Let this be a warning to all car dealers wanting to do battle with certain finance companies where the claim amount is less than the £10,000 threshold for small claims court. It especially applies when the trader’s position is the issue complained of makes little or no difference, and thus, it does not render the car not of “satisfactory quality” or “fit for purpose”.
Part 27 of the Civil Procedure Rules governs most types of contractual disputes that are under £10,000 and thus fall within the small claims track. In essence, Part 27 states the general rule of the “winner pays the loser’s legal costs” does not apply to such claims. In other words, win or lose, you have to pay your own legal costs. However, there are several exemptions. One such exemption is when a party has behaved with conduct that is deemed unreasonable (a very high bar to succeed) and, as such, they should have to incur the other party’s legal costs.
A second exemption that often applies is when two businesses agree to a contract stating even if a court claim is below the £10,000 small claims limit, legal costs are nevertheless recoverable by the “winner” from the “loser”. This is particularly relevant when traders agree to a contract of business with a finance company and, sometimes, even a broker. You may not have even read or considered the implications of this contractual clause when you signed up several years ago, but the clause has big teeth and is ready to bite you on the bottom!
So, we have seen several cases where the finance company has succeeded in a claim for, say £2000, and then whips out that clause and receives another £4000 in legal costs awarded. Case law has made this possible and it is binding on the contracting parties. So, be warned!
When we tell you to settle claims with finance companies because it is too financially risky to go to court, this particular exemption will often be the reason for our advice.
And for the avoidance of doubt, you simply cannot impose such a term when you sell a car to 86- year-old Mrs Jones – no matter how big you make it on your invoice and no matter how many times you ask her to sign under it!

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