Title is the asset funder’s
security and, in the vast majority of cases, a supplier’s invoice
is accepted as adequate evidence of the funder’s title.
However, the recent decision
of JD Cleverly Limited vs Family Finance Limited (2010)
has highlighted the difficulties of simply accepting an invoice
without applying some thought to the supply process and vetting
invoices before approval of the facility.
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Sympathies may not always lie
with the funder when title is challenged if, to use the words of
Lord Justice Tomlinson in JD Cleverly, “laxity in business
practices” is the effective cause of a successful
challenge.
So what was the problem in
this case? It lay in the supplier’s invoice and the terms set out
on it.
These clearly provided that
no contract would come into existence until there was a signed
order – and it was the absence of an order which defeated the
finance company’s claim to title.
Matters were not helped by
the fact that the transaction had been arranged by an intermediary
who, despite receiving full payment from the customer, had not
passed on that payment to the supplier, choosing instead to finance
the vehicle in his own name.
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By GlobalDataThe customer who had paid for
the vehicle was deemed to be the purchaser of it in preference to
the funder to whom the intermediary had asked the supplier to
address the invoice.
The lesson for an asset
funder is: always read the supplier’s invoice and any terms to
which the supply is subject. Don’t be afraid to challenge and
reject the funding if you are not happy with the terms.
So many transactions are
completed, in my experience, without adequate thought being given,
or specialist advice taken, about the supply of the asset. This is
particularly so with regard to specialist assets, and foreign
suppliers where choice of law issues can arise.
Don’t assume that a request
for an invoice, directly to the supplier, or via the customer, as
part of the funding conditions, is enough to give rise to a binding
supply contract and the passing of title.
Prior dealer approval and
signed dealer terms, containing specific funding conditions
concerning title and satisfactory documentation, can assist, as can
dealer’s offers contained within the hire purchase or other such
agreement, so long as these are duly signed by the
dealer.
Otherwise, with any unknown
supplier some prior due diligence about the supplier is
essential.
David Wood is a partner
and head of finance litigation at DWF
