Misrepresentation is an issue that may arise within the broader context of enforceability of credit hire contracts. It is now trite law that a credit hire contract must be enforceable in order for the claimant to recover charges accrued in the hire agreement.
This article focuses on the role of misrepresentation in credit hire agreements, and in what circumstances a court will consider the contract to be unenforceable.
Enforceability generally
The requirement for enforceability is understood through a basic legal principle: the claimant must not obtain a windfall or double recovery.
If the contract is enforceable, the claimant is liable to the hire company for the credit hire charges. In these circumstances, the damages that the claimant is awarded by the court would ultimately be paid to the credit hire company. Therefore, if the contract is enforceable, the claimant will not obtain a windfall or double recovery.
The opposite is also true. If the contract is unenforceable, any damages awarded to the claimant would amount to a windfall or double recovery since there is no further obligation to pay those damages to the hire company. Thus, the claimant would have received the benefit of utilising a “free” vehicle and payment further to that.
This is why claims founded on unenforceable contracts must be dismissed.
A common misconception
Defendants often argue in court that a contract is unenforceable because the claimant appears not to understand the nature of the agreement. In cross-examination, these defendants only explore the claimant’s understanding of the contract. What defendants often fail to question is why the claimant has a particular understanding of the contract.
The heart of the issue is misrepresentation.
The role of misrepresentation
A credit hire contract may be unenforceable if the court is satisfied of the following three steps (Kadir v Thompson, 25 August 2016, Central London County Court, HHJ Luba QC):
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there was a false representation of fact or law;
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that misrepresentation induced the claimant to enter into the contract; and
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as a result, the claimant voids the contract.
The burden is on the defendant to prove each of these steps, which he must explore with the claimant during her live evidence. Thus, the questions put to the claimant should relate to what the claimant was informed (representations) by agents of the credit hire company, the effect of those representations on her decision to enter into the contract, and whether she believes that she is liable for the credit hire charges.
The common misconception by defendants leads them to enquire only in relation to step 3. Yet, step 3 in isolation cannot render the contract unenforceable. It matters not if the claimant attempts to void the contract in circumstances where there were no false representations which induced her to enter into that contract. However, if the first 2 steps are satisfied, one turns to the claimant’s understanding of the contract, because now it is ultimately a matter for the claimant to void the contract which was made voidable by way of the misrepresentation.
The question of misrepresentation will depend on the facts of each case. It is insufficient to argue that a contract is unenforceable because the claimant was told that vehicle was “free”. What was the objective meaning of the representation(s)? Was this information false or misleading? What other information was provided to the claimant in written documents? Did the claimant enter into the contract on the basis of the representation(s)? These, and many other questions, ought to be explored with the claimant in order to develop the basis for proper submissions on the 3-stage test of Kadir.
Specific scenarios
The claimant fails to read and/or understand the agreement
The claimant need not have read the terms and conditions of the hire agreement in order for her to enter into an enforceable contract. It was held in Clark v Ardington [2002] EWCA Civ 510, at paragraph 111:
"[…] In Clark however there is the further point about intention to create legal relations. Although she signed the Helphire agreements and received the policy schedule Mrs Clark was unaware of what she had signed, believing that the hire car had been provided as a courtesy car by her motor insurers. She made the claim on the policy by signing the letter from the solicitors “so as to have nothing further to worry about”. We think these facts demonstrate that Mrs Clark did sign up to the scheme. The fact that she did not understand that this is what she had done because she did not read the documents she signed is not to the point. Looking at the matter objectively we think there can be no doubt that there was a mutual intention to create legal relations in Mrs Clark’s case. It follows that we allow the appeal in her case as well."
This, as a general principle of law, was stated in L’Estrange v F Graucob Ltd [1934] 2 KB 394. Affixing a signature to a contract which the maker has neither read nor understood, nevertheless creates a binding contract. This principle applies equally to credit hire claims.
The claimant is informed that she will not be liable for charges if she is unsuccessful
There are circumstances in which claimants are informed that they will not be required to pay the hire charges if they are not successful in recovering those charges in the court proceedings. Effectively, the claimant’s liability is contingent upon actual recovery. Is this a misrepresentation? Does this make the contract unenforceable?
This issue was addressed by the Court of Appeal and subsequently the House of Lords in Giles v Thompson [1993] UKHL 2 and more recently by the High Court in Irving v Morgan Sindall PLC [2018] EWHC 1147 (QB). In both these cases, the contracts were found to be enforceable because, if an award for damages is made, the claimants would not have received a windfall or double recovery. The fact that liability is contingent is irrelevant. The test was simple - In Giles v Thompson, it was said, at 394:
“The issue may be tested by asking whether, if these plaintiffs recover reasonable charges reasonably incurred, they will be over-compensated.”
Thus, representations of contingent liability are not misrepresentations, nor do they otherwise render the contract unenforceable since, in the event that the claimant is successful, she would receive neither windfall nor double recovery.
Conclusion
The question of enforceability of credit hire contracts is often a central issue to credit hire litigation. Judges have not always applied a consistent approach in dealing with this issue, but since the case of Kadir v Thompson, a pattern is beginning to emerge which focuses on misrepresentation. However, it is hoped the Court of Appeal will consider the role of misrepresentation more fully and provide guidance and binding precedent for lower courts that frequently grapple with this issue.
JOHN ASAAD © 2020
BARRISTER
33 BEDFORD ROW
NOTICE: This article is provided free of charge for information purposes only; it does not constitute legal advice and should not be relied on as such. No responsibility for the accuracy and/or correctness of the information and commentary set out in the article, or for any consequences of relying on it, is assumed or accepted by any member of Chambers or by Chambers as a whole.