In cases where there has been a breach of a facility agreement, it tends to be the finance provider taking the legal action. However, a recent case involving funds advanced to acquire a specialised high value transport vehicle saw those roles reversed.
Lawyers in B P Collins LLP’s dispute resolution group were instructed by a UK company which, having secured third-party finance on hire purchase terms to fund the purchase of the vehicle from outside the jurisdiction, and with the benefit of personal guarantees given by its directors, found itself unable to secure delivery after the lender proceeded to release funds directly to the seller outside the jurisdiction before delivery arrangements had been made.
It quickly transpired that the seller, a non-UK company, was (or was run by) a rogue; having received payment, its director immediately absconded with the goods and the payment. After the lender’s initial efforts to engage with the seller and reverse the transaction failed, against the threat of legal action for non-payment, it argued that under the finance agreement the UK company remained liable to repay the loan, and in signing the agreements had (it asserted) warranted that the goods were already in its possession.
Against that background, action was initially taken to try and recover the goods in the Netherlands and Spain, where the rogue director and the goods had been successfully traced. However, whilst court intervention in those jurisdictions was successful, as the goods continued to move, making recovery an on-going challenge, the UK company switched tactics and took legal action in England against the finance provider for breach of contract.
Despite the unusual circumstances, these proceedings highlight the inherent challenges that can arise when using standard-form agreements. Here, the fundamental questions – on which party did the hire-purchase agreements place responsibility for securing delivery, and risk – was not expressly addressed, and fell to a question of construction.
It was common ground that the legal title lay with the lender; practically, that was necessary for the lender to loan them on, with the hire expressed to commence ‘on delivery’. It was argued by the UK company that because delivery never occurred, neither had the loan; and, further, that in buying the goods from the seller, there must have arisen a separate purchase contract, necessarily governed by Dutch law, under which risk did not pass until delivery. The lender denied liability and argued that even if it was at fault, as a matter of construction, it was entitled to recover any losses back from the directors personally under the deeds of guarantee in place – an assertion disputed by the directors.
Whilst the parties reached terms of settlement in advance of trial, this case highlights the potential risks of relying on pro forma or standard-form documents, the importance of reviewing and updating those terms, and of ensuring, and of considering the breadth and effect of guarantee obligations.
If you have any questions about this article, or wish to discuss issues of this nature, or disputes within the wider lending and financial industry, please contact B P Collins LLP’s dispute resolution group on enquiries@bpcollins.co.uk or 01753 889995.
