When is an invoice not an invoice?
Insight Contacts
Date: 02/02/12
Title is the asset funder's security; in the vast majority of cases a supplier's invoice is accepted as adequate evidence of the funder's title. However the decision of JD Cleverly Limited v Family Finance Limited [2010] EWCA Civ 1477 highlighted the difficulties of simply accepting an invoice without applying some thought to the supply process and vetting invoices before approval of the facility. Sympathies may not always lie with the funder when title is challenged if, to use the words of Lord Justice Tomlinson in JD Cleverly, "laxity in business practices" is the effective cause of a successful challenge.
So what was the problem? The problem lay in the suppliers’ invoice itself and the terms set out on it. These clearly provided that no contract would come into existence until there was a signed order. It was the absence of an order which defeated the finance company’s claim to title. Matters were not helped by the fact that the transaction had been arranged by an intermediary who, despite receiving full payment themselves from the customer, had not passed on that payment to the supplier, choosing instead to finance the vehicle in their own name. The customer who had paid for the vehicle was deemed to be the purchaser of it in preference to the funder to whom the intermediary had asked the supplier to address the invoice.
The lesson for an asset funder then is:-always read the supplier's invoice and any terms to which the supply is subject. Don't be afraid to challenge and reject the funding if you are not happy with the terms.
So many transactions are completed, in the writer's experience, without adequate thought being given or specialist advice being taken about the supply of the asset. This is particularly so, with regard to more specialist assets, and foreign suppliers, where choice of law issues can arise.
Don’t assume that a request directly to the supplier, or via the customer, as part of the funding conditions, for an invoice is enough to give rise to a binding supply contract and the passing of title.
Prior dealer approval and signed dealer terms, containing specific funding conditions concerning title and satisfactory documentation can assist, as can dealer's offers contained within the hire purchase or other such agreement, so long as these are duly signed by the dealer.
Otherwise, with any unknown supplier some prior due diligence about the supplier is essential.
Reproduced from an article published by the writer in Motor Finance on 1st March 2011
This article is written by David Wood a Partner in Finance Litigation who can be contacted on 0161 603 5000 or david.wood@dwf.co.uk.
