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Case No: QBENF 1999/0456/3
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM QUEEN'S BENCH DIVISION
LIVERPOOL DISTRICT REGISTRY
His Honour Judge Kershaw QC
Royal Courts of Justice
Strand, London, WC2A 2LL
Date:
31st
July 2000
B e f o r e :
LORD JUSTICE PILL
LORD JUSTICE CLARKE
and
MR JUSTICE BENNETT
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|
MICHAEL
GERSON (LEASING) LIMITED
|
Claimant/
Appellant
|
|
-
and -
|
|
|
(1)
MICHAEL WILKINSON
(2) STATE SECURITIES LIMITED
|
Defendants/
Respondents
|
- - - - - - - - - - - - - - - - - - - - -
(Transcript of the Handed Down Judgment of
Smith Bernal Reporting Limited, 190 Fleet Street
London EC4A 2AG
Tel No: 020 7421 4040, Fax No: 020 7831 8838
Official Shorthand Writers to the Court)
- - - - - - - - - - - - - - - - - - - - -
Sir Roy Goode QC and Mr Peter J Goodbody (instructed by Hill Dickinson
appeared for the Claimant/Appellant)
Mr Paul Chaisty (instructed by Apfel Carter appeared for the first
Defendant/Respondent)
Mr Michael Lerego QC and Miss Linden Ife (instructed by Lester Aldridge
appeared for the second Defendant/Respondent)
- - - - - - - - - - - - - - - - - - - - -
Judgment
As Approved by the Court
Crown Copyright ©
LORD JUSTICE CLARKE:
Introduction
1. This is an appeal by the claimant ("Gerson") from an order of His Honour
Judge Kershaw QC made on the 17th December 1998 in the Mercantile
List of the Liverpool District Registry in which he dismissed Gerson's claim
for damages for conversion against both defendants ("Wilkinson" and "State").
The dispute relates to the ownership of various items of heavy plant and
machinery. Gerson and State are both finance companies who both purchased the
same equipment from a company called Emshelf IX Limited ("Emshelf").
2. On the 10th March 1995 Emshelf sold equipment to Gerson for about
£425,000 under a sale and leaseback agreement under which Emshelf remained
in physical possession of it. I shall call that equipment "the goods".
Subsequently, without the authority of Gerson, on the 19th August
1996 Emshelf sold part of the same equipment to State, also under a sale and
leaseback agreement. I shall call that equipment "the schedule 3 goods"
because it is identified in schedule 3 of the statement of claim and has been
so described in the course of the argument. All the goods including the
schedule 3 goods remained in the physical possession of Emshelf. The judge
held that the effect of that transaction was that State became the owner of the
schedule 3 goods by reason of section 24 of the Sale of Goods Act 1979. Gerson
challenges that conclusion on this appeal. There was no suggestion at the
trial that State was aware that Emshelf did or might not own the schedule 3
goods.
3. Emshelf did not maintain the payments due under the lease from Gerson. As a
result, on the 25th February 1997 Gerson terminated the lease.
No-one suggests that it was not entitled to do so. The judge held that on the
28th February 1997 Gerson sold the goods for £319,000 to
Sagebush (1997) Limited ("Sagebush"), which was represented at that time by Mr
Nigel Smith. Gerson challenges that finding, which is essentially a finding of
fact. The judge further held that property in the goods passed to Sagebush
when the contract was made. Gerson challenges that conclusion too, saying that
if (contrary to its case) a contract was made on the 28th February,
the property in the goods was only to pass to Sagebush on payment and that, it
being common ground that Sagebush did not at any stage pay for the goods, the
property in them never passed to Sagebush.
4. The judge further held that if Sagebush agreed to buy the goods from Gerson
but, contrary to that conclusion, property in the goods did not pass to
Sagebush under the contract, Sagebush nevertheless obtained possession of the
goods under the contract with the consent of Gerson as the seller and
subsequently passed a good title to Wilkinson by reason of section 25 of the
Sale of Goods Act 1979. Gerson challenges both those conclusions. It submits
that Sagebush was at no stage in possession of the goods, whether under a
contract of sale with Gerson or at all and that, even if it was, it was not in
possession of the goods with Gerson's consent.
5. On the 4th March 1997 State terminated the lease with Emshelf for
non-payment of instalments due under it and at about the same time it sold the
schedule 3 goods to Sagebush, which in turn sold all the goods to Wilkinson on
various dates between the 3rd and the 12th March. There
is no suggestion Wilkinson was other than an entirely innocent buyer.
6. It is not necessary to spell out in detail the precise arrangements to which
Wilkinson was a party for this reason. It is I think agreed that if Sagebush
bought all the goods from Gerson and the property in them passed to Sagebush,
the sale or sales of the goods to Wilkinson passed the property to him. It is
further agreed that if there was a contract between Gerson and Sagebush and, if
Sagebush obtained possession of the goods under that contract with the consent
of Gerson, the subsequent sales to Wilkinson had the effect of passing the
property to him under section 25 of the 1979 Act. On the other hand, if
Wilkinson did not obtain a good title by one of those routes, it is, as I
understand it, common ground that, if State obtained a good title to the
schedule 3 goods, that title was passed to Wilkinson through Sagebush. In that
event Wilkinson would be liable to Gerson for conversion in respects of the the
goods other than the schedule 3 goods.
7. The issues in the appeal may be considered under three headings, namely
section 24 of the Sale of Goods Act 1979, the contract between Gerson and
Sagebush and section 25 of the 1979 Act. I shall consider them in turn.
Section 24 of the Sale of Goods Act 1979
8. Section 24 of the 1979 Act provides, so far as relevant:
"Where a person having sold goods continues or is in possession of the
goods, or of the documents of title to the goods, the delivery or transfer by
that person ... of the goods or document of title under any sale ... to any
person receiving the same in good faith and without notice of the previous
sale, has the same effect as if the person making the delivery or transfer were
expressly authorised by the owner of the goods to make the same.
State's case is that Emshelf was a person who sold goods and continued in
possession of goods because it sold goods to Gerson and retained possession of
them and that Emshelf later delivered the goods to State under a contract of
sale with State, who received them in good faith without notice of the sale to
Gerson.
9. It is not in dispute that Emshelf sold the goods to Gerson and remained in
possession of them under the sale and leaseback agreement. Nor is it in
dispute that on the evidence available at the trial, if State received the
goods, it did so in good faith and without notice of the sale to Gerson. The
issue between the parties is whether Emshelf delivered the goods to State under
a sale. This is a crucial point because, subject to an application on the part
of Gerson to adduce further evidence, to which I shall return in due course, it
is common ground that if Emshelf did deliver the schedule 3 goods to State
under a sale, State obtained good title to them and subsequently passed it to
Wilkinson, with the consequence that neither State nor Wilkinson converted
those goods.
10. Before considering the meaning of delivery in section 24 I should note that
State at one time said that it would contend that there was a relevant transfer
within the meaning of the section, but Mr Lerego QC abandoned that suggestion
on behalf of State in the course of the argument. As to delivery, Sir Roy
Goode QC expressly accepted on behalf of Gerson, at least for purpose of this
appeal, that delivery in section 24 includes constructive delivery and that it
is not confined to physical delivery. In my view (albeit expressed obiter
because neither point was argued) both concessions were correctly made. They
accord with the decision of the High Court of Australia in Gamer's Motor
Centre (Newcastle) Proprietary Limited v Natwest Wholesale Australia
Proprietary Limited (1987) 163 CLR 236, which I followed at first instance
in Forsythe International (UK) Limited v Silver Shipping Co Limited
[1994] 1 WLR 1334.
11. It is thus common ground for the purposes of this appeal that delivery can
be constructive, although delivery under the section requires a voluntary act
by the person in possession because by section 61(1) of the 1979 Act, unless
the context or subject matter otherwise requires, `delivery' means `voluntary
transfer from one person to another'. That was an essential part of the
decision in Forsythe, which I understood to be accepted by both Sir Roy
and Mr Lerego. Whether there was constructive delivery here depends upon what
is meant by constructive delivery and whether there was such delivery on the
facts.
12. In the 5th edition of his work entitled Sale of Goods Act
1893, which was published in 1902, Chalmers said this:
"Delivery may be actual or constructive. Delivery is constructive when
it is effected without any change in the actual possession of the thing
delivered, as in the case of delivery by attornment or symbolic delivery.
Delivery by attornment may take place in three classes of cases. First, the
seller may be in possession of the goods, but after sale he may attorn to the
buyer and continue to hold the goods as his bailee. Secondly, the goods may be
in the possession of the buyer before sale, but after sale he may hold them on
his own account. Thirdly, the goods may be in the possession of a third
person, as bailee for the seller. After sale such third person may attorn to
the buyer and continue to hold them as his bailee".
That passage was discussed in both Gamer's case and Forsythe (see
eg pages 245 and 1346 respectively). In Gamer's case the question for
decision was whether there was a change in the character of the relevant
possession which amounted to a constructive delivery to a third party, namely
Natwest. In Forsythe one of the questions was essentially the same,
although the facts were of course different.
13. Both Sir Roy and Mr Lerego submitted that the instant case is on all fours
with Gamer's case and indeed Forsythe. However, in my judgment
it is not. In both those cases the constructive possession being considered
was the kind of possession envisaged by section 1(2) of the Factors Act 1889,
which provides so far as relevant:
"For the purposes of this Act ... (2) A person shall be deemed to be in
possession of goods or of documents of title to goods where the goods or
documents are in his actual custody or are held by any other person subject to
his control or for him or on his behalf".
In Forsythe I held, consistently with Gamer's case, that
possession within the meaning of section1(2) of the Factors Act would also be
possession within the meaning of section 24 of the Sale of Goods Act 1979 and
that on the facts the charterers were in possession of bunkers after the
determination of a charterparty because from that time the owners were holding
them subject to the charterers' control or on their behalf : see page 1344D to
E and the discussion of the relevance of the Factors Act at pages 1344E to
1345C.
14. There was considerable debate during the course of the first part of the
argument in this appeal as to whether on the facts of Gamer's case the
dealer was holding the cars on behalf of and subject to the control of Natwest.
Sir Roy submitted that it was whereas Mr Lerego submitted that it was not.
Before the end of the argument it was ascertained that the dealer was indeed
holding the cars on behalf of and subject to the control of Natwest because the
report of the case in the Court of Appeal of the Supreme Court of New South
Wales in [1985] 3 NSWLR 475 shows that the contract between the dealer and
Natwest (then Lombard) included an express provision that Lombank or its
authorised agents `may at any time take possession of any unit without notice'.
When that report came to light Mr Lerego properly conceded that Natwest was in
constructive possession of the cars which were in the actual custody of the
dealer because of the control exercised by Natwest under the contract.
15. Mr Lerego submitted that the majority of High Court did not put their
decision on that basis because none of the judges referred to the clause, but
in my judgment that was the basis of the decision: see for example per Dawson J
at page 263. In these circumstances I do not think that it is necessary to
consider the facts of either Gamer's case or Forsythe in any
detail. They were both cases where A was held to be in possession of property
in the actual custody of B because of the nature and extent of the control
which A exerted over the property. The instant case is not such a case, at any
rate after the leaseback by State to Emshelf. Thereafter Emshelf was holding
the schedule 3 goods in its own right as lessee of State. State had no control
over the goods at that time. It was not in the same position as Nat West in
Gamer's case or of the charterers in Forsythe.
16. As I see it the analysis here is somewhat different. The way in which
State puts its case can be summarised as follows, by reference (at least in
part) to a helpful note supplied by Mr Lerego.
(i) Emshelf sold the schedule 3 goods to State, which leased them back to
Emshelf under a contract of hire, which is a form of bailment.
(ii) State could not lease the schedule 3 goods to Emshelf unless it both owned
them and was entitled to possession of them.
(iii) State's ownership of the goods was expressly recognised by clause 4 of
the lease.
(iv) State's right to possession and thus to transfer possession to Emshelf was
either an express term of the lease or was an implied term of it by reason of
section 7 of the Supply of Goods and Services Act 1982.
(v) State could only discharge its obligation to transfer possession of the
schedule 3 goods to Emshelf under the lease if there was a delivery, albeit
constructive, by Emshelf to State.
Mr Lerego submits that constructive delivery of that kind is recognised by both
the textbooks and the authorities.
17. I accept Mr Lerego's analysis of the facts. The precise contractual
position is not entirely clear but it is sufficient to enable reasonably firm
conclusions to be reached on the critical questions. It is common ground that
the sale of the schedule 3 goods by Emshelf to State and the leaseback by State
to Emshelf were both part of one transaction. Thus the sale would not have
taken place without the leaseback and the leaseback could not of course have
occurred without the sale.
18. There is no clear evidence of the sale, which is evidenced only by an
invoice dated the 19th August 1996 and the agreement by way of
leaseback which is signed by both parties and dated the 28th August
1996. The invoice simply states that the buyer is State and that the seller is
Emshelf and sets out the nature of the goods and the price, which was
£168,025 inclusive of VAT. State only paid the price on signature by
Emshelf of the lease. The lease is between Emshelf as lessee and State as
lessor. On the first page of the lease there are set out the period of hire
and the rent and in a box just above the signatures of two directors on behalf
of Emshelf, Emshelf stated:
"We wish to hire the goods for the purpose of a business carried on by us and
request you to buy the goods from the supplier named above for this purpose.
We did not rely on your judgment but relied on our own judgment in selecting
the goods. We understand we are responsible for taking delivery of the goods on
the date of this Agreement. We shall accept delivery of the goods at the
address shown above and we shall carefully examine and test the goods before
accepting them and establish that they are suitable for our purposes.
Mr Lerego points to the fact that Emshelf was promising to take delivery of the
schedule 3 goods. I accept his submission that such delivery could only be
taken from State and, moreover, that State would only have the right to deliver
them to Emshelf if Emshelf had (at least notionally, symbolically or
constructively) delivered them to State.
19. There are other terms of the lease which confirm that view. Thus the
agreement is expressed to be a leasing agreement and expressly provides for a
hiring which by clause 1a is expressed to commence on the date that the lease
is signed. Clause 2 sets out the lessee's responsibilities in detail and
includes, for example, in clause 2h a term that the leasee shall:
"Not assign sub-let pledge mortgage charge or sell the goods or any part
thereof nor abandon or part with possession or the control of the goods or any
part thereof or the benefit of this agreement or attempt to do such things nor
allow any other person or persons to obtain any lean or charge upon the goods
or allow to be done any other thing which in State Securities opinion may
prejudice or jeopardise its rights of ownership thereto.
Clause 4 provides:
"the goods shall all times remain the property of State Securities and nothing
herein contained or otherwise communicated to the leasee in writing or orally
shall be construed to imply that ownership of the goods will or may pass under
any circumstances to the Lessee
RISK IN THE GOODS WILL PASS TO THE LEASEE ON THE DATE OF THIS AGREEMENT".
The agreement contains a number of provisions which are typical in a lease.
20. In my judgment the lease is consistent only with ownership of the schedule
3 goods by State and with a right of possession in State sufficient to transfer
possession to Emshelf under the lease. That is explicit or implicit in the
terms of the lease. In any event section 7(1) of the Supply of Goods and
Services Act 1982 provides:
"In a contract for the hire of goods there is an implied condition on the part
of the bylaw that in the case of a bailment he has a right to transfer
possession of the goods by way of hire for the period of the bailment and in
the case of an agreement to bail he will have such a right at the time of the
bailment".
By section 11(1) that implied term can be negatived or varied by express
agreement, or by the course of dealing between the parties or by such usage as
binds both parties to the contract. However, no such express agreement, course
of dealing or usage has been suggested in this case. It follows that State had
a right to transfer possession to Emshelf.
21. The question is whether in these circumstances there was constructive
delivery of the schedule 3 goods by Emshelf to State so that State could
deliver them to Emshelf under the lease. Mr Lerego submits that there was just
such a constructive or (as it is sometimes put) symbolic delivery and relies
upon statements both in textbooks and in the authorities.
22. As to the textbooks, he relies in the first place upon An Essay on
Possession in the Common Law by Pollock and Wright published in 1888. In
section 7 of chapter II beginning at page 71 Pollock & Wright discuss
`Delivery of goods by attornment'. At pages 72-3 they say this:
"The authorities both on acceptance and actual receipt within the
Statute of Frauds and on the rights of unpaid vendors show that in several ways
there may be a change of possession without any change of the actual custody.
Such a change of possession is commonly spoken of as constructive delivery.
1. A seller in possession may assent to hold the thing sold on account of the
buyer. When he begins so to hold it, this has the same effect as a physical
delivery to the buyer or his servant, and is an actual receipt by the buyer;
and this whether the vendor's custody is in the character of a bailee for
reward or of a borrower. The important thing is his recognition of the
purchaser's right to possess as owner, and his continuing to hold the goods
either as the purchaser's servant or as his bailee with a possession derived
from that right. On the other hand, acts of the buyer which treat the seller
as his agent or bailee are evidence of receipt and acceptance as against the
buyer: though payment of warehouse rent, for example, to an unpaid vendor
retaining the custody of the goods is far from conclusive to show that he has
lost possession and his lien. Accordingly as the seller holds as servant or
bailee, the transaction amounts to simple delivery, or to deliver to the buyer
immediately followed by redelivery to the seller as bailee.
2. Possession may be delivered, while the goods are in the custody of a third
person, by the agreement of the seller and buyer, with the assent of that
person, that they shall be held in the name or on account of the buyer. This
is described by the modern authorities as an `agreement of attornment.'
...
3. Lastly, it is a possible though not very common case that the buyer is in
possession of the goods as the seller's bailee."
23. Mr Lerego submits that the facts here are essentially those contemplated in
paragraph 1 of that extract. He also relies upon the following statement in
paragraph 8-170 of the 16th edition of Bowstead & Reynolds on
Agency:
"Attornment. An attornment in respect of goods occurs where the
possessor of goods, whether himself the transferor or the bailee of the
transferor, acknowledges that he holds, and possesses, for another. There is
authority that such an attornment creates a fresh bailment by means of a
constructive delivery and redelivery.
24. As to the authorities, Mr Lerego relies in particular upon Marvin v
Wallace (1856) 25 LJQB 369, which is cited by Pollock & Wright and upon
Dublin City Distillers Limited v Doherty [1914] AC 823, 852, which is
the first authority cited by Bowstead in the above passage.
25. In Marvin v Wallace the question was whether the buyer of a horse
had received it for the purposes of compliance with section 17 of the Statute
of Frauds 1677. The seller sold the horse to the buyer and then, after that
contract had been made, asked the buyer if he could borrow it for a time. The
buyer said that he could, provided that he took care of it. As I read the
facts, the loan was to be for a specific period, so that it was not a bailment
at will. The horse remained in the physical possession of the seller. The
question was whether the buyer had received the horse. It was held that he
had. Coleridge J said (at page 370):
"The 17th section of the Statute of Frauds requires an actual
receipt of the goods, which implies a delivery of the goods on the one hand and
an acceptance of the goods on the other hand. It is admitted that, if for one
minute they are in the actual visible possession of the vendee, as vendee, it
would be sufficient; also; it must be admitted, that if they were in the
possession of a third party, for and on behalf of the vendee, the statute would
be satisfied. But it is contended that, unless some act was done entirely
unambiguous, indicating a change of possession, the question as to the
intention of the vendee to accept cannot arise. The jury have found that the
bargain for the purchase of the horse was complete, and then the vendor asked
the vendee as a favour to lend the horse to him for a certain time and special
purpose: the vendee said, "Yes", I will lend him to you, if you will take care
of him"; and in consequence of that the vendor retained apparent possession of
the horse and made use of it as bailee, and at the end of the time agreed upon
returned it to the vendee. It appears to me that the statute has been
satisfied. Try the case on the first point, whether there has been a
sufficient delivery. Elmore v Stone furnishes an answer: there the
horse was passed from one stable of the vendor to another stable of a different
character. Though the vendor had as much possession of the horse when in the
one as in the other, the character in which he held it was changed. Here,
though the defendant had the same apparent possession of the horse, the
evidence shews that the character of the possession was entirely changed. He
ceased to hold it as owner, and continued to hold it only as bailee. As to the
question, whether the right of lien has been retained by the vendor, it is only
a consequence of the other point. If the bargain is complete, and the
possession has passed, the right of lien is gone; and if not, it is retained.
I think, therefore, that question cannot be used as a test of the character of
the possession.
Erle J, Crompton J and Lord Campbell CJ gave judgments to similar effect.
26. The crucial point for present purposes is that the court treated the horse
as having been delivered to the buyer. The delivery occurred because the buyer
loaned the horse to the seller and the seller acknowledged that he was holding
the horse, not as seller, but as bailee. Erle J put it in this way, at page
371:
"There must be an actual contract of purchase and sale; and then, if the buyer
exercises any act of ownership, though by words only, inconsistent with any
other supposition than that he intended to assume dominion over the chattel as
owner, he has accepted and actually received it within the meaning of the
statute. Applying that doctrine to the facts of this case, according to the
finding of the jury, the defendant, as owner in possession of the horse,
permitted the plaintiff to take and ride it for two or three journeys. That is
a decided transmutation of possession, and so the plaintiff's lien was gone,
and the requirements of the Statute of Frauds complied with.
27. The passage from the Dublin City Distillers' case relied upon by
Bowstead is in the speech of Lord Parker at page 852:
"The respondent contends that these documents operate by way of pledge. It is
quite certain that at common law a pledge cannot be created unless possession
of the goods the subject of the pledge be delivered to the pledgee. When the
goods in question are in the actual possession of the pledger, possession of
them is, as a rule, given to the pledgee by actual delivery of the goods
themselves. There are, however, cases in which possession may pass without
actual delivery, for example, whenever there is some agreement between the
parties the effect of which is to change the possession of the pledger from a
possession on his own account as owner into possession as bailee for the
pledgee: see Meyerstein v Barber LR 2 CP 38. Such an agreement operates
as a delivery of the goods to the pledgee and a redelivery of the goods by the
pledgee to the pledger as bailee for the purposes mentioned in the agreement.
A mere book entry cannot, however, have that effect.
28. In my judgment the legal position is as set out by both Pollock &
Wright and Bowstead. Thus, where a seller in possession of the goods sold
acknowledges that he is holding the goods on account of the buyer in
circumstances where (as Pollock & Wright put it at page 72) he recognises
the purchaser's right to possess as owner and his continuing to hold the goods
thereafter as the bailee with a possession derived from that right, then (as
Pollock & Wright put it at page 73) the transaction amounts to delivery to
the buyer immediately followed by redelivery to the seller as bailee and that
is so whether the seller's custody is `in the character of a bailee for reward
or of a borrower'. There is a change of the character of the seller's
possession when he holds the goods for the buyer and, indeed, when he
subsequently becomes, say, the bailee from the buyer for reward.
29. Mr Lerego submits that an application of those principles establishes a
delivery by Emshelf to State and a redelivery by State to Emshelf. Sir Roy
Goode, on the other hand, submits that the facts of this case are
distinguishable from those in Marvin v Wallace because in that case the
contract of sale was made before the horse was loaned to the seller whereas
here the sale and leaseback were all part of one agreement. He further submits
that there was no acknowledgment here by Emshelf of State's right of possession
of the schedule 3 goods and no sufficient voluntary act of delivery by Emshelf
to State. As he put it in argument, there was no time at which State could
instruct Emshelf what to do with the goods and thus no time at which State
could decide whether or not to lease the goods to Emshelf. For example, State
could not at any stage have instructed Emshelf to deliver the goods to it or to
a third party on its behalf.
30. It is true that there was no identifiable moment at which State could have
given those instructions. However I prefer the submissions of Mr Lerego to
those of Sir Roy on this point. I do not think that it is necessary to
identify a moment at which the goods were delivered to State by Emshelf. The
effect of the sale and leaseback arrangement was that the goods must be taken
to have been delivered to State because State could not otherwise have leased
them back to Emshelf. Although on the facts of Marvin v Wallace the
loan arrangement was made after the contract of sale, I do not think that in
principle it would or should have made any difference if the sale agreement and
the bailment had been contained in the same contract. I can see no reason why
it should be held that there was a delivery and redelivery in the one case and
not in the other.
31. Equally it seems to me that there was here an acknowledgment by Emshelf
that it held the goods on behalf of State in the lease itself. I have already
set out the relevant facts. The terms of the lease are consistent only with
such an acknowledgment, since (as I have already stated) State would not
otherwise have been able to lease the goods back to Emshelf. The principles
set out above therefore seem to me to establish that there was a delivery and a
redelivery on the facts here.
32. Sir Roy submits that there was no voluntary act of transfer and that
State's case fails for that reason, as the owners' case failed in
Forsythe. However, it seems to me that the making of the agreement for
sale and the entering into of the lease was a sufficient voluntary act on the
part of Emshelf to satisfy the requirement in section 61(1) of the Sale of
Goods Act 1979 that in order to amount to `delivery' there must be a voluntary
transfer of possession from one person to another.
33. Finally Sir Roy submits I think that the effect of the above analysis is to
hold that State had possession in circumstances in which it would not have
possession under section 1(2) of the Factors Act 1889. He further submits that
if it would not have possession under that Act it should not be held to have
received the goods within the meaning of section 24 of the Sale of Goods Act
1979. It is true that there are a number of cases in which it has been held
that for many purposes the Factors Act 1889 and the Sale of Goods Act 1893 and
its replacements should be treated as a code: see for example the discussion in
Forsythe at pages 1344E to 1345B.
34. I am, however, unable to accept the submission that unless State's
possession was possession within the meaning of section 1(2) of the Factors Act
1889 it cannot have received the goods within the meaning of section 14 of the
1979 Act. While such possession is sufficient to amount to receipt, the buyer
can in my opinion receive the goods in the way which I have described. It
seems to me that such receipt probably amounts to possession by State within
the meaning of section 1(2) because, in order to lease them from State, Emshelf
must have held the goods for State or on its behalf, albeit symbolically.
However, if that is wrong, there was nevertheless a delivery and redelivery of
the goods sufficient to amount to receipt of them by State.
35. Although the Factors Acts and the Sale of Goods Acts can for some purposes
be regarded as part of a code, the definition in section 1(2) was not
incorporated into the Sale of Goods Act 1893. As Mr Lerego pointed out,
section 1(2) is expressed to be `for the purposes of this Act', that is the
Factors Act 1889. Moreover, while the provisions of section 1(2) were not
expressly incorporated into the Sale of Goods Acts, the provisions of section
1(1) were. Thus section 26 of what is now the Sale of Goods Act 1979 defines
`mercantile agent' in the same terms as section 1(1) of the 1889 Act. In these
circumstances I do not think that the question whether a buyer has received
goods within the meaning of section 24 depends wholly upon whether he is in
possession of the goods within the meaning of section 1(2) of the Factors Act
1889.
36. Finally, it seems to me that the conclusions set out above make sense in
modern conditions. This and other cases show that purchase of goods is
commonly financed by sale and leaseback arrangements such as those entered into
by both Gerson and State in the instant case. It seems to me that it makes
commercial sense to hold that such arrangements involve a transfer of
constructive possession to the finance company who buys the goods and leases
them back, such that the innocent finance company can take advantage of the
provisions of section 24 of the 1979 Act. The distinctions suggested on behalf
of Gerson seem to me to be too narrow to make commercial sense.
37. For all these reasons I would hold that, on the evidence before the judge,
Emshelf delivered the schedule 3 goods to State under a sale and that State
received them in good faith and without notice of the sale from Emshelf to
Gerson. It follows that State acquired good title to the schedule 3 goods
under section 24 of the Sale of Goods Act 1979 and that it is not liable for
conversion. I would dismiss the appeal on this point.
Contract between Gerson and Sagebush.
38. The judge held that Gerson sold all the goods to Sagebush on the
28th February 1997. He held that Gerson offered to sell the goods
by a fax dated the 27th February and that the offer was accepted by
a reply fax of the next day. Those faxes must of course be considered in their
context but, before considering the surrounding circumstances, it is
appropriate to quote the faxes. The fax of the 27th February was
sent by Mr Gerson of Gerson to Mr Smith of Sagebush; It was in these terms:
"I have spoken to Ken Grieg and am satisfied that they have no objection to a
sale of the equipment leased to Emshelf even if the sale price appears to
represent an apparent undervalue.
Accordingly I am willing to make an outright sale for £319,000 plus
VAT.
This figure is made up of £269,000 (259,000 plus £10,000 interest as
per termination statement) plus £50,000 (retention of 5% of sale proceeds
under sales agency agreement under original lease based on estimated true
market value of £1m.
Sagebush replied by fax on the next day in these terms:
"With reference to our various telephone consultations and your penultimate
fax of yesterday.
Pleas supply an invoice in the sum of £319,000 plus VAT to Sagebush (1997)
LTD in consideration of all that plant and equipment which was the subject of
your terminated lease agreement with Elmshelf LTD.
Many thanks for your assistance in this matter.
39. The context in which those faxes came to be sent may be summarised as
follows. As the judge explained, by the beginning of 1997 the payments due
from Emshelf under the lease with Gerson were seriously in arrears. Mr Gerson
had a meeting with Mr Joseph Hayes, whom he believed to be an adviser to and
spokesman for Mr Greig, who was both a director of Emshelf and one of the
guarantors of Emshelf's obligations under the lease. Mr Gerson also believed
Mr Hayes to be a shadow director of Emshelf. Mr Hayes told Mr Gerson that
there was an investor on the horizon who was interested in taking over Mr
Greig's companies and investing money in them. Gerson terminated the lease on
the 25th February 1997. Very soon after that Mr Smith telephoned Mr
Gerson and introduced himself. Mr Gerson checked with Mr Greig and Ms Bean
(who was also a director of Emshelf and the other guarantor of its obligations
under the lease) whether Mr Smith was the person intending to put money into
Emshelf and obtained their approval to a sale to Mr Smith or Sagebush
Limited.
40. It was in these circumstances that Mr Gerson sent the fax of the
27th February to Mr Smith which I have quoted above. The goods were
thought to be worth much more than the £319,000 plus VAT which Mr Gerson
proposed to Mr Smith, but the amount outstanding on the lease, inclusive of all
charges and VAT, as at the 25th February was £314,574.39. It
was at least partly because of the potential difference between those figures
and the figure of £1 million which the goods were said to be worth that Mr
Gerson obtained the consent of Mr Greig and Ms Bean first to discuss with Mr
Smith of Sagebush Limited the details of the lease and of the goods and then to
make an arrangement with Mr Smith.
41. There is no evidence that there was any more extensive conversation between
Mr Gerson and Mr Smith than as found by the judge and as described above. Thus
Mr Gerson did not enquire of Mr Smith as to his or Sagebush's financial
position. Nor did he carry out any investigation as to their creditworthiness.
Moreover, he did not know whether Mr Smith had seen the goods and he did not
provide him with a schedule of them. He had never done business with Mr Smith
before.
42. In these circumstances Sir Roy Goode submits that it is almost
inconceivable that Mr Gerson, as an experienced businessman, would have made an
offer to sell the goods outright to Mr Smith on such terms that there would be
a binding contract between them. He also says that Mr Gerson would certainly
not have done so on the basis that property in the goods would pass to Mr Smith
or his company immediately on acceptance and before the goods were paid for.
Sir Roy further submits that it is equally inconceivable that Mr Smith would
have agreed to buy and pay for the goods before he had made appropriate
financial arrangements. Finally he submits that it is permissible to take
these factors into account in deciding whether the faxes relied upon establish
a contract between the parties.
43. I accept Sir Roy's submission that it is permissible to take account of the
probabilities in deciding that question. I further accept his submissions as
to the position of Mr Gerson. It does seem to me to be most unlikely that when
he sent his fax of the 27th February he intended that an acceptance
of it would lead to a binding contract, but, even if that is wrong, it is, in
my judgment inconceivable that he intended that the property in the goods
should pass by an acceptance of it. The position of Mr Smith is less clear.
It is I suppose possible that he would have been willing to buy the goods
without having finance in place because of the perceived difference between the
price and the true values of the goods, but it seems more likely that he would
have wanted to make financial arrangements to enable him to pay for them before
committing himself or his company to do so.
44. All of course depends upon the true construction of the two faxes, together
in principle with what was said in the telephone conversations and, perhaps,
the last fax sent on the 27th February. Such a fax is referred to
by inference in the fax of the 28th February quoted above because of
the reference in it to "your penultimate fax of yesterday". Mr Gerson gave
oral evidence but Mr Smith did not. Mr Gerson said in evidence that he had no
knowledge of another fax sent on the 27th February and that he did
not know what document was being referred to. Also he gave no evidence about
the telephone conversations which were also referred to in the fax. We do not
of course know what Mr Smith might have said if he had been called.
45. If the problem is approached as one of offer and acceptance, the first
question is whether the fax of the 27th February is an offer which
was capable of acceptance. In the light of the considerations outlined above,
I would not hold that it was an offer which was intended to be accepted. It
simply says that "I am willing to make an outright sale for £319,000 plus
VAT". It is not couched in the terms of an offer and seems to me to be
consistent with being an invitation to treat. However I recognise that it is
capable of being regarded as an offer, in which case the next question is
whether the fax of the next day was an acceptance. This is not an easy
question to answer without any knowledge of the contents of either the
telephone conversations or the other fax referred to in the reply fax.
46. The reply fax is not couched in terms of acceptance, but merely asks for an
invoice. Also it was sent by Sagebush (1997) Limited and I am not sure that
until then Gerson had any knowledge of such a company. However that may be,
the fax can to my mind only be construed as an acceptance if the request for an
invoice is an unequivocal acceptance of Gerson's offer to sell for
£319,000 plus VAT and that it is a promise to pay that sum for whatever
plant and equipment was the subject of the lease. I do not think that it is.
It seems to me to be consistent simply with a request for an invoice setting
out the relevant plant and equipment so that Sagebush could make financial
arrangements to pay it, no doubt on the basis that if such arrangements were
made the deal would become firm.
47. The contrary view is that the request for an invoice is consistent only
with a promise to pay it. I do not think that the mere request for an invoice
without any other evidence of agreement, whether by telephone or otherwise,
amounts to an unequivocal acceptance. By way of example, I note that it is by
no means clear that the invoice dated the 19th August 1986 form
State to Emshelf is evidence of a binding agreement between them. On the
contrary it appears to me to be probable that, notwithstanding the invoice,
there was no binding agreement of sale and leaseback between Emshelf and State
until the lease was signed on the 28th August. In these
circumstances, if the reply fax is construed in its context and in the light of
the surrounding circumstances which I described earlier, I do not think that it
can fairly be regarded as an acceptance of an offer to sell the goods for
£319,000 plus VAT. I have thus far reached that view on the basis of the
events prior receipt by Gerson of the reply fax.
48. If, contrary to that view, the effect of the reply fax was to bring into
existence a binding contract for the sale and purchase of the goods for
£319,000 plus VAT, the next question is when the parties intended the
property in the goods to pass. The judge held that there was an agreement on
the 28th February and that the property passed when the contract was
made. By section 17(1) of the Sale of Goods Act 1979, where there is a
contract for the sale of specific or ascertained goods, the property passes
when the parties intended it to pass and, by section 17(2), for the purposes of
ascertaining the intention of the parties, regard shall be had to the terms of
the contract, the conduct of the parties and the circumstances of the case.
However, section 18 provides:
"Unless a different intention appears, the following are rules for
ascertaining the intention of the parties as to the time at which the property
is to pass to the buyer.
Rule 1 - Where there is an unconditional contract for the sale of specific
goods, in a deliverable state, the property in the goods passes to the buyer
when the contract is made, and it is immaterial whether the time of payment or
the time of delivery, or both, be postponed."
49. On the assumption that a contract was made on the 28th February,
the question is thus when the parties intended the property to pass taking
account of the circumstances set out in section 17(2) and whether a different
intention appears from that set out in section 18 rule 1. In my judgment a
different intention does appear. It appears from all the circumstances of the
case, even if attention is confined to events before the receipt by Gerson of
the reply fax of the 28th February. It is to my mind inconceivable
that Gerson intended to pass the property to Sagebush before it was paid.
Moreover I do not think that Mr Smith can have thought otherwise. It is
noteworthy in this regard that neither of the faxes contains a provision as to
when delivery should take place. That seems to me to be a pointer to the
absence of a contract, but if there was a contract, it is a strong pointer to
the parties' intentions as to when property was to pass. No-one would have
contemplated that immediately after sending the fax of the 28th
February Sagebush was entitled to delivery of the goods without paying for
them.
50. Assuming that it is permissible to take account of subsequent events in
order to determine what the intentions of the parties were on the
28th February (which, although it is not necessary to decide the
point for the purposes of deciding this appeal, to my mind it is), my
conclusion is the same. Indeed, it is strengthened. Immediately after receipt
of the reply fax Mr Rolls of Gerson faxed Mr Smith at Sagebush as follows:
"Emshelf IX Limited
Further to your fax of earlier this afternoon please find attached a copy of
our invoice to yourselves for the sale of the plant and equipment formally
subject to our lease agreement with the above.
The original invoice will be in the post for you tonight."
The invoice stated "Sale of second hand plant as declared in the attached
schedule. As seen and approved for the agreed sum" of £319,000 plus VAT
of £55,825.00 making a total of £374,825.00. Underneath was written
"Title to this equipment will pass only upon payment of this invoice."
Attached to the fax and the invoice were several pages on which the goods were
set out in a schedule.
51. It is plain from that invoice, which was sent almost immediately after
receipt of the reply fax, that it was Gerson's intention that property in the
goods should not pass until payment, as I would have expected. It is
inconceivable that that was not also his intention both when he sent the fax of
the day before and when he received the reply fax. It is in my opinion almost
certain that that was also the intention and understanding of Mr Smith, not
only because that is what one would expect, but because subsequently, after the
dispute arose he produced an invoice which had been doctored to remove the
statement that title would pass only on payment. The judge held that that had
been achieved by what he called skilful use of the photocopier. In the absence
of any explanation from Mr Smith it is a reasonable inference from that conduct
that Mr Smith knew perfectly well that title was not to pass until payment.
52. On the same day, after receipt of the invoice, Mr Smith telephoned to ask
for Gerson's bank details and Gerson faxed the details to him immediately.
According to the uncontroverted evidence of Mr Gerson there were thereafter a
number of telephone conversations between himself and Mr Smith during which Mr
Smith promised payment, but it never came. Mr Gerson denied that he demanded
payment, but simply said that payment was promised. He said that if Mr Smith
had paid there would be nothing to agree, which is plainly correct because the
price had been agreed in the exchange of faxes and, if Sagebush had paid the
price, there would have been nothing further to agree and Sagebush would in
that event have become entitled to take possession of the goods. I shall
return to my reasons for this view below.
53. The next written communication between the parties which we have seen was
dated the 18th March 1997 in which Gerson faxed Mr Smith at Sagebush
asking him to "contact us with regard to the settling of invoice L10590 for
sale of plant to your company". On the same day Mr Gerson faxed Mr Greig and
Ms Bean in these terms:
"At the end of February Nigel Smith of Sagebush asked us to send an invoice
for the equipment leased to Emshelf at an agreed figure.
We understood that payment would be made promptly but over a fortnight has
elapsed and payment has not been received.
It is our intention to withdraw the offer to sell to Mr Smith and collect the
equipment and dispose of it elsewhere.
Do you know what Mr Smith's intentions are?"
The first of those faxes might suggest that an agreement for sale had been
made, but the second refers to withdrawal of the offer and is thus consistent
with the conclusion that no sale had been agreed.
54. On the 20th March Mr Gerson sent a similar fax and recorded
delivery letter to Mr Smith at Sagebush in these terms:
"Some three weeks have elapsed since you originally asked for an invoice and
details of our Bank account and you subsequently promised payment on several
occasions including the definite assurance of payment to our Bank account
yesterday.
Payment was not received and therefore the offer of sale of the plant and
equipment formerly leased to Emshelf is now withdrawn and we have made
arrangements with ... Savills ... to make arrangements to recover the plant and
equipment and dispose of our interest in it by auction."
Mr Gerson said in evidence that he in fact instructed agents on the same day
and it was also on the same day that he issued a credit note addressed to
Sagebush in the sum of £374,825 in respect of "Cancellation of Invoice ...
sale aborted".
55. Mr Gerson subsequently arranged to meet Mr Smith on the 26th
March. Before the meeting he sent Mr Smith a fax asking him for a complete
list of the equipment showing its present location. The meeting was held, but
achieved nothing. Mr Smith did not tell Mr Gerson that he had sold the goods
to Mr Wilkinson. There followed some later correspondence between solicitors,
but it is not necessary to refer to it for the purposes of this appeal.
56. The judge referred to the fact that Mr Gerson maintained in evidence that
there had been no sale by Gerson to Sagebush. The judge had earlier said that
he had had the advantage of seeing Mr Gerson give evidence and that he had
formed a very favourable impression of him. In the present context he said
that he was sure that Mr Gerson honestly believed that there had been no sale
to Sagebush. However, he correctly said that what matters is not his
subjective intention or his belief, but an objective assessment of what was
said and done. I entirely agree and, for that reason, have not set out Mr
Gerson's evidence about what he subjectively thought the faxes meant. The
judge referred to section 17 of the 1979 Act. He held that a contract was made
on receipt of the reply fax on the 28th February and that the
retention of title wording was post-contractual. He then set out the arguments
advanced before him by Mr Goodbody on behalf of Gerson, which were
substantially to the same effect as those advanced by Sir Roy before us to
which I have referred, but held that rule 1 in section 18 of the Sale of Goods
Act 1979 applied because no contrary intention appeared.
57. It is apparent that the view formed by the judge did not depend upon the
view he formed of the oral evidence. In these circumstances this court is, in
my judgment, in as good a position as the judge to determine whether a contract
was made, if so on what terms and what the intentions of the parties were as to
when property was intended to pass. I have considered each of those questions
and, for the reasons which I have tried to give, I have reached a different
conclusion from that of the judge. I would hold that no contract was made by
the sending and receipt of the reply fax on the 28th February.
Alternatively, if, contrary to that view, a contract was made, the parties did
not intend the property to pass until payment, which never occurred. It
follows (on either view) that Sagebush did not at any stage obtain a good title
to the goods as a result of a contract with Gerson and that Mr Wilkinson did
not do so either.
58. I said earlier that it seemed to me that if Sagebush had paid for the
goods, Sagebush would have become entitled to possession of them. Indeed Mr
Gerson accepted in cross-examination that if Mr Smith had paid the money the
goods would have been his (or strictly Sagebush's). There are a number of
possible routes to that conclusion. The first is that, although there was no
contract based on the reply fax on the 28th February, Gerson
subsequently made a counter-offer when it sent the invoice together with the
detailed schedule of the goods. The counter-offer was on terms that the
property would pass on payment, it being implicit that on payment Sagebush
would be entitled to delivery of the goods. It is to my mind at least arguable
that that counter-offer was accepted when Mr Smith telephoned and asked for
Gerson's banking details. However, I do not decide the appeal on that basis
because it is not an analysis which was espoused by any of the parties.
59. A second route is also based upon the conclusion that the invoice and fax
were a counter-offer. On this view (which on balance is my preferred view),
although the counter-offer was not in fact accepted, it would have been by
payment. A third route is that to which I have already referred, namely that
there was a contract but the parties intended the property to pass on payment,
so that property would have passed on payment and Sagebush would have been
entitled to delivery. Whatever the correct analysis, for the reasons I have
given I would hold that Sagebush did not obtain to the goods by contract.
Section 25(1) of the Sale of Goods Act 1979.
60. Section 25(1) is concerned with the case of a buyer in possession after
sale. It provides, so far as relevant, as follows:
"Where a person having bought or agreed to buy goods obtains with the consent
of the seller, possession of the goods ... , the delivery ... by that person
... of the goods ... , under any sale ... to another person receiving the same
in good faith and without notice of any lien or other right of the original
seller in respect of the goods, has the same effect as if the person making the
delivery ... were a mercantile agent in possession of the goods ... with the
consent of the owner.
61. Mr Wilkinson relies upon section 25(1) to give him title to the goods if
the true position is that there was a contract between Gerson and Sagebush but
property did not pass to Sagebush under it. It follows that if my conclusion
that there was no contract between them is correct, the section will not avail
him because Sagebush was not a person who had bought or agreed to buy the
goods. However, the section becomes potentially relevant if the true position
is that there was a contract between Gerson and Sagebush but property did not
pass under it. I shall therefore consider its application on that hypothesis.
62. In order to satisfy section 25(1) Wilkinson has to show that Sagebush
obtained possession of the goods with the consent of the seller, namely Gerson.
The judge considered Wilkinson's reliance on this section very briefly indeed
at the end of his judgment and said that he would if necessary have held that
Wilkinson had a good title under section 25(1). Unfortunately the judge does
not expressly consider the question whether Sagebush ever obtained possession
of the goods with the consent of Gerson. I do not blame the judge in any way
for that because, on his view of the facts, the question did not arise, but it
does mean that we must consider the question afresh.
63. The sale or sales by Sagebush to Wilkinson took place between the
3rd and 12th March 1997. It follows that in order to
succeed under this head Wilkinson must show that Sagebush was in possession of
the relevant goods before the relevant sale. His difficulty is that no-one
from Sagebush gave evidence. That is, Mr Smith did not give evidence, although
the trial was adjourned for a time to enable him to do so. In the event he did
not. This makes it very difficult for Wilkinson to establish that Sagebush was
ever in possession with Gerson's consent. Although Mr Chaisty said everything
that could have been said in support of that conclusion, but, in my judgment,
even if Sagebush was in possession of the goods at any relevant time, there is
no evidence that it was in possession of them with the consent of Gerson.
64. All the evidence is to the contrary. Mr Gerson was cross-examined at some
length on this topic. His evidence was not in any way shaken. Thus he denied
that he was aware that after the 28th February Mr Smith or Sagebush
had any control over the goods. So far as he was aware, the goods remained in
the possession of Emshelf, which had had the possession of them under the
lease. He denied that he was content to allow Mr Smith to exert such control
over them as he thought fit. There is, in my judgment, no basis upon which
that evidence could be rejected. Such other evidence as there is supports Mr
Gerson's evidence. For example, the fax of the 18th March quoted
above shows, in my judgment, that Mr Gerson regarded the goods as in the
possession of Emshelf throughout. He was there telling Mr Greig and Ms Bean
that he would collect the equipment, as I read it, from Emshelf, and dispose of
it elsewhere. He also asked them whether they knew what Mr Smith's intentions
were.
65. It is plain from the retention of title provision on the invoice that Mr
Gerson's position throughout was that title would not pass to Sagebush until it
had paid. In these circumstances I can see no reason why Mr Gerson might have
permitted Sagebush to take possession of the goods and every reason why it
should not. Reliance was placed upon the fax of the 26th March to
which I referred earlier in which Mr Gerson asked Mr Smith for a complete list
showing the present location of the goods. When asked about it, he said that
he knew by then that Mr Smith was working in the business, that is the business
of Emshelf. As he put it in cross-examination, he did not know that when he
prepared the invoice. At that time Mr Smith described himself as being
interested in taking over the business and therefore in buying the equipment.
He said that he discovered that Mr Smith was working in the business after he
sent the fax of the 18th March referred to above, but not before.
66. There is, in my judgment, no evidence that at any relevant time Mr Gerson
consented to Sagebush having possession of the goods. His evidence was firmly
to the opposite effect and there is no indication that the judge intended to
disbelieve anything that Mr Gerson said in evidence. On the contrary, as I
indicated earlier, he expressly held that Mr Gerson was an impressive witness.
In any event, I can see nothing in the remaining evidence which would justify a
conclusion that Gerson consented to Sagebush being in possession of the goods
at all, let alone before they were delivered to Wilkinson. It follows that,
even if (contrary to my view) there was a contract between Gerson and Sagebush
for the sale of the goods, Wilkinson has not established a good title to them
under section 25(1) of the Sale of Goods Act 1979.
Conclusion
67. It follows that I would allow Gerson's appeal against Wilkinson in so far
as he relies upon a contract between Gerson and Sagebush or upon section 25(1)
of the 1979 Act, but, on the basis of the evidence before the judge and before
us, I would dismiss the appeal by Gerson against State and hold that State and
therefore Wilkinson had good title to the schedule 3 goods. It also follows
that I would hold that Wilkinson (albeit wholly innocently) converted the goods
other than the schedule 3 goods.
Further Evidence
68. In the course of the argument Gerson sought permission to adduce further
evidence in order to enable it to allege or consider alleging that State cannot
satisfy that part of section 24 of the 1979 Act which requires that it show
that it received the schedule 3 goods in good faith and without notice of the
previous sale from Gerson to Emshelf. We indicated that we would give our
decision at the same time as giving our judgment on the appeal.
69. Mr Goodbody, who argued this part of the case on behalf of Gerson,
correctly accepts that in principle Gerson must satisfy the tests in
Ladd v Marshall [1954] 1 WLR 1489, namely that the evidence could not
have been obtained with reasonable diligence for use at the trial, that the
evidence would, if given, probably have an important influence on the result of
the case, although it need not be decisive and that the evidence must be such
as is presumably to be believed, or, in other words, it must be apparently
credible though it need not be incontrovertible. Mr Goodbody submits, in the
alternative, that even if those conditions are not satisfied, the court should
admit the evidence on the basis that it is material which has come to light
only after the trial.
70. In reality the application is not so much that this court should admit the
evidence and decide the appeal on the basis of it, but that because of the new
evidence it should give Gerson an opportunity to investigate the matter further
and remit the matter to the judge for a consideration of the question whether
State had knowledge of Gerson's prior interest in the schedule 3 goods. It may
be noted, however, that Gerson has not yet applied for permission to amend the
statement of claim to make such an allegation.
71. There are two classes of evidence relied upon which I shall briefly
consider in turn. The first can be dealt with shortly. It relates to
documents found in a file obtained from a Mr Patrick Ormerod, who trades or
traded as UK Finance & Leasing. He apparently acted as a broker in a
number of deals either set up or proposed to be set up between State and
Emshelf. However, Gerson accepts that Mr Ormerod would not have been acting as
the agent of State for any purpose material to this application. Gerson relies
upon the fact that the file, which was disclosed to Gerson by State on the
26th May 2000 (and thus long after the trial), suggests that Mr
Ormerod was aware of a previous sale and leaseback between Emshelf and Gerson
and that he was aware of it before the sale and leaseback agreement between
Emshelf and State.
72. State denies that it knew of any previous agreement between Emshelf and
Gerson relating to the schedule 3 goods. Mr Antony Roestenburg, who is a
solicitor employed by State, says in a statement that he has spoken to Mr
Ormerod and indeed to a Mr David Prosser of State, both of whom say that they
were aware that a sale and leaseback transaction was done in respect of some
equipment, but not aware that it extended to the schedule 3 equipment proposed
to State. There is nothing in Mr Ormerod's file to contradict that statement.
Indeed there is nothing in the file which supports the conclusion that State
were aware that the goods had already been sold to Gerson. Moreover, I accept
Mr Lerego's submission that it is most unlikely that it did because, if it had,
it would surely not have entered into the sale and leaseback agreement with
Emshelf.
73. In all these circumstances, the second Ladd v Marshall condition is
not satisfied. It is not shown that the material in the Ormerod file would
probably have an important influence on the result of the case. I would not
therefore grant the application on this ground.
74. The other class of evidence is somewhat different. The fact that Emshelf
had sold the same goods twice to two different finance companies was the
subject of a police investigation, although Gerson's solicitors were not aware
of that fact until they were told of it in January 2000 by Mr Gerson. It is
not clear when Mr Gerson first knew. Nor is it clear what enquiries had been
made by Gerson before the trial to check the position with the police. In the
early part of this year Mr Jonathan Berkson, of Gerson's solicitors, contacted
both DC Nesbitt and State's solicitors. He asked the latter to disclose any
documents which State should have disclosed before the trial. They disclosed a
document which they said had just come to light, although it later turned out
that it had been disclosed before the trial.
75. Mr Berkson obtained a statement from DC Nesbitt, who says that he
interviewed Mr Roestenburg on the 29th September 1999 (which was of
course long after the trial) and that during the interview he was shown a copy
of State's file in connection with its dealings with Emshelf. He says that he
saw in the file an internal memorandum on a light green A5 sheet of paper,
which, from memory, he thought was dated about March 1995. It was not the
document referred to above. DC Nesbitt did not take or retain a copy of the
document, but in his statement, which is dated the 22nd February
2000, he said that the gist of the memorandum was to refer to a sale and
leaseback already in place in connection with a hive down agreement with regard
to items owned by Emshelf. He interpreted it to mean that Mr Prosser was
recording that there was a sale and leaseback agreement already in place over
the equipment which was subject to the hive down agreement and was seeking a
decision whether or not further funds should be made available to Emshelf in
respect of the equipment. DC Nesbitt says that he showed the document to Mr
Roestenburg, who said that he did not know that it was there.
76. In his statement Mr Roestenburg says that DC Nesbitt's recollection of the
document which he describes is entirely consistent with the contents of the
document referred to above, which we have seen and which is dated the
29th March 1995. If that is indeed the document which DC Nesbitt
had in mind, I agree with Mr Roestenburg that it does not have the meaning
ascribed to it by DC Nesbitt. However, DC Nesbitt says that it is not that
document. Mr Roestenburg denies that there is any other document.
77. Mr Roestenburg further says (as I said earlier) that it is inconceivable
that he or any of the relevant personnel would have agreed to finance a sale
and leaseback transaction on goods which were already the subject of a sale and
leaseback arrangement with another company. As to the suggestion that he had
said that he did not know the memorandum was there, Mr Roestenburg says that he
was shown a number of documents by DC Nesbitt as he went through them. He
recalls DC Nesbitt showing him the document dated the 29th March
1995 and saying that it showed that State knew about the goods. He says that
he may have said that he did not know about that and that he then took the
memorandum and said that it did not show that State was aware of the double
finance. Mr Roestenburg also explains in his statement how he came to make a
change to a draft statement prepared for him by DC Nesbitt.
78. It is not, as I understand it, suggested by Mr Goodbody that if the
memorandum was indeed the memorandum dated the 29th March 1995 it
supports the case that State knew about the double finance. It could scarcely
be so suggested because it was available before the trial and no allegation of
knowledge was made. Indeed, although Gerson formally denied absence of
knowledge in the pleadings, it at no time asserted relevant knowledge at the
trial, which was of course the time to do so. It is not clear what, if any,
steps were taken before the trial by Gerson or its advisers to investigate
State's knowledge.
79. However that may be, if evidence has come to light which satisfied the
second and third criteria in Ladd v Marshall it would or might be
appropriate to remit the matter to the judge for trial on the question of
knowledge. However, I have reached the conclusion that the evidence of DC
Nesbitt is not sufficient to lead to the conclusion that it would probably have
an important influence on the result of the case. He did not retain a copy of
the memorandum to which he refers, so that his evidence will depend entirely
upon his recollection. It was only one of very many documents that he was
considering. His evidence has to be set against that of Mr Roestenburg.
80. His evidence strongly suggests that DC Nesbitt is mistaken and that he is
remembering the document of the 29th March 1995 and is mistaken as
to its meaning. There is no reason on the face if it not to believe the
evidence of State's solicitor, Mr Roestenburg, when he says that he did have a
conversation with DC Nesbitt in which it was suggested that State knew about
the other finance, but that it related to the 29th March memorandum.
In all the circumstances, given the unlikelihood of State financing goods which
it knew had already been financed under a sale and leaseback arrangement, the
chances of a court rejecting Mr Roestenburg's evidence in favour of DC
Nesbitts' recollection of a document which is not available are remote
indeed.
81. In these circumstance I would hold that the requirements of Ladd v
Marshall are not satisfied and, in so far as this is an application to
adduce further evidence, I would refuse it. I would only add that I do not
think that in all the circumstances it would be appropriate to remit the matter
to the judge simply in order to allow Gerson to investigate the matter further,
when the results of such an investigation are wholly speculative. The general
principle is that there must be an end to litigation. It would not be
proportionate, fair or just to allow the matter to proceed further. I would
therefore also refuse this application, in so far as it is an application to
remit the matter to permit further investigation.
MR JUSTICE BENNETT:
82. I have read in draft the judgement of Clarke LJ. I agree that the appeal
of the Claimants should be dismissed in the case of State, but allowed in part
in the case of Wilkinson for the reasons which he gives, subject to one point,
which relates to the question whether there was a contract made between the
Claimants and Sagebush (1997) Ltd in February/March 1997. In my judgement there
was, for the reasons that I set out below.
83. On 27 February 1997 the Claimants sent a fax in the terms to be found at
page 97 of bundle A offering to make an outright sale of the equipment for
£319,000 + VAT. On 28 February Sagebush replied asking for an invoice to
be sent in that amount. The equipment was identified by reference to the
terminated lease with Emshelf Ltd. The same day the Claimants sent an invoice
for that amount plus VAT. Sagebush immediately telephoned the Claimants asking
for their bank details which were immediately supplied. In my judgement nothing
remained to be done in the creation of a contract.
84. If the course of dealing between the parties as I have set out has to be
analysed into offer and acceptance, then in my judgement the Claimants' fax of
27 February was their invitation to treat, Sagebush made their offer on 28
February. The invoice of the Claimants was not an acceptance because of the
inclusion of the words " Title in this equipment will pass only upon payment of
this invoice". However, the only possible conclusion from Sagebush then asking
for the Claimants' bank details is that Sagebush were happy to conclude a
contract on that basis. Sagebush thus accepted the Claimants' counter-offer.
85. The judge found that there was a concluded contract when Sagebush sent its
reply asking for the invoice and thus " the retention of title wording on the
invoice was post- contractual". With respect to the judge I cannot accept that.
It seems to me highly unlikely that either Mr. Gerson, on behalf of the
Claimants, or Mr. Smith, on behalf of Sagebush, would have made a deal, as
found by the judge, in which the title in the goods passed before payment. Mr
Smith did not give evidence. If he had, he could not have truthfully denied
that title was not to pass until Sagebush had paid for the equipment. In my
judgement such is demonstrated by the lengths he went to delete the retention
of title words from Sagebush's copy of the invoice (see page 29 of the judge's
judgement). Further the fact that the invoice contained a retention of title
clause would suggest that Mr. Gerson, a highly experienced businessman, would
not have entered into a contract under which his company would have been so
obviously at risk i.e. title passing before payment.
86. If I am wrong and a contract was entered into solely by reason of the fax
of 27 February and Sagebush's reply of 28 February asking for an invoice, then
I agree that the parties intended the title only to pass on payment. Payment
was never made and so title never passed.
87. I also agree that Gerson's application to adduce further evidence and to
remit the matter to the trial judge should be refused for the reasons given by
Clarke LJ.
LORD JUSTICE PILL:
88. I agree in the result and address only two points, the effect of section 24
of the Sale of Goods Act 1979 upon a commercial sale and leaseback and the
alleged contract of February 1997 between Michael Gerson and Sagebush.
89. On the first point, I agree that the question is whether there was a
constructive delivery of the Schedule 3 goods by Emshelf to State, upon the
sale to State and leaseback to Emshelf. Constructive delivery is an artificial
concept which may apply in a number of situations. The law permits a change of
possession without any change of the actual custody upon the principle known as
constructive delivery (An Essay on Possession in the Common Law; Pollock
and Wright 1888). In this case actual custody has remained with Emshelf.
90. Mr Lerego submits that the focus must be upon the sale to State, and not
upon what happened afterwards, when considering whether a constructive delivery
occurred upon that sale, The precise nature of the lessee's subsequent
position is irrelevant. The character of his possession has changed because, on
a sale and leaseback, the lessee now holds upon a lease. Because there has been
a change in the character of possession by Emshelf, there had been a
constructive delivery to State.
91. I see the force of Sir Roy Goode's attempts to make the concept of
constructive delivery less artificial by supplying a rationale based on the
further concept that a delivery can be taken to have occurred only when there
has been an assumption of control by the constructive possessor. That would
include an acknowledgement by the person with custody of the goods that he
holds at the direction or disposal of the person to whom delivery is said to
have occurred. The submission was refined to one that, for section 24 purposes,
there must at least have been a moment of time when the purported constructive
possessor could say that the goods were being held for him. A sale and
leaseback in the present form did not satisfy that requirement. Emshelf were
holding for their own purposes under a lease.
92. I agree with Clarke LJ that the authorities do not establish that
proposition. I agree with Clarke LJ's conclusion, at paragraph 30 of his
judgment, that the change in the character of possession upon the sale and
leaseback in this case is sufficient to establish that a constructive delivery
has been made. I express no view as to whether it makes commercial sense to
allow innocent finance companies to take advantage of section 24 of the 1979
Act when they conduct a sale and leaseback. However, I do see force in the
submission that application of the principle advocated by Sir Roy Goode would
produce further artificiality and fine distinctions in sales and leasebacks.
What would in substance be no different an arrangement could be dressed up so
as to achieve the sought after moment in time.
93. As to the existence of a contract between Michael Gerson and Sagebush, I
agree with the conclusion of Bennett J, whose judgment I have had the
opportunity of reading in draft, that there was. However, I also agree with
him, and with Clarke LJ, that on the evidence the circumstances were such that
the parties did not intend that property would be transferred when the contract
was made and property was not transferred. Even if the contract was made upon
the exchange of faxes, and that was Mr Chaisty's primary submission, I would
reach the same conclusion that the parties did not intend the property to be
transferred when the contract was made.
94. I agree with the order proposed by Clarke LJ.
Order: The appellant to pay the costs of the second defendant, including
the application to amend and adduce further evidence. Costs to be subject to
detailed assessment on the standard basis. It was agreed that judgment be made
for the claimant as regards against the first defendant, Mr. Wilkinson, in
relation to the Schedule 2 goods, and damages for conversion, to be assessed.
The above to be set out in a minute order for the purposes of determination of
costs. Written submissions to be made and ruling to be given in
writing.
(Order does not form part of approved judgment.)
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