Increasingly, companies, including brokers, that provide finance to people looking to buy cars are talking about tripartite agreements.
These are seemingly intended to govern the relationship between dealers, finance companies and customers, in a way that effectively seeks to create a contract between a dealer and a customer, and between a dealer and a finance company, so that dealers end up on the hook if something goes wrong. Yet, for all that this can feel like a Hobson’s choice for dealers, the reality is that finance companies are simply taking something as simple as a straight road and turning it into spaghetti junction.
Whenever a dealer sells a vehicle, it has a series of core obligations that form the basis of its duty of care. Namely, the vehicle must be of satisfactory quality and fit for purpose, and the dealer must provide the level of care and skill reasonably to be expected.
The first two obligations can be found in Section 14(2) of the Sale of Goods Act 1979, as well as Sections 9 and 10 of the Consumer Rights Act 2015. The latter is in Section 13 of the Supply of Goods and Services Act 1982, alongside Section 49 of the Consumer Rights Act 2015. Only the government’s desire for a separate framework for transactions between businesses and consumers, separate from the framework for business-to-business transactions, explains why these obligations are duplicated. Ultimately, whether a dealer is selling to another business or a person who just walked in off the street, you need to ensure that these obligations are met.
The importance of this is underlined by a pattern of customers taking complaints about vehicles to the Financial Ombudsman Service (FOS). Finance companies often fall back on indemnity clauses in their agreements with dealers, arguing the dealer must reimburse them if FOS rules in the customer’s favour and they incur a loss. While dealers can seek to engage with FOS directly, their arguments are likely to go unheeded and finance companies are likely to do little to challenge the ruling themselves. Finance companies can be challenged over a lack of action on their part, particularly if their own terms and conditions state they have a general duty to mitigate loss. Dealers still need to meet their core obligations, regardless of which statute they come under, because they owe a duty of care to both customers and finance companies.
By taking steps such as carrying out an MOT, service or pre-delivery inspection (PDI) report, dealers give themselves a better chance of showing that vehicles were of satisfactory quality and fit for purpose when sold. In turn, these steps help demonstrate the level of care and skill reasonably to be expected. That said, this is not a catch-all measure, and disputes with finance companies may still arise. If you are facing FOS complaints, indemnity demands or tripartite drafting pressure, our legal helpline and casework team can step in early to protect your position.
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