The defendant approached a car dealer to purchase a new car. The dealer agreed to accept the defendant’s current car in part exchange, to discharge his existing hire-purchase agreement with the claimant and to arrange finance for the new car. The dealer approached a broker who, coincidentally, selected the claimant to provide the fresh finance for the new car. The dealer then sold the new car to the broker who sold it to the claimant so that the claimant could enter into the new hire-purchase agreement with the defendant. The dealer failed to pay off the original hirepurchase agreement and the claimant sued the defendant for the outstanding sum. The defendant contended he was not liable as the dealer had promised to discharge the balance, and that a promise had been made as the claimant’s agent pursuant to s56 Consumer Credit Act 1974. The court at first instance agreed and dismissed the claim.

On appeal the court held that the dealer who had made the representation was not the credit broker for the hire-purchase agreement for the new car. S56 only applied to the credit broker who actually sold the car to the finance company, which was the broker here, not the dealer, and the broker had not made the representation. There was no evidence that the dealer was acting as the agent of the finance company at the time the representation was made and the defendant, albeit the blameless victim, remained liable to pay off the original hire-purchase agreement.

So, good news for the finance company. By getting dealers to set up ‘shell’ companies through which the finance documentation can be processed, potential liability for dealers’ representations in antecedent negotiations could be avoided. That is, until this particular loophole is closed by legislative amendment.

Black Horse Ltd v Langford