The recent High Court case of VFS Financial Services Limited v JF Plant Tyres Limited EWHC 346 (QB) provides helpful clarification of what constitutes a "disposition" for the purposes of section 27 of the Hire Purchase Act 1964.

The facts of the case are relatively simple. The Claimant let a vehicle on hire purchase terms to a firm (and subsequently by novation to a related limited company). Rentals were not paid and the agreement was terminated. The Claimant tried to repossess the vehicle but it turned out that the hirer had parted with possession of the vehicle to the Defendant who refused to return it.

The Defendant claimed it was owed money by the hirer - some £45,000 odd (between the original firm and the limited company). The vehicle was offered by the hirer in settlement of the debt and this was accepted by the Defendant. An "invoice" was raised by the hirer for £89,000 odd purporting to be in respect of the sale of the vehicle.

The Defendant alleged that it was an innocent purchaser without notice of the hire purchase agreement between the claimant and the hirer and as such was afforded the protection of section 27 of the Hire Purchase Act 1964.

Section 27 provides:

(1) This section applies where a motor vehicle has been bailed or (in Scotland) hired under a hire purchase agreement, or has been agreed to be sold under a conditional sale agreement, and, before the property in the vehicle has become vested in the debtor, he disposes the vehicle to another person.

(2) Where the disposition referred to in subsection (1) above is to a private purchaser, and he is a purchaser of the motor vehicle in good faith without notice of the hire purchase or conditional sale agreement ("the relevant agreement") that disposition shall have effect as if the creditor's title to the vehicle has been vested in the debtor immediately before that disposition.

Section 29 provides a definition of disposition:

[A]ny sale or contract of sale (including a conditional sale agreement), any bailment or (in Scotland) any hiring under a hire-purchase agreement and any transfer of the property in goods in pursuance of a provision in that behalf contained in a hire purchase agreement, and includes any transaction purporting to be a disposition (as so defined) and "dispose of" shall be construed accordingly.

In finding for the Claimant, that there had been no disposition and that the Defendant was not therefore protected by the innocent purchaser provisions Judge Mackie QC said:"..the concept of sale of a chattel has at common law and in statute long been associated with a money transaction." Here the judge made reference by way of example to dicta in RE Westminster Property Group plc 1WLR 1117 by Nourse J - "The authorities establish that in legislative usage and in the absence of a special context the word "sale" denotes an exchange of property for cash and not for other property".

Judge Mackie went on, "In a context where there seems no need to stretch the definition to cover less conventional transactions, and thereby broaden the exception to the nemo dat rule, and given the careful wording of the section - particularly "disposition" (as so defined) - I conclude that "disposition" is limited to the specific types of transaction described in the section where the vehicle is transferred in return for money."

Reference was made to the "remarkably similar" case of Royscot Trust v Burno Daken Ltd & David Bell (1993) unreported, July 9th 1993 with approval. Here Judge Astill says "it appears to me that the consideration for this transaction was not money, albeit a document called an "Invoice" was produced and the value of the vehicle agreed. Rather the consideration was a forbearance to sue for that part of the outstanding debt represented by the vehicle's value. It was not "an exchange for property for money" and not, therefore, a disposition as defined by section 29 sub-section 1 of the Hire-Purchase Act 1964."

Judge Mackie did observe that there may be scope for argument about how far the sections cover payment of a genuine price by means other than cash. "Part exchange is it seems covered by the section no doubt because there is at least some passing money and that process is a very common if not usual incident of buying a car", however it was acknowledged that "[t]he distinction may become more difficult where the value of the car to be traded in reaches or exceeds the price of the car being acquired".