Article - Consumer Law

What happens if the retailer (and not the finance company) told me something during negotiations?

When a consumer is looking to acquire goods but cannot afford to pay in full, they commonly enter into a hire purchase agreement (where a finance company lets them to the consumer who has an option to buy them at the end of the agreement) or a hire agreement (where a finance company lets them to the consumer who does not have an option to buy them).

During negotiations, certain promises or statements may have been made (which lawyers call representations) and they may later turn out to be false.  What can a consumer do in those situations?  The answer depends on what type of credit agreement they have entered in to.

Regulated or Unregulated?

If an agreement is with an individual and the credit is less than 25,000 then it will generally be regulated by the Consumer Credit Act 1974 ('the 1974 Act').  If so, the consumer has a number of additional rights and protections which are implied into the agreement.  It is worth remembering that an individual is a person, a sole trader or a partnership of two or three partners: Section 189(1) of the 1974 Act.

In April 2008 the 25,000 will be removed (as a result of the Consumer Credit Act 2006 which will amend the definition of consumer credit agreement under Section 8 of the 1974 Act).  At that stage, any agreement with an individual will be regulated by the 1974 Act (unless the individual is a 'high net worth' but you really need to be a lottery winner to fall into this category!).

Regulated Agreements

If the agreement is regulated then Section 56 of the 1974 Act will apply.  This states that:

(1)      In this Act "antecedent negotiations" means any negotiations with the debtor or hirer-

(b)     conducted by a credit-broker in relation to goods sold or proposed to be sold by the credit-broker to the creditor before forming the subject-matter of a debtor-creditor-supplier agreement within section 12(a), or

and "negotiator" means the person by whom negotiations are so conducted with the debtor or hirer.

(2)      Negotiations with the debtor in a case falling within subsection (1)(b) ... shall be deemed to be conducted by the negotiator in the capacity of agent of the creditor as well as in his actual capacity.

This means that if the supplier makes representations of fact during negotiations (which the consumer relies on) and they cause her to enter into the agreement then the 1974 Act states that it will be as though the finance company has made the same promises.  This means that a consumer has a potential claim to resind the contract (essentially cancelling it) for misrepresentation (subject to her proving there was a statement of fact, which she relied on and then entered into the agreement) or, if she has lost her right to rescind, claim damages for misrepresentation from the the finance company.

A problem with this rule recently surfaced in the case of Black Horse Limited v Langford [2007] EWHC 907.  In that case, the supplier sold the goods to a broker.  The broker then sold the goods to the finance company, who then let them to the consumer.  The Court decided that because the goods had been sold to the finance company by the broker, not the retailer, then Section 56 did not apply and the consumer had no claim against the finance company for the representation.

It is therefore important for any consumer to check whether the retailer is selling the goods to the finance company or to the broker.  If the goods are sold to the broker, the consumer will have no claim against the finance company (but may, of course, have a claim against the retailer under a collateral contract).

Unregulated Agreements

The general principle is that the retailer who sells goods to the finance company under an unregulated agreement is not the finance company's agent unless exceptional circumstances apply: Branwhite v Worcester Works Finance Limited [1969] 1 AC 552.

If, therefore, a false statement of fact has been made by the supplier then it will not give the consumer a claim against the finance company but may give her a claim against the retailer for damages under a collateral contract: Andrews v Hopkinson [1957] 1 QB 229.  To be successful and show that Branwhite does not apply, the consumer must show there are some "exceptional circumstances" which, by their very nature, are uncommon.


It is important for a consumer to be aware who it is dealing with.  It is common when acquiring an item like a car for the consumer to be dealing with at least two independent companies: even though they may use the same badge above the door.  If the agreement is regulated then a consumer will have additional protection.  If the agreement is unregulated then it is likely that the consumer is left with little (if any) claim against the finance company if the statements of facts turn out to be wrong.

Article First Published: 26 July 2007


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