Finance houses must act
reasonably when selling repossessed vehicles, argues Roger
A common defence in motor
finance litigation is the allegation that the finance house should
have obtained a better price on selling a repossessed vehicle. This
argument is based on the rule that, where the defaulting customer
is in breach of contract, the finance house must take all
reasonable steps to mitigate any loss resulting from that breach.
The burden of proof will be on a customer who alleges that the
finance house has failed to do so.
A useful example of the
relevant considerations can be found in Lombard North Central
Plc v Automobile World (UK) Limited (2010).
The vehicle in question was a
Mercedes Benz S600 Pullman, “the kind of car which a country’s head
of state might order”. Lombard initially attempted to sell the
vehicle by way of a “fax auction”; in the first round the top bid
was £45,600, increasing to £50,000 in a second round. Lombard then
withdrew the vehicle from auction and sold it privately for
£59,500. Automobile World argued that the vehicle was worth far
more and it should have been marketed through specialist
The Court of Appeal found
that Lombard had been “careful to obtain the best price obtainable
for the vehicle in circumstances in which [it was] attempting to
recoup its losses by what was in effect a forced sale”.
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Lord Justice Rix reminded us
of the well-established position: “The duty to mitigate is not a
demanding one. It is the party in breach who has placed the other
party in a difficult situation. The [finance house] has only to do
what is reasonable in the circumstances.”
Lombard’s conduct was found
to be reasonable, although the court did consider it significant
that Automobile World had failed to produce expert evidence
regarding the vehicle’s value. The case may have ended up very
differently had they done so.
In the vast majority of cases
it will be perfectly reasonable to dispose of your repossessed
vehicles at auction, although when dealing with a rare or expensive
marque you should consider taking additional steps.
Had Lombard accepted the
initial bid of £45,600 (or even that of £50,000) the decision might
have gone against them.
It was significant that (a)
they pulled the vehicle out of auction thereby increasing the sale
price to £59,500; and (b) the defendant failed to produce any
expert evidence to back up his arguments, thereby failing to
discharge the burden of proof.
A final point worth noting is
that where you are pursuing a shortfall debt claim under an
indemnity (as opposed to a guarantee) the “mitigation of loss”
defence is generally not available to the indemnifier.
Roger Potgieter is a
partner at Cobbetts