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The “Exclusion Clause” Problem

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The Gloves are Off! Buying Your Vehicle with an Unregulated Finance Agreement – The “Exclusion Clause” Problem.

If you’ve leased or bought a vehicle on finance in your limited company name or as a high net worth individual, its likely to be an unregulated agreement.

Unregulated finance agreements fall outside the jurisdiction of the Financial Ombudsman Service. Try to reject the vehicle or invoke any legal rights and you would be excused for thinking that you don’t have any, which the dealer and finance company will be all too happy let you believe by referring you to the dreaded ‘small print’ under the heading “EXCLUSION.”

This will read something like:

…“the Vehicles hired under this Agreement are hired without the benefit of those terms implied by Sections 8, 9 and 10 of the Supply of Goods and Services Act 1982 which terms are (except where the Customer deals as Consumer defined as before) expressly excluded.”

Naturally, you won’t believe that you’ve bought a new £25,000 van or £150,000 Porsche which doesn’t have to be fit for purpose, of satisfactory quality or as described- but it’s true, or at least that’s what they’ll have you believe.

While it is true that unlike consumer contracts, the law is reluctant to interfere in business contracts, leaving the parties free to agree whatever they see fit, in the vast majority of cases you wouldn’t have been involved in agreeing to something you weren’t aware of.

You weren’t aware of it because you likely don’t buy vehicles with any great regularity and simply, the dealer didn’t tell you or draw your attention to the offending clause, leaving you feeling you’ve been ‘mugged off’ by the seller.

As if it’s of any consolation, the dealer will remind you that although the vehicle keeps breaking down, “that’s what the warranty’s for” and you should just put up with them fixing it, assuming it can be fixed that is.

However, you’ll be relieved to know that it’s not quite as simple as that and the law is not overly impressed with exclusion clauses, especially if they defeat the object of the contract and result in absurdity. In short, the use of the product is an important consideration.

But as much as an exclusion clause is no ‘get out of jail free’ card, the absurdity rule equally doesn’t automatically trump it, there are more than a few hurdles to overcome before an exclusion clause in determined as being unfair.

The relative bargaining powers of the parties, knowledge of the clause, the commercial sophistication of the parties, the complexity and specificity of language used and the overall context may also be taken into consideration.

It’s not easy, but nonetheless it is possible to undermine exclusion clauses, but it’s not for the faint-hearted and you need to be ready to fight your corner, as no doubt finance companies and dealers will. If they really want to risk testing their contract clauses in court and risk them being pulled apart is another matter.

If you’ve bought a car or commercial vehicle in your business name, whether on finance or not, call or email Stormcatcher Law for first free advice