Seller’s Remedies
Cases
Stocznia Gdanska SA v. Latvian Shipping Co and Others
[1998] UKHL 9; [1998] 1 All ER 883; [1998] 1 WLR 574
Lord Lloyd
The outstanding balance of the contract price will, of course, be the contract price, including profit, less any instalments already paid at the date of rescission and any overdue instalments recovered between the date of rescission and the date when the final calculation comes to be made. If, for some reason, the overdue instalments have not been recovered at the date of the calculation, the unpaid balance of the contract price will be that much the greater. This consideration does not, however, cast any doubt on the plaintiff’s right to recover overdue instalments in debt prior to the final calculation. It is in this respect, and this respect only, that I respectfully disagree with the Court of Appeal. Since the machinery of clause 5.05 works equally well whether overdue instalments are paid or not, there is no need to imply any exclusion of the plaintiffs accrued right to recover the keel laying instalments in debt. Still less is there any express exclusion of that right.
There is a slight awkwardness in the language of clause 5.05(3) since the reference to the proceeds of sale and the instalments both being “applied” in satisfaction of the unpaid balance of the contract price might suggest that they are both to be applied in the same way. But as the Court of Appeal correctly pointed out, that would make no sense at all. The instalments are to be taken into account in calculating the unpaid balance of the contract price. The proceeds of sale are then to be applied in satisfaction of the unpaid balance of the purchase price, whatever it may be.
If the proceeds of sale are more than the unpaid balance of the purchase price then the difference belongs to the buyers under clause 5.05(3). But if it is less, then the yard is entitled to recover the difference from the buyers under clause 5.05(4). By completing the hulls and selling vessels 1 and 2 the plaintiffs will have mitigated their damages as required by the clause and will at the same time have recovered their contractual loss of profit.
Mr. Glennie argued that there had been a total failure of consideration in respect of the keel-laying instalments on hulls 1 and 2 on the ground that the buyers have enjoyed no benefit under either contract. Accordingly even if the keel-laying instalment were otherwise payable under the contract, it would be immediately repayable on the ground of total failure of consideration. Mr. Glennie relies in this connection on the judgment of Stable J. in Dies v. British and International Mining and Finance Corporation Ltd. [1939] 1 K.B. 724, 742.
The difficulty with Mr. Glennie’s argument is that it runs counter to the decision of the House in Hyundai Heavy Industries Co. Ltd. v. Papadopoulos [1980] 1 W.L.R. 1129. That case, like the present, concerned a shipbuilding contract. The contract provided that the second instalment of the contract price should be payable on a day certain. It gave the builders the right to rescind the contract in the event of non payment. The buyers failed to pay the second instalment, and the builders rescinded. Two questions arose for decision, namely, (1) whether the effect of the rescission was to deprive the builders of their right to claim the second instalment, and (2) whether, if not, the second instalment could be recovered by the buyers on the ground of total failure of consideration. In relation to question (2) the buyers (or more accurately their guarantors) relied, as they do here, on Dies.
Viscount Dilhorne and Lord Fraser of Tullybelton rejected the guarantors’ argument. Lord Fraser pointed out, at p. 1148, that the contract was not of the same simple character as the contract of sale in Dies. The builders were obliged to carry out work, and incur expense, from the moment the contract was signed. It seemed likely that the instalments bore some relation to the anticipated rate of expenditure. But it was unnecessary to make a nice comparison. It was enough that the builder was bound to incur considerable expense in carrying out his part of the contract before the actual sale could take place.
“Much of the plausibility of the argument on behalf of the guarantors seemed to me to be derived from the assumption that the contract price was simply a purchase price. That is not so, and once that misconception has been removed I think it is clear that the shipbuilding contract has little similarity with the contract of sale and much more similarity, so far as the present issues are concerned, with contracts in which the party entitled to be paid have either performed work or provided services for which payment is due by the date of cancellation.”
Mr. Glennie points out that Lord Russell of Killowen and Lord Keith of Kinkel expressed doubt on the first question, and did not deal specifically with the second question. Nor did Lord Edmund-Davies. Thus there was no majority, so it is said, in favour of the views expressed on the second question by Viscount Dilhorne and Lord Fraser. Alternately Mr. Glennie invites your Lordships to depart from Hyundai on the ground that the decision on the second question is inconsistent with the earlier decision of the House in Fibrosa Spolka Akcyjna v. Fairbairn, Lawson, Combe Barbour Ltd. [1943] AC 32.
I cannot accept these submissions. It is true that Lord Edmund-Davies does not refer to the second question. But the whole tenor of his speech is in agreement with that of Viscount Dilhorne and Lord Fraser. If he had disagreed on any point, he would surely have said so. In any event the views of Viscount Dilhorne and Lord Fraser are, if I may respectfully say so, plainly correct, and directly applicable to the facts of this case.
Mr. Glennie submitted that the question whether there has been a total failure of consideration is to be judged from the buyer’s point of view; in other words the question is not whether the plaintiffs have suffered a detriment in performing the contract, but whether the buyers have enjoyed any benefit. He relied on Chitty on Contracts (1994) 27th ed., vol. 1, para. 29-034, and Goff and Jones, The Law of Restitution (1993) 4th ed., p. 401. But if that is the right question, there can be only one answer on the facts of the present case. For this was not a simple contract of sale. The contract required the plaintiffs to design and construct the vessels. That was part of the benefit which the buyers were to receive under the contract. When the contracts were rescinded, construction of the vessels had reached the point at which the second instalment had already fallen due. Even though the buyers have not enjoyed the whole of the benefit for which they contracted, which included the completion and delivery of the vessels, their enjoyment of part of the benefit is sufficient to defeat any claim to recover back the second instalment. The construction put upon the word “benefit” in section 1 (3) of the Law Reform (Frustrated Contracts) Act of 1943 by Robert Goff J. in B. P. Exploration Co. (Libya) Ltd. v. Hunt [1979] 1 W.L.R. 783, 802 does not stand in the way of this conclusion.
As for Fibrosa, the contract in that case called for the delivery of certain machinery c.i.f. Gdynia. A third of the price was to be paid with the order, and the balance against shipping documents. The outbreak of war frustrated the contract. The question in the case was whether the rule in Chandler v. Webster [1904] 1 K.B. 493 under which, when a contract is frustrated, “the loss lies where it falls” was still good law. The House held that it was not. Chandler v. Webster was overruled.
But there was a second question. Mr. Valentine Holmes K.C., for the sellers, argued that there was no total failure of consideration. For the contract had been partly performed by the manufacture of the machinery, even though delivery was no longer possible. This argument did not find favour. The contract was treated throughout as a simple contract of sale, in which the consideration was the delivery of the machinery. This is clear from the speeches of Lord Russell of Killowen, at p. 56, Lord Wright, at p. 64, and Lord Porter, at p. 83. Since the machinery never was delivered, the buyers were entitled to recover their payment in advance. I agree that the distinction between a simple contract of sale, in which the only consideration is the transfer of title, and a contract of sale which also includes the provision of services prior to delivery, may sometimes be a fine one. But the distinction is sound in principle. I can see nothing in the decision in Fibrosa which is in anyway inconsistent with the subsequent decision of the House in Hyundai. I do not find it surprising that Fibrosa was not even cited in argument.
Finally, under this head, Mr. Glennie argued that if there was a total failure of consideration in respect of the first instalments on hulls 3-6, then the buyers can rely on their right to recover those instalments as a set off against the plaintiffs’ claim on hulls 1 and 2. But no such set off has ever been pleaded. It was not relied on as a defence when the case was argued before Clarke J. It should not now be allowed to stand in the way of summary judgment in respect of the keel laying instalments on hulls 1 and 2. I would therefore allow the appeal in respect of those instalments, and restore the judgment of Clarke J.
Glencore International AG v Metro Trading International Inc
[2000] EWHC 199 (Comm)
Moore Bick J
Issues of English law
I now turn to the issues of English law set out in paragraphs I and J of the Preliminary Issues. Paragraph I mirrors the issues of Fujairah law set out in paragraph F; paragraph J raises questions relating to the identification of proprietary interests in the remaining mixed bulk of goods held by MTI.
Issue I – Whether and to what extent title would pass to MTI in respect of any relevant oil or whether and to what extent the respective Oil Claimant would retain ownership of the oil (if necessary as a co-owner of any commingled or blended bulk) in or notwithstanding each or any of the following assumed circumstances, namely . . . . . . . .
As in the case of Issue F, it is convenient to consider the law relating to commingling and blending generally before dealing with the individual questions posed in this paragraph.
Authorised commingling and blending
It is trite law that delivery of goods to a bailee for storage has no effect on the general property in the goods which remains at all times with the bailor. The bailee’s duty is to redeliver the goods to the bailor in accordance with the terms of the bailment. So long as the goods retain their original identity no difficulties arise, but questions of property do arise once that original identity is lost, and one way in which that may occur is by the storage of goods in a mixed bulk. Until recently this question had received relatively little attention in English law, although it had been considered in a number of cases in the United States where grain is often stored in common silos. Where several people deliver goods of the same kind to a warehouse keeper to be stored in a mixed bulk the storage agreements may all be in the same standard terms and may indicate clearly where property lies. If that is the case, then in addition to the individual contracts between each bailor and the warehouse keeper, it may be possible to find that a separate contract of the kind which in Clarke v Dunraven [1897] A.C. 59 was held to have come into existence between the competitors in the yacht race has come into existence between all the bailors and the warehouse keeper which regulates their property rights in the bulk.
If the goods have been delivered to the warehouse keeper simply for the purposes of storage, the depositor is unlikely to have intended that property should pass to the warehouse keeper. In these circumstances in the absence of any agreement to the contrary the mixed bulk will be owned in common by those whose goods have contributed to it, each depositor becoming an owner in proportion to the amount of his contribution. As goods are added to or drawn from the bulk the interests of the contributors will vary to reflect the quantity of goods still held to their order. These principles, which were developed in the American cases, in particular Sexton & Abbott v Graham (1880) 44 Iowa 181, Nelson v Brown, Doty & Co (1880) 44 Iowa 555 and Savage v Salem Mills Co (1906) 85 Pac. 69, were approved by the House of Lords in Mercer v Craven Grain Storage Ltd [1994] CLC 328. In these circumstances since no property passes to the warehouse keeper it is appropriate to describe him as a bailee, even though his obligation is to redeliver to each depositor not the identical goods deposited with him but the same quantity of goods of the same description drawn from the mixed bulk of which they formed part.
The same principles apply whether the mixed bulk is composed entirely of goods owned by individual bailors or includes goods owned by the warehouse keeper himself, provided there is no intention to pass property or dominion over the goods to him. However, if the warehouse keeper is entitled to treat the goods as his own, the contract will be regarded as one of sale and property will pass on delivery, subject to any agreement to the contrary. Thus in South Australian Insurance Co v Randell (1869) L.R. 3 P.C. 101 farmers delivered wheat to millers who stored it in common as part of their current stock from which they would draw either for sale or for grinding in their mill. The terms on which the farmers delivered wheat gave them the right to demand the return of an equivalent quantity of wheat of the same quality, or the market price, and gave the millers the option of delivering wheat or paying the market price. The transaction therefore amounted to a contract of sale because it gave the millers the right to dispose of the goods entirely as they chose.
The essential distinction between blending and commingling is that where blending has taken place the resultant product is different in nature from both its original constituents. This creates certain conceptual difficulties in the case of unauthorised blending to which I shall return, but should not ordinarily create difficulties where the blending is carried out pursuant to a contract. In such a case the general rule is that the parties are free to decide for themselves at what stage, if any, in the process property in the original goods shall pass to the blender and on what terms. This includes the right to decide who is to own the resultant blend. In Clough Mill Ltd v Martin [1985] 1 W.L.R. 111 the plaintiff supplied yarn to a manufacturer of fabric under a contract which provided that if any of the yarn were incorporated into other goods the property in those goods should remain in the plaintiff until all the yarn supplied had been paid for. Robert Goff L.J. described the effect of a term of that kind as follows at page 119G
“Now it is no doubt true that, where A’s material is lawfully used by B to create new goods, whether or not B incorporates other material of his own, the property in the new goods will generally vest in B, at least where the goods are not reducible to the original materials: see Blackstone’s Commentaries, 17th ed. vol. 2, pp. 404-405. But it is difficult to see why, if the parties agree that the property in the goods shall vest in A, that agreement should not be given effect to. On this analysis, under the last sentence of the condition as under the first, the buyer does not confer on the seller an interest in the property defeasible upon payment of the debt; on the contrary, when the new goods come into existence the property in them ipso facto vests in the plaintiff, and the plaintiff thereafter retains its ownership in them . . . . . . . .”
Oliver L.J. expressed the same view, albeit provisionally. He said at page 123H-124B
“I have had the advantage of reading the judgment of Robert Goff L.J. and for the reasons which are there set out I am not convinced that it necessarily follows that the plaintiff’s proprietary interest in a manufactured article must derive from a grant by the buyer. English law has developed no 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 vRandall 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 vFerguson, 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 virtueof 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
Foskett v. McKeown and Others
[2000] UKHL 29; [2000] 3 All ER 97 [2001] 1 AC 102, (1999-2000) 2 ITELR 711, [2000] 2 WLR 1299, [2000] UKHL 29, [2000] 3 All ER 97, [2000] Lloyd’s Rep IR 627, [2001] AC 102, [2000] WTLR 667
Lord Millett
My Lords,
This is a textbook example of tracing through mixed substitutions. At the beginning of the story the plaintiffs were beneficially entitled under an express trust to a sum standing in the name of Mr. Murphy in a bank account. From there the money moved into and out of various bank accounts where in breach of trust it was inextricably mixed by Mr. Murphy with his own money. After each transaction was completed the plaintiffs’ money formed an indistinguishable part of the balance standing to Mr. Murphy’s credit in his bank account. The amount of that balance represented a debt due from the bank to Mr. Murphy, that is to say a chose in action. At the penultimate stage the plaintiffs’ money was represented by an indistinguishable part of a different chose in action, viz. the debt prospectively and contingently due from an insurance company to its policyholders, being the trustees of a settlement made by Mr. Murphy for the benefit of his children. At the present and final stage it forms an indistinguishable part of the balance standing to the credit of the respondent trustees in their bank account.
Tracing and following
The process of ascertaining what happened to the plaintiffs’ money involves both tracing and following. These are both exercises in locating assets which are or may be taken to represent an asset belonging to the plaintiffs and to which they assert ownership. The processes of following and tracing are, however, distinct. Following is the process of following the same asset as it moves from hand to hand. Tracing is the process of identifying a new asset as the substitute for the old. Where one asset is exchanged for another, a claimant can elect whether to follow the original asset into the hands of the new owner or to trace its value into the new asset in the hands of the same owner. In practice his choice is often dictated by the circumstances. In the present case the plaintiffs do not seek to follow the money any further once it reached the bank or insurance company, since its identity was lost in the hands of the recipient (which in any case obtained an unassailable title as a bona fide purchaser for value without notice of the plaintiffs’ beneficial interest). Instead the plaintiffs have chosen at each stage to trace the money into its proceeds, viz. the debt presently due from the bank to the account holder or the debt prospectively and contingently due from the insurance company to the policy holders.
Having completed this exercise, the plaintiffs claim a continuing beneficial interest in the insurance money. Since this represents the product of Mr. Murphy’s own money as well as theirs, which Mr. Murphy mingled indistinguishably in a single chose in action, they claim a beneficial interest in a proportionate part of the money only. The transmission of a claimant’s property rights from one asset to its traceable proceeds is part of our law of property, not of the law of unjust enrichment. There is no “unjust factor” to justify restitution (unless “want of title” be one, which makes the point). The claimant succeeds if at all by virtue of his own title, not to reverse unjust enrichment. Property rights are determined by fixed rules and settled principles. They are not discretionary. They do not depend upon ideas of what is “fair, just and reasonable.” Such concepts, which in reality mask decisions of legal policy, have no place in the law of property.
A beneficiary of a trust is entitled to a continuing beneficial interest not merely in the trust property but in its traceable proceeds also, and his interest binds every one who takes the property or its traceable proceeds except a bona fide purchaser for value without notice. In the present case the plaintiffs’ beneficial interest plainly bound Mr. Murphy, a trustee who wrongfully mixed the trust money with his own and whose every dealing with the money (including the payment of the premiums) was in breach of trust. It similarly binds his successors, the trustees of the children’s settlement, who claim no beneficial interest of their own, and Mr. Murphy’s children, who are volunteers. They gave no value for what they received and derive their interest from Mr. Murphy by way of gift.
Tracing
We speak of money at the bank, and of money passing into and out of a bank account. But of course the account holder has no money at the bank. Money paid into a bank account belongs legally and beneficially to the bank and not to the account holder. The bank gives value for it, and it is accordingly not usually possible to make the money itself the subject of an adverse claim. Instead a claimant normally sues the account holder rather than the bank and lays claim to the proceeds of the money in his hands. These consist of the debt or part of the debt due to him from the bank. We speak of tracing money into and out of the account, but there is no money in the account. There is merely a single debt of an amount equal to the final balance standing to the credit of the account holder. No money passes from paying bank to receiving bank or through the clearing system (where the money flows may be in the opposite direction). There is simply a series of debits and credits which are causally and transactionally linked. We also speak of tracing one asset into another, but this too is inaccurate. The original asset still exists in the hands of the new owner, or it may have become untraceable. The claimant claims the new asset because it was acquired in whole or in part with the original asset. What he traces, therefore, is not the physical asset itself but the value inherent in it.
Tracing is thus neither a claim nor a remedy. It is merely the process by which a claimant demonstrates what has happened to his property, identifies its proceeds and the persons who have handled or received them, and justifies his claim that the proceeds can properly be regarded as representing his property. Tracing is also distinct from claiming. It identifies the traceable proceeds of the claimant’s property. It enables the claimant to substitute the traceable proceeds for the original asset as the subject matter of his claim. But it does not affect or establish his claim. That will depend on a number of factors including the nature of his interest in the original asset. He will normally be able to maintain the same claim to the substituted asset as he could have maintained to the original asset. If he held only a security interest in the original asset, he cannot claim more than a security interest in its proceeds. But his claim may also be exposed to potential defences as a result of intervening transactions. Even if the plaintiffs could demonstrate what the bank had done with their money, for example, and could thus identify its traceable proceeds in the hands of the bank, any claim by them to assert ownership of those proceeds would be defeated by the bona fide purchaser defence. The successful completion of a tracing exercise may be preliminary to a personal claim (as in El Ajou v. Dollar Land Holdings [1993] 3 All E.R. 717) or a proprietary one, to the enforcement of a legal right (as in Trustees of the Property of F.C. Jones & Sons v. Jones [1997] Ch. 159) or an equitable one.
Given its nature, there is nothing inherently legal or equitable about the tracing exercise. There is thus no sense in maintaining different rules for tracing at law and in equity. One set of tracing rules is enough. The existence of two has never formed part of the law in the United States: see Scott The Law of Trusts 4th. ed. (1989), pp.605-609. There is certainly no logical justification for allowing any distinction between them to produce capricious results in cases of mixed substitutions by insisting on the existence of a fiduciary relationship as a precondition for applying equity’s tracing rules. The existence of such a relationship may be relevant to the nature of the claim which the plaintiff can maintain, whether personal or proprietary, but that is a different matter. I agree with the passages which my noble and learned friend Lord Steyn has cited from Professor Birks’ essay The Necessity of a Unitary Law of Tracing, and with Dr. Lionel Smith’s exposition in his comprehensive monograph The Law of Tracing (1997) see particularly pp. 120-130, 277-9 and 342-347.
This is not, however, the occasion to explore these matters further, for the present is a straightforward case of a trustee who wrongfully misappropriated trust money, mixed it with his own, and used it to pay for an asset for the benefit of his children. Even on the traditional approach, the equitable tracing rules are available to the plaintiffs. There are only two complicating factors. The first is that the wrongdoer used their money to pay premiums on an equity linked policy of life assurance on his own life. The nature of the policy should make no difference in principle, though it may complicate the accounting. The second is that he had previously settled the policy for the benefit of his children. This should also make no difference. The claimant’s rights cannot depend on whether the wrongdoer gave the policy to his children during his lifetime or left the proceeds to them by his will; or if during his lifetime whether he did so before or after he had recourse to the claimant’s money to pay the premiums. The order of events does not affect the fact that the children are not contributors but volunteerswho have received the gift of an asset paid for in part with misappropriated trust moneys.
The cause of action
As I have already pointed out, the plaintiffs seek to vindicate their property rights, not to reverse unjust enrichment. The correct classification of the plaintiffs’ cause of action may appear to be academic, but it has important consequences. The two causes of action have different requirements and may attract different defences.
A plaintiff who brings an action in unjust enrichment must show that the defendant has been enriched at the plaintiff’s expense, for he cannot have been unjustly enriched if he has not been enriched at all. But the plaintiff is not concerned to show that the defendant is in receipt of property belonging beneficially to the plaintiff or its traceable proceeds. The fact that the beneficial ownership of the property has passed to the defendant provides no defence; indeed, it is usually the very fact which founds the claim. Conversely, a plaintiff who brings an action like the present must show that the defendant is in receipt of property which belongs beneficially to him or its traceable proceeds, but he need not show that the defendant has been enriched by its receipt. He may, for example, have paid full value for the property, but he is still required to disgorge it if he received it with notice of the plaintiff’s interest.
Furthermore, a claim in unjust enrichment is subject to a change of position defence, which usually operates by reducing or extinguishing the element of enrichment. An action like the present is subject to the bona fide purchaser for value defence, which operates to clear the defendant’s title.
The tracing rules
The insurance policy in the present case is a very sophisticated financial instrument. Tracing into the rights conferred by such an instrument raises a number of important issues. It is therefore desirable to set out the basic principles before turning to deal with the particular problems to which policies of life assurance give rise.
The simplest case is where a trustee wrongfully misappropriates trust property and uses it exclusively to acquire other property for his own benefit. In such a case the beneficiary is entitled at his option either to assert his beneficial ownership of the proceeds or to bring a personal claim against the trustee for breach of trust and enforce an equitable lien or charge on the proceeds to secure restoration of the trust fund. He will normally exercise the option in the way most advantageous to himself. If the traceable proceeds have increased in value and are worth more than the original asset, he will assert his beneficial ownership and obtain the profit for himself. There is nothing unfair in this. The trustee cannot be permitted to keep any profit resulting from his misappropriation for himself, and his donees cannot obtain a better title than their donor. If the traceable proceeds are worth less than the original asset, it does not usually matter how the beneficiary exercises his option. He will take the whole of the proceeds on either basis. This is why it is not possible to identify the basis on which the claim succeeded in some of the cases.
Both remedies are proprietary and depend on successfully tracing the trust property into its proceeds. A beneficiary’s claim against a trustee for breach of trust is a personal claim. It does not entitle him to priority over the trustee’s general creditors unless he can trace the trust property into its product and establish a proprietary interest in the proceeds. If the beneficiary is unable to trace the trust property into its proceeds, he still has a personal claim against the trustee, but his claim will be unsecured. The beneficiary’s proprietary claims to the trust property or its traceable proceeds can be maintained against the wrongdoer and anyone who derives title from him except a bona fide purchaser for value without notice of the breach of trust. The same rules apply even where there have been numerous successive transactions, so long as the tracing exercise is successful and no bona fide purchaser for value without notice has intervened.
A more complicated case is where there is a mixed substitution. This occurs where the trust money represents only part of the cost of acquiring the new asset. As Ames pointed out in “Following Misappropriated Property into its Product” (1906) Harvard Law Review 511, consistency requires that, if a trustee buys property partly with his own money and partly with trust money, the beneficiary should have the option of taking a proportionate part of the new property or a lien upon it, as may be most for his advantage. In principle it should not matter (and it has never previously been suggested that it does) whether the trustee mixes the trust money with his own and buys the new asset with the mixed fund or makes separate payments of the purchase price (whether simultaneously or sequentially) out of the different funds. In every case the value formerly inherent in the trust property has become located within the value inherent in the new asset.
The rule, and its rationale, were stated by Williston in “The Right to Follow Trust Property when Confused with Other Property” (1880) 2 Harvard Law Journal at p. 29:
“If the trust fund is traceable as having furnished in part the money with which a certain investment was made, and the proportion it formed of the whole money so invested is known or ascertainable, the cestui que trust should be allowed to regard the acts of the trustee as done for his benefit, in the same way that he would if all the money so invested had been his; that is, he should be entitled in equity to an undivided share of the property which the trust money contributed to purchase–such a proportion of the whole as the trust money bore to the whole money invested.
“The reason in the one case as in the other is that the trustee cannot be allowed to make a profit from the use of the trust money, and if the property which he wrongfully purchased were held subject only to a lien for the amount invested, any appreciation in value would go to the trustee.”
If this correctly states the underlying basis of the rule (as I believe it does), then it is impossible to distinguish between the case where mixing precedes the investment and the case where it arises on and in consequence of the investment. It is also impossible to distinguish between the case where the investment is retained by the trustee and the case where it is given away to a gratuitous donee. The donee cannot obtain a better title than his donor, and a donor who is a trustee cannot be allowed to profit from his trust.
In In re Hallett’s Estate; Knatchbull v. Hallett (1880) 13 Ch. D. 696, 709 Sir George Jessel M.R. acknowledged that where an asset was acquired exclusively with trust money, the beneficiary could either assert equitable ownership of the asset or enforce a lien or charge over it to recover the trust money. But he appeared to suggest that in the case of a mixed substitution the beneficiary is confined to a lien. Any authority that this dictum might otherwise have is weakened by the fact that Jessel M.R. gave no reason for the existence of any such rule, and none is readily apparent. The dictum was plainly obiter, for the fund was deficient and the plaintiff was only claiming a lien. It has usually been cited only to be explained away (see for example In re Tilley’s Will Trusts [1967] Ch. 1179, 1186 per Ungoed-Thomas J.; Burrows The Law of Restitution (1993) p. 368). It was rejected by the High Court of Australia in Scott v. Scott (1963) 109 C.L.R. 649 (see the passage at pp. 661-2 cited by Morritt L.J. below at [1998] Ch. 265, 300-301). It has not been adopted in the United States: see the American Law Institute, Restatement of the Law, Trusts, 2d (1959) at section 202(h). In Primeau v. Granfield (1911) 184 F. 480 (S.D.N.Y.) at p. 184 Learned Hand J. expressed himself in forthright terms: “On principle there can be no excuse for such a rule.”
In my view the time has come to state unequivocally that English law has no such rule. 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. It does not matter whether the trustee mixed the trust money with his own in a single fund before using it to acquire the asset, or made separate payments (whether simultaneously or sequentially) out of the differently owned funds to acquire a single asset.
Two observations are necessary at this point. First, there is a mixed substitution (with the results already described) whenever the claimant’s property has contributed in part only towards the acquisition of the new asset. It is not necessary for the claimant to show in addition that his property has contributed to any increase in the value of the new asset. This is because, as I have already pointed out, this branch of the law is concerned with vindicating rights of property and not with reversing unjust enrichment. Secondly, the beneficiary’s right to claim a lien is available only against a wrongdoer and those deriving title under him otherwise than for value. It is not available against competing contributors who are innocent of any wrongdoing. 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.
Innocent contributors, however, must be treated equally inter se. Where the beneficiary’s claim is in competition with the claims of other innocent contributors, there is no basis upon which any of the claims can be subordinated to any of the others. Where the fund is deficient, the beneficiary is not entitled to enforce a lien for his contributions; all must share rateably in the fund.
The primary rule in regard to a mixed fund, therefore, is that gains and losses are borne by the contributors rateably. The beneficiary’s right to elect instead to enforce a lien to obtain repayment is an exception to the primary rule, exercisable where the fund is deficient and the claim is made against the wrongdoer and those claiming through him. It is not necessary to consider whether there are any circumstances in which the beneficiary is confined to a lien in cases where the fund is more than sufficient to repay the contributions of all parties. It is sufficient to say that he is not so confined in a case like the present. It is not enough that those defending the claim are innocent of any wrongdoing if they are not themselves contributors but, like the trustees and Mr. Murphy’s children in the present case, are volunteers who derive title under the wrongdoer otherwise than for value. On ordinary principles such persons are in no better position than the wrongdoer, and are liable to suffer the same subordination of their interests to those of the claimant as the wrongdoer would have been. They certainly cannot do better than the claimant by confining him to a lien and keeping any profit for themselves.
Similar principles apply to following into physical mixtures: see Lupton v. White (1808) 15 Ves. 442; and Sandemann & 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 at p. 418:
“. . . 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.
T Comedy (UK) Ltd v Easy Managed Transport Ltd
[2007] EWHC 611 (Comm) [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.
The transfer of possession of the materials and accessories and the manufacture of the garments to Bates and its sub-contractors all took place in Turkey. The issue as to whether the result was to transfer title in the moveables to Bates or (where there was a sub-contract) to the factory is obviously a matter for the law of Turkey as the lex situs under ordinary principles of conflicts of law: Dicey, Morris & Collins on The Conflict of Laws (14th ed.) Vol. 2 Rule 124. As Maugham J. said in Re Anziani [1930] 1 Ch 407, 420:
“I do not think that anyone can doubt that, with regard to the transfer of goods, the law applicable must be the lex situs. Business could not be carried on if that were not so”
Moore-Bick J. made the same point in Glencore International AG v. Metro Trading International Inc [2001] 1 Lloyd’s Reps 284 at §32.
Judge Mackie gave both parties permission to file written evidence of Turkish law but not to call the witnesses to give oral evidence. TCL filed a joint report from Professor Dr Oguz Atalay and Advocate Serhat Kaypakoglu. EMT filed a report from Izzet J. Hatem OBE. From their CV’s it is apparent that both sets of experts were well qualified to assist the Court.
In order to understand the Turkish law evidence, it is necessary to say more about the “cut and make” industry in Turkey. This is a major industry based in two free zones, of which Bursa, where Bates is based, is one. Under Turkish customs regulations, materials and accessories can be imported into one of the free zones to be manufactured into garments without payment of import duty, taxes and other import charges as long as they are re-exported once made up. This fiscal advantage is obviously critical to the economics of the business. In order to obtain what is called outward processing relief (“OPR”), the importer (in these cases Bates) must make an OPR declaration to the Turkish Customs. The goods are then treated as being imported only temporarily into Turkey. The importer must itself re-export the goods – no-one else can do so – and failure to do so is treated as criminal tax evasion.
Both experts referred to a report from Devrim Haciibrahimoglu of Dinamik who explained the regulatory background in Turkey. The author referred to the terms of the invoices issued by Whisper to Bates in connection with the fabric and accessories which stated “Above goods are to be processed and returned to the UK. No commercial value, for customs purposes only.” He explained that Article 2 of the Domestic Processing Regime Communiqué no 2005/1[2] allows for customs-exempted import of goods for processing, and the goods when imported are treated as being of no commercial value – hence the declaration in the invoices. Under the domestic processing permission the goods are temporarily imported and held to be processed. They would have to be re-exported by Bates to Whisper within the time permitted by the permission. The report expressed the opinion, adopted by Prof. Atalay and Adv. Kaypakoglu, that “it is out of the question that the owner of the items covered by the … invoices which are processed and exported … is Bates which performed the processing.”
On the basis of the facts they fairly summarise, Prof. Atalay and Adv. Kaypakoglu express the opinion that the arrangement between TCL and Whisper and Whisper and Bates, and the ordering, manufacturing and delivery procedures, rule out the application of the Turkish law on purchases of goods. This was not an arrangement by which a seller agreed to transfer title to a buyer. Instead the relation between TCL and Whisper/Bates was a locatio conductio operis or a manufacturing contract, as defined in article 355 of the Turkish Law on Obligations:
“The “Manufacturing Contract” is a contract where one of the parties (the Contractor) undertakes the production of goods in exchange for the price that the other side (the Employer) undertakes to pay.”
Article 357 provides, inter alia, as follows:
“The Contractor guarantees the quality of the materials used in the production and is answerable to the Employer in case they are of poor quality, in the same way as a seller would be answerable (to a buyer).
If the material is provided by the Employer, the Contractor is obliged to use this material with due care and is accountable for its use. He is also obliged to return the unused material back to the Employer … “
Article 368 also provides that if the product is accidentally destroyed before delivery, “the owner of the materials used in the construction bears the damage”.
Prof. Atalay and Adv. Kaypakoglu quote from a text book, the Law of Obligations, Special Contractual Relationships – Borclor Hukuku, Ozel Borc Illiskileri by Professor Dr Haluk Tandogan, Vol II (3rd ed.) published in Ankara in 1987:
“If the goods, delivery of which is undertaken, do exist at the time the contract is made, the characteristic of the contract is obviously a sale (or purchase). If the thing that is to be delivered is not ready at that time and would be produced by using the material the person that placed the order would give, then the [arrangement] can easily qualify as a manufacturing contract”.
They express the clear view on the basis of the facts they summarise that, in Turkish law, TCL has always been the owner of the goods – the components parts and the finished product – even when in the possession of the other parties.
Mr Hatem takes a radically different approach. He relies on the invoices issued by Bates to Whisper which bear the annotations CIF and “Cash against goods”. He concludes that these show that sales have been performed on a CIF basis. He treats the CMR consignment notes and the air waybills as equivalent to a bill of lading and, relying on article 1140 of the Turkish Code of Commerce No. 6762, which provides that transfer of property takes place with endorsement and surrender of the bill of lading which represents the goods, concludes title in the goods remained vested in Bates. As to the report by Dinamik, he states:
“Likewise, the system of temporary import of the material to Turkey in order to be manufactured and returned to England, … and consequently the commercial relations between TCL, Bates, Whisper and Next, in relation to the ownership of the fabrics/finishings/trimmings do not affect the carrier EMT’s rights as they do not concern the goods [viz as I understand him the finished garments] under the invoices issued by Bates to Whisper… ” .
This point was emphasised in his supplementary report, where he observed that the raw materials had lost their identity when used to manufacture the garments, and no ownership (title) can have passed to the manufactured goods.
I did not find Mr Hatem’s reliance on the invoices issued by Bates to Whisper at all persuasive. The invoices were for make-up charges only; there were no charges for the supply of materials. They do not evidence a sale of goods and I do not think that the draftsman of the invoices was intending to give any indication of where title lay. Further, the invoices, which were between Bates and Whisper, are of no assistance whatever as to whether Bates ever obtained title in the first place. In my judgment, Mr Hatem’s report fails to grapple with the underlying facts and the regulatory background in Turkey or the Turkish Code on Manufacturing Contracts. Article 357 of the Code strongly points to title in the finished product being vested in the Employer where he has supplied the materials, as was the case here, with de minimis exceptions. Overall, I found the reasoning advanced by Prof. Atalay and Adv. Kaypakoglu convincing.
There was also considerable oral evidence of TCL, Whisper and Bates, given by Mr Erkaslan, Mr Kaya and Mr Boyraz, as to their contemporary understanding. They were unanimous that it was always their understanding that title in the garments was vested in TCL and that Bates and Whisper at no time obtained title. That evidence was criticised by Mr Happé on the basis that it was a sort of “mantra”, by which I understood him to mean that they had put their heads together to produce false testimony. That was not, however, my impression of the evidence. In my judgment, it accurately reflected the custom and practice of the rag trade, here and in Turkey. It also makes good commercial sense. It would be surprising if TCL (or any other so called manufacturer) was willing to surrender title in the goods to a factory, where it had supplied all the materials and accessories, with trivial exceptions, and was receiving no payment for them from the factory.
I should add that there was some debate as to whether Roman Law – especially Book II (Of Things) Title II of Justinian’s Institutes – was of assistance. I was referred particularly to the following paragraphs[3]:
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
Charter v Sullivan
[1957] EWCA Civ 2 [1957] 2 QB 117, [1957] 2 WLR 528, [1957] EWCA Civ 2, [1957] 1 All ER 809
Jenkins LJ
The Hillman Minx car is a product of the motor manufacturing organisation known as the Rootes Group, and the Plaintiff is an area dealer for this organisation, covering the North Hampshire area.
In accordance with what is now a usual practice la the trade, the retail price at which these cars may be sold is fixed by the manufacturers, and it follows that (subject to any revision by the manufacturers of the wholesale or permitted retail price which is not is question hare) the profit realisable by a dealer on the sale of a new car of any given model (as is the present case a Hillman Minx deluxe saloon) remains constant.
No point was made on either aide of the fact that the Defendant was to give another vehicle la part exchange, nor was any distinction drawn between the car itself and the extra items (a relatively small matter). The sale to the Plaintiff can therefore be treated wholly as a sale for cash and although different considerations might apply to the extras as compared with the car itself, I propose for simplicity to treat £773. l7s. as the fixed retail price simply of the car as supplied by the manufacturers and £97. l5s. as the profit resulting from a sale of the car at that price. This indeed was the footing on which the case was argued before us*
I have new, I think, sufficiently stated what I take to be the undisputed facts. Passing over at this stage certain evidence bearing upon the state of the Plaintiff’s business in cars of the relevant description, and the effect (if any) upon that business of the Defendant’s rejection of the car he agreed to bay, which was the subject of some controversy at the hearing before us, and to which I will later revert, I turn now to consider what, on the undisputed facts of the case, is is the eye of the law the true measure of the damages, if any, over and above merely nominal damages, which the Plaintiff has suffered through the Defendant’s failure to take and pay for the car he agreed to buy.
Consideration of this question must inevitably begin with a reference to Section 50 of the sale of Goods Act 1893:
“(1) Where the buyer wrongfully neglects or refuses to accept and pay for the goods, the seller may maintain an action against him for damages for non-acceptance.
(2) The measure of damages is the estimated loss directly and naturally resulting, in the ordinary course of events, from the buyer’s breach of contract.
(3) Where there is an available market for the goods in question the measure of damages is prima facie, to be ascertained by the difference between the contract price and the market price or current price at the time or times when the goods ought to have been accepted, or, if no time was fixed for acceptance, then at the time of the refusal to accept.”
Mr. Collard, for the Defendant, argued that in the present case there was an available market for Hillman Minx deluxe saloon cars within the meaning of Section 30(3) of the Act, and accordingly that the measure of damages ought, in accordance with the prima facie rule laid down by that sub-section to be ascertained by the difference between the contract price and the market or current price at the time of the Defendant’s refusal to perform his contract.
The result of this argument, if accepted, would be that the Plaintiff could claim no more than nominal damages, because the market or current price could only be the fixed retail price, which was necessarily likewise the price at which he sold to the Defendant and re-sold to Wigley.
But the Plaintiff is a motor car dealer whose trade for the present purpose can be described as consisting in the purchase of recurrent supplies of cars of the relevant description from the manufacturers, and selling the cars so obtained, or as many of them as ha can, at the fixed retail price. He thus receives, on each sale he is able to effect, the predetermined profit allowed by the fixed retail price, and it is obviously in his interest to sell as many cars as he can obtain from the manufacturers. The number of sales he can effect, and consequently the amount of profit he makes, will be governed, according to the state of trade, either by the number of cars he is able to obtain from the manufacturers, or by the number of purchasers he is able to find. In the former case demand exceeds supply, so that the default of one purchaser involves him is no loss, for he sells the same number of cars as he would have sold if that purchaser had not defaulted. In the latter case supply exceeds demand, so that the default of one purchaser may be said to have lost him one sale.
Accordingly, it seems to me that even if there was within the meaning of Section 50(3) an available market for cars of the description is question, and even if the fixed retail price was the market or current price within the meaning of the same sub-section, the prime facie rule which it prescribes should be rejected in favour of the general rule laid down by sub-section (2); for it does not by any means necessarily follow that, because the Plaintiff sold at the fixed retail price to Mr. Wigley the car which the Defendant had agreed to buy at the selfsame fixed retail price, but refused to fake, therefore the Plaintiff suffered no “loss directly and naturally resulting, in the ordinary course of events” from the Defendant’s breach of contract.
This makes it strictly unnecessary to decide whether there was in the present case an available market for cars of the description in question within the meaning of Section 50(3). But I would find it difficult to hold that there was. Given default by some purchaser of one of his cars of the relevant description, the Plaintiff’s only alternative mode of disposal would be to sell it at the fixed retail price to some other purchaser. He could endeavour to find another purchaser by displaying the car in his saleroom, circularising or canvassing old customers or the public at large, and advertising by posters or in newspapers. The car would obviously be of interest to retail customers only (i.e. the car-using public as distinct from the trade) and any purchaser he might succeed in finding would necessarily have to be a purchaser at the fixed retail price. At that price there might be no takers, in which case the Plaintiff would be left with the car on his hands* Section 50(3) seems to me to postulate a market in which there is a market or current price, i.e. a price fixed by supply and demand at which (be it more or less than the contract price) a purchaser can be found* If the only price at which a car can be sold is the fixed retail price and no purchaser can be found at that price, I do not think it can reasonably be said that there is a market or current price or that there is an available market. If the state of the trade were such that the Plaintiff could sell at the fixed retail price all the cars he could get, so that the Defendants* default did not result is the Plaintiff effecting one sale less than he would otherwise have effected, it may well be that the Plaintiff could not make out his claim to anything more than nominal damages. I am however inclined to think that this would not be on account of the necessary equality of the contract price and the fixed retail price at which alone the car could be sold, taken for the present purpose as the market or current price within the meaning of Section 50(3), but because en an application of the general principle laid down by Section 50(2) the Plaintiff would be found to have suffered no damage.
In Thompson (W.L.) Ltd. -v- Robinson (Gunmakers) Ltd. 1955 Chancery, page 177, Mr. Justice Upjohn had before him a claim for damages in a case resembling the present case to the extent that the damages were claimed in respect of the Defendants’ refusal to perform a contract with the Plaintiffs for the purchase from the Plaintiffs of a car (in that instance a Standard Vanguard ear) which like the car in the present case could only be sold by the Plaintiffs at a fixed retail price. It la, however, important to note that the case to which I am now referring proceeded on certain admissions, including an admission to the effect that in the relevant district at the date of the contract (which was also the date of the breach) “there was no shortage of Vanguard models to meet all immediate demands in the locality”, which I take to mean (in effect) that the supply of such cars exceeded the demand. In these circumstances the Plaintiffs by agreement with their suppliers rescinded their contract with then, and returned the ear. In the ensuing action the Plaintiffs claimed from the Defendants damages amounting to the profit the Plaintiffs would have made on the sale of the car to the Defendants if the Defendants had duly completed their purchase of it, and the learned Judge held them entitled to those damages, The Defendants raised the same argument as has been raised by the Defendant in the present ease, viz that there was an available market for a car of the kind in question, within the meaning of Section 50(3), that there was a market or current price in the shape of the fixed retail price, and that as the fixed retail price was the same as the contract price the Plaintiffs had suffered no damage. In the course of his judgment Mr. Justice Upjohn referred to Lord Justice James’ definition of a market in Dunkirk Colliery Co. -v- Lever, 9 Chancery Division, page 20 at pagea 24 and 28. Lord Justice James said this at page 24: “under those circumstances the only thing that we can do is to send it back to the referee with an intimation that we are of opinion upon the facts (agreeing with the Master of the Rolls in that respect), that the facta do not warrant the application of the principle mentioned in the award, namely, that there was what may be properly called a market. What I understand by a market in such a case as this la, that when the Defendant refused to take the 300 tons the first week or the first month, the Plaintiffs might have sent it in waggons somewhere else, where they could sell it, just as they sell corn on the Exchange, or cotton at Liverpool: that is to say, that there was a fair market where they could have found a purchaser either by themselves or through some agent at some particular place. That is my notion of the meaning of a market under those circumstances.” Mr. Justice Upjohn also referred to the Scottish case of Marshall & Co. -v- Nicoll & Son 1919 Session Cases (House of Lords) page 129, where it was held in the Court of Session that there was an available market within the meaning of section 51(3) of the Sale of Goods Act, 1893, for annealed steel sheets although they were not kept in stock and were not purchaseable in the open market, In the House of Lords the decision was affirmed but their Lordships would seem to have been equally divided on the question whether there was an available market for the goods. In this state of the authorities, the learned Judge felt himself bound by Dunkirk Collieries Co. -v-Lever. supra, and held (in effect) that Lord Justice James’s definition in that case prevented him from holding that in the case then before his there was an available market within the meaning of section 50(3}.
Mr. Justice Upjohn went on to propound a more extended meaning for the phrase “available market” in these terms (at page 187 of 1955 Chancery Division)
“Had the matter been res integra I think that I should have found that an ‘available market’ merely means that the situation in the particular trade in the particular area was such that the particular goods could freely be sold, and that there was a demand sufficient to absorb readily all the goods that were thrust on it, so that if a purchaser defaulted, the goods in question could readily be disposed of.”
He went on to say (in effect) that in the case then before him there was no available market because the supply of Vanguard cars at the material time exceeded the demand.
I doubt if Lord Justice James’ observations in Dunkirk Collieries Co. -v- Lever supra, should be literally applied as an exhaustive definition of an available market in all cases. On the other hand I do not find Mr. Justice Upjohn’s definition entirely satisfactory. I will not however attempt to improve upon it, but will content myself with the negative proposition that I doubt if there can be an available market for particular goods in any sense relevant to section 50(3} of the Sale of Goods Act, 1893 unless those goods are available for sale in the market at the market or current price in the sense of the price, whatever it may be, fixed by reference to supply and demand as the price at which a purchaser for the goods in question can be found, be it greater or less than or equal to the contract price. The language of Section 50(3) seems to me to postulate that in the cases to which it applies there will, or may, be a difference between the contract price and the market or current price, which cannot be so where the goods can only be sold at a fixed retail price.
Accordingly I am of opinion that whether there was in this case “an available market” within the meaning of Section 50(3) or not, it is a case in which Section 50(2) should be applied to the exclusion of Section 50(3).
It remains therefore to ascertain the loss (if any) “naturally resulting in the ordinary course of events” from the Defendant’s breach of contract, and the measure of that loss must in my opinion be the amount (if any) of the profit he has lost by reason of the Defendant’s failure to take and pay for the car he agreed to buy. This accords with the view taken by Mr. Justice Upjohn in Thompson (W.L) -v- Robinson (Gunmakers) Ltd., supra. and else with the principle stated in In re Vic Mill Ltd. 1913 1 Chancery, page 468, which Mr. Justice Upjohn followed and applied.