Credit Hire Agreement Unsigned by the Claimant - Implications

Introduction

It is not altogether unusual for a credit hire agreement to be unsigned by the Claimant. Indeed, it's not an unfamiliar situation in the courts and the courts have dealt with such cases in a variety of ways. In an increasingly busy world, unsigned agreements are likely to become even more common. However, there is not much detailed explanation as to the permutations involved in a case on an unsigned credit hire agreement, and its implications.

This article attempts to provide clarity to this situation.

I will deal with this topic in the following way:

• Implications of an unsigned agreement for regulated hire agreements;
  
  
• Implications of an unsigned agreement for unregulated hire agreements;
  
  
• Some recent examples of my own cases involving a hire agreement unsigned by the claimant;
  
  
• Conclusion 

The reader is advised to pay careful attention to the distinction between “regulated” and “unregulated” hire agreements in this article, two words I have deliberately italicised for ease of understanding.

Implications of an unsigned agreement for regulated hire agreements

In order to deal with this topic, it must be understood as to what a regulated hire agreement actually is and is not? In simple terms, a regulated hire agreement is a hire agreement which provides “credit” on a hire agreement (section 8 of the Consumer Credit Act 1974, referred to as the “Act”) or is capable of lasting more than three months (section 15 of the Act). So, a hire agreement can become regulated whether due to credit being provided or because the hire is capable of lasting for longer than three months. Please see my article on “How does a hire agreement become regulated” for a more detailed treatment. As discussed in that article, if no credit is provided but the hire is capable of lasting for more than three months, then it is still regulated. Conversely if credit is provided, yet the hire is not capable of lasting for more than three months, then it is still regulated.

To avoid the agreement being the regulated under the Act without needing to resort to “exemptions” (see below), the hire agreement should not provide for credit and the hire agreement should not be capable of lasting for more than 3 months – both these conditions must be fulfilled.

Even if the hire agreement provides for credit or is capable of lasting for more than three months, the hire company can seek to exempt the agreement from the regulations. One of the main ways an exemption is sought by hire companies is by providing that the payment for hire has to be made within 12 months beginning with the date on the agreement and in no more than 4 instalments (Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) (No.2) Order 2013 – Art 60F) - there is more to this exemption than just that, but the purpose of this article is not to go through the exemptions in detail).

Being a regulated hire agreement means that the hire agreement must comply with a number of formalities as laid down in the Act. One of these formalities is that the hirer must sign the hire agreement. Failure to comply with these formalities leads to a hire agreement being unenforceable, albeit an application for an “enforcement” order can be made, which will be a discretion for the court to exercise. The specific sections of the Act are referred to below.

The consequences of the claimant not signing a hire agreement which is regulated by the Act can be potentially fatal to recovering hire charges against the defendant. The Act spells out the consequences very clearly. Section 61 (1) (a) of the Act states that:

“Signing of agreement.

(1)  A regulated agreement is not properly executed unless — (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...”

Its crystal clear that that the debtor or hirer must sign the agreement – it cannot be signed on behalf of the debtor or hirer as the Act makes no provision for that. This is highlighted even more by the contrast for the creditor or owner, whereby it states that it can be signed “on behalf of the creditor or owner”.

The consequences of an unsigned regulated hire agreement (which would be an “improper execution” according to the Act) are very clear indeed. Basically, the hire agreement become unenforceable. Section 65 of the Act states:

“65 Consequences of improper execution.

An improperly-executed regulated agreement is enforceable against the debtor or hirer on an order of the court only.”

At first blush looking at the higher court cases, it seems there can only be one consequence of an unsigned regulated hire agreement, namely that the claimant cannot recover any hire charges pursuant to the binding authorities.

In Dimond v Lovell [2000] 2 All ER 897, the formalities had not been complied with - the agreement was a regulated agreement, which had not been exempted. As the agreement was unenforceable by the hire company against Miss Dimond, she suffered “no loss” and the hire charges were therefore irrecoverable. A similar result followed in the Court of Appeal case of Salat v Barutis, in which I was involved in.

In Salat v Barutis, [2013] EWCA Civ 1499, the cancellation notice had not been provided to the hirer, and therefore pursuant to the cancellation regulations which were applicable at the time, the hire agreement was unenforceable. Following Dimond v Lovell, the Court of Appeal decided that the hire charges could not be recovered in those circumstances.

It is however to be noted that both Dimond v Lovell and Salat v Barutis dealt with “irredeemably” unenforceable hire agreements. For simplicity's sake, I just deal with Dimond v Lovell on this point of irredeemably unenforceable agreements. The hire agreement in Dimond v Lovell could not be enforced by way of any court order, pursuant to section 127 (3) of the Act, so it was irredeemably unenforceable. Indeed, is Lord Hoffman stated:

“The hiring agreement in this case did not and is therefore irredeemably unenforceable”.

However, s127 (3) of the Act has been repealed by the Consumer Credit Act 2006. So, there is no breach which is irredeemably unenforceable, under the Act. Every breach of the Act can be potentially “cured” by way of a court order, following an application.

“127 Enforcement orders in cases of infringement.

“(1) In the case of an application for an enforcement order under—

(a)section 65(1) (improperly executed agreements) ...

the court shall dismiss the application if, but . . . only if, it considers it just to do so having regard to—

(i) prejudice caused to any person by the contravention in question, and the degree of culpability for it;

and

(ii)the powers conferred on the court by subsection (2) and sections 135 and 136.”

So Dimond v Lovell dealt with a breach that could not be cured. Salat v Barutis dealt with a breach that could not be cured. They were both “irredeemably” unenforceable agreements that could not be cured by way of any court order. If the hire company had sued Mrs Dimond for the hire charges, then she would have an unanswerable defence that the agreement was unenforceable, and the hire company had no power to enforce it. So, there was no loss, according to this reasoning.

An unsigned regulated hire agreement at the time of Dimond v Lovell could not be cured by any application for an enforcement order. An unsigned regulated hire agreement in 2025 can be cured by way of a court order, if the court exercises its discretion in favour of a hire company upon an application for enforcement, pursuant to section 127 of the Act, as quoted above. That has been the position since the introduction of the Consumer Credit Act 2006. So, imagine this scenario now: a regulated hire agreement is unsigned. The court finds that in the light of the regulated hire agreement being unenforceable, the claim for hire charges will be dismissed, following cases like Dimond v Lovell and Salat v Barutis. After the trial, the hire company makes an application for an enforcement order, so that it can pursue the hire charges against the claimant. The application for an enforcement order succeeds - so where does this leave the claimant, who no longer has an unanswerable defence to the hire company pursuing the hire charges? Even if the application for enforcement fails, can it be seriously contended that the claimant had suffered no loss, considering the stress the claimant went through in facing an application for an enforcement order on for example for £50,000 hire charges? Further s/he has no chance of now recovering the hire charges as against the third-party driver who was at fault for the index accident, as her/his claim for hire charges has been dismissed.

So, it appears to me that it can be argued where the regulated hire agreement is unsigned, that the claimant has suffered a “loss” as the hire agreement is not irredeemably unenforceable. Its redeemably unenforceable giving the hire company the opportunity to enforce the agreement by applying for an enforcement order. It can therefore be completely distinguished from Dimond v Lovell.

However, in the absence of clear guidance on where a claimant stands in a such position where a hire agreement is redeemably unenforceable, it is hard to predict how a court would deal with this.

So, who would be correct, the claimant (the hire company) or the defendant (in reality the defendant insurance company) on whether hire charges should be recoverable on a redeemably unenforceable regulated hire agreement?

The claimant can argue that the hire charges should be recoverable, as a hire company can apply to enforce the hire agreement after the trial. Whilst the outcome of any application to enforce the hire agreement may be uncertain, why should the hire charges be dismissed placing the claimant at potential risk of being successfully sued by the hire company? In Dimond v Lovell, there was no chance of the claimant being successfully sued by the hire company, in the year 2000. If this same scenario happened in 2025, Mrs Dimond could potentially be sued successfully by the hire company.

The defendant may however argue that there is nothing to indicate following Dimond v Lovell, that the claimant has suffered a loss, as the hire agreement is unenforceable.

In my view, the claimant position is likely to be the more correct one, as the defendant position does not take account of the change in 2006 which allows the hire company at least the option of rectifying the situation, something not available in Dimond v Lovell.

Having said that and in my experience of credit hire for over 25 years, it will take a brave lower court to decide that Dimond v Lovell does not apply to a regulated hire agreement that is unsigned. It is clear to me that higher court authority (by this I mean Court of Appeal and above) is required to take account of the fact that all unenforceable regulated hire agreements since 2006 have been capable of being enforced if a court accedes to an application.

Implications of an unsigned agreement for unregulated hire agreements

An agreement can be taken outside of the regulations of the Act in a number of potential ways:

• If a hire agreement does not provide for credit (section 8 of the Act) and is not capable of exceeding three months (section 15 of the Act);
  
  
• If the hire agreement is exempted from the provisions of the Act. In credit hire (for vehicles), this is mostly achieved by a hire agreement stating that the hire charges are to be paid within no longer than 12 months beginning on the date of the hire agreement and in no more than 4 instalments.

A hire agreement that is unregulated by the Act, is not shackled by the provisions of section 61 (1) (a) which effectively states that the hire agreement must be signed by the hirer. So consequently, it is also not caught by the provisions which would make this an unenforceable agreement under section 65 (1) of the Act.

In those circumstances, a credit hire agreement is essentially governed by the common law on contract, not by the statutory regime of the Act. The reality in most cases is that the claimant would have received a hire agreement and would have been provided with a hire vehicle. There could be a number of different and overlapping ways that a contract is entered into between the claimant and the hire company. There could have an oral agreement between the parties. It's clearly not an unenforceable agreement, as the agreement is unregulated by the Act. The claimant being liable for the credit hire charges, means there is a loss as there no question of enforceability, and therefore prima facie (on the face of things) the credit hire is recoverable, subject to other issues such as mitigation.

In my view, if the hire agreement is unregulated (and hence there is no question of unenforceability) then where a hire vehicle is provided, it is difficult to see how the claimant is not liable for the hire charges. So, what are the terms of such a contract? This depends on all the circumstances of the case, but if the terms and conditions have been provided either before the hire or during the period of hire, then even if the hire agreement is unsigned then it can be taken that the claimant has accepted the terms and conditions, including the hire charges. The claimant has accepted the terms by hiring the vehicle.

Some recent examples of my own cases involving an unsigned hire agreement

I was involved in two high value credit hire trials recently, both representing the claimant. Both hire agreements were unregulated by the Act due to the hire not being capable of lasting more than 3 months, and due to being exempt under the Act.

Case 1

I was involved in a high value credit hire case which proceeded as a contested trial. There was no signature by the claimant on the agreement. The claimant was cross-examined on this, and during submissions the defence raised the issue that the agreement was unsigned. I submitted that albeit unsigned, the hire agreement represented the terms and conditions of the agreement. I argued that whilst the agreement was unsigned, the claimant had been sent the hire agreement and had thereafter hired the vehicle. My position was that the client had been provided with a hire vehicle and the hire agreement whilst unsigned represented the “price” of the hire.

The judge seemed somewhat troubled by it all and proceeded to ask the defence counsel whether he accepted that there could be an “oral agreement” in these circumstances. The defence counsel conceded that there could be an oral agreement in this case. The judge proceeded to allow the hire in full based on an oral agreement between the parties – whilst the judge did not specifically say so, presumably the judge accepted my submission that the hire agreement albeit unsigned represented the effective “price” of the hire. In this case the claimant was found to be impecunious, and, in any event, there were no BHR that the defence could rely upon. So, it seems that the hire charges on the agreement represented the best “price” of the hire.

Case 2

The claimant was involved in a road traffic accident. The agreement was unsigned by the claimant. However, the hire agreement was signed by the claimant's cousin. The cousin was not involved in the road traffic accident. The cousin was not a party to the proceedings, nor had he provided a witness statement. The client stated in his witness statement that he had informed the hire company that his cousin was signing on his behalf, though there was no evidence of this on the hire agreement. The claimant was to be the main user of the hired vehicle, with the cousin being an additional driver, as stated in the hire agreement.

The defence settled on reasonable terms for the claimant. In the absence of a signed agreement by the claimant, why did the defence settle this case? There was some conversation by the defence about the agreement not being signed by the claimant, but the defence seemed to reason that this was a “bailee in possession” case. Well, the cousin was almost certainly a bailee in possession as he had driven the claimant's car as an additional driver, and possessory title is as good as ownership as against the tortfeasor (the party at fault) [The Winkfield [1902] P.42 (1901),page 7]. Please see my article on “Bailee in Possession and Credit Hire” for greater detail. In my view it does not matter that the cousin was not in the vehicle at the time of the index accident, as the cousin was a lawful additional driver of the now damaged vehicle. There was however one big problem; the cousin was not a party to the action! So, whilst the cousin was a bailee in possession, he was not a party to the action, so the bailee in possession situation could not in my view reasonably lead to any recovery of damages in this case. In my view the analysis of the defence that due to “bailee in possession”, the hire charges were recoverable, was a flawed analysis.

In my view it is certainly arguable (though not necessarily correct) that the claimant was entitled to zero damages in this situation. If he was the only user of the hire vehicle, then it could be argued that with the hire agreement being unregulated, there was an enforceable oral agreement. However this was not the factual matrix in this case as someone else had also used the hire vehicle (the cousin) and that same person (not the claimant) had signed the hire agreement – so the loss was that of the cousin, as he could be pursued for the hire charges by the hire company in the event of non-payment. How could the hire company sue the claimant for unpaid hire charges when he was not the only user of the vehicle and there was another person who had signed the contract?

So how could the loss be proved to be the claimant's loss? The defence settled on the basis of bailee in possession. I have already expressed doubts as to whether that would be a sound basis for the claimant to recover damages in this case. Could there be any other sound basis for a claimant to recover the hire in this case? Well, the agreement was unregulated by the Act, and therefore section 61 (1) of the Act would not apply to the present case. The claimant was provided with a hire vehicle, his name is on the hire agreement as the main driver: therefore, the hire agreement albeit unsigned by him represents the terms and conditions he has agreed to be bound by.   Alternatively, the cousin was acting as the claimant's agent by signing the contract on his behalf, though I do stress there was scant evidence that the sibling was the claimant's agent to sign the agreement, apart from a bare assertion that this was the case. In any event, either situation leads to the conclusion that there was effectively an agreement between hire company and the claimant, not too dissimilar to what the court concluded in Case 1 above.

Conclusion

The scenario of a claimant bringing a claim for credit hire against the defendant, when there is no signature by her/him is far more common than is thought. It's likely to become even more common.

The position can be neatly summarised as follows:

• If a hire agreement is regulated by the Act, then it must be signed by the hirer. The regulated hire agreement therefore cannot be unsigned, nor can it be signed on behalf of the hirer (s61 (1) (a) of the Act);
  
  
• The clear consequences of a regulated hire agreement being unsigned by the hirer is that the agreement is unenforceable (s65 (1) of the Act);
  
  
• Following on from (2), this will potentially bring the case under Dimond v Lovell, with the potential result that the hire charges are irrecoverable as against the defendant;
  
  
• However, there are certainly good arguments that Dimond v Lovell does not apply to such a case now. The House of Lords in Dimond v Lovell was dealing with an “irredeemably” unenforceable regulated hire agreement. Since the Consumer Credit Act 2006, there is no such regulated hire agreement which is irredeemably unenforceable under the Act. An unenforceable regulated hire agreement can be enforced if a court grants an application. Therefore, the situation has changed, and its arguable that the claimant has suffered a loss even when the regulated hire agreement was unenforceable. Therefore, the present situation is completely distinguishable from Dimond v Lovell, which seems to me to be the more correct position. Notwithstanding this, it will take a bold lower court to find that Dimond v Lovell does not also apply to a redeemably unenforceable regulated hire agreement. It seems to me that clear cut guidance is required from a higher court on this (Court of Appeal and above). Otherwise, there is just speculation on the matter.
  
  
• If a hire agreement which is unregulated by the Act is unsigned, then the agreement is free from the restrictions imposed by the Act, including the necessity of the agreement being signed by the hirer. Such an arrangement is not saddled by enforceability issues under the Act and Dimond v Lovell type arguments. So, then the normal rules of common law of contract apply as to whether there was an effective contract between the claimant and the hire company. I would however say that when a hire vehicle is provided to the claimant, it's hard to see how a defendant would be able to persuade the court that there was no contract between the parties. The two examples I gave of my own cases perhaps highlight that point.

It is hoped that this article clarifies this subject for the reader. In my view as the modern world becomes busier, agreements which are unsigned by the claimant are likely to become even more common. This is an area which if overlooked is at one's own peril.

Please note this article does not constitute legal advice for any specific case or cases or for any circumstances.