Title Retention
Cases
Frigoscandia Ltd v. Continental Irish Meat
[1979] IEHC 3; [1982] ILRM 396
Essentially, there is no dispute about the facts. The machine was supplied and installed and put into operation but only a comparatively small quantity of samples had been produced before the bank appointed the second-named defendant as receiver of the property of the first-named defendant. At this time there was, and there still is, a sum of £10,199.71 due to the plaintiff in respect of the contract.
On behalf of the plaintiff it is claimed that the machine is still the property of the plaintiff and a claim is made for its return, but I understand that the plaintiff, in. fact, agreed to a sale of the factory with the machine without prejudice to its claim and will be agreeable to accept the money still outstanding in satisfaction of its claim.
On behalf of the defendants it is argued that the property in the goods passed either on delivery or once user commenced, that the terms of the contract were only effective to create a charge on the machine or some other form of security for the purchase price, that this was not registered in accordance with the provisions of s.99 of the Companies Act, 1963, and is, therefore, void as against the receiver and the creditors of Continental Irish Meat Ltd.
I had occasion to consider the effect of a number of these clauses last December in a case of Stokes v McKiernan Ltd. I was then referred to the case Aluminium Industrie Vaassen BV v Romalpa Aluminium Ltd [1976] I WLR 676; [1976] 2 All ER 552 held, adopting the view expressed in that case, that a clause such as condition (I) in the present case was effective to retain the property in the goods in the vendor even though the goods were in the possession of the purchaser. Unfortunately, the very full judgment of Slade J, in the case of Bond Worth Ltd had not then been delivered and I did not advert to the considerations which influenced Slade J, in coming to the conclusion that the clause in the contract he was construing (which was similar to the clause in one of the four contract in the McKiernan Case) created equitable charges only on the property sold and was not effective to retain the property in the goods in the vendor.
As pointed out by Slade J, the clauses in the Bond Worth Case and the Romalpa Case were very different. The clause in the Bond Worth case was as follows:
The risk in the goods passes to the buyer upon delivery, but equitable and beneficial ownership shall remain with us until full payment has been received (each order being considered as a whole) or until prior resale, in which case our beneficial entitlement shall attach to the proceeds of resale or to the claim for such proceeds
The clause in the Romalpa Case was similar to that in the present case in that the entire property in the goods was expressed, although in a different form, to be retained by the vendor until all that was owing had been paid. The clause was as follows:-
‘The ownership of the material to be delivered by AIV will only be transferred to purchaser when he has met all that is owing to AIV, no matter on what grounds.’
A difficulty which arises with regard to clauses of this nature is that they are included in the contracts to secure the payment to the vendor of the price of the goods and therefore it may be said as has been argued that the goods once delivered, are intended to be held by the purchaser as security for such payment and that the transaction is in the category of a mortgage in that the vendor, although retaining ownership or an interest in the goods, cannot take possession of them provided that the specified instalments are paid, and that this leads to the conclusion that such a clause must be treated as creating a mortgage or a charge over the goods.
In my opinion such a conclusion can have no general application to these clauses and each case must depend on its own facts. The parties to a contract can agree to any terms they wish and, amongst others, they can agree that the property in the goods shall not pass to the purchaser until all the instalments of the purchase price have been paid. See McEntire v Crossley Brothers (1895) AC 457 at 463; and s.17 of the Sale of Goods Act, 1893. The court has to decide what was the intention of the parties as shown by the provisions of the whole agreement. Where expressions such as ‘equitable and beneficial ownership remaining with the vendor’ are used or the nature or circumstances of the transaction make it unlikely that there could have been an intention that the property in the goods should not pass immediately to the purchaser, the ascertainment of the intention of the parties may present difficulty and require an earnest consideration of all the facts of the case. In the present case no such difficulty arises. The clause itself is clear, there was only one article sold, this article was intended to be kept in the factory of the purchaser and it was of such a nature that its re-sale could not have been reasonably contemplated by the parties.
Accordingly, I am of opinion that the plaintiff is entitled to succeed in its claim.
Carroll Group Distributors Ltd. v. G. and J.F. Bourke Ltd.
[1989] IEHC 1; [1990] 1 IR 481; [1990] ILRM 285
Murphy J
6. The right of a vendor and purchaser to agree that the property in goods agreed to be sold should remain in the vendor notwithstanding the agreement for a sale and the delivery of the goods to the purchaser cannot be questioned. The right was recognized in Irish case law in the second part of the last century (see Bateman v Green and King (1868) IR 2 CL 166 and McEntire v Crossley Brothers Ltd [1895] AC 457) and affirmed by the provisions of the Sale of Goods Act 1893, s. 19(1). Accordingly the liquidator was correct in returning the goods supplied by Carrolls and in the possession of Bourkes at the date when the liquidator was appointed.
7. The issue in the present case relates to the right of Carrolls in respect of the proceeds of sale of the goods supplied by them. In this context too the basic legal principles are well established. Where a trustee or other person in a fiduciary position disposes of property the proceeds of sale are impressed with a trust which entitle the benificiary or other person standing in the fiduciary relationship to trace such proceeds into any other property acquired therewith by the trustee. The right of tracing carries with it the presumption that where the substituted property is subsequently diminished it is presumed, notwithstanding the order of disposal and the well known rule in Clayton’s case that the trustee disposed of his own property in the first instance and encroached subsequently, if at all, upon the property of the benificiary. Whether fiduciary obligations are imposed on one party or another depends in part upon the character in which they contract and partly on the nature of the dealings in which they engage. Obviously one would be slow to infer that a vendor and purchaser engaged in an arms length commercial transaction undertook obligations of a fiduciary nature one to the other. On the other hand if one postulates that in any context one person is selling the goods of another the assumption of fiduciary obligations in relation to the sale and in particular the proceeds thereof might well be appropriate. It seems to me that the question must be asked how does a party come to sell property of which he is not the owner. Is he selling as a trustee in pursuance of a power of sale? Is he selling as the agent of the true owner? Does the sale constitute a wrongful conversion? If any of those questions were answered in the affirmative it seems to me that the law would impose a trust on the proceeds of sale which would confer on the true owner the right to recover those proceeds from the actual seller or if the proceeds were no longer in the seller’s hands to trace them into any other property acquired with them. If the new asset was acquired partly with such proceeds and partly with other moneys provided by the seller then the right of the true owner would be to a charge on the new asset or mixed fund to the extent of the proceeds of the sale of his property. This is the rule enunciated in In re Hallett’s Estate: Knatchbull v Hallett (1880) 13 Ch D 696.
8. In the present case clearly there was nothing wrongful about the sale by Bourkes of the goods supplied by Carrolls. Not merely was this envisaged by the circumstances of the parties but it was positively anticipated in the conditions under which the goods were sold by Carrolls. As appears from the retention of title clause it was expressly provided that in the event of the sale of goods by Bourkes that they should ‘act on their own account and not as agent for Carrolls’.
9. It would seem to me to follow, therefore, that no fiduciary duty was imposed by law on Bourkes or the liquidator thereof in relation to the proceeds of the sale of any of the goods in question and that if such a fiduciary obligation is to be established it must be found in the actual bargain or the trust created in respect of the proceeds by the agreement contained in the conditions of sale.
10. The retention of title clause expressly provided as follows:-
11. Notwithstanding the property remaining in the company all risks shall pass to the customer on delivery of the goods to the customer’s premises and so long as the title in the goods shall remain in the company, the customer shall hold the goods as bailee for the company and store the goods safely and suitably so as to clearly show them to be the property of the company and identifiable as such. The customer hereby authorises the company to enter upon the premises of the customer or to any other premises designated to the customer for delivery of the goods to recover possession of the goods at all reasonable times and without notice to the customer.
12. Clearly on a sale by Bourkes the goods would no longer be stored by them or identified in accordance with the provisions aforesaid. Obviously the parties intended that the property would pass to the sub-purchaser who would become the full owner thereof. Again it was clear that Bourkes were selling ‘on their own account’ and presumably at an increased price to provide a profit margin for the retailer. Again it was open to Bourkes to sell below cost or on credit terms so that the goods would not be immediately or necessarily replaced by assets of equal value.
13. The operative clause expressly provided that the property in the goods should remain in Carrolls ‘until the customer (Bourkes) shall have discharged all sums due by the customer (Bourkes) to the company (Carrolls) at the date of final handing over of possession of the goods whether such sums shall be due on foot of this transaction or shall be due on foot of some other transaction or transactions between the customer (Bourkes) and the company (Carrolls)’.
14. It is in this context that one must consider the crucial provisions of the retention of title clause insofar as it deals with the proceeds of sale, namely:-
…the customer (Bourkes) shall hold all moneys received for such sale or other disposition in trust for the company (Carrolls) and undertake to maintain an independent account of all sums so received and on request shall provide all details of such sums and accounts.
15. No separate account was opened in respect of the proceeds of any goods supplied by Carrolls and it is probable that Carrolls were aware that no such steps were taken. Instead the proceeds of sale of the goods supplied by Carrolls together with other goods dealt with by Bourkes in the ordinary course of their business were paid into the number one account aforesaid. In fact the analysis made by the liquidator would suggest that some 5% of the moneys paid into the number one account represented the proceeds of sale of goods supplied by Carrolls. If one ignores the particular facts of the case and simply analyses the bargain made between the parties it is clear that such an arrangement properly implemented would result in a bank account with sums of money credited thereto which would probably be in excess of the amounts due by Bourkes to Carrolls. This would arise partly from the fact that the goods would be resold at a marked up price and partly from the fact that the proceeds of sale would include some goods the cost price of which had been discharged and some had not. In other words the bank account would be a fund to which Carrolls could have recourse to ensure the discharge of the moneys due to them even though they would not be entitled to the entire of that fund. Accordingly the fund agreed to be credited would possess all the characteristics of a mortgage or charge as identified by Romer LJ in ln re George Inglefield Ltd [1933] Ch 1 at 27-28.
In Frigoscandia (Contracting) Ltd v Continental Irish Meat Ltd and Laurence Crowley [1982] ILRM 396 McWilliam J (at 398 dealing with the property in the goods sold rather than the proceeds of sale thereof) commented upon retention of title clauses as follows:-
16. A difficulty which arises with regard to clauses of this nature is that they are included in the contracts to secure the payment to the vendor of the price of the goods and therefore it may be said as has been argued that the goods once delivered, are intended to be held by the purchaser as security for such payment and that the transaction is in the category of a mortgage in that the vendor, although retaining ownership or an interest in the goods, cannot take possession of them provided that the specified instalments are paid, and that this leads to the conclusion that such a clause must be treated as creating a mortgage or a charge over the goods. In my opinion such a conclusion can have no general application to these clauses and each case must depend on its own facts.
17. I fully agree with that observation. The fact that a vendor may seek to protect his commercial interests and in particular his right to recover the purchase price of goods sold by him by retaining the title to property which he has agreed to sell and of which he has delivered possession to the purchaser, does not convert the contract for sale into a mortgage which may require registration in accordance with the provisions of the Companies Act 1963, s. 99. It would be wrong to infer that a particular transaction constituted a mortgage merely because the vendor structured it in such a way as to protect his commercial interests. On the other hand parties cannot escape the inference that a transaction constitutes a mortgage registrable under s. 99 aforesaid by applying particular labels to the transaction. The rights of the parties and the nature of the transaction in which they are engaged must be determined from a consideration of the document as a whole and the obligations and rights which it imposes on both parties. This is a principle of general application. Not infrequently efforts have been made to treat a document which is in truth a lease as a licence by so describing it. The description may be a material consideration but clearly it cannot be decisive. Specifically in relation to mortgages registrable under the Companies Acts it has been held that it is the substance of the transaction as ascertained from the words used by the parties and the context in which the document is executed that determines registrability under the Companies Acts (see In re Kent and Sussex Sawmills Ltd [1947] Ch 177). It seems to me that the bargain between the parties insofar as it relates to the transaction subsequent to a sale by Bourkes is in substance – though not in terms – the same as that which existed in In re Interview Ltd [1975] IR 383 in that effectively Bourkes were creating or conferring a charge on the proceeds of sale in substitution for the right of property which Carrolls had previously enjoyed. The charge so created required registration under s. 99 of the Companies Act 1963 and in the absence of such registration was invalid.
18. Whilst the issue does not arise having regard to the foregoing decision it may be as well to record my view that even if Carrolls had obtained a charge over Bourkes’ number one bank account in accordance with a right to trace the proceeds of sale of their goods into that account, that such a right was necessarily defeated when and to the extent that the monies in that account were dissipated and not replaced by any other asset. It follows that in my view the total amount in respect of which a claim might have been asserted was the balance of £7,000 remaining in the number one account after the bank had exercised its right of setoff. This practical conclusion is fully supported by the decision in Roscoe v Winder [1915] 1 Ch62.
19. Accordingly it seems to me that the plaintiffs’ claim must be dismissed.
APPENDIX
Reservation of Title
20. Notwithstanding delivery and passing of risk the property and title in the goods shall remain in the company and shall not pass to the customer until the customer shall have discharged all sums due by the customer to the company at the date of final handing over of possession of the goods (hereinafter referred to as ‘the relevant sums’) whether such sums shall be due on foot of this transaction or shall be due on foot of some other transaction or transactions between the customer and the company.
21. In such circumstances the following provisions shall apply:-
22. The company hereby confers on the customer the right to sell or otherwise dispose of the goods, subject to as hereinafter provided, in the normal course of business. If the customer (who shall in such case act on his own account and not as agent for the company) shall so sell or otherwise dispose of the goods, the customer shall hold all monies received for such sale or other disposition in trust for the company and undertakes to maintain an independent account of all sums so received and on request shall provide all details of such sums and accounts.
23. Notwithstanding the property remaining in the company, all risks shall pass to the customer on delivery of the goods to the customer’s premises and so long as the title in the goods shall remain in the company, the customer shall hold the goods as bailee for the company and store the goods safely and suitably so as to clearly show them to be the property of the company and identifiable as such. The customer hereby authorises the company to enter upon the premises of the customer or to any other premises designated by the customer for delivery of the goods, to recover possession of the goods at all reasonable times and without notice to the customer.
24. Nothing in this clause shall confer on the customer any right to return the goods. The company may maintain an action for the price notwithstanding that property and title in the goods shall not have been vested in the customer.
25. Prior to the payment in full of all sums due by the customer to the company under this contract the customer shall be entitled to use the goods as provided above but may not offer the goods or their proceeds where sold or otherwise disposed of as security for the performance of any obligation of the customer to any third parties. At any time prior to the customer paying all relevant sums the company may, by notice in writing delivered to the customer’s last known address or place of business, determine the customer’s right to use the said goods in the manner detailed above or at all, whereupon the customer shall forthwith return the goods to the company or the company may enter the customer’s premises at all reasonable times for the purpose of recovering the said goods or any part of them.
26. Further, in the happening of any of the events set out below such events shall forthwith, without any necessity for notice, determine the customer’s right to use, sell or otherwise dispose of the goods:-
(a) Any notice to the customer that a receiver or manager is to be or has been appointed;
(b) Any notice to the customer that a petition to wind up is to be or has been presented or any notice of any resolution to wind up the customer (save for the purpose of reconstruction or amalgamation) has been passed;
(c) A decision by the customer that the customer intends to make arrangement with its creditors;
(d)The insolvency of the customer within the meaning of s. 62(3) of the Sale of Goods Act 1893.
27. Furthermore and independently of the above, where any of the foregoing provisions do not apply, the company hereby reserves the right of disposal as provided by s. 19(1) of the Sale of Goods Act 1893.
Unitherm Heating Systems Ltd -v- Wallace as the Official Liquidator of BHT Group Ltd (In Liquidation)
[2014] IEHC 177 (02 April 2014)
Legal submissions:
13. Dominick Hussey SC for the applicant relies firstly on Aluminium Industrie Vaasen BV v. Romalpa Aluminium Limited [1976] 2 All ER 552. In Romalpa, there was a retention of title clause which covered goods supplied to the company but not sold by the date of the liquidation, as well as goods supplied, and which became, in a process of manufacture, mixed with other goods to create new objects. In addition the clause went on to provide that “Nevertheless, purchaser will be entitled to sell these [new] objects to a third party within the framework of the normal carrying on of his business and to deliver them on condition that – if [the seller] so requires – the buyer, as long as he has not fully discharged his debt to [the seller], shall hand over to [the seller] the claims he has against his buyer emanating from the transaction”.
14. However, it happened that some of the goods supplied by the plaintiff came within neither of these categories of goods i.e. they were neither unsold and remaining with the defendant company at the date of liquidation, nor mixed with other goods in the manufacture of other objects. They had simply been sold on to sub-purchasers in the same form as when supplied. In Romalpa it was concluded that having regard to the clause read as a whole, there must be implied into the clause a power to sell goods on to a sub-purchaser, but not on the defendant’s own account, but rather for the account of the plaintiff, until such time as all monies due to the plaintiff were paid. It was held that the defendant was selling on as agent for the plaintiff company since the ownership in the goods had not passed to the defendant, and accordingly that a fiduciary relationship existed, meaning that the defendant remained accountable to the plaintiff, who in turn had a right to trace the proceeds of sale and recover the monies, by way of the application of the principles in Re Hallett’s Estate.
15. I note in the judgment of Mocatta J. at first instance that a submission made on behalf of the defendant in the case was that “if the plaintiffs were to succeed in their tracing claim this would, in effect, be a method available against a liquidator to a creditor of avoiding the provisions establishing the need to register charges on book debts” i.e. the equivalent in this jurisdiction of the need to register a charge coming within the ambit of Section 99 of the Act of 1963. Mocatta J. however agreed with the submission made by the plaintiff against that argument, namely that “if the property in the foil never passed to the defendants with the result that the proceeds of sub-sales belonged in equity to the plaintiffs, section 95 (1) [of the English Act] had no application”. It is important to note, I feel, that in Romalpa there was a concession made by the liquidator that there was a relationship of bailor/bailee between the parties. It was on the basis of such concession that the fiduciary relationship arose, rather than any conclusion reached by the court that on the facts of Romalpa such a fiduciary relationship arose.
16. Mr Hussey refers also to the judgment of Barron J. in W.J.Hickey Limited (in Receivership) [1988] 1 IR 126 which concluded that where the retention clause specifically stated that the property in the goods is not to pass until some future date i.e. until they are paid for, then under the provisions of s.1 of the Sale of Goods Act, 1893 the transaction is an agreement to sell and not a sale as such, since “the transfer of the property in the goods is to take place at a future time”. In such circumstances, where the property in the goods had not passed, Barron J. could find no basis for construing the clause in a way that all the property in the goods passed to the company, and that it in turn assigned back to the seller an equitable interest in the goods by way of charge. He went on to say that in so far as there were cases where a charge was found to have been created, there had been a clear assignment back to the seller of such an interest, and he instanced In re Interview Limited [1975] I.R. 382. In that case the relevant retention clause included the following:
“with respect to a case of re-sale of the goods … in any condition whatsoever … the purchaser agrees to assign and assigns to the supplier, at the conclusion of the supply contract and effective up to the time of payment of all debts owing by the purchaser to the supplier, any claims against the purchaser’s customers which may have arisen or arise in future from the re-sale, by way of security, and undertakes [etc] ………” . [emphasis added]
17. Kenny J. was in no doubt that this clause, particularly given the inclusion of the phrase “by way of security”, was not an absolute assignment of the property in the goods, but rather an assignment by way of security, and as such was a charge which was void unless registered under Section 99 of the Act of 1963. He stated:
“In my opinion, it follows that, as the terms for deliveries abroad were not registered under s. 99 of the Act of 1963, they are void against any creditor in so far as they created an obligation to assign or gave a charge on the debts owing to Interview and arising out of sales of goods delivered …”.
18. I pause for convenience to note that Clause 11 (1) of the terms and conditions under consideration in the present case includes within sub-clause (v) thereof:
“… and the buyer is hereby deemed to have assigned to the company absolutely the benefit of any claim (including the right to trace the said goods or the proceeds thereof) which the buyer has against any such third party arising from such sale”.
19. This clause is in very similar terms (though notably absent are the words “by way of security”) to that considered by Kenny J. in In re Interview Limited, and which Barron J. considered distinguished it from the facts in In re W.J. Hickey Limited (in Receivership) where he found no charge to have been created since there was no such assignment within the retention clause in that case. I will come back to that matter.
20. Mr Hussey, taking the clause in its entirety in the present case, and taking into account also the particular course of trading between the parties as described in the affidavit of Mr Kissane, has urged that the clear intention of the parties was that until such time as the goods were paid for the property in the goods would remain with the company. He submits that in so far as the goods are sold on to the end user, the company was acting only as the agent of the applicant, that status being consistent with and supported by, the requirement within the terms and conditions that the proceeds of such sale be held on trust for the applicant and lodged to a separate account. As such, it is submitted, there was a fiduciary relationship in existence in respect of the proceeds of sale, and that the clause therefore does not constitute a charge over the assets of the company registrable under section 99 of the Act of 1963.
21. Rossa Fanning BL for the respondent Receiver argues the contrary case, namely that the clause does indeed comprise a charge on the book debts of the company, and as such was required to be registered under s. 99 if it is not to be held to be void as against the liquidator. He relies upon the judgment of Murphy J. in Carroll Group Distributors Limited v. G. and J. F. Bourke Limited (in voluntary liquidation) [1990] 1 IR 481.
22. In that case the plaintiff supplied tobacco products to the defendant company’s shops which in turn sold them on to its customers. As part of the agreed trading terms the defendant companies were allowed four weeks credit, and there was also a reservation of title clause. After the defendant companies went into liquidation, the plaintiff recovered unsold product from the defendants’ premises, but an issue arose as to the plaintiff’s entitlement to trace the proceeds of sale of product sold to customers into the general bank accounts of the defendants. The defendants had been required under the terms and conditions to keep a separate bank account into which only the proceeds of sales to customers were be lodged, but did not do so. The plaintiff was aware that no such separate account had been opened. The clause also specifically provided that in the event of any sale to customers the defendants were acting on their own account and not as agent for the plaintiff. Murphy J. was satisfied accordingly that no fiduciary relationship was imposed by law, and if there was such a relationship between the parties such that the proceeds could be traced under the equitable principles in Re Hallett’s Estate “it must be found in the actual bargain or the trust created in respect of the proceeds by the agreement contained in the conditions of sale”. In so concluding the learned judge stated at page 484:
“Whether fiduciary obligations are imposed on one party or another depends in part upon the character in which they contract and partly on the nature of the dealings in which they engage. Obviously one would be slow to infer that a vendor and purchaser engaged in an arms length commercial transaction undertook obligations of a fiduciary nature one to the other. On the other hand if one postulates that in any context one person is selling the goods of another the assumption of fiduciary obligations in relation to the sale and in particular the proceeds thereof might well be appropriate. It seems to me that the question must be asked how does a party come to sell property of which he is not the owner? Is he selling as a trustee in pursuance of a power of sale? Is he selling as the agent of the true owner? Does the sale constitute a wrongful conversion? If any of those questions were answered in the affirmative it seems to me that the law would impose a trust on the proceeds of sale which would confer on the true owner the right to recover those proceeds from the actual seller or, if the proceeds were no longer in the seller’s hands, to trace them into any other property acquired with them. If the new asset was acquired partly with such proceedings and partly with other monies provided by the seller then the right of the true owner would be to a charge on the new asset or mixed fund to the extent of the proceeds of sale of his property. This is the rule enunciated in In re Hallets Estate. Knatchbull v. Hallett (1880) 13 Ch.D 696.” [emphasis added]
23. The agreement in Carroll made it clear that in so far as product is sold on to a customer by the company, it was acting on its own account and not as agent of Carrolls. The company could sell on the product at whatever price it chose, either at a loss or at a profit. Carrolls had no control over that price “so that the goods would not be immediately or necessarily replaced by assets of equal value”. Murphy J. was of the view that it was clear that on such a sale on to the customer the property in the goods would pass to the customer.
24. The retention of title clause was an “all sums” clause in the sense that ownership of the property remained with Carrolls until all sums due by the company to Carrolls shall have been discharged, and not simply until the amounts payable in respect of the particular goods delivered on any particular consignment shall have been discharged. As in the present case, no separate bank account was opened even though the conditions of sale required that this be done. However, Murphy J. was satisfied that it was probable that Carrolls was aware that no such steps had been taken. As with the present case, the proceeds of sale of the goods supplied to customers together with any other income received by the company were paid into the general bank account, so that there was more in that account than represented any amounts owing to Carrolls. In that regard, Murphy J. stated:
“If one ignores the particular facts of the case and simply analyses the bargain made between the parties it is clear that such an arrangement properly implemented would result in a bank account with sums of money credited thereto which would probably be in excess of the amounts due by Bourkes to Carrolls. This would arise partly from the fact that the goods would be resold at a marked up price and partly from the fact that the proceeds of sale would include some goods the cost price of which had been discharged and some of which it had not. In other words the bank account would be a fund to which Carrolls could have recourse to ensure the discharge of the monies due to it even though it would not be entitled to the entire of that fund. Accordingly the fund agreed to be credited would possess all the characteristics of a mortgage or charge as identified by Romer L.J. in In re George Inglefield Ltd. [1933] Ch.1 at pages 27 and 28.”
25. Murphy J. went on to refer to the judgement of McWilliam J. in Frigoscandia (Contracting) Ltd v. Continental Irish Meat Ltd [1982] ILRM 396 in which McWilliam J. stated, in the context of a standard retention of title clause i.e. not a proceeds of sale clause, that the conclusion that a retention of title clause must be treated as creating a mortgage or a charge over the goods, could not have general application to these types of clauses, and that “each case must depend on its own facts”. Murphy J agreed with that observation, and stated:
“the rights of the parties and the nature of the transaction in which they are engaged must be determined from a consideration of the document as a whole and the obligations and rights which it imposes on both parties. This is a principle of general application. Not infrequently efforts have been made to treat a document which is in truth a lease as a licence by so describing it. The description may be a material consideration but clearly it cannot be decisive. Specifically in relation to mortgages registrable under the Companies Acts it has been held that it is the substance of the transaction as ascertained from the words used by the parties and the context in which the document is executed that determines registrability under the Companies Acts (see In re Kent and Sussex Sawmills Ltd [1947] Ch. 177]. It seems to me that the bargain between the parties insofar as it relates to the transaction subsequent to a sale by Bourkes is in substance – though not in terms – the same as that which existed in In re Interview Ltd [1975] I.R. 382 in that Bourkes were creating or conferring a charge on the proceeds of sale in substitution for the right of property which Carrolls had previously enjoyed. The charge so created required registration under s. 99 of the Companies Act, 1963, and in the absence of such registration was invalid.”
Conclusions:
26. The resolution of the controversy at hand depends upon whether the applicant and the company were fiduciaries by reason of a relationship of principal and agent. If they were not, then the proceeds of sale clause is a registrable charge. This seems clear, and consistent with the approach of Murphy J. in Carroll, where, as already set forth, he stated:
“It seems to me that the question must be asked how does a party come to sell property of which he is not the owner? Is he selling as a trustee in pursuance of a power of sale? Is he selling as the agent of the true owner? Does the sale constitute a wrongful conversion? If any of those questions were answered in the affirmative it seems to me that the law would impose a trust on the proceeds of sale which would confer on the true owner the right to recover those proceeds from the actual seller or, if the proceeds were no longer in the seller’s hands, to trace them into any other property acquired with them”.
27. It is clear from the authorities opened on this application that whether or not a fiduciary relationship exists between the parties does not depend simply upon what is stated in the terms and conditions agreed between t
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
Caterpillar (NI) Ltd v John Holt & Company (Liverpool) Ltd
[2013] EWCA Civ 1232 [2013] WLR(D) 388, [2014] 1 Lloyd’s Rep 180, [2014] 1 WLR 2365, [2014] BPIR 1104, [2014] 1 All ER 785, [2013] 2 CLC 501, [2014] WLR 2365, [2014] 1 All ER (Comm) 393, [2013] EWCA Civ 1232, [2014] BLR 103
Longmore LJ
The Action for the Price Issue
Section 49 of the 1979 Act provides:-
“49. Action for Price
(1) Where, under a contract of sale, the property in the goods has passed to the buyer and he wrongfully neglects or refuses to pay for the goods according to the terms of the contract, the seller may maintain an action against him for the price of the goods.
(2) Where, under a contract of sale, the price is payable on a day certain irrespective of delivery and the buyer wrongfully neglects or refuses to pay such price, the seller may maintain an action for the price, although the property in the goods has not passed and the goods have not been appropriated to the contract.
(3) …”
The judge decided that property in the goods passed to Holt Liverpool at the time of (or momentarily before) the re-sale of the generators and parts took place to Holt Nigeria. Mr Cogley QC, on behalf of Holt Liverpool, says that property never passed to Holt Liverpool because, pursuant to the retention of title provision, Holt Liverpool were acting as agents for FG Wilson when they re-sold to Holt Nigeria. Mr Charles Hollander QC for FG Wilson denies that Holt Liverpool were acting as agents on re-sale and, by respondent’s notice, says that s.49 is permissive not exclusive and does not preclude an action for the price when the buyer has failed to pay the price due under a contract of sale, even if property in the goods has not passed to the buyer.
In order to succeed on this part of the case Mr Hollander has to show that property in the goods invoiced “passed to the buyer” (he no longer relies on s.49(2) of the 1979 Act). If, as he submits, Holt Liverpool sold as principal to its sub-buyer it will have acquired property in the goods and passed it to the sub-buyer; if, however, as Mr Cogley submits, Holt Liverpool were only acting as agents of FG Wilson in dealing with its sub-buyer, property will not have “passed to the buyer” and s.49 of the 1979 Act will be inapplicable.
In the light of the clause in the contract entitled “Relationship of the Parties” which states that nothing in the contract shall be deemed to create an agency, Mr Cogley’s submission is inherently counter-intuitive. But he submits that it is a necessary consequence of the “Title and Risk of Loss” clause the relevant part of which provides:-
“Until such time as title passes [which is said to be only on payment in full for all goods and services supplied] Buyer shall hold the products as Seller’s fiduciary agent and shall keep them separate from Buyer’s other goods.”
But as the judge said in relation to this clause (para 59):-
“It does not state that the buyer is to sell as agent. On the contrary, it provides that the buyer is entitled to resell the products in the ordinary course of business … The retention of title clause provides that whilst the buyer retains the products it is to hold them as fiduciary agent: by contrast it does not state that that is the capacity in which the buyer resells the goods.”
I agree with the judge as a matter of construction of the “Title and Risk of Loss” clause. The judge declined to be beguiled into considering the numerous authorities that exist on retention of title clauses, no doubt because they were all considering clauses framed in different terms and the duty of the court is to construe the clause in the contract before it and not get bogged down into comparisons with other clauses construed in other cases.
I would, for my part, applaud such an approach. But Mr Cogley submits that it is not appropriate if clauses of a similar nature have been construed in a particular way in the past. In deference to his argument, I fear that, unlike the judge, I have to refer to at least some of the authority on which he relied, particularly Aluminium Industries Vlassen B.V. vRomalpa Aluminium Ltd [1976] 1 WLR 676, a case more distinguished than followed in subsequent authority. In that case the clause read:-
“The ownership of the material to be delivered by A.I.V. will only be transferred to purchaser when he has met all that is owing to A.I.V. no matter on what grounds. Until the date of payment, purchaser, if A.I.V. so desires, is required to store this material in such a way that it is clearly the property of A.I.V. A.I.V. and purchaser agree that, if purchaser should make (a) new object(s) or if this material in any way whatsoever becomes a constituent of (an)other object(s) A.I.V. will be given the ownership of this (these) new object(s) as surety of the full payment of what purchaser owes A.I.V. To this end A.I.V. and purchaser now agree that the ownership of the article(s) in question, whether finished or not, are to be transferred to A.I.V. and that this transfer of ownership will be considered to have taken place through and at the moment of the single operation or event by which the material is converted into (a) new object(s), or is mixed with or becomes a constituent of (an)other object(s). Until the moment of full payment of what purchaser owes A.I.V. purchaser shall keep the object(s) in question for A.I.V. in his capacity of fiduciary owners and, if required, shall store this (these) object(s) in such a way that it (they) can be recognized as such. Nevertheless, purchaser will be entitled to sell these objects to a third party within the framework of the normal carrying on of his business and to deliver them on condition that – if A.I.V. so requires – purchaser, as long as he has not fully discharged his debt to A.I.V. shall hand over to A.I.V. the claims he has against his buyer emanating from this transaction.”
It can be seen at once that the clause was not only different from the clause in the present case but was also of considerably greater complexity. Moreover the precise capacity in which the buyer had re-sold goods to sub-buyers was not the subject of any elaborate analysis because the contest was whether the plaintiffs were entitled to a specific sum in the receiver’s hands which represented the proceeds of such sub-sales.
That said, however, this court did conclude that on the true construction of the first two sentences of the clause in that case, there was to be implied a right of re-sale to sub-buyers and that Romalpa in effecting that sub-sale were acting not only as agents but also as fiduciaries of the plaintiffs. Roskill LJ put the matter in this way:-
“Now, the crucial facts to my mind are two: first, that the defendants were selling goods which the plaintiffs owned at all material times; and secondly, that clause 13 as a whole is obviously designed to protect the plaintiffs, in the event of later insolvency, against the consequences of having parted with possession of, though not with legal title to, these goods before payment was received, 75 days’ credit being allowed. When, therefore, one is considering what, if any, additional implication has to be made to the undoubted implied power of sale in the first part of clause 13, one must ask what, if any, additional implication is necessary to make effective the obvious purpose of giving the requisite security to the plaintiffs? One is, I think, entitled to look at the second part of clause 13 to answer this; for it would be strange if the first part were to afford no relevant security when the second part is (as I think) elaborately drawn to give such security in relation to manufactured or mixed goods.
I see no difficulty in the contractual concept that, as between the defendants and their sub-purchasers, the defendants sold as principals, but that, as between themselves and the plaintiffs, those goods which they were selling as principals within their implied authority from the plaintiffs were the plaintiffs’ goods which they were selling as agents for the plaintiffs to whom they remained fully accountable. If an agent lawfully sells his principal’s goods, he stands in a fiduciary relationship to his principal and remains accountable to his principal for those goods and their proceeds. A bailee is in like position in relation to his bailor’s goods. What, then, is there here to relieve the defendants from their obligation to account to the plaintiffs for those goods of the plaintiffs which they lawfully sell to sub-purchasers? The fact that they so sold them as principals does not, as I think, affect their relationship with the plaintiffs; nor (as at present advised) do I think – contrary to Mr Price’s argument – that the sub-purchaser could on this analysis have sued the plaintiffs upon the sub-contracts as undisclosed principals for, say, breach of warranty of quality.
It seems to me clear and so far from helping Mr Price [for the defendants] I think the second part of clause 13, properly construed, helps Mr Lincoln [for the plaintiffs] that to give effect to what I regard as the obvious purpose of clause 13 one must imply into the first part of the clause not only the power to sell but also the obligation to account in accordance with the normal fiduciary relationship of principal and agent, bailor and bailee. Accordingly, like the judge I find no difficulty in holding that the principles in Hallett’s case, 13 Ch.D 696 are of immediate application, and I think that the plaintiffs are entitled to trace these proceeds of sale and to recover them, as Mocatta J has held by his judgment.”
The first point to be made is that there does not seem to have been any clause in Romalpa corresponding to the “Relationship of the Parties” clause in the present case which negatives both “agency” and “fiduciary relationship”. The second point is that the court did not have to consider the implication of the plaintiffs’ entitlement to the proceeds of sale if those proceeds exceeded the sum for which the defendants were liable to the plaintiffs by way of the price of the goods. The court held that because the phrase “fiduciary owner” was used in the second part of the clause, it was to be implied into the first part of the clause and that that meant the defendant was accountable for the full proceeds of all sub-sales. Later cases have held that, if (as is often the case) a retention of title clause is to be construed as intended to give a seller security for the payment of the price, any trust of the proceeds only applies to the amount which the buyer owes the seller and does not extend to any balance over and above that amount, see Benjamin, Sale of Goods, (8th ed. 2010) para 5-153. If the buyer is indeed beneficially entitled to proceeds over and above the amount of the debt, he cannot to my mind be regarded as selling as agent for the seller. It seems to me that the retention of title clause in the present case is intended to operate by way of security rather than to confer a potential windfall on the seller and that that must militate against the buyer acting as the seller’s agent on the resale. That may mean, of course, that the buyer has created a registerable charge over the proceeds as was held to be the case in Pfeiffer vArbuthnot Factors Ltd [1988] 1 WLR 150 and Compaq Computer Ltd v Abercorn Group Ltd [1991] BCC 484. But that is of no concern as between the immediate parties to the contract.
In these circumstances the Romalpa case is distinguishable from the present case since the clauses were in different terms.
The judge (para 60) highlighted a further difficulty with Mr Cogley’s submission when he said:-
“It would in my judgment require clear words to constitute Holt Liverpool as agent for FG Wilson in making those resales, because it would render FG Wilson liable to Holt Nigeria on such contracts, the terms of which would be wholly outside its knowledge and control. The retention of title clause in its application to the trading between these parties does not so provide. The extended credit terms between the parties meant that all sales by Holt Liverpool to Holt Nigeria would be governed by the clause. If Mr Cogley QC’s submissions were correct, it would render the entire trading relationship between FG Wilson and Holt Liverpool as one of principal and agent, with FG Wilson’s true counterparty being Holt Nigeria. That was not the basis on which the parties dealt with each other in over a decade of trading, and the retention of title clause does not have to be construed in a manner which subverts the commercial intentions and expectations of the parties.”
It would indeed be remarkable if it were the case that, once the credit terms had expired and any payment was due and unpaid, the contractual relationship of the parties were transformed from one of seller and buyer to one of principal and agent with the seller having no control of the terms on which his agent was re-selling. It is true that, at pages 690D-E of Romalpa in the passage already cited, Roskill LJ said that he did not think (as then advised) that the sub-purchasers could have sued sellers as undisclosed principals to the sub-contracts but he gives no reason why the usual rules as to the ability of an undisclosed principal to sue and to be sued on a contract made with his authority should not apply and, like the judge, I do not think that can have been the intention of the parties in this particular commercial relationship.
Mr Hollander pointed out another oddity in Mr Cogley’s submission namely that the “no set-off clause” applies (and applies only) to claims for the price. Subject to arguments on the construction of the clause itself, the effect of Mr Cogley’s argument is that it would never apply because there could never be a claim to the price, if the buyer were selling as the seller’s agent. If the price had been paid, it was not needed; if the price had not been paid and property had not passed to the buyer no action would lie and it was pointless to provide that there was to be no set-off against a claim that could not be brought. There is, to my mind, force in that submission of Mr Hollander.
I would, therefore, distinguish the Romalpa case on the basis
i) that the clause was in different terms from the present case;
ii) that there was in that case no “relationship clause” purporting to negative agency and fiduciary relationship;
iii) that the retention of title clause in the present case was intended to operate by way of security charging the proceeds for sums due to the seller, so that the provision in the clause about the proceeds cannot mandate an agency relationship; and
iv) that the anti-set off clause can only operate if there is a claim to the price and that this consideration, like the relationship clause, negatives any intention to create an agency relationship.
In these circumstances I favour the construction of the clause adopted by the judge and subject to the argument on the construction of the no set-off clause would dismiss this appeal.
Construction of the “No set-off clause”; the Construction Issue
As will be recalled this clause provides:-
“Buyer shall not apply any set-off to the price of Seller’s products without prior written agreement by the Seller.”
Mr Cogley submitted that no price was “due” if there was what he called a “transactional” or “equitable” set-off. But this argument assumes what it wishes to prove and suffers from the disadvantage that the word “due” is not, in any event, present in the clause.
He then submitted that any clause purporting to exclude a right otherwise legally available must be expressed in clear words. But it is difficult to think of clearer words than that a party “shall not apply any set-off”. “Any” must mean what it says. Mr Cogley had some difficulty in this court, as he had below, in indicating what set-offs are catered for by the clause. The best he could do was to say that the kind of set-off comprised in the Holt 1 claim was outside the scope of this clause. But that takes one straight back to the concept of transactional or equitable set-off and would imply that only legal set-offs were within the clause. That would be a most surprising result; indeed the average businessman who was told that a clause of this kind applied to legal set-offs but not equitable set-offs would hardly be able to contain his disbelief.
Mr Cogley referred us to Esso Petroleum v Milton [1997] 1 WLR 938 but that authority does not take the argument anywhere. The clause was a different clause and the construction of it, so far as relevant to the argument in this case, was not essential to the decision. Simon Brown LJ expressed one view, Sir John Balcombe another and Thorpe LJ preferred to express no view.
In my view, as in that of the judge, the set-off sought to be relied on by reference to the Holt 1 proceedings is just the kind of set-off envisaged by the clause.
I would therefore dismiss this appeal and do not need to engage with the question whether section 49 of the 1979 Act is exclusive or permissive (the Statutory Issue). In case my views on the other two issues are not shared by my colleagues, I should say a little about it.
The Statutory Issue
The issue here is whether FG Wilson can maintain an action for the price of the goods, even if property in the goods has never passed to Holt Liverpool and has at all times remained with FG Wilson. It will be remembered that s.49(1) of the 1979 Act provides that “where … property in the goods has passed to the buyer and he wrongfully neglects or refuses to pay for the goods … the seller may maintain an action against him for the price of the goods”. Mr Hollander submits that the sub-section is permissive only and is not a statutory requirement that property must have passed before any action for the price can be maintained. He asks rhetorically why parties should not be able to agree that the price is due and payable at any time the parties agree that it should be due and payable. The answer to that rhetorical question is that a statute relating to the sale of goods could, of course, so provide but that the 1979 Act does not appear so to provide.
Section 49(1) does not stand alone, moreover. Section 49(2) specifically says that the seller can maintain an action for the price although property in the goods has not passed if “the price is payable on a day certain irrespective of delivery”. The statute has therefore taken the trouble to spell out two circumstances where an action for the price can be maintained (1) when property has passed (2) if the price is payable on a day certain. As the judge said (para 39) if an action for the price could be maintained whenever the obligation to pay had arisen, section 49 would be largely otiose, a consideration which strongly suggests that section 49 intends to specify the only circumstances in which the seller may maintain an action for the price. I agree.
The text-book writers are uneasy about this. In the 4th edition of Professor Sir Roy Goode’s Commercial Law, for example, he says:-
“Section 49(1) is a curious provision. It emphasizes the obvious point that in order for the seller to be able to sue for the price, the price must have become due under the terms of the contract. But if this requirement is satisfied, why is there need of more? Why should the sub section add a further stipulation that the property in the goods shall have passed to the buyer? This would seem to be simply faulty drafting.”
Section 49(1) and (2) first appeared in the 1893 Sale of Goods Act but I doubt if Sir Mackenzie Chalmers would accept that criticism. In 1893 it was axiomatic that a seller could not sue for the price unless property in the goods had passed. It would have been thought unfair to a buyer if, before delivery had occurred, the goods had perished or been damaged and yet the price was payable, unless the goods were actually his property, see Simmons v Swift (1826) 5 B & C 857. It would also be odd if a seller’s creditors on bankruptcy could both seize goods still on his premises and sue the buyer for the price. The cases of Atkinson v Bell (1828) 8 B & C 277 where the buyer refused to accept or collect machines which he had ordered and Alexander v Gardner (1835) 1 Bing N.C. 671 where the buyer had to pay for goods lost at sea because he had taken up the bill of lading and only decided not to pay when he learnt of the shipwreck may be usefully contrasted. In the former case it was held that the seller could only sue for damages for non-acceptance which he was allowed to do (on terms as to costs) even though he had only sued for the price originally. In the latter case the property in the goods had passed and the price was due. All this was regarded as straightforward in Scott v England (1844) 14 LJQB 43 and in the commentary on the old common indebitatus count for goods bargained and sold in Bullen and Leake’s Precedents of Pleadings (3rd ed. 1868) pages 39-40.
It is no doubt true that retention of title clauses were less common in 1893 than they are today. But if a seller is happy to allow a buyer use of the goods without paying for them but wishes to ensure that he retains property in the goods and that he can sue for the price, he only has to provide for payment to be due on a day certain. That is what one would usually expect a seller to do; indeed that is what FG Wilson’s terms and conditions do under the heading Prices and Payments where it is provided that the Buyer is to pay within 30 days of the date of the invoice. It is only the subsequent variations that have muddied the waters.
The majority of post 1893 cases assume that section 49 of the 1979 Act is mandatory. Stein Forbes & Co v County Tailoring Co (1916) 115 LT 215 is a good example. The plaintiffs sold 12,000 sheepskins cif London or Liverpool “net cash against documents on arrival of steamer”. The defendants refused to pay for the last part of the consignment so the plaintiffs sued for the price. The sellers had reserved the right of disposal (a form of reservation of title) by making the bill of lading out “to order” but sued for the price although the property in the goods had not passed to the defendant. Atkin J held that the plaintiffs could not sue for the price although they had a good cause of action for damages for non-acceptance. He therefore adjourned the case to allow the plaintiffs’ alternative damages claim to be disposed of. Colley v Overseas Exporters [1921] 3 K.B. 302, which related to a fob contract and the failure by the buyer to provide a ship, Muller, Maclean & Co v Leslie & Anderson (1921) 8 Lloyds Rep 328 and Plaimar Ltd v Waters Trading Co Ltd (1945) 72 CLR 304 at 318 per Dixon J are to the same effect.
This consistent stream of authority was interrupted by Minister for Supply and Development v Servicemen’s Co-operative Joinery Manufacturers Ltd (1951) CLR 621 in which the Commonwealth of Australia had let premises and permitted the tenant to use wood-working machinery and equipment on the premises pending negotiations for the sale of machinery. A sale contract was subsequently made on terms “net cash before delivery” which was held to mean that payment was a condition precedent to the passing of property in the machinery. The purchase price was never paid and the Commonwealth demanded payment of the price and said that, if it was not paid, they would institute proceedings for the price. They later obtained possession of the machinery by resuming possession of the leased premises, whereupon the tenant and its liquidator sued the Commonwealth for conversion of the machinery which they alleged were their property. The High Court of Australia held that property had never passed because the machinery had not been paid for and delivery had not occurred. The tenant, however, asserted that the Commonwealth had elected to make delivery when they (a) claimed the price and (b) said they would bring proceedings to claim the price; property had therefore passed despite the provision for cash before delivery. If property had not passed, there would only be “a right to sue for damages and not a right to sue for the price of goods”. Latham CJ dealt with this by saying (page 636):-
“But whether this is the case depends entirely upon the terms of the contract of sale. The price may be made payable at a time before delivery and an action for the price may be maintained though the property has not passed.”
He made no reference to section 49(2) of the South Australia Sale of Goods Act which provided, as the English Act, that an action for the price could be maintained if the price was payable on a day certain with its inference that otherwise an action for the price would not be maintainable. Williams J agreed saying (page 642):-
“But the parties can make any contract they please with respect to the payment of the price and if they provide that it is to be paid before the property passes, the seller can sue for the price as soon as it becomes payable, for the payment of the price is a condition precedent to the passing of the property. Usually such a contract provides for the payment of the price on a day certain, but in the present case no day of payment is fixed. The purchase money would therefore have to be paid within a reasonable time. If it was not so paid it would become a debt for which the Commonwealth could sue although the property in the wood-working machinery and equipment had not passed to the society.”
Webb J dissented on this point, adopting the traditional approach of English law and citing Stein Forbes. He agreed, however, that property had not in fact passed and that the correspondence did not amount to constructive delivery of the machinery and judgment was given for the Commonwealth. It is a curiosity of the case that the judgment of Dixon J in Plaimar does not appear to have been cited.
A decision of a divided High Court of Australia might not usually warrant such detailed citation but for the fact that the industry of Mr Jasbir Dhillon QC has unearthed an important decision of the English Court of Appeal which has followed the dicta of Williams J. Harry & Garry Ltd v Jariwalla and others (16th June 1988; 1988 WL 1608 652) was a somewhat complex case in which the claimants bought sarees from the defendants which were of questionable quality; the claimants had accepted bills of exchange which they considered should be cancelled; a further agreement was then made that the defendant would either obtain the cancellation of the bills of exchange and their reissue for acceptance by somebody else or would themselves buy back 2494 sarees for £46,763.45 on terms that
“Goods belong to Harry Garry Limited until the full amount is paid. All goods cannot be sold until all documents transferred.”
Cancellation and reissue of the bills never occurred; nor did the defendants pay for the 2494 sarees. The claimants therefore sued for the price of those sarees but the judge had refused them judgment on the basis that the property in the sarees had not re-vested in the defendants nor was the price payable on a day certain. Kerr LJ commented:-
“It would be ironical if that were the correct analysis. One would be driven to the conclusion that although these goods had been delivered and had been accepted, the only remedy open to the plaintiffs, if indeed they were the sellers of these goods, would apparently have been a claim for damages for non-acceptance under section 50, there being no other provision of the Act which would have given the plaintiff any remedy.”
It may, with respect, be doubted whether the goods in that case had been “accepted” in a strict sense because, after they had been separated out, they had been taken away by the defendants “for the purpose of disposing of them”, a purpose which was never substantially fulfilled. But Kerr LJ’s comment must on any view apply with even greater force in the present case where the goods have actually been disposed of to third parties with the authority of the claimants.
In the event this court held that the unusual arrangement for the procurement of the cancellation of the bills and the re-sale of the sarees only as a secondary option did not constitute a contract for the sale of Goods at all. Section 49 of the 1979 Act did not, therefore, apply. But as a second reason Kerr LJ disagreed with Colley v Overseas Exporters without expressly overruling it and relied on the dicta of Williams J in the High Court of Australia to conclude that, having regard to the agreement as a whole, it would be open to the plaintiffs to sue for the agreed price “once a reasonable time had elapsed and it had become clear that they were not going to be relieved from the bills of exchange”. Sir John Megaw agreed. This authority does not seem to have been referred to in any of the standard text books or in subsequent authority. It was understandably not cited to the judge.
Meanwhile Lord Keith of Avonholm in the course of his dissenting speech in White and Carter Councils Ltd v McGregor [1962] AC 413 had re-stated the orthodox view of section 49 of the 1979 Act. It will be remembered that the claim in that case was for the price of (providing advertising) services and the issue was whether it was open to the advertisers to refuse to accept their clients’ repudiation of the contract and treat the contract as still subsisting without any obligation to mitigate their damages. Lord Keith said this (page 437):-
“I would refer first to contracts for the sale of Goods which were touched on in the course of the debate, for the reason that one of the remedies provided to the seller by the Sale of Goods Act 1893 is an action for the price. This however applies only in two cases. One is where the property in the goods has passed to the buyer … The only other case is where parties have contracted for payment on a day certain, irrespective of delivery or passing of property. This is a clear case of a contractual debt unconditioned by any question of performance by the other party. A much closer parallel with the present case is an agreement to sell future, or unascertained, goods. In this case there can be no appropriation of, and therefore passing of, property in the goods without the assent of buyer and seller. If therefore the buyer repudiates the contract before appropriation or refuses his consent to appropriation, there can be no passing of property. The seller is then confined to an action for damages for breach of contract. This, of course, is a rule of statute. But the Act is largely declaratory of English law, though not of Scots law …”
Mediterranean Export v Fortree Fabrics [1948] 2 All E.R. 186 per Lord Goddard CJ, Tradax v Goldschmidt [1977] 2 Lloyds Rep 604, 614 per Slynn J and Regent v Francesco [1981] 3 ALL All E.R. 327, 331 per Mustill J are to the same effect.
Lord Keith’s remarks were subsequently referred to in Otis Vehicle Rentals Ltd v Cicely Commercials Ltd [2002] EWCA Civ 1064 in which the claimants had originally agreed to hire-purchase a number of tractor units on terms that the defendants would re-purchase the vehicles from the claimants after either 2 or 3 years at the claimants’ option. The defendants refused to re-purchase the vehicles and the claimants brought an action for the re-purchase price or damages in the alternative. Property in the vehicles had never re-vested in the defendants and the claimants re-sold the vehicles to third parties. Her Honour Judge Kirkham sitting in the Birmingham Mercantile Court gave judgment for the price pursuant to section 49(2) of the 1979 Act on the basis that it was payable as a day certain. The defendants obtained permission to appeal and skeleton arguments were lodged on behalf of both parties but the claimants, who had already executed on the judgment and obtained the price, failed to comply with an order of Clarke LJ that the money be brought into court pending the appeal. As a result the claimants were debarred from appearing on the appeal and, in that sense, the appeal was unopposed. The court did, however, have regard to the claimant’s skeleton argument; nevertheless it was satisfied that counsel for the defendants submissions were “correct as a matter of basic Sale of Goods law” (para 9). Those submissions were that section 49(2) of the 1979 Act did not apply because the price was not payable “irrespective of delivery” as required by the sub-section and that, in any event, the claimants were not able and willing to deliver the goods to the buyer. The court, having referred to the observations of Lord Keith, accepted those submissions and held that since property had not passed to the defendants, the claimants could only claim damages and the judge had, therefore, been wrong to give judgment for the price.
Popplewell J decided that the Otis case was binding on him and therefore rejected FG Wilson’s submissions (that they could maintain an action for the price without bringing themselves within section 49 of the 1979 Act) “both as a matter of principle and authority”.
It may be that, in the light of Harry and Garry, it would be open to this court to disregard Otis on the basis that we are entitled to choose between conflicting authorities at our own level of precedent. Nevertheless I agree with the judge to the extent of being persuaded that, if there is a potential claim for damages for non-acceptance, then, if property has not passed to the buyer, the seller should be confined to that claim rather than a claim for the price. We should follow our own latest decision unless it is obviously wrong; I do not think Otis is obviously wrong. On the contrary, as the judge said it accords with principle.
I should perhaps add that Mr Hollander’s reliance on section 55 of the Act and the dicta of Lord Diplock in Christopher Hill v Ashington Piggeries [1972] AC 441, 501 seems to be misplaced since that section and those dicta relate to terms to be implied into the contract, rather than to express requirements of the Act.
That does not, however, resolve the problem if there is no realistic claim for damages for non-acceptance. That is what concerned Kerr LJ when he commented that it would be “ironical” if damage had to be recovered for supposed non-acceptance when the goods had been accepted. It would be even more ironical in the present case where the goods appear to have not only been accepted but disposed of for good consideration to third parties.
The only alternative is to suppose that there might be a claim for damages for failure to pay the price. Neither Mr Cogley nor Mr Hollander, for their different reasons, espoused any such claim and it immediately runs into the difficulty that English law does not normally allow a claim for damages for failure to pay money. There is, moreover, a logical difficulty in saying that Holt Liverpool are in breach of contract in failing to pay the price if the price is itself not due because property in the goods has never passed to them.
I therefore find myself in the somewhat unsatisfactory position of concluding that, if property never passed to Holt Liverpool, FG Wilson have no claim for the price nor even a claim to damages. That is just an inherent result of a retention of title clause and shows that it has dangers as well as benefits.
As, however, I think property in the goods has passed, FG Wilson are, in my opinion, entitled to the price they claim and are entitled to judgment for that sum. Left to myself, I would therefore dismiss this appeal; but since my Lords disagree with me on that point, the appeal will be allowed.
Aluminium Industrie Vaassen B.V. -v- Romalpa Aluminium Ltd
Court Of Appeal
[1976] 1 WLR 676
JUDGMENT
MEGAW L.J. I shall ask Roskill L.J. to deliver the first judgment.
Roskill LJ
Now, the crucial facts to my mind are two: first, that the defendants wen selling goods which the plaintiffs owned at all material times; and secondly, that clause 13 as a whole is obviously designed to protect the plaintiffs, in the event of later insolvency, against the consequences of having parted with possession of, though not with legal title to, these goods before payment was received, 75 days’ credit being allowed. When, therefore, one is considering what, if any, additional implication has to be made to the undoubted implied power of sale in the first part of clause 13, one must ask what, if any, additional implication is necessary to make effective the obvious purpose of giving the requisite security to the plaintiffs? One is, I think, entitled to look at the second part of clause 13 to answer this; for it would be strange if the first part were to afford no relevant security when the second part is (as I think) elaborately drawn to give such security in relation to manufactured or mixed goods.
I see no difficulty in the contractual concept that, as between the defendants and their sub-purchasers, the defendants sold as principals, but that, as between themselves and the plaintiffs, those goods which they were selling as principals within their implied authority from the plaintiffs were the plaintiffs’ goods which they were selling as agents for the plaintiffs to whom they remained fully accountable. If an agent lawfully sells his principal’s goods, he stands in a fiduciary relationship to his principal and remains accountable to his principal for those goods and their proceeds. A bailee is in like position in relation to his bailor’s goods. What, then, is there here to relieve the defendants from their obligation to account to the plaintiffs for those goods of the plaintiffs which they lawfully sell to sub-purchasers? The fact that they so sold them as principals does not, as I think, affect their relationship with the plaintiffs; nor (as at present advised) do I think – contrary to Mr. Price’ s argument – that the sub-purchasers could on this analysis have sued the plaintiffs upon the sub-contracts as undisclosed principals for, say, breach of warranty of quality.
It seems to me clear (and so far from helping Mr. Price I think the second part of clause 13, properly construed, helps Mr. Lincoln) that to give effect to what I regard as the obvious purpose of clause 13 one must imply into the first part of the clause not only the power to sell but also the obligation to account in accordance with the normal fiduciary relationship of principal and agent, bailor and bailee. Accordingly, like the judge I find no difficulty in holding that the principles in Hallett’s case, 13 Ch.D. 696 are of immediate application, and I think that the plaintiffs are entitled to trace these proceeds of sale and to recover them, as Mocatta J. has held by his judgment.
Mr. Price relied upon the conduct of the parties after the defendants took over from the partnership, pointing out (as was the fact) that the defendants were never required to account to the plaintiffs in the way I think, as a matter of law, the plaintiffs were entitled to require them to account. As a matter of business I would not have expected the plaintiffs so to have required the defendants to account. But, as Mr. Lincoln forcefully replied on this point, clause 13 is directed to a state of insolvency, not to what he described as to the halcyon days of solvency; and it is only upon insolvency that the question of what the powers are under clause 13 comes into play.
On the view which I have formed of this case it is not necessary to discuss some of the other interesting points on which we had the benefit of argument from counsel on both sides, and I refrain from doing so.
For the reasons I have given, for my part I would unhesitatingly uphold Mocatta J.’s judgment and dismiss this appeal.
GOFF L.J. I need not repeat any general statement of the facts. They have been fully set out in the judgment just delivered by Roskill L.J.
The first question which arises for determination is whether clause 13 of the general selling terms and conditions applied to the contracts made between the plaintiffs and the defendants or only to those made whilst the business was still being carried on by the partnership. If it did apply to the defendants, then it follows that the plaintiffs are entitled to recover the unsold stock and the appeal must fail as to that item. There is, however, then a second question whether, even so, the judgment is right in allowing the plaintiffs to recover the £35,000 odd proceeds of sale. I turn to the first of these questions. [His Lordship said that there was in his view no doubt at all that, the partners having accepted and signed the translation of the general terms and conditions, the whole of those terms, including clause 13, applied to the contracts made by them and he agreed with Roskill L.J. that the reasoning of Mocatta J. on that part of the case was quite unchallengeable. His Lordship continued:]
In my judgment the second part of the case comes down to a short question of construction. It is common ground that a power of sale during the period that any money remains owing to the plaintiffs must be implied; but the question is upon what terms.
I do not think it is necessary to go into the cases cited before Mocatta J., since it is clear to me, and was for a long time during the argument, that the plaintiffs must, on the principle of In re Hallett’s Estate, 13 Ch.D. 696, be entitled to trace their aluminium into the proceeds of sale so as to enable them to take the £35,000, and to take that sum in priority to the general body of the defendants’ creditors and in priority to the secured creditor Hume, unless, as the defendants contend, one ought to imply a power to sell and apply the proceeds of sale for their own purposes, or, as they put it, to sell for their own account. In the end this was accepted by both counsel, and nothing short of that will serve the defendants’ purpose.
The plaintiffs say that the power should be qualified so as to maintain for them the security which they Eave themselves by providing that property in the aluminium should not pass so long as any money remains owing to them, and accordingly it could only be exercised for their benefit in this sense, that the proceeds of sale must be held in trust for them until all the defendants’ indebtedness to them on any contract be discharged.
In considering this problem, one may at the outset dispose of one point. The provisions in the latter part of clause 13 dealing with cases where there has been admixture cannot, in my judgment, as a matter of construction apply to the type of case with which we are concerned where there has been no admixture. Those provisions are, however, as Roskill L.J. has said, relevant in so far as they throw light upon what the implication in the earlier part should be; and indeed in an alternative submission, introduced by amendment, to which I must return later, the defendants submit that the power of sale to be implied is the same as what expressly provided in that latter part of clause 13.
In considering what should be implied in a contract the court has to consider what is required to give it business efficacy; but I agree with Roskill L.J. that there are two distinct and opposing approaches to “business efficacy.” The one, looking at the matter from the point of view of the defendants, suggests that an unqualified power is required, because they would need to use the money in carrying on their business, and indeed, so it is suggested, anything else would largely stultify the agreement that they should have 75 days’ credit. The other is, from the standpoint of the plaintiffs, that the power should not be so wide as to frustrate the whole purpose of clause 13, which it is submitted, and in my judgment rightly submitted, discloses a manifest intention to preserve the vendors from being left in the position of unsecured creditors.
In the end, in my judgment, the question is which of these ought to prevail; and I have come to a clear conclusion that the plaintiffs’ contention should be preferred.
There is no doubt force in Mr. Price’s argument that this as a matter of strict law destroys the benefit of the 75 days’ credit. I would observe, as Roskill L.J. has pointed out, that the General Selling Terms and Conditions as originally accepted by the partners provided for 14 days’ credit only, and it may well be that in considering what should be implied one should disregard the later extension of time, in which case the point would be much weakened, although not altogether destroyed. I will assume, however, that the court ought to consider the matter in the light of that extension. Even so, in my judgment this is not enough to require, or entitle, the court to imply a term plainly and utterly inconsistent with the clear intention of the clause into which it is to be implied.
The difficulty arises largely because the general conditions tie the passing of the property not to the particular contract but to all indebtedness. But for that, the qualified power would not prevent the defendants from enjoying reasonable advantages from the 75 days’ credit. No doubt in practice, so long as all went well the plaintiffs would allow the defendants to use the proceeds of sale in their business, as I understand they did; but things ceased to go well, and now one has to determine the strict rights of the parties, and in my judgment the difficulty so imported is not enough to drive one to imply a term defeating the whole object of clause 13.
I turn to the alternative argument which I have already mentioned. I do not myself think it is a correct approach simply to imply in the first part of clause 13 the same power as is expressed in the latter part and which as a matter of construction does not apply to the first part and which is dealing with a different state of affairs. Even, however, if one does, it does not in my view help the defendants.
The argument is that under that clause there is no equitable assignment of the book debts until the plaintiffs require the defendants, in the words of the translation before us, to “hand over to A.I.V. the claims he has against his buyer,” and, further, that as no such requirement was made before the security crystallised by the appointment of the receiver any equitable assignment resulting therefrom could only be subject to the security created by the debentures.
I accept that as far as it goes, but it still leaves the question whether one should then construe the power as entitling the defendants to sell and use the proceeds as and when received for their own benefit unless and until required to assign the debt, or whether on the contrary, as the plaintiffs contend, it is implicit that the proceeds of sale when received are received on their account and the right to call for an assignment is ancillary only. In my judgment that would be the right view, even if one simply implied a power in precisely the same terms as expressed concerning mixed cases.
In short, my conclusion is that the power of sale to be implied where none has been expressed must be so qualified as not to defeat the intention clearly shown by clause 13 as a whole, including the latter part, which only emphasises this. It follows that there was, as Roskill L.J. says, a sufficient fiduciary relationship between the parties, and this is indeed expressly contemplated in the reference to a fiduciary owner in the second part of clause 13. The implied power must, therefore, in my judgment be a power to sell, not for the defendants’ own account, but for the account of the plaintiffs unless and until all moneys owing be paid.
For these reasons, I agree that this appeal fails as to both parts and should be dismissed.
Sandhu (t/a Isher Fashions UK) v Jet Star Retail Ltd (t/a Mark One) & Ors
[2010] EWHC B17 (Mercantile) (21 April 2010)
Cite as: [2010] EWHC B17 (Mercantile) Brown QC
Contentions
I am most grateful to both Counsel for their helpful learned & succinct arguments about the law on ROT’s, administrations and its applicability to the Contract and given facts in this case.
Both Counsel agreed that the answer to the question posed by the remaining Preliminary Issue lay in the interpretation of the governing Contract.
Mr Pepperall for the Claimant submitted that the court should focus on the agreed ROT clause 6.2:
.. “Isher Fashions shall retain property, title and ownership of the Products until it has received payment in full in cash or cleared funds of all sums due and/or owing for all Products supplied to the Customer by Isher Fashions under this Contract and any other agreement between Isher Fashions and the Customer.”
He further submitted that this was an “all accounts” clause. Accordingly, by the ROT clause, title in garments supplied did not pass until the outstanding balance on the account had been cleared, and it palpably had not. Accordingly, the Administrators were guilty of conversion when they sold the stock between 20th – 25th November 2008.
However, he recognized that he had an inherent difficulty in this contention; the Company did have the right to sell and pass on title in the stock to its own retail customers. He therefore argued that in order to give it “business efficacy” it was “necessary” as per The Moorcock Test[16] to imply a term into the written contract containing the Claimant’s own Standard Terms & Condition that “Jetstar Retail Limited was entitled to resell goods in the ordinary course of business while the company was solvent”.
He submitted that the reason why it was necessary to imply such a term was that the commercial purpose of the ROT was to protect the supplier’s position in insolvency since unsecured creditors “receive a raw deal”[17] and “the situation changes post-insolvency” as he put it. Therefore, he submitted that the provisions of the Insolvency Act and the law of conversion should be followed ignoring the provisions in the contract under Clause 7 relating to Default which merely gave the Claimant additional rights to those in insolvency and conversion law.
Mr Goodison for the Defendants submitted as follows. Firstly, that the Contract is patently a continuing existing contract for purpose of the sale of goods for resale, not just a ROT agreement; secondly, contained “entire agreement terms”; thirdly, Clause 7.1.4 dealt with the “post insolvency situation” rendering the implication of implied terms unnecessary and would be a wrongful rewriting of an agreement; and fourthly, the administration did not determine the contract which provides for that scenario and the contractual provisions prevailed here concerning the rights and obligations of the parties, not the default position in general insolvency law.
Judgment on submissions
In my judgment, Mr. Goodison is correct in his submissions.
First, the contract is patently for the purpose of the sale of goods to become stock for resale e.g. Clause 8 on Limitations on Liability refers to the Claimant as the Customer and also to “customers of the Customer”. It is the supply of stock as part of the working capital of a business for resale, as distinct from items such as tools and equipment that are not for resale where a ROT is often in place and effective. It is not just concerned with ROT in isolation; it also has other highly relevant terms including Clause 7 which deal with the “post insolvency situation”. The contract must be read in its entirety and governs the situation arising between the parties. Clause 7 prevails here concerning the insolvency of the Company and its administration concerning the stock under the agreement, not the Insolvency Act “regime” as Mr Pepperall terms it.
Secondly, Clause 2.1 is an “entire agreement “clause “to the exclusion of any other terms or conditions”.
Thirdly, clause 7.1.4, 7.11 and 7.12 expressly deals with the situation of many instances of insolvency of the Claimant, including administration as here. There is no “need” to imply any terms into the written agreement, the Claimant’s own standard terms and conditions of sale, to deal with any lacuna concerning the situation arising “post insolvency” or administration and it would be wrong to rewrite the contract retrospectively.
They state the following:
” 7.1.4 If the Customer is, or is deemed to be unable to pay its debts or is
insolvent, suspends making payments on any debts or announces an
intention to do so, commences negotiations with one or more of its
creditors with a view to rescheduling any of its indebtedness by reason of actual or anticipated financial difficulties, has a moratorium declared in
respect of any of its indebtedness, ceases or threatens to cease to carry
on business, applies for an interim order under Section 252 Insolvency Act
1986 or has a bankruptcy petition presented against it, has appointed in
respect of it or any of its assets a liquidator, trustee in bankruptcy, judicial
custodian, supervisor; compulsory manager, receiver, administrative
receiver, administrator or similar officer (in each case whether out of court
or otherwise).pledges or charges any Products which remain the property
of Isher Fashions, takes or suffers any similar action in any jurisdiction or
any step is taken (including without limitation, the making of an application or the giving of any notice) by it or by any other person in respect of any of these circumstance
then Isher Fashions shall have the rights, without prejudice to any other remedies, to exercise any or all of the following rights:
7.1.11 Isher Fashions may cancel, terminate and/or suspend without liability to the Customer any contract with the Customer; and
7.1.12 all monies owed by the Customer to Isher fashions shall forthwith become due and payable”. “.
Fourthly, there is no clause in the Contract that states that the agreement automatically terminates upon administration. An administration of itself does not terminate a contract. In Corporate Administrations and Rescue Procedures (2nd ed), p.153, it states:
“Administration does not have any effect on the legal personality of the company, nor does it, of itself, have any effect on a third party’s contractual obligations to the company; nor (without more) does it terminate contracts to which the company is a party. …. A contract, however, will very often provide for its termination, or for the obligations or rights of one or other of the parties to come to an end if it enters administration.” A footnote states “It will, of course, be a question of construction as to whether notice is required before termination or whether it happens automatically.”
There is no dispute that there were 3 occasions when such insolvency “trigger” events arose before the contested sale of the stock between 20th – 25th November 2008: (1) 27th October upon the presentation of a Winding Up petition just 3 days before Mr Singh became 100% shareholder of the Company; (2) 11th November 2008 when Northworld Ltd made a demand by its administrators upon the Company for £3.027 in respect of the outstanding purchase price of the Company now fully owned by Mr Singh; and (3) 20.40hrs on 19th November 2008 when the appointment of Administrators.
The Claimant could therefore have exercised his contractual rights on any of those 3 occasions to terminate the agreement to supply stock to the company but did not do so before the stock had been sold. Indeed, as appears from the letter from Freeth Cartwright on behalf of the Claimant dated 28th November 2008, he did not even then purport to terminate the agreement or demand delivery up under the ROT clause 6.2 but sought to claim their value from the administrators. The Claimants never identified stock, and the stock records do not identify the exact stock. So delivery up was never possible. Some stock was with the warehouseman and held by them pursuant to a lien. If he had chosen to do so, on any of these three occasions before the stock was sold, he could have identified his stock and demanded and obtained “immediate possession” of his stock under the ROT (Clause 6.2). The Claimant did not otherwise have any contractual right to “immediate possession” of the stock and the Defendants correspondingly had the contractual right to resell them or part with possession of them.
It is common ground that in order to have any claim for wrongful interference by conversion, the Claimant needs to prove as at 20 Nov 08 to 25 Nov 08, he had an “immediate right to possession” of the stock[18]. Accordingly, the claim for conversion in its entirety must fail. Furthermore, the claim for conversion of stock[19] held in a warehouse subject to the lien of the warehouseman, Clipper, is in any event doomed to fail quite simply on the grounds that by the lien the administrators have no right to “immediate possession” of the stock anyway.
Conclusion
In my judgment Question 7 (c) in the preliminary issue should be answered “no”, both in respect of the stock sold between 19 Nov and 25 Nov 08, and in respect of the stock sold to Internacionale.