England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

		Royal Courts of Justice Strand, London, WC2A 2LL
		11/04/2011

Mr Justice Newey :


 


1. The question raised by this case is whether the Claimant, Wincanton Group Limited ("Wincanton"), acquired title to some racking which was installed in premises of which the Second Defendant, Jenks Sales Brokers Limited ("Jenks"), was the tenant. The case turns, in particular, on the construction of a written agreement made between Jenks and Wincanton on 29 September 2008 ("the Fit-Out Agreement").

Factual history

2. Wincanton provides warehouse management and distribution services. Jenks is now in administration, but was formerly a wholesaler of food products.
3. By mid-2008, it was proposed that Wincanton should provide warehousing and distribution services for Jenks at a site in Milton Keynes ("the Site"). To this end, the parties were to enter into a detailed Logistics Services Contract. A draft was prepared and passed to and fro, but no agreement was ultimately concluded. The last draft is dated 9 December 2008.
4. In anticipation of the Logistics Services Contract being entered into, it was agreed between Wincanton and Jenks, by way of a letter of indemnity, that Wincanton would source items which would be required for the project and that Jenks would reimburse Wincanton for costs and expenses it incurred. An initial "Start Up Budget" was set out in an appendix. This envisaged "Revenue Costs" of £300,000 and "Capital Costs" of some £2.5 million, including £1.2 million for racking.
5. It was at first envisaged that Wincanton would itself buy the racking. On this basis, Wincanton issued a request for quotation (or "RFQ") on 16 July 2008. This asked for a quotation for the "supply of racking and associated services" at the Site. The RFQ stipulated that "quotation and pricing" were to be broken down into "Product price", "Installation price" "Transport price" and "Standard parts price table". The RFQ also stated that the following "payment terms" were to be assumed:

i) "20% of contract value at time of order (14 days payment)";

ii) "40% of contract value on delivery of materials to site (28 days payment)";

iii) "40% of contract value on completion (28 days payment)".

The response was to summarise what was proposed in a spreadsheet giving the total cost and specific figures for "Wide Aisle", "Narrow Aisle", "Anti-collapse mesh screen", "Sprinkler Brackets" and "Barriers and rack mounted upright protectors".

6. Whittan Industrial Limited ("Link 51"), a manufacturer of storage units which traded as "Link 51 Storage Products", supplied a proposal on 23 July 2008. In accordance with the RFQ, the proposal divided the total price between "Product", "Installation Labour" and "Transport". The total cost of product, excluding installation and transport costs, was given as £993,393, of which £901,848 was attributed to pallet racking. The proposal was stated to be made by Link 51:

"strictly in accordance with our standard terms and conditions, a copy of which is attached".

Link 51's terms of payment were given as "50% with order", "40% on commencement of delivery of materials" and "10% on completion of installation".

7. Clause 9.1 of Link 51's standard terms and conditions provided as follows:

"Upon delivery of the Goods they shall remain the property of the Company [i.e. Link 51] until such time as the Customer shall have paid to the Company the full purchase price of all Goods and Services supplied under the Contract and any other contract between the Company and the Customer. Until such time the Company shall be entitled to recover the Goods or any part thereof and for the purpose of exercising such rights the Company its employees and agents with appropriate transport may enter upon any location where the Goods are situated".

8. In the event, it was Jenks rather than Wincanton which placed an order with Link 51. On 1 September 2008, Jenks issued a letter of intent which was countersigned on behalf of Link 51 on 11 September 2008. The letter gave Link 51 authority to proceed with works specified in its July proposal while formal contract documents were being finalised. Jenks undertook to pay Link 51 its "reasonable costs incurred in properly carrying out the Works under the contents of this letter, such costs to be consistent with [the July proposal]". Jenks' liabilities under the letter were not to exceed £1,144,687.86, which was stated to be the "Contract Sum … as detailed in [the July proposal]".
9. Work was done on the preparation of a more formal contract between Jenks and Link 51 adopting the JCT Minor Works Contract form. As, however, was the case with the proposed Logistics Services Contract, the draft was never finalised and signed.
10. On 29 September 2008, Jenks and Wincanton entered into the Fit-Out Agreement. This recorded that Jenks was carrying out the "Wincanton Works" as part of its fit-out of a new distribution facility at the Site, that works for the project were to be undertaken by Jenks entering into contracts with contractors ("Works Contracts") and that there was to be a "Contract Administrator" (Lysander Associates Limited unless another firm were appointed). Clause 5 stated that, whenever the Contract Administrator certified payment to contractors under the Works Contracts, it would "specify the amount attributable to the Wincanton Works"; those amounts were referred to as the "Wincanton Contractor Payments". Clause 6 provided for an appropriate proportion of other costs to be attributed to the Wincanton Works, the sums in question being referred to as "Wincanton Project Payments". Under clause 8, Wincanton was to put Jenks in funds before it had to make Wincanton Contractor Payments and Wincanton Project Payments. The clause was in the following terms:

"Wincanton agrees to pay to Jenks all Wincanton Contractor Payments into Jenks' Nat West bank account … not less than 2 days before the final date for payment under the relevant Works Contract. Wincanton agrees to pay to Jenks upon request by Jenks all Wincanton Project payments into Jenks' Nat West bank account … not less than 2 days before the final date for payment under the relevant contract or Relevant Project Team Members appointment …. Wincanton's liability under this agreement to pay Wincanton Contractor Payments and the Wincanton Project Payments shall be limited to £2,253,300 plus VAT …."

11. Clause 11 is of particular importance. It provided:

"To the extent that Jenks is able to pass title to the Wincanton Works to Wincanton it does so under this agreement provided that full payment for the relevant part of the Wincanton Works (all relevant Wincanton Contractor Payments and Wincanton Project Payments) has been made to Jenks".

12. Clause 16 dealt with what was to happen if the proposed Logistics Services Contract was not concluded. It stated:

"If the parties do not conclude the Logistics Services Contract within 4 weeks of this agreement, this agreement shall terminate and Jenks shall repay all Wincanton Contractor Payments and Wincanton Project Payments paid by Wincanton on such terms as to repayment as the parties may agree (acting reasonably) but requiring payment to be made no later than 90 days following the date of such termination of this agreement …."

13. Clause 1 explained that "Wincanton Works" were "as specified in Schedule 1". The schedule in question comprised a spreadsheet listing items with a total cost of about £4.5 million. It can be inferred that the "Wincanton Works" were those against which the letter "W" appeared. Those relating to racking were listed as "Racking – Main Works", "Racking – Labelling", "Racking – Floor Grinding to Cat 1" and "Racking –Wire Guidance Installation". In respect of "Racking –Main Works", Link 51 was identified as the contractor and the cost was given as £1,144,687.86 (the figure also given in the letter of intent).
14. It is common ground that the plan was for Wincanton to bear the costs of the Wincanton Works initially, but then to recover them from Jenks by way of monthly payments over the life of the intended Logistics Services Contract.
15. In October/November 2008, Wincanton and Jenks agreed to vary the letter of indemnity mentioned in paragraph 4 above. A revised "Start Up Budget" was agreed which related only to what its predecessor had termed "Revenue Costs" (and so not to the racking, which was within the scope of the Fit-Out Agreement). It seems that the Site began to be used for warehousing purposes at about this time.
16. By 29 September 2008, when the Fit-Out Agreement was signed, Link 51 had already invoiced Jenks for 60% of the contract value. Link 51's invoice 544503/A, dated 9 September, claimed 20% (or £269,001.65, inclusive of VAT), and invoice 544503/B, also dated 9 September, claimed a further 40% (or £538,003.29, inclusive of VAT) as "Now due on commencement of deliveries". On 18 September, Lysander Associates Limited ("Lysander") issued a certificate in respect of the sums invoiced by Link 51 (and certain other sums); this confirmed that "the work to which this certificate refers has been done and is in accordance with the terms of payment & Certification Clause of the relevant Contract". On 26 September, Jenks invoiced Wincanton for corresponding sums, which it stated were to be received by 1 October. As asked, Wincanton paid the total of the invoices (viz. £807,004.94) to Jenks on 1 October, and Jenks thereafter paid Link 51.
17. On 25 November 2008, Link 51 issued a third invoice (numbered 544503/C) to Jenks, for the remaining 40% of the contract value, described as "Due on completion of installation". On 11 December 2008, Lysander certified that the sum in question (viz. £538,003.29, inclusive of VAT) was due, and on the next day Jenks invoiced Wincanton for the same amount, asking for payment by 29 December. In the event, Wincanton did not make any further payment to Jenks, having concerns as to the latter company's financial position. Jenks nevertheless paid Link 51.
18. It can be seen that, although Link 51's proposal had provided for "50% with order", "40% on commencement of delivery of materials" and "10% on completion of installation" (see paragraph 6 above), the parties were proceeding on the basis of the 20:40:40 split which the RFQ had originally envisaged (see paragraph 5 above). Mr John Cornfield, who works for Wincanton as a Business Unit Controller, explained in evidence that the 50:40:10 division had been unacceptable to Wincanton.
19. Instructions were given on Jenks' behalf for several variations. The relevant instructions were issued on 23 October, 5 November and 1 December 2008. Link 51 invoiced Jenks for the work on 5 February 2009 (in sums totalling £106,572.55, inclusive of VAT), but Jenks did not make any further payment.
20. On 12 January 2009, Wincanton gave Jenks notice that it was terminating the Fit-Out Agreement under clause 16 and demanded repayment of the sums it had paid under the agreement. In a second letter of the same date, Wincanton complained that sums due for services it had rendered were overdue.
21. Jenks went into administration on 18 May 2009.
22. Following the appointment of administrators, Link 51 asserted a retention of title claim, relying on clause 9.1 of its standard terms and conditions. On 17 August 2009, Link 51 withdrew that claim. It emerged from evidence given by Mr Cornfield that Link 51 had withdrawn the retention of title claim in return for Wincanton paying it £25,000 and agreeing to offer it the chance to bid on two other projects.
23. Jenks' landlord at the Site also advanced a retention of title claim at first. For that reason, it was joined as the First Defendant to these proceedings. On 10 February 2010, however, judgment was entered against the landlord with its consent. Wincanton and Jenks are thus the only parties in dispute.
24. As issued, the claim form sought a declaration that Wincanton was the owner of the racking installed at the Site. In January of this year, however, the racking was sold, by agreement between Wincanton and Jenks, for £450,000. Wincanton now, accordingly, seeks a declaration that it was the owner of the racking until it was sold and is entitled to the proceeds of sale.

The parties' cases in outline

25. It is Wincanton's case that title to the racking installed at the Site passed from Link 51 to Jenks when it was delivered to the Site (in early September 2008) or, at the latest, when installation was completed (in late November 2008). Wincanton further contends that title was at once transferred on to Wincanton.
26. Mr Gerard McMeel, who appears for Wincanton, argued that the Fit-Out Agreement proceeded on the basis that, as and when Jenks acquired title to property relating to the Wincanton Works, that title would be passed to Wincanton. The intention, Mr McMeel suggested, was that Wincanton should be in no worse a position than it would have been had it contracted with suppliers itself, as had originally been envisaged.
27. Mr McMeel submitted that the proviso to clause 11 of the Fit-Out Agreement meant no more than that Wincanton should not have any relevant outstanding indebtedness to Jenks. If, Mr McMeel said, the Wincanton Works had included the purchase of some forklift trucks, and title to the trucks had passed to Jenks on delivery even though payment was not due for 28 days, Wincanton would have become the trucks' owner regardless of whether it had made any payment in respect of the trucks; the important point would be that Wincanton had not been in default at the stage that the supplier was divested of title. Likewise, provided that Link 51 parted with title to the racking by no later than its installation, Wincanton acquired it; on Mr McMeel's submissions, it is irrelevant that Wincanton made no payment in respect of the invoice which Link 51 rendered post-installation.
28. In any case, Mr McMeel argued, delivery of the racking constituted a "relevant part of the Wincanton Works" (within the meaning of clause 11), and, since it put Jenks in funds to meet Link 51's first two invoices, Wincanton made "full payment" for that part of the Wincanton Works. Wincanton thus acquired pursuant to clause 11 the title to the racking which, on Wincanton's case, Link 51 lost on delivery.
29. In contrast, Mr Jamie Riley, who appears for Jenks, submitted that Wincanton did not make "full payment" for any "relevant part of the Wincanton Works". In this context, the "relevant part of the Wincanton Works" was, Mr Riley contended, the entirety of the work comprised in Jenks' contract with Link 51. That work was identified as a "part of the Wincanton Works" in Schedule 1 to Fit-Out Agreement. Moreover, the contract between Jenks and Link 51 provided for a single price (albeit payable by way of stage payments) for a composite project; there is, Mr Riley said, no basis for treating delivery of the racking as a separate part of the Wincanton Works. Wincanton not having met Link 51's third invoice, it did not make "full payment" for any "relevant part of the Wincanton Works" and so never acquired any title. In any event, Jenks was in no position to pass any title to Wincanton prior to the racking's installation as Link 51 remained its owner up to that point.

Clause 11 of the Fit-Out Agreement

30. It is plain enough that the parties envisaged that Wincanton would acquire title to the Wincanton Works to the extent that Jenks was able to confer it. What is less clear is at what point title was intended to pass to Wincanton. The answer must depend on the interpretation of clause 11 of the Fit-Out Agreement.
31. Guidance as to how a contract is to be interpreted is to be found in Investors Compensation Scheme Ltd v West Bromwich BS [1998] 1 WLR 896, at 912-913. The basic principle, as Lord Hoffmann there explained, is that "Interpretation is the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract".
32. In the present context, I do not think that any real assistance is to be gained by trying to assess what would have been commercially sensible. If Wincanton made a payment to Jenks in respect of goods without acquiring title to them, it ran the risk that Jenks would become insolvent before title was passed. If Jenks passed on title when it had not yet been fully paid for the goods, it was itself at risk. Neither possibility is inherently less plausible than the other.
33. What meaning, then, would clause 11 convey to a reasonable person? A first point is that, contrary to Mr McMeel's submission, I do not think a reasonable person would understand the proviso to the clause to require no more than that Wincanton should have no outstanding indebtedness to Jenks. The proviso stipulates that "full payment" should have been made for the relevant part of the Wincanton Works. The implication is that Wincanton should have funded the works in full, not just that nothing should at present be due from it.
34. The point can be illustrated by reference to Mr McMeel's forklift trucks example. Mr McMeel's construction of clause 11 would potentially involve Wincanton having made "full payment" for the trucks when it had paid nothing at all for them. I do not think such a result would be consistent with the language of clause 11 or, to put matters in a different way, that a reasonable person would so understand the clause. To my mind, Wincanton would not have made "full payment" for the trucks unless and until it had put Jenks in funds to pay the supplier for them in full. That title to the trucks might have passed to Jenks at an earlier stage, when Wincanton's liability to fund the purchase had not yet accrued, must be immaterial.
35. The next question is whether delivery of the racking constituted a "relevant part of the Wincanton Works" within the meaning of clause 11. If it did not, the fact that Wincanton did not fund the payment of Link 51's third invoice must (given my conclusions in the previous two paragraphs) be fatal to its claim. Wincanton's (wise, it would seem) decision to pay no more to Jenks means that it did not make "full payment" for the contract works as a whole. Nor can Wincanton be said to have made "full payment" for even the racking (as opposed to installation and transport), since the "Product price" (i.e. that for the racking itself) exceeded the total amount paid by Wincanton (see paragraphs 6 and 16 above).
36. On balance, I have concluded that delivery of the racking did not constitute a "relevant part of the Wincanton Works". Delivery is mentioned in the RFQ in the context of "payment terms". It was significant as the trigger for the payment of an instalment. It represented a stage in the performance of the contract, not a "relevant part of the Wincanton Works".
37. At the end of the day, however, I do not regard the point as crucial. I am inclined to agree with Mr Riley that the entirety of the work comprised in Jenks' contract with Link 51 represented the "relevant part of the Wincanton Works". Even, however, if the contract works can be subdivided into more than one "relevant part of the Wincanton Works", I cannot see how Wincanton could have acquired title to the racking without paying the "Product price" in its entirety. It would be inconsistent with the thrust of the proviso to clause 11 if Wincanton could acquire title to something for which it had not paid the full price. In other words, it would not avail Wincanton to establish that delivery amounted to a "relevant part of the Wincanton Works". It would remain the case that it had not made "full payment" for the part of the "Wincanton Works" to which it lays claim.
38. It follows that Wincanton's claim fails.

Title as between Link 51 and Jenks

39. The conclusions I have already arrived at mean that I do not strictly need to consider at what point (if any) Link 51 ceased to be the owner of the racking. In case the matter goes further, I shall briefly express some provisional views. I do so, however, without having been referred to any case law in this context. Argument on this aspect of the case was relatively brief.
40. In support of his argument that Jenks acquired title to the racking on delivery, Mr McMeel took me to section 18 of the Sale of Goods Act 1979. That lays down rules for "ascertaining the intention of the parties as to the time at which the property in the goods is to pass to the buyer". Mr McMeel relied particularly on Rule 5(2), which is in the following terms:

"Where, in pursuance of the contract, the seller delivers the goods to the buyer or to a carrier or other bailee or custodier … for the purpose of transmission to the buyer, and does not reserve the right of disposal, he is to be taken to have unconditionally appropriated the goods to the contract."

Mr McMeel argued that there was no evidence that Link 51 had reserved a "right of disposal" when it delivered the racking and that title had therefore passed at that point.

41. However, it seems to me that Jenks is unlikely to have acquired title to the racking before it was installed at the Site even if Link 51's retention of title clause is disregarded. My reasons include these:

i) Rule 5(2) is essentially concerned with delivery to the buyer (or an agent for the buyer). In the present case, it has not been established that the racking was delivered to the buyer (Jenks) in advance of its installation. Delivery to the Site did not obviously connote delivery to Jenks. Link 51 had yet to install the racking, and it is reasonable to suppose that it retained possession until it did so. Further, it is noteworthy that the RFQ provided for the second stage payment to be made "on delivery of materials to site" rather than on delivery to Jenks;

ii) in any case, the likelihood is, I think, that the Sale of Goods Act was not applicable as such. That Act applies, as its name implies, to "contracts of sale of goods". The contract between Jenks and Link 51 was not limited to the sale of goods, but included installation and other services. It would seem, therefore, to have been a contract for work and materials rather than a "contract of sale of goods". That conclusion is consistent with the fact that the formal contract between Jenks and Link 51 was intended to use the JCT Minor Works Contract form; and

iii) where a contract for work and materials involves the person employed attaching goods to property of the employer, title will commonly pass at that point: see e.g. Tripp v Armitage (1839) 4 M & W 687 and Palmer and McKendrick (editors), "Interests in Goods", 2^nd edition, at 359-360.

Conclusion

42. I shall dismiss Wincanton's claim.