Hire Purchase – Whether Jeya has to continue his obligations to the financier under a hire purchase agreement despite not having quiet possession of the vehicle.

Hong Leong Bank Berhad v Jeyaprakash Pillay Jegaualthan [2016] 1 LNS 493 CA

• Jeyaprakash Pillay a/l Jegaualthan (Jeya) decided to purchase a used vehicle from a second hand car dealer known as Bestari Otomasi Sdn Bhd (‘Bestari’)
• Jeya then approached the financier for financing. The financier consented to the grant of such financing and a hire purchase agreement was duly executed.
• During the tenure of the hire purchase, the vehicle was seized by the Royal Malaysian Customs (the ‘Customs’) on suspicion that an offence had been committed under Section 135(1)(g) of the Customs Act 1967 (essentially non payment of customs duty)
• After the seizure, Jeya refused to pay any further monthly instalments and terminated the hire purchase agreement on the grounds that the financier had failed to deliver good title for the vehicle.
• He demanded a refund of the installments and deposit paid to the dealer as well as a further sum of RM10,000.00 by way of general damages.
•  The financier contended that (i) the purported termination of the hire purchase agreement was invalid and Jeya was required to perform his continuing obligations under the hire agreement; (ii) any deprivation of quiet possession of the vehicle was caused by the Customs or Jeya in his dealings with the dealer.
• The learned Sessions Court judge dismissed the reliefs sought by Jeya under the originating summons. Jeya appealed to the High Court.
• The High Court allowed Jeya’s appeal on the grounds that the vehicle purchased by Jeya was a used vehicle hence the obligation to pay the customs duty lies on the owner of the vehicle.
• As such the Customs duty ought to have been paid prior to ownership being transferred to Jeya. Apart from this as the vehicle is a used vehicle it is not reasonable for Jeya to have any knowledge as to whether there was outstanding customs duty payable.
• Hence, the present appeal by the Financier.

• The Court of Appeal held there is no wrongdoing or failure attributatble to the financier in relation to the seizure of the car.
• If performance has indeed been made impossible, it was not by reason of any act or omission of the financier, but because of the intervention of a third party, namely the Customs.
• Jeya’s recourse is against the dealer, not the financier.
• The vehicle belonging to Jeya was not seized for lack of title on the part of the financier. It was seized because duties had not been paid.
• Further the hire purchase agreement expressly provides for Jeya to make good and ensure timely payment of all duties and taxes, which would include customs taxes.
• A financier in a hire purchase transaction does not, in the absence of a clear contractual provision, bear or undertake to bear customs duties or taxes for vehicles which are the subject matter of hire purchase agreemnents which it had agreed to finance.
• This does not accord with commercial reality, hence the appeal by the Financier is allowed.