VFS Financial Services (UK) Limited v Euro Auctions & Others Limited [2007] EWHC 1492

This is a case about the correct measure of damages payable to a finance company whose goods have been unlawfully converted by a third party. It confirms the position set out in the Court of Appeal decision in Wickham Holdings v Brooke House Motors [1967] that the interest of a finance company in goods let on hire purchase consists only in being paid the sums due under the hire purchase agreement.

Facts

The case concerned three dumper trucks which had been the subject of a hire purchase agreement between VFS and Hennellys Utilities Limited. Hennellys Utilities went into administration during the course of the agreement and the trucks came to be in the possession of a newco called Hennellys Limited. Thereafter, Hennellys purported to sell the trucks on. The second truck was never traced but the first and third trucks were later sold at an auction in Germany.

VFS issued claims against the auction company for conversion of the trucks following the auction sale, and against Hennellys for conversion of the trucks by purporting to sell them on.

VFS applied for summary judgment and an order was made against both defendants for damages to be assessed. Hennellys was also ordered to pay interim damages to VFS equivalent to what would have been due to VFS under the terms of the agreement as at the date of the auction sale. VFS however contended that the quantum of the damages payable by the auction house and Hennelly was the full value of each truck at the date of the conversion.

Against VFS, the defendants argued that the assessment of damages should be approached on the basis that VFS's real interest in each of the trucks was as a mechanism by which it was entitled to receive the sums due under the hire purchase agreement. So the value of the trucks to VFS was not what they would have fetched if sold on the open market at the date of the relevant conversion, but the difference between the total sum payable under the hire purchase agreement, had it run its full course, and the sums in fact paid under the agreement.

The decision

HHJ Richard Seymour QC held that the object of an award of damages for conversion was to compensate a claimant for a loss that it had suffered as a result of the conversion.

In his lengthy judgment he explored whether the House of Lords decision in 2002 in Kuwait Airways Corporate v Iraqi Airways Co had changed the understood measure of damages as set out in Wickham Holdings. In Kuwait Airways the court held that the starting point was to look at the market value of the goods at the date of the conversion but that would yield easily to some other, more appropriate, basis of assessment. He was satisfied that the position remained unchanged. The interest of a finance company in goods let on hire purchase consisted only in being paid the sums due under the relevant hire purchase agreement.

Any further compensation would, effectively, have been a windfall for VFS, and more than it had bargained for when it originally entered into the agreement.

Comment

The normal measure of damages for claims in conversion therefore remains the lesser of the amount outstanding under the hire purchase agreement, or the market value of the goods.