancel the contract within the cancellation period;
(c) be easily legible;
(d) contain—
(i) the information set out in Part I of Schedule 4; and
Document Printed: 2010-08-31
Status: This is the original version (as it was originally made). UK
Statutory Instruments are not carried in their revised form on this site.
4
(ii) a cancellation form in the form set out in Part II of that Schedule provided as a
detachable slip and completed by or on behalf of the trader in accordance with the
notes; and
(e) indicate if applicable—
(i) that the consumer may be required to pay for the goods or services supplied if the
performance of the contract has begun with his written agreement before the end of
the cancellation period;
(ii) that a related credit agreement will be automatically cancelled if the contract for
goods or services is cancelled.
(4) Where the contract is wholly or partly in writing the notice must be incorporated in the same
document.
(5) If incorporated in the contract or another document the notice of the right to cancel must—
(a) be set out in a separate box with the heading “Notice of the Right to Cancel”; and
(b) have as much prominence as any other information in the contract or document apart from
the heading and the names of the parties to the contract and any information inserted in
handwriting.
(6) A contract to which these Regulations apply 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.

16. There is little scope for error here. A failure to comply with the

requirements of the Regulations, renders the entire agreement unenforceable. It

can be contended with a degree of force, that the construction contended for by

paying parties, would be contrary to a construction of the Regulations

conceivably required by article 1 of the First Protocol of the European

Convention on Human Rights.

17. On a literal reading of the Regulations, they apply to all contracts made in

the Claimant’s home including the most mundane or low value of contracts. The

mischief that the Regulations were plainly meant to meet related to “doorstep

selling”, or other unsolicited sales calls, is removed from the situation where a

hirer has pro-actively sourced a hire car to meet his transport needs.

18. How would the Regulations be construed with a human rights compliance

gloss ? The 2008 Regulations provide that the agreement may not be enforced
against the Claimant: conversely it might be argued that the hirer could ratify

and enforce the agreement at his election and the sanction is not irredeemable

uneforceability.

19. Alternatively regulation 6(1)(d) could be construed to refer to all solicited

visits (by reading in a comma, in the crucial clause !), which would largely

remove credit hire agreements, from the ambit of the Regulations.

Conclusions

20. One thing is certain, the arguments are likely to continue, for as long as

there is a backlog of cases, which require the refinement and generation of ever

more involved arguments, to meet the needs of the case.

Andrew Hogan is a barrister practising from Ropewalk Chambers, 24 The

Ropewalk, Nottingham, NG1 5EF (0115) 947 2581

andrewhogan@ropewalk.co.uk