This was the question at the heart of Brewer v Stanley Mann and Fortis Lease UK Ltd, an oft-discussed case concerning a vintage Bentley bought on hire purchase, which the purchaser alleged was not the car she had been told it was. With the case having been brought to the Court of Appeal, Greg Standing examines the issues that were put before the court, and the eventual outcome
Mann, a dealer in vintage Bentleys, advertised a 1930 Speed Six Bentley for sale in May 2007. Brewer, a vintage car enthusiast, attended Manns premises and, following an inspection and discussions, agreed to purchase the Speed Six at a price of £425,000. She paid a deposit of £35,000 and financed the balance through a non-regulated hire-purchase agreement with Fortis.
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Both the sales invoice to Fortis and the hire-purchase agreement described the vehicle as a 1930 Bentley Speed Six. The engine number was neither requested nor stated in the hire-purchase agreement.
Brewer enjoyed the Bentley for some 14 months but then fell into arrears and decided to try and sell the vehicle. She had it valued by Bonhams who noted that the vehicle was not an original 1930 Speed Six Bentley, but in fact had a 1927 standard 6½ litre engine that had been reconstructed on a small part of the original 1930 Speed Six chassis.
Brewer notified Fortis that she intended bringing a claim against Mann and asked Fortis to bear with her. Fortis decided not to, terminated the hire-purchase agreement, repossessed the car and sought payment of the outstanding balance.
The issues
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By GlobalDataBrewer issued proceedings against Mann for damages for breach of warranty/promise. She alleged she had been induced to buy the car from the advertisement and oral warranties given by Mann in pre-purchase discussions to the effect that the Bentley was a genuine 1930 Speed Six containing an authentic Speed Six engine. Against Fortis, she claimed a breach of an express or implied term as to the description of the vehicle pursuant to s9 of the Supply of Goods Implied Terms Act 1973 (s9) which provides:
"(1)where under a hire-purchase agreement goods are bailed or hired by description, there is an implied term that the goods will correspond with the description "
Manns defence was that he had always described the engine correctly as being "to Speed Six specification" and reference to the car being a Speed Six was a statement of opinion and not a contractual warranty.
Fortis argued there had been no reliance on the description in the finance agreement by Brewer and therefore there was no implied term upon which she could rely. The description was merely for the sake of identification and, in any event, the description was correct as it only related to the car, not the engine.
Furthermore, Fortis argued that it had not been privy to any of the pre-sale discussions and, this being an unregulated agreement, Mann was not acting as its agent in those discussions. Therefore, the alleged warranty given by Mann as to the cars engine was not relevant to the hire-purchase contract.
Fortis, having sold the car back to Mann for the same price paid for it, counterclaimed against Brewer for loss of profit on future instalments and the expense of recovery and storage.
There were three main issues that the Court had to decide:
- The judge held that Mann had stated unequivocally that the engine was a Speed Six engine. This was a collateral warranty which Brewer had relied upon in concluding the contract to buy the vehicle and entering into the hire-purchase agreement.
- That description meant that the car had to be a 1930 Speed Six Bentley car containing a 1930 Speed Six engine and a 1930 Speed Six chassis. He found that it did not conform to that description as it did not contain a 1930 Speed Six engine but a reconstructed standard 6½ litre engine and a reconstructed 1930 chassis.
- That description had followed into the hire-purchase agreement and Fortis was bound by Manns warranty.
Further, the vehicle had no relevant continuous documentary history from 1930 and no verified or authenticated ability to satisfy any relevant 1930 Speed Six specification. Therefore, Mann was in breach of his warranty and Fortis was in breach of an implied term as to the description contained in the hire-purchase agreement pursuant to s9 of the Act.
Very harshly, Fortis was ordered to repay all the finance instalments without any credit being given for Brewers use of the vehicle.
Fortis and Mann both appealed.
What the Court of Appeal said
In relation to the appeal by Fortis, the Court of Appeal found that the contract was a bailment by description and that Brewer had relied, at least in part, on the description.
However, on the evidence, the Bentley had been properly described. There was no implied term that the vehicle required a Speed Six engine or a continuous documentary history. The engine of a car was not necessarily relevant to its description unless it was described as containing a specific engine. The documentary history is not the same thing as the vehicles description. If a customer requires such documentation, there would be negotiation about it and it would form part of the cost of the vehicle. It could not be expected as of right. A vintage Bentley could be justly described as such where it has been rebuilt out of a piece of chassis with the original chassis number stamped on it. How much was original and what provenance it had went to value, not description.
Further, any collateral warranty as to the engine was not relevant to the hire-purchase agreement. Fortis was not privy to the conversations between Mann and Brewer and the trial judge had been wrong to find that the hire-purchase agreement between Brewer and Fortis incorporated the oral warranty. The expert evidence indicated that the description in the agreement was accurate and in a non-regulated hire-purchase agreement the dealer will not usually be acting in the capacity of agent of the finance company in pre-purchase discussions.
It also held that, even had it found for Brewer, she would have had to give credit for her use of the vehicle for the period of hire. There had never been any suggestion that it had been defective. Fortiss appeal and counterclaim was therefore allowed.
As for the claim against Mann, a new trial was ordered on the oral collateral warranty point as the court found that the judge had lost objectivity and had been unfair in relation to his views of Manns honesty and of his evidence.
What can we learn from this case?
Brewer v Mann reaffirms that in unregulated hire-purchase agreements, representations made by a dealer are not usually made on behalf of the finance company and the dealer is not their agent (save for limited, usually administrative, purposes).
However, in regulated consumer credit agreements, the opposite is generally true and often the representations made by dealers in pre-contract negotiations are binding on the finance company (see below).
The description of the vehicle in the hire-purchase agreement is a term and finance companies should ensure that the description is accurate.
In larger, bespoke financing transactions, both the finance company and customer would be well advised to obtain an independent valuation report on the vehicle. In this case, it would have been money well spent in revealing issues with the provenance of the vehicle and its value prior to purchase.
The hire-purchase agreement could have referred to the report for a detailed description. In the event that the valuation report failed to pick up the issues, both parties would have had the valuers insurance policy to fall back on, rather than embarking on costly litigation which, for Mrs Brewer at least, is still ongoing!
Can finance companies avoid liability for dealer misrepresentations in regulated agreements?
Many motor finance transactions with consumers are now regulated following the removal of the financial limit by the Consumer Credit Act 2006. As a result, dealers (if acting as credit brokers) will normally be deemed to be the agent of the finance company during pre-contractual antecedent negotiations (including advertisements) pursuant to s56 of the Consumer Credit Act 1974 (s56).
However, depending upon the structure of the deal and the contractual chain, it may still be possible for a finance company to avoid liability under s56.
This was the position in Black Horse Ltd v Langford (2007). Langford had agreed to part exchange his BMW Z3 for a Lotus Esprit.
In the antecedent negotiations, the dealer agreed to discharge outstanding finance to Black Horse on the BMW of about £7,500. The dealer approached a firm of credit brokers, North Riding Finance (Poole) Ltd (NRF) who selected Black Horse to fund the purchase of the Lotus.
The dealer sold the Lotus to NRF who sold it to Black Horse. Black Horse then hired the vehicle to Langford under the hire-purchase agreement.
Neither Black Horse nor NRF had any prior knowledge of the dealers promise to pay off the finance on the BMW. Langford knew nothing of the sale of the Lotus from the dealer to NRF and NRF to Black Horse.
The dealer failed to pay off the sums owing and became insolvent. Black Horse claimed the balance owing on the BMW from Langford. Langford denied liability on the basis that the dealers promise to pay was, by virtue of s56, deemed to have been made as agent for Black Horse.
Black Horse denied that the dealer was its agent as NRF was the credit broker for the purposes of s56 as Black Horse had bought the Lotus from NRF, not the dealer.
The court at first instance accepted Langfords argument, as to do otherwise would make serious inroads into the protection that s56 was meant to afford.
On appeal, however, the judge accepted Black Horses argument that s56 applies only to the credit broker who sells the goods to the finance company: that was NRF and not the dealer who had made the promise.
Comment
For a finance company, there are therefore clear advantages to purchasing the vehicle via an intermediary credit broker as opposed to direct from the supplying dealer.
Despite the court’s apparent desire to find in favour of the consumer, the loophole has not been closed by any subsequent amendment to the section and the courts continue to apply s56 strictly.
Greg Standing is a partner in Wragge & Co’s motor finance litigation team
