SOCIETE GENERALE EQUIPMENT FINANCE Ltd v VEHICLE & OPERATOR SERVICES AGENCY (“VOSA”) [2013] UKUT 423 (AAC)

IN THE UPPER TRIBUNAL
ADMINISTRATIVE APPEALS CHAMBER
[2013] UKUT 423 (AAC)Venue TRAFFIC COMMISSIONER APPEALS, ON APPEAL from the DECISION of James Astle Deputy TRAFFIC COMMISSIONER for the West Midlands
Between
SOCIETE GENERALE EQUIPMENT FINANCE LtdVEHICLE & OPERATOR SERVICES AGENCY (“VOSA”)
Date 26 February 2013
IT IS HEREBY ORDERED that this appeal be ALLOWED and that the matter be remitted to the Traffic Commissioner for rehearing.

SUBJECT MATTER:- Impounding

CASES REFERRED TO:-

Ladd v Marshall 1954 1 WLR 1489

2002/134 W.C. Commercials2003/3 Close Asset Finance Ltd v Secretary of State for Transport2005/412 Capital Bank

T/2011/25 Asset 2 Asset Ltd

T/2011/60 Nolan Transport v VOSA & Secretary of State for Transport

REASONS FOR DECISION

1. This is an appeal from the decision of the Deputy Traffic Commissioner for the West Midlands to refuse the Appellant’s application for the return of an impounded vehicle.2. The factual background to this appeal appears from the documents and the Traffic Commissioner’s decision and is as follows:-(i) John Heath t/a John Heath Transport, (“the operator”), held a standard national goods vehicle operator’s licence, authorising 3 vehicles and 2 trailers. The licence was granted on 19 December 1996. It was revoked on 17 May 2012.(ii) On 14 June 2012 one of the vehicles previously authorised under this licence, was the subject of a roadside check. It was displaying an ‘O’ licence disc in the name of the operator. The driver explained that he was aware that there was an ‘issue’ with the licence but that he understood that the revocation was the subject of an appeal. The 28 day period for appealing expired on 14 June 2012. Inquiries by VOSA showed that no appeal had been received. Subsequently it appeared that an appeal had been commenced but that it was withdrawn in September 2012.(iii) VOSA later made registered vehicle checks on the three vehicles authorised under the licence before it was revoked. It was established that all three were still registered in the name of John Heath. It was also established that one of the three, a Mercedes 18,000 kgs two axle rigid livestock container, registration number YJ53 DMZ, (“the vehicle”) was the subject of a finance arrangement.(iv) On 19 June 2012 a ‘pre-impounding’ letter was sent to the operator. The letter stated that investigations carried out by VOSA had led to the conclusion that the operator was operating in contravention of s. 2 of the Goods Vehicles (Licensing of Operators) Act 1995, ["the 1995 Act"]. The operator was warned that if, as from 4 July 2012, any VOSA examiner had reason to believe that the vehicle was being operated in contravention of s. 2 of the Act it would be detained indefinitely. It does not appear that a copy of this letter was sent to the Appellant. (v) On 23 January 2013 Annmarie Morgan, a Traffic Examiner from VOSA impounded the vehicle, having seen it being driven into Hereford Livestock Market and having seen cull ewes being unloaded from it. The vehicle was not displaying an ‘O’ licence disc. The Office of the Traffic Commissioner, (“OTC”), confirmed that on this date the vehicle was not specified on any operator’s licence.(vi) It is apparent from a document headed “Impounding: Central Contact Proforma”, (which states that it ought to be completed immediately after the vehicle has been taken to a secure compound), that the Traffic Examiner must have been aware, by 23 January 2013, at the latest, that the vehicle was subject to finance advanced by the Appellant company.(vii) On 25 January 2013 VOSA wrote to the Appellant. The letter was sent to the correct address but referred to the Appellant as ‘S G Equipment Hire Ltd’. The letter advised the Appellant that the vehicle had been detained. It drew attention to the notice, which was to be published in the London Gazette on 28 January 2013. Finally it set out the right to apply for the return of the vehicle. A ‘Fact Sheet’ setting out a summary of the legal position and a form for making an application for the return of the vehicle were enclosed.(viii) On 4 February 2013 the Appellant applied for the return of the vehicle. It indicated that it did not wish to have the application determined at a hearing. In relation to the grounds for the return of the vehicle the Appellant ticked box (c) asserting that it “did not know that it, (i.e. the vehicle), was being or had been used in contravention of s. 2 of the 1995 Act” . In response to the request for details of the application the Appellant said: “The vehicle in question is currently under a hire purchase agreement and at this time does not belong to Mr J Heath and still has 11 months remaining on his agreement” .(ix) On 15 February 2013 the OTC wrote to the Appellant to inform it that the Traffic Commissioner had decided to hold a hearing at which to consider its application for the return of the vehicle. The date for the hearing was 26 February 2013. The Appellant was informed that one or more representatives from VOSA would be attending. A report setting out the circumstances of the impounding was enclosed.(x) On 25 February 2013 the Appellant replied to the OTC. The Appellant said:
“We will not be attending the hearing for the following reasons:
1. We do not see why it is necessary to hold a public hearing to establish whether or not you can release the vehicle to us. We have already provided you with the details required for the release of the vehicle.2. We are the legal owners of the vehicle.3. The HPI register clearly shows the vehicle is subject to a finance arrangement (details below).4. The vehicle is the subject of a Hire Purchase agreement no. 9210138746 (Agreement) dated 7 July 2010 between J Heath t/a John Heath Transport (the customer) and Societe Generale Equipment Finance Ltd (formerly SG Equipment Finance Ltd). Attached is a copy of the agreement.5. We were provided with a copy of the Customer’s operating licence no: OD 0261951 which, at the time the agreement was entered into was valid from 19/12/1996 to 10/01/2017.6. We were not previously made aware by the Customer, the Traffic Commissioner, VOSA or any other party that the Operator’s Licence for the customer had been revoked. The licence was apparently revoked early in 2012 and had we been made aware of this fact, we would have arranged for the vehicle to be repossessed.Please can you advise exactly what information you require from us in order that you may release the vehicle to us” ?A copy of the Hire Purchase agreement and other documents dealing with the acquisition of the vehicle were enclosed, as was a copy of the Operator’s Licence.(xi) There does not appear to have been any response to the request by the Appellants at the end of their letter.(xii) On 26 February 2013 the application came before the Deputy Traffic Commissioner. The Traffic Examiner appeared on behalf of VOSA. For the reasons given in paragraph 2(x) above the Appellant was not present or represented.(xiii) The Traffic Examiner set out the circumstances of the impounding, which we have summarised above. The Deputy Traffic Commissioner then asked about an email, (which does not appear to be included in the appeal bundle), from VOSA to the OTC. The author said that having looked at the circumstances VOSA were not prepared to release the vehicle because the finance agreement was taken out in July 2010 but it appeared from the date on a letter dated December 2011 that the Appellant had only checked for the existence of a licence after the date of the agreement.(xiv) The Deputy Traffic Commissioner then turned to the ground on which the Appellant sought the return of the vehicle. He said that he would normally have expected to receive submissions from both sides. He indicated that he had a copy of a hire purchase agreement in relation to the vehicle dated 7 July 2010, in other words nearly two years before the revocation of the licence in May 2012. He also indicated that it was apparent that John Heath was the registered keeper of the vehicle both when the hire purchase agreement was executed and when the vehicle was impounded. He said that ‘putting two and two together’ it appeared that at some point after the date of the hire purchase agreement but before the revocation of the licence the Appellant had checked to see that the registered keeper of the vehicle held an operator’s licence. The Deputy Traffic Commissioner went on:
“I assume that the point being made there was that perhaps they were not as diligent as they might have been – or did not check the full agreement. It shows a somewhat cavalier attitude to whether or not there is a licence. Nonetheless, it does appear to be the case that at some point they checked and found there was a licence”
. The Traffic Examiner agreed with this analysis. The Deputy Traffic Commissioner then asked whether there was anything else, which VOSA wanted him to take into account. He indicated that he had been provided with a copy of the hire purchase agreement and other documents relating to the acquisition of the vehicle. He also read out the email from the Appellant, quoted at paragraph 2(x) above. He went on: “On what basis is VOSA saying to me: ‘Don’t release the vehicle?’ Maybe it is not, in the light of that information – I don’t know – but on what basis would VOSA be saying to me that I should not grant the application by the hire company for the return of the vehicle” ? A little later he said this: “Now is VOSA suggesting to me that there is a duty upon the finance company to check repeatedly or to check at some later stage or to have checked again? Are you asking me to import what lawyers call constructive knowledge of the unlawful use of the vehicle? By ‘constructive knowledge’ I mean, for example, wilfully failing to make such inquiries as you would expect an honest, reasonable owner – in this case the hire company- to make. Are you accepting their claim” ?(xv) The Deputy Traffic Commissioner gave the Traffic Examiner an opportunity to take advice from a more senior colleague in the light of the new information that the Deputy Traffic Commissioner had received. After a short adjournment the Traffic Examiner explained that the main issue or concern for VOSA was that the Appellant had not made the correct or sufficient inquiries because it appeared that the copy of the operator’s licence had been faxed from John Heath to Beacon Asset finance on 12 February 2013 after the date of the impounding. A little later the Deputy Traffic Commissioner sought to sum up VOSA’s position. He asked if VOSA accepted that the Appellant was the owner of the vehicle and the Traffic Examiner replied that they did. The Traffic Examiner went on to accept that the Appellant did not have actual knowledge of the revocation of the licence and that it therefore did not have actual knowledge of the use in contravention of s. 2 of the 1995 Act. Finally the Traffic Examiner accepted the Deputy Traffic Commissioner’s summary that the Appellant: “did not exercise sufficient diligence in checking from time to time to make sure that that licence covered the use of the vehicle” .(xvi) After a short adjournment the Deputy Traffic Commissioner gave an oral decision, which was then transcribed and sent out with the decision letter on 28 February 2013. The Deputy Traffic Commissioner set out the background and a summary of what took place at the Public Inquiry, which we have summarised above. He pointed out that an application for the return of a vehicle is an ‘adversarial’ rather than an ‘inquisitorial’ process.(xvii) He then made the following findings:(i) that all the formalities, such as publication in the London Gazette had been fulfilled,(ii) that the vehicle had been used in contravention of s. 2 of the 1995 Act,(iii) that the vehicle had been lawfully detained by VOSA, and(iv) that the Appellant was the owner of the vehicle, within the definition in Regulation 2 of the Goods Vehicles (Enforcement of Powers) Regulations 2001 as amended, (“the 2001 Regulations’).(xviii) Turning to the ground on which the Appellant sought to recover the vehicle he said that he was not satisfied that the Appellant took any steps to satisfy itself, either at the time of entering into the hire purchase agreement, or before or afterwards, that it would be used “only under a licence under the Act” . His reasons were:(i) he had seen no evidence that such a step had been taken,(ii) that the assertion in the email quoted at paragraph 2(x) above had not been supported by documentary or oral evidence and(iii) that the assertion that the Appellant had not been made aware of the revocation was consistent with a passive failure to make an inquiry and an expectation that the Appellant might have been or should have been made aware rather than taking active steps itself.(xix) The Deputy Traffic Commissioner then turned to the relevant law. The crucial passages are at paragraphs 17, 18 and 19 where he said this:
“17. Knowledge may include a wilful disregard for the obvious (2002/134 W. C. Commercials) and can accordingly be comprised of wilfully and recklessly failing to make such inquiries as an honest and reasonable person would make (see paragraph 42 of Statutory Document No 7).
18. There is no requirement on owners to take all reasonable steps to ascertain what the vehicle was actually being used for (see paragraph 43 of Statutory Document No 7) but the British Vehicle Rental Leasing Association (“BVRLA”) code of Practice advises that checks be made for a valid operator’s licence.19. That is not to say that owners are not required to make any reasonable inquiries” .(xx) Applying that guidance and the burden and standard of proof, (which fell on the Appellant to the civil standard) the Deputy Traffic Commissioner gave these reasons for finding that the claim to return under Regulation 10(4)(c) of the 2001 Regulations, (now Regulation 4(3)(c) of the 2001 Regulations as amended), should be refused. At paragraphs 21, 22 and 23 of his decision he said this:
“21. The Applicant has not satisfied me on the balance of probabilities that it made any checks at any time to satisfy itself that the vehicle was being used under an operator’s licence and was therefore being used lawfully.
22. It has failed to place any evidence before me that it did so and has done no more than assert that at some unspecified time it was ‘provided with a copy of the customer’s operating licence’.23. On the evidence before me I conclude therefore that the Applicant has wilfully and recklessly failed to make such inquiries as an honest and reasonable person would make, e.g. the checks recommended by the BVRLA” (the British Vehicle Rental and Leasing Association).(xxi) On 25 March 2013 the Appellant filed a Notice of Appeal. It apologised for not attending the hearing and explained that having provided evidence that it was the owner of the vehicle it believed that this would be sufficient for the vehicle to be returned. The Appellant stressed that it was not aware that John Heath’s operator’s licence had been revoked adding that if they had been aware the agreement would have been terminated for breach of the term that the vehicle should not be used contrary to any applicable law. The other ground of appeal was that the only way in which the Appellant could mitigate its loss was by the recovery of the vehicle. In addition it was pointed out on behalf of the Appellant that it is not a member of the BVRLA but is a member of the Finance and Leasing Association, following its business and lending code.3. At the hearing of the appeal the Appellant was represented by Ms Rani Noakes and the Respondent, (“VOSA”), by Mr Chris Hallsworth. Both provided us with skeleton arguments for which we are grateful.4. After setting out a clear summary of the factual background and then drawing our attention to a number of authorities in this difficult area Ms Noakes made four main submissions. First, she submitted that a finding that there had been a ‘high degree of fault’ on the part of the Appellant was an essential ingredient of the category of knowledge that the Deputy Traffic Commissioner found to be proved. She went on to submit that since no such finding had been made the appeal must succeed. Second, she submitted that the Appellant was under no obligation to make any check at any time as to whether or not Mr Heath held an operator’s licence which authorised the use of the vehicle but was, instead, entitled to rely on the terms of their agreement with him. Accordingly the Deputy Traffic Commissioner was wrong when he took into account, in reaching his decision, the unspecified checks recommended by the BVRLA, especially as there was no evidence that the Appellant was a member of that body. Third, she submitted that the Deputy Traffic Commissioner failed to take into account a relevant consideration, namely the terms of the agreement between the Appellant and Mr Heath and, in particular the provision that the vehicle should not be used contrary to any applicable law. Fourth, she submitted that the case being made by VOSA only emerged in the course of the hearing with the result that the Deputy Traffic Commissioner ought, at that stage, to have adjourned the hearing to enable the Appellant to answer the case being made against it. In addition to these points the Appellant sought leave to adduce fresh evidence, in the form of a statement from Mr Heath setting out the material which he provided to the Broker, who negotiated the agreement with the Appellant.5. On behalf of VOSA Mr Hallsworth also made four main submissions. First, he submitted that a claimant who decides not to appear at an impounding hearing has no basis on which to complain about a finding that he, she or it has failed to discharge the burden of proving the chosen ground for the return of the impounded vehicle. Second, he submitted that on an appeal to the Tribunal the Appellant assumes the burden of proving that the decision appealed from was wrong and can only succeed in doing so if the process of reasoning and the application of the relevant law required the Deputy Traffic Commissioner to come to a different conclusion. Third, he submitted that the fresh evidence ought not to be admitted because it failed the relevant test, in particular it was evidence which could have been obtained, with reasonable diligence, for use at the hearing. Fourth, he submitted that the Deputy Traffic Commissioner was fully entitled to reach the conclusion that the Appellant had imputed knowledge of the use in contravention of s. 2 of the 1995 Act, as a result of failing to make the inquiries that a reasonable and honest man would have made in the circumstances.6. This appeal provides yet another example of the difficulties faced by Traffic Commissioners when they come to exercise this part of their jurisdiction. We are conscious of the fact that the case law on this topic has, understandably, built up piecemeal. It seems to us that the time has come to see whether the decisions can be shown to form a coherent structure and whether it is possible to give clearer guidance as to the questions of fact, which Traffic Commissioners need to decide.7. Every claim for the return of a vehicle in which reliance is placed on Regulation 4(3)(c) of the 2001 Regulations as amended raises a deceptively simple question, which the Traffic Commissioner must answer. The question is this:
“Has the claimant satisfied me that he, she or it probably did not know that the vehicle was being or had been used in contravention of s. 2 of the 1995 Act?”
8. While it is simple to express the terms of Regulation 4(3)(c) in the form of a question our experience, and the number of decisions on the topic, indicates that Traffic Commissioners find that answering this question is anything but simple. What we will endeavour to provide is a structure or route leading to a final decision, so that the decision accords with the decided cases, and can be justified on the evidence put forward in the case in question. It is a process that will only succeed if two temptations are resisted. The first of these is the temptation to take short cuts. The second is the temptation to suggest that a claimant was ‘required’ to do something in circumstances where no legal obligation to do so exists. We will return to the second point in due course.9. In our view Traffic Commissioners should start the process of answering the question posed at paragraph 7 by asking:
“Is there any evidence before me on the basis of which I could be satisfied that the claimant probably did not know that the vehicle was being or had been used in contravention of s. 2 of the 1995 Act?”
10. If the answer is that there is no such evidence the Traffic Commissioner should say so and should simply indicate that the burden of proof rests on the claimant and that, in the absence of any evidence capable of showing lack of knowledge of use in contravention of s. 2, the claimant has failed to discharge the burden of proof, with the result that the Regulation 4(3)(c) ground has not been made out. In other words our view is that if there is, literally, no evidence to support the conclusion that the claimant did not know etc there is no need for the Traffic Commissioner to go further and, in particular, no need for the Traffic Commissioner to embark on the process of deciding whether or not the claimant had actual, imputed or constructive knowledge of the use in contravention, (always remembering that constructive knowledge, i.e. categories (iv) and (v), [see paragraph 13 below], require an additional finding of dishonesty or a dishonest motive).11. If the answer is that there is some evidence from which the Traffic Commissioner could conclude, either that the claimant did know of the use in contravention, or that the claimant did not know then, of course the Traffic Commissioner must assess it.

(c) requires the claimant to prove a negative, put loosely:

“I did not know of the use in contravention ”
. Proving a negative is notoriously difficult. It may be that this is why the tendency has been to approach this issue on the basis that if it is shown that the claimant did know of the use in contravention then it must follow that a claim under Regulation 4(3)(c) is bound to fail. It may be that this is the only realistic approach, though it does not appear to us that it is a compulsory approach, however there is a compulsory starting point, namely the question posed at the end of paragraph 7 above. If a Traffic Commissioner can give a convincing answer to that question, without resorting to the ‘proof of knowledge route’, in our view he or she is free to do so. However it is important to remember two things when assessing the evidence with a view to deciding whether a claimant ‘knew’ of the use in contravention of s. 2 of the 1995 Act. The first is that proof that the claimant did know of such use strictly speaking goes further than Regulation 4(3)(c) requires. The second is that everyone involved in such an exercise must be alert to the danger of reversing the burden of proof. It is for the claimant to prove lack of knowledge not for VOSA or anyone else to satisfy the Traffic Commissioner that the claimant knew.12. The law in relation to the meaning of ‘knowledge’ in impounding cases has been fully considered in three decisions. These are 2003/3 Close Asset Finance Ltd v Secretary of State for Transport , T/2011/25 Asset 2 Asset Ltd and T/2011/60 Nolan Transport v VOSA & Secretary of State for Transport . It is important to remember that in Close Asset and Nolan Transport the Secretary of State was a party and in Nolan Transport VOSA was also a party. Since these appeals were fully argued, on both sides, they should be given much greater weight, as explanations of the law, than other appeals in which the appellant was the only party. We do not intend to add to the length of this decision by quoting from these appeals. Nor do we intend to refer to all the other decisions, which were cited to us in the skeleton arguments, because most of those decisions are merely examples of well established principles being applied in practice, with the result that they create no new precedent. All the relevant quotations can be found in Nolan Transport in the section headed “No Knowledge of Unlawful Use – The Law” between paragraphs 110 and 121.13. In our view the more helpful course is merely to repeat the five categories of knowledge, which emerge from the authorities cited in these three decisions, with a view to setting out what needs to be proved if knowledge is to be established by one of these routes. The five categories are these:-(i) Actual knowledge;(ii) Knowledge that the person would have acquired if he had not wilfully shut his eyes to the obvious;(iii) Knowledge that the person would have acquired if he had not wilfully and recklessly failed to make such inquiries as an honest and reasonable person would make;(iv) Knowledge of circumstances that would indicate the facts to an honest and reasonable person; and(v) Knowledge of circumstances that would put an honest and reasonable person on inquiry.Category(i) should present no difficulty, it will require evidence of actual knowledge of the use in contravention. Categories(ii) and(iii) involve findings which justify imputing actual knowledge to the claimant. For the reasons set out in paragraph 118 in Nolan Transport no separate finding of dishonesty is required in order to impute actual knowledge to the claimant because the conduct, which will have been proved, if the required findings are made, is conduct which is in itself inherently dishonest. It is important to note that while it does not expressly feature in the definitions of knowledge in categories (ii) or (iii) proof of both these categories requires proof of a high degree of fault on the part of the claimant. Given that these two categories involve conduct which is inherently dishonest a finding that category (ii) or category (iii) knowledge has been made out can only be justified once findings of fact have been made which satisfy the Traffic Commissioner that each of the ingredients of the category in question has been established. Categories(iv) and(v) involve constructive, as opposed to actual, knowledge. The findings required to establish category (iv) or (v) knowledge, on their own, are unlikely to amount to more than mere negligence. That is not sufficient to establish knowledge for the purposes of showing that a claim under Regulation 4(3)(c) must fail. In order for a finding of category (iv) or (v) knowledge to be used to defeat a claim under Regulation 4(3)(c) there must be an additional finding that the claimant was acting dishonestly or had a dishonest motive in either failing to recognise that the vehicle was being used in contravention of s. 2 of the 1995 Act or in failing to make the inquiries which an honest and reasonable person would have made.14. In the present case the Deputy Traffic Commissioner concluded that this was a case of category (iii) knowledge. Unfortunately, for reasons, which will appear in due course, he did not make all the findings required to justify that conclusion. With a view to avoiding such a situation in the future we suggest that Traffic Commissioners will find it helpful to assess the evidence in a way which seeks to answer these questions:(i) What inquiries would an honest and reasonable person have made in the circumstances faced by the person claiming the return of the vehicle, (“the claimant”)?If the answer is “None” there can be no question of imputed actual knowledge under category (iii).If the answer is that an inquiry or some inquiries would have been made the questions that follow must be answered separately in relation to each inquiry that the honest and reasonable person would have made.(ii) Did the claimant make such inquiries?If the answer is “Yes” there can be no question of imputed actual knowledge under category (iii).If the answer is “No” the next question must be answered.(iii) Did the claimant wilfully refrain from making such inquiries? For the purposes of this question ‘wilfully’ means ‘deliberately and intentionally’ as opposed to ‘accidentally or inadvertently’.If the answer is “No” there can be no question of imputed actual knowledge under category (iii).If the answer is “Yes” the next question must be answered.(iv) Did the claimant recklessly refrain from making such inquiries? For these purposes ‘recklessly’ means ‘not caring about the consequences of failing to make such inquiries’.If the answer is “No” there can be no question of imputed actual knowledge under category (iii).If the answer is “Yes” the next question must be answered.(v) Was a high degree of fault involved in wilfully failing to make such inquiries?If the answer is “No” there can be no question of imputed actual knowledge under category (iii).If the answer is “Yes” a finding that the vehicle owner had imputed actual knowledge under category (iii) is justified.There are three reasons why it is important to follow this ‘route to decision’ carefully . First, it will ensure that nothing is left out. Second, it will ensure that a finding of category (iii) knowledge, involving, as it does, inherent dishonesty, is properly justified on the evidence. Third, it will enable Traffic Commissioners to take into account and assess any innocent explanation advanced by the claimant. Such an explanation is most likely to arise in relation to questions (iii), (iv) and/or (v).It should not be difficult to devise a similar route to a decision to take into account the different requirements of category (ii), (iv) or (v) knowledge.15. It is important to remember that question (i) involves a question of fact and degree that will turn on the evidence in each individual case. The inquiries, which an honest and reasonable person will make, inevitably depend on the circumstances of each case. It follows that the fact that a Traffic Commissioner finds, in a particular case, that the honest and reasonable person in the circumstances of a Finance Company would have inquired about the existence of an operator’s licence before advancing money cannot amount to a legal precedent. However it may have persuasive value if there is no material difference in the circumstances of another case where the same point arises. Similarly the fact that the Tribunal has upheld such a finding does not create a legally binding precedent it merely confirms that a finding of fact was correct.16. When considering the circumstances relevant to answering question (i) the Traffic Commissioner is entitled to have regard to the well-known principle that everyone is taken to know the law. In particular that means, in an impounding case, that we are all, (including the honest and reasonable person and Finance Companies), taken to know: (a) that it is unlawful, under s. 2 of the 1995 Act, to operate a heavy goods vehicle unless its use is authorised under an operator’s licence, (b) that operating a vehicle in contravention of s. 2 of the 1995 Act renders the vehicle liable to be impounded and (c) that the grounds on which an impounded vehicle can be returned to its owner are limited to those set out in Regulation 4(3) of the 2001 Regulations as amended. In our view it is open to Traffic Commissioners to conclude that the knowledge of these matters would influence the decision of the honest and reasonable person as to whether or not to make inquiries.17. The second submission made by Ms Noakes was that the Appellant was under no obligation to make any check as to whether or not Mr Heath held an operator’s licence which authorised the use of the vehicle but was, instead entitled to rely on the terms of its agreement with him. If by ‘no obligation’ Ms Noakes means that there is no legal provision which requires a Finance Company, (or for that matter anyone else), to make any inquiry, at any stage, as to the existence of an operator’s licence then we agree. In Close Asset , [see paragraph 2(ix) of that decision], the Traffic Commissioner rejected the submission that a Finance Company had no duty to investigate whether a customer held an operator’s licence. The Traffic Commissioner went on to find that there was a requirement for the Finance Company to make “all reasonable inquiries”. When the appeal came before the Transport Tribunal the Secretary of State was represented. Counsel for the Secretary of State made a concession at the start of his submissions that, [see paragraph 6 of Close Asset ]:
“Parliament had not enacted any requirement of due diligence or to take reasonable steps”
. He went on to state that if Parliament had wished to do this it could have done so. The Tribunal returned to this point at paragraph 12 saying: “We agree with both Counsel that a requirement to take reasonable steps is not to be read into Regulation 10(4)(c)”, [as it then was]. In our view the position is clear, namely that there is no legal requirement or obligation in the 1995 Act, the 2001 Regulations as amended or in any other legislation to make any inquiry as to the existence of an operator’s licence at any stage. The absence of any legal requirement is a factor which Traffic Commissioners ought to take into account in assessing whether the honest and reasonable person would have made any, and if so what, inquiry. While this is a relevant factor it is not a decisive factor.18. Does the argument that there is no legal requirement or obligation for a Finance Company to make any inquiry as to the existence of an operator’s licence mean that whatever the honest and reasonable person might conclude a Finance Company is exempt from making such an inquiry? In our view the answer must be: “No”. We can see no justification for putting Finance Companies into a special category. In our view it is significant that in Close Asset , immediately after the concession recorded above, the Tribunal moved on to the question of how to prove knowledge, indeed there is reference to the honest and reasonable person in the very next paragraph of the decision and there is no suggestion that this approach should not include Finance Companies. In our view the test of what, if any, inquiry the honest and reasonable person would have made applies in exactly the same way whether a Traffic Commissioner is considering the case of an individual or a company including a Finance Company. As we have said it is a question of fact to be answered on the facts of each individual case.19. In the case of a Finance Company if there is evidence that it belongs to a recognised trade body and if there is evidence that that body has issued guidance on the question of whether and, if so, how often to check for the existence of a valid operator’s licence that is something that the Traffic Commissioner ought to take into account in deciding what, if any, inquiry the honest and reasonable person would have made. It is not a decisive consideration when deciding that question but it seems to us that compliance with the guidance issued by a recognised trade body should carry considerable weight, unless that guidance fails to recommend the kind of inquiry which an honest and reasonable person would make in the circumstances. Traffic Commissioners and VOSA should also bear in mind that compliance with such guidance is also likely to be relevant when deciding whether or not the claimant acted wilfully, recklessly or with a high degree of fault.20. In developing his fourth submission, namely that the Deputy Traffic Commissioner was entitled to reach the conclusion that the Appellant had failed to prove lack of knowledge, Mr Hallsworth submitted that the Appellant had a continuing responsibility to make inquiries as to the existence of an operator’s licence authorising the use of the vehicle. In our view it is clear that there is no legal requirement that a Finance Company must inquire, at regular intervals, to ensure that an operator continues to hold an operator’s licence. If it is to be suggested that the honest and reasonable person, in the circumstances of a Finance Company owning vehicle that is the subject of a hire purchase agreement, would have made inquiries at regular intervals it seems to us that that is a conclusion which can only be reached if there is evidence to justify it. The evidence would need to cover topics such as frequency, cost, effectiveness and proportionality. At the end of the day it will be a question of fact in each individual case as to whether the honest and reasonable person, in the circumstances of the case in question, would have made inquiries with the regularity suggested.21. Another factor, which Traffic Commissioners are entitled to take into account in deciding what, if any, inquiry the honest and reasonable person would have made, is the extent to which the claimant has been put on notice that the operator of the vehicle may not have an operator’s licence. In our experience Finance Companies often say:
“We satisfied ourselves that the operator had a licence before we lent the money and we lent on the strength of an agreement which required the vehicle to be used lawfully, no other steps were necessary or practicable”
. Whether or not that is a tenable argument will depend on the facts of each case but it seems to us that the argument is rendered wholly untenable the moment it can be shown that the claimant was told, for example, that the operator’s licence had been revoked or was warned that the operator had been called to a Public Inquiry at which revocation is a possibility or was alerted in any other way to the possibility that the vehicle was being used in contravention of s.2 of the 1995 Act. In those circumstances is seems to us that the honest and reasonable person would undoubtedly make inquiries. The present case provides an example. VOSA knew after the roadside check in June 2012, [see paragraph 2(ii) to (iv) above], that John Heath was continuing to use his vehicles after the revocation of the licence. VOSA also knew, as a result of the HPI check made in June 2012, that the vehicle was subject to a hire purchase agreement. They sent a pre-impounding letter to Mr Heath but they did not send a copy to the Appellant. Had they done so there would have been no prospect of a claim under Regulation 4(3)(c) succeeding. Indeed according to the Appellant the moment it became aware of the breach of the agreement steps would have been taken to re-possess the vehicle. If such steps were successful not only would the Finance Company protect its own position but it would also ensure that the use in contravention of s. 2 of the 1995 Act was prevented, at the earliest opportunity. If despite those steps the vehicle was impounded before it could be repossessed any claim for its return would have to be made under Regulation 4(3)(d). Whenever VOSA send a ‘pre-impounding’ letter to an operator we would encourage them to consider sending a copy to any Finance Company which may be affected.22. It is against this background that we turn to consider the remaining submissions on both sides. We propose to start with the fourth submission made by Ms Noakes, which links to the first submission made by Mr Hallsworth.23. Ms Noakes submitted that once the true nature of VOSA’s case became apparent the Deputy Traffic Commissioner ought to have adjourned so that the Appellant could respond properly to it. Mr Hallsworth submitted that by choosing not to attend the Appellant cannot now be heard to complain about what happened at the hearing. He referred us to a number of decisions in which the Tribunal has made it clear that where, as here, the burden of proof is on the Appellant it will be rare indeed that a claim to have a vehicle returned will succeed in the absence of oral or documentary evidence from the claimant.24. We do not agree that the Deputy Traffic Commissioner was obliged to adjourn this hearing. The problems faced by the Appellant, until Ms Noakes took this appeal in hand, were entirely of their own making. First, they failed to provide any explanation at section 6 of the application for the return of the vehicle as to their case under ground (c). Instead those acting on behalf of the Appellant appear to have been under the impression that all that was necessary was to prove ownership. Second, in the email of 25 February 2013, having asserted that the Appellant had been provided with a copy of the operator’s licence, on a date which was not specified, the author went on to ask for advice as to exactly what information was required for the release of the vehicle. Third, the Appellant elected not to attend the hearing. These factors indicate a regrettable ignorance, on the part of the Appellant or those then acting for it, in relation to the procedure for applying for the return of an impounded vehicle. As we have stressed before the burden of proof, once VOSA have established a right to impound, falls on the claimant. The failure to provide a proper explanation in paragraph 6 was a serious omission. The request for advice as to what information was required was not appropriate. While a large part of a Traffic Commissioner’s jurisdiction is inquisitorial in nature impounding hearings do not form part of that category. They are adversarial and a Traffic Commissioner conducting an impounding hearing must remain neutral. Accordingly, in our view, it would not have been appropriate to reply in any detail to the request as to what more was needed. Beyond replying that: “it is for the Appellant to prove that it probably did not know of the use in contravention of s. 2 of the 1995 Act” it is difficult to see what else the Deputy Traffic Commissioner could have said without the risk of appearing to compromise his neutrality. In any event the Deputy Traffic Commissioner could not be expected to know what case the Appellant might be able to make. The suggestion that the Deputy Traffic Commissioner ought to have adjourned to enable the Appellant to meet the case put by VOSA, once that was fully explained, is difficult to square with the fact that it was for the Appellant to prove the grounds for return and not for VOSA to disprove them. Any claimant who fails to attend an impounding hearing runs a significant risk that the application will fail, either because there is, as a result, no evidence to prove the ground on which return is claimed or because the claimant is unable to answer any point raised in the hearing or for both reasons. We are not saying that an adjournment should be refused in every case, we are simply saying that there was no need to adjourn in the present case.25. We turn now to the first and third submissions made by Ms Noakes and the second submission made by Mr Hallsworth. Mr Hallsworth submitted that on an appeal to the Tribunal the Appellant assumes the burden of proving that the decision appealed from was wrong and can only succeed in doing so if the process of reasoning and the application of the relevant law required the Deputy Traffic Commissioner to come to a different conclusion. Strictly speaking this test applies to appeals where an attempt is made to overturn findings of fact. Nevertheless we agree with Mr Hallsworth that in this case it is for the Appellant to show that the decision appealed from was plainly wrong.26. Mr Hallsworth went on to submit that the decision was correct because there was, in fact, no evidence to show that the Appellant did not know of the use in contravention of s. 2. While it seems that, at one point, the Deputy Traffic Commissioner was minded to conclude that this was a case where there was, literally, no evidence to show lack of knowledge of use in contravention, it is clear from paragraph 23 of his decision, [see paragraph 2(xx) above], that in the end he decided that it was a case of category (iii) knowledge. We do not know what motivated the Deputy Traffic Commissioner to take this course. It may be that he concluded that this was not a case where there was literally no evidence. On the other hand it may be that he felt that he was required by previous decisions, (to one of which we will come shortly), to assess the case and to make findings on the question of knowledge.27. Having decided that this was a category (iii) case Ms Noakes submits that the Deputy Traffic Commissioner fell into error in two significant respects. Her first submission is that he failed to make any finding as to whether or not there was a serious degree of fault on the part of the Appellant. Her third submission was that the Deputy Traffic Commissioner failed to take into account a relevant consideration, namely the terms of the agreement between the Appellant and Mr Heath and, in particular the provision that the vehicle should not be used contrary to any applicable law.28. It will be clear from the relevant passages of the Deputy Traffic Commissioner’s decision, [quoted above at paragraph 2(xix) and (xx)], that Ms Noakes is correct in submitting that the Deputy Traffic Commissioner made no finding that there had been a high degree of fault. In the absence of such a finding we agree that the conclusion that this was a case of category (iii) knowledge cannot stand.29. It seems to us that the explanation for the omission of this crucial finding may arise from the reliance that the Deputy Traffic Commissioner placed on a number of paragraphs in the Senior Traffic Commissioner’s Statutory Guidance Document No. 7. At paragraph 17 of his decision the Deputy Traffic Commissioner expressly referred to 2002/134 W.C. Commercials as authority for the proposition that knowledge may include a wilful disregard for the obvious. He went on to say that it can accordingly be comprised of wilfully and recklessly failing to make such inquiries as an honest and reasonable person would make. Unfortunately the essential additional ingredient of a high degree of fault is not set out in paragraph 42 but instead comes at the start of paragraph 43. To be fair the opening sentence of paragraph 43 makes it clear that a high degree of fault is required before a failure to inquire can be wilful but it may be that the fact that it was in a separate paragraph led the Deputy Traffic Commissioner to think that paragraph 43 set out a new and unrelated topic.30. We are particularly concerned about two aspects of this section of the guidance because it seems to us that at best it is unhelpful and at worst misleading. Our main concern relates to the fact that the decision in W.C. Commercials is cited in support of a proposition that was far more fully considered in Close Asset. These two appeals were both heard in February 2003. As the Tribunal made clear at the end of the W.C. Commercials decision the issues on that appeal were determined before the decision in Close Asset came to their attention. It seems to us that in stating that the Tribunal ‘noted’ that their conclusions concurred with those reached in Close Asset the Tribunal was not attempting to alter or to put a gloss on Close Asset . In our view the reality is that W.C. Commercials is no more than an example of a case of category (iii) knowledge. The fact that W.C. Commercials does not spell out the full definition, reached after a fully argued hearing in Close Asset , is not particularly surprising, given that that constitution did not have the benefit of argument on both sides. W.C. Commercials is not a precedent on this point and should not be treated as such because the absence of any reference to a high degree of fault is misleading and suggests that it provides authority for a less rigorous approach to proof of knowledge than that required by Close Asset . Close Asset is one of the most important precedents in this area. It is authority for many of the propositions in paragraphs 42-44 of the Statutory Guidance Document No 7. It should be the decision quoted as authority for these propositions rather than citing other decisions that are merely examples of putting the principles set out in Close Asset into effect. An example of this point is that the authority cited for the requirement of a high degree of fault is 2005/412 Capital Bank . While it is true that there is a reference to the need for a high degree of fault in the summary of Counsel’s submissions at the end of paragraph 6 the authority cited by Counsel is W.C. Commercials where no reference to a high degree of fault appears. Put bluntly Capital Bank is not authority for the proposition for which it has been cited. It should not have been included in the Guidance Document. The real authority for this requirement is to be found in the last sentence of paragraph 9 of Close Asset.31. Our second concern relates to the passage in paragraph 42 which states that:
“All that is necessary to impute actual knowledge or to find constructive knowledge is that the applicant’s knowledge is such that it would be ‘unconscionable’ for the applicant to retain the benefit”
. In our view it is perfectly clear from paragraph 27 of the decision in Asset 2 Asset Ltd that the opening words of this passage in the Guidance Document are potentially misleading in that they omit any reference to the need for conduct which is inherently dishonest if actual knowledge is to be imputed or for an express finding of dishonesty or a dishonest motive in the case of constructive knowledge. We are satisfied that the Tribunal in Asset 2 Asset Ltd was putting forward an alternative route to proof of knowledge to the same standard rather than seeking to dilute the standard required by the decision in Close Asset.32. We can deal with the third submission made by Miss Noakes quite shortly. In our view the terms of an agreement between a Finance Company and an operator are a material consideration which must be taken into account in deciding what, if any, inquiry an honest and reasonable person would have made in the circumstances. It is not a decisive consideration but it is plainly relevant to any question of whether the honest and reasonable person would have made repeated inquiries. In our view the Deputy Traffic Commissioner misdirected himself in failing to take the terms of the agreement into account. We should stress that his task, in that respect, would have been easier had the Appellant attended the hearing and drawn the relevant provision to his attention.33. We now turn to the application to admit fresh evidence. The evidence takes the form of a statement from Mr Heath to the effect that he was required to provide a copy of his operator’s licence to the broker before entering into the agreement with the Appellant. It is obviously highly relevant, in that it contradicts one of the main conclusions reached by the Deputy Traffic Commissioner. On the other hand it is equally clear that it is evidence, which could have been obtained, with reasonable diligence, for use at the hearing. It follows that it fails the second of the tests set by the Court of Appeal in the case of Ladd v Marshall 1954 1 WLR 1489 . The Tribunal has, for many years, approached the question of admitting fresh evidence by applying these tests. The present application raises in a stark form the problem of what to do if the fresh evidence appears to contradict a crucial finding, on which the decision is based, but fails to meet the tests set out in Ladd v Marshall . In our view the temptation to admit the evidence has to be resisted in this case. Not only was this evidence which could have been obtained with reasonable diligence it is evidence which should have been obtained given that the burden of proof on the issue in question fell on the Appellant. The application to admit fresh evidence must therefore be refused.34. It follows, in our judgment that the appeal must be allowed. The only remaining question is for us to decide what course to take. Miss Noakes submitted that we should exercise the power granted by paragraph 17(2)(a) of Schedule 4 to the Transport Act 1985 to “make such order as we see fit” . The alternative, if we consider it to be appropriate, is to remit the matter to the Traffic Commissioner for rehearing and determination. In our view it is appropriate to remit the matter. The foundation for doing justice to both parties is simply too uncertain for as to make such order as we see fit. The only fair and appropriate course, in our view, is for the matter to be reheard in the light of the guidance given above.35. For these reasons the appeal is allowed and the matter remitted for rehearing and determination by the Traffic Commissioner.

Postscript

36. For the avoidance of doubt what we have said about the approach to applications for the return of impounded Heavy Goods Vehicles applies equally in the case of Public Service Vehicles, (see Section 12(1) of the Public Passenger Vehicles Act 1981 Act and the Public Service Vehicles (Enforcement of Powers) Regulations 2009).37. This is another example of an impounding case, which should provide cause for reflection and re-consideration on the part of Finance Companies, their recognised trade bodies, VOSA and Traffic Commissioners.38. In the case of Finance Companies what happened in this case demonstrates the need for at least one member of staff to be thoroughly familiar with the law and practice relating to impounding applications. The alternative is that they should obtain immediate advice from someone with the necessary expertise whenever a vehicle they own is impounded. The advantage of having immediate access to such expertise is that if a good case for the return of the vehicle is made at an early stage VOSA may be required by the terms of Regulation 4(1) of the 2001 Regulations as amended to return the vehicle without the need for an application under Regulation 10. Even if VOSA decline to return the vehicle a person who was thoroughly familiar with this area of the law would have completed paragraph 6 of the application more carefully, would have ensured that appropriate evidence was available and would have attended the hearing and presented that evidence on behalf of the Appellant. As a result the prospects of success would have been immeasurably increased.39. We would urge the Appellant or any other interested party to draw this decision to the attention of all the recognised trade bodies representing Finance Companies. The reason is that it is important that they have an opportunity to consider whether any changes are needed, as a result of this decision, in the practice, which they adopt, or in the advice that they give. In particular the practice which they adopt and the advice which they give should encourage their members to make such inquiries as the honest and reasonable person would make in the circumstances.40. In the case of VOSA we have already suggested that consideration should be given, whenever they send a pre-impounding letter to an operator, to sending a copy to any Finance Company interested in any vehicle at risk of being impounded. We accept that this is not an obligation that we can impose on VOSA. However given the comparative cost of, on the one hand, ascertaining that a vehicle is on Hire Purchase and sending a copy letter and, on the other, recovering and storing an impounded vehicle and attending a hearing it seems to us that the first course may be better value for money. If, after notification of the risk of impounding, the Finance Company successfully recover the vehicle there will then be no need to impound it and use in contravention of s. 2 of the 1995 Act will cease. It may be that there are other situations in which it would be relatively easy and inexpensive for VOSA to notify a Finance Company that one or more of its vehicles is at risk of being impounded. VOSA should also bear in mind, when taking decisions in relation to impounded vehicles which are owned by Finance Companies, that returning a vehicle to a Finance Company, as opposed to the operator, will not involve the risk of further use in contravention of s. 2 of the 1995 Act.41. In the case of Traffic Commissioners we would invite them to consider whether there is any scope for notifying Finance Companies when, as a result of action which they take under the 1995 Act, a vehicle or vehicles is likely to be at risk of being impounded. If this is something, which can, realistically and economically, be done it seems to us that the right time would probably be when a licence was revoked or there was a termination for non-payment.42. We would strongly encourage Traffic Commissioners not to use words like ‘require’ when deciding whether or not a Finance Company should or should not have made an inquiry or when deciding what an honest and reasonable person would have done. The reason is that in this context the word suggests a legal obligation or some form of compulsion. The Tribunal has repeatedly pointed out that no such legal obligation exists. There may be a temptation to suggest that an inquiry would be ‘sensible’. That temptation should also be resisted because it alters the form of the question that has to be answered. Finally we would invite the Senior Traffic Commissioner to consider a revision of the Statutory Guidance Document No 7 to reflect the views and guidance set out in this decision.His Hon. Michael Brodrick, Judge of the Upper Tribunal,Principal Judge for Traffic Commissioner Appeals, President of the Transport Tribunal.3 September 2013

Cited in 4 later judgments