Guest article by Shajib Mahmood Alam, Barrister of Lincoln’s Inn.
Abstract
When goods subject to a security interest are sold to an innocent purchaser, the law must choose between two strong claims — the right of the true owner to assert title, and the right of the innocent third party who has paid in good faith. This paper analyses the Court of Appeal’s decision in Rohit Kulkarni v Manor Credit (Davenham) Ltd [2010] EWCA Civ 69 and its handling of the section 27 Hire Purchase Act 1964 exception to the nemo dat rule.
The paper examines:
- The nemo dat rule — first codified by the Sale of Goods Act 1893 and now in the Sale of Goods Act 1979 — and the law’s desire to protect property rights even where innocent third parties may suffer.
- The s.27 HPA 1964 exception — protecting innocent private purchasers of motor vehicles bailed under hire purchase agreements.
- The facts of Kulkarni — where Manor Credit, a fraudster (Gwent), and an innocent buyer all had to be ranked in priority.
- The deliverable-state question — whether a car was in a “deliverable state” within s.51(5) SGA 1979 before its registration plates were attached, and the implications for property passing under Rule 5.
- The lesson from Kulkarni — treating the presumptive rule at s.18 Rule 5(1) with caution, particularly in consumer car sales where Rule 5(2) may be the default setting.
Concluding Words
The decision protects the innocent third-party purchaser but the s.27 exception remains controversial — both because it can be devastating for hire-purchase financiers and because its application across motor vehicle sales is inconsistent. A more principled, less piecemeal approach to apportioning loss between two innocent parties may be needed.
The full essay, with case citations and footnote references to academic sources, is available on request from S Hossain & Associates.
Copyright © Shajib Mahmood Alam 2014.