Conversion Damages Limited to Financier’s Real Loss
Another interesting case which confirmed earlier authority is VFS Financial Services (UK) Ltd v Euro Auctions (UK) Ltd  EWHC 1492.
Here VFS let 3 Volvo dump trucks on Hire-Purchase over 3 years at a total price in excess of £508k. The Hirer went into administration and asked for a settlement figure and also requested a novation of the Agreement to D1 who had purchased its assets.
VFS quoted a settlement figure of £220k, which was the amount of future rentals due. D1 then sold the trucks for £240k and VFS brought proceedings against D1 and the subsequent purchasers together with the auction house despite the fact that D1 had by then paid VFS its settlement figure of £220k.
VFS sought to rely on the general principle that damages in conversion are assessed as the market value of the goods at the time of their sale to each purchaser. However, the Court followed the earlier decision of the Court of Appeal in Wickham Holdings Ltd v Brooke House Motors Ltd (1967) in which the Financier’s damages for conversion were limited to its true economic interest in the goods, and this had to take account of the fact that if the Agreement had been performed title in the goods would have passed to the Hirer. Thus VFS’s true economic interest in the goods should be limited to the settlement figure of £220k and this sum had already been paid by D1 before the subsequent sales involving the other Defendants.
We understand that VFS is seeking permission to appeal this decision, but in our view it is plainly correct in principle. A Financier should not be entitled to a windfall allowing it to recover more than if the Agreement had been performed.
This case and Wickham Holdings both involved Hire-Purchase but the reasoning should apply equally to a Lease Agreement where the asset is likely to have no significant residual value at the expiry of the period of hire. In both cases the true economic interest of the Financier lies in receiving the instalment payments without any reference to any value in the goods being returned, and this should be reflected in the computation of damages for conversion.
The position is different in a Lease where a significant residual value is anticipated: here the true economic interest cannot be said to be limited to the receipt of instalment payments, so there is less scope for the Court limiting a claim for damages for conversion to the value of the instalments. Nevertheless, it remains to be seen whether the Court would always allow damages for conversion to equate to the market value of goods at the time of each subsequent sale. It is interesting that VFS declined to accept D1’s offer to novate the Agreement into its name. In future a Financier faced with such a request will need to quickly take a view on the likely resale value of the goods since it may be necessary to apply for injunctive relief against purchasers of assets from Hirers to prevent goods being converted and sold since, at least in Hire-Purchase cases, damages will normally be limited to the termination sum. The real lesson of this case is that a request for a novation or any other suggestion of an asset sale by the Hirer should lead a Financier to take urgent legal advice on the merits and practicalities of an immediate application for an injunction.