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Illiterate clients, free cars, mistake and misrepresentation

By 18th May 2018January 21st, 2019No Comments
Some credit hire claimants are unsophisticated clients. Under cross examination in the witness box, they will sometimes explain how they were told they were being given a courtesy car, or a free car, or told that they did not have to pay anything for it.

They may be unable to read or understand English or even unable to read and write at all. On the basis of such evidence, defence counsel, worth their salt, will often mount an argument that the credit hire agreement in turn is “unenforceable” (using the term broadly and loosely) and hence the measure of damages should be nil. In front of an untutored judge such an argument may well succeed, though it is invariably wrong.

It is trite law, that affixing a signature to a contract which the maker has neither read nor understood, will still make an effective contract. This is the longstanding signature rule: see L’Estrange v F Graucob Ltd [1934] 2 KB 394 and in the credit hire context see Clark v Ardington [2003] QB 36 at paragraph 111. Accordingly, even if the claimant did not and could not read the document, that would not preclude him being liable on the contract contained within it.

Where it is contended that the claimant signed the credit hire agreement, due to misrepresentation or mistake, the starting point is that the defendant has no standing to make the arguments that it contends for in terms of what is loosely described as “unenforceability” in an attempt to reduce his own liability to the claimant, whether on the basis of non est factum, or misrepresentation.  Such arguments are collateral to the tort, and cannot ground findings capable of binding the credit hire company

The case of Dimond .v. Lovell [2002] 1 AC 384 and the later case of Chen Wei.v. Cambridge Power and Light Limited (Cambridge County Court, HH Judge Moloney QC 10th September 2010) are both concerned  with statutory prohibitions on the enforceability of contracts due to either non-compliance with the provision of the Consumer Credit Act 1974 or a set of statutory regulations, the Cancellation of Contracts made in a Consumer’s Home or Place of Work etc. Regulations 2008

In those circumstances the statutory prohibition requires that as a matter of public policy there should be no offence against the rule against double recovery in that the claimant could recover damages whilst retaining them and being under no liability to pay them to the credit hire company.

No such principle applies in these circumstances, as it is sought to impugn the transactions by reason of doctrines of the common law which in turn would require the claimant to take action to at the very least seek declaratory relief or to set aside the credit hire agreements.

The credit hire company is not a party to these proceedings. It is not bound by a judgment it was not a party to.

On a true analysis, the argument really is that the claimant has failed to mitigate his loss by failing to take litigation against the credit hire company seeking to resile from the contractual liabilities.

There is a long standing authority Pilkington .v. Wood [1953] CH 770 establishes that the duty to mitigate does not extend so as to oblige a party to sue or to embark on uncertain litigation as part of a duty to mitigate.  It would be surprising if the concept of reasonable steps extended that far.

Moreover whilst it is true enough to note that in the case of non est factum that this is a species of the doctrine of mistake where the phrase void ab initio is used, that is really a characteristic of the description afforded to the consequences of relief given by the Court rather than a free-standing principle: the documents do not bear on their face the brand “void”: the claimant would still have to come to court taking proceedings for non est factum to establish that the contract was void, a stance which one can anticipate might be hotly disputed by the credit hire company.

Non est factum has three constituent elements as noted in the case of Saunders .v. Anglia Building Society [1971] AC 1004 (i) including disability akin to illiteracy (ii) a fundamental difference between the agreement signed and that which the claimant thought he was signing and (iii) the exercise of reasonable care by the claimant for his own understanding.

Moreover the later case of Lloyds Bank .v. Waterhouse (Court of Appeal Transcript 1st February 1990) establishes that where there is no third party concerned the plea of non est factum due to the high hurdle it poses, has little bearing upon the matter and the case falls to be properly treated as one of misrepresentation. Misrepresentation can only ever be a ground for voiding a contract which is thus, voidable but not void and accordingly valid, unless and until action is taken to set it aside.

In analogous circumstances, the status of a potentially voidable retainer (for alleged undue influence) was considered by Mr. Justice Clarke in an appellant decision that of Forde .v. Birmingham City Council [2009] 1 WLR 2732 where he noted the following at paragraph 111.

But an agreement obtained by the exercise of undue influence is voidable, not void. It remains in effect unless the person influenced seeks to set aside the contract and the Court allows her to do so; such relief may be given on terms e.g. as to payment of a reasonable sum for services actually rendered: Johnson .v. EBS Pensioner Trustees Ltd [2002] Lloyds Rep PN 309, paras 76 – 80 and O’Sullivan .v. Management Agency & Music Ltd [1985] QB 429. There is no evidence that Miss  Forde has done anything to avoid CFA 2. On the contrary she has consented to these proceedings being brought by McGrath on her behalf. What the Council cannot do is to purport to avoid CFA 2, to which it is not a party, on her behalf and in defiance of her wishes; nor is the Court required to proceed on the basis that she has avoided it when she has not.

He continued at paragraph 114:

I decline to hold that a failure by a solicitor to put his client’s interests first has the effect that any contract which results from such failure is to be regarded as a prohibited contract. Such a conclusion is not justified by the rule which says nothing about agreements. It would have an effect of which Draco would have approved, since, save perhaps where the failure was trifling, the whole contract would be unlawful regardless of the seriousness of the breach, even though a contract procured by undue influence is not unlawful, nor, until avoided, unenforceable; and it would give rise to a myriad of disputes. …

Finally there is ratification based on incontrovertible facts. The claimant will have expressly ratified the agreements by his witness statement and/or implicitly through his instruction of solicitors, his pursuit of the charges and his bringing proceedings to recover them from the defendant.

This article is care of Andrew Hogan(many thanks Andrew) and has been republished with his permission.

For a fantastic resource on Credit Hire, visit Andrew Hogans site 

Should you wish for him to act on your behalf, his website has his contact details.

Tim Kelly

Tim is a highly qualified Independent Engineer with over 20 years experience as an Engineering Assessor of damaged vehicles.

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