Credit hirer 3 Arrows may lose up to £10m after the Court of Appeal ruled the wording in 5,000 of its hire contracts was flawed.

The ruling in the case of Ketley v Gilbert could have serious implications for the rest of the credit hire industry.

The court held that where doubts arise over the wording of hire documents, the law should favour the hirer, ie insurers and not the hire company.

It is the third serious case, including Dimond v Lovell, to be lost by credit hirers.

Highway Insurance of Essex originally brought the case against 3 Arrows as Gilbert's insurer in 1999.

The insurer received a £684 bill for 17 days' car hire from Ketley but claimed the rental contract was not regulated by the 1974 Consumer Credit Act – the pivotal issue in the landmark Dimond v Lovell ruling.

It contested that one phrase in the contract, which stated that repayment was due on the expiry of 12 months from the date of the agreement, was not sufficiently clear.

After the hire charges were initially allowed, Highway Insurance fought the case and won. Highway's solicitors said the case would cost 3 Arrows £10m.

John Mahoney, claims manager at Highway Insurance, said: “We contested it because we thought the agreement lacked clarity.”

A 3 Arrows spokeswoman declined to discuss the ruling's possible effect on business.