JD Cleverly Ltd and Cwmbran Motors Ltd v Family Finance
Limited [2010] EWCA Civ 1477
A county court judge had erred in finding that
motor dealers had concluded several contracts of sale with a
finance company. The parties conduct could not properly be regarded
as manifesting an unequivocal intention to create a legal
relationship in the form of a contract for sale.
the facts
The case involved a large scale fraud operated
by an intermediary motor dealer, "Gwent". The facts can be
summarised as follows:
- customer placed an order with the
intermediary motor dealer, Gwent
- Gwent then telephoned the relevant dealer for
a quote. An oral quote would be provided over the telephone and if
Gwent accepted the oral quote, they would then send a written,
signed purchase order to the dealer, which would typically refer to
the vehicle price "as agreed"
- the dealer would place an order in the name
of Gwent for the vehicle
- the vehicle would subsequently be delivered
and registered to the customer by the dealer
- Gwent would instruct the dealer to invoice
the finance company, in this case Family Finance Ltd
- in this case, the New Vehicle Invoice
generated by the dealer to Family Finance included a provision that
a contract for sale would only come into force once an order has
been signed by one of their sales executives.
During a period of four months, Gwent
entered into 38 similar HP agreements with Family Finance.
the legal issue: was a contract of sale concluded between the
finance company and the dealer?
On appeal, it was held that the burden was on
Family Finance, as the party asserting the formation of a contract
between themselves and the dealers, to demonstrate that the parties
manifested an intention to create a legal relationship. Given the
fact that the New Vehicle Invoice contained a specific provision in
relation to the formation of a contract for sale, which had not
been complied with, compelling evidence would be required from
Family Finance in order to discharge this burden.
Accordingly, the Court took the view that it
may be the case that Family Finance may, for whatever reason, have
been assisting Gwent by discharging the existing or future
indebtedness of Gwent, without bringing into existence a
contractual relationship between Family Finance and the dealers.
For example, Family Finance may have been making loans to
enable Gwent to purchase vehicles and these loans may have been
secured in a manner which did not involve the finance company
acquiring a proprietary interest in the vehicles. Alternatively,
the loans provided by Family Finance to Gwent may have been
unsecured or even secured by personal guarantee.
The Court held that it was for Family Finance
to exclude these possible explanations and the evidence fell far
short of demonstrating that the conduct of Cardiff Audi and Family
Finance was consistent only with the creation between them of a
contract pursuant to which the vehicle would be sold by one to the
other.
what are the implications for the finance industry?
It is often the case that finance companies do
not have contact with the dealers or suppliers. It is also
commonplace in the finance industry for a supplier to send an
invoice to a finance company, with whom they have had no prior
dealing in the transaction and for finance companies to send a
cheque to the supplier. This case has established that this does
not necessarily mean that a contract for sale has been formed
between the supplier and the finance company.
This will only present itself as a problem if,
as in this case, there is evidence in the parties conduct to
suggest that the parties did not unequivocally intend to form a
contract.
Finance companies should manage such risk
appropriately, particularly in cases where transactions are of a
high value or involve a large number of contracts with the same
supplier. This can be achieved by agreeing terms of business with
the supplier or at the very least, by requiring the supplier to
provide an offer and warranty confirming their intention to sell
the goods to the finance company.
