Overview
Cases
Roche Ireland Ltd -v- O’Mahoney & Anor
[2010] IEHC 491
Laffoy J
6. Ownership/lawful possession of the material
6.1 As regards the legal principles which govern the issue of entitlement to possession and ownership of the disputed material, that is to say, the subsoil and topsoil from the O’Mahony lands, unfortunately, the relevant principles are identified to a limited extent only in the pleadings and in the submissions made at the hearing, which is understandable because Mr. O’Mahony was not legally represented. While to the lay person the principles may be difficult to understand, having regard to the history of this matter, and, in particular, the conduct of Mr. O’Mahony, which has clearly arisen from a grievance he harbours against the plaintiff, I will endeavour to summarise them in terms from which he will appreciate their implications.
6.2 To recapitulate, the plaintiff’s case is that as a result of the plaintiff having paid TAL and Martins for the works they carried out on the Roche premises and TAL and Martins, in turn, having purchased the material from Milltown, and either having paid for it or accepted liability for payment, the plaintiff, having no knowledge of the provenance of the material or any dispute in relation to it, was a bona fide purchaser for value of the material, lawfully took possession of it and is lawfully in possession of it. As I have recorded, what the plaintiff seeks is a declaration that it is in lawful possession of the material and that it has no liability to Mr. O’Mahony arising from its acquisition. Mr. O’Mahony has pleaded that the defendants are the owner of the O’Mahony lands, that the material was removed from the O’Mahony lands without the defendants’ knowledge or consent, that the plaintiff was at all times aware of the ownership and source of the material, that the defendants are the true and lawful owners of the material and are entitled to its return or to be compensated for its true value. So, the plaintiff is claiming to be in lawful possession of the material and Mr. O’Mahony is claiming ownership and an entitlement to possession. Although the wrong which the defendants allege against the plaintiff is not spelt out in the pleadings, the defendants’ claim must be based in tort for detinue or conversion of the material by the plaintiff.
6.3 The authorities relied on by the plaintiff in its written submission in support of the proposition that the plaintiff was a bona fide purchaser for value without notice of the material and, therefore, was unaffected by the rights of Mr. O’Mahony as owner of the O’Mahony lands all relate to issues concerning land as such (AIB v. Finnegan [1996] 1 ILRM 401; Gannon v. Young [2009] IEHC 511 and Kingsnorth Finance Trust Co. Ltd. v. Tizard [1986] 1 WLR 783). However, as the reference to detinue and conversion in the preceding paragraph indicates, in my view, the legal principles which are applicable to the situation which has arisen here in relation to the material are the legal principles governing possession and ownership of goods. The crucial factor, in my view, is that the material, the topsoil and the subsoil, had been severed from the O’Mahony lands when the plaintiff’s contractors agreed to acquire it. It follows that the relevant legal principles mainly derive from the Sale of Goods Act 1893, as amended by the Sale of Goods and Supply of Services Act 1980 (the Act of 1893). It is with a considerable degree of diffidence that I propose outlining these principles, which were not explored at the hearing. However, the principles, which I will outline and apply, are well established. In circumstances in which the defendants are not legally represented and Mr. O’Mahony has no legal training, having considered the matter carefully, I have come to the conclusion that it is not in his interest to invite further legal argument in this matter, which would merely give rise to further legal costs in circumstances in which the legal position is quite clear.
6.4 Even at common law the material severed from the land would have been regarded as a chattel or goods rather than as land. In Sligo Corporation v. Gilbride [1929] I.R. 351, in which the plaintiff was seeking injunctions to restrain the defendant from removing a wall and to direct the plaintiff to restore it, in the Supreme Court, Kennedy C.J. stated (at p. 362):
“If the ownership of the wall is actually in the plaintiffs, the action is in substance one for damages for trespass and trover and conversion of the stones in the wall, and the injunction is sought as ancillary to that right of property.”
Fitzgibbon J. was of a similar view stating (at p. 366):
“The real cause of action is one of trespass to the plaintiffs’ wall – assuming it to be theirs – and trover and conversion of the materials with which the wall was built”
Moreover, consistent with the decision of Gavan Duffy P. in Scully v. Corboy [1950] I.R. 141, the material comes within the definition of “goods” in s. 62 of the Act of 1893, which defines that term as including “emblements, industrial growing crops and things attached to or forming part of the land which are agreed to be severed before sale or under the contract of sale”.
6.5 Although as I have stated at the outset, it is not clear in whom the title to the O’Mahony lands is vested, it is not in dispute that Mr. O’Mahony is either alone or jointly with his wife, who was in Court throughout the hearing, or through the medium of the second defendant, the owner of the O’Mahony lands. During the hearing, Mr. O’Mahony indicated that he had evidence of his title in Court. However, he was not asked to produce it. For present purposes, I am assuming that he has good title to the O’Mahony lands either solely or as aforesaid. As such, before the material was severed from the land, he owned it. When the material was severed by Milltown he remained the owner of it, subject to the rights, if any, of Milltown. A fundamental principle of our law of property, whether land or goods, like so many other fundamental rules, is known by its Latin tag: the rule nemo dat quod non habet. What the rule means is that no one can give a better title to property than his own. However, at common law that rule is subject to exceptions. Moreover, while, in the case of goods as defined in the Act of 1893, the rule was repeated in s. 21 of that Act, it is subject to the exceptions set out in succeeding sections thereof, including s. 25(2). Section 25(2) provides:
“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.”
In s. 62(2) of the Act of 1893 it is provided:
“A thing is deemed to be done ‘in good faith’ within the meaning of this Act when it is in fact done honestly, whether it be done negligently or not.”
6.6 The facts relevant to the application of s. 25(2) to the plaintiff, in my view, are the following. Mr. O’Mahony agreed in principle to sell the lands to Milltown and he allowed Milltown into possession of the lands. Milltown severed the material from the lands while in possession and, accordingly, was in possession of the material, although it remained in the ownership of Mr. O’Mahony until the sale to Milltown would be completed. Milltown sold the material to TAL and Martins, who used it in the landfill capping and landscaping works on the Roche premises in fulfilment of their respective contractual obligations to the plaintiff. TAL paid, or acknowledged the obligation to pay, for the material Milltown sold to it. While it is not clear on the evidence what position Martins has adopted in relation to payment to Milltown, I am assuming it has adopted a position similar to that adopted by TAL. The plaintiff paid TAL and Martins for the works in which they used the material, thereby paying for the material. The plaintiff got actual possession of the material.
6.7 Having regard to those facts, two questions arise in the application of s. 25(2), namely:
(a) Did Milltown get possession of the material with the consent of the plaintiff?
(b) Did the plaintiff receive the material, which was incorporated into the Roche premises, in good faith and without notice of any lien or right of Mr. O’Mahony as the owner of the O’Mahony lands from which the material was severed?
6.8 In relation to the first question, I am satisfied on the evidence that Milltown got possession of the material with the consent of Mr. O’Mahony. It is stated in the letter of 27th November, 2007 from Mr. O’Mahony’s then solicitors and it is pleaded on behalf of Mr. O’Mahony in his counterclaim that Mr. Murphy/Milltown was given possession with a view to doing preliminary works in aid of the development of the O’Mahony lands. It was in the course of that work that the material was severed from the O’Mahony lands. Mr. Murphy’s evidence was that Mr. O’Mahony knew that the topsoil was going to the plaintiff and he was not challenged on that in cross-examination by Mr. O’Mahony, although the thrust of Mr. O’Mahony’s evidence was that he did not know that the material was going off the site. On the basis of the totality of the evidence, I think it is probable that Mr. O’Mahony did know that Milltown was disposing of the material. In any event, I am satisfied that Milltown severed and had possession of the material with the consent of Mr. O’Mahony before the sale to TAL and Martins.
6.9 In relation to the second question, in outlining the factual background earlier, I have referred to the contacts between Mr. O’Mahony and Mr. Liddy, the then managing director of the plaintiff in 2006 and 2007. In April 2007, Mr. O’Mahony notified Mr. Liddy on two separate occasions of his intention to sell the O’Mahony lands. Subsequently, a meeting was held on 4th July, 2007 between Mr. Liddy and Mr. O’Mahony and, on the basis of Mr. Liddy’s evidence, I am satisfied that he agreed to the meeting as a courtesy to a neighbour. At the time, while the proposed development on the O’Mahony lands was of some concern to the plaintiff, the concern was not enough to induce the plaintiff to get involved in the O’Mahony lands. Subsequent to that meeting there were two e-mails from Mr. O’Mahony to Mr. Liddy in July 2007, in the second of which, dated 29th July, 2007, Mr. O’Mahony advised Mr. Liddy that he had “three joint venture proposals for the development of the site and four bids for the outright sale of the site” and that, if he did not hear from Mr. Liddy, there would be little point in keeping him advised of further negotiations with third parties. That was the end of the contact between Mr. Liddy and Mr. O’Mahony until the end of November 2007.
6.10 A meeting arranged at short notice was held between Mr. Liddy and Mr. O’Mahony on 3rd December, 2007. At that stage, Mr. Liddy was not aware of the letter of 27th November, 2007 from Mr. O’Mahony’s solicitors, as the plaintiff’s company secretary was out of the office and it had not been brought to his attention. In any event, Mr. Liddy’s evidence was that Mr. O’Mahony told him that Milltown had been allowed on to the O’Mahony lands on condition that a contract would be signed within three weeks but that on 26th November, 2007 the contract had been returned unsigned. Mr. Liddy’s evidence was that he was completely surprised by Mr. O’Mahony’s statement that Milltown had taken the material illegally. Mr. Liddy’s evidence was that Mr. O’Mahony’s suggestion that the plaintiff return the material came as a real shock to him and was completely unexpected. He passed the problem on to the plaintiff’s legal advisers at that stage.
6.11 A director of TAL, Mr. Martin Hamill, also testified. His evidence was that he was aware that Milltown was doing preparatory work on the O’Mahony lands and was stripping the site. When TAL approached Milltown to purchase the material, he was not aware that Milltown was not the true owner of the soil. On the basis of the evidence of Mr. Hamill, I am satisfied that TAL agreed with Milltown in good faith to purchase the material and received it without any notice of any lien or other right of Mr. O’Mahony in respect thereof.
6.12 Similarly, on the basis of the evidence of Mr. Liddy, I am satisfied that the plaintiff dealt with TAL honestly and in good faith and from the perspective of the plaintiff the material was incorporated into the Roche premises without notice of any lien, right or equity of Mr. O’Mahony in respect thereof. Having regard to what had transpired between the plaintiff and Mr. O’Mahony before September 2007, and the circumstances which prevailed in September 2007, although honesty, as opposed to reasonableness, is the test of good faith under the Act of 1893, in my view, it was reasonable for the plaintiff, acting by Mr. Liddy and other employees of the plaintiff, and for TAL to assume that Milltown had authority to sell the material.
6.13 In summary, having found that Milltown got possession of the material with the consent of the plaintiff and that both TAL and the plaintiff received the material in good faith and without notice of lien or other right of Mr. O’Mahony, by operation of s. 25(2) of the Act of 1893 the plaintiff obtained good title to the material which was incorporated in its premises as against Mr. O’Mahony and is entitled to retain possession thereof. The plaintiff has no liability to the defendants in respect of the material.
6.14 While it is clear that Mr. O’Mahony feels aggrieved that the sale to Milltown fell through after Milltown had sold the material to TAL which was used in fulfilling TAL’s contractual commitments to the plaintiff, he must appreciate that, in the circumstances of the events of September 2007 which I have outlined, the law protects the plaintiff, which acted honestly in its dealings with TAL which, in turn, acted honestly in its dealings with Milltown. It was Mr. O’Mahony who allowed Milltown to go into possession of the O’Mahony lands and to do the pre-development works which created the material and thus facilitated the sale of the material by Milltown to TAL. Whatever, if any, redress Mr. O’Mahony has arising out of the failure of Milltown to complete the acquisition of the O’Mahony lands and from the sale by Milltown of the material can only be pursued against Milltown. It is not a matter for the Court in these proceedings.
7. Mr. O’Mahony’s communications alleging wrongdoing on the part of the plaintiff
7.1 The plaintiff has invoked a plethora of torts in alleging wrongdoing against the defendants and in seeking civil law remedies to redress such wrongdoing. As the plaintiff has decided to forgo its claim for damages, it is unnecessary to consider whether the plaintiff has established liability on the part of the defendants for all or any of the torts alleged. Further, in the light of the findings which have been made as to the ownership and entitlement to possession of the material which was severed from the O’Mahony lands and is now incorporated in the Roche premises, in my view, the only issue which requires to be determined is whether, if the defendants were to continue to make or repeat the type of communications complained of by the plaintiff which alleged that the plaintiff acted wrongfully in acquiring, using and retaining the material, they would be liable in tort to the plaintiff, so as to entitle the plaintiff to the ancillary injunctive relief it seeks. In this context, of the torts invoked by the plaintiff, that which would obviously come into play if the defendants were to continue making or repeating such communications is injurious falsehood encompassing slander of title and slander of goods.
7.2 If, notwithstanding the making of the declaration which I intend to make that the material is in the lawful possession of the plaintiff, Mr. O’Mahony or the other defendant were to communicate to third parties the assertion that, in receiving and retaining the material, the plaintiff received and retained stolen goods, in my view, the plaintiff would unquestionably be able to establish the ingredients of the tort of injurious falsehood as outlined in McMahon and Binchy on The Law of Torts, 3rd Ed., at paragraphs 35.26 to 35.30, for the following reasons:
(a) the statement alleging receipt and retention by the plaintiff of stolen goods would be untrue;
(b) such statement would be made maliciously, because there would be no basis on which Mr. O’Mahony or the other defendant could assert some just cause, excuse or proper motivation for making the statement; and
(c) such statement could only be viewed as calculated to cause pecuniary damage to the plaintiff and being published in permanent form in writing or electronically (as, on the basis of the evidence, it is probable would be the case) the plaintiff would, by virtue of s. 20(1) of the Defamation Act 1961, be relieved from the requirement to prove special damage.
7.3 I am satisfied that the defendants’ allegation that the plaintiff has not come to court with clean hands is utterly without foundation. On the other hand, it is a matter of concern that after September 2008, notwithstanding the existence of the order of the Court made with the consent of Mr. O’Mahony, Mr. O’Mahony persisted in communications alleging wrongdoing on the part of the plaintiff. Accordingly, I consider it appropriate to grant the plaintiff injunctive relief in the terms sought by the plaintiff and set out at (C) in paragraph 3.4 above framed to cover communications to the plaintiff and its associated companies, any officer or employee of the plaintiff and its associated companies, and any third party. An injunction in the terms set out at (D) would merely replicate the content of the injunction in the terms set out at (C) in a vague manner and, for that reason, I do not propose to grant it.
7.4 Even if, despite the information furnished to him from December 2007 onwards as to the circumstances in which the material was incorporated in the Roche premises and the steps taken by TAL to ensure that the defendants would not be prejudiced by the payment of the price of the material directly to Milltown after Mr. O’Mahony raised the issue of the ownership of the material with the plaintiff and after his solicitor’s letter of 27th November, 2007, Mr. O’Mahony honestly believed that he had a good claim against the plaintiff, once the Court has decided that he does not have a good claim against the plaintiff he must appreciate that he would be acting wrongly by asserting otherwise and that he must desist from doing so. In relation to what I have referred to as the peripheral issues, having regard to the findings which I have made in paragraphs 5.1 and 5.2 above, Mr. O’Mahony must also appreciate that he must desist from alleging breaches by the plaintiff and its agents of waste management and environmental enforcement legislation in connection with the removal of the material from the O’Mahony lands and its incorporation in the Roche premises.
8. Order
8.1 The Court will make the following orders on the plaintiff’s claim:
(1) declarations in the terms set out at (A) and (B) of paragraph 3.4 above; and
(2) an injunction in the terms set out at (C) in paragraph 3.4 restraining communications to the plaintiff and its associated companies and any officer or employee of the plaintiff and its associated companies and any third party.
8.2 There will also be an order dismissing the defendants’ counterclaim.
Summers v Havard
[2011] EWCA Civ 764 [2011] 2 Lloyd’s Rep 283, [2011] EWCA Civ 764
Arden LJ:
This is an appeal against the order of HHJ Chambers QC dated 20 September 2010; the judge was sitting in the Mercantile Court of the Cardiff District Registry of the High Court of Justice. The principal provision in the order with which this appeal is concerned was the entry of judgment against Mr Havard, the appellant, for £120,740 plus interest. This sum constituted the value of motor cars which the judge found that a company called Halfway Car Sales Limited, Halfway had sold to Mr Havard without authority and in circumstances where Mr Havard was not entitled to rely on section 2 of the Factors Act 1889. Section 2 of the Factors Act is headed “Powers of Mercantile Agent with Respect to the Disposition of Goods”. Subsection (1) reads:
“Where a mercantile agent is, with the consent of the owner, in possession of goods or of the documents of title to goods, any sale, pledge, or other disposition of the goods, made by him when acting in the ordinary course of business of a mercantile agent, shall, subject to the provisions of this Act, be as valid as if he were expressly authorised by the owner of the goods to make the same; provided that the person taking under the disposition acts in good faith, and has not at the time of the disposition notice that the person making the disposition has not authority to make the same.
I need not read further in section 2 of the 1889 Act.
Mr Havard and the respondent, Mr Summers, are dealers in used cars. They each consigned cars for sale to Halfway in Llanelli on terms which so far as material provided for the seller (that is, as the case may be, Mr Havard or Mr Summers) to receive back the price which they had paid for the vehicle and that any profit would then be shared between whichever of them was the seller and Halfway. During the relevant period Halfway was in serious financial difficulty. The judge found that both Mr Havard and Mr Summers were aware of Halfway’s financial difficulty and that they each in the course of 2007 provided loans to Halfway by what he termed “kite flying”. The judge defined this in paragraph 10 of his judgment as involving the passing of cheques between accounts which permit drawings against uncleared effects and thus facilitate by careful timing the operation of a de facto overdraft. I need not go further into that matter for the purposes of the point with which this judgment is concerned.
In December 2007 Halfway’s bank ceased to provide banking service to it and Halfway stopped trading. On the advice of his accountant Mr Havard removed all of his cars and a number of cars which he believed belonged to other dealers, including Mr Summers, and he took them to his own premises. He then invited Mr Summers to attend his premises to identify his cars. Mr Summers identified some 36 other vehicles belonging to him which Mr Havard contended he had legitimately and in good faith purchased from Halfway in a number of sales. The judge found that all but three of these sales took place after September 2007, so in the three month period September to December 2007. The judge found that the sales were trade sales to Mr Havard and thus at lower prices than would have been achieved in ordinary retail sales and in so doing that Halfway had exceeded its authority as the agent of Mr Summers by making quick trade sales in an effort to keep itself solvent. There is no appeal on the authority point. The judge also found that Mr Havard had acted in bad faith in making the purchases, and I will come back to that matter. In his evaluation of the witnesses the judge did not find Mr Summers to be a particularly frank witness. In addition, he did not consider that Mr Havard was a good witness. Again, he considered that he should not readily accept the evidence of Mr Bonner-Evans, who ran Halfway who was called to give evidence, except where Mr Bonner-Evans’ evidence was persuasive. There was one matter in which the judge appears to have accepted Mr Bonner Evans’ evidence. Mr Bonner-Evans gave evidence that he did not inform Mr Summers of the trade sales made to Mr Havard because he, Mr Bonner-Evans, did not think that Mr Summers would authorise them and admitted that when he made the trade sales he did so because he needed the money to keep Halfway trading, stating that he was robbing Peter to pay Paul, a phrase that was used in other contexts in the course of the trial. The judge found that it was no part of Halfway’s apparent authority to make sales in these circumstances. With respect to the questions with which we are concerned, the central question was whether Mr Havard either knew or was to be treated as not having known in terms of paragraph 38 of the judge’s judgment. The judge there said that the central question in this case is what the defendant (that is Mr Havard) either knew or is to be treated as having known). The judge set out the key parts of Mr Havard’s evidence. He held at paragraph 51 of his judgment:
“…I have no hesitation in rejecting the assertion that Mr Havard had no reason to believe that Halfway did not own the cars that are in question in this case.”
On the basis of the evidence of Mr Havard the judge found that Mr Havard was unquestionably on notice that the sales were not made in the ordinary course of Halfway’s business and that Mr Havard had deliberately refrained from making further inquiries, and for those reasons he had not acted in good faith.
“51. Given the Defendant’s own evidence, I have no hesitation in rejecting the assertion that Mr Havard had no reason to believe that Halfway did not own the cars that are in question in this case.
52. I think it obvious both that a significant number of the cars in question were not sold in the ordinary course of Halfway’s business and that the Defendant was on clear notice that this was so and deliberately refrained from making inquiry. He did not inquire because his evidence shows that he as good as knew the situation and did not care. I further find that, having such notice, the Defendant was not acting in good faith.”
Of the 36 cars alleged to have been properly sold to Mr Havard by Halfway the judge found that 33 had been improperly sold and made an order for the payment of damages in conversion in favour of the respondent, Mr Summers.
The matter was then the subject of an application for permission to appeal to this court and limited permission was given by Patten LJ on paper, limited to two points. The two points are in substance whether the judge was wrong in law to treat as determinative the fact that the sales were not in the ordinary course of Halfway’s business and in that connection attention is drawn to section 2 of the Factors Act 1889; and secondly whether or not the judge was wrong to conclude that Mr Havard had not acted in good faith. When this matter was called on for hearing, the court made it clear to Mr Edwin Glasgow QC, who appears for the appellant with Mr Gwydion Hughes, that it wished to hear argument first on the question of good faith and accordingly it is that matter with which this judgment is concerned, the court having indicated that it did not wish to hear Mr Mark Anderson QC, who appears with his junior, Mr Stephen Reed, on behalf of the respondent.
I am going to read the ground of appeal dealing with good faith: “The learned judge erred in finding that when the appellant bought cars from Halfway he did not do so in good faith (see paragraph 52 of the judgment) within the meaning of that expression used in section 2(1) of the Factors Act 1889, given the weight of the evidence before him”. Mr Glasgow has made it clear that he is not seeking to disturb findings of primary fact but has made submissions that the conclusion which the judge reached on good faith was wrong in law.
I am now going to turn to the appellant’s submissions and I will take firstly the submissions from the skeleton argument and then the submissions that were developed in front of us. The appellant’s case is based both upon the question of ordinary course of business and on the question of good faith, but I am dealing with the second question in this judgment. The appellant submits that what the judge was looking for was the extraordinary features of the sales by Halfway which might have placed Mr Havard on notice that there was something wrong about those sales. It is submitted that on the evidence before the judge there was nothing unusual about the sales which would take them out of the ordinary business of a mercantile agent. Then there were submissions made in that regard with which I am not at this stage concerned, but it is said that the sales were in ordinary business hours and at the place of business and were consistent with the course of business that had developed between Mr Havard and Halfway over several years and that they were entirely conventional sales acts. As to good faith it is submitted on behalf of Mr Havard that the expression is not defined in the 1889 Act and would appear to mean honestly, whether negligently or carelessly or not. The evidence, it is submitted for Mr Havard, was that at all stages he did act in good faith. The loans were made in an attempt to assist with Halfway’s cash flow and Mr Havard did everything that he could to satisfy himself that there was nothing improper about the sale of the 36 cars. His evidence was that he had obtained hire purchase and outstanding finance checks on each car that he bought and that was all in reality he could have done. So it is said that the judge should not have found that he should have made further enquiries about the cars and that there was no more Mr Havard could have done. There was nothing about the facts and circumstances of the sale of the 36 cars, it is said, which could justify the inference that Mr Havard had a suspicion that something was wrong, and on that particular point we were reminded by Mr Glasgow of the authorities to the effect that mere suspicion that something is wrong is not enough to give rise to a finding of bad faith. In particular we were taken to Navulshaw vBrownrigg [1852] 2 De G, M & G 441 (under an earlier Factors Act) where it is said that:
“To deprive the pledgee of the protection of the Act, he must be fixed with knowledge that the agent is so acting as above stated, and no mere suspicion will amount to notice; nor will the knowledge that the agent has power to sell the goods constitute notice that he has not power to pledge them.”
So it said on behalf of Mr Havard that the finding by the judge that he was on notice of a defect in Halfway’s authority was not supported by the evidence.
I will deal first with the submissions of the respondent in writing before I come back to Mr Glasgow’s argument orally to us today. In written submissions it is said on behalf of Mr Summers that attention should be drawn to the scale of purchases of cars and loans that were made in the material period September to December 2007 and Mr Gwydion Hughes, who also addressed us following Mr Glasgow, accepted that there had been a volume of business of about £1m in the material period and that there had been many hundreds of cars sold. Also, by the end of 2007 the business which Mr Havard had with Halfway was his main business. In addition he had had previous forecourt businesses, as it was put. In written argument it is said on behalf of Mr Summers that the sale of cars was determined by the cash flow needs of Halfway and that the amount of sales was determined by whatever Halfway needed to stay afloat. Therefore the sales could not have been in the ordinary course of business of a mercantile agent. It is also said that some of the sales were actually shown in the records as loans or, in one case of a paying-in slip, was re-categorised as a loan and that cheques were also made out to Mr Havard, showing that he did in fact receive monies from Halfway. It is also said that the evidence in the trial showed that he sometimes bought cars without checking whether they were physically present. Indeed he accepted in his own evidence that at the late stages some were actually purchased without the hire purchase checks to which he had previously referred. The question of whether the trading was in the ordinary course of business it is submitted on behalf of Mr Summers to be determined in the course of all the circumstances of the case and on Mr Summers’case that there was sufficient to make the transaction unusual.
I now turn to the oral submissions that we have had today. Mr Glasgow, who did not appear at the trial, accepts that when considering the question of good faith, the court is entitled to look at all the circumstances of the case and the court is not, therefore, restricted to circumstances which directly pertain to the ordinary course of business of a conventional mercantile agent. The gravamen of Mr Glasgow’s oral submissions on the question of good faith have rather been directed to the way the judge dealt with the evidence of the defendant. The position is that the material paragraphs of the judgment dealing with good faith start at paragraph 31 and go through to paragraphs 51 and 52, which I have already set out in this judgment. The first few paragraphs deal with the evaluation of witnesses and I do not think I need set those out because I have already summarised them. However, I would set out paragraphs 35 to 50:
“35. Halfway was the Claimant’s agent. It was an implied term of that agency that Halfway should do what it reasonably could to obtain a proper market price for the vehicles entrusted to it for sale. In his evidence the Defendant said, ‘it would make no sense for a dealer to sell to another dealer the day after’ the vendor had acquired the vehicle. He then looked at Schedule C1 and said, in respect of the vehicles that had come in from the Claimant the day before ‘I certainly wouldn’t have sold my cars for that profit’.
36. In his evidence Mr Bonner-Evans said, ‘I sold trade to get the money in so I was ‘robbing Peter to pay Paul”. He also said that he did not think that the Claimant would have approved had he known that a sale was a trade sale. A little later, he continued, ‘I never told [the Claimant] that I had done it because I either knew that he didn’t approve or didn’t know if he would approve’.
37. It was no part of Halfway’s agency to be able to rob the Claimant by quick under value sales to pay other creditors nor could Halfway have had any apparent authority to do so.
38. The central question in this is what the Defendant either knew or is to be treated as having known.
39. It seems to me that the answer is to be found in the evidence of the Defendant taken both alone and in conjunction with some of that of Mr Bonner-Evans.
40. I start with that which the Defendant asks me to believe as constituting his defence.
41. First I think it to be clear that, while not opining on the numbers in question, the Defendant was well aware that Halfway acted for other principals than himself in the way that I have set out.
42. The Defendant told me that he had no idea how many cars the Claimant had on Halfway’s forecourt. When shown his ‘purchases’ from Halfway as listed for September to November 2007 (TBA/44-46) including the purchases from the Claimant he said, ‘I thought that all these purchases were part exchange and/or purchases that Halfway owned themselves…I was always led to believe that these part exchanges in respect of my vehicles or that they were Halfway’s own stock’.
43. Against these assertions, one looks to the background as stated by the Defendant.
44. The Defendant said, ‘I think we all knew from the minute Mr Bonner-Evans started that he was in trouble. The man who turned up first would get a cheque. He had to keep his stock up to create a flow. I was worried that he would go into liquidation’.
45. The Defendant described how, on advice from his accountant, from August 2007 onwards he caused stickers to be put into tax discs on his vehicles on Halfway’s forecourt stating that they belonged to him in order that they could not be treated as Halfway’s property.
46. The Defendant’s evidence continued, ‘I knew he was up to skulduggery and bouncing. Never instances let down. From the minute we met I thought he was robbing Peter to pay Paul’.
47. The next answer he gave was, ‘it never occurred to me that I might be buying cars that belonged to others’.
48. Asked as to the position on 2 November 2007 he said, ‘I didn’t ask him, ‘are these all yours?’ No. Why should I have? If he sold me them vehicles in part exchange or vehicles which he can no longer afford to stock, I’m skint. I rejected 10 to 15. How could I know there was a risk? I suspected that he was robbing Peter to pay Paul. I didn’t know that he was selling to produce cash. He told me ‘Here’s a part exchange – one of yours – I’ve got a trade vehicle’.
49. Later the Defendant said, ‘Bonner was always in trouble from the day he was born. I always knew that. Of course I knew there was a risk there. Until mayhem – bounced cheques’.
50. The asserted background to these statements was that from early September 2007 onwards the Defendant made frequent loans to Halfway which, regardless of whether or not they were kite flying, were self-evidently a material source of a cash flow which it was to be assumed the bank was unwilling to provide.”
Mr Glasgow is particularly concerned with the quotations from the defendant’s evidence (that is, the evidence of Mr Havard) set out at paragraphs 44, 46, 47, 48 and 49. Since the judge has handed down his judgment transcripts of the evidence have been prepared and it is quite clear that in the case of each of those quotations which constitute the totality of the quotations from the evidence of Mr Havard at the trial, what the judge has done is précis a number of answers and put them into quotation marks without any sign that they are in fact not necessarily sequential and without their context. In my judgment this is not a way in which a quotation from a defendant’s evidence should be set out. If it says, “The defendant said …”, and then there is text in quotation marks, one would read that as meaning that that which appears between the quotation marks is a direct quotation from the defendant. However, we have had the benefit of being taken through the transcript by Mr Glasgow and we have seen the full context in which these statements appeared. It was clearly helpful that we should have been taken to those paragraphs, although at the end of the day Mr Glasgow very properly accepted that the judge’s summary, although it was a précis, was not in fact unfair and that the judge’s very short extracts from the evidence did reflect what Mr Havard had said.
Therefore there was evidence at the trial of three particular matters to which I will draw attention. In relation to paragraph 46 the defendant is quoted as having used the expression “skulduggery” and we can see at the bottom of page 107 to 108 of the transcript that Mr Havard had in fact said in the course of quite a long answer:
“We knew that he was up to skulduggery, we knew that he’d bounced cheques on us, we knew he’d be in the situation where he’d bluff and store things for a couple of weeks, but generally, and Dick will tell you this, he’s dealt with him for longer than I have in the last 20 years, he’s never ever sort of let anybody down, but there could be instances where we knew exactly what was happening.”
That is part of his answer at page 107 to 108. Although he is using what might be said to be a royal “we”, Mr Havard did say that he knew that there was skulduggery. He then goes on in his answer:
“So, Halfway could continue to trade in this period. Yes, and I suppose from the minute that I’ve met this man, I’ve always been in the situation where I believed he was robbing Peter to pay Paul. I still believe that up to his demise he was robbing Peter to pay Paul.”
The reference to “demise” is, as I understand it, a reference to the demise of Halfway, not of Mr Bonner-Evans. So in the course of that there is an expression of “robbing Peter to pay Paul”. It is unfortunate that the judge does not go on to say that there are of course circumstances in which a business can properly use monies which it receives, for which it is going to have to account to a client whose property has been sold, in the course of its own business and then account to the client for the amount due to him. In other words, when it receives money, let us say, belonging to Peter a company does not necessarily – or even usually – have to keep that money in a separate drawer to use it to pay Peter and may in some circumstances use it to pay Paul. That was a point of which the judge was well aware because he himself raises it at page 109 and asks counsel to deal with that point.
We were also taken to the transcript which dealt with the other quotations given by the judge in his judgment but in each case, as I have explained, Mr Glasgow accepted that the end result of what the judge set out, albeit that it was presented as a straight quotation, was not unfair and, as I say, it was helpful to see what Mr Havard had said in context.
The position is that since this court is hearing this matter on appeal it is not concerned with the question of whether the judge’s finding was one which he was compelled to make or indeed a question of whether it was a finding which this court would itself have made. The question for this court on an appeal of this kind is whether or not the judge was entitled to make the findings of fact which he made. As I pointed out to Mr Glasgow in the course of his submissions, this court does not interfere with findings of primary fact by a judge on the basis of oral evidence unless it is clear that the judge is plainly wrong, then it has a duty to intervene. If it was a conclusion which the judge could properly and fairly make then that conclusion would stand, even though it is not the conclusion that this court would itself have come to.
I therefore turn to state my conclusions. As already indicated and as Mr Glasgow fairly agreed the court has to look at all the circumstances of the case in determining whether or not the conditions of section 2 of the 1889 Act, including the condition of good faith, was made out. In his judgment the judge had found that Mr Havard was aware that Halfway acted for other principals apart from himself and that he knew that some of the vehicles on Halfway’s forecourt belonged to other people (see paragraph 42). Mr Havard said in his evidence that he carried out checks – hire purchaser and outstanding finance checks – but he accepted that these checks would only show whether or not there were hire purchase payments outstanding or whether the cars had been reported as stolen or damaged; I assume therefore it was some form of insurer’s record or police record that he consulted. This is my observation and not the judge’s, but (insofar as we have been taken to the transcript) he did not give evidence that he had asked Halfway who owned the cars or where they had come from, or whether there had been a discussion of that nature. Mr Havard knew that Halfway was in trouble financially. Indeed, Mr Havard had put stickers on the cars which he owned so that they would not be treated as Halfway’s cars. He knew that Halfway was up to “skulduggery” and that in his words it was robbing Peter to pay Paul. He also knew that he was lending money which was, one must assume, because Halfway’s bank were not prepared to lend him money in the ordinary way. He also said that he knew that there was a risk involved (see paragraph 49 of the judgment), meaning a risk that Halfway might go under. In those circumstances it is not impossible to conclude that there are circumstances in which, from the point of view of Halfway, there would be a risk of Halfway misusing property belonging to other principals.
In all those circumstances, in my judgment, the judge was entitled to hold that Mr Harvard knew that some of the cars in Halfway’s possession did not belong to Halfway and also that Mr Havard was on notice and that he deliberately refrained from making enquiries. The judge held in strong terms that Mr Havard as good as knew about the situation but did not care. The judge went on to find that the vehicles were not sold in the ordinary course of Halfway’s business. That was a contentious finding on the other ground on which permission to appeal was given. As I read the judge’s judgment, the judge relied on that particular factor as part of his finding of a lack of good faith. He was using it as part of the grounds for coming to the conclusion that there was not good faith for the purposes of section 2.
In my judgment the judge was entitled to come to that conclusion on the evidence before him and the findings which he made that if a person deliberately refrained from making enquiries he was not acting in good faith in the sense in which that term is used in section 2 and is explained in the skeleton argument. In those circumstances in my judgment the appeal on that ground must be dismissed. Mr Glasgow fairly accepts that the appeal must wholly fail on that basis.
Lord Justice Carnwath:
I agree. Patten LJ gave permission on what were in effect two grounds, first that the judge applied the wrong test to determine whether the car sales were made in the ordinary course of business as a mercantile agent, and secondly that he applied the wrong test in deciding whether the appellant had acted in good faith. It is necessary for the appellant to succeed on both points if the appeal is to be upheld. I prefer to say nothing about the first ground, save that I am not surprised that Patten LJ granted permission. On the second point, as my Lady has made clear, on analysis there is nothing special about the definition of good faith under the Factors Act and there is no basis for saying that the judge did not apply the right test. What the case amounted to was a contention that in applying the right text he did not have sufficient material to support his conclusions. While I agree with my Lady that the judgment could in certain respects have been rather more fully and clearly expressed, I have no doubt that there was material to support that finding.
Lord Justice Wilson:
I agree with both judgments.
Parker v British Airways Board
[1982] QB 1004, [1982] 2 WLR 503, [1982] 1 All ER 834
Donaldson LJ
‘1. The finder of a chattel acquires no rights over it unless (a) it has been abandoned or lost and (b) he takes it into his care and control.
2. The finder of a chattel acquires very limited rights over it if he takes it into his care and control with dishonest intent or in the course of trespassing.
3. Subject to the foregoing and to point 4 below, a finder of a 330 chattel, whilst not acquiring any absolute property or ownership in the chattel, acquires a right to keep it against all but the true owner or those in a position to claim through the true owner or one who can assert a prior right to keep the chattel which was subsisting at the time when the finder took the chattel into his care and control.
4. Unless otherwise agreed, any servant or agent who finds a chattel in the course of his employment or agency and not wholly incidental or collaterally there to and he takes it into his care and control does so on behalf of his employer or principal who acquires a finder’s rights to the exclusion of those of the actual finder.
5. A person having a finder’s rights has an obligation to take such measures as in all the circumstances are reasonable to acquaint the true owner of the finding and present whereabouts of the chattel and to care for it meanwhile.’
United States of Americal and Republic of France v Dollfus MIEG Et CIE and Bank of England
[1952] AC 593
Earl Jowitt
Light is thrown on the present problem by the United States cases. They are precedents on international law which is based on the generally accepted policy of civilized nations; they are evidence of what that is. They should be given special weight because they are derived from the common law: see The Davis31; Long v. The Tampico32 and Compania Espanola de Navigacion Maritima S.A. v. The Navemar.33
On the point of possession and control the law is as follows: (1) Possession is exclusive and individual and cannot exist in two persons at the same time. (2) In the case of a bailment possession is in the bailee because transfer of possession is an essential ingredient in bailment. (3) No element of possession can remain in the bailor; a fortiori he does not retain custody. (4) Control of a chattel cannot exist apart from possession or custody; control is an element in possession. (5) A bailor cannot have control, since he has neither possession nor custody; all he has is a bare right against the bailee only to terminate the bailment and thereby regain control. (6) Delivery of control to the bailee is just an essential element in the delivery of possession. (7) If there were neither possession nor control in the bailee there would be no bailment but the bank would be the mere servant or agent of the three governments. (8) The bailor’s right to sue in trespass is not founded on possession, which he has not got, but on ownership, which he has. (9) This action is not one in which judgment would necessarily result in seizure and detention of the bailed goods. (10) Actions for detinue and conversion, being personal actions, are correctly brought against the person in actual possession (e.g., a bailee); a bailee can always be sued by a third party and the bailor’s title can be tried in the action without any necessity of joining the bailor. (11) Judgment for the plaintiffs in the present case for damages only would not even affect the bailor’s right to possession as against the bailee because the bailee is not estopped from denying his bailor’s title if he elects to challenge it relying on the title of a third party and with that party’s authority.
Even if the bars, or any of them, were held by the bank as bailees for the three governments, neither in fact nor in law were they in the possession or under the control of those governments or any of them. At all material times they were in the possession and under the control of the bank.
Ancona v. Rogers,34 relied on by the appellants, is distinguishable. It turned on the words of the Bills of Sale Act, 1854, and the relevant expression was “apparent possession,” which is different from actual possession. The judgment was not concerned with possession as opposed to property, and the rule in the dicta relied on applies only where the bailor has the property and the bailee has possession. In such a case the bailor can sue by virtue of his right of property, but only the bailee can sue for possession. If it was intended to suggest that the goods were actually in possession of the bailor, the dicta, which were obiter, were wrong. In any event, they are not binding on the House of Lords.
In The Amazone,35 also relied on by the appellants, the key to the decision was that the applicant was the registered owner of the yacht and the claim was in rem, and an order would have had to be made against him to remove his name from the register. That case does not help either party in the present action.
[They also referred to Pollock and Wright on Possession, pp. 20, 27, 131, 145, 163, 166; Halsbury’s Laws of England, 2nd ed., Vol. I, p. 724, para. 1196; p. 773, para. 1265; p. 774, para. 1267; Lincoln Wagon and Engine Co. v. Mumford36; The Winkfield37; Wilson v. Anderton38; Wetherman v. London and Liverpool Bank of Commerce Ld.39; Rogers, Sons & Co. v. Lambert & Co.40 and The Crimdon.41]
To sum up the argument: (1) This was not a contract of bailment. (2) If it was, then (a) no possession or control remained in the bailors; (b) even if some element of possession or control remained in them, it was not the sort of possession or control referred to by Lord Atkin in The Cristina,42 and (c) even if possession or control remained in them, then, if the claim for delivery up is abandoned (as the plaintiff company is willing to abandon it), judgment for the plaintiff company would not involve seizure or detention of the bars within Lord Atkin’s proposition, and so the action must proceed in respect of the claim for damages for conversion. (3) In any event, the action can go on as regards the 13 bars because once they were sold any element of control or possession in the governments disappeared.
Richard Wilberforce following. The question of control is not material if it is held that there was not a bailment or if in the proceeding it is not sought to recover property in the possession or control of the foreign governments. Lord Atkin’s observations in The Cristina42 were made in relation to a ship. To apply them to chattels generally is not a mere gloss on his words but amounts to transferring them to another field where they have no place. That case applies only to an action in rem, and in other cases retention in the hands of the possessor himself is necessary to bring them within its principles. The Cristina43 was a case of requisition, which is not a term of art but usually denotes a temporary possession or control rather than a confiscation: see McNair on The Legal Effects of War, 3rd ed., p. 435n. As to the position of state-owned ships, see per Lord Wright.44 The immunity of ships in the ownership or possession of foreign governments is based on the fundamental characteristic that they are used for public purposes: see The Crimdon45 and The Broadmayne.46 The courts disallow process in regard to requisitioned ships and it is in the light of this situation that “control” is spoken of in The Cristina.47 This conception is not capable of being transplanted on to land and applied to chattels, though a permissible extension of the principle would be to apply it to aircraft.
In a case such as the present it is not a sufficient test to say that the property is in the hands of a person who has no right to deny the title of him from whom he received it and who has to carry out his orders. That does not coincide with what was in the minds of the Lords who decided The Cristina,48 for the question of title did not arise there. But in a case like the present you create difficulties if you eliminate the conception of title. There may be many persons who have to carry out the orders of a foreign sovereign with regard to property, to whom it would be strange to apply the doctrine of sovereign immunity.
On the appellants’ argument it would apply to a purely contractual right arising out of a contract for the manufacture and delivery of shells by order of a foreign sovereign. Yet it could not apply there, for example, if the manufacturer went bankrupt and his creditors claimed his assets. Other examples might be found in the case of a company controlled by a foreign government; there again the doctrine would not apply. Yet if the principle rested on an unconditional obligation to carry out the orders of a foreign sovereign it would be hard to find any bounds to its application.
Both in civil and criminal matters the courts are accustomed to dealing with elaborate cases of possession: see, for example, The Jupiter (No. 3).49 To deal with this case on the basis of possession is not strange or artificial. Possession is transferred when an object is given to a bailee to hold on bailment: see Pollock and Wright on Possession, pp. 58, 131. The article in the Law Quarterly Review cited on behalf of the appellants did not take account of that. The possession by the bank is distinct from possession by the governments.
Sir Hartley Shawcross K.C. in reply. The case for the appellants rests mainly on control. But on the question of impleading a foreign sovereign one may find an indirect impleading in respect of property of which the sovereign has neither possession nor control at the time of the suit: see The Cristina.50 Indirect impleading covers any case where the sovereign is a necessary or proper party to the action and is put in the dilemma that he must either intervene (if need be by leave of the court) or risk some prejudice to his interest in the subject-matter of the suit. In the present case the appellants would have been proper parties and but for the doctrine of sovereign immunity would in the normal course have been brought in by interpleader. It would be strange if the parties most interested in the subject-matter were not proper parties to the action. But their interest is sufficient: see Dollfus Mieg et Compagnie S.A. v. Bank of England.51 It is an instance of indirect impleading which has scope beyond an action in rem.
As to the question of bailment, the bank was the custodian of the bars for its customers, although a possible view is that though it was not the bailee in the sense of being bound to return specific bars to specific customers it was bailee for the pool of gold for all its customers.
The American cases relied on by the company are not binding on the House of Lords and, in any event, turn on their own facts. Perhaps they exemplify a more liberal view from the subject’s standpoint so that actions which would have been stayed here have not been stayed in the United States. The key to those cases lies in the degree of control left in the bailor. There is nothing in the doctrine of sovereign immunity in English law to suggest that the sovereign’s interest must be exclusive.
As to possession, although it is true that possession cannot reside in two persons who have adverse claims, the argument for the company involves too strict an interpretation of the peculiar English doctrine of possession based on the old forms of action. It is an over-refinement to say that a person who has had possession loses it the moment he places it in the temporary custody of some person, not his servant, to hold it safe. This is not supported by English authority and is contrary to the rule of international law. Roman law has had a great influence on the law of bailment: see Halsbury’s Laws of England, 2nd ed., Vol. I, p. 725, para. 1196. Considering possession broadly one can have regard to the principles of Roman law. A bailee did not have the animus to hold as owner and so he had not got possession although he held the corpus: see Buckland’s Textbook of Roman Law, 2nd ed., pp. 196, 467, 500. The true view is that a bailor with an immediate right to possession has possession. Although the trover and detinue cases are not conclusive on this matter a bailor can sue in trover and detinue when he has an immediate right to possession and the bailee is his delegate. [He referred to The Arantzazu Mendi52; Government of the Republic of Spain v. The Arantzazu Mendi53; Ancona v. Rogers54; Lincoln Wagon and Engine Co. v. Mumford55 and Holmes on The Common Law, p. 235.]
As to control by the foreign sovereign, the shipping authorities are not inapplicable to the present case and the second limb of Lord Atkin’s observations in The Cristina56 does not apply to ships only. One can have control of a chattel apart from possession. In the user of bars of gold the significant thing is how they shall be employed, whether as security or as a medium of exchange or as a symbol of value. In this respect the appellants controlled the gold and it does not matter how it was kept. It is an offence to common sense to say that a foreign sovereign who
in the ordinary course of dealing with such things as gold puts them into the custody of some other person loses his right of immunity. For example, while he is staying at an hotel he may deposit jewellery in the hotel keeper’s safe. There has never been a case in which an argument such as the company’s has succeeded.
If it is claimed that damages is merely an alternative remedy the court should not allow this. If it were allowed it would drive a horse and cart through the doctrine of sovereign immunity. In the present case the claims for delivery up and for damages are alternative remedies in the same cause of action. To order the bank to pay damages because it will not deliver up something which it holds for the foreign sovereigns is an interference with the rights of the foreign sovereigns. If it paid damages it could assert a title to the gold against the governments. The effect of the company’s argument is that at some stage or other the governments must prove their title and that is just what they are not to be forced to do. Such a proceeding has the indirect result of putting pressure on the bailee to deliver up the goods, and this device would largely destroy the possession and control of property which a sovereign can exercise through a bailee. The court can neither award damages nor order delivery up.
Only in the case of the 13 bars which have been disposed of, thereby destroying the possession and control of the governments, may damages perhaps be awarded. But if the respondents were right in their main contention, no bailee in the position of the bank would be safe from an action for damages whether he dealt with the goods in accordance with the bailment or not.
Their Lordships took time for consideration.
1952. Feb. 25. EARL JOWITT. My Lords, Dollfus Mieg et Cie., the respondents to this appeal, are a French company who before the outbreak of war in 1939 had acquired as their property 64 bars of gold. These bars of gold were stored in a bank at Limoges in a special vault which the respondents had hired. When the German armies overran Limoges they captured the 64 bars in question and carried them off to Germany; and when the American armies occupied that part of Germany at which the bars had been stored by the Germans they were taken possession of by the Americans and brought to Frankfurt, where they remained for some time in American custody. Negotiations followed between the various allied governments as to the course to be followed with gold captured by the allied armies in Germany and finally a treaty was signed between 18 allied governments. Nothing, I think, turns for present purposes on the precise terms of that treaty – it is sufficient to say that the 64 gold bars in question, together with other gold bars, passed into the possession of the American, British and French Governments. These governments established a “Tripartite Commission for the Restitution of Monetary Gold” to deal with gold taken from Germany on their behalf.
In March, 1948, a “gold set-aside account” was opened at the Bank of England in accordance with the terms of a letter from H.M. Treasury dated March 9, 1948, and the bank’s reply dated March 11, 1948. The trial judge set out the terms of these letters in his judgment and came to the conclusion that the effect of the letters was to create a contract between the Bank of England and the American, British and French Governments. He regarded the Treasury as a mere intermediary acting on behalf of the governments who were to operate the account. I think he was amply justified in reaching this conclusion.
The terms of the contract must be construed in the light of the course of business which was well known to all the contracting parties. Ever since 1940 the Bank of England in operating a gold set-aside account had not kept separate the gold belonging to one customer from the gold belonging to another customer, though the customers’ gold, considered globally, was kept separate from gold belonging to the bank itself. Under the “gold set-aside” account as managed in 1948 the bank on receiving gold in whatever form from a customer would weigh the gold and assay it and, if necessary, bring it up to the standard of fineness for good delivery in the London Bullion Market. Until the completion of weighing and assay the particular gold would be kept separate in the name of the depositor, but once these operations were completed there would be recorded in the books of the bank the number of ounces of fine gold comprised in the deposit, and the depositor would be entitled to receive from the bank the number of ounces of fine gold so ascertained, less charges. The customer would, however, no longer be entitled to receive any particular bars of gold in satisfaction of his contract. The contract, in short, once weighing and assaying had been completed, created a relationship between the depositor and the bank closely resembling that of debtor and creditor, except that the bank’s obligation was to be discharged by the handing over of the requisite number of ounces of fine gold.
During the hearing in your Lordships’ House we had produced for our inspection the bank’s account. This is headed “Bar Gold set aside o/a His Majesty’s Treasury o/a the Governments of the United States, the United Kingdom and France.” The account opens under date May 20/April 19-23, 1948, with an item imported from B.N. Suisse Berne,” and this is entered as 578700 oz. fine.”
The 64 bars, the subject-matter of these proceedings, were dealt with on a different basis. By a letter of July 10, 1948, a Monsieur Rueff, who was acting on behalf of the French delegation of the Inter-Allied Reparations Agency, wrote to the Secretary-General of the Tripartite Commission asking that the 64 bars should be preserved in their present form, and, as a result of this request, the Secretary-General of the Tripartite Commission, in a letter dated July 16 addressed to the Bank of England, asked if the bank would be able and willing to “have these bars set aside intact on arrival, if they can be identified, pending receipt of a further communication from the Commission.” By a letter of July 19, 1948, the Bank of England answered as follows: “The proposal which you make is acceptable to the Bank of England provided that at the time we receive the authority of the Commission to hold the gold at the disposal of the Bank of France we also receive instructions from them to ship the gold from London.”
Shortly after these letters the bank received the 64 bars and, as requested, set them aside. The weighing and assaying of the 64 bars was not completed until shortly before October 25, 1948, and their gold content was on that day entered in the “gold set-aside account” as 25,679.605 fine ounces. This entry was, however, plainly not intended to terminate the bank’s obligation to hold the specific 64 bars, for the letter of October 25, 1948, from the bank to the Tripartite Commission recording the above facts concludes with this sentence: “I would mention that in view of the circumstances outlined in your letter under reference these bars have been temporarily segregated pending the receipt of instructions as to their disposal.”
In these circumstances, I think that the correct view is that the letters of July coupled with the sending of the 64 bars to the bank constituted a bailment of the 64 bars “pending receipt of a further communication from the Commission,” and that the contract of bailment continued, notwithstanding the entry of October 25. If there had been no special arrangement constituted
by the July letters I should have been of opinion that the bailment of the individual bars had been terminated when the account was credited with the fine gold content.
The writ in the action in which Dollfus Mieg were plaintiffs and the Bank of England were defendants was issued on October 18, 1948, and claimed delivery of the 64 bars and an injunction restraining the defendants from parting with the bars; and on November 2 the plaintiffs asked for an injunction restraining the defendant bank from selling or parting with the possession of the 64 bars. On the same day the bank served notice of motion asking the court to set aside the writ on the ground that the 64 bars were in the possession or control of the Governments of the United States of America, the Republic of France and the United Kingdom, and upon the further ground that the two foreign governments who declined to submit to the jurisdiction were directly or indirectly impleaded. On March 8, 1949, the writ was amended by the insertion of a claim for damages for detention and conversion of the 64 bars.
The respondents Dollfus Mieg by an affidavit sworn on their behalf by Frederic Engel on October 16, 1948, asserted that the 64 gold bars in question had been purchased by them and remained their property at all material times; and an affidavit sworn by Mr. Rootham, an assistant chief cashier in the employment of the Bank of England, set out the terms of the letters of March 9 and 11, 1948, and was relied upon by the bank in support of their application to stay all further proceedings. It is the fact that this latter affidavit made no reference to the July correspondence. Further affidavits were put in establishing the fact that the Governments of the United States of America and of the Republic of France were not willing to submit to the jurisdiction. Mr. Engel made a further affidavit dated December 17, 1948, referring to and exhibiting the letter from Mr. Rueff of July 10, 1948, and this produced a further affidavit by Mr. Rootham exhibiting the two letters of July 16 and 19, 1948, respectively.
I have briefly referred to all the evidence that was available to Jenkins J. when the case was heard before him in March, 1949. Unfortunately the fact that by some mistake 13 of the 64 bars had been delivered to purchasers outside the bank between December 30, 1948, and January 26, 1949, had not then been discovered, so that the case before the trial judge proceeded on the basis, which everyone believed to be the fact, that the 64 bars were still intact in the bank’s possession. If discovery had been ordered it is possible that this fact would have been brought to light; but, whether this would have been so or not, it seems to me desirable that in a case of this sort an order should be made for full disclosure of documents before the hearing. In the present case, as is apparent from the judgment of the Master of the Rolls, documents were produced before the Court of Appeal which had not been produced before the trial judge, and in your Lordships’ House still further documents were produced which had not been available to either of the courts below. This would have been avoided if full discovery had been given.
Jenkins J. delivered his reserved judgment on April 6, 1949, setting aside the writ.57 He regarded the three governments as being in possession or control of the 64 bars of gold, which were held for their public purposes, and regarded the action against the Bank of England as being an attempt to sue indirectly the three governments, two of whom he treated as foreign sovereign States. He decided that so long as property is in the possession or control of a foreign sovereign State no court in this country can entertain proceedings which, if successful, would result in any interference with the foreign sovereign State’s exercise of such possession or control, whether directly (as by removing the property from the custody of an agent to whom the foreign sovereign State has entrusted it), or indirectly (as by casting in damages for wrongful possession an agent through whom the foreign sovereign State is exercising its possession or control).
Dollfus Mieg appealed to the Court of Appeal, and before the conclusion of the hearing in that court the fact that by some error 13 of the 64 bars had been delivered on the market was revealed. I have not overlooked the fact that the disposal of the 13 bars did not take place until after the issue of the writ. This difficulty could have been surmounted by the issue of a further writ after January 26, 1949, and all the parties have asked us to treat the case as though the writ had been issued on the later date. My Lords, it is, I think, clear that so treating the date of the writ the action in regard to these 13 bars must be allowed to proceed, for in regard to them it may well be argued that no question any longer arises of interfering with the possession or control of a foreign sovereign State. I do not think it would be proper for us to come to any final conclusion as to this matter. It is not for us to try the case. We have merely to decide at this stage whether the action should or should not be allowed to go for trial, and in so far as the 13 bars are concerned I certainly think that
the action should be allowed to go on. All the members of the Court of Appeal thought, however, that the disposal of the 13 bars made it inevitable that the action should be allowed to proceed as to the entire 64 bars. The Master of the Rolls58 thought that the disposal of the 13 bars had “destroyed at a single blow the whole premiss on which the judgment below proceeded.” Somervell L.J. would have agreed with the judgment of Jenkins J. but for the disposal of the 13 bars. He states his view as follows59: “The 64 bars for all relevant purposes at all material times were in the pool. Thirteen of them were disposed of, and the whole 64 might have been disposed of without instructions from or reference to the Tripartite Commission. In these circumstances it seems to me impossible to hold that these 64 bars were in the possession or control of the three governments.” Cohen L.J. agreed with Somervell L.J. My Lords, I cannot agree with this reasoning. If the bars were in the possession or control of the governments I cannot think that the fact that by some error of internal management 13 bars were disposed of alters the position except as to those 13 bars. For the question of possession or control must depend on the terms of the contract under which the bars in question came to the bank; if possession or control was retained by the governments that position is not altered by the fact that through an error 13 bars were disposed of in breach of the contract. Unless the disposal of the 13 bars throws some light upon the terms of the contract it seems to me to be irrelevant in regard to the remaining 51 bars. I have already stated my view that in regard to the 64 bars there was a contract of bailment and an obligation was thereby imposed on the bank to keep these bars separate and intact and not to allow them to become merged in the general pool of customers’ gold pending the receipt of further instructions. The Master of the Rolls, differing in this respect from the other judges in the Court of Appeal, thought that Jenkins J. had come to an erroneous conclusion on the facts as presented to him. He thought that from and after the time at which the 64 bars were delivered to the bank the governments no longer had such a degree of possession or control as would justify them in asking to have the action stayed.
Lord Porter
The facts have been set out by Jenkins J. in the court of first instance, by Cohen L.J. in the Court of Appeal, and by the noble Earl on the woolsack in your Lordships’ House. I need not repeat them.
Jenkins J. stayed the action, but when he gave his judgment he was unaware that after action brought the bank had delivered 13 of the 64 bars to third parties. The majority of the Court of Appeal, as I understand them, would have reached the same conclusion as the learned judge if they had had to depend on the same material, but thought that the disposal by the bank of the 13 bars destroyed the argument for staying the proceedings in respect of the whole of the 64; Somervell L.J.’s view being that the bank had ceased to keep them separate because, thoughit had stacked them in two special trucks and placed a notice that they were not for disposal, it had failed to enter a warning note on the cards relating to the consignment in question and that the entry of the note was a precaution which must be observed if the bars are to be regarded as separated from the pool. The Master of the Rolls went further and thought that even without the additional evidence a case had been made for allowing the action to proceed against the bank. In his view it was not established that the bank were ever under a duty to keep the bars separate and, even if they were, he agreed with the other members of the court in thinking that they had not done so.
This portion of the case involves a question of fact or inference from fact and, in my view, the inference drawn by the Court of Appeal is not justified. The correspondence and affidavit evidence show that though since 1940 it has not been the practice of the bank, except as the consequence of a special arrangement, to keep a customer’s gold separate from that of other customers, yet in this special case they agreed to do so and took steps to carry out their agreement. I cannot read the letter dated October 25, 1948, from the bank to the Tripartite Commission as bearing any other meaning. The suggestion that it means “We have in fact but without obligation held the bars separate but that separation ceased once we had assayed,” is inconsistent with that letter, and indeed with the general import of the correspondence. The entry in the account crediting it with the value of the bars and the charges made for assaying do not conflict with this view. It is but an account-keeping device and it would be odd if the bank, knowing that an action had been brought against it and, indeed, as a result of that fact, were to change the whole relationship between itself and its customer.
But it is said H.M. Treasury was the customer and the Tripartite Commission was merely empowered to draw on the account through certain specified persons nominated by the Treasury. I cannot take that view. The Treasury was no doubt the instrument by means of which the relationship between the bank and the Tripartite Commission was brought about; the Commission, however, were the only body entitled to deal with it and, in fact, through their secretary, gave instructions to the bank and were informed by its officials of the action taken. It is true that instructions as to the operation of the account are, in the words of Sir Edward Rowe Dutton, in his letter of March 9, 1948, entrusted to certain named representatives, but this arrangement is limited to instructions for the operation of the account and leaves the Commission to make arrangements through its secretary as to the disposal of the bars. In fact, the Commission gave such instructions and the bank accepted them.
Had, then, the 64 bars remained intact, I find myself in agreement with the original judgment of Jenkins J.
Does it, then, make a difference that in error 13 bars were treated as if they were part of the pool from which gold could be drawn for customers generally instead of being treated as confined in use to one particular customer? The reason for the decision of the majority in the Court of Appeal is perhaps most clearly exemplified in the words of Somervell L.J. He says68: “The authorities of the bank responsible for the correspondence with the Tripartite Commission intended that these bars should be kept apart from the pool and held as individual bars for the three governments. Some steps were taken to this end, but, as the facts show and as is admitted, one necessary step was not taken. The 64 bars for all relevant purposes at all material dates were in the pool.” My Lords, with all due respect, I am unable to concur with this view. In fact, the bars were kept separate in two trucks and a notice was placed on them to indicate that they were to be used only for a particular purpose. It is true that one precaution, viz., an entry on the cards, which would have been helpful in avoiding a misuse of the bars and might have prevented it, was not taken, but that neglect did not cancel the instructions of the Tripartite Commission or the bank’s acceptance of them. So long as the bars remained in the possession of the bank, a failure to take all possible precautions or indeed even a failure to take all reasonable precautions to prevent the bars being dealt with in the ordinary course, is not effective to destroy the conditions on which the bank were instructed to hold the bars and on which they agreed that the bars should be held. Misdelivery may in certain cases put an end to a claim to possession, though it will not in the normal case destroy a right of property. On the other hand, negligence in failing to take all possible steps to see that an arrangement which had been made is carried out does not alter the fact that all bars in the possession of the bank remained in their possession subject to the terms upon which they were deposited. In such a case, however, misdelivery does, in my view, affect the position, since, as regards the 13 bars, it can no longer be asserted that they are in the possession of the three governments through their bailees, the bank.
That the bank are bailees is, I think, not open to doubt, but that fact leaves undecided the difficult and interesting question: Can those who assert a possessory title to goods but make no claim to the property in them be said still to retain possession after they have entrusted those goods to a bailee to hold on their behalf? There is no direct English authority which decides the point, much less one binding on your Lordships. The nearest, I suppose, is Ancona v. Rogers,69 a decision on the words “apparent possession” contained in section 1 of the Bills of Sale Act, 1854 (17 & 18 Vict. c. 36). In delivering the judgment of the court in that case Mellish L.J. said70: “There is no doubt that a bailor, who has delivered goods to a bailee to keep them on account of the bailor, may still treat the goods as being in his own possession, and can maintain trespass against a wrongdoer who interferes with them. It was argued, however, that this was a mere legal or constructive possession of the goods and that in the Bills of Sale Act the word ‘possession’ was used in a popular sense and meant actual or manual possession. We do not agree with this argument. It seems to us that goods which have been delivered to a bailee to keep for the bailor, such as a gentleman’s plate delivered to his banker, or his furniture warehoused at the pantechnicon, would, in a popular sense, as well as in a legal sense, be said to be still in his possession.” It is urged, however, that these “dicta” are “obiter,” and wrong; that, in any case, the judgment was not concerned with “possession” as opposed to property and that the true view is that the rule applies only in a case where the bailor has the property and the bailee has the possession. In such a case it is maintained that the bailor can sue in right of his property but that an action in right of possession belongs to the bailee only. This contention may be true where the bailor has no right to demand an immediate return of the article at his will, but the better opinion is, I think, that where the bailor can at any moment demand the return of the object bailed, he still has possession. See Pollock and Wright on Possession (1888), p. 166; Beal on Bailments (1900), p. 40; and Halsbury’s Laws of England, 2nd ed., Vol. I, p. 775, sub tit. Bailment. In each of the authorities referred to the right of the bailor is limited to a case of gratuitous bailment, a requisite which, in my opinion, is fulfilled in the present case. The bank held the bars, without any right of lien, at the will of the Commission.
The Commission being, in my opinion, as I have indicated, still in possession of 51 of the bars, it has to be determined whether they or the bank are entitled to immunity from suit instituted by the respondents. Such an action, it is argued on behalf of the latter, can be brought and determined without in any way impleading the two governments or affecting their rights. It is accepted by both parties that the principles to be considered are those laid down by Lord Atkin in Compania Naviera Vascongado v. The Cristina.71 In the relevant passage he says, in regard to those principles: “The first is that the courts of a country will not implead a foreign sovereign, that is, they will not by their process make him against his will a party to legal proceedings whether the proceedings involve process against his person or seek to recover from him specific property or damages. The second is that they will not by their process, whether the sovereign is a party to proceedings or not, seize or detain property which is his or of which he is in possession or control.” As, in the view which I have expressed, the three governments are in possession of the 51 bars, it is not necessary to inquire what is the exact meaning to be attributed to the word “control.” It is enough that they are in possession and an attempt is being made to interfere with that possession.
But it is said that the decision in The Cristina72 is not of universal application but applies only to an action in rem and that, in other cases, retention in the hands of the possessor himself is required to bring its principles into force. It is true that the matter then under consideration was a ship and that a decision in respect of a ship is an action in rem and would therefore bind all the world and not the parties only, but the observations of those members of your Lordships’ House who sat to decide the case were by no means confined to actions in rem. They extended to the case of all chattels: see, in particular, the observations of Lords Maugham and Wright. The principle, in my opinion, is a wider one and embraces any chattel, whether the subject of an action in rem or not. No doubt the doctrine should, as Lord Maugham said in The Cristina,73 be narrowly watched, but it has always to be remembered that governments must act through servants or agents and often through bailees, and it would destroy the efficacy of the doctrine if it were strictly confined to personal possession.
I do not myself find any great enlightenment in the American cases on the subject under discussion. They all, I think, turn on who was in possession at a particular time and depend on their own facts.
So far I have dealt with the claim of the respondents to recover the gold bars themselves and with their claim to an injunction. Sir Andrew Clark, however, on their behalf, expressed himself as willing to give up that claim and rest on his right to recover damages for conversion. Such a claim, he maintained, neither impleaded the sovereigns nor involved a seizure of their property. It was merely a claim for damages against the bank. But if the bank were ordered to pay damages to the respondents, Messrs. Dollfus Mieg et Cie.’s right of property would in law be transferred to them on their paying the damages awarded, and it would follow that, if the Tripartite Commission required the bank to return the bars, the bank could refuse to do so, relying on the title acquired by the payment of the damages, and thereby compel the governments either to bring an action or forgo their rights. The object of the rule, it has been said, is that a sovereign may not be compelled either to submit to a foreign jurisdiction or be compelled to go to law to obtain or preserve his right. Such an object might be defeated if this action were permitted to proceed since the bank is in possession and could refuse to surrender the bars and so compel the governments, if so minded, to take action in an endeavour to recover them.
Goel v Pick
[2006] EWHC 833 (Ch) [2007] 1 All ER 982
Ferris J
The aspect of the case which is dealt with in paragraph 15 of the Deputy Registrar’s judgment is more difficult. I cannot accept his reasoning that in order to complete what the Deputy Registrar regarded as his contractual right to acquire the VRM Dr. Goel would have to show that Mr. Virdi had done everything necessary to assign the VRM to him. If Dr. Goel could show this he would not need the assistance of law or equity to assert his entitlement. Nor can I accept the relevance, even by way of analogy, of Re Fry [1946] 2 All ER 105. That case is an example of the application of the principle that there is no equity to perfect an imperfect gift. But that principle is only applicable to voluntary dispositions and, in the present case, if there was an attempt to dispose of anything it was done for valuable consideration.
In my judgment the real difficulty in this case from the point of view of Dr. Goel is to analyse the legal nature of the transaction between him and Mr. Virdi in a way which establishes the existence of a proprietary interest capable of being assigned. For procedural reasons there was no written pleading of Dr. Goel’s case and his three witness statements do not assist in this respect. In argument before me the main contention of Mr. Beaumont, on behalf of Dr. Goel, was that the right to the VRM was a chose in action and that it had been assigned to Dr. Goel by the letter of 24th June 2002, which operated as either a legal or an equitable assignment.
The problem about this analysis is to know what is meant by “the right to the VRM”, or, to put the point in a slightly different way, what was the subject matter of the supposed assignment. A VRM is an item of property only in a very qualified sense. Essentially it is a mark or number assigned to motor vehicles by a governmental agency for regulatory reasons. It is only as an incident of the requirement that every road vehicle shall have a VRMassigned to it that certain marks or numbers have come to be regarded as attractive by reason of their novelty or distinctiveness and thus to have a value. A glance at press advertisements shows that some VRMs are traded, or at least offered for sale, at substantial prices. But if one speaks of the disposal or acquisition of a particular VRM one is inevitably referring to the process of retention and nomination prescribed by the regulations. What Mr. Beaumont referred to as “the right to the VRM” is, in my view, nothing more nor less than the ability to resort to the regulatory machinery in order to obtain the transfer of a VRM from one vehicle to another. I do not think this can be described as a chose in action. Even if it can, it is not capable of being “assigned”, as distinct from being exercised in accordance with the regulations.
It would, I think, be somewhat easier to describe a right of retention, once granted, as a chose in action. But this is of no assistance to Dr. Goel. No right of retention existed in respect of the VRM at the time of the letter of 24th June 2002. In any event the transfer of such a right is expressly prohibited by regulation 13.
In the notice of appeal it was suggested that, as an alternative to assignment, Dr. Goel could rely on proprietary estoppel. In my view, however, this runs into the same difficulty as assignment, namely the impossibility of identifying any item of property which is the subject of an estoppel. In any event there is nothing to suggest that Mr. Virdi stood by while Dr. Goel acted to his detriment.
I therefore reach the same conclusion as the Deputy Registrar in respect of legal or equitable assignment or other equitable relief, although I do so by a somewhat different route.
I would add that nothing less than a proprietary right can assist Dr. Goel. A purely contractual obligation on the part of Mr. Virdi, remediable only in damages, will not be enough for him. He would only be an unsecured creditor in respect of any damages that might be awarded. Moreover the calculation of damages would have to take account of the fact that, if Dr. Goel had become entitled to the VRM, the amount due to him in respect of building works would be reduced
Having regard to my conclusion that Dr. Goel is not entitled to the VRM the question of preference does not arise. I will therefore deal with it only briefly.
There can be no doubt that if the VRM passed to Dr. Goel this constituted a preference within the meaning of section 340(3) of the Insolvency Act 1986. Dr. Goel was a creditor of Mr. Virdi and, if he had obtained the VRM, this would have put him in a better position, in the event of Mr. Virdi’sbankruptcy, than he would have been in if he had not obtained the VRM. It is also accepted on this appeal that Mr. Virdi was insolvent at the 24th June 2002 in that, by reason of the Law Society’s intervention, he was unable to pay his debts as they fell due. The question is whether the other requirements of section 340 are satisfied so as to give the court power to nullify the transaction.
The issue raised on this part of the appeal is whether Dr. Goel was an associate of Mr. Virdi at the time when the preference was given. This is relevant in two respects. First, under section 340(4), the court cannot avoid the preference unless Mr. Virdi was influenced by a desire to put Dr. Goel into a better position in the event of his bankruptcy. If Dr. Goel was an associate this influence is presumed unless the contrary is shown. If Dr. Goel was not an associate the trustee in bankruptcy would have to prove the requisite intention. Secondly only preferences given at “the relevant time” can be avoided under section 340. If Dr. Goel was an associate the relevant time is any time within the period of two years ending with the making of the bankruptcy order. A disposition made by the letter dated 24th June 2002 would be well within this period. If Dr. Goel was not an associate the relevant period is six months ending with the date of the bankruptcy order and a disposition made on 24th June 2002 would be outside it.
Under section 435 (3) a person is an associate of any person with whom he is in partnership. On this appeal it was not seriously disputed that Mr. Virdi and Dr. Goel were in partnership together in respect of the acquisition, conversion or refurbishment and sale of the Property. This is so notwithstanding that they joined together for this one venture only. The argument that was relied on behalf of Dr. Goel was that, under section 340(5), the recipient of the preference must have been an associate at the time the preference was given and, as at 24th June 2002, the venture in relation to the Property had been finished for some time, with the result that the parties were no longer associates. Section 435(3) says that “a person is an associate of any person with whom he is in partnership” not of “any person with whom he has been in partnership” (emphasis added). If the legislature had wanted to include a former partner within the definition it could easily have said so. It was said that this has in fact been done in relation to spouses where, under the concluding words of section 435 (8), references to a husband or wife include a former husband or wife.
Belmont Park Investments PTY Ltd v BNY Corporate Trustee Services Ltd & Anor
[2011] UKSC 38 [2011] 3 WLR 521, [2011] BCC 734, [2011] BPIR 1223, [2012] 1 All ER 505, [2012] 1 AC 383, [2011] Bus LR 1266, [2011] UKSC 38, [2012] 1 BCLC 163
Lord Collins
Acquisition of property with own assets
In Whitmore v Mason 2 J & H 204, 214-215 Sir William Page Wood V-C said:
“If his co-partners had advanced a definite sum of money on account of his share, then the property might have been considered to the extent of the money so advanced by them, as identically their money; but this has not been done.”
Sir William Page Wood V-C’s statement was based on a marriage settlement case, Lester v Garland (1832) 5 Sim 205, which confirmed a long line of cases which had established that the wife’s portion would be protected in the event of the husband’s bankruptcy:
“A variety of cases, beginning with the case of Lockyer v. Savage [(1732) 2 Str 947], which was decided about 100 years ago, have established that, though there cannot be a settlement of the husband’s own estates so as to make his life interest cease in the event of his becoming a bankrupt, in order that the benefit of the estate might be given to the wife or children of the marriage, yet the wife’s estate may be so settled.” (p 222)
As Stirling J put it in Mackintosh v Pogose [1895] 1 Ch 505, 511:
“… it has long been established that if husband and wife both bring property into such a settlement [viz, a marriage settlement], a trust of the income of the wife’s property in favour of the husband until his bankruptcy is good, while a similar trust of the income of the husband’s property is bad ..”
The basis of the rule was that
“the courts treated the property of the husband as being in substance the property of the wife … [and] as the identical property brought by her into settlement” (at 514-515).
In Higinbotham v Holme 19 Ves Jun 88, 92-93, Lord Eldon LC distinguished the case of the settlement by the bankrupt husband on himself of a life interest, from, firstly,
“the case of the wife’s property limited until the bankruptcy of her husband; that is, where she reserves a power over her own property”,
and, secondly,
“the case of a lease made determinable by the bankruptcy of the lessee: that is a reservation by the owner of the property of a power over it.”
The marriage settlement cases are not far removed from the category of determinable and defeasible interests or “flawed assets,” but they do suggest that the source of the assets is an important element in determining whether there has been a fraud on the bankruptcy laws. Lord Neuberger MR’s conclusion [2010] Ch 347, para 64 was that Whitmore v Mason is authority for the view that the anti-deprivation rule may have no application to the extent that the person in whose favour the deprivation of the asset takes effect can show that the asset, or the insolvent person’s interest in the asset, was acquired with his money.
That conclusion is supported by the very frequent formulation of the anti-deprivation rule in terms of the bankrupt’s “own property.” Thus in Holmes v Penney (1863) 3 K & J 90, 102, Sir William Page Wood V-C stated the general principle as being that
“a trader cannot, even for valuable consideration, settle his own property in such a manner as that he should take an interest in it until his bankruptcy, and afterwards, it should be held in trust for his wife and children.” (emphasis added)
and there are many similar references in the older cases to the settlement or disposition of the bankrupt’s own property: eg In re Detmold 40 Ch D 585, 588 per North J; In re Stephenson [1897] 1 QB 638, 640 per Vaughan Williams J; In re Halstead, Ex P Richardson [1917] 1 KB 695, 709 per Warrington LJ.
The anti-deprivation rule of course only applies where the bankrupt’s own property is in issue, and these dicta do not show that the rule has no application where the source of the bankrupt’s asset is the person to whom it is to go on bankruptcy. Nor would it be right for there to be a general and universally applicable exception to the general rule based simply on the source of the assets. But if the source of the assets is the person to whom they are to go on bankruptcy that may well be an important, and sometimes decisive, factor in a conclusion that the transaction was a commercial one entered into in good faith and outside the scope of the anti-deprivation rule.
[1722] EWHC KB J94 (1722) 1 Strange 505, 93 ER 664, [1722] EWHC KB J94
Finder of a jewel may maintain trover.
The plaintiff being a chimney sweeper’s boy found a jewel and carried it to the defendant’s shop (who was a goldsmith) to know what it was, and delivered it into the hands of the apprentice, who under pretence of weighing it, took out the stones, and calling to the master to let him know it came to three halfpence, the master offered the boy the money, who refused to take it, and insisted to have the thing again; whereupon the apprentice delivered him back the socket without the stones. And now in trover against the master these points were ruled:
1. That the finder of a jewel, though he does not by such finding acquire an absolute property or ownership, yet he has such a property as will enable him to keep it against all but the rightful owner, and consequently may maintain trover.
2. That the action well lay against the master, who gives a credit to his apprentice, and is answerable for his neglect.[1]
3. As to the value of the jewel several of the trade were examined to prove what a jewel of the finest water that would fit the socket would be worth; and the Chief Justice directed the jury, that unless the defendant did produce the jewel, and shew it not to be of the finest water, they should presume the strongest against him, and make the value of the best jewels the measure of their damages: which they accordingly did.
Glencore International AG v Metro Trading International Inc
[2000] EWHC 199 (Comm)) MooreBick J
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 very sophisticated 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 Oil Corporation 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 very existence 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 v Martin). 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 oil as 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.
T Comedy (UK) Ltd v Easy Managed Transport Ltd
[2007] EWHC 611: [2007] 2 Lloyd’s Rep 397, Hirst QC
Property in the garments
Mr Maxwell Lewis argued that TCL had supplied all the materials and accessories for the garments and that it was never intended by TCL, Bates, Whisper or the other factories that title should be transferred to the factory. On the contrary the whole scheme for the make up of garments in Turkey proceeded on the basis that title in the materials and accessories and then the finished product remained vested in TCL. This was strongly disputed by Mr Happé who argued that once the materials and accessories were used in the manufacturing process, they lost their individual identity and became the property of the factory. He also relied heavily of the terms of the invoices issued by Bates to Whisper.
One possibility is that title in the materials and accessories sent out from England was transferred to Whisper when they were delivered to the EMT warehouse for export to Turkey. But the goods were not being sold to Whisper, which made no payment for them. I can see no basis for inferring that there was an intention to transfer title to Whisper. It would have been contrary to the well established practice of the rag-trade in this country, which is clearly evidenced by Control Notes for the Clothing and Fashion Industry V1-37, part of which has been published by HM Customs & Excise:
“3.1 Manufacturers
The use of the title manufacturer[1] in the Rag Trade can be misleading, as more often than not, they do not actually manufacture the garments. Instead they act as middle men responsible for the design, production of samples, costing and commissioning of the garment to order.
…
They buy the cloth and trimmings, stipulate a making price governed by the margin allowed by their customer, or potential customers, and raise a work docket, containing all the instructions for the factory to make the garment. The manufacturer then sells the completed garments to retail chains, or other manufacturers or wholesalers.
Cut, Make and Trim (CMTs)
Factories generally work to a main manufacturer (principal). They provide the services of cutting cloth, sewing material together and producing a finished garment.
Specific tasks in this process are also sub-contracted to home workers (depending on the type of garment) who work on piece rates from home. Cloth and dockets, detailing numbers of garments, styles, sizes and specific requirements are normally supplied by the manufacturer, who retains ownership. Increasingly, this work is sub-contracted overseas, where unit costs are lower. [my emphasis]
So I am satisfied that title in the materials and accessories sourced in the United Kingdom was not transferred to Whisper.
….
25. Suppose one man makes something out of another’s materials. Who is it reasonable to see as owner, the maker or the owner of the materials? Suppose, for example, that one man makes wine, oil, or grain from another’s grapes, olives, or corn; or a pot of some kind from another’s gold, silver or bronze; or mead from another’s wine and honey; or a plaster or ointment from another’s medicines; or clothes from another’s wool; or a ship, a chest, or a chair from another’s timber. Debates between Sabinians and Proculians left this unresolved. A middle view has been upheld: If the thing can be turned back into its materials, its owner is the one who owned the materials; if not, the maker. The completed pot can be turned back into a raw ingot of bronze, or silver, or gold; wine, or oil, or grain cannot be made back into grapes, olives, or corn, and even mead cannot be turned back into wine and honey. If someone makes something partly out of his own material and partly out of another’s – mead from his wine and another’s honey, or a plaster or ointment from some medicines belonging to himself and others belonging to someone else, or clothes out of his own and someone else’s wool – ownership vests, without a doubt, in the maker. He contributes not only his work but also even part of the material.
26. Suppose someone weaves another’s purple thread into his own garment. It merges with the garment by succession, even if the thread is more valuable than all the rest. The former owner of the thread then has the action for theft and the action of debt against the taker, whether he was the one who made the clothes or not. When something has ceased to exist it is no longer possible to bring a vindication, but the action of debt can still be used against thieves and certain other types of possessor.
It is not easy to reconcile paragraphs 25 and 26 and ultimately I am not persuaded that whatever Roman law might be provides much help in resolving the issues of Turkish law in this case. I shall leave the resolution of the point in Roman law to the scholars.
……
I was also shown a number of English cases, including Bordern (U.K.) Ltd v. Scottish Timber Products Limited [1981] 1 Ch 25, In Re Peachdart [1984] 1 WLR 131 and Clough Mill Limited v. Martin [1985] 1 WLR 111. Whilst I consider that English law would reach the same conclusion on these facts, that is irrelevant because England is not the lex situs.
Mr Happé advanced an alternative that title to the garments had become vested in Next. This was based on clause 10 of a set of Next’s Terms and Conditions of Purchase which provides:
“10.1 Risk in the Products shall pass to Next at the time when the Products are received by Next. The Seller will not exercise any lien over the Products.
10.2 … title and ownership in the Products shall pass to Next as soon as the Products have been separately identified and set aside for Next”
Mr Happé argued that the garments had been separately identified and set aside for Next when they were manufactured in Turkey with Next labels sewn in and placed on Next hangers[4].
This argument collapsed when it emerged on the last day of trial that both counsel had been provided with the wrong set of Next conditions. This set was not introduced until the summer of 2006. All the contracts with Next were on a previous set of conditions which did not contain clause 10, or anything equivalent. I should add that I am very doubtful that the garments had really been set aside for Next when they were in Turkey. I do not consider that happened until (at the earliest) the goods were assembled in England, checked and put in the correct order for delivery to Next, as and when Next called for delivery.
Without clause 10, it could not be plausibly suggested that title passed to Next prior to actual delivery to the carriers instructed to deliver the garments to Next – see section 18, rule 5(2) of the Sale of Goods Act 1979. There had been no prior unconditional appropriation to the contract of the garments in a deliverable state with the assent (express or implied) of Next.
So, in my judgment, at the time EMT received the garments for carriage by road to London and at the time it sought to exercise a lien, title was vested in TCL. The air-freighted goods were the property of TCL when they arrived at EMT’s warehouse.
Are the RHA conditions creating general and particular liens consistent with the CMR Convention?
The CMR Convention, as set out in the Schedule to the Carriage of Goods by Road Act 1965, provides as follows:
“Chapter III.
CONCLUSION AND PERFORMANCE OF THE CONTRACT OF CARRIAGE
Article 6
1. The consignment note shall contain the following particulars:
…
(i) charges relating to the carriage (carriage charges, supplementary charges, customs duties, and other charges incurred from making of the contract to the time of delivery);
Article 13
1. After arrival of the goods at the place designated for delivery, the consignee shall be entitled to require the carrier to deliver to him, against a receipt, the second copy of the consignment note and the goods. …
2. The consignee who avails himself of the rights granted to him under paragraph 1 of this article shall pay the charges shown to be due on the consignment note, but in the event of dispute on this matter the carrier shall not be required to deliver the goods unless security has been furnished by the consignee.
Chapter VII.
NULLITY OF STIPULATIONS CONTRARY TO THE CONVENTION
Article 41
Subject to the provisions of Article 40[5], any stipulation which would directly or indirectly derogate from the Provisions of this Convention shall be null and void. The nullity of such a stipulation shall not involve the nullity of the other provisions of the contract”.
Article 13.2 gives the consignee, in this case Whisper, the right to delivery of the goods on payment of the charges shown to be due on the consignment note. Mr Maxwell Lewis submitted that clause 14 of the RHA conditions of carriage which enabled the carrier to exercise a general lien for all outstanding charges, not just the charges due on the consignment, was inconsistent with the consignee’s right to immediate delivery of the goods on payment of the charges shown to be due on the consignment note, and therefore null and void under Article 41.
Mr Happé drew my attention to §106 of Professor Malcolm Clarke’s book on International Carriage of Goods by Road: CMR (4th ed.), where the author states:
“The Carrier’s Lien
Article 13.2 provides that, if the consignee requires delivery of the goods “he shall pay the charges shown to be due on the consignment note, but in the event of dispute on this matter the carrier shall not be required to deliver the goods unless security has been furnished by the carrier”. Subject to this, the CMR is silent on rights of retention available to the carrier and any such rights under national law will remain effective.”
I did not find this reasoning in the last sentence easy to understand. It does not take into account Article 41 of CMR. In my judgment, Article 13.2 of the CMR Convention creates a self-contained Code whereby the consignee has the right to require delivery of the goods on payment of the charges shown to be due on the consignment note – coupled with the 1965 Act it creates a statutory lien for the carriage charges. A general lien would derogate from the consignees’ right of delivery on payment of the charges, because the consignee could only obtain delivery on payment of additional sums due in respect of other carriages. So, in my judgment, a general lien is null and void under Article 41 of CMR.
By parity of reasoning, to the extent that the particular lien granted by the RHA conditions of carriage is wider than that granted by Art. 13.1 of CMR, it is null and void. The carrier’s rights are confined to those granted by the Convention.
If EMT did not have a general lien, did it have a particular lien, and if so for what?
The consequences of my findings so far are that EMT did not have a general lien for carriage charges because the RHA conditions of carriage were not incorporated and, even if they had been (1) the garments were not owned by Bates or Whisper and (2) a general lien is void under CMR.
That leaves open the issue whether EMT had a particular lien under CMR for the carriage charges, and a particular lien under the RHA conditions of storage for anything else.
Article 13.2 of CMR gives the carrier a particular lien, enforceable against the consignee, for the charges shown to be due on the consignment note. The difficulty that arises is that, contrary to Art. 6(1)(i), the consignment notes in this case left the box for entry of the carriage charges blank. Was it still open to EMT to exercise a particular lien, or put the other way, is it fatal to a particular lien that the consignment note contained no particulars of the charges relating to the carriage?
Mr Maxwell Lewis submitted that it was on the clear wording of the Convention. Mr Happé submitted that the consignment note was only evidence of the contract. Under Art. 4 of CMR, any irregularity would not affect the existence or validity of the contract of carriage. Both Bates and Whisper were well aware of the carriage charges due. The consignment note was not determinative of either party’s rights. I agree with Mr Happé’s submission as far as it goes. He is right that the failure to state the amount of carriage charges in the consignment note will not affect the carrier’s underlying contractual right to recover the charges, in this case from Bates and Whisper under the terms of their official agreement. But, that leaves open the separate question whether it affects the right of lien over the goods.
There is some assistance in international Carriage of Goods by Road (CMR) edited by Jan Theunis, published under the auspices of the International Road Transport Union in 1987. In his contribution, M.H. Claringbould states (at p.212):
“It should be stressed that the right to retain the goods at the moment of delivery is only available to the carrier when the consignment note clearly indicates that there is still freight due to the carrier (Helm, JG, Frachtrecht, Walter de Gruyter, Berlin, 1979. p. D 461, anm. 4)
In practice it is only seldom that the consignment note mentions anything at all about freight and costs, even though according to Article 6(1)(i) of the CMR the charges relating to the carriage have to be mentioned in this note.
The learned writers, if they comment at all on Article 13.2 of the CMR, agree that this Article does not in general entitle the carrier to retain goods, but only gives a restricted right against the consignee. The writers all turn to their national law to decide whether a carrier has a right to retain the goods … “
Clarke does not deal with the point expressly, but he cites at §24 on p.54 conflicting decisions of the German Courts (BGH 10.2.82 (1983 18 ETL 32, 39), OLG Stuttgart 24.1.67 (1968 NJW 1054) and OLG Hamm. 12.11.73 (1974 ULR II 212)).
In my judgment the scheme of the Convention is clear:
(1) Under Art. 6(1)(i) the consignment note must contain particulars of the charges relating to the carriage. The note is to be signed by the sender and the carrier. It may be that it is rare for consignment notes to comply with this requirement – certainly they did not do so here – but that cannot alter the principle laid down by the Convention. Obviously the exact figure for some charges, for instance customs duties and some supplementary charges such as waiting time, may not be known at the time but the consignment note can easily make a general reference to these. It is not difficult for the carrier to ensure that the consignment note complies with the Convention.
(2) Article 13.2 only allows the carrier to retain the goods against payment of the carriage charges shown to be due on the consignment note. This ties in with Article 6(1)(i). The reference to the charges shown to be due on the consignment note cannot be ignored. The commercial purpose is to give certainty as to what must be paid to secure release of the goods, at a time when decisions may have to be made urgently and on the basis of limited information. In the early 1960’s, when the Convention was negotiated, difficulties of communication would have been greater than today. If the carrier chooses not to record the carriage charges in the consignment note, then he will lose the right to exercise a lien. It cannot be relevant that, in this case, the consignee was well aware of the correct position. That will often not be so, and the proper interpretation of the Convention cannot depend on the facts of a particular case.
Here nothing was recorded in the consignment note about the carriage charges, and it follows that EMT had no lien under Article 13.2 for any outstanding carriage charges.
That leaves the particular lien under the RHA conditions for storage. In the case of the goods transported by road and the air-freighted goods, EMT sought to exercise a lien on arrival of the goods at their depot/warehouse. Mr Maxwell Lewis argued that EMT had gained possession of the air-freighted garments by stealth, and even deceit. I reject that argument. The address given for delivery to Whisper’s was at EMT’s warehouse. In reality, Whisper only had a small office within the warehouse and it had no means of receiving and holding the garments. It was inevitable that EMT would have to receive the garments, and that is what Whisper intended and expected. Whisper may not have anticipated that EMT would seek to exercise a lien over these garments, but Mr Mehmet never promised not to do so, whether expressly or impliedly.
A lienee has no right to recover expenses incurred by him in maintaining his security: Somes v. Directors of British Empire Shipping Co. (1860) 8 HL Cas. 338, China Pacific S.A. v. Food Corporation of India [1982] AC 939, 962-3 and Morris v. Beaconsfield Motors (CA) [2001] EWCA Civ 1322. So there could be no right to recover storage charges. But I do consider that EMT would have had a right to exercise a lien for its charges for preparing the goods for delivery to Next – for instance taking the air-freighted garments off the hanging strings and putting them on hangers and sorting and checking both sets of garments. In their invoices 21182, 21223 and 21265, EMT charged a total of £2,979.52 (incl. VAT) for the services rendered in relation to the air-freighted goods. For the goods carried by road, there was a charge of £626.09. TCL, with the support of Mr Kaya and Mr Boyraz, challenged these invoices, but I consider that they were in principle justified for work actually done, but the charges for the air-freighted cargo are over-stated. They would have been less if there had been a single movement from vehicle to vehicle, as would have been the case if no lien had been asserted, and I think there has been an (understandable) desire to maximise what is payable to EMT. Doing the best I can, I think EMT was entitled to £2,000 (incl. VAT) for the work done in respect of the air-freighted garments. I find the figure of £626.09 reasonable for the garments carried by road.
I should add that, if I had upheld the claim to a general lien, I would have found that EMT was owed £86,526.09 by Bates (guaranteed by Whisper) and additionally £6,719.30 by Whisper and could exercise a general lien for these sums. If I had upheld a particular lien for the road carriage charges in respect of this consignment, I would have held that £9,100 was due for waiting time, an extra driver and carriage, as recorded in invoice 21161.
The cross-undertaking
TCL was not party to the contracts of carriage or the storage contracts. However, it consigned the materials and accessories to Whisper for carriage out to Turkey and knew and intended that Bates would bail the goods to EMT for carriage of the finished product back to London. TCL must be treated as having consented to the goods being bailed to EMT for carriage both ways, and on the usual CMR terms which include a right of lien against the consignee for the carriage charges. It also consented to the goods being handled at EMT’s warehouse on usual terms, which would include the RHA conditions of storage. It follows from general principles established in Morris v. C.W. Martin & Sons [1966] 1 QB 716, The Pioneer Container (PC) [1994] 2 AC 324 and East West Corporation v. DKBS A/S (CA) [2003] EWCA Civ 83 [2003] QB 1509 that, insofar as EMT was entitled as against Bates or Whisper to exercise a particular lien on the garments, it was also entitled to do so as against TCL. So in my judgment, in accordance with its cross-undertaking in damages, TCL ought to pay £2,626.09 to EMT – it is fair to observe that this is a considerably lower sum than it offered on 7 August 2006.
Damages
TCL pleaded a claim for damages against EMT for wrongful interference with the goods, on the basis that they had been wrongfully detained. No particulars were given of this claim until the first day of the trial when TCL sought to plead two heads of loss:
(1) Increased transport charges: £600
(2) Loss of repeat orders from Next in respect of garments manufactured from the red dogstooth cloth, which meant that TCL was left with a liability to pay £14,250 to Ipekis for pre-ordered cloth not used in repeat orders.
I allowed the first head to be pleaded. I declined to allow the second head to be pleaded because it was too late for EMT to be able to investigate the claim properly, and because (having heard Mr Erkaslan’s evidence on this topic de bene esse) there was no evidence that Next had decided not to place a repeat order for garments made from this cloth due to late delivery of the original order, as opposed (for instance) to general lack of customer demand for the product. I would add that it would not follow anyway that the cloth did not retain a substantial value.
As to the claim for £600, this was the additional charge for demurrage and waiting paid to OK Transport Limited who were the hauliers used by TCL to transport the garments from Beckton to Next’s distribution centre in West Yorkshire on 16 August 2006. Mr Erkaslan explained that, because of the urgency, TCL had kept the carrier on standby so that, when EMT finally released the goods, they could be collected and taken to Next without any further delay. Mr Mehmet challenged this evidence on the basis that the trucks were not actually waiting in his yard but were on call. That may be so, but it does not affect the overall reasonableness of the claim. I accept Mr Erlaslan’s evidence. EMT had been wrongfully detaining the garments for some time. It was becoming very urgent indeed that they were delivered to Next; there was an ever increasing risk that Next would reject them, and if that had occurred the losses would have been very considerable. I accept that these charges were reasonably incurred as a result of EMT’s continuing wrongful interference and I uphold the claim for £600 damages.
So the net figure payable by TCL is £2,026.09. I will hear counsel on what consequential orders need to be made, including releasing the security of £25,000.