Katherine Clark examines why a High Court Order may be a finance company’s best course of action when a valuable asset is at risk of disposal, and weighs up when to make use of an Interim Delivery Up Order or Preservation Order
Where a £10,000-plus asset is at risk of being disposed of, finance companies often need to take immediate steps to avoid the loss of their asset. There are two valuable High Court methods to achieve this – an Order for the vehicle’s immediate delivery up and an Order to preserve the vehicle pending a further Order from the court.
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Situations in which one of these interim remedies should be sought are where the vehicle is of relatively high value (it is usually most cost-effective if the value of the asset is at least £10,000), there is a significant outstanding liability under a hire purchase agreement, or if the agreement is for hire only and the vehicle is at risk of being disposed of by the hirer or third party.
In these circumstances, it is important that the finance company does not delay in taking steps to secure the vehicle. It is not usually sufficient to issue proceedings in the normal way and wait for a hearing date at which the finance company would (hopefully) obtain a Return Order, which can take at least six to eight weeks. By such time the asset could be long gone and the finance company would have lost its opportunity of recovery, and in any event it may well have also lost a significant amount of its value.
Instead, a High Court Order for either the vehicle’s delivery up or its preservation can be obtained within 24 to 48 hours.
Interim Delivery Up Order
An Interim Delivery Up Order sees the vehicle being returned to the finance company immediately, albeit as an interim measure. The sense of security in having the vehicle in its possession makes this the more preferable of the two options for the finance company. There are circumstances though when an Interim Delivery Up Order is not advisable, for example if there is a title dispute or the finance agreement has not yet been terminated. As an alternative, a Preservation Order reduces the risks that the finance company is exposed to and may be preferable in those circumstances. In either case, the costs can be relatively modest and are usually recoverable from the party refusing to give back the vehicle.
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By GlobalDataInterim Delivery Up Orders are more often the best route. This is because the situation is often clear cut. The hirer or third party in possession of the finance company’s vehicle may or may not know that the vehicle is subject to a finance agreement, but in any event they are not claiming to have acquired legal title to the vehicle and are acting in a way which precludes the finance company from recovering its asset (by, for example, keeping it on private land or in a secret location, or simply refusing to hand over the keys to your recovery agent).
In a recent case I dealt with, the hirer had been made bankrupt and emigrated, and had left the vehicle with a friend (the third party) to liaise with the finance company to oversee the vehicle’s return. The third party contacted the finance company and was purporting to claim storage charges at £20 per day, backdated to when the vehicle was left with him. The finance company had no liability to pay the storage charges, having not entered into a contract with the third party for the vehicle’s storage. The third party refused to deliver up the vehicle until he had been paid the storage charges. The third party then threatened that if he was not paid within a given deadline he would sell the vehicle, deduct his storage charges from the sale proceeds, and then forward the net sale proceeds to the finance company. The finance company was essentially being held to ransom. Return of the vehicle was the finance company’s only real prospect of recovery because of the hirer’s bankruptcy. The vehicle was clearly at risk, the finance company was being refused its return (unless it paid the storage charges), and it was going to be sold imminently. Immediate action had to be taken. The third party in possession of the vehicle was not purporting to have acquired legal title to the vehicle but he was interfering with the finance company’s rights over it.
The agreement had been terminated and the finance company was entitled to the vehicle’s return. This is a prime example of where an application for an Interim Delivery Up Order was appropriate.
Due to the immediate risk that the vehicle could be disposed of, it may be important not to put the party in possession of the vehicle on notice of the application. Notice may result in the immediate disposal of the vehicle and the finance company’s best means of recovery disappearing. Therefore the application can be made without notice. If the interim Order is granted then a further on notice application hearing will be listed shortly afterwards so a final Order can be made. This second hearing will give the party in possession of the vehicle the opportunity to attend and make any representations regarding the final return Order being granted.
However, this is not always the most appropriate way for a finance company to seek delivery up of the vehicle in the first instance and secure its asset. In certain circumstances a Preservation Order could be the best course of action.
Preservation Order
In a recent case which I dealt with on behalf of a finance company, a Preservation Order was by far the most appropriate interim measure to seek, due to the specific facts of the case. It appeared that the hirer had disposed of the vehicle to a third party individual (unbeknown to the finance company), during the term of the agreement.
The vehicle was then involved in a crime and was seized by the police. The police notified the finance company that the vehicle was in its possession – this was how the finance company became aware that the vehicle was not in its hirer’s possession. The police told the finance company that the third party claimed to own legal title to the vehicle. There were two issues in this case which were best dealt with before the finance company recovered the vehicle. First, the agreement had not yet been terminated as the finance company had only just become aware that the hirer had breached the agreement by parting with possession of the vehicle. A Default Notice had to be issued, expire and the agreement terminated. Until this time the finance company had no entitlement to recover possession of the vehicle. The second issue was that based on the information provided by the police, the third party from whom the vehicle had been recovered claimed to have legal title to the vehicle. If this third party was in fact an innocent purchaser of the vehicle then recovering could open the finance company up to a claim of conversion/wrongful interference from him. In addition, the vehicle was at significant risk because if the third party attempted to collect the vehicle from the police compound the vehicle could be released to him.
The finance company was not in a position to recover the vehicle immediately though it needed to terminate the agreement and explore the circumstances in which the vehicle came into the third party’s possession. Accordingly the best course of action was to obtain a Preservation Order to eliminate the risks posed and to give the finance company the opportunity to establish its entitlement to the return of the vehicle as against the hirer and the third party.
As with an application for an Interim Delivery Up Order, it may be important not to put the parties on notice, otherwise they could take the very steps that the finance company is trying to avoid by making the application. In the case outlined above an on notice application could have led to the third party collecting the vehicle from the police compound and disposing of it. Once the Preservation Order has been obtained at the without notice hearing, a return date hearing will be listed shortly afterwards to deal with the delivery up of the vehicle. Given the nature of the second hearing being on notice, the parties will have the opportunity to attend and make representations about the finance company’s application for a return Order.
Where a valuable vehicle is at risk it is imperative that finance companies act without delay in order to secure their asset. This can mean obtaining a High Court Order either for the vehicle’s delivery up or preservation, from the court within 24 to 48 hours. This is a straightforward process for those who are used to dealing with them, and can be an invaluable step towards maximising your recoveries and minimising your risks.
Katherine Clark is a solicitor in the defended and complex asset recovery team at Ford & Warren Solicitors
