Introduction

His Honour Judge Simon Brown QC, sitting in the High Court (Birmingham Mercantile List), recently handed down judgment in Welcome Financial Services Limited v Nine Regions Limited t/a Log Book Loans [2010] EWHC B3 (Mercantile) looking at whether a business providing finance to consumers whilst, at the same time, entering into a bill of sale over a motor vehicle as security for the debt, could fall within the definition of “private purchaser” under Part III of the Hire Purchase Act 1964 and obtain title to a vehicle that had already been let to the debtor under a hire purchase agreement. We understand that permission to appeal to the Court of Appeal has been granted and the appeal is due to take place on 24 February 2011.  

Background

Nine Regions Limited provides finance to sub-prime consumers at high rates of interest and trades as Log Book Loans (“LBL”). Its trading name results from its use of bills of sales, under which the consumer sells the vehicle to LBL as security for the money advanced under a separate loan agreement. Under the terms of the bill of sale, the consumer is given a right to retain possession of the vehicle but if the loan agreement is terminated, LBL can recover the vehicle and sell it to discharge the outstanding debt.

The Facts

LBL entered into a bill of sale with Miss Charli Scott on 20 July 2007 as security for a loan of £1,286.06. The APR under the loan was 347.6%. Under the terms of the bill of sale, Miss Scott sold the vehicle to LBL but kept possession of it. If she defaulted on the repayment of the loan, LBL could (after the loan agreement had ended) recover possession of the vehicle and sell it. To protect its interest in the vehicle, LBL recorded its interest with HPI Limited (“HPI”) on 20 July 2007. Motor traders and finance companies will, of course, be familiar with the House of Lords’ decision in Moorgate Mercantile Co Limited v Twitchings [1977] AC 890 (HL) which makes it clear that there is no obligation to register any interest with HPI and a failure to register does not mean the owner loses title.

Miss Scott was not, in fact, the vehicle’s owner as she had acquired use and possession of the vehicle on 17 July 2007 (just three days before she obtained the loan from LBL) under the terms of a hire purchase agreement with Welcome Financial Services Limited (“WFS”). WFS did not register its interest with HPI until 23 July 2007 (ie three days after LBL).

It appears that Miss Scott failed to make her repayments under the loan agreement with LBL. LBL sent her a default notice in accordance with Section 87 of the CCA 1974 in October 2007. She failed to comply with it so the agreement was terminated. LBL recovered possession of the vehicle in November and sold it for £3,241.90.

Proceedings

After learning about the vehicle’s sale, WFS issued proceedings against LBL for a declaration that it was entitled (as the vehicle’s owner) to the proceeds of sale. District Judge Habershon, sitting in the County Court, decided that the vehicle’s owner was LBL, as it acquired title under the private purchaser provisions contained in Part III of the Hire Purchase Act 1964 (the “HPA 1964”). WFS appealed to the High Court arguing that title did not pass to LBL as it did not satisfy the definition of private purchaser contained in Section 29(2) of the HPA 1964.

The Issue

The Court had to determine (on appeal) whether District Judge Habershon had wrongly decided that LBL was a private purchaser for the purposes of Part III of the HPA 1964. The result of the learned judge’s finding was that LBL had acquired title to the vehicle and was entitled to the proceeds of sale.

Decision

After hearing submissions from the parties, the Court decided that:

  • District Judge Habershon had taken the wrong approach because she had not decided what the purposes of entering into the bill of sale were. Instead, she just considered what they were not.  
  • One of the reasons for entering into the bill of sale with Miss Scott, was to give it some security for her performance of her obligations under the loan agreement and, if she defaulted, to offer the vehicle for sale. This was “part” of LBL’s purpose for entering into the bill of sale.  
  • Even if selling vehicles subject to bills of sales were not LBL’s key reason for entering into bills of sale, it was an important part of the reason for doing so.  
  • LBL were “a long way from being private purchaser” envisaged by the HPA 1964. Similarly, finance companies were not designed to fall within the protection of the HPA 1964.  
  • Section 29(2)(b) was designed to be as broad as possible to cover all business situations where a motor vehicle acts a security for the finance. It also envisaged three types of agreements: bailments, hire purchase agreements and conditional sale agreements. Plainly, the bill of sale was a bailment meaning LBL’s activities fell within Section 29(2)(b).  

The appeal was therefore successful meaning WFS retained title to the vehicle and was entitled to its proceeds of sale.  

After judgment was handed down, LBL appealed. We understand that Lord Justice Rix has given permission to appeal to the Court of Appeal and the appeal hearing is currently listed for 24 February 2011.  

Comment

Title disputes relating to goods, particularly motor vehicles, often involve an innocent party losing out. Motor traders are often faced with such a situation, often considered unfair by them, where a clear search at HPI gives them no defence to a lender’s claim that their actions in buying the motor vehicle amount to a wrongful interference.

HHJ Simon Brown QC’s judgment, including his comment that LBL were “a long way from being private purchaser” is plainly attractive and we agree with it. The HPA 1964 is designed to protect private purchasers of goods previously let under a hire purchase or conditional sale agreement. The definition of trade or finance purchaser clearly states that a person will not be a private purchaser where its business is to partly buy motor vehicles for the purpose of offering them or exposing them to sale. Plainly, this was part of LBL’s business.

Whilst the strict wording of Part III of the HPA 1964 is arguably ambiguous, there are obvious public policy reasons why lenders like LBL should and, it is suggested must, fall within the definition of trade or finance purchaser. If they did not, it would create a rather bizarre situation where a motor trader, who will often use HPI to check whether any finance has been registered against a vehicle, will not be protected by the HPA 1964 yet a lender using the vehicle as security under an agreement which is neither hire purchase nor conditional sale, but also checking with HPI, will be protected. If the Court of Appeal takes a different view, despite the obvious difficulties of second appeals, it will severely prejudice lenders who let motor vehicles to debtors under hire purchase or conditional sale agreements. The appeal will therefore be of great importance to such lenders. Until then, lenders can rely upon this very welcome decision.