How to get out of a car deal

 

Cancelling a car sales contract, called recission, must be done quickly. Notify the seller by letter as soon as possible. If the seller refuses to return a deposit or trade-in make an application to VCAT.

This section describes some strategies for cancelling or withdrawing from a car sale contract.

Basic strategy

In getting out of a car deal, you want to:

1 cancel or withdraw from the car sale contract; and

2 retrieve your deposit and any car you have traded-in.

Cancelling or withdrawing from a car sale contract

The legal cancellation of a contract is called rescission. In addition to rescission, you have the right to withdraw from a sale contract in certain circumstances (s 88B MCT Act). The procedure is set out below in “Motor Car Traders Act (ss 45, 88B)”.

You must rescind or withdraw from a contract quickly. It has been decided in several contract rescission cases that where one party to a contract has an option to rescind, that party must do so within a reasonable time and cannot do so after doing anything to affirm the contract. To affirm a contract means to do something that shows you recognise that you are bound by the contract.

The rescission or withdrawal must be communicated to the seller. Essentially, this amounts to posting or personally delivering a letter to the seller stating that you are rescinding or withdrawing from the contract (see sample letters in appendices A, B, C and D at the end of this chapter) and returning the car to the seller if you have taken delivery of it.

You must notify the seller as quickly as possible. Speed is essential, as it is strong evidence of an intention to rescind or withdraw. It also minimises the loss or damage that the seller may claim to have suffered. If the seller is a car trader, it is also a good idea to send a copy of the letter to Consumer Affairs Victoria (seeFurther assistance”, for contact details) and inform the car trader that you have done this. It can help to pressure the car trader into rescinding or acknowledging your withdrawal from the contract.

Retrieving a deposit or trade-in vehicle

If a contract is rescinded or withdrawn from, both you and the seller must be placed in the same position that you were in before the contract was entered into. The exception is when the cooling-off period under section 43 of the MCT Act is relied upon, in which case the car trader retains:

in the case of a used car contract: $100 or 1 per cent of the purchase price, whichever is greater; or

in the case of a new car contract: $400 or 2 per cent of the purchase price, whichever is greater.

The seller gets back the car sold to you. You get back the money paid, together with any trade-in vehicle (or, where the car trader has already sold the trade-in vehicle, the equivalent monetary value of the trade-in). (For used cars, see s 41 MCT Act; reg 22 sch 3 MCT Regulations.)

If the car trader disputes that the contract has been legally rescinded or withdrawn from and refuses to return your money and any trade-in vehicle, you need to force the car trader’s hand by applying to VCAT for orders stating that the contract has been rescinded or withdrawn from and ordering the deposit or trade-in vehicle, or both, be returned. A car trader who disputes you getting out of a contract may sue you for damages in the Magistrates’ Court. If this seems likely, then it’s a good idea to make a “pre-emptive strike” and bring your own application in VCAT first (this is much cheaper than having to defend a Magistrates’ Court claim).

If the car trader gets in first, you can apply to have the case transferred from the Magistrates’ Court to VCAT. If VCAT or the court does not agree that the contract has been rescinded or withdrawn from, then you have wrongfully broken the contract (seeWhat if a contract has not been cancelled or withdrawn from properly?”).

How to get out of a car sale contract

There are a number of grounds on which a car sale contract can be legally cancelled or withdrawn from. These include:

1 Cooling-off period;

2 Motor Car Traders Act (ss 45, 88B);

3 Failure of a condition precedent;

4 Quality;

5 Misrepresentation;

6 Waiver and estoppel;

7 Withdrawl of offer;

8 Delivery is delayed;

9 Using the National Credit Code.

1  Cooling-off period

A cooling-off period is the time during which a purchaser can withdraw from a contract after signing it.

Section 43 of the MCT Act provides for a cooling-off period after the purchase of a new or used car from a car trader. Under the MCT Act, a purchaser can cancel a car sale contract within three clear days after signing it, unless:

the purchaser is a car trader or owners corporation;

the purchaser has accepted delivery of the car;

the car is a commercial vehicle; or

the car was purchased at a public auction.


NOTE

A car trader cannot sell any trade-in vehicle during the three-day cooling-off period (s 43(3) MCT Act; penalty: 50 pu). If you suffer loss as a result of the car trader selling the trade-in vehicle during the cooling-off period, you can claim compensation from the Motor Car Traders’ Guarantee Fund (s 76). (The Motor Car Traders’ Guarantee Fund is administered by Consumer Affairs Victoria; for CAV’s contact details, seeFurther assistance”.)


This cooling-off period also applies to “off-trade-premises sales agreements” for new or used cars. An off-trade-premises sales agreement is made in the presence of the purchaser and the car trader (or a person acting on either party’s behalf) at a private residence or the purchaser’s workplace (unless the agreement was made at either premises at the purchaser’s request). Note that “private residence” does not include a private residence that is also the car trader’s business premises.

Cancelling a car sale contract within the cooling-off period

To cancel a car sale contract within the cooling-off period, you must, within three clear days of signing the contract, notify the car trader in writing that you are terminating the contract (see the sample letter in appendix A at the end of this chapter). The cooling-off period ends if you accept delivery of the car.

Three clear days means three whole days, not including the day the contract was signed, and not including weekends or days that are wholly or partly observed as public holidays in Victoria. For example, if you sign a contract on Thursday, you have all day Friday, all day Monday, and until the close of business on Tuesday in which to notify the car trader.

Posting the notification letter is risky due to the limited amount of time. It is best to personally hand the notice to the car trader or an employee at the car yard. If possible, take along a friend to act as a witness.

As there is a penalty involved in cancelling a car sale contract under section 43 of the MCT Act (i.e. the car trader retains a small proportion of the purchase price), you should state in your notification letter if you have other grounds for rescission. This shows the car trader that you are aware of your right to cancel the contract. In this situation, negotiation may lead to the contract being cancelled without a penalty.

After terminating a car sale contract

After the car sale contract has been terminated under section 43 of the MCT Act, the car trader must:

where it is a sale of a used car, pay you all money received under the contract, less $100 or 1 per cent of the purchase price, whichever is greater;

where it is a sale of a new car, pay you all money received under the contract, less $400 or 2 per cent of the purchase price, whichever is greater; and

return any trade-in vehicle to you.

If the car trader arranged finance, or referred you to a lender:

any finance contract that was entered into for purchase of the car is cancelled; and

any security interest the lender has in the car that relates to such finance is cancelled.

If you already have the car, you must return it to the car trader. If, due to a defect beyond your control, the car is unroadworthy or cannot be driven, you must let the car trader collect the car. You are liable for any damage (other than fair wear and tear) that occurs to the car while it is in your possession.

2  Motor Car Traders Act (ss 45, 88B)

Rescission of a car sale contract

Under section 45 of the MCT Act, a purchaser can apply for a court order to rescind a car sale contract where:

a false representation has been made in relation to the car’s odometer reading;

the contract does not contain the prescribed particulars, terms and conditions; or

the used car is substantially different from the description in the prescribed notice required by section 52(1).

If the cash price of the vehicle does not exceed $40,000, the purchaser can apply for a court order from the Magistrates’ Court or from VCAT. If the cash price of the vehicle is greater than $40,000, the purchaser must apply to the Magistrates’ Court. The application to the court or VCAT must be made within three months of the date the car sale contract was signed.

However, once the purchaser notifies the car trader that they are rescinding the car sale contract, the three-month period no longer applies. The purchaser has one month from the date of notifying the car trader in which to make the application. The MCT Act makes no provision for the court or VCAT to extend these time periods.

The rescission letter notifying the car trader should set out how the car trader has breached the MCT Act (see the sample letter to rescind a car sale contract in appendix C at the end of this chapter). The purchaser may also want to point out to the car trader that by failing to comply with section 41 (used car) or section 42 (new car), an offence has been committed against the MCT Act.

Withdrawal from a car sale contract

Under section 88B of the MCT Act, a purchaser can withdraw from a car sale contract (regardless of whether the car is in the possession of the purchaser or the car trader) where:

the contract does not comply with section 37, which prohibits car traders from dealing with young people;

the contract does not comply with section 41 (used car) or section 42 (new car): these sections provide that a car sale contract must contain the prescribed particulars and that a copy of the contract be supplied to the purchaser at the time of sale;

the car trader has committed an offence under section 38 in relation to the car: this section prohibits odometer tampering and falsely representing the accuracy of a car’s odometer reading.

To withdraw from a car sale contract, you must notify the car trader, in writing, that you are exercising the right conferred on you by section 88B of the MCT Act and briefly give your reason for withdrawing from the contract (s 88B(3)) (see sample letter in appendix D at the end of this chapter). This must be done within three months of the date the car sale contract was signed (s 88B(2)).

Upon withdrawal from the contract, the parties must do everything possible to restore themselves to the position they were in before they entered the contract (s 88B(4)). In particular, the car trader must refund any money paid (s 88B(5); penalty: 50 pu).


NOTE

Section 88B of the MCT Act does not give the purchaser the right to apply to a court or VCAT to seek a declaration that a contract has been validly withdrawn from. The car trader may contest the validity of the withdrawal and sue you for damages. If the car trader refuses to accept your withdrawal from the contract, you should consider taking action first (therefore avoiding the cost and trouble of having to defend any court action by the car trader) by bringing the dispute before VCAT under the Australian Consumer Law and Fair Trading Act 2012 (Vic).


Effect on finance contracts

A significant difference between applying for a court order for rescission under section 45 of the MCT Act and withdrawing from the car sale contract under section 88B, is that the latter does not of itself affect any finance contract you may have signed to finance the purchase of the car.

In a section 45 rescission application, the court or VCAT has the power to make further orders in relation to any collateral credit agreement. This is a finance contract arranged by the car trader for the sale of the car (s 3). Therefore, if a court or VCAT upholds the rescission of a car sale contract, it may also make an order for the termination of any collateral credit agreement (s 47(2)).

However, withdrawal from a sale contract under section 88B – which has the benefit of being a low-cost option as it does not require applying to the Magistrates’ Court or to VCAT – also has its drawbacks. You may still have to repay money lent under the finance contract (unless you can rely on section 21 of the National Credit Code (NCC), which is sch 1 of the National Consumer Credit Protection Act 2009 (Cth), to terminate the finance contract because credit has not yet been provided).

Any default by you under the finance contract may leave you exposed to legal proceedings by the lender. If this occurs, you may be able to argue in your defence that as the car sale contract was withdrawn from under section 88B, your obligations under the sale contract have been consequentially “discharged” under section 135 of the NCC. Section 135 allows a purchaser to rescind a finance contract if the sale contract has been rescinded or discharged, where the car trader referred the purchaser to the lender (and had an arrangement with this lender to regularly refer potential purchasers). There may, however, be an issue as to whether a withdrawal from the sale agreement amounts to “discharge” for the purposes of section 135.

Finance contracts are discussed further below; see9 Using the National Credit Code”.

False representation of odometer readings

The MCT Act (s 38) prohibits odometer tampering (penalty for a person: 240 pu or two years jail (or both); penalty for an owners corporation: 1,000 pu) and falsely representing the accuracy of a car’s odometer reading when selling the car (penalty for a person: 100 pu; penalty for an owners corporation: 500 pu).

If the car trader has committed an offence under section 38, you can withdraw from the contract (s 88B). You can rescind the contract on the basis that a false representation has been made in relation to the car’s odometer reading (s 45). If you suffer loss as a result of a car trader’s failure to comply with section 38, you can claim compensation from the Motor Car Traders’ Guarantee Fund (s 76) (seeMotor Car Traders’ Guarantee Fund”). However, this claim cannot be made until any section 45 rescission application has been heard and determined by the Magistrates’ Court or VCAT (s 45(5)).

Prescribed particulars

You can rescind a car sale contract if it does not contain the prescribed particulars (s 45 MCT Act). You can also withdraw from the contract if it does not comply with section 41 (used cars) or section 42 (new cars) (s 88B).

New cars

A contract for the purchase of a new car (where the seller is not a lender and the purchaser is not a car trader or special trader) must contain the following particulars (s 42 MCT Act; reg 22 sch 4 MCT Regulations; penalty: 20 pu):

the car trader’s name or the name of the car trader’s employee who negotiated the deal;

the car trader’s licence number;

a description of the car;

the engine number of the car (if known);

the price and other charges to be paid;

the time and manner in which these payments are to be made;

the value allowed for trade-in (if applicable).

The car trader must give the purchaser a copy of the contract at the time of the sale (ss 83A, 83C MCT Act; penalty: 50 pu).

Used cars

A contract for the purchase of a used car (where the seller is not a lender and the purchaser is not a car trader or special trader) must contain the following particulars (s 41 MCT Act; reg 22 sch 3 MCT Regulations):

the car trader’s name or the name of the car trader’s employee who negotiated the deal;

the car trader’s licence number;

a description of the car;

the registration number of the car (if registered);

if not registered, the car’s engine number, chassis number, VIN, or last registration number – if none of these is reasonably ascertainable, any other number identifying the car;

the price and other charges to be paid;

the time and manner in which these payments are to be made;

the value allowed for trade-in (if applicable);

the distance travelled by the car as recorded on the odometer and whether the car trader believes this is true.

The contract must also contain specified terms and conditions; these are set out in schedule 3 of the MCT Regulations. You should carefully check the contract, as car traders often fail to properly complete contracts and one or more of the prescribed particulars may be wrong or missing.

The car trader must give the purchaser a copy of the contract at the time of the sale (s 41(2) MCT Act; penalty: 20 pu; ss 83A, 83C; penalty: 50 pu).

Prescribed notice – used cars

A used car (not a commercial, veteran, vintage, classic or historic car) that is offered for sale by a car trader must have a notice in the prescribed form (see reg 11 MCT Regulations) attached to it containing:

the name and business address of the owner of the car (usually the car trader);

the distance shown on the odometer when the car trader acquired the car;

the cash price of the car (unless it is to be sold at auction);

the year the car was first registered;

the model designation (if any) of the car;

the registration number (if any) of the car;

the engine number or the serial number on the car’s registration label;

the built date (if it appears) and the compliance date of the car;

the car trader’s signature and licence number.

Upon sale, the car trader must get the purchaser to sign a copy of the notice and must retain the copy (s 52(6) MCT Act; penalty: 10 pu). The notice must not contain a false or misleading statement or representation (s 52; penalty: 10 pu).

Section 45 of the MCT Act lets a purchaser rescind a contract if the car is substantially different from the car described in the notice.

It may be difficult to get a copy of the notice. While you may be sure that there was a discrepancy, the car trader may have “lost” the notice. The car trader is subject to a penalty of 50 pu for failing to either retain the notice for at least seven years or give a copy of the notice to the purchaser as soon as possible after the sale (ss 83A, 83C; regs 29, 30).

You can take action in the Magistrates’ Court or VCAT to obtain a copy of the notice.

Young people

Under section 37 of the MCT Act, a car trader must not knowingly buy from (or take in exchange), sell or give to, or receive possession of, a used car from a person apparently under the age of 18.

A purchaser may withdraw from a sale contract if the contract does not comply with section 37 (s 88B).

3  Failure of a condition precedent

A contract is subject to a condition precedent when the seller and the purchaser agree that the contract does not come into being until a certain event has occurred. Therefore, this condition must be fulfilled before any contractual obligations come into operation.

These conditions may be written into a car sale contract, usually on its front page. The conditions usually include the words “subject to”. If a condition was made verbally and not written into the contract, you can argue that the contract is subject to a condition precedent. However, if the car trader disagrees, it is one party’s word against the other, and you face the difficult task of proving that the car trader agreed to the condition.

Subject to finance

The most common condition precedent is that the “agreement is subject to and conditional upon the purchaser obtaining finance on or before the delivery date”, or wording to a similar effect.

A deal can be called off if a contract is subject to finance and the purchaser cannot get finance after making reasonable efforts to do so (i.e. the purchaser must have at least applied for finance and been refused) (for used cars, see s 41 MCT Act; reg 22 MCT Regulations).

However, care must be taken with the wording of the condition precedent. Stating that the contract is “subject to finance” does not mean that it is subject to finance on the terms, and at the interest rate, the purchaser chooses. The car trader may arrange finance at a high interest rate. If you specify “bank finance” or something similar in the car sale contract, you can’t be forced to take the car trader’s finance, which is often very expensive.

Under the NCC (s 134), if:

the purchaser makes it known to a car trader that they need finance;

the finance is not provided by the car trader; and

the purchaser makes reasonable attempts to obtain finance on reasonable terms, but can’t do so,

then the purchaser is entitled to terminate the sale contract.


NOTE

The NCC only applies if the finance contract would have been a “provision of credit” that is regulated by the NCC. For more information about finance contracts, see9 Using the National Credit Code”).


Other conditions precedent

Other common conditions precedent include clauses in a car sale contract stating that the contract is subject to:

a satisfactory check by a mechanic of the purchaser’s choice, or a test drive;

a RACV or VACC check; or

approval by parents or a spouse.

If you deposit money or valuables with a car trader prior to a test drive or mechanical test and subsequently return the car and do not enter into a contract to buy it, the car trader must return the money or valuables immediately (reg 21(1) MCT Regulations; penalty: 10 pu).

Regulation 21(2) has identical conditions for a conditional contract to buy a car where you subsequently decide not to continue with the contract.

When relying on a condition precedent to get out of a used car contract, use the letter in appendix B at the end of this chapter.

4  Quality

Even though a contract may not state that a seller must guarantee the quality of the car being sold, guarantees of quality are nevertheless included in the contract. These guarantees are sometimes called “implied conditions and warranties of quality”. Breaches of these guarantees can help purchasers in any battle with a car trader.

These guarantees should not be confused with the statutory warranty for used cars required by section 54 of the MCT Act. The section 54 statutory warranty gives the purchaser the right, in certain circumstances, to require the car trader to repair a used car, but it does not give the purchaser the right to rescind the car sale contract.

Implied conditions and warranties of quality can be found in chapter 3 of the Australian Consumer Law (ACL), which is schedule 2 of the Competition and Consumer Act 2010 (Cth).

Chapter 3 applies to:

goods that are ordinarily acquired for personal, domestic or household use; or

other goods that cost $40,000 or less; or

the purchase of any vehicle or trailer to be used principally for the transport of goods on public roads (s 3).

Section 54 of the ACL creates an implied condition that the goods are of acceptable quality. Goods are of acceptable quality if they are:

fit for the purpose for which they are commonly bought;

acceptable in appearance and finish;

free from defects;

safe; and

durable,

as judged by a reasonable purchaser who is fully acquainted with the condition of the goods, considering the nature of the goods, their price and terms of sale.

Section 55 of the ACL creates a guarantee that the goods are reasonably fit for a particular purpose:

that is made known by the purchaser to the seller, the seller’s agent or the manufacturer; and

for which the seller represents they are fit.

The clear intention and effect of sections 54 and 55 of the ACL is to require goods to be of sufficient quality.

There is no exact definition of “sufficient quality” in relation to a car. If you are relying on lack of quality, you should get the RACV, VACC or an independent mechanic to check the car to establish this, as soon as possible. This will not conclusively prove that the car is of insufficient quality, but it may be used as evidence.

A breach of a guarantee allows the purchaser to take action where the seller sells the car as part of a business activity. The remedy for the breach depends on whether the failure to comply with the guarantee is a “major failure”. A major failure can allow the purchaser to reject the car in some cases (s 259ACL). However, the purchaser loses the right to reject the car if they do not act within a reasonable time, or if they do something to the car so it cannot be returned in substantially the same state as when it was sold.

For further information, see Consumer guarantees.

5  Misrepresentation

If a seller makes a statement to you about a car, and the statement both induces you to enter a car sale contract and is untrue, the statement is called a misrepresentation.

A common misrepresentation is where a purchaser is persuaded to sign a contract and pay a deposit after being told by the car trader that the contract is not a binding agreement but only a way of holding the car. Other common misrepresentations relate to the quality of the car, such as it being “an original” or “a single-owner car”.

If a misrepresentation has been made, you can rescind the car sale contract by notifying the seller before accepting the car or within a reasonable time after accepting it (s 24 Australian Consumer Law and Fair Trading Act 2012 (Vic) (“ACL&FTA”)). Acting quickly is important because if you do not rescind the contract within a reasonable time, you may be taken to have chosen to continue the contract (s 26 ACL&FTA).

Under section 25 of the ACL&FTA, when a purchaser rescinds a sale under section 24, the purchaser must return the goods to the seller. The seller must return the money paid by the purchaser. The purchaser is liable for any damage caused to the car by wilful or negligent action.

Note that under the ACL&FTA (s 27), a seller is liable for the representations and warranties of their agents and representatives.

In addition, section 84A of the MCT Act prohibits a person from giving information or making a statement that is false or misleading in relation to any document required by the MCT Act, by either including false or misleading matter or omitting material matter (penalty: 50 pu).

If you are claiming that a seller has made a misrepresentation, it may also be possible to claim that the seller has breached the ACL.

The ACL defines and prohibits:

misleading or deceptive conduct (ss 18, 19);

false representations (s 29);

unconscionable conduct (ss 20–22);

unfair terms (ss 23–28); and

misleading conduct in relation to the nature, manufacturing process, characteristics, suitability for their purpose or quantity of goods (s 32).

The ACL&FTA allows purchasers to bring proceedings in VCAT in relation to breaches of the ACL. Sections 103 to 106 deal with the conciliation of, and instituting or defending proceedings in relation to, disputes about the supply of goods, by Consumer Affairs Victoria. Sections 107 to 113 deal with the determination of fair trading disputes by VCAT in relation to a supply of goods. Sections 108 and 109 set out VCAT’s powers, which include making orders to pay money to the purchaser, or to cancel or vary a contract.

Section 158 sets out the orders a court may make in proceedings for contravention of the ACL&FTA to compensate for loss or damage suffered. These include orders to pay money to the purchaser or to declare void or vary a contract or collateral agreement (e.g. a finance contract). Section 159 allows purchasers to bring proceedings in a court or VCAT for loss or damage caused by a breach of the ACL&FTA. Section 160 gives a court the power to award compensation for humiliation or distress suffered as a result of conduct constituting an offence under the ACL&FTA.

When claiming that a seller has made a misrepresentation or engaged in unconscionable conduct, you should add these grounds to the rescission letter (see the sample letter to rescind a car sale contract in appendix C at the end of this chapter).

For further information on these issues, see Consumer protection laws.

6  Waiver and estoppel

If party A, by their conduct:

leads party B to believe that the rights arising under the contract will not be strictly insisted upon; and

intends that party B should act on that belief,

and party B acts on the belief, then party A is not allowed to insist afterwards on the strict legal rights under the contract, when it would be unfair to do so. Party A has “waived” their rights and is “estopped” from asserting them.

A waiver of rights may lead to a car trader losing their rights to insist that a purchaser is bound by a car sale contract.

In a dispute with a car trader, there are often oral waivers of rights under the original contract. A common example is that the purchaser is allowed to exchange the car in dispute for another car. Other representations at or soon after the signing of the agreement (e.g. that the contract is not binding, or that the purchaser can get their money back if dissatisfied) may constitute a waiver. In these cases, the purchaser could argue that the car trader has waived the right to enforce the agreement and that the agreement is therefore at an end.

Proving an oral waiver can be difficult. Even if the waiver is proved, the car trader may be able to enforce the contract subject to the waiver (i.e. the waiver may only amend the contract, not cancel it).

7  Withdrawal of offer

A contract is not made until the purchaser receives notice of the seller’s acceptance of the offer to purchase. The purchaser can withdraw their offer at any time before the seller accepts. (For more information, seeOffer and acceptance” in How contract law works.)

8  Delivery is delayed

New cars

If the time for delivery of a new car is an essential term of the car sale contract (i.e. a condition of the contract rather than a contractual warranty) (the definition of “essential term” is considered in Associated Newspapers Ltd v Bancks [1951] HCA 24) and the car trader fails to deliver the car as specified in the contract, then the purchaser may be able to rescind the contract.

The purchaser’s right to rescind is easier to assert if the contract specifically states that time is of the essence (see ss 15, 16 Goods Act 1958 (Vic) (“Goods Act”)), or states that the contract may be terminated for failure to comply with the delivery conditions.

(For further information on contract law issues, see How contract law works.)

Used cars

Where delivery of a used car by a car trader is delayed by more than 14 days after the delivery date stated in the car sale contract, the purchaser may terminate the contract by notifying the car trader in writing.

The contract cannot be terminated if the purchaser caused the delay (s 41 MCT Act; reg 22(1) sch 3 MCT Regulations).

9  Using the National Credit Code

Usually, purchasers of cars enter into a number of contracts: there is a car sale contract between the purchaser and the car trader, a separate finance contract between the purchaser and a lender, and a mortgage over the car, to protect the lender’s interest.

If the purchaser arranges their own finance, the NCC usually applies to the finance contract between the purchaser and the lender.

Under section 21 of the NCC, after a finance contract is made, the debtor may terminate the contract (in writing) unless:

any credit has been obtained under the contract; or

a card or other means of obtaining credit provided to the debtor by the credit provider has been used to acquire goods or services for which credit is to be advanced under the contract.

However, fees or charges incurred before the termination may be payable.

If a car trader arranged the finance or introduced the purchaser to the lender, the purchaser may have remedies under the NCC in respect of the sale contract and the finance contract.

The linked credit provisions of the NCC (ss 125–141) enable a purchaser, in certain circumstances, to obtain damages from both the car trader and the trader’s linked credit provider for loss or damage caused by misrepresentation, breach of contract or failure of consideration in relation to the sale contract. This means that a purchaser may be able to take action against both the car trader and the lender and use the liability of the car trader as a defence to proceedings brought by the lender.

A linked credit provider of a car trader is defined in section 127 of the NCC. A lender is a linked credit provider if:

the trader has a trade contract, arrangement or understanding with the lender to finance the supply of goods or services to the trader;

the trader, by arrangement, regularly refers people to the lender to obtain finance;

the trader, by arrangement, has the lender’s contracts, loan applications or offer forms available to purchasers; or

by arrangement, loan documents are signed at the trader’s premises.

However, the credit provider may not be liable in certain circumstances (see s 129(2)).

If the trader arranged the finance or referred you to the lender (as part of an arrangement between the trader and the lender), and you rescind or discharge your obligations under the sale contract, you can also rescind the finance contract. Any mortgage or guarantee related to the finance contract will be terminated too (s 135).

If a car sale contract is cancelled during the cooling-off period under section 43 of the MCT Act, any finance contract related to the car contract is not automatically terminated (ss 43(6), 43A). However, upon cancellation, the seller must return to a lender any money received pursuant to a credit contract (s 43(4)). The purchaser should contact the lender directly to ensure that the refund has been paid to the credit account and ask whether any further payments are needed to terminate the credit contract (the purchaser may be liable to pay fees or charges that have already been incurred under the credit contract).

Other useful provisions are sections 39 and 40 of the Consumer Credit (Victoria) Act 1995 (Vic). These provide that a finance contract and any mortgage in relation to that contract are unenforceable if the annual percentage rate of the contract exceeds 48 per cent. In this case, the purchaser may be able to keep the car but not have to make payments on the finance contract. If the annual percentage rate exceeds 30 per cent, the mortgage is void.

The purchaser may also be able to recover civil penalties if the finance contract breaches the NCC; for example, for not being in writing (s 14) or for improperly disclosing required information (s 17). The purchaser could also apply to VCAT to have the finance contract re-opened if it is unjust (s 76).

For further information on finance contracts and consumer credit legislation, see Understanding credit and finance.

What if a contract has not been cancelled or withdrawn from properly?

If a contract has not been legally rescinded or withdrawn from, the purchaser may have wrongfully broken the contract. The effect of breaking a contract depends on whether or not the purchaser has already taken delivery of the car.

If the purchaser refuses to take delivery of the car and is subsequently found to have breached the contract, the purchaser is liable to pay damages to the seller. “Damages” are the loss the seller has suffered because the sale has not been completed.

The seller must always attempt to minimise their loss. This requires the seller to use their best endeavours to sell the car to someone else.

However, the purchaser is liable to compensate the seller for “the estimated loss directly and naturally resulting in the ordinary course of events” from the breach (s 56(2) Goods Act).

The seller must prove this “loss” and does this by proving the non-recoverable loss of profit that resulted from the purchaser wrongfully breaking the contract (see Kargotich v Mustica [1973] WAR 167 and W & J Investments Ltd v Bunting [1984] NSWLR 331 for the method of assessing damages).

When dealing with difficult sellers, it is important for purchasers to assert that they are only liable for nominal damages under section 56(2) of the Goods Act, as it may encourage the seller not to dispute the purchaser getting out of the contract.

As mentioned, if the purchaser has already taken delivery of the car and they want to rescind or withdraw from the contract, they need to return the car and seek either a refund of money paid to the seller or a termination of the credit contract that financed the purchase.

If you are in this situation, you should maintain credit contract payments until either the seller accepts the termination of the sale contract or an order is obtained from a court or VCAT. If you stop making payments and you are found not to have properly rescinded or withdrawn from the contract, you will be in default of the credit contract.