England and Wales High Court (Chancery Division) Decisions

In the High Court of Justice
Chancery Division
Companies Court

		Royal Courts of Justice Strand, London, WC2A 2LL
		22/07/2008

Judgment

1. In the judgment which I gave on 29^th April 2008 (which for some reason bears the date 22/07/2008 in the title of the action), I decided various issues which had arisen in the administration of the Company, including an issue between a company called Burton Waters Marina Limited ("BW") and the administrators, arising out of BW's purchase of a Sealine F37 boat from the Company, for which it had paid £194,953.65 just before the Company went into administration.
2. For convenience, I set out below the relevant part of my judgment.

Burton Waters Marina Limited

One of the manufacturers for which the Company was a dealer was Sealine International, with which it had a Dealer Agreement dated 7th December 2005. One of the Company's dealers was Burton Waters Marina Limited ("BW") which had an annual purchase commitment. BW ordered a Sealine F37, hull number GB-SIL3F288H708 in August 2006 and paid £194,953.65 for it on 10th August 2007. Normally, the money would have been paid into the current account but one of the Company's directors, Mr. Corkhill, requested BW to arrange payment to the client account, which is what happened.

BW had agreed with the Company that the vessel was to be collected from Sealine's factory in Kidderminster early on 13th August 2007, but Sealine would not release it because it had not received payment by the Company. After abortive enquiries of Mr. Corkhill, it was agreed between Sarah Peacock, BW's Sales Administrator, and Richard Horton of Sealine's Finance Department that Sealine would release the vessel to BW on the understanding that Sealine would retain title pending receipt of the purchase monies from the Company and on that basis it was released to BW's transportation firm, Grimley Freight Limited.

Sarah Peacock had no reason to doubt that the Company would pay Sealine, in accordance with assurances which it had given. There had been a previous occasion in July 2007 when the Company had not made an advance payment and when Sealine had agreed to release the boat conditionally upon retaining title pending payment, which had then been made.

Sarah Peacock amended the e-mail which she had sent on the previous occasion, and her e-mail of 13th August 2007 reads as follows:-

"Full and final funds for the above boat were received by BA Peters at 12:14 on Friday, 10th August. I understand that BA Peters have not yet forwarded the funds on to you and that F37-288 remains the property of Sealine International until funds are received by yourself.

Please release funds to allow transport to ship the boat to us for our open weekend."

(The reference to the open weekend was part of the earlier email which was not removed from the text of this email.)

The relationship between BW and the Company was governed by a Sales and Service Dealer Agreement dated 29th August 2006, clause 4 of which provides as follows:-

"Orders: Dealer agrees to submit orders to Peters in a manner and format prescribed by Peters, which orders shall be subject to Peters' then current terms and conditions of sale."

As is clear from earlier parts of this judgment, the Company's terms and conditions provided that the property in boats sold by the Company would pass on payment of everything that was due to the Company.

The issue in this case is whether title to the vessel has passed to BW. Miss Hilliard on behalf of the administrators submits that it has, Mr. Allsop for BW that it has not. Sealine was not represented at the hearing, but submitted that title was retained by it, in which event BW would be entitled to recover £194,953.65 from the client account.

BW's order was placed on a Dealer Order Form on 2nd October 2006. The order specified the type of boat, a Sealine F37, and an estimated factory completion date of July 2007, subject to the specification being received by 9th April 2007. Sealine's Builder's Certificate dated 2nd July 2007 confirmed that it had built the vessel and gave its hull number as set out above. The documents also include a Sale and Purchase Agreement dated 23rd July 2007 for a new motor vessel, but it was not signed by either party.

The relationship between the Company and Sealine was governed by the 2006 Dealer Agreement, which appointed the Company as Sealine's Dealer "for the retail sale, display and servicing of the Sealine product(s), parts and accessories identified in Schedule 1. There are a number of relevant provisions:-

(a) Clause 1 provided that the Company should focus its sales, display and service efforts within the territory identified in Schedule 1, which was the United Kingdom and the Balearic Islands.

(b) Clause 2 provided that the Company should sell at retail, display and service Products only at the locations specified in Schedule 1, which specified certain of the Company's selling locations.

(c) Clause 3A required the Company to "devote its best efforts to aggressively promote, display, advertise and sell Products" at dealer locations.

(d) Clause 5 provided that the terms of payment would be as specified from time to time by Sealine.

(e) Clause 8 however provided that all sales of Products should be paid for in advance unless otherwise agreed, and that Sealine retained a security interest in all products sold and in all proceeds arising out of the sale of Products unless paid for in full and that "to the extent allowed by law", Sealine should retain title in and to the Products until such Products were paid for in full.

(f) Clause 13 provided that the Company was not, and should not represent itself to be, Sealine's agent.

Taking Miss Hilliard's submissions in the order of the chronological events, her first submission is that the Company had Sealine's express or implied authority to sell the goods in the ordinary course of business and confer a good title on sub-purchasers: see Benjamin on Sale 7th edition §5-156. This seems to me to be clearly right. The terms of the agreement not only permit but require the Company to sell Sealine's Products and clause 8 by necessary implication recognises that Products might be sold to third parties before Sealine had received payment in full. To hold otherwise would, as in the Romalpa case, Aluminium Industrie Vaassen BV v. Romalpa Aluminium Limited [1976] 1 W.L.R. 676, be inconsistent with the whole commercial purpose of the Dealer Agreement.

In Romalpa, the Court of Appeal held that it was necessary to imply something into the agreement since otherwise the buyers could not sell the goods until they were paid for, since until then they were the sellers' goods. Without such an implication the whole business purpose of the transactions would be stultified. What was implied was authority to sell the goods as agents. As Roskill L.J. said in the well-known passage in his judgment at 6900:-

"I see no difficulty in the contractual concept that, as between the defendants and 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."

The position is in my view the same in this case. It is true that clause 8 of the Dealer Agreement purports to negative agency, but despite the wide terms of this provision it seems to me that it must be read as being subject to the implied exception which is necessary to give effect to clauses 1 and 3A and the main purpose of the agreement. Therefore, the Company was in my opinion entitled to sell the Products in the ordinary course of business before payment as agent for Sealine, but not in its name. It follows that the Company was entitled to sell the vessel to BW, and that title to it passed when BW paid for it in full, on 10th August 2007.

Miss Hilliard's alternative submission was that good title was conferred on BW by virtue of section 25(1) of the Sale of Goods Act 1979, since the vessel was delivered by the Company as a buyer in possession. She relied on the decision of Simon Brown J. in Four Point Garage Limited v. Carter [1985] 3 All E.R. 12 that, where goods were delivered directly by the seller to the sub-purchaser, the purchaser was deemed to take constructive delivery of goods and the seller was deemed to act as the buyer's agent when making delivery to the sub-purchaser. He rejected the submission made in that case that the earlier decision of Hilbery J. in E&S Ruben Limited v. Faire Bros & Co Limited [1949] 1 K.B. 254 turned on its own special facts and said:

"It seems to me a perfectly sound principle of general application. There appears no possible reason to differentiate under the statute between a case where, as here, the plaintiff sellers themselves deliver direct to the sub-purchaser and a case where, as could so easily have occurred instead, the seller delivers to his buyer, who then forthwith delivers on to the sub-purchaser. Often no doubt the precise arrangement would depend on no more than the geographical relationship of the three parties."

In my view, the present case is clearly distinguishable. Whilst initially the arrangements were such as to give rise to the usual inference that the seller was delivering the goods to the sub-purchaser on the purchaser's behalf, in this case, Sealine was not willing to deliver to the Company and permitted BW to take possession only on the basis of written confirmation that Sealine retained title. It was, as Mr. Allsop submitted, a private arrangement between them, and not delivery by Sealine as agent for the Company.

Nevertheless, I have held that title has passed on 10th August 2007, and it is then necessary to consider the effect, if any, of the private arrangement confirmed in Sarah Peacock's email of 13th August, and whether it amounted to an agreement between Sealine and BW that Sealine should keep the title to the boat. I do not think that it did. Sarah Peacock merely records the understanding, based on what Sealine had said, that Sealine retained the title and agreed to preserve this pending payment by the Company. There was no agreement which had the effect, if the understanding was wrong, of reinvesting title in Sealine. Alternatively, if there was, it is common ground between Mr. Allsop and Miss Hilliard that the agreement would be void for common mistake as to the ownership of the property: in Bell v. Lever Brothers [1932] AC 161 and 217-8, per Lord Atkin; Great Peace Shipping Ltd v. Tsarlines Salvage (International) Ltd [2002] Q.B. 679 paragraphs 111-118. I therefore hold that the agreement on 13th August 2003 had no effect on BW's title, and that BW is the owner of the boat.

Next I must consider whether, in circumstances in which I have held that BW is entitled to the boat, the amount of £194,953.65 in the client account belongs to Sealine, or whether it becomes available for the general body of creditors. Miss Hilliard submitted that Sealine has no claim to it, because the Company only intended to establish a trust in favour of its customers. This is so (except for the brokerage sales where the Company acted as stakeholder), but it is necessary for me to consider whether the effect of its terms of business was to impose a trust over the proceeds of sale. This is not an easy point and I would like Sealine to have a further opportunity to consider its position. I therefore direct that Sealine should be informed of my decision that the property in the vessel has passed to BW, should be informed that I am considering who is entitled to the proceeds of sale, and be sent copies of Miss Hilliard's submissions on this question, and should be asked whether it wishes to instruct lawyers to consider its position."

3. As is clear from the terms of paragraph 92 of my previous judgment, the only issue which I left for further argument was the issue as to whether the effect of Sealine's terms of business was to impose a trust over the £194,953.65 paid by BW into the client account, or whether it becomes available for the general body of creditors. I directed that Sealine should be invited to consider whether it wished to make submissions about that question. The reason I did so was that, whilst it was obvious to me from the correspondence that Sealine had considered its position in relation to the ownership of the vessel, and was content with the position taken by BW in this, it did not seem to me that much, if any, consideration had been given to the ownership of the proceeds of sale.
4. Notwithstanding this, Sealine has submitted, in its skeleton argument, that I was wrong in concluding that title to the vessel had passed to BW, and that I should have concluded that title remained with Sealine and that BW was entitled to the repayment of what it had paid into the Company's client account. Sealine asks to be joined to the proceedings and submits that it is obvious that this should happen given the terms of judgment.
5. Sealine's position on this has no merit whatsoever. As Ms. Hilliard has submitted in her skeleton argument, Sealine was aware of the application for directions, was served with all the evidence and the administrators' skeleton argument well in advance of the hearing, had instructed solicitors and had known and approved of the argument advanced by BW's counsel on the title point. Sealine could have instructed separate counsel to argue the title point, had it wished to.
6. In an ordinary action, there might well have been no jurisdiction enabling me to reconsider my decision, but in this case (as Ms. Hilliard has very fairly pointed out) Insolvency Rule 7.47(1) does empower a court to review, rescind or vary any order made in the exercise of the insolvency jurisdiction. However, she has also referred me to the Thirty Eight Building Limited (in liquidation) (No. 2) [1999] 1 BCLC 201, which makes it clear that the jurisdiction to review must be exercised extremely cautiously and, in the absence of an obvious injustice, should be confined to cases of changed circumstances or the introduction of fresh evidence casting doubt on the basis of the previous decision.
7. Nevertheless, and with some misgivings, I have considered the arguments now advanced on behalf of Sealine, but I am unconvinced by them. On the first point (the previous judgment §86-8), it is submitted that I should have held that any authority conferred by the Dealer Agreement on the Company to act as Sealine's agents was limited to selling on terms which did not pass title until (the Company) had paid Sealine in full. This seems to me to be unarguable for two reasons. First, since nobody would buy on such terms, it would be inconsistent with the commercial purpose of the agreement. Secondly, clause 8 explicitly contemplates the possibility of sub-sales by the Company leaving Sealine with a "security interest" in the proceeds.
8. On the second point (§91 of the judgment), it is submitted that my conclusion flies in the face of the email of 13^th August 2007. I do not agree. It is clear, as is submitted on behalf of Sealine, that BW accepted Sealine's view that it retained title in the boat, and it may well be that Company had the same view. But it does not follow that there was a contract to that effect, resulting in the retransfer to Sealine of the title which it had in fact lost when the boat was sold to BW. Further, if I am wrong about that, although it is asserted on behalf of Sealine that I am also wrong on the issue of common mistake, the only reason which is advanced is that there was "no need" for me to hold that title had passed to BW, which I have already rejected above.
9. Accordingly, having reviewed my previous decision, I do not consider that I should alter it.
10. Turning to the issue which I did not decide in the previous judgment, in the Romalpa case clause 13 of the contract provided inter alia that the purchaser was

"..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 (the seller) so requires – (the) purchaser, 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 this transaction".

11. The Court of Appeal held that this imposed on the purchaser, in accordance with the normal fiduciary relationship of principal and agent, an obligation to account for the proceeds of sale, and that the sellers were accordingly entitled to trace the proceeds and recover them. Roskill L.J. who gave the leading judgment said:

"It seems to me clear…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…. … the plaintiffs are entitled to trace these proceeds of sale and to recover them, as Mocatta J. has held by his judgment".

12. The difficulty with this decision is that it appears to circumvent the provisions in the Companies Act which (then and now) render void an unregistered charge over book debts, and indeed Roskill L.J. had himself referred, at 690A, to clause 13 having "the obvious purpose of giving the requisite security to the plaintiffs".
13. The numerous subsequent authorities on this question are fully discussed in McCormack on Registration of Company Charges 2^nd ed. 2005 at §5.33 et seq. It is not easy to reconcile all the authorities which, as the author says "speak with forked tongue". He suggests that a great deal turns on the precise terms of the clause, it being important that it should stress the buyer's position as an agent and the fiduciary duties he owes. He also refers (and Ms. Hilliard also drew my attention to it) to the well known dictum of Slade J. in Re Bond Worth [1980] Ch. 228 at 248 that:

"[A]ny contract which, by way of security for the payment of a debt, confers an interest in property defeasible or destructible upon payment of such debt, or appropriate such property for the discharge of the debt, must necessarily be regarded as creating a mortgage or charge, as the case may be".

14. It is perhaps surprising that decisions on this issue should sometimes turn on the linguistic skill of the draftsman of a provision which is intended to give the seller a security interest in the proceeds of sub-sales until he has been paid in full, and it may be that, but for the original decision in Romalpa case, all provisions of this kind would be treated as unregistered charges. However that may be, I am satisfied that the drafting of clause 8, which in terms refers to a "security interest", does create an unregistered charge. Mr. Mohyuddin on behalf of Sealine has simply submitted that the fiduciary duty and the obligation to account follow from my finding that the Company had authority to sell as agent, but I do not think that this overcomes the difficulty.
15. Accordingly, I direct that Sealine should be made a party to this application and I hold that it is a general creditor of the Company and is not entitled to trace its claim into the client account. So far as the costs are concerned, I direct that Sealine should recover its costs, but that this should be limited to the costs related to the issue as to the ownership of the £194,953.65.
16. I will hand down judgment on a date to be notified to the parties, but there is no need for anybody to attend. If Sealine wishes to ask for permission to appeal, this can be done in writing.

N. Strauss Q.C.