Completing the Transfer
Land and Conveyancing Law Reform Act
Chapter 3
Deeds and their operation
Conveyances by deed only.
62.— (1) Subject to section 63 , a legal estate or interest in land may only be created or conveyed by a deed.
[SU 1634] [RPA 1845, ss. 2 and 3]
(2) A deed executed after the commencement of this Chapter is fully effective for such purposes without the need for any conveyance to uses and passes possession or the right to possession of the land, without actual entry, unless subject to some prior right to possession.
(3) In the case of a voluntary conveyance executed after the commencement of this Chapter, a resulting use for the grantor is not implied merely because the land is not expressed to be conveyed for the use or benefit of the grantee.
(4) A bargain and sale, covenant to stand seised, feoffment with livery of seisin or any combination of these are no longer effective to create or to convey a legal estate or legal interest in land.
Exceptions to deeds.
63.— Section 62 (1) does not apply to—
(a) an assent by a personal representative,
(b) a surrender or other conveyance taking effect by operation of law,
(c) a disclaimer not required to be by deed,
(d) a grant or assignment of a tenancy not required to be by deed,
(e) a receipt not required to be by deed,
(f) a vesting order of the court or other competent authority, or
(g) any other conveyance which may be prescribed.
Formalities for deeds.
64.— (1) Any rule of law which requires—
(a) a seal for the valid execution of a deed by an individual, or
(b) authority to deliver a deed to be given by deed,
is abolished.
(2) An instrument executed after the commencement of this Chapter is a deed if it is—
(a) described at its head by words such as “Assignment”, “Conveyance”, “Charge”, “Deed”, “Indenture”, “Lease”, “Mortgage”, “Surrender” or other heading appropriate to the deed in question, or it is otherwise made clear on its face that it is intended by the person making it, or the parties to it, to be a deed, by expressing it to be executed or signed as a deed,
(b) executed in the following manner:
(i) if made by an individual—
(I) it is signed by the individual in the presence of a witness who attests the signature, or
(II) it is signed by a person at the individual’s direction given in the presence of a witness who attests the signature, or
(III) the individual’s signature is acknowledged by him or her in the presence of a witness who attests the signature;
(ii) if made by a company registered in the State, it is executed under the seal of the company in accordance with its Articles of Association;
(iii) if made by a body corporate registered in the State other than a company, it is executed in accordance with the legal requirements governing execution of deeds by such a body corporate;
(iv) if made by a foreign body corporate, it is executed in accordance with the legal requirements governing execution of the instrument in question by such a body corporate in the jurisdiction where it is incorporated,
and
(c) delivered as a deed by the person executing it or by a person authorised to do so on that person’s behalf.
(3) Any deed executed under this section has effect as if it were a document executed under seal.
(4) A deed, whenever created, has the effect of an indenture although not indented or expressed to be an indenture.
Escrows by corporate bodies.
65.— (1) Any rule of law to the effect that the affixing of a corporate seal to an instrument effects delivery by that body corporate is abolished.
(2) An instrument executed by a body corporate in accordance with section 64 (2)(b) is capable of operating as an escrow in the same circumstances and with the same consequences as an instrument executed by an individual.
Conveyance to oneself.
66.— (1) Any property may be conveyed by a person to that person jointly with another person in the same way in which it might be conveyed by that person to another person.
[LPAA 1859, s. 21][CA 1881, s. 50]
(2) Subject to subsection (3)—
(a) a person may convey, but not lease, property to that same person in a different capacity,
(b) two or more persons may convey, and have always been capable of conveying, any property vested in them to any one or more of themselves in the same way in which they could convey it to a third person.
(3) Subsection (2) does not validate a conveyance made in breach of trust or other fiduciary obligation.
(4) Without prejudice to section 83 , this section does not affect any rule of law under which a covenant entered into with oneself is unenforceable.
Words of limitation.
67.— (1) A conveyance of unregistered land with or without words of limitation, or any equivalent expression, passes the fee simple or the other entire estate or interest which the grantor had power to create or convey, unless a contrary intention appears in the conveyance.
[CA 1881, s. 51]
(2) A conveyance of unregistered land to a corporation sole by that person’s corporate designation without the word “successors” passes to the corporation the fee simple or the other entire estate or interest which the grantor had power to create or convey, unless a contrary intention appears in the conveyance.
(3) Where an interest in land is expressed to be given to—
(a) the heir or heirs, or
(b) any particular heir, or
(c) any class of heirs, or
(d) issue,
of any person in words which, under the rule known as the Rule in Shelley’s Case, would have operated to give that person a fee simple, those words operate as words of purchase and not of limitation and take effect in equity accordingly.
(4) Subject to section 68 , subsections (1) to (3) apply to conveyances executed before the commencement of this Chapter, but without prejudice to any act or thing done or any interest disposed of or acquired before that commencement in consequence of the failure to use words of limitation in such a conveyance or the application of the Rule in Shelley’s Case.
Sale of Goods Act
Transfer of Title.
Sale by person not owner.
21.—(1) Subject to the provisions of this Act, where goods are sold by a person who is not the owner thereof, and who does not sell them under the authority or with the consent of the owner, the buyer acquires no better title to the goods than the seller had, unless the owner of the goods is by his conduct precluded from denying the seller’s authority to sell.
(2) Provided also that nothing in this Act shall affect—
(a) The provisions of the Factors Acts, or any enactment enabling the apparent owner of goods to dispose of them as if he were the true owner thereof;
(b) The validity of any contract of sale under any special common law or statutory power of sale or under the order of a court of competent jurisdiction.
Market overt.
22.—(1) Where goods are sold in market overt, according to the usage of the market, the buyer acquires a good title to the goods, provided he buys them in good faith and without notice of any defect or want of title on the part of the seller.
(2) Nothing in this section shall affect the law relating to the sale of horses.
(3) The provisions of this section do not apply to Scotland.
Sale under voidable title.
23. When the seller of goods has a voidable title thereto, but his title has not been avoided at the time of the sale, the buyer acquires a good title to the goods, provided he buys them in good faith and without notice of the seller’s defect of title.
Revesting of property in stolen goods on conviction of offender.
24.—(1) Where goods have been stolen and the offender is prosecuted to conviction, the property in the goods so stolen revests in the person who was the owner of the goods, or his personal representative, notwithstanding any intermediate dealing with them, whether by sale in market overt or otherwise.
(2) Notwithstanding any enactment to the contrary, where goods have been obtained by fraud or other wrongful means not amounting to larceny, the property in such goods shall not revest in the person who was the owner of the goods, or his personal representative, by reason only of the conviction of the offender.
(3) The provisions of this section do not apply to Scotland.
Seller or buyer in possession after sale.
25.—(1) Where a person having sold goods continues or is in possession of the goods, or of the documents of title to the goods, the delivery or transfer by that person, or by a mercantile agent acting for him, of the goods or documents of title under any sale, pledge, or other disposition thereof, to any person receiving the same in good faith and without notice of the previous sale, shall have the same effect as if the person making the delivery or transfer were expressly authorised by the owner of the goods to make the same.
(2) Where a person having bought or agreed to buy goods obtains, with the consent of the seller, possession of the goods or the documents of title to the goods, the delivery or transfer by that person, or by a mercantile agent acting for him, of the goods or documents of title, under any sale, pledge, or other disposition thereof, to any person receiving the same in good faith and without notice of any lien or other right of the original seller in respect of the goods, shall have the same effect as if the person making the delivery or transfer were a mercantile agent in possession of the goods or documents of title with the consent of the owner.
(3) In this section the term “mercantile agent” has the same meaning as in the Factors Acts.
Effect of writs of execution.
26.—(1) A writ of fieri facias or other writ of execution against goods shall bind the property in the goods of the execution debtor as from the time when the writ is delivered to the sheriff to be executed; and, for the better manifestation of such time, it shall be the duty of the sheriff, without fee, upon the receipt of any such writ to endorse upon the back thereof the hour, day, month, and year when he received the same.
Provided that no such writ shall prejudice the title to such goods acquired by any person in good faith and for valuable consideration, unless such person had at the time when he acquired his title notice that such writ or any other writ by virtue of which the goods of the execution debtor might be seized or attached had been delivered to and remained unexecuted in the hands of the sheriff.
(2) In this section the term “sheriff” includes any officer charged with the enforcement of a writ of execution.
(3) The provisions of this section do not apply to Scotland.
Supreme Court of Judicature Act (Ireland) 1877
Law and equity to be concurrently administered.
27. In every civil cause or matter commenced in the High Court of Justice law and equity shall be administered by the High Court of Justice and the Court of Appeal respectively according to the rules following:
(1.) If any plaintiff or petitioner claims to be entitled to any equitable estate or right, or to relief upon any equitable ground against any deed instrument or contract, or against any right title or claim whatsoever asserted by any defendant or respondent in such cause or matter, or to any relief founded upon a legal right, which heretofore could only have been given by a Court of Equity, the said Courts respectively, and every Judge thereof, shall give to such plaintiff or petitioner such and the same relief as ought to have been given by the Court of Chancery in a suit or proceeding for the same or the like purpose, properly instituted before the passing of this Act.
(2.) If any defendant claims to be entitled to any equitable estate or right, or to relief upon any equitable ground against any deed instrument or contract, or against any right title or claim asserted by any plaintiff or petitioner in such cause or matter, or alleges any ground of equitable defence to any claim of the plaintiff or petitioner in such cause or matter, the said Courts respectively, and every Judge thereof, shall give to every equitable estate right or ground of relief so claimed, and to every equitable defence so alleged, such and the same effect, by way of defence against the claim of such plaintiff or petitioner, as the Court of Chancery ought to have given if the same or the like matters had been relied on by way of defence in any suit or proceeding instituted in that Court for the same or the like purpose before the passing of this Act.
Cases of conflict not enumerated.
28. [Recital.]
(1.) In the administration by the Court of the assets of any person who may die after the commencement of this Act, and whose estate may prove to be insufficient for the payment in full of his debts and liabilities, and in the winding up of any company under the Companies Acts, 1862 and 1867, whose assets may prove to be insufficient for the payment of its debts and liabilities and the costs of winding up, the same rules shall prevail and be observed as to the respective rights of secured and unsecured creditors, and as to debts and liabilities provable, and as to the valuation of annuities and future and contingent liabilities respectively, as may be in force for the time being under the law of bankruptcy with respect to the estates of persons adjudged bankrupt in Ireland; and all persons who in any such case would be entitled to prove for and receive dividends out of the estate of any such deceased person, or out of the assets of any such company, may come in under the decree or order for the administration of such estate, or under the winding up of such company, and make such claims against the same as they may respectively be entitled to by virtue of this Act.
(2.) No claim of a cestui que trust against his trustee for any property held on an express trust, or in respect of any breach of such trust, shall be held to be barred by any Statute of Limitations. This provision, however, is not to affect the enactments contained in the tenth section of the Real Property Limitation Act, 1874, when the same shall come into effect:
(3.) An estate for life without impeachment of waste shall not confer or be deemed to have conferred upon the tenant for life any legal right to commit waste of the description known as equitable waste, unless an intention to confer such right shall expressly appear by the instrument creating such estate.
(4.) There shall not, after the commencement of this Act, be any merger by operation of law only of any estate the beneficial interest in which would not be deemed to be merged or extinguished in equity.
(5.) A mortgagor entitled for the time being to the possession or receipt of the rents and profits of any land as to which no notice of his intention to take possession or to enter into the receipt of the rents and profits thereof shall have been given by the mortgagee, may sign and cause to be served notices to quit, determine tenancies, or accept surrenders thereof and sue for such possession, or for the recovery of such rents or profits, or to prevent or recover damages in respect of any trespass or other wrong relative thereto, in his own name only, unless the cause of action arises upon a lease or other contract made by him jointly with any other person; and such action suit or proceeding shall not be defeated by proof that the legal estate in the lands the possession of which is sought to be recovered, or in respect of which the rents or profits are sought to be recovered, or in respect to which the trespass or other wrong has been committed, is vested in such mortgagee: Provided always, that a mortgagor shall not be at liberty to exercise any of the powers hereby conferred if an express declaration that they shall not be exercised is contained in the mortgage.
(6.) Any absolute assignment, by writing under the hand of the assignor (not purporting to be by way of charge only), of any debt or other legal chose in action, of which express notice in writing shall have been given to the debtor trustee or other person from whom the assignor would have been entitled to receive or claim such debt or chose in action, shall be and be deemed to have been effectual in law (subject to all equities which would have been entitled to priority over the right of the assignee if this Act had not passed,) to pass and transfer the legal right to such debt or chose in action from the date of such notice, and all legal and other remedies for the same, and the power to give a good discharge for the same, without the concurrence of the assignor: Provided always, that if the debtor, trustee, or other person liable in respect of such debt or chose in action shall have had notice that such assignment is disputed by the assignor or any one claiming under him, or of any other opposing or conflicting claims to such debt or chose in action, lie shall be entitled, if he think fit, to call upon the several persons making claim thereto to interplead concerning the same, or he may, if he think fit, pay the same into the High Court of Justice under and in conformity with the provisions of the Acts for the relief of trustees.
(7.) Stipulations in contracts, as to time or otherwise, which would not before the commencement of this Act have been deemed to be or to have become of the essence of such contracts in a Court of Equity, shall receive in all Courts the same construction and effect as they would have theretofore received in equity.
(8.) A mandamus or an injunction may be granted or a receiver appointed by an interlocutory order of the Court in all cases in which it shall appear to the Court to be just or convenient that such order should be made and any such order may be made either unconditionally or upon such terms and conditions as the Court shall think just; and if an injunction is asked, either before, or at, or after the hearing of any cause or matter, to prevent any threatened or apprehended waste or trespass, such injunction may be granted, if the Court shall think fit, whether the person against whom such injunction is sought is or is not in possession under any claim of title or otherwise, or (if out of possession) does or does not claim a right to do the act sought to be restrained under any colour of title, and whether the estates claimed by both or by either of the parties are legal or equitable.
(9.) In any cause or proceeding for damages arising out of a collision between two ships, if both ships shall be found to have been in fault, the rules hitherto in force in the High Court of Admiralty, so far as they have been at variance with the rules in force in the Courts of Common Law, shall prevail.
(10.) In questions relating to the custody and education of infants the Rules of Equity shall prevail.
(11.) Generally, in all matters not herein-before particularly mentioned in which there is any conflict or variance between the Rules of Equity and the Rules of the Common Law with reference to the same matter, the Rules of Equity shall prevail.
Cases
In the Matter of J.R., a Ward of Court
High Court
2 October 1992
[1993] I.L.R.M. 657
(Costello J)
COSTELLO J
delivered his judgment on 2 October 1992 saying: Since 1990 the ward has been living in a psychiatric hospital, unable to manage his own affairs. The ward’s committee now wants to sell the dwellinghouse in which he formerly lived because it has fallen into a dilapidated state. The ward is unmarried but his committee has ascertained that since 1978 he had been living in the dwellinghouse with a lady who still resides in it and who now claims rights in relation to it. This lady has been named as the respondent to this motion, a motion seeking an order for sale. As will appear later, it is obviously in the interests of the proper management of the ward’s estate that this be done, but the court is of course bound by any rights affecting the property and the court’s power of sale may be restricted by rights which may have been created by the *659 ward. The issues now for determination are the nature of the rights, if any, to which the respondent is entitled in the property, and the proper order to be made in the circumstances.
The ward is now aged 73 years. He was admitted to a psychiatric hospital in Dublin on 19 July 1990 for investigation of a depressed mood, weight loss and inability to take care of himself. He was then depressed and disorientated, with decreased concentration and some short term and some long term loss of memory. It was established on assessment that he could not live on his own and that he required help with dressing, bathing, toileting and even with sorting out his own possessions. A diagnosis of multiple infarct dementia having been made he was transferred to a psycho-geriatric unit. Since then his mood has fluctuated and at times he is regarded as a suicide risk. In February of this year he became very agitated but a change in medication seemed to bring about an improvement for a limited time. His cognitive functions cannot improve but there is a possibility, but it is only a possibility, that his depression may improve. His life expectation is quite good, but he will need full-time institutional care for the rest of his life. I am quite satisfied that he will never be able to return to live in his former dwellinghouse. He made a will in 1988 and I think it is extremely unlikely that he will ever be capable of making another will.
When taken into wardship on 8 October 1990 the General Solicitor was appointed committee of his person and his estate. There is presently standing to the credit of his account the sum of £39,205.61. In addition he is the owner of a dwelling house the subject of these proceedings.
The respondent to this motion was born on 2 November 1944 so that she is now nearly 48 years of age. She married in 1965 but her husband left her in September 1971 and she has not heard from him since. There were two children of the marriage, a son born in July 1968 and a daughter born in February 1970 but as the respondent was unable to look after them they were brought up by her mother. In 1968 she suffered a brain tumour. The operation to remove it was successful and thereafter for some years she was able to work as a tailoress. But in 1977 a second brain tumour developed and although it was successfully removed she has since been disabled; her leg is permanently weakened so that she has to use a stick, and one of her arms is almost powerless. She has been unable to work and has had only a small disability pension on which to live. She has suffered from depression. This was so severe that in 1978 she required hospitalisation in a Dublin hospital. There she met the ward. He too was undergoing psychiatric treatment. They struck up a friendship which developed into a deeper relationship and resulted in his asking her to go to live with him in the dwelling which is the subject of these proceedings. They lived together as man and wife until 1990 when the ward had to be taken into hospital because of the illnesses to which I have referred. When they lived together the ward maintained the respondent out of his resources, and in addition gave her a small *660 allowance to augment her disability pension.
The respondent’s claim to a legal interest in the ward’s dwelling is based on the following facts. She says that when she went to live with him that he represented to her that he would look after her, and that she would be sure of a home for the rest of her life. She says that he continued to make these representations to her and she acted on them. Furthermore, on 2 November 1988 the ward made a will. By it he bequeathed
all my property of every nature and kind whatsoever both real and personal including my residence at … to my great friend … [the respondent] for her own use and benefit absolutely….
and he appointed the respondent executrix of his will. The evidence establishes that the will was validly executed, and that the ward was of sound mind, memory and understanding when he executed it. 2 November was the respondent’s birthday. On that day he handed her a folder which contained his will and said to her, ‘it’s not my house now, it’s our house and eventually it will be your house’. It will be recalled that the ward was then 69 years of age, and that the respondent was 44.
The ward’s dwelling is now in a very dilapidated state, as appears from an architect’s report of 31 July 1991. Urgent repairs are needed to the roof and the rear wall, the house timbers need to be checked and because of damp penetration their replacement may be necessary. The cost of making the house structurally sound is estimated at £34,000. The ward’s only money is a sum of £39,205 and out of this, liabilities will have to be discharged including (a) such sums that may be due to the hospital, (b) the cost of future maintenance, (c) costs of the committee (past and future), (d) the possibility of future specialist nursing for the ward and (e) eventually his funeral expenses. The respondent agrees that the dwelling is in need of repairs but has obtained a contractor’s estimate that urgent repairs could be carried out at a cost of £3,000.
The claims advanced on behalf of the respondent are based (a) on the representations made to her at the time she went to live with the ward and subsequently and (b) the representations made on 2 November 1988. She relies on the principles of the law of estoppel. For present purposes I will use the classification which is now generally accepted (see Snell’s Principles of Equity , 28th ed., p. 554 and Halsbury’s Laws of England (4th ed.), vol. 16, 1071, 1072) and refer to (i) promissory estoppel and (ii) proprietary estoppel. A promissory estoppel will arise where by words or conduct a person makes an unambiguous representation as to his future conduct, intending that the representation will be relied on, and to affect the legal relations between the parties and the representee acts on it or alters his or her position to his or her detriment the representor will not be permitted to act inconsistently with it (see Snell’s Principles of Equity , *661 28th ed., 556). If the subject matter of the representation is land, no right or interest in the land results from this estoppel — a personal right is vested in the representee which will preclude the representor from enforcing a title to the land. A proprietary estoppel is different in a number of ways. When it relates to land it may result in the creation of rights in or over the land. It has been explained as follows.
Where one person (A) has acted to his detriment on the faith of a belief, which was known to and encouraged by another person (B), that he either has or is going to be given a right in or over B’s property, B cannot insist on his strict legal rights if to do so would be inconsistent with A’s belief. (See In re Basham [1987] 1 All ER 405 at 410).
Maharaj v Chand [1986] AC 898 illustrates the operation of the law relating to promissory estoppel. This was a case which originated in Fiji and was eventually decided by the Privy Council. The plaintiff and the defendant were living as man and wife (but unmarried) when the plaintiff applied to the housing authority for a lease to enable him to build a house. With the approval of the Native Land Trust Board he obtained a sub-lease and erected a house on the land demised to him. In reliance on a representation made by the plaintiff to her that it would be a permanent home for her and her children the defendant left her flat and went to live with the plaintiff. Their relationship later broke down. The plaintiff left the house, giving the defendant permission to remain in it. Later he revoked the permission and instituted ejectment proceedings against her. The trial judge dismissed the claim on the ground that the plaintiff was estopped from evicting her. On appeal the plaintiff succeeded on the ground that the licence he gave the defendant was an unlawful ‘dealing’ within the meaning of s. 12 of the Native Land Trust Act. The Privy Council allowed the defendant’s appeal and restored the order of the trial judge.
In reaching its conclusions the Privy Council firstly held that s. 12 did not apply as the right on which the defendant relied was a purely personal right and no ‘dealing’ with the land in breach of the section had occurred. Its opinion was that it might have been possible, but for the provisions of that section, to have made out an entitlement to an equitable interest in the land but this had not been claimed. The claim advanced was a more modest one, namely that the requirements of a promissory estoppel existed. It was pointed out that the plaintiff had represented to the defendant that the house would be a permanent home for herself and her children, that in reasonable reliance on this representation she acted to her detriment by giving up her flat, that it was not possible to restore her to her former position. In these circumstances it would be ‘plainly inequitable’ the court concluded for the plaintiff to evict her and held that she had permission to reside permanently in the house, that this was a personal right *662 which did not amount to a property interest diminishing the right of the plaintiff’s lessor or mortgagee.
Greasley v Cooke [1980] 1 WLR 1306 is an example of proprietary estoppel. It was a case in which the owners by inheritance of a dwelling house took ejectment proceedings against an occupier whose defence was that she had reasonably believed and was encouraged by members of the family of the deceased owner so to believe that she could regard the property as her home for the rest of her life and that she was entitled to a declaration to that effect. The evidence established that in 1938 at the age of 16 she went to the house as a maid servant of the deceased, that from 1946 she had co-habited in it with one of the deceased’s sons, that after the owner’s death she remained in the house and looked after it and also cared for the deceased’s mentally ill daughter, that she received no payment, that she had been assured by members of the family that she could regard the house as her home for the rest of her life. It was held by the Court of Appeal that once it was shown that the defendant had relied on the assurances given to her then the burden of proving that she had acted to her detriment in staying on to look after the house without payment did not rest on her and that in the absence of proof to the contrary the court could infer that her conduct was induced by the assurances given to her, that expenditure of money was not a necessary element to establish proprietary estoppel, and that it was for the courts to decide in what way the equity established by the evidence should be satisfied.
Another example of the operation of the doctrine of proprietary estoppel is to be found in In re Basham [1987] 1 All ER 405. The plaintiff’s mother married a second time when the plaintiff was aged 15. The plaintiff worked for her stepfather without payment for many years, helping him to run various public houses and a service station. After she had herself married she considered moving elsewhere but she was dissuaded by her stepfather from doing so. After the death of her mother she looked after her stepfather. He owned a cottage and on many occasions he indicated to her that she would get the cottage on his death in return for what she had been doing for him and also his estate. But he died intestate and two nieces were his next of kin. The plaintiff instituted these proceedings claiming a declaration that she was entitled to the deceased’s entire estate because the deceased had induced and encouraged in her the expectation or belief that she would receive the estate on his death and because she had acted to her detriment in reliance on that expectation a proprietary estoppel arose in her favour. She succeeded in her claim.
Having stated the principle of proprietary estoppel already quoted, the court pointed out that although the principle is commonly known as proprietary estoppel where the belief is that A is going to be given a right in the future it may properly be regarded as giving rise to a species of constructive trust, the concept employed by a court of equity to prevent a person from relying on his *663 legal rights when it would be unconscionable for him to do so. The court held that a proprietary estoppel could be raised when an expectation exists that future rights would be given over a person’s residuary estate. As the plaintiff’s belief that she would inherit the estate had been encouraged by the deceased and as the plaintiff had acted to her detriment in subordinating her own interests to the wishes of the deceased in reliance on her belief that she would inherit, she had established a proprietary estoppel and was entitled to the estate. The court considered how effect should be given to the equity which had arisen in the plaintiff’s favour. It held that the extent of the equity was to have made good, as far as could fairly be done between the parties, the expectations which the deceased had encouraged. It followed from this that the plaintiff was entitled to a declaration that the personal representatives held the whole of the net estate in trust for the plaintiff.
Conclusions
In the light of the facts and the applicable legal principles, I have come to the following conclusions:
(1) The uncontradicted evidence is that at the time that the respondent went to live with the ward and thereafter he represented to her that he would look after her and that she could be sure of a home in his dwellinghouse for the rest of her life. I think the respondent acted on this representation and that she did so to her detriment. The law relating to the nature of detriment suffered by a representee has been clarified by a number of recent cases. As was shown in Maharaj v Chand detriment may exist when a representee leaves a permanent home on the faith of a representation that another will be offered in its place. Whilst I have no evidence of where the respondent was living in 1978 I think I am entitled to assume that she had a house or a flat which she gave up to go live with the respondent and that accordingly she has made out a case of promissory estoppel as she acted on the representation made to her. It would be plainly inequitable for the ward now to deny that she has a right to live in his house and it seems to me that she has an equity which entitles her to stay in the house rent free for as long as she wishes to which the court must give effect.
(2) I do not think that any further or additional rights were conferred by the events of 2 November 1988. When on 2 November 1988 the ward handed the respondent a folder and said ‘it’s not my house now, it’s our house and eventually will be yours’ I think he was intending by those words to give a gift of an interest in the house to the respondent. But the respondent cannot claim any enforceable rights from this fact, because the gift was an imperfect one which the courts cannot enforce. I do not think that by using those words and handing her the executed will the ward thereby conferred on the respondent an immediate beneficial interest under a constructive trust — the ward intended that she would have (a) a right to reside in the house during his life and (b) *664 ownership of it after his death, but he did not intend that she would have an immediate beneficial interest in it — if he had so intended he would have arranged to transfer the property either to her alone or jointly with him. And the respondent cannot rely on the doctrine of estoppel because she cannot show that she acted in any way to her detriment arising from the representation which was made to her on 2 November.
In cases such as this the court must (a) ascertain the nature of the equity to which a representee is entitled and (b) decide in what way the equity may be satisfied (see Denning MR in Greasley v Cooke, op. cit. , p.1312). The equity which the respondent has been able to establish is a right to reside in the ward’s dwellinghouse for her life and normally such a right would be satisfied by an order refusing to evict the representee or where the representor is a ward of court refusing to sell the dwellinghouse. But there are special circumstances in this case. The house is in a very serious state of dilapidation. Major work needs to be done on it. There has been severe damp penetration which has caused the timbers to rot. There is rising damp in the basement walls, the plumbing and electrical wiring needs to be replaced. The cost of doing the work was estimated last year as being £34,000 approximately. It is quite a large three storey house and the respondent no longer uses the basement. It is not reasonable to spend the ward’s limited resources in attempting to repair it and the respondent herself has no money to do so and no doubt it is declining in value all the time. The respondent’s equity can be satisfied by selling the house and buying another smaller one suitable for the respondent’s needs. It should be bought in the ward’s name but I will declare that the respondent has a right to reside in it for as long as she wishes. This will not of course prejudice in any way the rights she will have should the ward predecease her (as would normally be expected) and should he not revoke his will (a most remote eventuality).
In order to satisfy the equity the new house should meet the respondent’s reasonable needs for accommodation as a single person. It should be purchased in consultation with the respondent and should any difference arise this motion can be re-entered. The committee should take expert advice as to when to sell and when to purchase the new property.
I will therefore order that the premises be sold provided that there is made available to the respondent suitable alternative accommodation in a dwelling to be purchased in the ward’s name, and I will declare that the respondent has a right to live in the newly acquired dwelling for as long as she may wish.
Car & Universal Finance Company Ltd v Caldwell
[1963] EWCA Civ 4 [1965] QB 525, [1965] 1 QB 525, [1964] 2 WLR 600 [1964] 1 All ER 290
Sellers LJ
The sole question on this part of the appeal is whether Mr. Caldwell avoided the contract of sale and recovered his title to the car before the purported sale by Motobella Company Ltd. to G. & C. Finance Corpn. Ltd. on the 15th January, 1960. If Mr. Caldwell did not do so then, subject to the other contention which arises on the appeal, G. & C. FinanceCorpn. Ltd. obtained a good title and were able to pass it on to the Car & Universal Finance Company Ltd. later in the same year.
The learned Master of the Rolls’ decision that Mr. Caldwell had established a rescission on the 13th January, 1960, was strongly attacked before us on the ground that, though interesting, it was contrary to authority and was not supported by the various cases of election which the learned judge found comparable and where communication was, it was said, not required as an essential prerequisite – and reference was made in the judgment to termination of a lease for forfeiture and ratification, repudiation and affirmation of a contract. Much of the argument before us was an endeavour to show that these illustrations and comparisons were either fallacious or ambiguous. I do not pursue them for, with respect, I do not find them helpful to the decision, except possibly in the case of an affirmation of a contract which is an election to the contrary effect to a disaffirmation. An affirmation of a voidable contract may be established by any conduct which unequivocally manifests an intention to affirm it by the party who has the right to affirm or disaffirm. Communication of an acceptance of a contract after knowledge of a fundamental breach of it by the other party or of fraud affecting it is, of course, evidence establishing affirmation but it is not essential evidence. A party cannot reject goods sold and delivered if he uses them after knowledge of a right to reject and the judgment cites a case where an instruction to a broker to re-sell was sufficient affirmation of the contract in question even though that conduct was not communicated. It may be said that a contract may be more readily approved and accepted than it can be terminated where a unilateral right to affirm or disaffirm arises. The disaffirmation or election to avoid a contract changes the relationship of the parties and brings their respective obligations to an end whereas an affirmation leaves the contract effective though subject to a claim for damages for its breach. Where a contracting party could be communicated with, and modern facilities make communication practically worldwide and almost immediate, it would be unlikely that a party could be held to have disaffirmed a contract unless he went so far as to communicate his decision so to do. It would be what the other contracting party would normally require and unless communication were made the party’s intention to rescind would not have been unequivocal, or clearly demonstrated or made manifest. But in circumstances such as the present case the other contracting party, a fraudulent rogue who would know that the vendor would want his car back as soon as he knew of the fraud, would not expect to be communicated with as a matter of right or requirement and would deliberately, as here, do all he could to evade any such communication being made to him. In such exceptional contractual circumstances, it does not seem to me appropriate to hold that a party so acting can claim any right to have a decision to rescind communicated to him before the contract is terminated. To hold that he could would involve that the defrauding party if skilful enough to keep out of the way could deprive the other party to the contract of his right to rescind, a right to which he was entitled and which he would wish to exercise as the defrauding party would well know or at least confidently suspect. The position has to be viewed, as I see it, between the two contracting parties involved in the particular contract in question. That another innocent party or parties may suffer does not in my view of the matter justify imposing on a defrauded seller an impossible task. He has to establish clearly and unequivocally that he terminates the con” tract and is no longer to be bound by it. If he cannot communicate his decision he may still satisfy a judge or jury that he had made a final and irrevocable decision and ended the contract.
I am in agreement with the Master of the Rolls, who asked “And is a man in the position of Mr Caldwell ever to be able to rescind the contract when a fraudulent person absconds as Mr. Norris did here?” and answered that he can do so “if he at once, on discovering the fraud, takes all possible steps to regain the goods even though he cannot find the rogue nor communicate with him”.
The appellants contended that in Scarf v. Jardine (7 Appeal Cases page 345) Lord Blackburn laid it down that election to avoid a contract is not completed until the decision has been communicated to the other side “in such a way as to lead the opposite party to believe that he has made that choice”, and they relied on the many works of authority which state that where a right of election exists there has to be communication. Scarf v. Jardine is a very different case from the present. It is so well known and so often cited that it does not call for analysis. In that case Lord Blackburn and, in the various works referred to, the authors had not in mind in enunciating a general principle the circumstances and the arguments which have arisen in the present case.
Even in the light of this statement of the law it was conceded – and rightly so – that if Mr. Caldwell could have found the car and had re-taken it without the knowledge of the buyer, but before resale to an innocent purchaser, the contract would have been at an end and the title restored to Mr. Caldwell. Such an act would have been an unequivocal act of election to disaffirm the contract.
In the case of an innocent misrepresentation in circumstances which would permit the party misled to rescind, the other party would not deliberately avoid communication (for that would seem to negative innocence) and circumstances would be rare where communication could not be readily made in one way or another. If communication was possible it is difficult to see how there could be rescission without communication and the inference would be that the contracting parties required communication of termination. Special circumstances may arise and call for future consideration but I do not think the appellants’ comparison in argument between innocent and fraudulent misrepresentation invalidates the learned Master of the Rolls’ judgment.
It has to be recognised that in transactions such as this where fraud intervenes, some innocent party may have to suffer and it may well be that legislation is overdue to do justice between the victims of fraud and to apportion in some way the loss. But in the present case I can see nothing unjust in the loss falling on the G. & C. Finance Corporation Ltd. (against whom the appellants can claim redress) who made the minimum enquiries, who bought a car which apparently they never saw and hired it out to a man of those existence and identity they did not know and who may well have been fictitious, rather than that the loss should fall on Mr. Caldwell who acted immediately and did all in his power to retract the transaction.
I would dismiss the appeal on this issue and that is sufficient to decide the appeal in the respondent’s favour.
The learned Master of the Rolls took his judgment in favour of Mr Caldwell further and held that Motobella Company Ltd. were in the circumstances of this case the general agents of G. & C. Finance Corporation Ltd. and that as Motobella admittedly had notice of the fraud and that as the defect in title known to the agents was fixed upon G. & C. FinanceCorporation Ltd. they did not acquire a good title to the car. The judgment recognises that this issue of agency is difficult and I find, with respect, the decision on it too difficult to accept and to support. That it would be desirable that a hire purchase company such as the G. & C. Finance Corporation Ltd., either themselves or through an agent, should inquire into the title to a car in which they intend to deal I would not doubt. Their sole reliance on the dealers (who are not always carefully selected) to warrant the title, and their apparent indifference to the condition or even the roadworthiness of a car – I have already mentioned even its existence as a vehicle – and their complete lack of knowledge of the existence or identity of the hirer, leaves open opportunity for fraud, with no real check or supervision. In fact fraud within this gap in a finance company’s knowledge is known in the courts to be so extensive that the practice does not seem to me to be sufficiently excused on the ground, sometimes set up, that speed and the exigencies of this class of business do not permit further investigation. Reliance on a dealer’s warranty has so often proved worthless. But agency requires a mandate, express or implied. The G. & C. Corporation Ltd.’s standard form of hiring which purported to hire the Jaguar car in question to Alfred Henry Knowles contains the clause, “I recognise that the supplier of the goods is not your agent and is not authorised to make any representations on your behalf”, and in the seller’s invoice contained in the same form the seller (in this case the Motobella Co. Ltd., who signed the document), states, “We certify that the statements in this invoice are true and that the goods which are correctly described and referred to in this invoice belong absolutely to us and that the goods are free from all lien and encumbrances”.
The invoice is an offer to sell the car referred to in the hire purchase agreement and it expressly provides that it “shall be considered pro forma until notification of acceptance is received by us”. On acceptance, which was given by G. & C. Finance Corporation, Ltd., a contract of sale was concluded and the stipulation that the goods “belong absolutely to us” became part of the bargain. It was a contractual term and as far as I can see there is no evidence that the dealers were employed to investigate the title on behalf of the buyers or that the buyers relied on anything other than the seller’s warranty.
It would seem that the dealers, the Motobella Company, were on the books of the Finance Corporation and were “recognised dealers” with them and it would appear that they were from the very circumstances the agents of the Finance Corporation to hand over the car to the hirer after the Finance Corporation had become owners. The FinanceCorporation had to give possession of the car to the hirer and as they never saw the car or the hirer the dealer must have acted to this extent as their agent.
In this state of the facts I do not find sufficient evidence to establish a general agency or any agency which involved a duty on the dealers to make enquiries as to title on behalf of the Finance Corporation. The dealers’ contractual obligation in the sale was a different matter and in that they were clearly in breach. I do not inquire what would have been the position if agency had been established. It was argued before us that even in that event the agent’s knowledge might not be imparted to the Finance Corporation.
The first ground of the learned Master of the Rolls’ judgment is sufficient for the respondent’s success on this interpleader issue and in my opinion the appeal should be dismissed.
LORD UPJOHN (Judgment read by Lord Justice Davies):
On the 12th January, 1960, one Norris agreed to purchase a Jaguar motor car from the plaintiff Caldwell for the sum of £975. He took delivery of it on the same day giving in exchange £10 in cash and a cheque for £965. Norris also left as security a Hillman motor car to which he had no title.
Norris was in fact a fraudulent rogue. His cheque was worthless and he absconded with the car. The police were already searching for him, for there was a warrant for his arrest in connection with some other transaction. He could not be found.
Admittedly however he acquired a voidable title to the car when he took delivery. On the 15th January, after passing through the hands of a company called Motobella Company Ltd., the Jaguar was sold to a person who was admittedly a bona fide purchaser for value. The plaintiff realised that the cheque was worthless and that Norris was a fraudulent rogue on the morning of the 13th January. He immediately did everything he reasonably could to trace the car and repossess it. It was no good trying to search for or to communicate with Norris, for the police were already doing their best to apprehend him.
On the footing that on the 13th January the plaintiff did everything he reasonably could to avoid the contract of sale short of communicating his intention to do so to Norris, the whole question is whether such acts of avoidance were effective in law to avoid the contract on that day or whether communication to Norris of intention to avoid the contract was necessary in law.
Where one party to a contract has an option unilaterally to rescind or disaffirm it by reason of the fraud or misrepresentation of the other party, he must elect to do so within a reasonable time and cannot do so after he has done anything to affirm the contract with knowledge of the facts giving rise to the option to rescind. But in principle and on authority he must in my judgment in the ordinary course communicate his intention to rescind to the other party. This must be so because the other party is entitled to treat the contractual nexus as continuing until he is made aware of the intention of the other to exercise his option to rescind.
So the intention must be communicated and an uncommunicated intention, for example by speaking to a third party or making a private note, will be ineffective. The text books to which we were referred are unanimous on the subject, “If a party elects to rescind he must within a reasonable time manifest that election by communicating to the other party his intention to rescind the transaction and claim no interest under it. The communication need not be formal provided it is a distinct and positive repudiation of the transaction”: Kerr on Fraud and Mistake, 7th Edition, page 530.
See also Benjamin on Sale, 8th Edition, page 441; Pollock on Contracts, 13th Edition, page 467.
Mr. Caplan for the appellant of course also relies strongly on the well known words of Lord Blackburn in Scarf v. Jardine (7 Appeal Cases 345, starting at the foot of page 360), to the effect that in general an election must be communicated to the other side though that was not a case of contract.
Further, with all respect to the judgment of the Master of the Rolls, Lord Hatherley’s observations in Reese River Silver Mining Co. v. Smith (Law Reports 4 House of Lords 64, at page 74) in my view support the same conclusion.
Such in my view must be the general principle. Does it admit of any exception ?
Mr. Caplan concedes that there is one: where the subject-matter of the contract is a transfer of property, then the party entitled to do so may disaffirm the contract by retaking possession of the property. But Mr. Caplan submits this is really a method of communication, though for my part I do not see how that can be true of every case that could be suggested.
Is there any other exception? Mr. Caplan submits not and that there should be a universal rule of law that communication is essential to break the nexus. On the facts of this case it is clear that Norris intended quite deliberately to disappear and render it impossible for the plaintiff to communicate with him or to recover the car. While I appreciate Mr. Caplan’s argument that this point can only arise in cases between the vendor and a third party, I agree with Lord Justice Sellers that this problem must be solved by consideration of the rights between the two contracting parties. Admittedly one of two innocent parties must suffer for the fraud of a third, but that cannot be helped and does not assist to solve the problem. One thing is quite clear – that neither Lord Blackburn nor Lord Hatherley in the cases above mentioned nor the text-book writers had in mind circumstances remotely resembling these. It is indeed strange that there is no authority in point.
If one party by absconding deliberately puts it out of the power of the other to communicate his intention to rescind which he knows the other will almost certainly want to do, I do not think he can any longer insist on his right to be made aware of the election to determine the contract. In these circumstances communication is a useless formality. I think that the law must allow the innocent party to exercise his right of rescission otherwise than by communication or repossession. To hold otherwise would be to allow a fraudulent contracting party by his very fraud to prevent the innocent party from exercising his undoubted right. I would hold that in circumstances such as these the innocent party may evince his intention to disaffirm the contract by overt means falling short of communication or repossession.
We heard much interesting discussion on the position where one party makes an innocent misrepresentation which entitles the other to elect to rescind and then innocently so acts that the other cannot find him to communicate his election to him. I say nothing about that case and would leave it to be decided if and when it arises. I am solely concerned with the fraudulent rogue who deliberately makes it impossible for the other to communicate with him or to retake the property.
Mr. Caplan further argued that if in the circumstances of the case communication to Norris was not necessary, yet what the plaintiff did on the 13th January when the cheque was dishonoured did not amount to an unequivocal election to disaffirm; and it was further said that he could have done more to contact Norris. On the facts of this case I do not see what more the plaintiff could reasonably have done nor how he could have made his position plainer.
We heard much argument on what were called the comparable cases: election; forfeiture of a lease; ratification of a contract; repudiation of a contract; affirmation of a contract. I do not deal with them, for in my opinion they are not truly comparable. With regard to forfeiture of a lease we were referred to a number of authorities on the question whether it is the issue or service of the writ that constitutes the election to determine the lease. In some cases the distinction between the two was, on the facts, immaterial and in those cases judges have I think sometimes reasonably used “issue” of the writ as being synonymous with “issue and service” of the writ. On principle, as at present advised, I prefer the view that the election to determine arises only on service of the writ; until then the plaintiff may change his mind and tear it up.
On this part of the appeal I therefore agree with the learned Master of the Rolls.
He went on to hold, however, that the purchasers of the Jaguar car on the 15th January, the G. & C. Finance Corporation Ltd., must be fixed with notice of the fact that their vendor, Motobella Company Ltd., had only a defeasible title and so failed to establish their plea of a purchaser in good faith without notice of any defect of title.
The learned Master of the Rolls held that the G. & C. Finance Corporation Ltd. were themselves innocent purchasers in good faith, but they were a hire purchase company accustomed to do business with Motobella, who were car dealers. The Master of the Rolls held that Motobella were general agents of G. & C. Finance Corporation Ltd. and that in particular “the dealers were agents of the finance company to see that the title was in order”. As it was conceded that Motobella had notice of the defect in title, it followed that the finance company were fixed with notice of the defect.
I regret I cannot agree with the judgment of the Master of the Rolls. No doubt car dealers are agents for some purposes of the finance companies with whom they deal in relation to transactions with the hirer; but the basic transaction between car dealer and finance company is one of sale and purchase.
In the absence of some express term of the contract between them or some custom of the trade (which is not suggested) I am not prepared to hold that in these hire purchase transactions there is some special rule that the purchaser constitutes his vendor his agent to investigate title for him. Caveat emptor is the rule.
It is I think against the realities of the case to imply or suggest any such term or rule. The finance company truly relies on the car dealer to sell it a car without a defective title; but this is as a matter of commercial good faith not because it relies on the dealer to make an investigation of title on the finance company’s behalf. In fact on the evidence the G. & C. Finance Corporation did itself make some very limited investigation into title. In truth the finance company knows perfectly well that occasionally the dealer will sell it a car with a defective title not because of any dishonesty on the part of the dealer but because there are some dishonest persons operating in the second-hand motor market. The finance company also probably knows that some of the dealers with whom it may do business may be or become dishonest. The finance company protects itself from these frauds, by and large, by adjusting its charges to hirers.
Furthermore, the finance company usually does, and in this case did, protect itself by obtaining an express warranty from, the dealers “that the goods which are correctly described and referred to in this invoice belong absolutely to me/us”. So that if the dealers do sell a car with a defective title to the finance company the latter will have its common law remedy in damages against the dealer.
That is the simple commercial way in which finance companies protect themselves and it seems to me that such an express covenant must negative any implication that the dealer is an agent to investigate title.
However, for the reasons given earlier, I would dismiss this appeal.
LORD JUSTICE DAVIES: I agree.
It is, indeed, curious that the point at issue in the present case appears to be free from any direct authority and not to have been considered in any of the text books.
Norris obtains the car from Caldwell under a contract procured by the fraud or false pretences of Norris. Caldwell has thus the right as against Norris upon ascertaining the true facts to rescind the contract. If by his conduct Norris makes it impossible for Caldwell either to communicate to Norris his decision to rescind or to retake the car, how, if at all, can Caldwell exercise his right to rescind?
The contention for the appellants is that the party entitled to rescind can exercise that right only by communicating his decision to the other party by words or conduct or alternatively, where the title to the goods is in question, by actually retaking possession of the goods; and that, therefore, in the present case, as Caldwell did neither of these things before the 15th January, when the car was transferred to the G. & C. Finance Corporation, Ltd., the latter, having bought in good faith and without notice of any defect in the title, acquired a good title to the car.
Mr. Finer for the respondent agrees that an election or decision to rescind, in order to be effective, must be exercised unequivocally, or, to use the phrase of Lord Hatherley, Lord Chancellor, in Reese River Silver Mining Co. v. Smith (1869), Law Reports 4 House of Lords 64, at page 74, “in the plainest and most open manner competent”. He agrees also that in the overwhelming number of cases communication to the other party would probably be essential. But, he submits, the question whether the election to rescind has been validly exercised is always one of fact (Longman v. Hill (1891), 7 Times Law Reports page 639); and the essential question always is whether the party having the right to rescind did all that was in his power in the circumstances to make his decision unequivocally known.
In my judgment, the admission by the appellants that recaption is an exception to the allegedly universal necessity for communication is important. Curiously enough, though both Mr. Capler and Mr. Finer agreed that recaption without communication is a sufficient act of rescission, no very clear authority was cited to that effect, except possibly the decision of Mr. Justice Bigham in In re Eastgate, (1905 1 King’s Bench page 465). It is true that recaption is a plain act of resumption of dominion over the goods.
But if the fact of the recaption is unknown to the other party, there is obviously no communication to him. We were much pressed by Mr. Caplan on another part of his argument with the case of an innocent misrepresentation. But it is to be observed that a person who has obtained goods by an innocent misrepresentation might well in all innocence purport to transfer the goods to a third party at a time after the goods had without the representor’s knowledge been retaken by the representee, so that the purported transfer would be invalid.
On the facts of this case Norris must be taken to have known that Caldwell might on ascertaining the fraud wish to rescind the contract. Norris disappeared, and so did the car.Caldwell could therefore neither communicate with Norris nor retake the car. It must, therefore, I think, be taken to be implied in the transaction between Norris and Caldwell that in the event of Caldwell wishing to rescind he should be entitled to do so by the best of the means possible. Lex non cogit ad impossibilia. It is true that it was conceivably possible that Caldwell might decide not to rescind and to sue on the cheque instead; but it is most doubtful whether on the facts of this case such a possibility could have occurred to Norris as a real one.
The fact that Norris knew that he was a rogue and that there fore Caldwell was likely to be after him distinguishes this case from that of an innocent misrepresentor. It would not occur to the latter that the other party to the contract would have any right or desire to rescind, so that there would be no such implication as that which I have suggested arose in the present case.
It was argued that Caldwell’s action in going to the police and the Automobile Association was not an unequivocal act, since I was open to him to have changed his mind on the next day if, to us Mr. Caplan’s phrase, Norris had suddenly won a football pool and so have become a worthwhile defendant to an action on the cheque. That again, in my opinion, is an unrealistic view of the facts. Caldwell was, as I think, declaring to the world “I have been swindled and I want my car back”. He was declaring his intention as clearly as if he had seen the car in the street and seized it.
In the result, therefore, I agree with the judgment of the learned Master of the Rolls on this ground. But, like my Lords, I do not think that the analogies which the Master of the Rolls drew in support of his judgment were helpful or, with respect, wholly accurate.
The learned Master of the Rolls also put his judgment upon an alternative ground, namely, that Motobella, the dealers, were the agents of G. & C. to enquire into the title to the car,and that, as Motobella had notice of a defect in the title, G. &C. were fixed with that knowledge. With the greatest respect, I do not think that this can be right. It may be that in some hire purchase transactions, whatever the documents may say, a motor dealer is for some purposes the agent of the hire purchase company, for example to produce, and procure signatures to, the hire purchase contract. Lord Denning himself expressed this view in Financings v. Stimson (1962 1 Weekly Law Reports page 1184), though those observations must obviously be read subject to the views expressed in Campbell Discount v. Gall (1961 1 Queen’s Bench page 431), which was not cited to the Master of the Rolls in the present case. But whatever be the dealer’s position vis-a-vis the hire purchase company as to the making of the hire purchase agreement, the present case is entirely different. We are concerned here with a sale of a car by the dealer to the hire purchase company. In that transaction the dealer gives a warranty as to title, always implied and frequently, as here, express. But he is dealing at arm’s-length with the hire purchase company. It is a contradiction in terms to speak of the seller being an agent of the buyer. Moreover the conception of agency, as I understand it, presupposes the existence of three parties, namely the principal, the agent, and the third party between whom and the principal the agent creates relations. In the sale of the car by the dealer to the hire purchase company there was no third party involved.
I should, therefore, not be prepared to uphold the decision of the learned Master of the Rolls that the dealers in this case were the agents of the hire purchase company to enquire into the title to the car or that the latter were fixed with notice which the former had as to any defect of title.
Glencore International AG v Metro Trading International Inc
[2000] EWHC 199 (Comm
Moore Bick J
Issues of English law
I now turn to the issues of English law set out in paragraphs I and J of the Preliminary Issues. Paragraph I mirrors the issues of Fujairah law set out in paragraph F; paragraph J raises questions relating to the identification of proprietary interests in the remaining mixed bulk of goods held by MTI.
Issue I – Whether and to what extent title would pass to MTI in respect of any relevant oil or whether and to what extent the respective Oil Claimant would retain ownership of the oil (if necessary as a co-owner of any commingled or blended bulk) in or notwithstanding each or any of the following assumed circumstances, namely . . . . . . . .
As in the case of Issue F, it is convenient to consider the law relating to commingling and blending generally before dealing with the individual questions posed in this paragraph.
Authorised commingling and blending
It is trite law that delivery of goods to a bailee for storage has no effect on the general property in the goods which remains at all times with the bailor. The bailee’s duty is to redeliver the goods to the bailor in accordance with the terms of the bailment. So long as the goods retain their original identity no difficulties arise, but questions of property do arise once that original identity is lost, and one way in which that may occur is by the storage of goods in a mixed bulk. Until recently this question had received relatively little attention in English law, although it had been considered in a number of cases in the United States where grain is often stored in common silos. Where several people deliver goods of the same kind to a warehouse keeper to be stored in a mixed bulk the storage agreements may all be in the same standard terms and may indicate clearly where property lies. If that is the case, then in addition to the individual contracts between each bailor and the warehouse keeper, it may be possible to find that a separate contract of the kind which in Clarke v Dunraven [1897] A.C. 59 was held to have come into existence between the competitors in the yacht race has come into existence between all the bailors and the warehouse keeper which regulates their property rights in the bulk.
If the goods have been delivered to the warehouse keeper simply for the purposes of storage, the depositor is unlikely to have intended that property should pass to the warehouse keeper. In these circumstances in the absence of any agreement to the contrary the mixed bulk will be owned in common by those whose goods have contributed to it, each depositor becoming an owner in proportion to the amount of his contribution. As goods are added to or drawn from the bulk the interests of the contributors will vary to reflect the quantity of goods still held to their order. These principles, which were developed in the American cases, in particular Sexton & Abbott v Graham (1880) 44 Iowa 181, Nelson v Brown, Doty & Co (1880) 44 Iowa 555 and Savage v Salem Mills Co (1906) 85 Pac. 69, were approved by the House of Lords in Mercer v Craven Grain Storage Ltd [1994] CLC 328. In these circumstances since no property passes to the warehouse keeper it is appropriate to describe him as a bailee, even though his obligation is to redeliver to each depositor not the identical goods deposited with him but the same quantity of goods of the same description drawn from the mixed bulk of which they formed part.
The same principles apply whether the mixed bulk is composed entirely of goods owned by individual bailors or includes goods owned by the warehouse keeper himself, provided there is no intention to pass property or dominion over the goods to him. However, if the warehouse keeper is entitled to treat the goods as his own, the contract will be regarded as one of sale and property will pass on delivery, subject to any agreement to the contrary. Thus in South Australian Insurance Co v Randell (1869) L.R. 3 P.C. 101 farmers delivered wheat to millers who stored it in common as part of their current stock from which they would draw either for sale or for grinding in their mill. The terms on which the farmers delivered wheat gave them the right to demand the return of an equivalent quantity of wheat of the same quality, or the market price, and gave the millers the option of delivering wheat or paying the market price. The transaction therefore amounted to a contract of sale because it gave the millers the right to dispose of the goods entirely as they chose.
The essential distinction between blending and commingling is that where blending has taken place the resultant product is different in nature from both its original constituents. This creates certain conceptual difficulties in the case of unauthorised blending to which I shall return, but should not ordinarily create difficulties where the blending is carried out pursuant to a contract. In such a case the general rule is that the parties are free to decide for themselves at what stage, if any, in the process property in the original goods shall pass to the blender and on what terms. This includes the right to decide who is to own the resultant blend. In Clough Mill Ltd v Martin [1985] 1 W.L.R. 111 the plaintiff supplied yarn to a manufacturer of fabric under a contract which provided that if any of the yarn were incorporated into other goods the property in those goods should remain in the plaintiff until all the yarn supplied had been paid for. Robert Goff L.J. described the effect of a term of that kind as follows at page 119G
“Now it is no doubt true that, where A’s material is lawfully used by B to create new goods, whether or not B incorporates other material of his own, the property in the new goods will generally vest in B, at least where the goods are not reducible to the original materials: see Blackstone’s Commentaries, 17th ed. vol. 2, pp. 404-405. But it is difficult to see why, if the parties agree that the property in the goods shall vest in A, that agreement should not be given effect to. On this analysis, under the last sentence of the condition as under the first, the buyer does not confer on the seller an interest in the property defeasible upon payment of the debt; on the contrary, when the new goods come into existence the property in them ipso facto vests in the plaintiff, and the plaintiff thereafter retains its ownership in them . . . . . . . .”
Oliver L.J. expressed the same view, albeit provisionally. He said at page 123H-124B
“I have had the advantage of reading the judgment of Robert Goff L.J. and for the reasons which are there set out I am not convinced that it necessarily follows that the plaintiff’s proprietary interest in a manufactured article must derive from a grant by the buyer. English law has developed no verysophisticated system for determining title in cases where indistinguishable goods are mixed or become combined in a newly manufactured article and, to adopt the words of Lord Moulton in Sandeman & Sons v Tyzack & Branfoot Steamship Co [1913] A.C. 680, 695, “the whole matter is far from being within the domain of settled law”; and though like Sir John Donaldson M.R., I prefer to reserve my opinion, I am not sure that I see any reason in principle why the original legal title in a newly manufactured article composed of materials belonging to A and B should not lie where A and B have agreed that it shall lie.”
The New Zealand Court of Appeal in Coleman v Harvey [1989] 1 NZLR 723 adopted a similar approach, seeking to identify and give effect to the intention of the parties in a case where the plaintiff had delivered silver coins to the defendant for refining together with scrap belonging to the defendant himself.
In most cases where there is agreement to the use of goods in a manufacturing process the parties will have made specific provision for these matters, but even if they have not, it will usually be possible to determine from the terms of the contract as a whole what their intention was. In the absence of agreement to the contrary, the likelihood is that property will pass on delivery because the supplier intends to give the manufacturer complete dominion over the goods: see South Australian v Randell. In the present case these are questions which will arise for decision at a later stage in the litigation. However, I would respectfully adopt the comments of Robert Goff and Oliver L.J.J. and would hold that in a case where title to newly manufactured goods would otherwise vest solely in the manufacturer, there is no reason in principle why the manufacturer and a supplier should not by agreement cause title to vest originally in the supplier rather than the manufacturer. Other considerations would clearly arise if more than one supplier had entered into an agreement of that kind with the same manufacturer, but that is not a matter which calls for discussion in the present case and I do not propose to say anything about it. However, Mr. Smith’s submission that in all cases title must necessarily vest for an instant in the manufacturer before passing to the supplier is in my view contrary to both principle and authority.
Unauthorised commingling and blending
The effect on proprietary interests of the unauthorised commingling of one person’s goods with those of another was considered by Staughton J. in the case of Indian OilCorporation Ltd v Greenstone Shipping S.A. (Panama) [1988]1 Q.B. 345 following a detailed review of the earlier authorities. The case concerned the mixing on board a vessel of a cargo of crude oil with a quantity of crude oil belonging to the shipowners which represented the residues of cargoes carried on previous voyages. The receivers made a claim for short delivery of cargo on the grounds that they were entitled to receive all the pumpable cargo on board, including previous cargo residues. When the cargo was loaded the residues were distributed among a number of cargo tanks and this raised the question whether the shippers had consented to the mixing taking place. There was some uncertainty about that, but in the end Staughton J. approached the matter on the assumption that there had been no such consent. Having considered the authorities on mixing from Stock v Stock (1594) Poph. 37 to Jones v De Marchant (1916) 28 D.L.R. 561 Staughton J. expressed his conclusion as follows:
“Seeing that none of the authorities is binding on me, although many are certainly persuasive, I consider that I am free to apply the rule which justice requires. This is that, where B wrongfully mixes the goods of A with goods of his own, which are substantially of the same nature and quality, and they cannot in practice be separated, the mixture is held in common and A is entitled to receive out of it a quantity equal to that of his goods which went into the mixture, any doubt as to that quantity being resolved in favour of A. He is also entitled to claim damages from B in respect of any loss he may have suffered, in respect of quality or otherwise, by reason of the admixture.
Whether the same rule would apply when the goods of A and B are not substantially of the same nature and quality must be left to another case. It does not arise here. The claim based on a rule of law that the mixture became the property of the receivers fails.”
This solution to the problem of wrongful mixing of goods of the same kind seems to me, with respect, to be correct both as a matter of justice and principle. None of the parties before me sought to suggest that I should not follow it and I have no hesitation in accepting it as a correct statement of the law.
This brings me to the question which was left open in Indian Oil v Greenstone, namely, the effect on proprietary interests of the wrongful and irreversible mixing of goods of different kinds. Mr. Schaff submitted that the leading cases on mixing do not draw any distinction between mixing goods of the same kind and mixing goods of different kinds. He therefore argued that in this case also the contributors must at worst become owners in common of the mixture in proportion to their contributions and that if for some reason that were not possible, the innocent contributor would acquire sole title to the mixture. Mr. Smith, however, submitted that the effect of the blending is to produce a new commodity different in kind from either of its constituents. The original goods cease to exist altogether and new goods are created in their place, title to which vests in the person who produced them. It is at this point that the rules relating to mixing and the rules relating to the creation of new commodities come into contact.
The authorities considered by Staughton J. in Indian Oil v Greenstone all concern the effect of mixing goods of similar kinds. They all deal with the consequences of the plaintiff’s inability to identify his own property, but none of them considers the effect of a change in the essential nature of the goods for the simple reason that it was unnecessary to do so. The old authorities tended to favour the view that even in the case of mixture of similar goods property in the mixture vests entirely in the innocent party; in those cases, therefore, there was no need for a debate of the kind which one sees in South Australian v Randall about the effect of loss of identity consequent on mixing which might have shed some light on the present question. To that extent it can be said that those cases do not draw any distinction between mixing similar and dissimilar goods, but it is also true to say that they do not directly consider the implications of creating a new commodity.
The fact that blending produces a new commodity lay at the heart of Mr. Smith’s submissions. This aspect of the matter raises difficult questions on which different views have been held as is apparent from the discussion of this subject by McCormack in Reservation of Title, 2nd ed. at pages 59-62. The authority on which Mr. Smith principally relied was Borden (U.K.) Ltd v Scottish Timber Products Ltd [1981] 1 Ch. 25. The plaintiffs in that case supplied resin to the defendants for use in the manufacture of chipboard. The contract provided that property in the resin was to pass to the defendants only when all the goods supplied by the plaintiffs had been paid for, although it also contemplated that the resin would be used in the manufacturing process before payment had in fact been made. In the course of that process the resin was mixed with other materials in such a way as to lose its separate identity. On the appointment of a receiver of the defendants the plaintiffs brought an action for money still owing to them in respect of the price of the resin. They contended that any chipboard manufactured using the resin was charged with the payment of the outstanding amount. The Court of Appeal rejected that argument, holding that once the resin had been used in the manufacture of chipboard it had ceased to exist and with it the plaintiffs’ title. The chipboard was a wholly new product, property in which vested in the defendants as manufacturers.
The leading judgment in Borden was delivered by Bridge L.J. As he made clear at page 32E-F, this was a case in which despite the reservation of title clause the contract permitted the defendants to use the goods before they had paid for them. It was not a case, therefore, in which the defendants were acting as wrongdoers. It may also be worth noticing that the plaintiffs had contended in the court below that they were part-owners of the chipboard. The judge decided that point against them and it was not pursued before the Court of Appeal (see page 33G-H). The appeal was argued, therefore, on the basis that title to the chipboard had vested in the defendants and no one else. The only question before the court was whether the reservation of title clause operated to create a charge over the goods in favour of the plaintiffs.
In a passage at page 35F-G on which Mr. Smith relied in support of his argument Bridge L.J. considered the legal relationship between the parties up to the moment at which the resin was used in the manufacturing process. He said
“But I am quite content to assume that this is wrong and to suppose that up to the moment when the resin was used in manufacture it was held by the defendants in trust for the plaintiffs in the same sense in which a bailee or a factor or an agent holds goods in trust for his bailor or his principal. If that was the position, then there is no doubt that as soon as the resin was used in the manufacturing process it ceased to exist as resin, and accordingly the title to the resin simply disappeared. So much is accepted by Mr. Mowbray for the plaintiffs.”
He then turned to discuss the question whether the plaintiffs were entitled to trace into the chipboard and it is in this context that the rest of his judgment must be read. Having considered in some detail the decision in In re Hallett’s Estate (1880) 13 Ch. D. 696 he said at page 41A
“What are the salient features of the doctrine that Sir George Jessel M.R. there expounds? First, it will be observed that in all cases the party entitled to trace is referred to as the beneficial owner of the property, be it money or goods, which the “trustee,” in the broad sense in which Sir George Jessel M.R. uses that word, including all fiduciary relationships, has disposed of. In the instant case, even if I assume that so long as the resin remained resin the beneficial ownership of the resin remained in the plaintiffs, I do not see how the concept of the beneficial ownership remaining in the plaintiffs after use in manufacture can here possibly be reconciled with the liberty which the plaintiffs gave to the defendants to use that resin in the manufacturing process for the defendants’ benefit, producing their own chipboard and in the process destroying the veryexistence of the resin.
Secondly, the doctrine expounded by Sir George Jessel M.R. contemplates the tracing of goods into money and money into goods. In the latter case it matters not that the moneys represent a mixed fund of which a part only is impressed with the relevant trust. The cestui que trust has a charge on the mixed fund or the property into which it has passed for the amount of the trust moneys. It is at the heart of Mr. Mowbray’s argument to submit that the same applies to a mixture of goods with goods, relying in particular on Sir George Jessel M.R.’s illustration of the mixed bag of sovereigns. Now I can well see the force of that argument if the goods mixed are all of a homogenous character. Supposing I deposit a ton of my corn with a corn factor as bailee, who does not store it separately but mixes it with corn of his own. This, I apprehend, would leave unaffected my rights as bailor, including the right to trace. But a mixture of heterogeneous goods in a manufacturing process wherein the original goods lose their character and what emerges is a wholly new product, is in my judgment something entirely different.
Some extreme examples were canvassed in argument. Suppose cattle cake is sold to a farmer, or fuel to a steel manufacturer, in each case with a reservation of title clause, but on terms which permit the farmer to feed the cattle cake to his herd and the steelmaker to fuel his furnaces, before paying the purchase price. Mr. Mowbray concedes that in these cases the seller cannot trace into the cattle or the steel. He says that the difference is that the goods have been consumed. But once this concession is made, I find it impossible to draw an intelligible line of distinction in principle which would give the plaintiffs a right to trace the resin into the chipboard in the instant case. What has happened in the manufacturing process is much more akin to the process of consumption than to any simple process of admixture of goods. To put the point in another way, if the contribution that the resin has made to the chipboard gives rise to a tracing remedy, I find it difficult to see any good reason why, in the steelmaking example, the essential contribution made by the fuel to the steel manufacturing process should not do likewise.
These are the principal considerations which have led me to the conclusion that the plaintiffs are not entitled to the tracing remedy which they claim.”
Templeman L.J. expressed similar views. He said at page 44:
“When the resin was incorporated in the chipboard, the resin ceased to exist, the plaintiffs’ title to the resin became meaningless and their security vanished. There was no provision in the contract for the defendants to provide substituted or additional security. The chipboard belonged to the defendants.
We were not invited to imply in the contract between the plaintiffs and the defendants an agreement by the defendants to furnish substituted security in the form of an interest in the chipboard; we were invited to allow the plaintiffs to trace their vanished resin to the chipboard and thence to the proceeds of sale of chipboard and property representing those proceeds of sale. I agree that in a commercial contract of this nature no agreement should be implied for the furnishing of additional security. In the absence of any implied or express agreement to provide substitutional security, equity has nothing to trace; the resin and the title and the security disappeared without trace.”
Buckley L.J. said at page 46
“It is common ground that it was the common intention of the parties that the defendants should be at liberty to use the resin in the manufacture of chipboard. After they had so used the resin there could, in my opinion, be no property in the resin distinct from the property in the chipboard produced by the process. The manufacture had amalgamated the resin and the other ingredients into a new product by an irreversible process and the resin, as resin, could not be recovered for any purpose; for all practical purposes it had ceased to exist and the ownership in that resin must also have ceased to exist.
———————–
Common ownership of the chipboard at law is not asserted by the defendants; so the plaintiffs must either have the entire ownership of the chipboard, which is not suggested, or they must have some equitable interest in the chipboard or an equitable charge of some kind upon the chipboard. For my part, I find it quite impossible to spell out of this condition any provision properly to be implied to that effect.
It was impossible for the plaintiffs to reserve any property in the manufactured chipboard, because they never had any property in it; the property in that product originates in the defendants when the chipboard is manufactured.”
I have cited extensively from the judgments in this case because they provide the bedrock for Mr. Smith’s argument. He is clearly right in saying that insofar as they proceed on the footing that title in the resin ceased to exist when the resin itself ceased to exist they do not depend on the fact that the plaintiffs consented to the use of the resin in the manufacturing process. However, I do not think that one can entirely ignore the fact that this was a case of consensual, as opposed to wrongful, consumption (as indeed was Clough Mill vMartin). It might well be said in this sort of case, therefore, that the plaintiffs had by implication agreed not only that the resin should be used, but that title in the resulting product should vest solely in the defendant. Since by the time of the appeal the plaintiffs had given up any attempt to assert title of any kind in the chipboard, the court did not have to enquire closely into the basis on which title had vested in the defendants, much less whether title would have vested in them if their use of the resin had been unauthorised.
The next authority which Mr. Smith drew to my attention was Hendy Lennox (Industrial Engines) Ltd v Grahame Puttick Ltd [1984] 1 W.L.R. 485. This case concerned the sale of diesel engines by the plaintiffs to the defendants for incorporation into generator sets. The contract contained a retention of title clause. One of many questions which arose in that case is of relevance to the present case, namely, whether property in the engines passed to the buyers at the time they were incorporated into the generator sets. The engines were attached to the generators by mechanical means which could easily be undone without causing any damage either to the engine or the generator. Staughton J. held that the proprietary rights of the sellers were not affected by the incorporation of the engines into the generator sets, distinguishing the case from those such as Borden in which the goods had been transformed into a new commodity. This case is really concerned with the doctrine of accession rather than mixing.
The next case was Chaigley Farms Ltd v Crawford, Kaye & Grayshire Ltd [1996] BCC 957 which concerned title to livestock delivered by the plaintiff farmers to an abattoir under a contract containing a retention of title clause and title to the carcasses following slaughter. One question which arose was whether the slaughter of the animals and dressing of the carcasses extinguished the plaintiffs’ title because it created a new commodity. Garland J. considered that there was an essential difference between a live animal and a dead one, particularly one from which all the parts which were not to be sold on as butchers’ meat had been removed. I do not find that surprising, but the case is not of great assistance because it turned essentially on whether the word ‘goods’ in the retention of title clause should (as the judge in fact held) be construed as referring only to livestock.
Mr. Schaff sought to obtain support for his position from the Australian case of Farnsworth v Federal Commissioner of Taxation [1949] 78 C.L.R. 504. That case concerned the delivery of dried fruits by a grower to a packing company to be sold in accordance with the rules of a marketing association. The packing company mixed the plaintiff’s fruit with fruit supplied by other growers in such a way that its identity was lost. A question arose whether the grower had a sufficient interest in the stock held at the packing company to constitute “trading stock on hand” for the purposes of calculating her liability to income tax. Different views were expressed about the interest which the growers held in unsold stock. Latham C.J. and Webb J. considered that pending its sale the growers were owners in common of the fruit in proportion to their contributions, although they did not think that the grower held “trading stock on hand” within the meaning of the relevant legislation. Rich, Dixon and McTiernan JJ. considered that the nature of the operation meant that property in the fruit had passed to the packing company. This appears to have been a case of consensual mixing of similar goods under carefully prescribed conditions and it was unnecessary for the court to consider the problem with which I am concerned. I do not, therefore, derive any real assistance from this case.
More nearly in point is the Scottish case of The International Banking Corporation v Ferguson, Shaw & Sons 1910 SC 182. In that case the defendant bought in good faith a quantity of oil to which the seller did not have title and used it for the manufacture of lard compound by blending it with materials of his own. The pursuers brought an action to recover the oil or damages in lieu, although by that time the lard had already been sold. Lord Low who delivered the leading judgment pointed out at page 192 that in this case a new substance had been created to which the doctrine of specificatio applied by which
“the mixer, whether he be one of the proprietors or a third party, must, as the maker of the new species, become the sole proprietor of the subjects mixed. (Erskine, II. 1, 17)”
Lord Ardwall, concurring, agreed (also at page 192) that the case must be decided in accordance with the well-established doctrine of specification. Similarly, Lord Dundas at page 194 considered that the case was a pure type for the application of the Roman doctrine of specificatio which he considered to be undoubtedly part of the law of Scotland. It is to be noted that the purchaser in this case, although acting wrongfully, was acting in good faith.
In Jones v De Marchant (1916) 28 D.L.R. 561 the plaintiff’s husband took eighteen beaver skins which she owned and, together with four additional skins which he himself provided, had them made up into a coat which he gave to his mistress, the defendant. The plaintiff sought to recover the coat from the defendant on the grounds that it was her property. Richards J.A. considered the case to be governed by the principles of accession and held that the coat as a whole belonged to the plaintiff. In discussing the principle of accession, however, the judge referred to a line of authority which suggests that where goods are wrongfully used to create a new commodity English law is more concerned with the origin of the new commodity than with the fact that a new commodity has come into existence. In the first edition of his work on the law on torts Sir John Salmond stated that the true principle of English law is that property in chattels is not lost simply because they are processed into another form, for example, if corn is ground into flour, or trees cut down and sawn into timber, even though one would ordinarily say that flour is essentially different from corn and sawn timber different from standing trees. Certainly there is old authority for this view, as one can see from the Case of Leather Y.B. 5 Hen.VII fol.15, referred to by Richards J.A. in Jones v De Marchant, in which leather had been wrongfully taken and turned into shoes, and in In re Oatway [1903] 2 Ch. 356 Joyce J. said
“It is a principle settled as far back as the time of the Year Books that, whatever alteration of form any property may undergo, the true owner is entitled to seize it in its new shape if he can prove the identity of the original material: see Blackstone, vol. ii. p. 405, and Lupton v. White. But this rule is carried no farther than necessity requires, and is applied only to cases where the compound is such as to render it impossible to apportion the respective shares of the parties”.
The editors of the current (21st) edition of Salmond & Heuston on the Law of Torts refer to the decisions in Indian Oil v Greenstone and Coleman v Harvey which they suggest are inconsistent with the views expressed by Salmond, but those cases are concerned with the consequences of mixing goods of a similar kind and do not in my view bear directly on this question.
One of the more extreme examples of this principle in operation is to be found in the American case of Silsbury & Calkins v McCoon & Sherman (1850) 3 N.Y. 379 which is also referred to in Jones v De Marchant. In that case corn was taken from its owner and turned into whisky. Despite such a radical alteration in the characteristics of the original goods, the majority held that the whisky belonged to the owner of the corn. The case is interesting for a number of reasons. It appears from the report of the argument that the court was treated to a careful analysis of the Roman law principles of specificatio and accessio as well as having its attention drawn to many of the early English authorities and commentators. It is also interesting in that it suggests that a distinction is to be drawn between an innocent wrongdoer and a wilful wrongdoer, although, as the court accepted, that is not one which has been recognised in any of the English authorities. The case is also notable for the quality of the dissenting judgment which draws attention to the dangers inherent in being too ready to ignore changes in the essential nature of the goods.
I come finally to the case of Foskett v McKeown [2000] 2 WLR 1299 in which money was used in breach of trust to assist in paying premiums under a life insurance policy. The question for decision was whether the beneficiaries were entitled to recover a share of the proceeds of the policy proportionate to the contribution which the trust funds had made to the premiums or were limited to a restitutionary charge over the proceeds of the policy to recover, with interest, the amount which the trust had contributed. Their Lordships held by a majority that the beneficiaries were entitled to a share of the proceeds of the policy because they could trace their assets into the policy and were entitled to enforce their proprietary rights against it.
The leading speech in this case was given by Lord Millett with whom Lord Browne-Wilkinson and Lord Hoffmann agreed. Having referred to the case of In re Hallett’s Estate; Knatchbull v Hallett (1880) 13 Ch. D. 696 Lord Millett said at page 1326H
“In my view the time has come to state unequivocally that English law has no such rule [sc. that in the case of a mixed substitution the beneficiary is confined to a lien]. It conflicts with the rule that a trustee must not benefit from his trust. I agree with Burrows that the beneficiary’s right to elect to have a proportionate share of a mixed substitution necessarily follows once one accepts, as English law does, (i) that a claimant can trace in equity into a mixed fund and (ii) that he can trace unmixed money into its proceeds and assert ownership of the proceeds.
Accordingly, I would state the basic rule as follows. Where a trustee wrongfully uses trust money to provide part of the cost of acquiring an asset, the beneficiary is entitled at his option either to claim a proportionate share of the asset or to enforce a lien upon it to secure his personal claim against the trustee for the amount of the misapplied money.”
And a little later, having pointed out that this branch of the law is concerned with vindicating rights of property and not with reversing unjust enrichment, he said at page 1327D
“The tracing rules are not the result of any presumption or principle peculiar to equity. They correspond to the common law rules for following into physical mixtures (though the consequences may not be identical). Common to both is the principle that the interests of the wrongdoer who was responsible for the mixing and those who derive title under him otherwise than for value are subordinated to those of innocent contributors. As against the wrongdoer and his successors, the beneficiary is entitled to locate his contribution in any part of the mixture and to subordinate their claims to share in the mixture until his own contribution has been satisfied. This has the effect of giving the beneficiary a lien for his contribution if the mixture is deficient.”
Then at page 1328A Lord Millett said this:
“Similar principles apply to following into physical mixtures: see Lupton v White (1808) 15 Ves. 432; and Sandeman & Sons v Tyzack and Branfoot Steamship Co Ltd [1913] A.C. 680, 695 where Lord Moulton said: “If the mixing has arisen from the fault of ‘B’, ‘A’ can claim the goods.” There are relatively few cases which deal with the position of the innocent recipient from the wrongdoer, but Jones v De Marchant (1916) 28 D.L.R. 561 may be cited as an example. A husband wrongfully used 18 beaver skins belonging to his wife and used them, together with four skins of his own, to have a fur coat made up which he then gave to his mistress. Unsurprisingly the wife was held entitled to recover the coat. The mistress knew nothing of the true ownership of the skins, but her innocence was held to be immaterial. She was a gratuitous donee and could stand in no better position than the husband. The coat was a new asset manufactured from the skins and not merely the product of intermingling them. The problem could not be solved by a sale of the coat in order to reduce the disputed property to a divisible fund, since (as we shall see) the realisation of an asset does not affect its ownership. It would hardly have been appropriate to require the two ladies to share the coat between them. Accordingly it was an all or nothing case in which the ownership of the coat must be assigned to one or other of the parties. The determinative factor was that the mixing was the act of the wrongdoer through whom the mistress acquired the coat otherwise than for value.
The rule in equity is to the same effect, as Sir William Page Wood V.-C. observed in Frith v Cartland (1865) 2 H.&M. 417, 420: “if a man mixes trust funds with his own, the whole will be treated as the trust property, except so far as he may be able to distinguish what is his own.” This does not, in my opinion, exclude a pro rata division where this is appropriate, as in the case of money and other fungibles like grain, oil or wine. But it is to be observed that a pro rata division is the best that the wrongdoer and his donees can hope for. If a pro rata division is excluded, the beneficiary takes the whole; there is no question of confining him to a lien. Jones v De Marchant, 28 D.L.R. 561 is a useful illustration of the principles shared by the common law and equity alike that an innocent recipient who receives misappropriated property by way of gift obtains no better title than his donor, and that if a proportionate sharing is inappropriate the wrongdoer and those who derive title under him take nothing.”
In the light of the discussion in Foskett v McKeown I think it right that I should state clearly that I am not concerned at this stage of the litigation with the effect of any fiduciary relationships which may have existed between the parties. Whether any such relationships existed and, if so, what significance they have in the overall context of this case will fall for determination in a later Phase. In this judgment I am confining myself to the position at common law.
‘Mixing’ and ‘mixture’ are ordinary words, not terms of art. They are apt to describe a range of different operations from the addition of a small quantity of one type of material to a large bulk in order to make a slight adjustment to one of its characteristics without changing its essential nature (e.g. the addition of sugar to tea or anti-knock compounds to petrol) to the blending of substantial quantities of different materials in order to produce something which in commercial, terms, and perhaps also in terms of its structure and chemical composition, is different from the original ingredients (e.g. flour, eggs, milk etc. to make a cake, or resin, glues and woodchips to form chipboard). This part of the Phase 1 issues is concerned with the latter type of mixing, that is the deliberate blending of two or more oils of different grades or specifications in order to produce oil of a grade or specification commercially different from any of its ingredients.
Mr. Smith’s submission was essentially a simple one: if goods have ceased to exist because they have been turned into something completely new, the person who made that new thing automatically acquires title to it by virtue of the fact that he made it, is in possession of it and can exercise dominion over it. There is much to be said for that proposition and the doctrine of specificatio is well established in Scots law: see The International Banking Corporation v Ferguson, Shaw & Sons. However, it is less clear that it forms part of English law, at any rate in its full rigour. The principle for which Mr. Smith contended would, I think, offend many people’s sense of justice in a case where the original materials belonged entirely to someone other than the maker of the new commodity, even if he were unaware of the fact; it is even more likely to do so in a case where the maker of the new commodity knew that he had no right to take and use them. It was for this reason that from early times English law allowed the original owner to recover his goods even though in one sense they had been turned into something new, for example, leather into shoes (Case of Leather Y.B. 5 Hen.VII fol.15) or standing trees into sawn timber (Anon. Moore 20, 72 E.R. 411). These cases, which were followed and applied in the American cases of Betts and Church v Lee 5 Johns. 348 (timber wrongfully cut down and turned into shingles), Curtis v Groat 6 Johns. 169 (timber cut down and turned into charcoal) and Silsbury v McCoon itself, are reflected in the passage from the judgment of Joyce J. in Re Oatway to which I referred earlier. The courts did recognise, however, that there would come a point at which the original materials could not be sufficiently identified in the new article to permit recovery by the owner. None of the examples I have given are cases involving mixing, of course, but they do show that it is necessary to approach the proposition that a new commodity automatically belongs to its manufacturer with some care. The old authorities support the conclusion that merely working the original materials to produce a new article is not enough to vest title in the manufacturer if he is a wrongdoer; nor, in the light of Jones v De Marchant and Silsbury v McCoon, is the mere addition of other materials belonging to the manufacturer himself.
The cases to which I have referred proceed on the principle that the owner of goods which are wrongfully taken and used to make a new commodity can recover them from the wrongdoer, even in their altered form, if he can identify them in that new commodity and show that it is wholly or substantially composed of them. In such cases the work carried out on the goods by the wrongdoer, as well as additions of small amounts of the his own materials, are treated as attaching to the goods by accession. This appears most clearly from the judgment in Jones v De Marchant. Under this approach title depends not on the creation of a new commodity, but on the ability of the original owner to identify his goods in the new commodity. Viewed in that way it is difficult to see why the owner of the leather should be able to recover the shoes, or the owner of the trees the boards, but the owner of the stolen ingredients should not be entitled to recover the cake into which they have wrongfully been made, even if their physical presence is less obvious. There are, of course, limits to the extent to which it is possible to identify the original materials in the new commodity, but in my view that is essentially a matter of fact in each case. The examples of the cattle cake and the fuel oil canvassed in Borden can, I think, properly be treated as cases where the goods can no longer be regarded as remaining in existence as a substantial component of the product with the result that property in them must be considered to have passed to the farmer or the steelmaker, as the case may be, by accession. Historically English law has not considered that a wrongdoer who has improved the goods by his labour or by providing additional materials of a relatively minor nature, such as the thread used to turn leather into shoes, should be entitled to property in the new commodity or compensation for his labour or materials. The position would probably be different, however, if the new commodity substantially represented work or materials provided by the wrongdoer.
As I have already said, the court in Borden was not concerned with questions of this kind. The resin had been consumed in the process of manufacture so no title could remain in it and although it could be identified as a constituent of the chipboard, the sellers were not contending that any property in the chipboard had passed to them. Foskett v McKeown is a case of mixed substitution. It is concerned, therefore, with the ability of the claimant to trace his property into a substituted fund and with his proprietary rights against that fund, not with whether his goods could be identified in a new commodity into which they had been turned or with his proprietary rights against it. However, the speech of Lord Millett in particular does provide some helpful insight into those questions. Both Lord Steyn at page 1308H-1309C and Lord Millett at page 1322 D-G were at pains to point out that a clear distinction must be drawn between the rules of following and tracing, which are essentially evidential in nature, and rules which determine substantive rights. The former are concerned with identifying property in other hands or in another form; the latter with the rights that a claimant can assert against the property in its present form. In a case such as Borden, where the buyers were permitted to use the resin in their manufacturing process, there was no difficulty in identifying the resin as a constituent of the chipboard, but it is difficult to see how the sellers could have acquired any rights of ownership over the chipboard in the absence of specific agreement for the reasons given by Robert Goff L.J. in Clough Mill v Martin. And even if the buyers’ use of the resin had been wrongful, the principles of accession would almost certainly have proved an insurmountable obstacle. In Jones v De Marchant, on the other hand, the plaintiff had no difficulty in showing that the skins which belonged to her formed the major part of the coat. She became the owner of the whole coat because it could not be divided and because it had been brought into being by the act of the wrongdoer. As a result the additional skins belonging to her husband, together with any lining, trimming and thread for which he had paid, became her property by accession. This was despite the fact that, as Lord Millett observed, the coat was a new asset manufactured from the skins and not merely the product of intermingling them.
I can now return to the case of wrongful blending of oil products. Two cases call for consideration: the first is where a wrongdoer takes oil belonging to two or more persons which he then blends for his own purposes. In such a case I have no doubt that the two contributors become owners in common of the blended bulk. Each can identify his own oilas a constituent of the bulk and as a wrongdoer the blender cannot acquire title as against the previous owners. This appears clearly from the passage I have already referred to in Lord Millett’s speech in Foskett v McKeown at page 1327D. In the paragraph immediately following Lord Millett pointed out that innocent contributors are entitled to be treated equally as between each other. This does not, I think, mean that in cases of mixed goods the contributors are always entitled to equal interests in the bulk, simply that there must be equality of treatment. In my view that would require the court to take account not only of the quantity of goods which each had contributed but also of the value of those goods.
The second case is where a wrongdoer takes oil belonging to another which he then blends with his own oil. Again, the innocent contributor is able to identify his oil as a substantial constituent of the bulk and as a wrongdoer the blender is unable to override his property. The position is very similar to that of Jones v De Marchant, with this exception, that, unlike the coat in that case, the blended bulk is capable of division. Lord Millett did not consider that the fact that the goods had become mixed by the action of the wrongdoer excluded the possibility of a pro rata division where the nature of the bulk would permit that, as in the case of a fungible like oil. He did, however, make it clear that in a case of this kind pro rata division of the bulk was the best that the wrongdoer could hope for.
The authorities on mixing do not in my view point to any different conclusion. They start from the proposition that where one person wrongfully mixes his goods with those of another so that they cannot be separated, the innocent party is entitled to recover the whole of the mixture. Thus in Spence v Union Marine Insurance Co. Ltd (1868) L.R. 3 C.P. 427 Bovill C.J. said at page 437-8
“It has long been settled in our law, that, where goods are mixed so as to become undistinguishable, by the wrongful act or default of one owner, he cannot recover, and will not be entitled to his proportion, or any part of the property, from the other owner.”
Similarly, in Sandeman & Sons v Tyzack and Branfoot Steamship Co. Ltd [1923] A.C. 680 Lord Moulton said at pages 694-695
“My Lords, if we proceed upon the principles of English law, I do not think it a matter of difficulty to define the legal consequences of the goods of “A.” becoming indistinguishably and inseparably mixed with the goods of “B.” If the mixing has arisen from the fault of “B.,” “A.” can claim the goods. He is guilty of no wrongful act, and therefore the possession by him of his own goods cannot be interfered with, and if by the wrongful act of “B.” that possession necessarily implies the possession of the intruding goods of “B.,” he is entitled to it (2 Kent’s Commentaries, 10th ed., 465).”
It is not clear that Lord Moulton had in mind the case where the mixture had produced an entirely new thing, but the approach is the same, namely, that the interests and the proprietary rights of the wrongdoer are subordinated to those of the innocent party. At the same time he recognised that the law in this area could not be regarded as settled and might need to be developed to meet the requirements of substantial justice in other types of cases. Similarly, in Re Oatway Joyce J. recognised that the “settled principle” that the innocent party is entitled to recover his property in an altered form might have to give way where the nature of the goods permitted a fair distribution between the wrongdoer and the innocent party. In the passage in his judgment which follows that which I cited earlier he said at page 359
“But this rule is carried no farther than necessity requires, and is applied only to cases where the compound is such as to render it impossible to apportion the respective shares of the parties. Thus, if the quality of the articles that are mixed be uniform, and the original quantities known, as in the case of so many pounds of trust money mixed with so many pounds of the trustee’s own money, the person by whose act the confusion took place is still entitled to claim his proper quantity, but subject to the quantity of the other proprietor being first made good out of the whole mass: 2 Stephen’s Commentaries (13th ed.), 20.”
In Indian Oil v Greenstone Staughton J. considered that justice required that in a case of wrongful mixing of similar goods the mixture should be held in common and that each party should be entitled to receive out of the bulk a quantity equal to that of his goods which went into the mixture, any doubt as to that quantity being resolved in favour of the innocent party. He reached that conclusion on the grounds that the proprietary interest of the innocent party could thereby be adequately protected without overriding the proprietary interests of the wrongdoer to a greater extent than was necessary in order to do so. This is also the principle which Lord Millett seems to have had in mind in Foskett v McKeown at page 1328E-G. In my judgment it applies with equal force in the case where the wrongdoer mixes or combines two or more commodities to produce something new, provided that the new thing is a fungible which is capable of being shared between the contributors pro rata without destroying its identity. In some cases, of course, a pro rata division will not be possible: the coat in Jones v De Marchant is one example. In such cases the court may need to resort to other principles in order to do substantial justice, as Lord Moulton recognised in Sandeman v Tyzack.
In the light of the authorities I have therefore reached the conclusion that when one person wrongfully blends his own oil with oil of a different grade or specification belonging to another person with the result that a new product is produced, that new product is owned by them in common. In my view justice also requires in a case of this kind that the proportions in which the contributors own the new blend should reflect both the quantity and the value of the oil which each has contributed. As in other cases of mixing, any doubts about the quantity or value of the oil contributed by the innocent party should be resolved against the wrongdoer. The innocent party is also entitled to recover damages from the wrongdoer in respect of any loss which he has suffered as a result of the wrongful use of his oil.
Meaning of the ‘bulk’
In any discussion of the effects of commingling and blending frequent reference is necessarily made to the ‘bulk’ or ‘mass’ which represents the product of that operation. In many cases the identification of the relevant bulk will present no difficulty; it will simply be the contents of a single storage compartment such as a tank, hold or hopper. In other cases the position may not be so simple. In Sexton & Abbott v Graham, for example, the court recognised that where grain is deposited for storage in a warehouse containing many separate bins, the whole stock of grain of any one type and grade may be regarded as a single bulk notwithstanding the fact that it is held in separate bins and moved around from time to time. In a case of consensual mixing some pointer to the identification of the bulk is likely to be found in the contract between the parties. In a case of wrongful mixing it will be a matter to be determined on the particular facts of the case. I do not think that this question can usefully be taken any further at this stage.
I can now turn to the specific questions raised by Issue I.
Whether and to what extent title would pass to MTI in respect of any relevant oil or whether and to what extent the respective Oil Claimant would retain ownership of the oil (if necessary as a co-owner of any commingled or blended bulk) in or notwithstanding each or any of the following assumed circumstances, namely
1. upon arrival of the carrying vessel in Fujairah territorial waters and/or delivery of the oil into storage, (or in the case of Texaco by virtue of MTI receiving and storing the relevant oil) by virtue of MTI being entitled under the arrangements identified in paragraph (1) above (or in the case of Texaco under the arrangements set out in paragraph (5) above), or any of them, to do any of the following acts, namely
a. to commingle the oil with other oil owned either by itself or by persons other than the respective Oil Claimant;
Neither the arrival of the carrying vessel in the territorial waters of Fujairah, nor the delivery of oil to MTI for storage in commingled bulk would cause title in the oil to pass to MTI.
b. to blend the oil with other oil owned either by itself or by persons other than the respective Oil Claimant; and/or
c. to agree to sell the oil to third parties; and/or
d. to sell and/or deliver the oil to third parties;
The arrival of the carrying vessel in the territorial waters of Fujairah would not itself have any effect on property in the oil, unless the parties had agreed otherwise. However, delivery of goods to another person with permission to use them in a way which will result in their consumption or destruction will normally justify the inference that property in them was intended to pass to that person. The same inference may be drawn if there is permission to dispose of them irrevocably, such as by sale to third parties, though in all these cases the parties may agree otherwise – e.g. where goods are delivered on sale or return. Much will turn, therefore, in each case on the agreement itself and the context in which it was made. I mention this because I am aware that some of the Oil Claimants rely on reservation of title clauses in their contracts with MTI and that Mr. Smith on behalf of MTI did not contend, perhaps for this reason, that property would pass to MTI on delivery. However, I should make it clear that I am not concerned at this stage with the terms of the contracts between the parties which will arise for consideration in a later Phase. The issues which form Phase 1 must therefore be decided by reference to general principles of law. Perhaps the only satisfactory answer to give to the other questions raised in these sub-paragraphs, therefore, is that in the absence of any agreement to the contrary (which may be express or implied), delivery of oil to MTI under a contract which entitled it to make use of the oil in its own blending operations, or to sell and deliver it to third parties would cause title to pass to MTI.
2. by virtue of MTI being entitled under the arrangements identified in paragraph (1) above (or in the case of Texaco paragraph (5) above), or any of them, to do any of the following acts, upon subsequently doing any of the following acts, namely
a. commingling the oil with other oil owned either by itself or by persons other than the respective Oil Claimant;
It follows from what I have already said that the commingling of oil in storage with oil belonging to other persons or to MTI itself would not cause property to pass to MTI, unless the parties had agreed otherwise.
b. blending the oil with other oil owned either by itself or by persons other than the respective Oil Claimant;
In the absence of agreement to the contrary property in the oil would have passed to MTI on delivery. However, the parties to the contract are in principle free to decide for themselves when property in the constituents is to pass and who is to acquire title to the resultant blend.
c. agreeing to sell the oil to third parties; and/or
d. selling and/or delivering the oil to third parties.
The position in these cases is essentially the same. In the absence of any agreement to the contrary, property in the oil would have passed to MTI on delivery, so the subsequent sale and delivery to a third party would have no effect. However, the parties to the contract are in principle free to decide for themselves when and under what circumstances property in the goods is to pass. I should perhaps make it clear that the circumstances under which a buyer in possession of goods is able give a good title to a purchaser under English law even though he is not himself the owner of the goods do not arise for consideration in this Phase of the litigation.
3. upon MTI doing any of the following acts, albeit that MTI were not entitled under the aforesaid arrangements to do any of the same, namely
a. commingling the oil with other oil owned either by itself or by persons other than the respective Oil Claimant;
Wrongfully commingling the oil with other oil in its possession would not cause title to pass to MTI. All those who had contributed to the bulk, including MTI, would become owners in common of the bulk in proportion to their contributions. However, any doubt as to the amount contributed by MTI and other contributors would be resolved in favour of the other contributors, even if that meant in an extreme case that MTI had to be treated as making no contribution at all.
b. blending the oil with other oil owned either by itself or by persons other than the respective Oil Claimant;
The relevant Oil Claimant and MTI (or any other person whose oil had been used to produce the blend) would become owners in common of the new product in proportions which reflected the quantity and value of the oil they had each contributed to the blend.
c. agreeing to sell the oil to third parties; and/or
d. selling and/or delivering the oil to third parties.
It was not suggested that a wrongful disposal by MTI would cause title to pass to it. As I have already indicated, the question whether, and if so under what circumstances, MTI could give a good title to third parties does not arise in Phase 1.
Issue J – Assuming that title did not pass to MTI but was retained by the respective Oil Claimant (if necessary as a co-owner of any commingled or blended bulk), then
1. to the extent that withdrawals were made from any commingled or blended bulk by MTI, whether
a. MTI are deemed or presumed to have withdrawn their own share (if any) first;
b. the shares of the respective Oil Claimant owning in common with MTI are deemed or presumed to have been retained in the commingled or blended bulk last; and
c. there are any circumstances, and if so, what circumstances in which any such rule or presumption will not apply;
Issue J is concerned with the effect which the drawing of oil by MTI for its own purposes from the commingled or blended bulk has on title to the oil which remains. Paragraph 1 did not give rise to any serious dispute because, while not conceding the point, Mr. Smith was inclined to accept that if MTI drew oil from a bulk in which it had a proprietary interest it would normally be right to treat it as having drawn its own oil rather than oil belonging to another owner. At any rate, he did not suggest that there were any circumstances arising in the context of this litigation in which that would not be right to take that view and for my own part I find it difficult to imagine any since MTI could hardly be permitted to rely on its own wrongful act in order to enable it to assert title to what remained. In these circumstances the only proper answer to this group of questions is that MTI is presumed to have withdrawn its own share first and that there are no circumstances in the context of the present litigation in which this presumption does not apply.
2. Whether, in seeking to establish title to the balance or remainder of any commingled or blended bulk on any given date in circumstances where the balance or remainder of the bulk was insufficient on that date to satisfy the proprietary claims of the respective Oil Claimant owning in common therein, it is sufficient for the respective Oil Claimant
a. to prove the difference between the amount owned by them which should have remained in the bulk and the lesser amount which was all that was left in the bulk in fact on any given date; and
b. to rely on any principle or presumption of law as set out in J.1 above,
or
whether it is necessary for the respective Oil Claimant to trace the provenance of the bulk (and each and every part thereof) on any given date right back to a specific cargo or specific cargoes previously owned by them.
This question is directed to the steps which a bailor is required to take in order to establish its interest in a mixed bulk where the quantity of goods remaining in the possession of the bailee falls short of the bailor’s contribution. This question may arise in two fundamentally different situations. The first is where the bailee has simply drawn from the bulk goods to which he was not entitled leaving a shortfall. The second is where, having drawn from the bulk goods to which he was not entitled, the bailee contributes additional goods of his own.
The first of these situations occurred in Mercer v Craven Grain and does not pose great difficulties. If the bailee contributed to the bulk he is presumed to have drawn his own goods first. Any drawing in excess of his entitlement represents a wrongful taking of goods belonging to the other owners. What effect that will have on the position of the bailors as between themselves may depend on the particular facts of the case. It does not arise for decision at this stage and since I have heard no argument on that question I do not propose to express any view on it. However, each of the bailors who had suffered loss as a result would have a corresponding right to recover that loss from the bailee.
The second situation raises more difficult problems and I am not sure that paragraph J.2 actually requires me to consider it. However, it is so closely related to the issues which are raised by paragraph J that I think it desirable to say something about it in the hope that that will assist the parties in preparing for the next stage of the litigation. One of the reasons why this situation gives rise to difficulty is that much will depend on the relationship between the parties under which goods are withdrawn and replaced. Insofar as deposits, withdrawals and replacements are all made pursuant to a contract, there is no difficulty in principle in holding, if this be the intention of the parties, that property in the bulk remains in the original depositors as owners in common, that property passes from the bailors to the bailee when he draws from the bulk for his own use and that property passes from the bailee to the bailors when he restores goods to the bulk. This is really no more than a case of consensual substitution and involves no wrongful act on the part of the bailee.
Where the depositors have not agreed that the bailee may withdraw goods for his own use the position is obviously different because any such withdrawal involves a wrongful act on his part as against the bailors whose stock is thereby depleted. The question then is whether any goods which the bailee subsequently returns to the bulk are to be regarded as taking the place of those which he wrongfully withdrew, or whether they are simply to be regarded as a contribution on his own behalf.
In James Roscoe (Bolton) Ltd v Winder [1915] 1 Ch. 62 the plaintiff sold its business to W who was to get in the book debts and pay the plaintiff an amount equal to the sum of the book debts owing on a certain date. These amounted to just over £623. W got in £455.18.11d. which he paid into his private account. He subsequently drew on that account for his own purposes reducing the balance to £25.18s.0d. Afterwards he paid in money of his own and drew on the account for his own purposes. At his death £358.5s.5d. remained in the account which the plaintiff sought to recover. Sargant J. held that the plaintiff had a charge on the account, but only for the sum of £25.18s.0d. which represented the lowest intermediate balance. The plaintiff had argued that by paying money of his own into the account W had impressed that money with the same charge in favour of the plaintiff as had been impressed on the money which he had originally collected, but that argument was rejected on the grounds that the mere fact of paying money into his private account was not enough to attribute to W an intention to create a charge over that money in favour of the plaintiff. The principle on which this decision rests, namely, that in circumstances of this kind the creation of a trust or charge in favour of a third party requires positive evidence of an intention to do so on the part of the wrongdoer, was applied by the Privy Council in In re Goldcorp Exchange Ltd [1995] 1 AC 74 and by the Court of Appeal in Bishopsgate Investment Management v Homan [1995] 1 All E.R. 347.
In my view the same principle must apply to the substitution of goods in a mixed bulk, and indeed Mr. Schaff did not contend otherwise, although he did submit that in some cases the replacement of goods by the bailee could itself be sufficient evidence of an intention to transfer property to the bailors. I would not rule that out as a possibility, but it would depend very much on the facts of the individual case. The assent of the bailors to a transfer of property in substitution might easily be inferred from the fact that they understood the bailee to be holding a mixed bulk of which they were owners in common and from the fact that they could be presumed to be indifferent to the precise origin of the goods comprising the bulk provided that they remained of the same type and description. An interesting and illuminating discussion of these and related questions in the context of the bulk storage of grain is to be found in an article entitled ‘Grain Elevators’ attributed to Oliver Wendell Holmes published in The American Law Review 1871-1872, vol. VI, p.450.
Apart from identifying the main principles involved in relation to wrongful withdrawal and substitution, I do not think that it is possible at this stage to provide an answer to the question contained in paragraph J.2, save in one respect. The whole of this paragraph proceeds on the assumption that oil belonging to one or more of the Oil Claimants has been mixed with oil belonging to other Oil Claimants, and perhaps to MTI as well, to produce a single bulk. One possibility which it contemplates is that in a case where wrongful drawing by MTI has rendered the bulk too small to satisfy the legitimate claims of all the contributors, a contributor may have to prove by evidence in the ordinary way what part of the remaining bulk represents goods which he contributed. In many cases this would be an impossible task and the work that has already been carried out in this case demonstrates how burdensome it would be even if it were possible. However, in my view that is not what is required and indeed Mr. Smith did not suggest that it was. The amount which each person has contributed to the bulk determines the proportions in which the contributors as a whole become owners in common of that bulk and therefore any claimant must be able to show both that he was a contributor to the bulk and how much he contributed to it. Similarly, a contributor’s share of the bulk will be reduced in proportion to the amount of his drawings from it. However, where there is a shortfall as a result of unauthorised drawing by the bailee or loss of any other kind, the source of the goods which make up the residue of the bulk is irrelevant to determining the proprietary interests of the contributors in what remains.
I think the question raised in paragraph J.2 can therefore best be answered by saying that questions of title to the remaining bulk are to be determined in accordance with the general principles set out in this judgment and that provided an Oil Claimant can show that it contributed to the bulk and has not drawn the whole of its entitlement it is not necessary for it to trace the provenance of the remaining bulk to a cargo which it previously owned in order to establish a proprietary interest in it.
The answers to the questions posed by the preliminary issues are collected in the appendix. They should, of course, be read and understood in the context of the judgment as a whole.
Kulkarni v Manor Credit (Davenham) Ltd
[2010] EWCA Civ 69 [2010] 2 Lloyd’s Rep 431, [2010] EWCA Civ 69, [2010] 2 All ER (Comm) 1017
“Disposition” is defined in section 29(1):
“”disposition” means any sale or contract of sale (including a conditional sale agreement), any bailment or (in Scotland) hiring under a hire-purchase agreement and any transfer of the property in goods in pursuance of a provision in that behalf in a hire-purchase agreement, and includes any transaction purporting to be a disposition (as so defined) and “dispose of” shall be construed accordingly.”
For these purposes, Manor Credit is the creditor, Gwent the debtor, and Dr Kulkarni the private purchaser. There is no dispute that Dr Kulkarni is a private purchaser in good faith without notice. What is required, however, for section 27 to pass a good title to a private purchaser is a “disposition” by the debtor Gwent at a time when it is a debtor, that is to say a hirer under its hire-purchase agreement with Manor Credit which it entered into on 14 March 2008. Disposition is defined as a sale or a contract of sale or a transaction purporting to be a sale or contract of sale.
Dr Kulkarni’s original contract of sale was of course entered into well before Gwent became Manor Credit’s debtor. However, Mr James Ross, who appears for Manor Credit, does not rely on that contract as a relevant disposition, because he concedes that section 27 would give relief to a private purchaser for the latest relevant “disposition”, even if there had been an earlier one at a time before section 27 became applicable. Thus he concedes that where an earlier contract of sale, which does not itself amount to a sale, fructifies later into a sale, when there is a transfer or purported transfer of property, and that later sale falls within the relevant window of section 27, then that will count as a disposition within section 27, even though the earlier contract of sale fell outside that window. He had earlier made the same concession at trial, which is why the judge had said (at para 13):
“it is not so important to look at the earliest date on which there could be a contract of sale or a sale, but to look to the latest date”.
Another possible rationalisation is that for these purposes “contract of sale” means such a contract as amounts to a sale, as will occur (see above) where the parties intend the contract to transfer the property in the car there and then. (It might be said, however, that that makes the words “or contract of sale” redundant; and it may be important in another context to consider whether a purchaser is a “private purchaser” at the earlier time of an agreement to sell: see section 29(2) and GE Capital Bank Ltd v. Rushton [2005] EWCA Civ 1556, [2005] 1 WLR 899.) Another possible rationalisation is that nothing counts as a relevant disposition until a particular motor vehicle has been identified. That is because section 27 is concerned with property and title in a particular identifiable motor vehicle: see “the property in the vehicle” and “a purchaser of the vehicle in good faith”. On that basis, there could in any event be no “disposition” until the car labelled as VK08 EVF had been (irrevocably) identified with the goods to pass under Dr Kulkarni’s contract. A third rationalisation may be that the definition of “disposition” provides true alternatives, so that as long as there is something which counts as a disposition within the statutory window, then section 27 may work its power.
Be that as it may, Mr Ross made it plain that his concession was made. If there was a passing of property or purported passing of property at a time when Gwent was a hirer of the car from Manor Credit, then Dr Kulkarni would obtain a good title under section 27; but if property had purportedly been transferred to Dr Kulkarni before that time, then there would be no assistance to Dr Kulkarni to be derived from that section. Thus there was no concession in relation to anything which occurred after Dr Kulkarni’s agreement had fructified into a sale (or purported sale). Once there had been a final transfer of property under his agreement with Gwent, it was too late to talk of any further “disposition” under the 1964 Act.
All this explains why it became important to identify the latest moment when a mere agreement to sell fructified into a sale (or at least a purported sale) under which transfer of the property in the car was intended to be transferred. If that was before Gwent became Manor Credit’s debtor under their hire purchase agreement, then the disposition in question fell outside the protection of section 27 and Dr Kulkarni received no aid from it to establish a better title than Manor Credit’s.
In the circumstances, the question became when Gwent and Dr Kulkarni intended property in the car to be transferred to Dr Kulkarni, a question of sale of goods law.
Transfer of property under the SGA 1979
Manor Credit’s case was that the judge was right to say that such transfer took place by 11 March and that rule 5(1) of section 18 of the SGA 1979 provided the answer. Dr Kulkarni’s case, however, was that there was no intention to transfer the property until delivery itself. As of 11 March there had been no unconditional appropriation: there could be no such appropriation, nor any relevant assent on the part of Dr Kulkarni at a time when Gwent did not have any property in the car. Dr Kulkarni could not be taken to assent to the appropriation of a car in which Gwent had no property to transfer. Alternatively, the car was not in a deliverable state without its registration plates being attached to it. In any event, rule 5(1) was only a prima facie rule. There could be no intention to pass property in a car in which Gwent had no property. In such circumstances, property would not pass until delivery (see rule 5(2)). That was in any event the better view of what parties to such a contract of sale should be taken to intend, namely that property passes with delivery.
I refer to the Appendix to this judgment where relevant provisions of the SGA 1979 are collected. In brief, however, we are concerned in this case with a contract for the sale of unascertained or future goods. In such a case, no property is transferred unless and until the goods are ascertained (section 16). Where, however, there is a contract for the sale of specific or ascertained goods, property in them is transferred at such time as the parties intend it to be transferred, and for these purposes regard shall be had to the terms of the contract, the conduct of the parties and the circumstances of the case (section 17). (In terms section 17 appears to apply only to contracts for the sale of specific or ascertained goods, but in practice it has come to be applied to contracts for the sale of unascertained goods as well, once they have become ascertained.) The statute also contains working rules for discovering that intention “Unless a different intention appears”. Those rules are set out in section 18. The rules with which we are concerned in this case are rules 5(1) and (2).
Rule 5(1) for present purposes requires (i) “goods of that [ie the contractual] description”; (ii) “in a deliverable state”; (iii) which have been “unconditionally appropriated to the contract” by the seller; (iv) “with the assent of the buyer”, which assent may be given either before or after the appropriation. No one has argued here for a prior assent by Dr Kulkarni. There is no suggestion that VK08 EVF did not comply with the contractual description. The three matters which it is therefore necessary to consider are (ii), (iii) and (iv).
Rule 5(2), which until the addition of rules 5(3) and 5(4) pursuant to the Sale of Goods (Amendment) Act 1995 was the last of the rules to be set out under section 18, represents a form of long stop prima facie rule, which is that, save where the seller reserves a right of disposal, delivery to the buyer (or to a carrier or other bailee or custodier for transmission to the buyer) amounts to an unconditional appropriation of the goods. For these purposes there is no need for there to be any assent by the buyer, the rule presupposes that the goods are in a deliverable state without making that a condition of the intention to transfer property, and the goods are deemed to have been unconditionally appropriated, whether they have been or not. There is of course no theoretical need for transfer of property and delivery to coincide, just as there is no theoretical need for delivery and payment to occur at the same time, or of property and risk to pass at the same time. However, in the absence of a right of disposal where the price has not yet been paid, and in the absence of any earlier transfer of property, delivery is likely to be the time when parties would intend property to pass.
The passing of risk is dealt with in section 20. Unless otherwise agreed, the goods remain at the seller’s risk until property is transferred: upon transfer risk passes to the buyer as well, whether delivery has been made or not. But not in the case of a consumer sale. By an exception first introduced pursuant to the Sale and Supply of Goods to Consumers Regulations 2002, section 20(4) of the SGA 1979 now provides that where the buyer deals as consumer, the goods remain at the seller’s risk until delivery to the consumer. That is presumably to protect a consumer to whom property and risk may have passed, but to whom delivery has not yet been made.
Deliverable state
The definition of “deliverable state” is contained in section 61(5) of the SGA 1979, viz “such a state that the buyer would under the contract be bound to take delivery of them”. It is true that the absence of the registration plates was in one sense a trivial matter which certainly did not fundamentally affect the condition or the quality of the car in question. However, it could not be lawfully driven by Dr Kulkarni without them. If Gwent had proposed delivery of the car to Dr Kulkarni without putting them on, he would have said that the car was of no use to him without its plates. The judge seems to have considered that there was a substantial question as to when in this case the plates were attached to the Mercedes, for in para 16 he said that –
“The only thing that might be said in respect of this Mercedes was that until it actually had a number plate affixed to it, it might not be said to be in a deliverable state, but I reject that argument. It seems to me that it would be in a perfectly deliverable state without actually having a number plate affixed to it, even though actually at the time that that event arises Gwent would not in fact have been able to deliver it.”
The judge therefore contemplated that, without registration plates attached, Gwent would not even have been able to deliver the car. Whether that is so or not, for dealers are, I believe, entitled to transport cars with their own dealer plates attached, the judge found that without its individual registration plates Gwent would not have been able to deliver the car. Either for that reason or because in any event Dr Kulkarni would not have been able to drive the car without its registration plates attached, which is possibly what the judge meant by his observation, and in circumstances where there was no evidence that, at any material time prior to the time of delivery, the car had its registration plates attached, the car was not shown to have been in a deliverable state as of 11 March (even if at that time it might have become ascertained goods by being appropriated to the contract). In my judgment, Dr Kulkarni would not have been bound to have taken delivery of the car without registration plates attached.
I would therefore be prepared to hold that there is no evidence that rule 5(1) was fulfilled in this respect before Gwent became Manor Credit’s debtor under their hire purchase agreement. In such a case, Dr Kulkarni could establish that he had become a purchaser of the car under a disposition which first took place at the time of delivery, and thus when Gwent was in a position to transfer the property in the car under the nemo dat exception contained within section 27. That is enough to entitle Dr Kulkarni to judgment in his favour and thus to succeed on his appeal.
On behalf of Dr Kulkarni, Mr Christopher Purchas QC had prepared a skeleton argument which sought to argue in addition that the car was not in a deliverable state for reasons unconnected with its physical state and which resided in the fact that at what might otherwise have been the time intended for transfer of the property in the car Gwent lacked any title to transfer. However, at the appeal hearing he abandoned that wider argument, in my judgment correctly. See, for instance, Underwood Ltd v. Burgh Castle Brick and Cement Syndicate [1922] 1 KB 343 (CA) at 345 – “It depends on the actual state of the goods…” per Bankes LJ; see also Benjamin on Sale, 6th ed, 2002, para 5-023, “The goods must therefore be in a physical condition in which the buyer can take delivery and in which it has been agreed that he shall take delivery under the contract.”
Unconditional appropriation and assent as indicators of intention
If that conclusion about deliverable state be wrong, the next question which would arise would be whether there was an unconditional appropriation of the car with the assent of Dr Kulkarni, ie factors (iii) and (iv) above. The judge considered that there had been such an appropriation, and that therefore property in the goods had been intended to be transferred to Dr Kulkarni by at latest 11 March. He said (at para 17):
“Once the identity of the vehicle had been obtained by obtaining a number plate, or rather a registration number of the vehicle, because that must refer to a specific vehicle, then those goods are unconditionally appropriated to the contract, and it is done by the seller with the implied consent of the buyer. At the very latest the buyer assents to that by insuring the vehicle on 11th March. I have to say that that seems to me to be an unassailable argument.”
Subject to the ultimate question of intention, for of course rule 5(1) is only a prima facie rule, the judge’s proposition appears to have a rough good sense to it. Authority, however, suggests that the rule is not after all so very easily fulfilled, at any rate as an indicator of the parties’ intentions. This is in part because the statutory presumptions are not difficult to rebut. As Diplock LJ said in Ward v. Bignall [1967] 1 QB 534 at 545 –
“in modern times very little is needed to give rise to the inference that the property in specific goods is to pass only on delivery or payment.”
A number of cases illustrate the flexibility of the law. Thus in Varley v. Whipp [1900] 1 QB 513 the buyer bought, sight unseen, a second hand reaper under a certain description, viz that it was nearly new as having been used to cut only about 50 to 60 acres. The reaper was sent to the buyer by rail, and on its arrival the buyer complained that it did not comply with its description, being old and mended. The seller sued for the price. The divisional court treated this contract for the sale of specific goods under section 17, not under section 18, and held that property could not have been intended to pass in goods which did not comply with their description until they had been inspected and accepted, which the reaper had not been. The seller therefore failed in his action. In the present case, there was no problem about the car’s description, but there was a breach of the implied condition as to title.
In Noblett v. Hopkinson [1905] 2 KB 214 the buyers bought and paid for a half gallon of beer from a publican. The purchase was made on a Saturday and the beer was drawn off and put aside for delivery on the Sunday. The publican was proceeded against for selling liquor on the Sunday. The issue was whether there had been a transfer of property in the beer on the Saturday. The magistrates found that transfer of the property had been effected on the Saturday. The divisional court however held that that was wrong in law, as property had not been transferred until the Sunday. Lord Alverstone CJ said that the correct inference was that what was done by the publican was under his own responsibility and that “if the bottle of beer had been broken during the Saturday night, other beer would have had to be supplied to the men on the Sunday morning” (at 219). There was no sufficient appropriation.
In Ollett v. Jordan [1918] 2 KB 41 the sale was of herrings, despatched by rail by a seller in Hull to a buyer in Eastbourne. The issue under the Public Health Act 1875 was whether the seller had “exposed for sale” the herrings in an unmerchantable condition. They were in good condition on despatch, but bad on arrival. If property had been transferred on despatch, the seller was not guilty. The question was therefore whether there had been such an appropriation as would transfer the property. It was held that as the buyer had a right to inspect and reject the herrings, property had not passed on despatch, and the seller’s acquittal by the magistrates was reversed on appeal.
The famous case of Rowland v. Divall [1923] 2 KB 500 (CA) concerned a car which had been sold by a seller who had no title to it, for it turned out to have been stolen. After the buyer had used the car for some time, it was recovered by the police for its true owner, and the buyer sued the seller to recover the price. He was held by this court to have been entitled to do so, on the ground that there had been a total failure of consideration, since the seller had contracted to transfer the property in the car but had failed to do so. Bankes, Scrutton and Atkin LJJ agreed in the result. Atkin LJ said (at 506):
“He paid the money in order that he might get the property, and he has not got it. It is true that the seller delivered to him the de facto possession, but the seller had not got the right to possession and consequently could not give it to the buyer.”
He also (controversially) said “there can be no sale at all of goods which the seller has no right to sell” (at 506), but I do not rely on that.
Finally, in Carlos Federspiel & Co SA v. Charles Twigg & Co Ltd (1957) Ll Law Rep 240 the buyer paid in advance for goods to be shipped. The seller failed before shipment, and his receiver refused to ship without a second payment. It was held that he was entitled to do so, since there had been no appropriation and thus as yet no transfer of property. Pearson J reviewed the law from the early nineteenth century. Among the cases which he examined was Mucklow and Others (Assignees of Royland) v. Mangles (1808) 1 Taunt 318, where a buyer had paid for the whole cost of a barge to be constructed, and his name had been painted on it, but the seller sold the barge to a third party and it was held that property had not yet been transferred to the original buyer. Another case was Wilkins v. Bromhead and Hutton (1844) 6 M&G 963, where the buyer had assented to an appropriation of a greenhouse which had been constructed for him: the buyer remitted the price to the seller and asked him to keep it for him. That was a clear case, but the judgment of Tindal CJ is interesting for the following observation (at 974):
“If a purchaser’s assent to the appropriation was shown to have been obtained by misrepresentation, it seems to me it would probably be held to be no assent at all.”
So, in the present case, if Dr Kulkarni’s insurance of the car is to be taken, as the judge thought, as an assent to Gwent’s appropriation, it might be said that such an assent was given on the basis of the implied representation and understanding that at that time Gwent had the property in the car which it would need to have if it was to transfer that property which it had promised to transfer at a time when the agreement to sell matured into a sale. On that basis, Dr Kulkarni’s assent would be no assent.
On the basis of his review of such cases Pearson J restated the following principles at 255/6:
“Therefore the element of common intention has always to be borne in mind. A mere setting apart or selection of the seller of the goods which he expects to use in performance of the contract is not enough. If that is all, he can change his mind and use those goods in performance of some other contract and use some other goods in performance of this contract…
Secondly, it is by agreement of the parties that the appropriation, involving a change of ownership, is made…
Thirdly, an appropriation by the seller, with the assent of the buyer, may be said always to involve an actual or constructive delivery. If the seller retains possession, he does so as bailee for the buyer…
Fourthly, one has to remember Sect. 20 of the Sale of Goods Act, whereby the ownership and the risk are normally associated. Therefore as it appears that there is reason for thinking, on the construction of the relevant documents, that the goods were, at all material times, still at the seller’s risk, that is prima facie an indication that the property had not passed to the buyer.
Fifthly, usually but not necessarily, the appropriating act is the last act to be performed by the seller…But if there is a further act, an important and decisive act to be done by the seller, then there is prima facie evidence that probably the property does not pass until the final act is done.”
Applying those principles, Pearson J concluded that (1) the intention was that the ownership should pass on shipment because shipment was emphasised as the decisive act; (2) there was nothing in the parties’ correspondence to indicate any change in that intention; (3) there was no actual or constructive delivery; (4) there was no suggestion of the goods being at the buyer’s risk before delivery; and (5) there was no delivery or sending for delivery. Therefore property had not passed.
That was an international sale of goods in commerce. The present case is the standard case of the domestic sale of a car to a consumer. It has to be acknowledged that such a purchaser who has paid up front for a car yet to be sourced would be protected by obtaining title to a car, once identified and sufficiently appropriated, in the dealer’s showroom or garage, were the dealer to become insolvent. Nevertheless, the present case shows that there are equal dangers in losing the protection of section 27 if property passes too early. I do not think that one can argue backwards from the consequences in any particular case to the prospective intentions of the parties. In the meantime the standard provision in a consumer case that risk remains with the seller until delivery will protect the buyer against all risk except insolvency. As to that risk in the present case, the fact is that Dr Kulkarni was prepared to trust Gwent with his cash at a time when he had no possibility of having property in a car yet to be sourced or ascertained.
Mr Purchas submitted that in the case of the sale of a car to a consumer property is in general not intended to pass until delivery, and I think that there is force in that submission, at any rate where as here the contract is not for the sale of a specific car and the buyer has never seen the car. Generally speaking, it will be on delivery that the buyer will be able to inspect the car, if new, for its specification, and if second-hand, for any work which the dealer has been asked to do to it. It is on delivery that the buyer will be handed the car’s log-book or registration document (not a matter considered by the judge). Although such a document speaks to the car’s keeper, not its owner, it is I think well recognised that a legitimate buyer would not readily assent to complete the sale of a car without getting its log-book. It is at latest on delivery that the dealer will have ensured that he is paid. It is, I would think, for and from the time of delivery that the buyer insures the car. The special rule as to risk, although perhaps designed to protect a consumer even where property may have passed before delivery, is apt for a passing of property on delivery. The consumer will have little knowledge of the rules of section 18 of the SGA 1979, but he or she will have in their mind the adage that possession is nine points of the law, and that points to the time of delivery as well. Moreover, such a result seems on the whole to fit into the apparent circumspection of the law, indicated by the review conducted by Pearson J, about any assumption that the parties are too readily supposed to intend that property passes under rule 5(1).
I would therefore have wanted some good evidence that the parties in this case had intended the property in the Mercedes to pass prior to delivery before solving the issue on the basis of the rule 5(1) presumption. The judge thought that he had that evidence above all in Dr Kulkarni’s insurance of the car, identified as it would have to be by its registration number. However, as I have pointed out above, there is no finding as to the time from which Dr Kulkarni insured cover for the car. If, as I would in the absence of evidence infer, Dr Kulkarni only insured it from the time of its expected delivery, then this matter of insurance, so far from pointing towards a solution in terms of rule 5(1), actually points against it.
Moreover, on the facts of this case, Gwent never had property in the car to transfer to Dr Kulkarni. It knew that it did not, and it knew that it had no intention of fulfilling its contract to transfer property in the car to its buyer. It knew therefore that any assent by Dr Kulkarni to the appropriation of a car in which Gwent had no property had been procured by its own dishonest pretence. Dr Kulkarni of course did not know the truth of the situation, but it could not be supposed on any objective basis that he would assent to an appropriation to him and thus to the transfer of title there and then in respect of a car in which his seller, Gwent, lacked title. Could a seller who knows that he lacks the property in goods which he appropriates to a contract reasonably think that his buyer would assent to such an appropriation as the means and moment of transferring property? In my judgment, no.
It seems to me that in such a situation, rule 5(1) is unlikely to provide a solution to the question of the parties’ intentions. The rule assumes that the goods which a seller proposes to appropriate unconditionally to his contract, so that with the assent of his buyer property should be transferred then and there to that buyer, are goods in which the seller has property with which to perform his section 12(1) obligation. If, therefore, a seller lacks property in the goods, his appropriation to the contract of goods in which he has no property, a fortiori where he knows he has no property, is unlikely to be any more reliable as an indication of his or the parties’ intentions than his appropriation of goods which are not in a deliverable state, or of goods which are not goods of the contract description.
A seller might in some circumstances not know that he lacks property in the goods, and therefore in his ignorance he might intend to transfer a property that he does not have. That however is not this case. Gwent knew that it had no property, and for his part Dr Kulkarni could not be thought of as intending to assent to an appropriation which his seller knew could not transfer to him the property which, if rule 5(1) were to be applied, would be required to be transferred.
In such circumstances, it seems to me that the agreement to sell would only mature into a sale, or purported sale, with actual delivery of the goods itself. That would reflect the presumption in rule 5(2), which focuses on delivery, deems an unconditional appropriation then to occur, and has no requirement for the buyer’s assent. Thus, I should not be thought of as saying (despite the great authority of anything falling from Atkin LJ) that a seller cannot complete a sale if he lacks full rights of ownership in the goods. Where he lacks full title, he may well transfer such property as he has, such as a possessory title. As it happens, in the present case there is no finding even as to whether Gwent had possession of the car on 11 March.
Such a solution would also reflect the principles derived by Pearson J from his examination of the topic in Federspiel. Thus in terms of those principles I would say that: (1) delivery was here looked to as the decisive act which would transfer both possession and property; (2) there was nothing in the parties’ communications which indicated an intention otherwise; (3) there was no actual or constructive delivery, no sense in which Gwent became the bailee of Dr Kulkarni’s car; (4) the car was not at Dr Kulkarni’s risk before delivery; and (5) in the circumstances of Gwent’s fraud the parties should not be taken to intend anything prior to actual delivery of the car to turn their agreement into a sale.
It is not that Gwent may not have appropriated the car to the contract and done so unconditionally. It is rather that in the circumstances of the case such an appropriation should not be regarded, under a merely presumptive rule, as intended to transfer the property in the car to Dr Kulkarni.
Conclusion
It follows that, for all or some of those reasons, the terms of section 27 applied to this case, and Dr Kulkarni is entitled to judgment. His appeal must therefore be allowed.
Lord Justice Wilson :
Borealis Ab v. Stargas Limited and Others and Bergesen D.Y. A/S
[2001] UKHL 17; [2001] 2 All ER 193 : [2001] 1 LLR 663, [2001] CLC 1084, [2001] UKHL 17, [2001] 2 WLR 1118, [2001] 1 Lloyd’s Rep 663, [2001] 1 All ER (Comm) 673, [2002] 2 AC 205, [2001] 2 All ER 193
Lord Hobhouse
The Passing of “Property” “upon or by Reason of” the Endorsement:
22. This problem was the subject of the decision of your Lordships’ House in Sewell v Burdick (1884) 10 App Cas 74. It has two aspects. The first is what does the word “property” encompass. Is it limited to the general property in the goods, that is, the legal title to the goods as is transferred by a sale? Or does it include the special property which signifies the right to possession? In Sewell v Burdick it was decided that it should be limited to the passing of the general property. The primary reason for reaching that conclusion was that bills of lading are as often as not used as security documents facilitating the financing by banks of merchants’ sale transactions (eg under documentary letters of credit). A bank’s interest is to use the possessory right to the document and the goods it represents as security; its interest is not to enter into contractual relations with the carrier, still less, to undertake contractual obligations towards the carrier. The decision in Sewell v Burdick was that a transaction of pledge accompanied by the endorsement of the bill of lading over to the pledgee did not come within the scope of s.1 and did not transfer to the pledgee any contractual rights nor subject the pledgee to any contractual liabilities under the bill of lading.
23. The other aspect was that the passing of the property had to be “upon or by reason of [the] consignment or endorsement”. But property under a contract of sale passes when the parties to that contract intend it to pass; it passes by reason of the contract of sale, not by reason of the endorsement of the bill of lading. (Section 18 of the Sale of Goods Acts 1893 and 1971.) Under an FOB contract, the property in the goods prima facie passes upon shipment not upon the endorsement of or other dealing with the bills of lading. A contract for the international sale of goods commonly includes an express term covering the transfer of title. Similarly, s.18(2) and s.19(2) of the Sale of Goods Acts made relevant the question whether the seller has by taking a bill of lading making the goods deliverable to his own order reserved the right of disposal. The difficulties of using the criterion in the 1855 Act were increased by simple logistics. The goods would arrive and be discharged and delivered before the documents had completed their progress down the chain of the intermediate buyers and sellers and their banks. The endorsement of those documents ceases to have any role in relation to the possession or legal ownership of the goods. (The Delfini [1990] 1 Lloyd’s 252) In the present case, by January 1994, the cargo of propane had probably long since been processed at Terneuzen and had ceased to exist.
24. There were cases therefore where the 1855 Act could not be used and where the tool of inferring a Brandt v Liverpool contract became less and less useful. (eg The Aramis [1989] 1 Lloyd’s 213 ) There were related problems arising from changed patterns of trade. Cargoes were shipped in bulk. Bills of lading were issued for quantities out of undivided consignments and those quantities were then sold to different buyers and the various bills of lading endorsed over to them. Such endorsements were ineffective to pass the legal title in part of an undivided whole to a purchaser. (In re Wait [1927] 1 Ch 606: See now the Sale of Goods (Amendment) Act 1995.) Further, the practice of issuing delivery orders for parcels out of a bulk cargo were similarly ineffective and the intended buyers were left without remedy against the carrier. (Margarine Union v Cambay Prince [1969] 1 QB 219, Leigh & Sillavan v Aliakmon [1986] AC 785.)
“Subject to the Same Liabilities”:
25. The use of this phrase in the 1855 Act gave rise to immediate difficulty. What was the position of an endorser after he had endorsed over the bill of lading to another? How did endorsement affect the liabilities of the shipper? The answer was given in Fox v Nott (1861) 6 H&N 630 and Smurthwaite v Wilkins (1862) 11 CB(ns) 842. The endorser is not liable after he has endorsed over the bill of lading to another who is; the shipper remains liable as an original party to the contract. Two considerations seem to have weighed with the courts in these and the later cases. (See per Lord Lloyd of Berwick in Effort Shipping v Linden Management [1998] AC 605, at p 615-8.) The words “subject to the same liabilities” were to be contrasted with the words “have transferred to him”. The liability of the endorsee was to be additional to that of the original contracting party. The other was to follow the reasoning which underlay the Allen v Coltart line of authority. It is the use of the bill of lading to demand and take delivery of the goods which is the basis of liability. Thus Erle CJ said in Smurthwaite v Wilkins at p.848:
“Looking at the whole statute it seems to me that the obvious meaning is that the assignee who receives the cargo shall have all the rights and bear all the liabilities of a contracting party; but that if he passes on the bill of lading by indorsement to another, he passes on all the rights and liabilities which the bill of lading carries with it.”
He rejected the argument that the endorser having passed on all his rights to the endorsee should retain all his liabilities in respect of the goods, saying (p.849) –
“Such a construction might be very convenient for the shipowner but it would be clearly repugnant to one’s notions of justice.”
The judgment of Erle CJ was approved by the Earl of Selborne LC in Sewell v Burdick at pp.86-8 (see also p 83) and he echoed his language when he referred to a person who had had the bill of lading endorsed to him while the goods were at sea and who then chooses to take advantage of his possession of the bill of lading to “take the position of full proprietor upon himself with its corresponding burdens if he thinks fit”;
“and that he actually does so as between himself and the shipowner if and when he claims and takes delivery of the goods by virtue of that title.”
The Drafting of the 1992 Act:
26. By 1980 the difficulties in the 1855 Act had assumed serious proportions and the Act was failing to meet the needs of the mercantile community and the changed pattern of international trade and carriage by sea. There were other points of concern as well. In certain trades the use of paper bills of lading was becoming increasingly obsolete. Electronic documents were coming into use. Documents other than bills of lading were being used for the purposes previously served by bills of lading. Another related question which had to be considered particularly in the drafting of any new legislation was the concept when a bill of lading became ‘accomplished’, ie ceased to be capable of transferring rights to an endorsee (save by estoppel). This was always a potential problem under the 1855 Act but did not cause significant problems in practice. It was however a problem which would have to be faced by the draftsman of a replacement for the 1855 Act.
27. The existing state of the law having been recognised to be unsatisfactory, the question was referred to the Law Commission and the Scottish Law Commission. Their Joint Report, “Rights of Suit in respect of Carriage of Goods by Sea” (Law Com No 196; Scot Law Com No 130), was published in March 1991 and appended a draft Bill. They concentrated upon the carriage of goods by sea and the adequacy of the 1855 Act and did not in that Report make recommendations for the amendment of the Sale of Goods Act. They reviewed in detail the various aspects to which I have referred. They made recommendations for reform. They rejected as inadequate amendments to s.1 of the 1855 Act which would simply have removed the requirement that the holder should have become the owner of the goods “upon or by reason of” the endorsement or which would have removed all reference to property in s.1, so that it sufficed for the purposes of both rights and liabilities that the person was the holder of the bill of lading. They preferred instead an approach which severed the link between property and right of action and transferred the rights of suit to the holder without more, but not the liabilities. They recommended that there should not be an automatic linking of contractual rights and liabilities; pledgees would not be liable “unless they sought to enforce their security”. (§2.31) In support of their recommendation they said:
“The statutory assignment model of the 1855 Act is familiar to international traders. … Our reform is an evolutionary one which recognises that those parts of the 1855 Act which have worked well should be retained. …” (§2.34(iv))
As regards the point at which the bill of lading ceases to be a transferable document of title, they adopted the existing test of delivery of the goods to the person entitled to receive them. (§2.42) As regards the liability of the holder under the bill of lading, their recommendation was in essence that a holder who seeks to take the benefit of the contract of carriage should not be permitted to do so without the corresponding burdens. (§§3.15 to 3.22) I will come back later to what they said.
28. The recommendations are summarised in Part VII of the Report and the appended draft bill was designed to reflect those recommendations. The Bill was enacted without substantive amendment. Your Lordships are entitled to look at the Report in order to identify the mischief to which the Act is directed and, in the case of ambiguity, to help in resolving any such ambiguity.
The 1992 Act:
29. Not the whole of the Act is relevant to the present appeal. It is not necessary to quote those provisions which extend the descriptions of documents which are to be recognised as having a similar function to bills of lading nor the sections which revise s.3 of the 1855 Act. I will confine my quotation to what is directly relevant to bills of lading and the present appeal.
“An Act to replace the Bills of Lading Act 1855 with new provision with respect to bills of lading and certain other shipping documents.
1.
This Act applies to … any bill of lading …
Rights under Shipping Documents
2. (1) Subject to the following provisions of this section, a person
who becomes-
(a) the lawful holder of a bill of lading; …… shall (by virtue of becoming the holder of the bill …….) have transferred to and vested in him all rights of suit under the contract of carriage as if he had been a party to that contract. (2) Where, when a person becomes the lawful holder of a bill of lading, possession of the bill no longer gives a right (as against the carrier) to possession of the goods to which the bill relates, that person shall not have any rights transferred to him by virtue of subsection (1) above unless he becomes the holder of the bill – (a) by virtue of a transaction effected in pursuance of any contractual or other arrangements made before the time when such a right to possession ceased to attach to possession of the bill; or (b) as a result of the rejection to that person by another person of goods or documents delivered to the other person in pursuance of any such arrangements. (4) Where, in the case of any document to which this Act applies – (a) a person with any interest or right in or in relation to goods to which the document relates sustains loss or damage in consequence of a breach of the contract of carriage; but (b) subsection (1) above operates in relation to that document so that rights of suit in respect of that breach are vested in another person, the other person shall be entitled to exercise those rights for the benefit of the person who sustained the loss or damage to the same extent as they could have been exercised if they had been vested in the person for whose benefit they are exercised. (5) Where rights are transferred by virtue of the operation of subsection (1) above in relation to any document, the transfer for which that subsection provides shall extinguish any entitlement to those rights which derives – (a) where that document is a bill of lading, from a person’s having been an original party to the contract of carriage; or (b) in the case of any document to which this Act applies, from the previous operation of that subsection in relation to that document;
Liabilities under Shipping Documents
3. (1) Where subsection (1) of section 2 of this Act operates in relation to any document to which this Act applies and the person in whom rights are vested by virtue of that subsection – (a) takes or demands delivery from the carrier of any of the goods to which the document relates; (b) makes a claim under the contract of carriage against the carrier in respect of any of those goods; or (c) is a person who, at a time before those rights were vested in him, took or demanded delivery from the carrier of any of those goods, that person shall (by virtue of taking or demanding delivery or making the claim or, in a case falling within paragraph (c) above, of having the rights vested in him) become subject to the same liabilities under that contract as if he had been a party to that contract. (3) This section, so far as it imposes liabilities under any contract on any person, shall be without prejudice to the liabilities under the contract of any person as an original party to the contract. Interpretation etc 5. (1) In this Act “the contract of carriage” – (a) in relation to a bill of lading ….. means the contract contained in or evidenced by that bill; “holder”, in relation to a bill of lading, shall be construed in accordance with subsection (2) below; (2) References in this Act to the holder of a bill of lading are references to any of the following persons, that is to say – (a) a person with possession of the bill who, by virtue of being the person identified in the bill, is the consignee of the goods to which the bill relates; (b) a person with possession of the bill as a result of the completion, by delivery of the bill, of any indorsement of the bill or, in the case of a bearer bill, of any other transfer of the bill; (c) a person with possession of the bill as a result of any transaction by virtue of which he would have become a holder falling within paragraph (a) or (b) above had not the transaction been effected at a time when possession of the bill no longer gave a right (as against the carrier) to possession of the goods to which the bill relates; and a person shall be regarded for the purposes of this Act as having become the lawful holder of a bill of lading wherever he has become the holder of the bill in good faith. (3) References in this Act to a person’s being identified in a document include references to his being identified by a description which allows for the identity of the person in question to be varied, in accordance with the terms of the document, after its issue; and the reference in section 1(3)(b) of this Act to a document’s identifying a person shall be construed accordingly. (4) Without prejudice to sections 2(2) and 4 above, nothing in this Act shall preclude its operation in relation to a case where the goods to which a document relates – (a) cease to exist after the issue of the document; or (b) cannot be identified (whether because they are mixed with other goods or for any other reason); and references in this Act to the goods to which a document relates shall be construed accordingly. 6. (2) The Bills of Lading Act 1855 is hereby repealed.”
30. This Act, in accordance with the view expressed in the Report, retains much of the basic structure of the 1855 Act. Much of its increased length and complexity derives from the fact that it covers other documents – way bills and delivery orders – besides bills of lading. It makes separate provision for the rights and the liabilities of a bill of lading holder. S.2(1) makes being the lawful holder of the bill of lading the sole criterion for the right to enforce the contract which it evidences and this transfer of the right extinguishes the right of preceding holders to do so: s.2(5). There are two qualifications: in simplified terms, the holder can sue and recover damages on behalf of another with an interest in the goods, s.2(4), and the transfer of a bill of lading after it has ceased to give a right to the possession of the goods does not confer any right of suit against the carrier unless the transfer was pursuant to an earlier contract or to the revesting of that right after a rejection by a buyer, s.2(2) and s.5(2). In the present case the provisions of s.2 do not give rise to any problem. Until, anyway, the discharge of the propane from the vessel at Terneusen to Dow Europe in the second half of November 1993, the bills of lading remained effective to give a right to the possession to the cargo as against Bergesen. Both the contract between Stargas and Borealis and that between Borealis and Dow Europe were made before that time. Therefore, Borealis and Dow Europe were in January 1994 successively holders of the bills of lading who came within the provisions of s.2(1) and (2) and the extended definition of “holder” in s.5(2).
31. S.2 of the Act has adopted a different and more generous approach to the transfer of contractual rights than that adopted by s.1 of the 1855 Act in that it wholly omits the ‘property’ criterion. A party who takes a bill of lading as security, as a pledgee, has the contractual rights transferred to him under s.2. He can enforce them against the carrier or not as he chooses and may, if he chooses to do so, recover from the carrier also on behalf of the person with the full legal title (s.2(4)). This leaves the question whether the pledgee or similar person should come under any liability to the carrier. Under the 1855 Act he did not because he did not come within s.1 of that Act and acquired neither rights nor liabilities. The draftsman of the 1992 Act respected the commercial reasoning upon which Sewell v Burdick was based and did not require bankers and others taking the documents as security to have to accept any liabilities merely by reason of being the holders of the bills of lading. S.3(1) imposes additional requirements before a holder of a bill of lading comes under any contractual liability to the carrier. The solution adopted by the draftsman was to use the principle that he who wishes to enforce the contract against the carrier must also accept the corresponding liabilities to the carrier under that contract. This was the view expressed by the Earl of Selborne (sup.). It is the rationale of the cases leading up to Brandt v Liverpool. It is a principle of mutuality. It was spelled out in the Commissions’ Report.
“However, where the holder of the bill of lading enforces any rights conferred on him under the contract of carriage he should do so on condition that he assumes any liabilities imposed upon him under that contract.” (§3.15)
“We see in general no unfairness in making the person who either claims delivery or who takes delivery of the goods from being subject to the terms of the contract of carriage since in both cases the person is enforcing or at least attempting to enforce rights under the contract of carriage.” (§3.18)
“Furthermore it is unfair that the carrier should be denied redress against the indorsee of the bill of lading who seeks to take the benefit of the contract of carriage without the corresponding burdens.” (§3.22)
But it must be observed that all these statements in the Report, like the terminology used in the Act, are expressed in terms which refer explicitly to “the contract of carriage” and not to the right of the holder of the endorsed bill of lading to the possession of the goods as the bailor as against the bailee. It is thus categorising the delivery up of the goods in this context as the performance of a contractual obligation not a bailment obligation. This is not objectionable since where there is a contract of carriage the contract certainly includes a contractual obligation to deliver the goods. A bill of lading invariably includes words evidencing the carrier’s agreement to deliver the goods at destination to “or order or assigns” or words to that effect; the bailment is a contractual bailment. The relationship of the original parties to the contract of carriage is a contractually mutual relationship, each having contractual rights against the other. The important point which is demonstrated by this part of the Report, and carried through into the Act is that it is the contractual rights, not the proprietary rights (be they general or special), that are to be relevant. The relevant consideration is the mutuality of the contractual relationship transferred to the endorsee and the reciprocal contractual rights and obligations which arise from that relationship.
32. In giving effect to this intention, s.3 of the Act postulates first that the holder in question must be a person in whom the contractual rights of suit have been vested by s.2(1). The language of s.2(1) adopts and is identical to the corresponding words in the 1855 Act: “shall have transferred [to] and vested in him all rights of suit”. Section 3(1) paragraphs (a) and (b) relate to a person who, being a person who has those rights, chooses to exercise them either (a) by taking or demanding delivery of the goods or (b) by making a claim under the contract of carriage contained in or evidenced by the bill of lading. Both involve an enforcement by the endorsee of the contractual rights against the carrier transferred to him by s.2(1). Under (a) it is by enjoying or demanding the performance of the carrier’s contractual delivery obligation. Under (b) it is by claiming a remedy for some breach by the carrier of the contract of carriage. Each of (a) and (b) involves a choice by the endorsee to take a positive step in relation to the contract of carriage and the rights against the carrier transferred to him by s.2(1). It has the character of an election to avail himself of those contractual rights against the carrier. There are however difficulties which neither the drafting nor the Report faces up to. Whilst taking delivery is a clear enough concept – it involves a voluntary transfer of possession from one person to another – making a “demand” or “claim” does not have such a specific character and, what is more, may be tentative or capable of being resiled from, a point commented upon by Millett LJ in the Court of Appeal at [1999] QB 884C-D. Delivery brings an end to the actual bailment of the goods and is (save in special circumstances) the final act of contractual performance on the part of the carrier. Claims or demands may on the other hand be made at any stage (although usually only made after the end of the voyage) and there may at the time still be performance obligations of the carrier yet to be performed.
33. To ‘make a claim’ may be anything from expressing a view in the course of a meeting or letter as to the liability of the carrier to issuing a writ or arresting the vessel. A ‘demand’ might be an invitation or request, or, perhaps, even implied from making arrangements; or it might be a more formal express communication, such as would have sufficed to support an action in detinue. From the context in the Act and the purpose underlying s.3(1), it is clear that s.3 must be understood in a way which reflects the potentially important consequences of the choice or election which the bill of lading holder is making. The liabilities, particularly when alleged dangerous goods are involved, may be disproportionate to the value of the goods; the liabilities may not be covered by insurance; the endorsee may not be fully aware of what the liabilities are. I would therefore read the phrase “demands delivery” as referring to a formal demand made to the carrier or his agent asserting the contractual right as the endorsee of the bill of lading to have the carrier deliver the goods to him. And I would read the phrase “makes a claim under the contract of carriage” as referring to a formal claim against the carrier asserting a legal liability of the carrier under the contract of carriage to the holder of the bill of lading.
34. But this is not the end of this problem. The use of the word “demand” is problematic as is the phrase “or at least attempting to enforce rights” in §3.18 of the Report. (It seems that those who wrote §3.18 had in mind such exceptional situations as where the cargo is destroyed while the vessel is waiting to discharge at the discharge port and after a demurrage liability recoverable under the bill of lading has arisen – an intriguing and, if I may be forgiven for saying so, a relatively unilluminating example.) If the carrier accedes to the demand and gives delivery as demanded, the demand is subsumed in the taking of delivery. If the carrier rejects the demand, a new scenario arises: is the endorsee going to make a claim against the carrier for refusing to comply with the demand? If the endorsee chooses to let the matter drop and not to make a claim, what significance of the demand remains? What principle of mutuality requires that the endorsee shall nevertheless be made subject to the liabilities of a contracting party? What if the endorsee chooses to endorse over the bill of lading to another to whom the carrier is willing to and does deliver the goods? The task of the judge, arbitrator or legal adviser attempting to construe s.3(1) is not an easy one and it is necessary to try and extract from it some self-consistent structure.
35. So far I have been concentrating on paragraphs (a) and (b). Paragraph (c) presents further problems. It raises the relatively common situation where the vessel and its cargo arrive at the destination before the bills of lading have completed their journey down the chain of banks and buyers. The intended receiver has not yet acquired any rights under s.2(1). He is not entitled to demand delivery of the goods from the carrier. He may or may not be the owner of the goods but he quite probably will not at that time have the right to the possession of the goods; an earlier holder of the bill of lading may be a pledgee of the goods. This situation is dealt with commercially by delivering the goods against a letter of indemnity provided by the receiver (or his bank) which will include an undertaking by the receiver to surrender the bill of lading to the carrier as soon as it is acquired and will include any other stipulations and terms which the situation calls for. It may well at that time, either expressly or by implication, give rise to a Brandt v Liverpool type of contract on the terms of the bill of lading. But again the question arises: what is the character and the role of the demand referred to in paragraph (c)? Ex hypothesi, the intended receiver had no right to make the demand and the carrier had no obligation to accede to it unless there was some other contract between the receiver and the carrier, eg a charter party, which gave rise to that right and obligation in which case sections 2 and 3 have no application to that transaction. Paragraph (c) clearly involves an anticipation that the s.2(1) rights will be transferred to the receiver. The parenthesis which follows emphasises this: “by virtue of having the rights vested in him”. This shows that it is a necessary condition of the receiver’s becoming liable under s.3(1) that the rights are vested in him by the operation of s.2(1). The inclusion of the word “demanded” remains problematical. A rightly rejected demand for delivery by one who is not entitled to delivery is an act devoid of legal significance. What is significant is if the carrier decides (voluntarily) to accede to the demand and deliver the goods to the receiver notwithstanding the non-arrival of the bill of lading. Paragraph (c) does not include the making of a claim. The draftsman has accepted the irrelevance of a claim made by one who has no contractual standing to make it. Unless facts occur which give a relevance to the inclusion of the word “demanded” in paragraph (c), in my view the scheme of sections 2 and 3 requires that any such demand be treated as irrelevant for the purposes of s.3(1) and that the Act be construed accordingly. A ‘demand’ made without any basis for making it or insisting upon compliance is not in reality a demand at all. It is not a request made “as of right”, which is the primary dictionary meaning of “demand”. It is not accompanied by any threat of legal sanction. It is a request which can voluntarily be acceded to or refused as the person to whom it is made may choose. Accordingly it will be unlikely in the extreme that paragraph (c) will ever apply save where there has been an actual delivery of the cargo.
36. Taking delivery in paragraphs (a) and (c) means, as I have said, the voluntary transfer of possession from one person to another. This is more than just cooperating in the discharge of the cargo from the vessel. Discharge and delivery are distinct aspects of the international carriage of goods. (See generally Scrutton on Charterparties, 20th ed (1996): Section XIII) Although the normal time for delivering cargo to the receiver may be at the time of its discharge from the vessel, that is not necessarily so. There may be a through contract of carriage. The goods may need to be unpacked from a container. The vessel may need to discharge its cargo without delay into a terminal. The discharge of the vessel is a necessary operation in the interests of the ship as well as of the cargo and requires the cooperation of others besides the shipowner. Providing that cooperation should not be confused with demanding delivery. The unloading of one cargo is for the shipowner the necessary preliminary to the loading of the next. Damaged or contaminated cargoes may need especial discharge because they may cause damage or pollution. Any unnecessary delays will cost the shipowner money and a loss to the charterer through incurring demurrage or forfeiting dispatch. Where the vessel is operating under a charter party it is more likely than not that the obligation to discharge will be that of the charterer. The charterer will be responsible for providing or arranging a berth at which the vessel can discharge. Where the cargo is a bulk cargo which has been sold by the charterer to the intended receiver, the contract of sale may require the buyer to perform the seller’s charter party obligations in relation to the discharge of the vessel. The delivery to which s.3 is referring is that which involves a full transfer of the possession of the relevant goods by the carrier to the holder of the bill of lading. The surrender of the relevant endorsed bill of lading to the carrier or his agent before or at the time of delivery will ordinarily be an incident of such delivery. Where that is not done, the carrier will ordinarily require a letter of indemnity. The letter of indemnity will probably be the best evidence of what arrangement has been made and will probably contain appropriate express terms.
Kulkarni v Manor Credit (Davenham) Ltd
[2010] EWCA Civ 69 [2010] 2 Lloyd’s Rep 431, [2010] EWCA Civ 69, [2010] 2 All ER (Comm) 1017
Rix LJ
Another possible rationalisation is that for these purposes “contract of sale” means such a contract as amounts to a sale, as will occur (see above) where the parties intend the contract to transfer the property in the car there and then. (It might be said, however, that that makes the words “or contract of sale” redundant; and it may be important in another context to consider whether a purchaser is a “private purchaser” at the earlier time of an agreement to sell: see section 29(2) and GE Capital Bank Ltd v. Rushton [2005] EWCA Civ 1556, [2005] 1 WLR 899.) Another possible rationalisation is that nothing counts as a relevant disposition until a particular motor vehicle has been identified. That is because section 27 is concerned with property and title in a particular identifiable motor vehicle: see “the property in the vehicle” and “a purchaser of the vehicle in good faith”. On that basis, there could in any event be no “disposition” until the car labelled as VK08 EVF had been (irrevocably) identified with the goods to pass under Dr Kulkarni’s contract. A third rationalisation may be that the definition of “disposition” provides true alternatives, so that as long as there is something which counts as a disposition within the statutory window, then section 27 may work its power.
Be that as it may, Mr Ross made it plain that his concession was made. If there was a passing of property or purported passing of property at a time when Gwent was a hirer of the car from Manor Credit, then Dr Kulkarni would obtain a good title under section 27; but if property had purportedly been transferred to Dr Kulkarni before that time, then there would be no assistance to Dr Kulkarni to be derived from that section. Thus there was no concession in relation to anything which occurred after Dr Kulkarni’s agreement had fructified into a sale (or purported sale). Once there had been a final transfer of property under his agreement with Gwent, it was too late to talk of any further “disposition” under the 1964 Act.
All this explains why it became important to identify the latest moment when a mere agreement to sell fructified into a sale (or at least a purported sale) under which transfer of the property in the car was intended to be transferred. If that was before Gwent became Manor Credit’s debtor under their hire purchase agreement, then the disposition in question fell outside the protection of section 27 and Dr Kulkarni received no aid from it to establish a better title than Manor Credit’s.
In the circumstances, the question became when Gwent and Dr Kulkarni intended property in the car to be transferred to Dr Kulkarni, a question of sale of goods law.
Transfer of property under the SGA 1979
Manor Credit’s case was that the judge was right to say that such transfer took place by 11 March and that rule 5(1) of section 18 of the SGA 1979 provided the answer. Dr Kulkarni’s case, however, was that there was no intention to transfer the property until delivery itself. As of 11 March there had been no unconditional appropriation: there could be no such appropriation, nor any relevant assent on the part of Dr Kulkarni at a time when Gwent did not have any property in the car. Dr Kulkarni could not be taken to assent to the appropriation of a car in which Gwent had no property to transfer. Alternatively, the car was not in a deliverable state without its registration plates being attached to it. In any event, rule 5(1) was only a prima facie rule. There could be no intention to pass property in a car in which Gwent had no property. In such circumstances, property would not pass until delivery (see rule 5(2)). That was in any event the better view of what parties to such a contract of sale should be taken to intend, namely that property passes with delivery.
I refer to the Appendix to this judgment where relevant provisions of the SGA 1979 are collected. In brief, however, we are concerned in this case with a contract for the sale of unascertained or future goods. In such a case, no property is transferred unless and until the goods are ascertained (section 16). Where, however, there is a contract for the sale of specific or ascertained goods, property in them is transferred at such time as the parties intend it to be transferred, and for these purposes regard shall be had to the terms of the contract, the conduct of the parties and the circumstances of the case (section 17). (In terms section 17 appears to apply only to contracts for the sale of specific or ascertained goods, but in practice it has come to be applied to contracts for the sale of unascertained goods as well, once they have become ascertained.) The statute also contains working rules for discovering that intention “Unless a different intention appears”. Those rules are set out in section 18. The rules with which we are concerned in this case are rules 5(1) and (2).
Rule 5(1) for present purposes requires (i) “goods of that [ie the contractual] description”; (ii) “in a deliverable state”; (iii) which have been “unconditionally appropriated to the contract” by the seller; (iv) “with the assent of the buyer”, which assent may be given either before or after the appropriation. No one has argued here for a prior assent by Dr Kulkarni. There is no suggestion that VK08 EVF did not comply with the contractual description. The three matters which it is therefore necessary to consider are (ii), (iii) and (iv).
Rule 5(2), which until the addition of rules 5(3) and 5(4) pursuant to the Sale of Goods (Amendment) Act 1995 was the last of the rules to be set out under section 18, represents a form of long stop prima facie rule, which is that, save where the seller reserves a right of disposal, delivery to the buyer (or to a carrier or other bailee or custodier for transmission to the buyer) amounts to an unconditional appropriation of the goods. For these purposes there is no need for there to be any assent by the buyer, the rule presupposes that the goods are in a deliverable state without making that a condition of the intention to transfer property, and the goods are deemed to have been unconditionally appropriated, whether they have been or not. There is of course no theoretical need for transfer of property and delivery to coincide, just as there is no theoretical need for delivery and payment to occur at the same time, or of property and risk to pass at the same time. However, in the absence of a right of disposal where the price has not yet been paid, and in the absence of any earlier transfer of property, delivery is likely to be the time when parties would intend property to pass.
The passing of risk is dealt with in section 20. Unless otherwise agreed, the goods remain at the seller’s risk until property is transferred: upon transfer risk passes to the buyer as well, whether delivery has been made or not. But not in the case of a consumer sale. By an exception first introduced pursuant to the Sale and Supply of Goods to Consumers Regulations 2002, section 20(4) of the SGA 1979 now provides that where the buyer deals as consumer, the goods remain at the seller’s risk until delivery to the consumer. That is presumably to protect a consumer to whom property and risk may have passed, but to whom delivery has not yet been made.
Deliverable state
The definition of “deliverable state” is contained in section 61(5) of the SGA 1979, viz “such a state that the buyer would under the contract be bound to take delivery of them”. It is true that the absence of the registration plates was in one sense a trivial matter which certainly did not fundamentally affect the condition or the quality of the car in question. However, it could not be lawfully driven by Dr Kulkarni without them. If Gwent had proposed delivery of the car to Dr Kulkarni without putting them on, he would have said that the car was of no use to him without its plates. The judge seems to have considered that there was a substantial question as to when in this case the plates were attached to the Mercedes, for in para 16 he said that –
“The only thing that might be said in respect of this Mercedes was that until it actually had a number plate affixed to it, it might not be said to be in a deliverable state, but I reject that argument. It seems to me that it would be in a perfectly deliverable state without actually having a number plate affixed to it, even though actually at the time that that event arises Gwent would not in fact have been able to deliver it.”
The judge therefore contemplated that, without registration plates attached, Gwent would not even have been able to deliver the car. Whether that is so or not, for dealers are, I believe, entitled to transport cars with their own dealer plates attached, the judge found that without its individual registration plates Gwent would not have been able to deliver the car. Either for that reason or because in any event Dr Kulkarni would not have been able to drive the car without its registration plates attached, which is possibly what the judge meant by his observation, and in circumstances where there was no evidence that, at any material time prior to the time of delivery, the car had its registration plates attached, the car was not shown to have been in a deliverable state as of 11 March (even if at that time it might have become ascertained goods by being appropriated to the contract). In my judgment, Dr Kulkarni would not have been bound to have taken delivery of the car without registration plates attached.
I would therefore be prepared to hold that there is no evidence that rule 5(1) was fulfilled in this respect before Gwent became Manor Credit’s debtor under their hire purchase agreement. In such a case, Dr Kulkarni could establish that he had become a purchaser of the car under a disposition which first took place at the time of delivery, and thus when Gwent was in a position to transfer the property in the car under the nemo dat exception contained within section 27. That is enough to entitle Dr Kulkarni to judgment in his favour and thus to succeed on his appeal.
On behalf of Dr Kulkarni, Mr Christopher Purchas QC had prepared a skeleton argument which sought to argue in addition that the car was not in a deliverable state for reasons unconnected with its physical state and which resided in the fact that at what might otherwise have been the time intended for transfer of the property in the car Gwent lacked any title to transfer. However, at the appeal hearing he abandoned that wider argument, in my judgment correctly. See, for instance, Underwood Ltd v. Burgh Castle Brick and Cement Syndicate [1922] 1 KB 343 (CA) at 345 – “It depends on the actual state of the goods…” per Bankes LJ; see also Benjamin on Sale, 6th ed, 2002, para 5-023, “The goods must therefore be in a physical condition in which the buyer can take delivery and in which it has been agreed that he shall take delivery under the contract.”
Unconditional appropriation and assent as indicators of intention
If that conclusion about deliverable state be wrong, the next question which would arise would be whether there was an unconditional appropriation of the car with the assent of Dr Kulkarni, ie factors (iii) and (iv) above. The judge considered that there had been such an appropriation, and that therefore property in the goods had been intended to be transferred to Dr Kulkarni by at latest 11 March. He said (at para 17):
“Once the identity of the vehicle had been obtained by obtaining a number plate, or rather a registration number of the vehicle, because that must refer to a specific vehicle, then those goods are unconditionally appropriated to the contract, and it is done by the seller with the implied consent of the buyer. At the very latest the buyer assents to that by insuring the vehicle on 11th March. I have to say that that seems to me to be an unassailable argument.”
Subject to the ultimate question of intention, for of course rule 5(1) is only a prima facie rule, the judge’s proposition appears to have a rough good sense to it. Authority, however, suggests that the rule is not after all so very easily fulfilled, at any rate as an indicator of the parties’ intentions. This is in part because the statutory presumptions are not difficult to rebut. As Diplock LJ said in Ward v. Bignall [1967] 1 QB 534 at 545 –
“in modern times very little is needed to give rise to the inference that the property in specific goods is to pass only on delivery or payment.”
A number of cases illustrate the flexibility of the law. Thus in Varley v. Whipp [1900] 1 QB 513 the buyer bought, sight unseen, a second hand reaper under a certain description, viz that it was nearly new as having been used to cut only about 50 to 60 acres. The reaper was sent to the buyer by rail, and on its arrival the buyer complained that it did not comply with its description, being old and mended. The seller sued for the price. The divisional court treated this contract for the sale of specific goods under section 17, not under section 18, and held that property could not have been intended to pass in goods which did not comply with their description until they had been inspected and accepted, which the reaper had not been. The seller therefore failed in his action. In the present case, there was no problem about the car’s description, but there was a breach of the implied condition as to title.
In Noblett v. Hopkinson [1905] 2 KB 214 the buyers bought and paid for a half gallon of beer from a publican. The purchase was made on a Saturday and the beer was drawn off and put aside for delivery on the Sunday. The publican was proceeded against for selling liquor on the Sunday. The issue was whether there had been a transfer of property in the beer on the Saturday. The magistrates found that transfer of the property had been effected on the Saturday. The divisional court however held that that was wrong in law, as property had not been transferred until the Sunday. Lord Alverstone CJ said that the correct inference was that what was done by the publican was under his own responsibility and that “if the bottle of beer had been broken during the Saturday night, other beer would have had to be supplied to the men on the Sunday morning” (at 219). There was no sufficient appropriation.
In Ollett v. Jordan [1918] 2 KB 41 the sale was of herrings, despatched by rail by a seller in Hull to a buyer in Eastbourne. The issue under the Public Health Act 1875 was whether the seller had “exposed for sale” the herrings in an unmerchantable condition. They were in good condition on despatch, but bad on arrival. If property had been transferred on despatch, the seller was not guilty. The question was therefore whether there had been such an appropriation as would transfer the property. It was held that as the buyer had a right to inspect and reject the herrings, property had not passed on despatch, and the seller’s acquittal by the magistrates was reversed on appeal.
The famous case of Rowland v. Divall [1923] 2 KB 500 (CA) concerned a car which had been sold by a seller who had no title to it, for it turned out to have been stolen. After the buyer had used the car for some time, it was recovered by the police for its true owner, and the buyer sued the seller to recover the price. He was held by this court to have been entitled to do so, on the ground that there had been a total failure of consideration, since the seller had contracted to transfer the property in the car but had failed to do so. Bankes, Scrutton and Atkin LJJ agreed in the result. Atkin LJ said (at 506):
“He paid the money in order that he might get the property, and he has not got it. It is true that the seller delivered to him the de facto possession, but the seller had not got the right to possession and consequently could not give it to the buyer.”
He also (controversially) said “there can be no sale at all of goods which the seller has no right to sell” (at 506), but I do not rely on that.
Finally, in Carlos Federspiel & Co SA v. Charles Twigg & Co Ltd (1957) Ll Law Rep 240 the buyer paid in advance for goods to be shipped. The seller failed before shipment, and his receiver refused to ship without a second payment. It was held that he was entitled to do so, since there had been no appropriation and thus as yet no transfer of property. Pearson J reviewed the law from the early nineteenth century. Among the cases which he examined was Mucklow and Others (Assignees of Royland) v. Mangles (1808) 1 Taunt 318, where a buyer had paid for the whole cost of a barge to be constructed, and his name had been painted on it, but the seller sold the barge to a third party and it was held that property had not yet been transferred to the original buyer. Another case was Wilkins v. Bromhead and Hutton (1844) 6 M&G 963, where the buyer had assented to an appropriation of a greenhouse which had been constructed for him: the buyer remitted the price to the seller and asked him to keep it for him. That was a clear case, but the judgment of Tindal CJ is interesting for the following observation (at 974):
“If a purchaser’s assent to the appropriation was shown to have been obtained by misrepresentation, it seems to me it would probably be held to be no assent at all.”
So, in the present case, if Dr Kulkarni’s insurance of the car is to be taken, as the judge thought, as an assent to Gwent’s appropriation, it might be said that such an assent was given on the basis of the implied representation and understanding that at that time Gwent had the property in the car which it would need to have if it was to transfer that property which it had promised to transfer at a time when the agreement to sell matured into a sale. On that basis, Dr Kulkarni’s assent would be no assent.
On the basis of his review of such cases Pearson J restated the following principles at 255/6:
“Therefore the element of common intention has always to be borne in mind. A mere setting apart or selection of the seller of the goods which he expects to use in performance of the contract is not enough. If that is all, he can change his mind and use those goods in performance of some other contract and use some other goods in performance of this contract…
Secondly, it is by agreement of the parties that the appropriation, involving a change of ownership, is made…
Thirdly, an appropriation by the seller, with the assent of the buyer, may be said always to involve an actual or constructive delivery. If the seller retains possession, he does so as bailee for the buyer…
Fourthly, one has to remember Sect. 20 of the Sale of Goods Act, whereby the ownership and the risk are normally associated. Therefore as it appears that there is reason for thinking, on the construction of the relevant documents, that the goods were, at all material times, still at the seller’s risk, that is prima facie an indication that the property had not passed to the buyer.
Fifthly, usually but not necessarily, the appropriating act is the last act to be performed by the seller…But if there is a further act, an important and decisive act to be done by the seller, then there is prima facie evidence that probably the property does not pass until the final act is done.”
Applying those principles, Pearson J concluded that (1) the intention was that the ownership should pass on shipment because shipment was emphasised as the decisive act; (2) there was nothing in the parties’ correspondence to indicate any change in that intention; (3) there was no actual or constructive delivery; (4) there was no suggestion of the goods being at the buyer’s risk before delivery; and (5) there was no delivery or sending for delivery. Therefore property had not passed.
That was an international sale of goods in commerce. The present case is the standard case of the domestic sale of a car to a consumer. It has to be acknowledged that such a purchaser who has paid up front for a car yet to be sourced would be protected by obtaining title to a car, once identified and sufficiently appropriated, in the dealer’s showroom or garage, were the dealer to become insolvent. Nevertheless, the present case shows that there are equal dangers in losing the protection of section 27 if property passes too early. I do not think that one can argue backwards from the consequences in any particular case to the prospective intentions of the parties. In the meantime the standard provision in a consumer case that risk remains with the seller until delivery will protect the buyer against all risk except insolvency. As to that risk in the present case, the fact is that Dr Kulkarni was prepared to trust Gwent with his cash at a time when he had no possibility of having property in a car yet to be sourced or ascertained.
Mr Purchas submitted that in the case of the sale of a car to a consumer property is in general not intended to pass until delivery, and I think that there is force in that submission, at any rate where as here the contract is not for the sale of a specific car and the buyer has never seen the car. Generally speaking, it will be on delivery that the buyer will be able to inspect the car, if new, for its specification, and if second-hand, for any work which the dealer has been asked to do to it. It is on delivery that the buyer will be handed the car’s log-book or registration document (not a matter considered by the judge). Although such a document speaks to the car’s keeper, not its owner, it is I think well recognised that a legitimate buyer would not readily assent to complete the sale of a car without getting its log-book. It is at latest on delivery that the dealer will have ensured that he is paid. It is, I would think, for and from the time of delivery that the buyer insures the car. The special rule as to risk, although perhaps designed to protect a consumer even where property may have passed before delivery, is apt for a passing of property on delivery. The consumer will have little knowledge of the rules of section 18 of the SGA 1979, but he or she will have in their mind the adage that possession is nine points of the law, and that points to the time of delivery as well. Moreover, such a result seems on the whole to fit into the apparent circumspection of the law, indicated by the review conducted by Pearson J, about any assumption that the parties are too readily supposed to intend that property passes under rule 5(1).
I would therefore have wanted some good evidence that the parties in this case had intended the property in the Mercedes to pass prior to delivery before solving the issue on the basis of the rule 5(1) presumption. The judge thought that he had that evidence above all in Dr Kulkarni’s insurance of the car, identified as it would have to be by its registration number. However, as I have pointed out above, there is no finding as to the time from which Dr Kulkarni insured cover for the car. If, as I would in the absence of evidence infer, Dr Kulkarni only insured it from the time of its expected delivery, then this matter of insurance, so far from pointing towards a solution in terms of rule 5(1), actually points against it.
Moreover, on the facts of this case, Gwent never had property in the car to transfer to Dr Kulkarni. It knew that it did not, and it knew that it had no intention of fulfilling its contract to transfer property in the car to its buyer. It knew therefore that any assent by Dr Kulkarni to the appropriation of a car in which Gwent had no property had been procured by its own dishonest pretence. Dr Kulkarni of course did not know the truth of the situation, but it could not be supposed on any objective basis that he would assent to an appropriation to him and thus to the transfer of title there and then in respect of a car in which his seller, Gwent, lacked title. Could a seller who knows that he lacks the property in goods which he appropriates to a contract reasonably think that his buyer would assent to such an appropriation as the means and moment of transferring property? In my judgment, no.
It seems to me that in such a situation, rule 5(1) is unlikely to provide a solution to the question of the parties’ intentions. The rule assumes that the goods which a seller proposes to appropriate unconditionally to his contract, so that with the assent of his buyer property should be transferred then and there to that buyer, are goods in which the seller has property with which to perform his section 12(1) obligation. If, therefore, a seller lacks property in the goods, his appropriation to the contract of goods in which he has no property, a fortiori where he knows he has no property, is unlikely to be any more reliable as an indication of his or the parties’ intentions than his appropriation of goods which are not in a deliverable state, or of goods which are not goods of the contract description.
A seller might in some circumstances not know that he lacks property in the goods, and therefore in his ignorance he might intend to transfer a property that he does not have. That however is not this case. Gwent knew that it had no property, and for his part Dr Kulkarni could not be thought of as intending to assent to an appropriation which his seller knew could not transfer to him the property which, if rule 5(1) were to be applied, would be required to be transferred.
In such circumstances, it seems to me that the agreement to sell would only mature into a sale, or purported sale, with actual delivery of the goods itself. That would reflect the presumption in rule 5(2), which focuses on delivery, deems an unconditional appropriation then to occur, and has no requirement for the buyer’s assent. Thus, I should not be thought of as saying (despite the great authority of anything falling from Atkin LJ) that a seller cannot complete a sale if he lacks full rights of ownership in the goods. Where he lacks full title, he may well transfer such property as he has, such as a possessory title. As it happens, in the present case there is no finding even as to whether Gwent had possession of the car on 11 March.
Such a solution would also reflect the principles derived by Pearson J from his examination of the topic in Federspiel. Thus in terms of those principles I would say that: (1) delivery was here looked to as the decisive act which would transfer both possession and property; (2) there was nothing in the parties’ communications which indicated an intention otherwise; (3) there was no actual or constructive delivery, no sense in which Gwent became the bailee of Dr Kulkarni’s car; (4) the car was not at Dr Kulkarni’s risk before delivery; and (5) in the circumstances of Gwent’s fraud the parties should not be taken to intend anything prior to actual delivery of the car to turn their agreement into a sale.
It is not that Gwent may not have appropriated the car to the contract and done so unconditionally. It is rather that in the circumstances of the case such an appropriation should not be regarded, under a merely presumptive rule, as intended to transfer the property in the car to Dr Kulkarni.
Conclusion
It follows that, for all or some of those reasons, the terms of section 27 applied to this case, and Dr Kulkarni is entitled to judgment. His appeal must therefore be allowed.
Lord Justice Wilson :
I agree.
Sir Scott Baker :
I also agree.
Atari Corp (UK) Ltd v Electronics Boutique Stores (UK)
[1997] EWCA Civ 2099 [1998] 1 All ER 1010,
Waller LJ
Both parties commenced their arguments as to whether the defendants had successfully exercised their right under the term allowing for Sale Or Return by reference to Section 18 Rule 4 of the Sale of Goods Act 1893 which, so far as material, provides as follows:-
“Unless a different intention appears the following are rules for ascertaining the intention of the parties as to the time at which property in the goods is to pass to the buyer …
Rule 4 – When goods are delivered to the buyer on approval or on sale or return or other similar terms the property therein passes to the buyer:-
(a) When he signifies his approval or acceptance to the seller or does any other act adopting the transaction;
(b) If he does not signify his approval or acceptance to the seller but retains the goods without giving notice of rejection, if a time has been fixed for the return of the goods, on the expiration of such time. …”
We were also referred to Benjamin on Sale 5-051 which deals with sale or return, and what Benjamin suggests constitutes a notice of rejection under Section 18 Rule 4. Authorities on the subject are sparse but the key sentence is:-
“It is probable (my emphasis) that any intimation to the seller which clearly demonstrates that the buyer does not wish to exercise his option to purchase will suffice, but it is open to the parties to agree that the buyer shall be entitled to reject only by returning the goods”.
What that sentence demonstrates is that the starting point must be to construe the terms of the particular contract providing for Sale Or Return, and decide what in the particular agreement the parties mean by Sale or Return or, as in this case, “Full Sale Or Return until 31st January 1996”. For example “full Sale Or Return until 31st January 1996” could be construed as requiring the actual physical return of the goods to the seller prior to 31st January 1996; alternatively, it could be construed as requiring the buyers to have the goods which they intended to return available for collection prior to the 31st January 1996, (and thus a requirement for notice to the plaintiffs to enable that to be achieved); alternatively, it could be construed as the buyers having the right until 31st January 1996 to notify the sellers that they were exercising the right to return the goods the obligation thereafter being to have the same available after 31st January 1996; and there may be other possible constructions. If on a proper construction of the terms it is a case where a notice must be given, what the notice must contain and when it must be given will also need resolution. For example, (1) is it permissible to give a notice that goods will be available for collection at some future date, or must the notice allow the plaintiff to take immediate delivery in order to be effective? (2) Can the notice describe the goods generically for them to be specifically ascertained only at the time of collection?
LORD JUSTICE PHILLIPS
I agree that this appeal must be allowed. To explain why, it is first necessary to analyse the nature of the contracts in this case in the light of basic principles of the law of contract. I do not propose to repeat the material facts, which are set out in the judgment of Waller L.J.
Offer
In a simple case a contractual offer will remain open for acceptance until (i) it is withdrawn or (ii) it is rejected or (iii) the time for which the offer was stated to remain open, or, if no time was specified, a reasonable time, has elapsed.
Acceptance
Acceptance may be by word, spoken or written, communicated to the offeror, or, if the terms of the offer so permit, may be by conduct.
Withdrawal
An offeror is usually free to withdraw his offer at any time prior to acceptance, even if he has stated that the offer will remain open for acceptance for a specified period.
Rejection
Rejection takes place when the offeree communicates to the offeror that the offer that has been made is rejected.
A contract of sale of goods
A contract of sale of goods is :
“a contract by which the seller transfers or agrees to transfer the property in goods to the buyer for a money consideration, called the price”
Sale of Goods Act 1979 S.2(1).
A contract on terms of sale or return
Benjamin’s Sale of Goods, 4th Ed., describes the effect of delivery on “sale or return” as follows:
A person to whom goods are delivered on “sale or return” has a true option to buy, in the sense that he is free to buy or not as he chooses. In such a transaction the goods are bailed to a prospective buyer on the understanding that he may buy them at a stated price: he may elect either to buy or to return the goods, and by the terms of the agreement, or in accordance with the presumed intention of the parties set out in section 18, rule 4, of the Sale of Goods Act 1979, will be deemed to have bought them in certain events if he does not give notice of rejection. Since the property remains in the bailor until there is an election to buy, and the bailee is not until such time under any obligation to buy, there is no contract of sale within the meaning of the Act.
Where goods are supplied pursuant to a “sale or return” agreement, a contract is nonetheless concluded. Such a contract was described by Lord Esher M.R. in Kirkham v. Attenborough [1897] 1 QB 201 at p.203 as follows:
This contract is so common in business that it is well known to the Courts, and has been interpreted, and all Courts will now adopted the interpretation which has been put upon it. In the absence of other terms the contract does not pass the property in the goods directly it is made. The person who has received them may return them, but the person who has entrusted them to another cannot demand their return, and his only remedy is to sue for their price or value.
Section 18 of the Sale of Goods Act 1979 makes the following provisions in relation to the passing of property where goods are delivered on sale or return:
“unless a different intention appears… the property in the goods passes to the buyer:
(a) when he signifies his approval or acceptance to the seller or does any other act adopting the transaction;
(b) if he does not signify his approval or acceptance to the seller but retains the goods without giving notice of rejection, then, if a time has been fixed for the return of the goods, on the expiration of that time, and, if no time has been fixed, on the expiration of a reasonable time.
An ordinary agreement for the supply of goods on sale or return thus has the following features:
– the seller cannot withdraw his offer to sell the goods;
– the buyer can accept by signifying acceptance to the seller, or by an act adopting the transaction, or by keeping the goods beyond the agreed period or, absent agreement, a reasonable period.
– the buyer can give a notice of rejection.
In my judgment the notice of rejection referred to by the 1979 Act is no more than the notice that an offeree can always give that a contractual offer is rejected.
Until the property passes, the prospective buyer holds the goods as bailee. The Act makes no provision as to what he has to do with the goods if he gives notice of rejection. It seems to me that his duty at this point must depend upon the express or implied terms of the contract. He may simply have to hold the goods at the seller’s disposal or he may have to return them to the seller. To be effective, a notice of rejection must be given before the property in the goods has passed. If a buyer so acts as to render it impossible for him to perform whatever the contract requires after rejection, e.g. if he ships the goods overseas to a potential sub-purchaser, such conduct is likely to constitute an act adopting the transaction, so that he cannot thereafter give a valid notice of rejection.
It is open to the parties to agree that the prospective buyer is not entitled to give a notice of rejection but will be deemed to have accepted the goods unless he returns them physically to the buyer within the “sale or return” period. Such a case was Ornstein v. Alexandra Furnishing Company (1895) 12 TLR 128. The Plaintiffs accept that no such term falls to be implied in the present case.
The present contracts
The contracts which are the subject of this appeal have two unusual features. (1) The contract price is payable before the expiry of the agreed “sale or return” period. (2) The “sale or return” condition does not apply to all the goods the subject of the transaction, but permits the Defendants to purchase some and reject others. The first feature has, in my judgment, no relevance. It is the second that has led to the dispute.
The position at the date of the alleged rejection
By the 19th January 1996, when the Defendants wrote the letter that they contend constituted a notice of rejection, they had distributed the goods to the stores in their chain and, through those stores, had sold approximately 25% of those goods. They had also taken delivery of other goods of the same types as those the subject matter of this dispute, which were not on “sale or return” terms.
The Defendants’ Case
Mr Leggatt, Q.C., helpfully summarised the Plaintiffs’ case as follows:
In the absence of a contrary intention, if goods are supplied on ” sale or return ” it is not necessary for the buyer, in order to exercise his right of “return”, physically to redeliver to the seller those goods which he does not wish to keep. The buyer can “return” goods to the seller within the meaning of such a provision at the place where the goods were delivered to him by making the goods available for collection there and sending a notice to the seller informing him that the goods are rejected. Two requirements, however, must be satisfied:
(1) The notice given to the seller must describe the goods which are being rejected with sufficient specificity, not merely to make those goods capable in principle of being identified by inquiry ex post facto , but to leave the seller in no reasonable doubt about what goods fall within the description at the time when the notice is given (with the effect that the right to immediate possession of those goods is now revested in the seller); and
(2) The buyer, although he does not need to send the goods described in the notice back to the seller, must make the goods available at the time when and place where the goods are being ” returned”.
NOTE
This formulation assumes that the notice is intended to take effect immediately. In principle it would seem possible to exercise a right of return by sending a notice of rejection which is expressed to take effect, not immediately, but at a specified later date (within the time fixed for return). In such a case the relevant time by which the buyer would need to have sufficiently identified to the seller what goods were being rejected and to have made those goods available for collection would be the date when the notice took effect and the goods were thus ” returned” within the meaning of the ” sale or return ” provision. But on any view this is not such a case – the Defendants’ contention is that the letter of 19 January 1996 gave notice of immediate rejection.
Hooper J. accepted that the first requirement had been applicable and that it had not been satisfied. Before us Mr Leggatt further submitted that the second condition was not satisfied either.
In my judgment Mr Leggatt’s second requirement and his Note confuse two different matters – the notice of rejection and the defendants’ obligations after rejection. To be effective the notice of rejection simply had to give notice that the Defendants rejected the Plaintiffs’ standing offer to sell those goods in respect of which the property had not yet passed to the Defendants. Such notice, if valid, was of immediate effect. Thereafter the Defendants were obliged to do whatever the contract required to restore the goods to the plaintiffs. What the contract required and whether there was a failure to comply with that requirement were not in issue before the Judge, nor are they in issue before us. A case might have been made that the Defendants, by intermixing the goods with other similar goods, or by otherwise disposing of the goods, had “adopted the transaction” in relation to them, so that the notice of rejection could not apply to them. Once again, such a case was not before the Judge. He was simply concerned with an application for summary judgment based on the contention that the notice was bad on its face for want of certainty.
Certainty
Where a seller offers goods for sale on terms that the buyer can accept all or part of the goods, a rejection of the offer in relation to part only of the goods cannot have legal effect unless it identifies with certainty the goods to which it relates. So much was accepted by Mr Underhill, Q.C., for the Defendants. He submitted, however, that this identification did not have to be effected by listing the goods in question. It sufficed for the notice to identify them generically, provided that the generic description would enable the goods to be identified with certainty. Mr Underhill submitted that the notice in this case satisfied that requirement. It related expressly to the goods in all the stores and, implicitly, only to those goods which had been supplied on sale or return terms. Alternatively, if the notice related to all goods remaining in stock, whether subject to sale or return term or not, it would still be valid in relation to the goods covered by that term.
Mr Leggatt argued that to be valid the notice had to inform the Plaintiffs precisely what stock was covered by it, so that they would be in a position to take appropriate action, such as selling the goods in question to another purchaser.
In my judgment, Mr Underhill’s argument is to be preferred. The Defendants had been steadily accepting the goods on offer by disposing of them, thereby “adopting the transaction” in relation to them. While they were periodically informing the Plaintiffs of the goods so sold, the Plaintiffs did not have up to date information as to what was sold and what remained. Just as the Plaintiffs had no entitlement to immediate notification of precisely which goods were accepted in this way, I can see no basis for contending that they were entitled to immediate notification of precisely which goods remained in their ownership when the Defendants gave notice of rejection in relation to the goods unsold. The notice was, in my judgment, a valid notice and one that disentitled the Plaintiffs to payment for the goods to which it related. Accordingly, I would allow the appeal, concurring in the result proposed by Waller L.J.
Spencer v S Franses Ltd
[2011] EWHC 1269
Thirlwall J
The other issues do not in practice arise, but given the time and effort that was expended in evidence and argument upon them I set out my conclusions.
Did the Defendant have a common law right to enquire as to title?
Conclusion
The Defendant did not have a common law right to enquire as to title. Even if it did, the right was not exercised within a reasonable time.
Discussion and Reasons
It was Mr McLinden’s primary submission in closing that a bailee has no right to make reasonable inquiries as to title where the immediate Claimant is the bailor of the possessor. He refined that submission to include the following: “at least in the absence of a positive demand from a third party.” The submission was accompanied by a comprehensive and impressive analysis of the authorities and writings on bailment, a subject I have not found easy.
The primary submission took Mr. Legge by surprise since it represented a shift from the Claimant’s position in opening. I allowed Mr Legge to reply at some length in oral submissions. It was the Defendant’s case, essentially, that because as at early 2009 the Defendant was on notice as to the rights of third parties it had a common law right to enquire as to title, subject to a requirement that the right should be exercised within a reasonable period. Mr Legge submitted that the Defendant had exercised its right accordingly in early 2009.
Mr McLinden’s secondary submission was that if the Defendant had a right to make enquiries as to title the right had to be exercised in good faith and within a reasonable time (see Tavoulareas v Lau [2007] EWCA Civ 474). The Defendant, he submitted, was not acting in good faith and failed to exercise its right in anything like a reasonable time.
There are thus 3 questions: first, is there a common law right? If there is did the Defendant exercise it in good faith and did he exercise within a reasonable time? As is plain from the rest of my judgment I am satisfied that the Defendant was acting in good faith. I turn then to the other two questions.
Common law right
In closing submissions Mr McLinden went back to first principles. He relied on the following statement of the position in Bridge Personal Property Law (3 ed) at 29:
“Commerce…would become paralysed if the care and deliberation taken when investigating title to land were also taken when chattels are bought and sold. This is why the owner of a chattel may be described as the person with the best possessory interest in it. The affinity between possession and ownership has long been recognized by the law.”
Mr McLinden reminded me of the decision of the Court of Appeal in Costello v Chief Constable of Derbyshire Constabulary [2001] 1 WLR 1437 where the police were obliged to return to a car thief a stolen car because the true owner had not been found and the thief had greater title to the car than anyone but the true owner In giving the judgment of the Court Lightman J said at [31]:
In my view on a review of the authorities, (save so far as legislation otherwise provides) as a matter of principle and authority possession means the same thing and is entitled to the same legal protection whether or not it has been obtained lawfully or by theft or by other unlawful means. It vests in the possessor a possessory title which is good against the world save as against anyone setting up or claiming under a better title. In the case of a theft the title is frail, and of likely limited value (see e.g. Rowland v Divall [1923] 2 KB 500, [1923] All ER Rep 270), but none the less remains a title to which the law affords protection.
Mr Legge did not disagree with the statement in Bridge on the judgment in Costello but he submits that the law recognises the right to enquire in some situations.
As invited by Mr McLinden I adopt as my starting point the opinion of Lord Diplock in China Pacific S A v Food Corporation of India (The Winson) [1982] AC 939 “It follows from the existence of the legal relationship of bailor and bailee as a matter of general principle of the law of bailment …that as between the cargo owner and the salvors the latter as bailees were estopped from denying the title to the goods of the former as their bailor, including as an incident of that title its right to possession.” – Lord Diplock described this as “hornbook law”.
Both parties took me to the decision of the House of Lords in Hollins v Fowler (1875) L.R.7H.L. 757, Mr McLinden relies on the following at 765:
‘If the refusal is by a person who does not know the Plaintiff’s title, and having a bona fide doubt as to the title to the goods, detains them for a reasonable time, for clearing up that doubt, it is not a conversion’. In this case the Defendant knew the Claimant was the bailor, therefore he could not say he did not know the Claimant’s title. But Mr Legge points to the speech of Blackburn J in the same case:
“I cannot find it anywhere distinctly laid down, but I submit to your Lordships that on principle, one who deals with goods at the request of the person who has the actual custody of them in the bona fide belief that the custodier is the true owner, or has the authority of the true owner, should be excused for what he does if the act is of such a nature as would be excused if done by the authority of the person in possession”. There is force in Mr Legge’s argument that the reference to a “bona fide belief” implies that in the absence of such a belief different consequences may flow. Accordingly, Mr Legge submits there cannot be an absolute prohibition on a bailee making inquiries as to the bailor’s title.
I was taken by both parties to a number of cases where the courts have decided that a bailee is entitled to make inquiries into the title of the person seeking to recover them. As Mr McLinden pointed out in each case the person seeking to recover the item from the bailee was not the bailor himself. I adopt Mr McLinden’s analysis of those authorities which was as follows.
In Vaughan v Watt 151 E.R. 506; (1840) 6 M. & W. 492, a pawnbroker received goods from A and issued a receipt (which would allow their recovery on payment of the appropriate charge). A then returned on two separate occasions to the pawnbroker and obtained duplicate copies of the receipt, claiming that she had lost the original and first copy respectively. A third party, B (who was A’s husband but did not identify himself as so), subsequently appeared with a copy of receipt, tendered the amount owing and demanded the goods. The pawnbroker refused to release the goods on the basis that he was unsure whether B was entitled to the goods in the circumstances. He was entitled to do so.
In Pillott v Wilkinson 159 E.R. 564; (1864) 3 Hurl. & C. 345 C had bought goods in the possession of a warehouse owner from a third party vendor. The warehouse owner had been told by the sheriff not to dispose of any of the third party vendor’s goods so that he could satisfy debts owed by the vendor. When C demanded the goods that were stored at the warehouse, D who was unsure if he was allowed to release them asked for time to consult his Attorney. He was entitled to do so.
In Clayton v Le Roy [1911] 2 KB 1031 a watch that had been stolen from C and subsequently purchased by B was sent to the Defendant jewellers to be valued. D recognised the watch as one that C had said had been stolen from him, and he contacted C and B to ask them what they wanted him to do. A representative from C’s solicitors went to D and demanded that D hand the watch over. D refused. The majority in the Court of Appeal held that D was entitled to do this, because he was entitled to take reasonable time to find out whether C was in fact entitled to claim the watch. Fletcher Moulton LJ said at 1051:
‘The authorities show clearly, as one would expect, that a man does not act unlawfully in refusing to deliver up property immediately upon demand made. He is entitled to take adequate time to inquire into the rights of the Claimant.’
Vaughan Williams LJ said at 1055
‘A man may not assert any other person’s title, but he may nevertheless do an act which is inconsistent with the dominion of the true owner. Very often such an act may be justified, as, for instance, if the thing is detained for the purpose of making a reasonable inquiry about the title.’
The majority emphasised that the Defendant had been entitled to retain the watch because:
‘The man sent to demand the watch was a solicitor’s clerk, a stranger to the Defendant, who produced no written authority to receive it. I cannot conceive any one in the position of the Defendant being so foolish as to hand over a watch to a man whom he had never seen before and who presented no credentials in writing’ (per Farwell LJ, at 1053) and
‘the question as to title was one which might most properly be a subject for inquiry; the moment had not then arrived for the Defendant’s final decision’ (per Fletcher Moulton LJ, at 1052).
Both parties sought to derive support from the writings of Professor Palmer (who pleaded the case on behalf of the Defendant) – see Palmer on Bailment (3rd Ed 2009). Both were able to do so because Professor Palmer sets out the arguments, and identifies the dilemmas and difficulties on both sides. I note the following at 1-085:
Where the possessor was already the bailee of the Claimant, and has therefore ostensibly undertaken not to deny the Claimant’s title, it is arguably in conflict with that undertaking for the possessor to insist on delaying the return of the chattel to the Claimant until the possessor has had a reasonable period in which to investigate the Claimant-bailor’s title. If the bailee is forbidden to contest his bailor’s title in any event, it would seem otiose and contrary to the terms of the bailment, if not downright mischievous, to allow him time to investigate that title… Arguably a distinction must be drawn for this purpose between a bailee who receives a positive demand from a third party (who should be entitled to a reasonable time for inquiry following the Claimant-bailor’s demand for the return of the goods) and a bailee who receives no positive demand but merely suspects the existence of some ulterior interest (who should not be entitled to a reasonable time for inquiry but should comply immediately with a demand that he return the goods to his bailor).
Alternatively, Professor Palmer argues, since the bailee can invoke Section 8 of the Torts (Interference with Goods) Act 1977 he does not need the privilege of reasonable inquiry. Mr McLinden submits that this is correct. The proper course of the Defendant was to plead rule 19.5(a), as it eventually did.
Professor Palmer’s helpful and erudite text identifies the problems. It does not however answer the questions in this case.
It was Mr Legge’s submission that in considering whether or not the Defendant bailee was entitled to investigate the title of the Claimant bailor the court should have regard to the Defendant’s understanding of its potential exposure to a claim in conversion or negligence to the true owner. I am not sure that adds anything to his proposition that where the Defendant has notice of the true owner’s title he is entitled to make enquiries, the proposition he derives from Hollins v Fowler. The reason for the enquiries is to protect the bailee against a potential claim from the true owner. The desire to protect its reputation would not entitle the Defendant to make enquiries – see Howard E Perry & Co Ltd v British Railway Board [1980] 1 WLR 1375, 1381.
Although Mr Legge suggests that constructive notice would suffice the authorities to which he refers me suggest that what was required in the sale cases is actual notice. In Marcq Christie Manson and Woods Ltd [2004] 4 All ER 1005 notice meant actual knowledge of facts indicating that the bailor was not in fact the owner. In the absence of notice the auctioneer bailee was under no duty to make inquiries as to title. At first instance Jack J stated that it was for the true owner to establish that the bailee had notice.
Mr Legge referred me to two other first instance decisions involving auctioneers, Kurtha v Marks [2008] EWHC 336 (at para 140) and De Preval v Adrian Alan (unreported) 24.1.97. I was not much assisted by those authorities, in both of which the auctioneer had been engaged in the sale of the items to a third party. In this case there was no question of a sale or other disposal to a third party. The man with possessory title simply wanted his property back.
As to notice Mr Legge relies on the position as the Defendant knew it in March 2009. He points to the following:-
i) There was no bill of sale.
ii) The “Piers Haussen” receipt showed an entity with better title than the Claimant.
iii) Mr Spencer’s account of finding the Henry Moore bronze was inconsistent with the article in the New York Daily News article and with most of the papers filed in the New York Court, all of which attributed the find to Mrs McGrath of whom the Defendant had not previously heard.
iv) The receipt
a) was not signed by both Guardians
b) did not describe the items. Mr Legge submits that even without any question of fabrication, the receipt left open the possibility that the sale would be challenged by Tedeschi, the second Guardian. It relied on the Claimant to establish that it applied to the embroideries
c) The fact that the signature of John Nevin on the Nevin receipt did not include his middle name or initial (which (put at its lowest) he appears nearly always to have used) raised the possibility that the signature was forged.
v) Charlie Hill indicated that the Berkeley Safe Deposit letter raised grounds for suspicion. The inference I am asked to draw from that is, I think, that the embroideries may have been in the safe deposit box and not in the flat at all. In the fevered atmosphere of early March 2009 that may have seemed likely. It is not an inference I have drawn.
To those concerns I add the fact that the Claimant once again refused to provide an indemnity to the Defendant in respect of the embroideries. I have no doubt that this troubled Mr Franses.
I remind myself that as at January 2009, had its charges been paid the Defendant would have returned the embroideries notwithstanding any doubts it had about title.
Conclusion
I am not satisfied that a bailee who receives a demand from a bailor for the return of his goods can never have a right to a reasonable period to inquire into title when he is on notice that the bailor does not have good title. However I am not persuaded that the Defendant had that right in this case. If I am wrong about that I am satisfied that the Defendant did not exercise his right within a reasonable time.
I draw together the following matters:-
i) The Piers Haussen Trust receipt constituted clear actual notice that Mr Spencer may not be the owner of the embroideries. That is why Ms Swirski was so concerned to read it in February 2009. It was that document that caused the Defendant to begin the inquiries in New York, as Mr Franses says in his third witness statement. I am satisfied that is correct. None of the other private doubts and concerns were sufficient to cause the Defendant to do anything to research title. That is why it was prepared to return the embroideries as late as January 2009.
ii) The Claimant handed over the Piers Haussen receipt in 2003. He had his own reasons for doing so, but the issue of title was clear on the face of the document. Whilst I accept Mr Franses did not pay any attention to it that was not as a result of anything the Claimant did.
iii) Had the Google search been carried out in 2003 (which it could have been) it would have revealed the New York Daily News Article in the same way as the search in 2009. All the other New York information would then have been instantly available, as it was in 2009. The Defendant is not entitled in my judgment to rely on the cumulative effect in 2009 of lots of discoveries when all of them could have been made years earlier.
iv) Whilst the refusal of the indemnity in 2009 further worried Mr Franses, an indemnity had been refused on several occasions over several years.
v) The Claimant had sought the return of the embroideries on more than one occasion before 2005 so the Defendant had been alerted to that possibility.
Conclusion
My analysis of the authorities leads me to conclude that the principle underpinning such right as the authorities may allow is an acceptance that a bailee should have a reasonable opportunity to protect himself from a claim by the rightful owner.
In all of the authorities where a bailee has been permitted to rely on the right to make reasonable inquiries right is said to arise when the demand is made and time runs from that date. In this case the demand relied on by the Claimant was in March 2009, and the Defendant submits that the period runs from that date, although the Defendant has acknowledged throughout that the first demand was 2005. In none of the reported cases where a right has been found to exist has the period before inquiry been prolonged, still less 5 ½ years.
In this case the length of time the embroideries were in the Defendant’s custody coupled with what the Defendant knew throughout the period gave the Defendant ample opportunity to inquire into the Claimant’s title long before the demand in March 2009. Inquiry during that period would have led to the Defendant obtaining much earlier the information it obtained in 2009. Those facts taken in conjunction with the availability of Rule 19.5a satisfy me that the underpinning principle justifying the right that I have set out in paragraph 301 above has no application here. Indeed, on closer analysis I consider this to be the ratio of the decision in Tavoulareas v Lau [2007] EWCA Civ 474 (see paragraph 39) although the Claimant relies on it as authority for the proposition that any inquiry should be carried out within a reasonable time.
In the end it matters not; having spent many years making no inquiries, notwithstanding what it knew, the Defendant had no right to start doing so in March 2009. Alternatively the requirement that the right be exercised within a reasonable time is of no avail to the Defendant; when 51/2 years had already elapsed during which sufficient information to put it on inquiry was known to it, and all relevant information could have been known to it, no further time was reasonable. It comes to the same thing.
I should add that Mr Legge submitted that the “reasonable time” for investigation cannot have started while either the Defendant had a lien or it reasonably assumed that it had a lien. I reject that submission. The purpose of a lien is to protect the financial interest of the bailee. It has nothing to do with bailor’s title. It is always liable to be discharged by the tender of the sum owed. It would not be reasonable in my judgment for a bailee to delay investigating.
therefore be allowed.
Lord Justice Wilson :
I agree.
Sir Scott Baker :
I also agree.