Hire purchase agreements are agreements whereby an owner of goods allows a person, the hirer, to hire goods from him for a period of time by paying installments. The hirer has an option to buy the goods at the end of the agreement if all installments are being paid. This is not a contract of sale but contract of bailment as the hirer merely has an option to buy the goods. Although the hirer has the right of using the goods, he is not the legal owner during the term of the agreement.
Jasmine entered into a three-year hire purchase contract (“the HPA”) with Dodgy Finance Limited (“DF”) to acquire a new Mazda car (“the Car”) from Kwan’s Garage. Given that Jasmine is an individual and DF is a creditor which provides Jasmine with a credit of £25,000, the HPA is considered as a consumer credit agreement under section 8(1)  which provides a fixed-sum credit under section 10(1)(b)  . It is also a restricted-use credit agreement which falls under section 11(1)(a)  . A consumer credit agreement is a regulated agreement within the meaning of section 189(1).
As the HPA falls within section 11(1)(a), it is a Debtor-creditor-supplier agreement under s12(a)  . It can be further categorized as a two-party debtor-creditor-supplier agreement. DF bought the Car then hired it to Jasmine under the HPA. DF acts both as the suppliers of the credit and Car. Therefore, there are in reality only two parties, namely, Jasmine being the debtor and DF being the suppliers of the credit and Car.
We will look into the scenario and elaborate the relevant issues which may lead to any potential improper execution of the HPA.
DF shall give Jasmine a copy of the HPA in accordance to section 77(1)  , together with a statement signed by or on behalf of him, showing the payment details under the agreement, whether paid or unpaid. Jasmine requested for a settlement figure and a copy of the original HPA and DF refused to do so. DF is in breach of section 77(1) which would not be entitled to enforce the HPA while the default in payment continues according to section 77(4)(a). In Mc Guffick  , Mr Justice Flaux held that the bank’s rights and the debtor’s liability continue to exist but would become unenforceable during the period of non-compliance with section 77(1). Jasmine should be noted that DF is entitled to inform the credit reference agencies of the breach of such provision and the HPA would become enforceable again once DF complies with such provision.
Jasmine did not remember whether she had received a copy of the HPA when it was made. If the HPA was presented personally to Jasmine unexecuted for her signature, a copy should be given to her according to section 62(1) and a further copy of the executed HPA shall be delivered to her within seven days after such agreement was made under section 63(2). If the HPA was sent to Jasmine unexecuted for her signature, a copy of the same shall be sent to her at the same time according to section 62(2) but no further copy is required under section 63(2)(b). On the other hand, if the HPA had become executed when Jasmine signed it, a copy of the same must be there and then delivered to her under section 63(1).
A failure to comply with the requirements abovementioned would make the HPA an improperly-executed regulated agreement, which would only be enforceable against the hirer on an order of the court (section 65(1)). It is important to note that section 127(1)(a) stipulates that an application for an enforcement order under section 65(1) shall be dismissed unless the court considers it just to do so.
Jasmine’s breach of HPA
It can be assumed that DF relied on sections 87(1)(b) and/or (c) to demand earlier payment and/or recover possession of the Car. A default notice shall contain all of the information  as set out under the Consumer Credit (Enforcement, Default and Termination Notices) Regulations 1983 to become effective.
Jasmine received a default notice from DF which fails to include the necessary information. Such notice is, therefore, likely to become ineffective (Woodchester Lease Management Services Ltd v Swain & Co  ). Jasmine could accordingly disregard such notice.
Jasmine had paid to DF over one-third of the total price of the Car given that she had managed to maintain the monthly payments for the first two years of the three-year HPA. In addition to the fact that the property of the Car remains in DF, this would have fulfilled the requirements stated under section 90, which DF is not entitled to recover possession of the Car from Jasmine except on an order of the court. Therefore, if for any reasons DF recovered the Car from Jasmine, it would be in contravention of section 90. The HPA shall be terminated and Jasmine shall be released from all liability under the agreement and entitled to recover from DF all sums paid by Jasmine under the HPA.
Although the HPA is likely to be an improper-executed agreement, Jasmine should still look at the alternatives to remedy any defects of the HPA.
Given that Jasmine’s wealthy brother may be willing to settle the account for her, she may consider making the full payment (an amount after deducting the rebate allowed under section 95) to DF which would discharge her indebtedness under the agreement under section 94.
The alternative way would be for Jasmine to apply for a time order from the court under section 129. With a time order, the court may allow more time for Jasmine to make payments to DF under section 129(2)(a) or to remedy any breach of the HPA under section 129(2)(b). One must be served with an enforcement order, default notice or notice of arrears before she can apply for a time order. If the default notice sent to Jasmine from DF is considered to be ineffective, and there are no enforcement order or other notices of arrears applied by DF, Jasmine cannot apply for a time order.
Termination of HPA
Jasmine may terminate the HPA according to section 99 which governs the right to terminate hire-purchase etc. agreements. This can be done at anytime before the last installment is made (section 99(1)) given that half of the total price of the Car has been paid (section 100(1)). Jasmine would be allowed to terminate the HPA as she had already paid for two-third of the Car price. The advantage of Jasmine terminating the HPA is to limit the amount she owes. If DF terminates the HPA at a later time, Jasmine may end up owing more. However, it is advised that Jasmine should only terminate the HPA shall she be no longer available to afford the payment of the Car as Jasmine would be unable to get refund for the excess of one-half of the payment which she had already made.
Breach of implied terms
The HPA contains implied terms as to the quality or fitness of goods under section 10 Sale of Goods (Implied Terms) Act 1973. Given that the Car had never run properly which requires engine repairs regularly, Jasmine may rely on the implied term to sue DF for the breach of condition of the HPA. Should the claim be successful, Jasmine would have the right to reject and claim damages from DF.
Section 140A(1) Consumer Credit Act 2006 provides that an unfair relationship may arise by virtue of the terms of an agreement, the ways in which enforcement is being carried out, or anything else. When an unfair relationship exists between a creditor and debtor arising out of an agreement, the court may make an order under section 140B Consumer Credit Act 2006.
In Nine Regions (t/a LogBook Loans) v Sadeer  , the court decided that an APR of 384.4% was not unfair due to various reasons, including the debtor’s poor credit record which made the loan as the debtor’s last resort. In the present case, the cash price of the Car was at an APR of 53%. If it is true that Jasmine had a poor credit record, the court might not consider the APR at our present case to be unfair to her. However, if what DF claimed (a high APR rate was given to Jasmine due to her poor credit record) was for the purpose of inducing Jasmine to enter into the HPA, it may amount to misrepresentation (See Horsfall v Thomas  ) if it is a false statement of fact made by DF. A statement of opinion by someone in a position to know the facts is regarded as a statement of fact  . The fact that DF is a finance company which requires knowledge about the industry APR may indicate that it is making a misrepresentation when it said “the best deal in town” to Jasmine if such statement is found to be untrue rather than a mere puff. Jasmine may be able to claim damages as a consequence of a fraudulent misrepresentation made  .
In relation to the non-compliance of section 78, it is unlikely that Jasmine can make a claim for an unfair relationship within the meaning of s.140A (See Carey v HSBC Bank Plc  ).
Conditional sale agreement – High Rate Finance
A conditional sale agreement usually includes a condition which states that the property in the goods does not belong to the buyer until the last payment of installment is made to the seller. It is similar to hire purchase agreement, but the difference is that the hirer has an option to buy the goods, whereas in a conditional agreement, he has an obligation to buy the goods.
Jasmine acquired an in-car tracker system from AX Limited, financed by way of a conditional sale agreement (the “CSA”) through High Rate Finance Limited (“HR”) at a flat rate of 37%. Given that Jasmine is an individual and HR is a creditor which provides Jasmine with credit, the CSA is considered as a consumer credit agreement according to section 8(1) which provides a fixed-sum credit according to section 10(1)(b). It is further considered as a restricted-use credit agreement which is a regulated consumer credit agreement under section 11(1)(a).
As the CSA falls within section 11(1)(a), it is a two-party Debtor-creditor-supplier agreement under section 12(a). HR bought the tracker system then sold it to Jasmine under the CSA. HR acts both as the supplier of the credit and tracker system. Therefore, there are only two existing parties, namely, Jasmine being the buyer and HR being the suppliers of the credit and tracker system.
The sales person of AX Limited confirmed with Jasmine that the tracker system was suitable for use in any other European country which was found to be untrue. Jasmine could sue HR to stop payments as AX Limited made such confirmation (statement made by the salesperson of AX Limited) as the agent of HR according to section 56(2). In the present case, should HR sues Jasmine for any default payment, Jasmine could simply counterclaim.
Remedies to HR
HR is very likely to serve Jasmine with a default notice under section 87(1) giving Jasmine fourteen days upon receipt of the same to pay the arrears. Shall Jasmine fails to pay the arrears within the stipulated period, HR is then permitted to terminate the CSA; demand earlier payment of any sum; recover possession of the tracker system, etc.
Remedies to Jasmine
Similar to the purchase of the Car, Jasmine may consider making the full payment to HR which would discharge her indebtedness under the CSA.
Since Jasmine has received neither a default notice nor notice of arrears from HR, she cannot apply for a time order according to section 129 to make a request to extend the time of payment and/or to remedy any breach of the CSA.
Termination of CSA
Jasmine would be allowed to terminate the CSA if it is satisfied that the last installment is yet to be made (section 99(1)) and that half of the total price of the tracker system has already been paid (section 100(1)).
Lara McMurtry claimed that the meaning of “unfairness” is vague and has not been elaborated. The court should not look merely at the term which is of importance, but also the impact of the term. Further information is required before further assumptions can be made as the 37% flat rate of the tracker system under the CSA might not be unfair to Jasmine. The court would take into consideration the terms of the agreement, the way in which the claimant has exercised his rights under the agreement and the other acts and omissions of the claimant.
Amex stands for American Express, a charge card which provides running-account credits under section 10(1)(a). It is a three party Debtor-Creditor-Supplier agreement under section 12(b) which is an exempt agreement under Article 3(1)(a)(ii), Consumer Credit (Exempt Agreements) Orders 1999 and 2007.
Although a charge card is not regulated under the Consumer Credit Act, it is not exempted under section 16(6C) Consumer Credit Act 2006 according to section 140A(5) Consumer Credit Act 2006. Jasmine may rely on sections 140A and 140B Consumer Credit Act 2006 which grant powers to the court to reopen agreements or make amendment of agreement terms and discharge of any sum payable by the debtor if considered “unfair”.
The situation would be different IF Jasmine paid by a credit card. A credit card is not exempted and Jasmine could make a claim against Amex under section 75 where the supplier and creditor shall be jointly and severally liable to the debtor.
It is important to note that the total amount billed by using a charge card will have to be paid off by the due date. Jasmine needs to ensure that the total amount of the car tracker to be paid off on time, or else she would have to pay up a steep late payment charge. Unlike a credit card, the card issuer pays on her behalf and she will need to pay the money back to it at a later date. An interest will be charged only if the full amount due is not paid on time.
Although the “unfair relationships” provision provides more protection to the debtors, it is vaguely defined and the court determines on a case-by-case basis whether a particular credit relationship is unfair to the debtor. On this basis, Jasmine would need to seek for other resorts as mentioned which would put her into a better position.
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