Related sale contracts and insurance contracts

Contributed by SigourneyDrane and current to 27 July 2018

Sale contracts

For the purposes of the NCC, a sale contract is a contract for any one or more of the following:
  • a contract for the sale of goods;
  • a contract for the supply of services.
The NCC applies to a sale contract or proposed sale contract only if the sale of the goods or supply of services concerned is financed, or is proposed to be financed, wholly or partly by the provision of credit to which the NCC applies (see section 126 of the NCC).

Generally speaking, if a consumer purchases goods from a supplier and suffers loss as a result of the supplier's breach of contract or misrepresentation or as a result of failure of consideration then the consumer has a right to take action against the supplier.

Where the consumer has also entered into a credit contract (called a tied continuing credit contractor or tied loan contract) with a linked credit provider in relation to the goods, the NCC allows the consumer to take action against both the supplier and the linked credit provider.

The NCC provides that any representation, warranty or statement made (either orally or in writing) by a supplier to the consumer in relation to the tied continuing credit contract or tied loan contract gives the consumer the same rights against the credit provider that the consumer would have if that representation, warranty or statement was made by the credit provider (see section 128 of the NCC).

The liability of the linked credit provider to a consumer is limited and must not exceed (see section 30 of the NCC):
  • the amount of credit under the tied loan contract or tied continuing credit contract; and
  • the amount of interest (if any) or damages in the nature of interest allowed or awarded against the linked credit provider by the court; and
  • the amount of costs (if any) awarded by the court against the linked credit provider or supplier or both.
The NCC provides for a defence for a linked credit provider where the linked credit provider is able to establish the matters set out in section 129(2) of the NCC).

Whilst there is usually no "cooling-off period" for sale contracts, a consumer can terminate a sale contract by making it known to a supplier that credit is required in order to pay for the goods or services and that the consumer, after making reasonable endeavours to do so, fails to obtain credit on reasonable terms (see section 134 of the NCC).

The consumer may terminate a sale contract even though the goods and services have already been supplied under the contract. If practicable, the goods must be returned to the supplier.

If the consumer does terminate the sale contract then:
  • the supplier is entitled to:
    • reasonable compensation for damage to, or deterioration of, goods supplied under the sale contract (other than fair wear and tear) up to the date of their return to the supplier or, if they are not returned, the cash price of the goods; and
    • the reasonable value of the services supplied under the sale contract up to the date of termination; and
  • the purchaser is entitled to:
    • subject to the supplier's entitlement referred to above, to the return of money paid under the sale contract.
If the sale contract is rescinded or discharged and there is a tied loan contract or a tied continuing credit contract made with a linked credit provider then the consumer is entitled (see section 135 of the NCC):
  • in the case of a tied loan contract - to terminate the credit contract; or
  • in the case of a tied continuing credit contract - to be credited with the amount of credit in relation to the sale contract and the interest charges attributable to that amount.
If a tied loan contract is terminated under section 135 of the NCC then the credit provider is entitled to recover any part of the amount of credit that has not been paid to the supplier from the consumer and the consumer is entitled to recover any interest charges or other amounts paid by the consumer under the credit contract from the credit provider.

If a tied loan contract is terminated under section 135 of the NCC then the credit provider is entitled to recover from the supplier (subject to any agreement between them) the amount of any loss suffered by the credit provider as a result of the termination.

Insurance contracts

For the purposes of the NCC, a credit-related insurance contract is a contract for insurance of any of the following kinds in connection with a credit contract (see section 142 of the NCC):
  • insurance over mortgaged property;
  • consumer credit insurance;
  • insurance of a nature prescribed for the purposes of section 142 of the NCC by the Regulations.
A credit provider or a supplier must not require a consumer or a guarantor to take out insurance or pay the cost of insurance arranged by the supplier unless that insurance is (see section 143 of the NCC):
  • compulsory insurance (such as compulsory third party injury insurance);
  • mortgage indemnity insurance;
  • insurance over mortgaged property; (often described as "comprehensive insurance"); or
  • insurance of a nature and extent approved by the Regulations.
A credit provider or a supplier must not, in connection with a credit contract or a sale contract in relation to which there is a tied loan contract or a tied continuing credit contract:
  • require a consumer or guarantor to take out insurance with a particular insurer (unless the insurer is the only insurer providing insurance of the relevant kind or the requirement is exempted from the operation of section 143 of the NCC or by the Regulations); or
  • make any unreasonable requirement as to the terms on which the consumer or the guarantor is to take out insurance.
On termination of a credit contract, any relevant credit-related insurance contract financed under the credit contract for consumer credit insurance in force is also terminated. If a credit contract is terminated, the credit provider is required to pay the debtor or credit the debtor a proportionate rebate of any premium paid under any relevant credit-related insurance contract for consumer credit insurance in force immediately before the credit contract is terminated. The credit provider may, in turn, recover the amount paid to the debtor from the insurer (see section 148 of the NCC).

If a credit contract is terminated before the end of the term of a credit-related insurance contract over mortgaged property financed under the credit contract or before any such insurance contract is otherwise terminated, the debtor is entitled to terminate the insurance contract and recover from the insurer a proportionate rebate of premium paid under the insurance contract (see section 149 of the NCC).

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