Credit hire and impecuniosity

by Tim Kevan and Aidan Ellis

Credit hire has for a long while been a tricky area.  First, there were the champerty disputes which were finally settled by the House of Lords in Giles v Thompson [1994] 1 AC 142 deciding that credit hire agreements were not unenforceable for this reason.  Then there was the consumer credit dispute in which the House of Lords held in Dimond v Lovell [2002] 1 AC 384 that the Consumer Credit Act 1974 applied in principle to such agreements unless they were exempt under one of the particular regulations.  Following this and further test cases, it was hoped that block agreements between the credit hire companies and the insurance industry may put paid to further litigation.  However, credit hire cases are now appearing back in the county courts with some regularity.

Numerous issues are being argued.  However, two factual issues in particular are causing difficulties.  The first arises from Dimond itself as the House of Lords also said that Claimants could only recover so-called ‘spot’ rates in credit hire cases.  This in itself has resulted in numerous hearings up and down the country as to exactly what are spot rates.  Evidence may be offered by either side, sometimes expert and sometimes lay.

However, equally as controversial and less clear as to the parameters is an exception to the rule set down in Dimond.  This arises from Lagden v O’Connor [2004] 1 AC 1067 in which the House of Lords held that the general rule as to only recovering spot rates would not apply to the impecunious Claimant.  This begs the question as to what is the definition of impecuniosity.  The judgments were somewhat ambiguous.

Lord Nicholls stated, “There remains the difficult point of what is meant by "impecunious" in the context of the present type of case.  Lack of financial means is, almost always, a question of priorities.  In the present context what it signifies is inability to pay car hire charges without making sacrifices the plaintiff could not reasonably be expected to make.”

Lord Hope stated, “The full cost of obtaining the services of a credit hire company cannot be claimed by the motorist who is able to pay the cost of the hire up front without exposing himself or his family to a loss or burden which is unreasonable…But it is reasonably foreseeable that there will be some car owners who will be unable to produce an acceptable credit or debit card and will not have the money in hand to pay for the hire in cash before collection.  In their case the cost of paying for the provision of additional services by a credit hire company must be attributed in law not to the choice of the motorist but to the act or omission of the wrongdoer…It is suggested that the benefits that were achieved by the decision in Dimond v Lovell will be set aside if an exception were to be made in favour of the impecunious.  The adjective is incapable of precise definition…In practice the dividing line is likely to lie between those who have, and those who do not have, the benefit of a recognised credit or debit card.  It ought to be possible to identify those cases where the selection has been made on grounds of convenience only without much difficulty.”

Defendants may argue that Lord Hope’s credit or debit card test should be sufficient.  They may also point out that whilst mitigation is about whether Claimant’s should have done something else, the impecuniosity issue is instead about ability to pay, ie whether the Claimant could have hired at spot rates if forced.

Claimants on the other hand may emphasise the unreasonable sacrifice test which both law Lords also mentioned in their own way.  To some extent this test is open ended as it might almost always be able to be argued that it would be an unreasonable sacrifice for a Claimant who was not at fault to have to spend his own money.

Ultimately, whether someone is impecunious is a question of fact for the judge but it would be certainly helpful to have some guidance from the higher courts at some point.  What about, for example, the relatively well-off Claimant who has a luxury car and could not have afforded to hire a similar replacement on the spot-hire market?

Lord Nicholls also stated that “Motor insurers and credit hire companies should be able to agree on standard enquiries, or some other means, which in practice can most readily give effect to this test of impecuniosity.”  It would also be helpful to have further guidance as to what exactly those standard enquiries might entail.

Until such guidance is given, it seems likely that this issue will continue to fill up the lists in the county courts up and down the country.