The court remedy allows customers
another opportunity to perform their obligations, despite the
finance companies having contractual rights of termination and
recovery of their goods, writes Daksha Mistry
The
increasing use of relief from forfeiture in the asset finance
sector has been highlighted by the number of cases that have
appeared in the courts.
In the case of Transag Haulage v
Leyland DAF Finance PLC (1994), there were three hire purchase
contracts that were nearly at their natural end, but were
terminated as a result of the business going into administration.
It had been a regular payer, and the finance company would stand to
receive a large windfall profit. The court granted relief from
forfeiture. The fact that the value of the vehicles was greater
than the termination sum reinforced the court’s decision.
In the case of Goker v NWS Bank PLC
(1999), which also related to a hire purchase contract, relief from
forfeiture was considered but not granted. This was because the
customer failed to make regular payments and as the vehicle was
depreciating in value very quickly.
In another case, On Demand Information PLC v
Michael Gerson (Finance) PLC (2003), there were four finance
leases, all at different stages. The finance company was entitled
to the monthly instalments at a rate designed to recoup the cost of
the equipment with interest, costs and profit by the end of the
period. Thereafter, the customer was entitled to indefinite
possession for a nominal annual rent as well as entitled to sell
the equip held on account. The customer could have been entitled to
relief from forfeiture but it was not granted because the equipment
had been sold. The court ordered the sale proceeds should be
divided as per the terms of the leases.
Points to remember
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By GlobalDataFinance companies should note from
these cases that the courts are more likely to consider granting
relief from forfeiture when there is some contractual right, such
as an option to purchase or entitlement to sale proceeds. It would
appear that the court can use its discretion to substitute the
customer’s remedy of relief from forfeiture with relief by way of
an alternative award such as a credit for the sale proceeds of the
goods or equipment.
Courts will also take into account the
customer’s conduct during the course of the agreement. The court is
also likely to consider whether or not the refusal of relief would
result in a substantial windfall profit to the finance company and
cause the customer a disproportionate loss.
Finally, if goods/equipment are sold
quickly after termination of the agreement, then the customer is
less likely to seek relief from forfeiture.
Daksha Mistry is an asset
finance lawyer with law firm DWF
