The Principles of Personal Property Law 9781509901326, 9781509901357, 9781509901340

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THE PRINCIPLES OF PERSONAL PROPERTY LAW The law of personal property covers a very wide spectrum of scenarios and, unfortunately, has had little detailed scrutiny of its overarching structure over the years. It is a system and can best be understood as a system. Indeed, without regarding it as a system, it becomes much more difficult to comprehend. The second edition of this acclaimed book continues to provide a comprehensive yet detailed coverage of the law of personal property in England and Wales. It includes ­transfer of legal title to chattels, the nemo dat rule, negotiable instruments and assignment of choses in action. It also looks at defective transfers of property and the resulting proprietary claims, including those contingent on tracing, the tort of conversion, bailment and security interests. By bringing together areas often scattered throughout company law, commercial law, trusts and tort textbooks, it enables readers to see common themes and issues and to make otherwise impossible generalisations across different contexts about the nature of the concepts English law applies. Throughout the book concepts are explained rigorously with reference to how they are used in commercial practice and everyday life. The new edition also includes a new ­chapter on secured transactions law reform, and introduces new material on the Cape Town ­Convention, IP rights and other intangible property. The book will be of primary interest to academics and practitioners in the area. However, it will also be of use to students studying commercial or personal property law.

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The Principles of Personal Property Law Second Edition

Duncan Sheehan

OXFORD AND PORTLAND, OREGON 2017

Hart Publishing An imprint of Bloomsbury Publishing Plc Hart Publishing Ltd Kemp House Chawley Park Cumnor Hill Oxford OX2 9PH UK

Bloomsbury Publishing Plc 50 Bedford Square London WC1B 3DP UK

www.hartpub.co.uk www.bloomsbury.com Published in North America (US and Canada) by Hart Publishing c/o International Specialized Book Services 920 NE 58th Avenue, Suite 300 Portland, OR 97213-3786 USA www.isbs.com HART PUBLISHING, the Hart/Stag logo, BLOOMSBURY and the Diana logo are trademarks of Bloomsbury Publishing Plc First edition published by Hart Publishing, 2011 This edition, first published 2017 © Duncan Sheehan 2017 Duncan Sheehan has asserted his right under the Copyright, Designs and Patents Act 1988 to be identified as Author of this work. All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying, recording, or any information storage or retrieval system, without prior permission in writing from the publishers. While every care has been taken to ensure the accuracy of this work, no responsibility for loss or damage occasioned to any person acting or refraining from action as a result of any statement in it can be accepted by the authors, editors or publishers. All UK Government legislation and other public sector information used in the work is Crown Copyright ©. All House of Lords and House of Commons information used in the work is Parliamentary Copyright ©. This information is reused under the terms of the Open Government Licence v3.0 (http://www.nationalarchives. gov.uk/doc/open-government-licence/version/3) except where otherwise stated. All Eur-lex material used in the work is © European Union, http://eur-lex.europa.eu/, 1998–2017. British Library Cataloguing-in-Publication Data A catalogue record for this book is available from the British Library.

ISBN: HB: 978-1-50990-132-6 ePDF: 978-1-50990-134-0 ePub: 978-1-50990-133-3 Library of Congress Cataloging-in-Publication Data Names: Sheehan, Duncan, author. Title: The principles of personal property law / Duncan Sheehan. Description: Second edition.  |  Oxford [UK] ; Portland, Oregon : Hart Publishing, 2017.  |  Includes bibliographical references and index. Identifiers: LCCN 2016057786 (print)  |  LCCN 2016058885 (ebook)  |  ISBN 9781509901326 (hardback : alk. paper)  |  ISBN 9781509901333 (Epub) Subjects: LCSH: Personal property—England.  |  Personal property—Wales. Classification: LCC KD1205 .S543 2017 (print)  |  LCC KD1205 (ebook)  |  DDC 343.42/023—dc23 LC record available at https://lccn.loc.gov/2016057786 Typeset by Compuscript Ltd, Shannon To find out more about our authors and books visit www.hartpublishing.co.uk. Here you will find extracts, author information, details of forthcoming events and the option to sign up for our newsletters.

CONTENTS

Table of Cases������������������������������������������������������������������������������������������������������������������������� xiii Table of Legislation��������������������������������������������������������������������������������������������������������������xxxv Table of Conventions, Treaties, etc������������������������������������������������������������������������������������������xlv

1. The Basic Concepts of Personal Property Law�����������������������������������������������������������������1 I. Introduction��������������������������������������������������������������������������������������������������������������1 II. Subdividing Personal Property��������������������������������������������������������������������������������2 A. Tangible and Intangible Assets�������������������������������������������������������������������������2 B. Dividing Intangibles������������������������������������������������������������������������������������������2 i. Documentary Intangibles�������������������������������������������������������������������������2 ii. Intellectual Property���������������������������������������������������������������������������������3 iii. Equity and Debt Securities�����������������������������������������������������������������������5 III. Ownership, Possession and Legal Title��������������������������������������������������������������������6 A. Ownership���������������������������������������������������������������������������������������������������������6 i. What Type of Right is Ownership?����������������������������������������������������������6 ii. Joint Ownership����������������������������������������������������������������������������������������8 B. Possession��������������������������������������������������������������������������������������������������������10 i. De Facto Possession��������������������������������������������������������������������������������11 ii. Legal Possession��������������������������������������������������������������������������������������13 iii. Constructive Possession��������������������������������������������������������������������������13 C. Legal Title��������������������������������������������������������������������������������������������������������14 i. Possessory Title���������������������������������������������������������������������������������������14 ii. Documentary Title����������������������������������������������������������������������������������15 IV. Equitable Title under a Trust���������������������������������������������������������������������������������19 A. What is a Trust?�����������������������������������������������������������������������������������������������20 B. Creation of an Express Trust��������������������������������������������������������������������������22 C. Uses of the Trust in Commercial Contexts����������������������������������������������������24 V. Original Modes of Acquisition�������������������������������������������������������������������������������25 A. Legal Title��������������������������������������������������������������������������������������������������������25 B. Equitable Title�������������������������������������������������������������������������������������������������30 VI. Conclusion��������������������������������������������������������������������������������������������������������������31 2. Transfer of Legal Title to Tangibles���������������������������������������������������������������������������������33 I. Introduction������������������������������������������������������������������������������������������������������������33 II. Passage of Property under Sale of Goods Act 1979����������������������������������������������33 A. Classification���������������������������������������������������������������������������������������������������35 B. Sale of Specific Goods�������������������������������������������������������������������������������������36 i. Rule 1�������������������������������������������������������������������������������������������������������37 ii. Rules 2 and 3�������������������������������������������������������������������������������������������38

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iii. Rule 4�������������������������������������������������������������������������������������������������������39 C. Unascertained Goods��������������������������������������������������������������������������������������41 i. Rule 5�������������������������������������������������������������������������������������������������������43 ii. Section 20A: Quasi-Specific Goods��������������������������������������������������������46 iii. Future Goods������������������������������������������������������������������������������������������48 D. Reservation of the Right of Disposal��������������������������������������������������������������49 III. Deed������������������������������������������������������������������������������������������������������������������������50 IV. Delivery�������������������������������������������������������������������������������������������������������������������51 A. Transferring Possession�����������������������������������������������������������������������������������51 B. Intention����������������������������������������������������������������������������������������������������������53 V. Conclusion��������������������������������������������������������������������������������������������������������������53 3. Nemo Dat Quod Non Habet�������������������������������������������������������������������������������������������55 I. Introduction������������������������������������������������������������������������������������������������������������55 II. Exceptions to Nemo Dat�����������������������������������������������������������������������������������������56 A. Estoppel�����������������������������������������������������������������������������������������������������������56 i. Estoppel by Representation of Authority to Sell, or of Ownership��������������������������������������������������������������������������������������57 ii. Estoppel by Negligence���������������������������������������������������������������������������58 iii. Other Estoppels���������������������������������������������������������������������������������������60 B. Factors Act 1889 s 2�����������������������������������������������������������������������������������������60 i. Sale by a Mercantile Agent����������������������������������������������������������������������60 ii. Pledge by a Mercantile Agent�����������������������������������������������������������������63 C. Voidable Title���������������������������������������������������������������������������������������������������64 D. Sale under a Power of Sale������������������������������������������������������������������������������66 E. Sale by a Seller or Buyer in Possession�����������������������������������������������������������66 i. Seller in Possession���������������������������������������������������������������������������������67 ii. Buyer in Possession���������������������������������������������������������������������������������70 F. Hire Purchase Act 1964�����������������������������������������������������������������������������������73 G. Reform�������������������������������������������������������������������������������������������������������������74 III. Overreaching�����������������������������������������������������������������������������������������������������������78 IV. Conclusion��������������������������������������������������������������������������������������������������������������80 4. Assignment of Legal Choses in Action���������������������������������������������������������������������������81 I. Introduction������������������������������������������������������������������������������������������������������������81 II. Statutory (Legal) Assignment��������������������������������������������������������������������������������82 A. What can be Assigned?������������������������������������������������������������������������������������84 B. Writing and Notice Requirements������������������������������������������������������������������85 i. Writing Requirements����������������������������������������������������������������������������85 ii. Notice������������������������������������������������������������������������������������������������������85 C. Equity and Debt Securities�����������������������������������������������������������������������������87 D. IP Rights����������������������������������������������������������������������������������������������������������87 III. Equitable Assignment���������������������������������������������������������������������������������������������88 A. Joinder�������������������������������������������������������������������������������������������������������������88 B. Requirements of Equitable Assignment���������������������������������������������������������91 i. Assignment of Debts: The Pre-Judicature Act Rules�����������������������������91 ii. The ‘Every Efforts’ Doctrine�������������������������������������������������������������������94

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iii. The Relevance of Notice�������������������������������������������������������������������������98 iv. The Relevance of Consideration������������������������������������������������������������99 IV. ‘Subject to Equities’ and Priority Rules�����������������������������������������������������������������99 A. ‘Subject to Equities’���������������������������������������������������������������������������������������100 B. Priorities��������������������������������������������������������������������������������������������������������103 V. Non-Assignable Choses in Action������������������������������������������������������������������������106 A. Non-Assignability in Law�����������������������������������������������������������������������������106 B. Non-Assignability by Contract���������������������������������������������������������������������109 I. Conclusion������������������������������������������������������������������������������������������������������������116 V 5. Disposition of Subsisting Equitable Interests���������������������������������������������������������������117 I. Introduction����������������������������������������������������������������������������������������������������������117 II. Five Scenarios: When is Writing Required?���������������������������������������������������������118 A. The ‘Plain Vanilla’ Case���������������������������������������������������������������������������������118 B. Directions to the Trustee to Hold on Trust��������������������������������������������������118 C. Contracts for Valuable Consideration: Sales of Equitable Interests�����������������������������������������������������������������������������������������119 D. Express Sub-Trusts����������������������������������������������������������������������������������������121 E. The Vandervell Saga��������������������������������������������������������������������������������������122 III. Surrender v Disclaimer�����������������������������������������������������������������������������������������124 IV. Priorities����������������������������������������������������������������������������������������������������������������125 V. Conclusion������������������������������������������������������������������������������������������������������������126 6. Negotiation and Negotiable Instruments���������������������������������������������������������������������127 I. Introduction����������������������������������������������������������������������������������������������������������127 II. What is a Negotiable Instrument?������������������������������������������������������������������������128 A. Examples of Negotiable Instrument������������������������������������������������������������128 i. Bills of Exchange and Promissory Notes���������������������������������������������128 ii. Two Senses of Negotiation: Bills of Exchange and Bills of Lading��������������������������������������������������������������������������������129 B. Becoming a Negotiable Instrument�������������������������������������������������������������130 III. Transfer and Operation of Bills of Exchange������������������������������������������������������131 A. Transfer of a Bill of Exchange�����������������������������������������������������������������������132 i. Modes of Transfer���������������������������������������������������������������������������������132 ii. Mere Holders of Bills of Exchange�������������������������������������������������������133 iii. Holders for Value����������������������������������������������������������������������������������133 iv. Holders in Due Course�������������������������������������������������������������������������136 B. Liability and Enforcement����������������������������������������������������������������������������139 i. Liability��������������������������������������������������������������������������������������������������139 ii. Defences������������������������������������������������������������������������������������������������141 iii. Enforcement������������������������������������������������������������������������������������������143 iv. Discharge�����������������������������������������������������������������������������������������������144 IV. Negotiation of Bills of Lading������������������������������������������������������������������������������145 V. Commercial Uses of Bills of Exchange����������������������������������������������������������������148 A. Documentary and Negotiation Credits�������������������������������������������������������148 B. Electronic Bills of Exchange and Electronic Negotiation����������������������������151 VI. Conclusion������������������������������������������������������������������������������������������������������������152

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7. Defective Transfers and Payments���������������������������������������������������������������������������������153 I. Introduction����������������������������������������������������������������������������������������������������������153 II. Void Transfers�������������������������������������������������������������������������������������������������������153 III. Resulting Trusts�����������������������������������������������������������������������������������������������������156 A. Voluntary Conveyance and Purchase Money Trusts�����������������������������������157 i. Presumption of Resulting Trust�����������������������������������������������������������157 ii. Presumption of Advancement�������������������������������������������������������������158 iii. Disallowing Reliance on the Presumptions: Illegality�������������������������160 B. Automatic Resulting Trusts���������������������������������������������������������������������������164 C. The Basis for the Resulting Trust������������������������������������������������������������������165 i. Presumed Resulting Trusts�������������������������������������������������������������������165 ii. Automatic Resulting Trusts—Failure of Basis�������������������������������������170 iii. Lack of Authority����������������������������������������������������������������������������������171 iv. Void Contracts: Westdeutsche Landesbank Girozentrale v Islington LBC�����������������������������������������������������������������172 v. Change of Position��������������������������������������������������������������������������������173 IV. Voidable Transfers�������������������������������������������������������������������������������������������������174 A. Instances of Voidability���������������������������������������������������������������������������������174 i. Induced Flaws in the Claimant’s Intention: Misrepresentation, Duress and Undue Influence��������������������������������174 ii. Mistake��������������������������������������������������������������������������������������������������175 B. Bars to Rescission������������������������������������������������������������������������������������������177 i. Restitutio in Integrum��������������������������������������������������������������������������177 ii. Third Party Rights���������������������������������������������������������������������������������177 iii. Laches����������������������������������������������������������������������������������������������������178 iv. Affirmation��������������������������������������������������������������������������������������������179 C. What Type of Interest is a Power?�����������������������������������������������������������������179 V. Conclusion������������������������������������������������������������������������������������������������������������181 8. Protection of Legal Title via Tort Law���������������������������������������������������������������������������183 I. Introduction����������������������������������������������������������������������������������������������������������183 II. Conversion������������������������������������������������������������������������������������������������������������183 A. What Property can be Converted?����������������������������������������������������������������184 B. Acts Counting as Conversion�����������������������������������������������������������������������188 C. Entitlement to Sue in Conversion����������������������������������������������������������������192 D. Remedies��������������������������������������������������������������������������������������������������������195 i. Damages for Loss����������������������������������������������������������������������������������195 ii. Exemplary Damages�����������������������������������������������������������������������������199 iii. Restitutionary Damages�����������������������������������������������������������������������200 iv. Defences: Allowances for Improvements and Change of Position��������������������������������������������������������������������������������200 v. Delivery Up�������������������������������������������������������������������������������������������201 vi. Injunctions��������������������������������������������������������������������������������������������201 vii. Recaption: Self-Help Remedies������������������������������������������������������������202 III. Trespass to Goods�������������������������������������������������������������������������������������������������202 A. Elements of Trespass�������������������������������������������������������������������������������������203

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B. Remedies��������������������������������������������������������������������������������������������������������204 IV. Replevin and Reversionary Injury�����������������������������������������������������������������������205 V. Conclusion������������������������������������������������������������������������������������������������������������207 9. Protection of Equitable Title: Remedies for Misdirected Property�����������������������������209 I. Introduction����������������������������������������������������������������������������������������������������������209 II. Tracing�������������������������������������������������������������������������������������������������������������������210 A. Common Law Tracing����������������������������������������������������������������������������������212 i. Physical Substitutions and Mixtures����������������������������������������������������212 ii. Bank Accounts���������������������������������������������������������������������������������������213 B. Equitable Tracing������������������������������������������������������������������������������������������215 i. Mixtures—Innocent Victim against Fiduciary������������������������������������216 ii. Mixtures—Two Innocent Contributors����������������������������������������������217 iii. Overdrawn Bank Accounts�������������������������������������������������������������������219 C. Remedies��������������������������������������������������������������������������������������������������������221 i. At Law����������������������������������������������������������������������������������������������������221 ii. In Equity������������������������������������������������������������������������������������������������222 D. Defences���������������������������������������������������������������������������������������������������������223 III. Proprietary Claims Contingent on Tracing���������������������������������������������������������225 A. The Basis of the Claim: Property or Unjust Enrichment����������������������������225 B. The Unjust Factor������������������������������������������������������������������������������������������227 IV. Subrogation�����������������������������������������������������������������������������������������������������������229 V. Personal Claims����������������������������������������������������������������������������������������������������231 A. Dishonest Assistance�������������������������������������������������������������������������������������231 B. Knowing Receipt�������������������������������������������������������������������������������������������233 VI. Conclusion������������������������������������������������������������������������������������������������������������237 10. Bailment and Attornment���������������������������������������������������������������������������������������������239 I. Introduction����������������������������������������������������������������������������������������������������������239 II. What is Bailment?�������������������������������������������������������������������������������������������������239 A. Prerequisites of Bailment������������������������������������������������������������������������������240 B. Relationship between the Bailor and Bailee�������������������������������������������������242 i. Bailor’s Duties���������������������������������������������������������������������������������������242 ii. Bailee’s Duties���������������������������������������������������������������������������������������243 iii. Damages������������������������������������������������������������������������������������������������246 iv. Sub-Bailment on Terms������������������������������������������������������������������������247 C. Termination of Bailment������������������������������������������������������������������������������250 D. Rights against Third Parties��������������������������������������������������������������������������250 E. Involuntary Bailees and Finders�������������������������������������������������������������������253 III. Attornment�����������������������������������������������������������������������������������������������������������254 IV. Commercial Uses of Bailment�����������������������������������������������������������������������������256 A. Hire Purchase Agreements����������������������������������������������������������������������������256 B. Financial Leases���������������������������������������������������������������������������������������������257 C. Carriage of Goods by Sea������������������������������������������������������������������������������258 V. Is Bailment Necessary?�����������������������������������������������������������������������������������������259 VI. Conclusion������������������������������������������������������������������������������������������������������������262

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11. Security Interests and Quasi-Security�������������������������������������������������������������������������263 I. Introduction��������������������������������������������������������������������������������������������������������263 II. Function of Security and Quasi-Security����������������������������������������������������������263 III. The Types of Security Interest����������������������������������������������������������������������������266 IV. The General Rules�����������������������������������������������������������������������������������������������266 A. Attachment��������������������������������������������������������������������������������������������������267 B. Perfection����������������������������������������������������������������������������������������������������269 i. Companies Act 2006 Scheme�������������������������������������������������������������269 ii. Financial Collateral����������������������������������������������������������������������������271 iii. Bills of Sales Acts Scheme�������������������������������������������������������������������274 iv. Aircraft������������������������������������������������������������������������������������������������276 v. Intellectual Property���������������������������������������������������������������������������278 C. Priorities������������������������������������������������������������������������������������������������������279 i. General Rules��������������������������������������������������������������������������������������279 ii. Two Special Cases: Tacking and Marshalling������������������������������������283 V. Quasi-Security Interests�������������������������������������������������������������������������������������284 A. Retention of Title Clauses��������������������������������������������������������������������������284 i. Products Clauses���������������������������������������������������������������������������������284 ii. Proceeds Clauses���������������������������������������������������������������������������������287 iii. Insolvency and Title Reservation�������������������������������������������������������289 iv. Criticism���������������������������������������������������������������������������������������������289 B. Other Quasi-Security Interests������������������������������������������������������������������290 i. Contractual Set-Off and Close Out Netting�������������������������������������290 ii. Insolvency Set-Off������������������������������������������������������������������������������292 iii. Equitable Transaction Set-off������������������������������������������������������������294 iv. Independent Set-Off��������������������������������������������������������������������������295 VI. Conclusion����������������������������������������������������������������������������������������������������������296 12. Pledges and Liens���������������������������������������������������������������������������������������������������������297 I. Introduction��������������������������������������������������������������������������������������������������������297 II. Pledges�����������������������������������������������������������������������������������������������������������������297 A. Delivery�������������������������������������������������������������������������������������������������������298 B. Re-Delivery or Redemption�����������������������������������������������������������������������301 C. Sale���������������������������������������������������������������������������������������������������������������302 D. Pledgee’s Relations with Third Parties�������������������������������������������������������303 III. Liens��������������������������������������������������������������������������������������������������������������������304 A. Lienholders’ Rights against Third Parties��������������������������������������������������305 B. Contractual Liens���������������������������������������������������������������������������������������307 C. Common Law or Customary Liens������������������������������������������������������������307 D. Statutory Liens��������������������������������������������������������������������������������������������309 E. Equitable Liens��������������������������������������������������������������������������������������������312 i. Particular Cases of Liens: Purchasers and Unpaid Vendors�������������312 ii. Particular Cases of Liens: Trustees’ and Co-Owners’ Liens��������������314 iii. A General Principle����������������������������������������������������������������������������315 IV. Conclusion����������������������������������������������������������������������������������������������������������317

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13. Mortgages and Bills of Sale�����������������������������������������������������������������������������������������319 I. Introduction��������������������������������������������������������������������������������������������������������319 II. What is a Mortgage?�������������������������������������������������������������������������������������������320 A. Clogs and Fetters���������������������������������������������������������������������������������������320 B. Legal Mortgages�����������������������������������������������������������������������������������������322 C. Equitable Mortgages����������������������������������������������������������������������������������324 D. Aircraft: International Interests����������������������������������������������������������������326 III. Enforcement��������������������������������������������������������������������������������������������������������326 A. Foreclosure and Appropriation of Financial Collateral���������������������������328 B. Sale�������������������������������������������������������������������������������������������������������������330 i. Incidence of the Power of Sale�����������������������������������������������������������330 ii. Duties of the Mortgagee in Exercising the Power of Sale�����������������332 C. Receivership�����������������������������������������������������������������������������������������������335 D. Possession���������������������������������������������������������������������������������������������������337 E. Enforcement of Bills of Sale����������������������������������������������������������������������338 i. Current Law����������������������������������������������������������������������������������������338 ii. Reform of Bills of Sale������������������������������������������������������������������������339 F. Enforcement of an International Interest������������������������������������������������340 IV. Conclusion����������������������������������������������������������������������������������������������������������342 14. Equitable Charges��������������������������������������������������������������������������������������������������������345 I. Introduction��������������������������������������������������������������������������������������������������������345 II. Floating and Fixed Charges��������������������������������������������������������������������������������345 A. Determining whether a Charge is Fixed or Floating���������������������������������348 B. The Importance of the Distinction������������������������������������������������������������354 III. The Nature of the Floating Charge��������������������������������������������������������������������355 A. The Licence Theory������������������������������������������������������������������������������������356 B. The Defeasible Charge Theory�������������������������������������������������������������������357 C. Overreaching�����������������������������������������������������������������������������������������������357 D. Power to Acquire a Persistent Right�����������������������������������������������������������359 IV. Remedies of the Chargee on Default�����������������������������������������������������������������360 A. Administrative Receivership�����������������������������������������������������������������������361 B. Administration��������������������������������������������������������������������������������������������364 V. Conclusion����������������������������������������������������������������������������������������������������������366 15. Secured Transactions Law Reform������������������������������������������������������������������������������367 I. Introduction��������������������������������������������������������������������������������������������������������367 II. Reform in other Jurisdictions����������������������������������������������������������������������������371 A. An Outline of the Article 9/PPSA System��������������������������������������������������372 i. Should Land be Included?������������������������������������������������������������������372 ii. In Substance and Deemed Security Interests������������������������������������372 iii. Attachment and Perfection����������������������������������������������������������������375 iv. Priorities and ‘Taking Free’����������������������������������������������������������������379 v. Enforcement and the Relationship with Insolvency�������������������������383 vi. Cautionary Notes�������������������������������������������������������������������������������385

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B. The International Influence of UCC Article 9������������������������������������������386 C. Prospects for the Abolition of the Floating Charge apart from a PPSA System��������������������������������������������������������������������������388 III. Conclusion����������������������������������������������������������������������������������������������������������389 16. Concluding Observations��������������������������������������������������������������������������������������������391

Index��������������������������������������������������������������������������������������������������������������������������������������397

TABLE OF CASES

Australia ABC v Lenah Game Meats [2001] HCA 63 (2001) 208 CLR 199������������������������������������������������������������ 4 Akron Tyre Co Pty Ltd v Kittson (1951) 82 CLR 471���������������������������������������������������������������������������� 285 Alati v Kruger (1955) 94 CLR 216 (HCA)�������������������������������������������������������������������������������������������� 179 Askrigg Pty Ltd v Student Guild of Curtin University of Technology [1989] 18 NSWLR 738���������������������������������������������������������������������������������������������������������������������� 300 Associated Alloys Pty Ltd v AN001452106 Pty Ltd [2000] HCA 25, (2000) 74 ALJR 862��������������������������������������������������������������������������������������������������������������������� 288–89 Big Top Hereford Pty Ltd v Thomas [2006] NSWSC 1159��������������������������������������������������������������������� 29 Burnett v Randwick City Council [2006] NSWCA 196�������������������������������������������������������������������������� 11 Calverley v Green (1984) 155 CLR 242 (HCA) 263����������������������������������������������������������������������������� 314 Capital Finance Co of Australia Ltd v CEO of Customs [2007] NSWSC 1367������������������������������������ 201 Cartwright v Green (1803) 8 Ves Jun 405��������������������������������������������������������������������������������������������� 154 Comptroller of Stamps (Vict) v Howard-Smith (1936) 54 CLR 614 (HCA)����������������������������������������� 93 Cook v Saroukos (1989) 97 FLR 33��������������������������������������������������������������������������������������������������������� 25 Corin v Patton (1990) 169 CLR 540 (HCA)������������������������������������������������������������������������������� 92, 96–97 CPT Custodian Pty Ltd v Commissioner of State Revenue (Vic) (2005) 224 CLR 98�������������������������� 392 Daly v Sydney Stock Exchange (1986) 160 CLR 377 (HCA)���������������������������������������������������������������� 180 Evans v European Bank [2004] NSWCA 82, (2004) 61 NSWLR 75�������������������������������������������� 172, 235 EWC Payments Pty Ltd v Commonwealth Bank of Australia [2014] VSC 207������������������������������������ 108 Fisher v Automobile Finance Co of Australia Ltd (1928) 41 CLR 167 (HCA)������������������������������������� 306 Future Revelation Ltd v Medical Radiology and Nuclear Medicine Ltd [2013] NSWSC 1742������������������������������������������������������������������������������������������������������������������������� 379 Gamer’s Motor Centre (Newcastle) Pty Ltd v Natwest Wholesale Australia Pty Ltd (1987) 163 CLR 236 (HCA)����������������������������������������������������������������������68, 72, 240 Gye v McIntyre (1997) 161 CLR 609 (HCA)���������������������������������������������������������������������������������������� 294 Halloran v Minister Administering National Parks and Wildlife Act 1974 (2006) ALJR 519�������������������������������������������������������������������������������������������������������������������������������� 121 Haxton v Equuscorp Pty Ltd [2012] HCA 7����������������������������������������������������������������������������������������� 108 Healing (Sales) Pty Ltd v Inglis Electrix Pty Ltd (1968) 121 CLR 584 (HCA)������������������������������������ 102 Hewett v Court (1983) 149 CLR 639 (HCA)�������������������������������������������������������������������������� 313–14, 316 Hill v Reglon [2007] NSWCA 295�������������������������������������������������������������������������������������������������� 29, 192 Hobbs v Petersham Transport Co Pty (1971) 124 CLR 220������������������������������������������������������������������ 261 Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 (HCA)��������������������������������������������������������������������������������������������������������������������������� 393 Hunter BNZ Finance Ltd v CG Maloney Pty Ltd (1988) 18 NSWLR 420����������������������������������� 179, 190 Hunter BNZ Finance v ANZ Banking Group [1990] VR 41����������������������������������������������������������������� 187 IATA v Ansett Australia Holdings Ltd [2008] HCA 3; (2008) 242 ALR 47������������������������������������������ 292 Kovarfi v BMT & Associates Pty Ltd [2012] NSWSC 1101������������������������������������������������������������������ 108 Latec Investments Ltd v Hotel Terrigal Pty Ltd (1965) 113 CLR 265��������������������������������������������������� 180 Long Leys Co Pty Ltd v Silkdale Pty Ltd (1991) 5 BPR 11���������������������������������������������������������������������� 89

xiv  Table of Cases Lyford v Commonwealth Bank of Australia (1995) 130 ALR 267�������������������������������������������������������� 360 Macquarie Leasing Pty Ltd v DEQMO Pty Ltd [2014] NSWSC 1466������������������������������������������������� 377 Maynegrain Ltd v Compafina Bank [1982] 2 NSWLR 141������������������������������������������������������������������ 255 Miller Associates (Australia) Pty Ltd v Bennington Pty Ltd [1975] Federal LR 112���������������������������� 133 Miller v Candy (1981) 38 ALR 299 (FCA)������������������������������������������������������������������������������������������� 252 Moorhouse v Angus & Robertson (No 1) Pty Ltd [1981] 1 NSWLR 700������������������������������������������������ 25 Nelson v Nelson (1995) 184 ALR 538 (HCA)��������������������������������������������������������������������������������� 159–60 Norman v Federal Commissioner of Taxation (1963) 109 CLR 9 (HCA)���������������������48, 84, 92, 96, 268 Ollsson v Dyson (1969) 120 CLR 365 (HCA)����������������������������������������������������������������������������������������� 96 Penfolds Wines v Elliott (1946) 76 CLR 204 (HCA)����������������������������������������������������������������������� 202–04 Re Bacchus Distillery Pty Ltd (2014) 98 ACSR 539������������������������������������������������������������������������������ 107 Re Dawson [1966] NSWR 211�������������������������������������������������������������������������������������������������������������� 209 Re French Caledonia Travel Service Ltd [2003] NSWSC 1008������������������������������������������������������������� 217 State Bank of NSW v SBC (1995) 39 NSWLR 350����������������������������������������������������������������������� 173, 225 The Anderson Group Pty Ltd v Tynan Motors Pty Ltd [2006] NSWCA 22 ����������������������������������������� 250 Thomas National Transport (Melbourne) Pty Ltd v May & Baker Australia Pty Ltd (1966) 115 CLR 353 (HCA)��������������������������������������������������������������������������������� 245 Toyota Finance Australia Ltd v Dennis [2002] NSWCA 369���������������������������������������������������������������� 202 Tricontinental Corporation v FCT (1987) 73 ALR 433���������������������������������������������������������������� 346, 355 Waters v Widdows [1984] VR 503��������������������������������������������������������������������������������������������������������� 282 Wheatley v Bell [1982] 2 NSWLR 544������������������������������������������������������������������������������������������������������ 4 Wily v St George Partnership Banking Ltd (1999) 161 ALR 1�������������������������������������������������������������� 360 WorkCover Queensland v AMACA Pty Ltd [2012] QCA 240�������������������������������������������������������������� 108 Canada Agricultural Credit Corporation of Saskatchewan v Pettyjohn (1991) 90 Sask R 206������������������������������������������������������������������������������������������������������������������������ 221 Air Canada v M&L Travel [1993] 3 SCR 787��������������������������������������������������������������������������������� 234–35 BMP Global Distribution [2009] SCC 15, (2009) 304 DLR (4th) 292���������������������������������� 214–15, 222 British Columbia v National Bank of Canada (1994) 119 DLR (4th) 669������������������������������������������ 216 CIBC v Otto Timm Enterprises Ltd (1995) 130 DLR (4th) 91������������������������������������������������������������� 375 Citadel General Assurance v Lloyds Bank Canada [1997] 3 SCR 805�������������������������������������������������� 236 Jones v de Marchant (1916) 28 DLR 561���������������������������������������������������������������������������������27, 213, 286 Mehta Estate v Mehta Estate (1993) 104 DLR (4th) 24����������������������������������������������������������������������� 158 Pecore v Pecore [2007] SCC 17, [2007] 1 SCR 838������������������������������������������������������������������������� 158–59 Re Kolari (1982) 36 OR (2d) 473���������������������������������������������������������������������������������������������������������� 168 Re Household Products Ltd and Federal Business Development Bank (1981) 124 DLR (3d) 325����������������������������������������������������������������������������������������������������������������� 348 RBC Dominion Securities v Dawson (1994) 111 DLR (4th) 230������������������������������������������������� 173, 225 Re OSC & Greymac [1988] 2 SCR 172, (1988) 52 DLR (4th) 767������������������������������������������������������ 218 Royal Bank of Canada v Sparrow Electric Co (1997) 143 DLR (4th) 385�������������������������������������������� 371 Saylor v Madsen’s Estate [2007] SCC 18����������������������������������������������������������������������������������������� 158–59 Sharp v MacNeil (1913) 15 DLR 73������������������������������������������������������������������������������������������������������ 168 Simpson v Gowers (1981) 121 DLR (3d) 709��������������������������������������������������������������������������������������� 189 Vowles v Isles Finance Co [1940] 4 DLR 357������������������������������������������������������������������������������������������ 63 Ireland Re JD Brian Ltd [2011] IEHC 113�������������������������������������������������������������������������������������������������������� 348 Re Ffrench’s Estate (1887) 21 LR Ir 83�������������������������������������������������������������������������������������������������� 180

Table of Cases xv Re Keenan Bros [1986] BCLC 242 (ISC)�������������������������������������������������������������������������������������� 349, 352 Webb & O’Connell v AG [1988] IR 353 (SC)��������������������������������������������������������������������������������� 12, 252 New Zealand Agnew v Commissioner of Inland Revenue [2001] UKPC 28��������������������������������������������������������������� 371 Aikens Agencies v Richardson [1967] NZLR 65������������������������������������������������������������������������������������ 189 Cigna Life Insurance v Westpac [1996] 1 NZLR 80������������������������������������������������������������������������������ 236 Coleman v Harvey [1989] 1 NZLR 723�������������������������������������������������������������������������������������������������� 29 Fletcher Construction Co Ltd v Webster [1948] NZLR 514������������������������������������������������������������������ 245 Hadlee v CIR [1991] 3 NZLR 517��������������������������������������������������������������������������������������������������������� 325 Harding v CIR [1977] 1 NZLR 337������������������������������������������������������������������������������������������������������ 240 Jeffcott v Andrew’s Motors [1960] NZLR 721����������������������������������������������������������������������������������������� 72 JS Brooksbank & Co (Australasia) Ltd v EXTFX Ltd [2009] NZCA 122��������������������������������������������� 373 Mitchell v Jones (1905) 24 NZLR 932����������������������������������������������������������������������������������������������������� 68 Mountain Road (no 9) Ltd v Michael Edgely Corp Pty Ltd [1999] 1 NZLR 335����������������������������� 90, 93 New Zealand Bloodstock v Waller [2005] NZCA 254��������������������������������������������������������������������������� 375 Nimmo v Westpac [1993] 3 NZLR 218������������������������������������������������������������������������������������������������� 235 NZ Securities & Finance Ltd v Wrightcars Ltd [1976] 1 NZLR 77��������������������������������������������������������� 68 Pacific Software Technology Ltd v Perry Group Ltd [2004] 1 NZLR 164���������������������������������������������� 184 Pongakawa Sawmill Ltd v New Zealand Forest Products Ltd [1992] 3 NZLR 304������������������������������ 286 Re Muller [1953] NZLR 879����������������������������������������������������������������������������������������������������������������� 157 Re Registered Securities [1991] 1 NZLR 545����������������������������������������������������������������������������������������� 218 Swindle v Matakana Estate Ltd [2011] NZHC 1345������������������������������������������������������������������������ 29, 42 Telecom Vanuatu Ltd v Optus Networks Pty Ltd [2005] NSWSC 951������������������������������������������������� 185 Waitomo Wools Ltd v Nelsons Ltd [1974] 1 NZLR 484������������������������������������������������������������������������ 307 Westpac Banking Corporation v Savin [1985] 2 NZLR 41������������������������������������������������������������������� 234 Singapore Antariksa Logistics Pte v McTrans Cargo (S) Pte Ltd [2012] 4 SLR 250���������������������������������������������� 190 APL Pte Ltd v Peer Voss [2002] SGCA 41����������������������������������������������������������������������������������������������� 17 Chan Yuen Lan v See Fong Mun [2014] SGCA 36�������������������������������������������������������������������������������� 167 Crédit Agricole Indosuez v BNP Paribas [2000] 2 SLR 1���������������������������������������������������������������������� 149 Diamond Centre Pte Ltd v R Esmerian Ltd [1996] 3 SLR 132��������������������������������������������������������������� 63 Electro Magnetic (S) Ltd v Development Bank of Singapore Ltd [1994] 1 SLR 734����������������������������� 291 Keppel Tatlee Bank Ltd v Bandung Shipping Pte Ltd [2002] SGCA 46������������������������������������������������ 145 The Dolphina [2011] SGHC 273���������������������������������������������������������������������������������������������������������� 146 UCO Bank v Golden Shore Transportation Pte Ltd [2005] SGCA 42�������������������������������������������������� 146 South Africa Johnstone and Wilmot Pty v Kaine (1928) 23 Tas LR 43������������������������������������������������������������������������ 25 Vereins-und Westbank v Veren Investments Ltd 2000 (4) SA 238��������������������������������������������������������� 149 United Kingdom 24 Seven Utility Services Ltd v Rosekey Ltd [2003] EWHC 3415��������������������������������������������������������� 108 A v B [1984] 1 All ER 265��������������������������������������������������������������������������������������������������������������������� 309 Abaowa v Close Invoice Finance Ltd [2010] EWHC 1920�������������������������������������������������������������������� 159 Abbey National BS v Cann [1991] 1 AC 56 (HL)������������������������������������������������������������������������� 281, 285

xvi  Table of Cases Abou-Rahman v Abacha [2005] EWHC 2662�������������������������������������������������������������������������������������� 233 AEG (UK) Ltd v Lewis [1993] 2 Bank LR 119�������������������������������������������������������������������������������������� 135 Aegean Sea Traders Corporation v Repsol Petroleo SA [1998] 2 Lloyds Rep 39����������������������������������� 146 Agip (Africa) Ltd v Jackson [1990] Ch 260������������������������������������������������������������������������������������������� 233 Agip (Africa) Ltd v Jackson [1992] 4 All ER 451 (CA)������������������������������������������������������������������������� 214 Agip (Africa) Ltd v Jackson [1992] Ch 540 (CA)���������������������������������������������������������������������������������� 210 AIB Finance Ltd v Debtors [1998] 2 All ER 929����������������������������������������������������������������������������������� 338 AIB Group v Mark Redler & Co [2014] UKSC 58�������������������������������������������������������������������������������� 209 Air Jamaica v Charlton [1999] 1 WLR 1399 (PC)����������������������������������������������������������������������� 164, 167 AL Underwood Ltd v Liverpool & Martins [1924] 1 KB 775���������������������������������������������������������������� 228 Albermarle Supply Co Ltd v Hind & Co [1928] 1 KB 307 (CA)���������������������������������������������������������� 306 Alcock v Smith [1892] 1 Ch 238 (CA)�������������������������������������������������������������������������������������������������� 138 Aldridge v Johnson (1857) 7 E&B 885, 119 ER 1476������������������������������������������������������������������������ 43–45 Alfred McAlpine Ltd v Panatown Ltd [2001] 1 AC 518 (HL)��������������������������������������������������������������� 259 Ali v Khan [2002] EWCA Civ 974�������������������������������������������������������������������������������������������������������� 160 Allcard v Skinner (1887) LR 36 Ch D 145�������������������������������������������������������������������������������������������� 175 Aluminium Vaasen v Romalpa Aluminium [1976] 1 WLR 676 (CA)������������������������������������������������� 287 Aluminium Vaassen v Romalpa Aluminium [1976] 2 All ER 552 (CA)���������������������������������������������� 284 American Express International Banking Corporation Ltd v Hurley [1986] BCLC 52������������������������ 334 Antoni v Antoni [2007] UKPC 10, [2007] WTLR 1335����������������������������������������������������������������������� 159 Antony v Haney (1832) 3 Bing 187������������������������������������������������������������������������������������������������������� 202 Arab Bank Ltd v Ross [1952] 2 QB 216����������������������������������������������������������������������������������������� 138, 142 Arden v Arden (1885) 29 Ch D 702������������������������������������������������������������������������������������������������������ 104 Armory v Delamirie (1772) 1 Str 505, 93 ER 644����������������������������������������������������������������������12, 15, 192 Armour v Thyssen Edelstahlwerke [1990] 2 WLR 810�������������������������������������������������������������������������� 284 Armstrong v Winnington Networks Ltd [2012] EWHC 10����������������������������������������������������������� 155, 236 Aroso v Coutts & Co [2002] 1 All ER���������������������������������������������������������������������������������������������������� 158 Arrow Shipping Co Ltd v Tyne Improvement Commissioners [1894] AC 508���������������������������������������� 25 Arthur D Little Ltd v Ableco Finance LLC [2002] EWHC 701 (Ch)���������������������������������������������������� 353 Arthur v AG of the Turks and Caicos Islands [2012] UKPC 30.����������������������������������������������������������� 236 Ashborder BV v Green Gas Power Ltd [2004] EWHC 1517����������������������������������������������������������������� 346 Ashby v Tolhurst [1937] 2 KB 242 (CA)��������������������������������������������������������������������������������������� 184, 240 Association [1938] 2 KB 147 (CA)���������������������������������������������������������������������������������������������������������� 64 Astley Industrial Trust v Miller [1968] 2 All ER 36�������������������������������������������������������������������������������� 62 Atari Corporation v Electronics Boutiquestores UK Ltd [1998] QB 539 (CA)��������������������������������� 40–41 BAB v Parker [1982] QB 1004 (CA)����������������������������������������������������������������������������������������������������� 253 Baillie v Edwards (1848) 2 HLC 74������������������������������������������������������������������������������������������������������� 294 Baker v Barclays Bank [1955] 2 All ER 571������������������������������������������������������������������������������������������ 194 Banco Santander SA v Bayfern Ltd [2000] 1 All ER (Comm) 776������������������������������������������������������ 149 Bank of America v Arnell [1999] Lloyds Rep Banking 399������������������������������������������������������������������ 211 Bank of England v Vagliano Bros [1891] AC 107 (HL)������������������������������������������������������������������������ 133 Bank Tejarat v HSBC [1995] 1 Lloyds Rep 239������������������������������������������������������������������������������������ 214 Banque Belge pour l’Etranger v Hambrouck [1921] 1 KB 321������������������������������������������������������������� 214 Banque Financière de la Cité v Parc (Battersea) Ltd [1999] 1 AC 221 (HL)��������������������������������������� 229 Barbados Trust Co (BTC) Ltd v Bank of Zambia [2007] EWCA Civ 148�������������������������������������� 113–15 Barclays Bank Ltd v Aschaffenburger [1967] 1 Lloyds Rep 387 (CA)�������������������������������������������������� 143 Barclays Bank Plc v Astley Industrial Trust [1970] 2 QB 527������������������������������������������������������� 136, 139 Barclays Bank plc v Unicredit Bank AG [2012] EWHC 3655�������������������������������������������������������������� 116 Barclays Bank v WJ Simms, son & Cooke Ltd. [1980] QB 677������������������������������������������������������������� 176 Barker v Bell [1971] 1 WLR 983 (CA).��������������������������������������������������������������������������������������������������� 74

Table of Cases xvii Barker v Furlong [1891] 2 Ch 174������������������������������������������������������������������������������������������������ 190, 193 Barlow Clowes Int’l v Vaughan [1992] 4 All ER 22 (CA)��������������������������������������������������������������� 218–19 Barlow Clowes v Eurotrust [2005] UKPC 37���������������������������������������������������������������������������������������� 233 Barton v Armstrong [1976] AC 104 (PC)��������������������������������������������������������������������������������������������� 175 Bassano v Toft [2014] EWHC 377�������������������������������������������������������������������������������������������������������� 301 BBMB Finance (Hong Kong) Ltd v EDA Holdings Ltd [1990] 1 WLR 409 (PC)��������������������������������� 196 BCCI v Akindele [2001] Ch 437 (CA)�������������������������������������������������������������������������������������������� 235–36 Belmont Finance v Williams [1980] 1 All ER 393��������������������������������������������������������������������������� 235–36 Belvoir Finance Co. Ltd v Harold G Cole & Co. Ltd [1969] 1 WLR 1877���������������������������������������� 60, 62 Bennet v Bennet (1879) 10 Ch D 474 (CA)������������������������������������������������������������������������������������ 158–59 Beverley Acceptances Ltd v Oakley [1982] RTR 417������������������������������������������������������������������������������� 60 Bexhill (UK) Ltd v Razzaq [2012] EWCA Civ 1376������������������������������������������������������������������������������� 89 Bibby Factors Northwest Ltd v HFD Ltd [2015] EWCA Civ 1908 ������������������������������������������������������� 295 Bibby Trade Finance Ltd v McKay [2006] EWHC 2836����������������������������������������������������������������������� 279 Biddle v Bond (1865) 5 B&S 224����������������������������������������������������������������������������������������������������������� 243 Biggerstaff v Rowan’s Wharf Ltd [1896] Ch 366����������������������������������������������������������������������������������� 354 Biggs v Hoddinott [1898] 2 Ch 307 (CA)��������������������������������������������������������������������������������������������� 321 Bim Kemi AB v Blackburn Chemicals Ltd [2001] EWCA Civ 457����������������������������������������� 101–02, 295 Bim Kemi v Blackburn Chemicals Ltd [2001] EWCA Civ 457������������������������������������������������������������� 101 Bishopsgate Investment Management v Homan [1995] Ch 211 (CA)����������������������������������� 216, 219–20 Blade v Higgs (1861) 10 CB NS 713����������������������������������������������������������������������������������������������������� 202 Blue Sky One Ltd v Mahan Air [2010] EWHC 631 (Comm)�������������������������������������������������������������� 277 BMW Financial Services Ltd v Bhagwanai [2007] EWCA Civ 1230���������������������������������������������������� 191 Bofinger v Kingsway Group Ltd [2009] HCA 44����������������������������������������������������������������������������������� 230 Bondina Ltd v Rollaway Shower Blinds Ltd [1986] 1 All ER 564 (CA)������������������������������������������������ 139 Booth Steamship Co Ltd v Cargo Fleet Iron Co Ltd [1916] 2 KB 570��������������������������������������������������� 311 Borden v Scottish Timber Products Ltd [1981] Ch 25��������������������������������������������������������������������� 27, 285 Borealis AB v Stargas Ltd [2001] UKHL 17, [2002] 2 AC 205������������������������������������������������� 17, 147–48 Boscawen v Bajwa [1996] 1 WLR 328 (CA)����������������������������������������������������������������������������������������� 229 Boughton v Boughton (1739) 1 Atk 625�������������������������������������������������������������������������������������������������� 50 Bowmaker Ltd v Wycombe Motors Ltd [1946] KB 505������������������������������������������������������������������������� 307 Bowmakers v Barnet Instruments [1945] 2 KB 325������������������������������������������������������������������������������ 153 Brandao v Barnett (1846) 3 CB 519������������������������������������������������������������������������������������������������������ 308 Brandeis Goldschmidt & Co v Western Transport Ltd [1891] QB 864������������������������������������������� 196–97 Brandt v Liverpool, Brazil & River Plate Steam Navigation Co Ltd [1924] 1 KB 575������������������������� 146 Brandt’s [1905] AC 454 (HL)����������������������������������������������������������������������������������������������������������������� 98 Brice v Bannister (1878) 3 QBD 569������������������������������������������������������������������������������������������������������� 86 Brierley v Kendall (1852) 17 QB 937, 117 ER 1540������������������������������������������������������������������������������ 192 Brink’s Mat v Abu-Saleh [1996] CLC 133��������������������������������������������������������������������������������������������� 232 Bristol & West BS v Mothew [1996] 4 All ER 698 (CA)����������������������������������������������������������������������� 337 Bristol & West BS v Mothew [1998] Ch 1 (CA)������������������������������������������������������������������������������������ 180 Bristol & West Plc v Bartlett [2002] EWCA Civ 1181��������������������������������������������������������������������������� 327 Bristol Airport Plc v Powdrill [1990] Ch 744 (CA)����������������������������������������������������������������264, 306, 311 British Cash and Parcel Conveyors Ltd v Lamson Store Service Co Ltd [1908] 1 KB 1006 (CA)��������������������������������������������������������������������������������������������������������������������� 107 British North American Elevator v Bank of British North America [1919] AC 658����������������������������� 235 Brown v Bennett [1998] 2 BCLC 97������������������������������������������������������������������������������������������������������ 232 Brownton v Edward Moore Imbucon Ltd [1985] 3 All ER 499 (CA)��������������������������������������������������� 107 Buchler v Talbot [2004] UKHL 9, [2004] 2 AC 298����������������������������������������������������������������������������� 362 Buckley v Gross (1868) 3 B&S 566���������������������������������������������������������������������������������������������������������� 28

xviii  Table of Cases Building & Civil Engineering Ltd v Post Office [1966] 1 AC 247 (HL)������������������������������������������������ 246 Bulkhaul Ltd v Rhodia Organique Fine Ltd [2008] EWCA Civ 1452�������������������������������������������������� 247 Burgess v Rawnsley [1975] Ch 429������������������������������������������������������������������������������������������������������������ 9 Burlinson v Hall (1884) 12 QBD 347����������������������������������������������������������������������������������������������������� 83 Bushel v Miller (1718) 1 Str 128, 93 ER 428����������������������������������������������������������������������������������������� 202 Business Computers Ltd v Anglo-African Leasing Ltd [1977] 1 WLR 578������������������������������������������� 102 Cahn v Pockett’s Bristol Channel Steam Packet Co Ltd [1899] 1 QB 648���������������������������������������������� 67 Caldwell v Car & Universal Finance Ltd [1965] 1 QB 525������������������������������������������������������������������� 179 Calisher v Forbes (1871) 7 Ch App 109������������������������������������������������������������������������������������������������ 104 Calor Gas Ltd v Homebase Ltd [2007] EWHC 1173���������������������������������������������������������������������������� 201 Camdex International v Bank of Zambia [1998] QB 22 (CA)������������������������������������������������������������� 108 Car & Universal Finance Co. Ltd v Caldwell [1965] 1 QB 525������������������������������������������������������ 64, 174 Carl Zeiss v Herbert Smith [1969] 2 Ch 269����������������������������������������������������������������������������������������� 234 Carlos Federspiel v Charles Twigg [1957] 1 Lloyds Rep 240������������������������������������������������������������� 44–45 Carter v Wake (1877) 4 Ch D 605��������������������������������������������������������������������������������������������������������� 299 Caterpillar (NI) Ltd v John Holt & Co (Liverpool) Ltd [2013] EWCA Civ 1232������������������������������������������������������������������������������������������������������ 287–88, 382 Caudle v LD Law Ltd [2008] EWHC 374, [2009] 2 All ER 1020�������������������������������������������������������� 192 Caxton Publishing Co Ltd v Sutherland Publishing Co Ltd [1939] AC 178 (HL) 202����������������������������������������������������������������������������������������������������������� 184, 190 Cebora SNC v SIP (Industrial Products) Ltd [1976] 1 Lloyds Rep 271 (CA)�������������������������������������� 142 Central Insurance Co Ltd v Seacalf Shipping Corporation [1983] 2 Lloyds Rep 25 (CA)�������������������������������������������������������������������������������������������������������������� 89 Central Newbury Car Auctions Ltd v Unity Finance [1957] 1 QB 371 (CA)����������������������������������������� 58 Chapman v Pitts [2010] EWHC 1746�������������������������������������������������������������������������������������������������� 275 Chase Manhattan v Israel-British Bank [1981] Ch 105��������������������������������������������������������������� 169, 176 Cheah Theam Swee v Equiticorp [1992] 1 AC 472 (PC)���������������������������������������������������������������������� 282 Cheltenham & Gloucester BS v Appleyard [2004] EWCA Civ 291������������������������������������������������������ 230 China Pacific SA v Food Corporation of India [1982] AC 939 (HL)���������������������������������������������� 243–44 Chinn v Collins [1981] AC 533 (HL)���������������������������������������������������������������������������������������������������� 121 Chubb Cash v John Crilley Ltd [1983] 1 WLR 599������������������������������������������������������������������������������� 195 Churchill & Sim v Goddard [1937] 1 KB 92 (CA)����������������������������������������������������������������� 135, 142–43 City Fur Manufacturing Co Ltd v Fureenbond (Brokers) London Ltd [1937] 1 All ER 799����������������������������������������������������������������������������������������������������������������������� 13, 68 City Index v Charter Plc [2006] EWHC 2508�������������������������������������������������������������������������������������� 237 City of London Building Society v Flegg [1988] AC 54 (HL)������������������������������������������������������������������ 79 Cityland and Property (Holdings) Ltd v Dabrah [1968] Ch 166���������������������������������������������������������� 321 Claydon v Bradley [1987] All ER 522��������������������������������������������������������������������������������������������������� 131 Clayton v Le Roy [1911] 2 KB 1031 (CA)��������������������������������������������������������������������������������������������� 191 Clayton’s Case (1816) 1 Mer 564, 35 ER 778���������������������������������������������������������������������������������� 217–19 Clifford Chance v Silver [1992] Bank LR 11����������������������������������������������������������������������������������� 138–39 Clough Mill v Martin [1985] 1 WLR 111 (CA) 119����������������������������������������������������������������������� 27, 285 Club Cruise Entertainment & Travelling Services Ltd v Department of Transport [2008] EWHC 2794������������������������������������������������������������������������������������������������������ 189 Clutton v Attenborough [1897] AC 90 (HL)����������������������������������������������������������������������������������������� 133 Coates v Moore [1903] 2 KB 140����������������������������������������������������������������������������������������������������������� 353 Cochrane v Green (1860) 9 CB (NS) 448���������������������������������������������������������������������������������������������� 295 Cochrane v Moore [1890] 2 QBD 57 (CA)��������������������������������������������������������������������������������������������� 51 Coggs v Barnard (1703) 2 Ld Raym 909, 92 ER 107�������������������������������������������������������������� 243–44, 297 Colbeck v Diamanta (UK) Ltd [2002] EWHC 616������������������������������������������������������������������������������ 195

Table of Cases xix Collier v Collier [2002] EWCA Civ 1095���������������������������������������������������������������������������������������������� 160 Colonial Mutual General Insurance Co Ltd v ANZ Banking Group Ltd [1995] 1 WLR 1140 (PC)�������������������������������������������������������������������������������������������������������������������� 85 Commerzbank v Gareth Price-Jones [2003] EWCA Civ 1663������������������������������������������������������ 173, 225 Commerzbank v IMB Morgan [2004] EWHC 2771����������������������������������������������������������������������������� 218 Commissioner of Inland Revenue v Agnew (Re Brumark) [2001] UKPC 28��������������������������������������� 350 Compaq Computer v Abercorn Group [1993] BCLC 602��������������������������������������������������������������������� 287 Consolidated Co v Curtis & Son [1892] 1 QB 495�������������������������������������������������������������������������������� 190 Cooke v Haddon (1862) 3 F &F 229������������������������������������������������������������������������������������������������������ 299 Co-Operative Group Ltd v Birse Developments Ltd [2014] EWHC 530 (TCC)���������������������������� 94, 111 Costello v Chief Constable of Derbyshire [2001] 1 WLR 1437�������������������������������������������������������������� 192 Coulter v Chief Constable of Dorsetshire Police [2004] EWHC 3391����������������������������������������������������� 93 Coventry Shepherd & Co v Great Eastern Rly Co (1883) 11 QBD 776�������������������������������������������������� 59 Cowan de Groot v Eagle Trust [1992] 4 All ER 700������������������������������������������������������������������������������ 235 Credit Agricole Corporation and Investment Bank v Papadimitriou [2015] UKPC 13����������������������������������������������������������������������������������������������������������������211, 223, 236 Credit Lyonnais Nederland NV v ECGD [1998] 1 Lloyds Rep 19 (CA)���������������������������������������������� 140 Cretanor Maritime Co Ltd v Irish Marine Management Ltd [1978] 1 WLR 966 (CA)������������������������������������������������������������������������������������������������������������������� 356 Criterion Properties Ltd v Stratford Properties Ltd [2004] UKHL 28������������������������������������������ 228, 234 Crouch v Credit Foncier of England Ltd (1873) LR 8 QB 374�������������������������������������������������������� 88, 131 Cuckmere Brick Co v Mutual Finance Ltd [1971] Ch 949�������������������������������������������������������������� 331–33 Cukurova Finance International Ltd v Alfa Telecom Turkey Ltd [2009] UKPC 19������������������������������ 329 Cundy v Lindsay (1878) 3 App Cas 459 (HL)�������������������������������������������������������������������� 55, 65–66, 154 Curran v Newpark Cinemas Ltd [1951] 1 All ER 295���������������������������������������������������������������������������� 86 Currie v Misa (1875) LR 10 Exch 153�������������������������������������������������������������������������������������������� 134–35 Curtis v Pulbrook [2011] EWCA Civ 167����������������������������������������������������������������������������������������� 96–97 Customs & Excise Comrs v Everwine [2003] EWCA Civ 953����������������������������������������������������������������� 43 Davey & Co v Williamson & Sons [1898] 2 QB 194����������������������������������������������������������������������������� 347 Davies v Rees (1886) 17 QBD 408������������������������������������������������������������������������������������������������ 275, 323 Dawson v Isle [1906] 1 Ch 633�������������������������������������������������������������������������������������������������������������� 131 Day v Royal College of Music [2013] EWCA Civ 191����������������������������������������������������������������������������� 53 DCD Factors Ltd v Ramada Trading Ltd [2007] EWHC 2820���������������������������������������������������� 136, 150 Dean v Whittaker (1824) 1 C&P 347, 171 ER 1225����������������������������������������������������������������������������� 206 Dearle v Hall (1828) 3 Russ 1, 38 ER 475��������������������������������������������������������������������������15, 98, 125, 382 Den Norske Bank v Acemex Management Ltd [2003] EWCA Civ 1559���������������������������������������������� 335 Dennant v Skinner & Collorn [1948] 2 KB 164�������������������������������������������������������������������������������������� 37 Derry v Peek (1889) LR 14 App Cas 337���������������������������������������������������������������������������������������������� 175 Deutsche Morgan Grenfell v IRC [2006] UKHL 546���������������������������������������������������������������������������� 175 Devereux v Barclay (1819) 2 B & Ald 702�������������������������������������������������������������������������������������������� 246 Deverges v Sandeman, Clark & Co [1902] 1 Ch 579 (CA)���������������������������������������������������������� 302, 332 Devonald v Rosser & Sons [1906] 2 KB 728 (CA)�������������������������������������������������������������������������������� 130 DF Mount v Jay & Jay (Provisions) Ltd [1960] 1 QB 159�������������������������������������������������������������������� 311 Diamond v Graham [1968] 1 WLR 1061 (CA)������������������������������������������������������������������������������������ 135 Dickonson v Burrell (1866) LR 1 Eq 337���������������������������������������������������������������������������������������������� 180 Doe d Garnons v Wright (1826) 5 B&C 671, 108 ER 250���������������������������������������������������������������������� 51 Don King Productions Ltd v Warren [2000] Ch 291��������������������������������������������������������������� 112–13, 115 Donald v Suckling (1866) LR 1 QB 585������������������������������������������������������������������������������������������������ 250 Donaldson v Donaldson (1854) Kay 711, 69 ER 303������������������������������������������������������������������������������ 86 Dornoch Ltd v Westminster International BV [2009] EWHC 889 (Admrlty)����������������������������� 312, 315

xx  Table of Cases Douglas v Hello! [2003] EWHC 786, [2003] 3 All ER 996���������������������������������������������������������������������� 4 Douglas v Hello! [2007] UKHL 21, [2008] 1 AC 1������������������������������������������������������������������������� 14, 156 Douglas Valley Finance Co Ltd v S Hughes (Hirers) Ltd [1969] 1 QB 738������������������������������������������ 191 Downsview [1993] AC 295 (HL)���������������������������������������������������������������������������������������������������������� 334 Downsview Nominees Ltd v First City Corporation Ltd [1993] AC 295 (PC)��������������320, 322, 333, 361 Driver v Broad [1893] 1 QB 744����������������������������������������������������������������������������������������������������������� 356 DTC (CNC) Ltd v Gary Sergeant & Co [1996] 2 All ER 369��������������������������������������������������������������� 309 Du Jardin v Beadman Bros [1952] 2 QB 712������������������������������������������������������������������������������������������ 62 Dublin City Distillery v Doherty [1914] AC 823 (HL)����������������������������������������������������52, 254, 298, 300 Duncan, Fox & Co v North and South Wales Bank (1880) 6 App Cas 1 (HL)������������������������������������ 140 Durham Bros v Robertson [1898] 1 QB 765 (CA)���������������������������������������������������������������������������� 83, 89 Dyer v Dyer (1788) 2 Cox Eq 92, 30 ER 42������������������������������������������������������������������������������������������ 157 E Pfeiffer Weinkellerei-Weineinkauf Gmbh v Arbuthnot Factors Ltd [1988] 1 WLR 150��������������������������������������������������������������������������������������������������������������������� 103, 287 Eagle Trust plc v SBC Securities Ltd [1994] 1 WLR 484������������������������������������������������������������������������� 63 Eagle Trust v SBC Securities [1992] 4 All ER 488��������������������������������������������������������������������������������� 235 East West Corp v DKBS 1912 [2003] EWCA Civ 83, [2003] QB 1509�������������������������������������������������� 17 East West Corporation v DKBS [2003] EWCA Civ 83�����������������������������������������������������������147, 251, 259 Eastern Distributors Ltd v Goldring [1957] 2 QB 600 (CA) 611������������������������������������������������������������ 58 Easton v London Joint Stock Bank (1886) 34 Ch D 95 (CA)���������������������������������������������������������������� 131 Easton v Pratchett (1835) 1 Cr M & R 798, 149 ER 1302�������������������������������������������������������������������� 133 Edward Nelson & Co Ltd v Faber & Co [1903] 2 KB 367��������������������������������������������������������������������� 100 Edwards v Newland & Co [1950] 2 KB 534���������������������������������������������������������������������������������� 245, 248 Eide (UK) Ltd v Lowndes Lambert [1999] QB 199 (CA)��������������������������������������������������������������������� 309 El Ajou v Dollar Land Holdings [1993] 3 All ER 717������������������������������������������������������������������� 168, 179 Elders Pastoral Ltd v Bank of New Zealand (no 2) [1990] 1 WLR 1478 (PC) 1483������������������������������ 92 Elektrim SA v Vivendi Holdings 1 Corp [2008] EWCA Civ 1178����������������������������������������������������������� 25 Ellis v Ellis (1909) 26 Times LR 166����������������������������������������������������������������������������������������������������� 176 Elphick v Barnes (1880) 5 CPD 321�������������������������������������������������������������������������������������������������������� 41 Elvin and Powell Ltd v Plummer Roddis Ltd (1933) 50 TLR 158��������������������������������������������������������� 253 Embiricos v Anglo-Austrian Bank [1905] 1 KB 677����������������������������������������������������������������������������� 131 Empresa Exportada de Azucar v Industria Azucarera Nacional SA (The Playa Larga) [1983] 2 Lloyds Rep 171 (CA)��������������������������������������������������������������������� 197 ENE Kos 1 Ltd v Petroleo Brasileiro SA (no 2) [2012] UKSC 17���������������������������������������������������� 243–44 English and Scottish Mercantile Investments v Brunton [1892] 2 QB 706������������������������������������������� 279 Erlanger v New Sombrero Phosphate Co (1877) LR 5 Ch D 73������������������������������������������������������������ 177 Essery v Cowlard (1884) 26 Ch D 194������������������������������������������������������������������������������������������ 165, 171 Evans v Rival Granite Quarries Ltd [1910] 2 KB 979 (CA)��������������������������������������������������346, 356, 359 Explora Group Plc v Hesco Bastion Ltd [2005] EWCA Civ 646����������������������������������������������������������� 114 Exportadora Valle de Colina SA v AP Moller-Maersk A/S [2010] EWHC 3224���������������������������������� 258 F Sandeman & Sons v Tyzack & Branfoot Steamship Co [1913] AC 680��������������������������������������������� 213 Fadallah v Pollak [2013] EWHC 3159���������������������������������������������������������������������������������������� 67–68, 76 Farah Constructions Pty Ltd v Say-Dee Pty Ltd [2007] HCA 22��������������������������������������������������������� 228 Farquharson Bros. & Co. v King [1902] AC 325 (HL)���������������������������������������������������������������������������� 58 FC Jones v Jones [1997] Ch 159 (CA) 169���������������������������������������������������������������������� 212, 214–15, 222 Federal Commerce & Navigation Co Ltd v Molena Alpha Ltd [1978] 1 QB 927 (CA)�������������������������������������������������������������������������������������������������������������� 101, 294 Federal Republic of Brazil v Durant International Corporation [2015] UKPC 35������������������������������� 220 Felthouse v Bindley (1862) 11 CB (NS) 869������������������������������������������������������������������������������������������� 40 FG Skerritt Ltd v Caledonian Building Services Ltd [2013] EWHC 718���������������������������������������������� 293

Table of Cases xxi FHR European Ventures v Mankarious [2014] UKSC 45��������������������������������������������������������������������� 211 Fibrosa Spolka Ackcjyna v Fairbairn Lawson [1943] AC 32 (HL)�������������������������������������������������������� 171 Filby v Mortgage Express (No 2) Ltd [2004] EWCA Civ 759��������������������������������������������������������������� 230 Fire Nymph Products Ltd v The Heating Centre Property Ltd (1992) 7 ACSR 365����������������������������� 346 Fletcher v Chief Constable of Leicestershire [2013] EWHC 3357��������������������������������������������������������� 254 Fliptex Ltd v Hogg [2004] EWHC 1280������������������������������������������������������������������������������������������������ 364 Foamcrete Ltd v Thrust Engineering Ltd [2000] EWCA Civ 351������������������������������������������������� 115, 356 Foley v Hill (1848) 2 HLC 28 ������������������������������������������������������������������������������������������������������� 217, 235 Folkes v King [1923] 1 KB 282���������������������������������������������������������������������������������������������������������������� 61 Force India Formula One Team Ltd v 1 Malaysia Racing Team SDN BHD [2012] EWHC 616�������������������������������������������������������������������������������������������������������������� 4 Forsythe International (UK) Ltd v Silver Shipping Co Ltd [1994] 1 WLR 1334������������������������������ 69, 72 Forthright Finance Ltd v Carlyle Finance Ltd [1997] 4 All ER 90 (CA)���������������������������������������������� 257 Foskett v McKeown [2001] 1 AC 102 (HL)�������������������������������������������������������27, 174, 210–11, 213, 217, 219–20, 222–23, 225, 227–28, 286, 305 Foster v Cockerell (1835) 3 Cl & Fin 456��������������������������������������������������������������������������������������� 104, 126 Foster v Spencer [1996] 2 All ER 672���������������������������������������������������������������������������������������������������� 314 Fouldes v Willoughby (1841) 5 M&W 540�������������������������������������������������������������������������������������������� 188 Four Point Garage Ltd v Carter [1985] 3 All ER 12�������������������������������������������������������������������������������� 72 Fowkes v Pascoe (1875) LR 10 Ch App 343 (CA)������������������������������������������������������������������� 158, 166–67 Fowler v Hollins (1872) LR 7 QB 616��������������������������������������������������������������������������������������������� 188–89 Franklin v Neate (1844) 13 M&W 481������������������������������������������������������������������������������������������������� 303 Fraser v Kershaw (1856) 2 K&J 496������������������������������������������������������������������������������������������������������ 194 Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480��������������������������������� 58 Fullerton v Provincial Bank of Ireland [1903] AC 309 (HL)���������������������������������������������������������������� 135 Fyffes Group v Templeman [2000] 1 Lloyds Rep 643������������������������������������������������������������������������������� 4 Gallie v Lee [1971] AC 1004 (HL)�������������������������������������������������������������������������������������������������������� 177 GE Capital Bank plc v Rushton [2005] EWCA Civ 1556����������������������������������������������������������������������� 74 Gelder, Apsimmon & Co v Sowerby Bridge Flour Society Ltd (1890) 44 Ch D 374����������������������������� 320 Geldof Metaalconstructie NV v Simon Carves Ltd [2010] EWCA Civ 667���������������������������������� 101, 295 German v Yates (1915) 32 TLR 52���������������������������������������������������������������������������������������������������������� 92 Gerrard Fairfax Holdings Ltd v Capital Bank plc [2006] EWHC 3439 (Comm)���������������������������������� 61 Gibbon v Mitchell [1990] 3 All ER 338������������������������������������������������������������������������������������������������� 176 Gilbert-Ash (Northern) Ltd v Modern Engineering (Bristol) Ltd [1974] AC 689 (HL)�������������������������������������������������������������������������������������������������������������������� 101–02 Gilchrist Watt and Sanderson Pty Ltd v York Products Pty Ltd [1970] 1 WLR 1262 (PC)������������������������������������������������������������������������������������������������������������������ 248 Giles v Thompson [1994] 1 AC 142 (HL)��������������������������������������������������������������������������������������������� 107 Gill and Duffus v Scruttons [1953] 2 All ER 977������������������������������������������������������������������������������������ 29 Gladstone v Birley (1817) 2 Mer 401���������������������������������������������������������������������������������������������������� 307 Glegg v Bromley [1912] 3 KB 474��������������������������������������������������������������������������������������������������������� 107 Glen Dimplex Home Appliances v Smith [2011] EWHC 3392������������������������������������������������������������ 233 Glencore Intl v MTI [2001] 1 Lloyds Rep 284�������������������������������������������������������������������������� 28–29, 200 Glennie v Bruce Smith [1908] 1 KB 263����������������������������������������������������������������������������������������������� 138 GMAC Commercial Finance Ltd v Mint Apparel Ltd [2010] EWHC 2452 (Comm)������������������������� 143 Gomba Holdings (UK) Ltd v Homan [1986] 1 WLR 1301���������������������������������������������������������� 336, 362 Goodman v Gallant [1986] 1 All ER 311 (CA)������������������������������������������������������������������������������������ 158 Gordon v Harper (1796) 7 TR 9, 101 ER 828��������������������������������������������������������������������������������������� 192 Gorringe v Irwell India Rubber Works and Gutta Percha Works (1887) 34 Ch D 128������������������������� 280

xxii  Table of Cases Government of Newfoundland v Newfoundland Railway Co (1888) 13 App Cas 199 (PC)������������������������������������������������������������������������������������������������������������ 102 Graham v Johnson (1869) LR 8 Eq 36�������������������������������������������������������������������������������������������������� 100 Grainge v Wilberforce (1889) 5 TLR 436���������������������������������������������������������������������������������������������� 121 Gray v G-P-T Group Ltd [2010] EWHC 1772 (Ch)��������������������������������������������������������������������� 273, 352 Gray v Thames Trains Ltd [2009] UKHL 33���������������������������������������������������������������������������������������� 162 Great Eastern Railways v Lord’s Trustees [1909] AC 109 (HL)���������������������������������������������������� 308, 310 Green v All Motors Ltd [1917] 1 KB 625����������������������������������������������������������������������������������������������� 306 Greenwood v Bennett [1972] 2 QB 36��������������������������������������������������������������������������������������������������� 199 Greenwood v Martins Bank [1933] AC 51 (HL)����������������������������������������������������������������������������������� 141 Gresley v Mousley (1859) 4 de GM&G 78�������������������������������������������������������������������������������������������� 180 Grey v IRC [1958] Ch 690 (CA)��������������������������������������������������������������������������������������������� 118, 122–23 Griffiths v Yorkshire Bank Plc [1994] 1 WLR 1427������������������������������������������������������������������������������� 347 Grupo Torras v Al-Sabah (no 5) [2001] CLC 221��������������������������������������������������������������������������������� 232 Halberstam v Gladstar Ltd [2015] EWHC 179���������������������������������������������������������������������������� 276, 323 Halesowen Presswork and Assemblies v National Westminster Bank [1972] AC 785 (HL)�������������������������������������������������������������������������������������������������������������������������� 293 Hamp v Jones (1840) 9 LJ Ch 258��������������������������������������������������������������������������������������������������������� 294 Harrold v Plenty [1901] 2 Ch 314��������������������������������������������������������������������������������������������������������� 299 Hasan v Willson [1977] 1 Lloyds Rep 431�������������������������������������������������������������������������������������������� 135 Hatton v Car Maintenance Ltd [1915] 1 Ch 621���������������������������������������������������������������������������������� 308 Heald v Carey (1852) 11 CB 977���������������������������������������������������������������������������������������������������������� 191 Healey v Healey [1915] 1 KB 938��������������������������������������������������������������������������������������������������������� 193 Healy v Howlett & Sons [1917] 1 KB 337����������������������������������������������������������������������������������������������� 46 Heap v Motorists Advisory Agency Ltd [1923] 1 KB 577������������������������������������������������������������������ 61, 63 Hedley Byrne v Heller & Co [1965] AC 465 (HL)�������������������������������������������������������������������������������� 261 Helby v Matthews [1895] AC 471 (HL)������������������������������������������������������������������������������������������������ 257 Helstan Securities Ltd v Hertfordshire CC [1978] 3 All ER 262����������������������������������������������������������� 111 Henderson & Co v Williams [1895] 1 QB 521 (CA)������������������������������������������������������������������������ 57–58 Hendry v Chartsearch Ltd [1998] CLC 1382 (CA)������������������������������������������������������������������������������� 116 Hendy Lennox (Industrial Engines) Ltd v Grahame Puttick Ltd [1984] 1 WLR 485��������������������������� 286 Hepburn v A Tomlinson (Hauliers) Ltd [1966] AC 451 (HL)�������������������������������������������������������������� 260 Hibernian Bank Ltd v Gysin [1939] 1 KB 483 (CA)�������������������������������������������������������������������� 128, 130 Hillesden Securities v Ryjack Ltd [1983] 1 WLR 959���������������������������������������������������������������������������� 200 Hillsdown Nominees v Pensions Ombudsman [1997] 1 All ER 862����������������������������������������������������� 236 Hodgson v Marks [1971] Ch 892 (CA)������������������������������������������������������������������������������������������������� 167 Holroyd v Marshall (1862) 10 HLC 191, 11 ER 999����������������������������������������������������������������30, 268, 275 Holt v Heatherfield Trust Ltd [1942] 2 KB 1��������������������������������������������������������������������������������84, 86, 95 Hombourg Houtimport BV v Agrosin Private Ltd (The Starsin) [2003] UKHL 12����������������������������� 249 Hong Kong and Shanghai Banking Corporation Ltd v GD Trade Co. Ltd [1998] CLC 238���������������������������������������������������������������������������������������������������������� 129 Houghland v RR Low Ltd [1962] 1 QB 694 (CA)�������������������������������������������������������������������������������� 244 Houghton v Fayers [2001] Ch 437 (CA)����������������������������������������������������������������������������������������� 235–36 Howard Perry & Co v British Railway Board [1980] 1 WLR 1375������������������������������������������������������ 190 HSBC Rail (UK) Ltd v Network Rail Infrastructure Ltd [2005] EWCA Civ 1437����������������������� 251, 393 HSBC Rail (UK) Ltd v Network Rail Infrastructure Ltd [2006] 1 All ER (Comm) 345 (CA)������������������������������������������������������������������������������������������������������ 206, 251 Hughes v Pump House Hotel Co. Ltd [1902] 2 KB 190�������������������������������������������������������������������������� 83 Hunter v Moss [1994] 1 WLR 452 (CA)������������������������������������������������������������������������������������23, 48, 268 Hurst v Crampton Bros (Coopers) Ltd [2002] EWHC 1375������������������������������������������������������������������� 95

Table of Cases xxiii IBL v Coussens [1991] 2 All ER 133 (CA)�������������������������������������������������������������������������������������������� 198 Illingworth v Houldsworth [1904] AC 355 (HL)���������������������������������������������������������������������������������� 346 Independent Automatic Sales Ltd v Knowles & Foster [1962] 1 WLR 974����������������������������������� 269, 348 Independent Trustee Services Ltd v GP Noble Trustees Ltd [2012] EWCA Civ 195����������������������������� 224 Indian Oil Corporation Ltd v Greenstone Shipping SA [1988] QB 345�������������������������������������������������� 28 Inglis v Robertson [1898] AC 616 (HL)������������������������������������������������������������������������������������������������ 300 Ingram v Little [1961] 1 QB 31��������������������������������������������������������������������������������������������������������������� 65 International Factors Ltd v Rodriguez [1979] QB 351�������������������������������������������������������������������������� 193 International Sales v Marcus [1982] 3 All ER 551�������������������������������������������������������������������������������� 236 Ipswich Permanent Money Club v Arthy [1920] 2 Ch 257������������������������������������������������������������������� 104 IRC v Broadway Cottages [1955] Ch 20�������������������������������������������������������������������������������������������������� 23 IRC v Buchanan [1958] Ch 289������������������������������������������������������������������������������������������������������ 124–25 Irons v Smallpiece (1819) 2 B& Ald 551, 106 ER 467����������������������������������������������������������������������������� 51 Islamic Republic of Iran v Barakat Galleries Ltd [2007] EWCA Civ 1374����������������������������������� 193, 250 Ismail v Richards Butler [1996] QB 711����������������������������������������������������������������������������������������� 308–09 Isovel Contracts Ltd v ABB Building Technologies Ltd [2002] 1 BCLC 390����������������������������������������� 293 J & E Hall Ltd v Barclay [1937] 3 All ER 620 (CA)������������������������������������������������������������������������������ 196 J Pereira Fernandes SA v Mehta [2006] EWHC 813, [2006] 1 WLR 1543������������������������������������ 85, 117 Jacobs v Latour (1828) 5 Bing 130�������������������������������������������������������������������������������������������������������� 308 Jade International Steel Stahl und Eisen GmbH & Co. KG v Robert Nicholas (Steels) Ltd [1978] QB 917 (CA)������������������������������������������������������������������������������������������������������ 137 James Roscoe (Bolton) Ltd v Winder [1915] 1 Ch 62���������������������������������������������������������������������������� 216 James Talcott Ltd v John Lewis Ltd & North American Dress Co Ltd [1940] 3 All ER 592����������������������������������������������������������������������������������������������������������������������������� 86 Jarl Tra AB v Convoys Ltd [2003] EWHC 1488������������������������������������������������������������������������������������ 249 JI MacWilliam Co. Inc. v Mediterranean Shipping Co [2005] UKHL 11, [2005] 2 AC 423���������������������������������������������������������������������������������������������������������������� 16 John Taylors v Masons [2001] EWCA Civ 2106������������������������������������������������������������������������������������ 112 Johnson v Johnson Products Inc v Dal Intern Trading Co 798 F 2d 100������������������������������������������������� 78 Johnson, Matthey & Co Ltd v Constantine Terminals Ltd [1976] 2 Lloyds Rep 215��������������������������� 248 Jones v Farrell (1857) 21 De G&J 208����������������������������������������������������������������������������������������������������� 98 Jones v Firkin-Flood [2008] EWHC 2417 (Ch)�������������������������������������������������������������������������������������� 20 Jones v Gordon (1877) 2 App Cas 616�������������������������������������������������������������������������������������������������� 136 Jones v Lock (1865) 1 Ch App 25������������������������������������������������������������������������������������������������������������ 23 Jones v Marshall (1890) 24 QBD 269���������������������������������������������������������������������������������������������������� 302 Jones v Moore (1841) 4 Y& C Ex 351, 160 ER 1041������������������������������������������������������������������������������� 29 Jones v Morgan [2001] EWCA Civ 995, [2001] Lloyds Rep Banking 323������������������������������������������� 321 Joseph v Lyons (1884) 15 QBD 280������������������������������������������������������������������������������������������������������� 276 K/S Lincoln v CB Richard Ellis Hotels Ltd [2009] EWHC 2344����������������������������������������������������������� 162 Kapoor v National Westminster Bank plc [2011] EWCA Civ 1083�������������������������������������������������� 89–91 Karlshamm Oljefabriker v Eastport Navigation Co [1982] 1 All ER 208����������������������������������� 41–42, 48 Kelly v Morris (1886) LR 1 Eq 697������������������������������������������������������������������������������������������������������������ 3 Kiani v SRA [2015] EWHC 1981���������������������������������������������������������������������������������������������������������� 233 Kirk v Gregory (1876) 1 Ex D 55����������������������������������������������������������������������������������������������������������� 203 Kirkham v Attenborough [1897] 1 QB 201��������������������������������������������������������������������������������������������� 40 Kirkwood v Carroll [1903] 1 KB 531 (CA)������������������������������������������������������������������������������������������� 129 Knight v Knight (1840) 3 Beav 148, 49 ER 58��������������������������������������������������������������������������������� 23, 268 Korea Exchange Bank Ltd v Debenhams (Central Buying) Ltd [1979] 1 Lloyds Rep 548 (CA)���������������������������������������������������������������������������������������������������������� 129 Kreglinger v New Patagonia Meat & Cold Storage Co Ltd [1914] AC 25 (HL)������������������������������ 320–21

xxiv  Table of Cases Kuddus v Chief Constable of Leicestershire [2002] 1 AC 221���������������������������������������������������������������� 200 Kulkarni v Manor Credit (Davenham) Ltd [2010] EWCA Civ 69��������������������������������������������������������� 74 Kum v Wah Tat Bank Ltd [1971] 1 Lloyds Rep 439 (PC)�������������������������������������������������������������� 78, 130 Kursell v Timber Operators v Contractors Ltd [1927] 1 KB 298 (CA)��������������������������������������������� 35, 38 Kuwait Airways Corporation v Iraqi Airways Co (Nos 4 & 5) [2002] UKHL 19��������������������������������������������������������������������������������������������������������� 156, 198–99, 201 Lacave & Co v Credit Lyonnais [1897] 1 QB 148��������������������������������������������������������������������������������� 141 Lady Hood of Avalon v Mackinnon [1909] 1 Ch 476��������������������������������������������������������������������������� 176 Lamb v Eames (1871) 6 Ch App 597������������������������������������������������������������������������������������������������������ 23 Lamine v Dorrell (1701) 2 Ld Raym 1216, 92 ER 303������������������������������������������������������������������������� 196 Lampet’s Case (1612) 10 Co Rep 46����������������������������������������������������������������������������������������������������� 107 Lancashire and Yorkshire Railway Co v MacNicoll (1918) 88 LJKB 601���������������������������������������� 183–84 Lane v Dighton (1762) Amb 402�������������������������������������������������������������������������������������������������� 168, 172 Langton v Higgins (1858) 4 H&N 403, 157 ER 896������������������������������������������������������������������������� 43, 45 Larner v Fawcett [1950] 2 All ER 727��������������������������������������������������������������������������������������������������� 304 Laskar v Laskar [2008] EWCA Civ 347, [2008] 1 WLR 2695�������������������������������������������������������������� 159 Laurie & Morewood v Dudin & Sons [1926] 1 KB 223������������������������������������������������������������������������ 255 Leaf v International Galleries [1950] 2 KB 86 (CA)����������������������������������������������������������������������������� 178 Leduc v Ward (1888) 20 QBD 475�������������������������������������������������������������������������������������������������������� 147 Lee v Butler [1893] 2 QB 318 (CA)��������������������������������������������������������������������������������������������������������� 70 Legg v Evans (1840) 6 M&W 36������������������������������������������������������������������������������������������������������������ 304 Leigh & Sillavan Ltd v Aliakmon Shipping Co Ltd [1986] AC 785 (HL) 809���������������������������������������� 10 Lewis v Avery [1972] 1 QB 198��������������������������������������������������������������������������������������������������������������� 65 Lilley v Doubleday (1881) 7 QBD 510�������������������������������������������������������������������������������������������������� 246 Linden Gardens Trust Ltd v Lenesta Sludge Ltd [1994] 1 AC 85 (HL)������������������������������������������� 111–12 Lipkin Gorman [1991] 2 AC 548 (HL)������������������������������������������������������������������������������������������������� 228 Lloyd v Banks (1868) LR 3 Ch App 488������������������������������������������������������������������������������������������������ 104 Lloyds and Scottish Finance Ltd v Cyril Lord Carpet Sales Ltd [1992] BCLC 609 (HL)����������������������������������������������������������������������������������������������������������������������� 82 Lloyds and Scottish Finance Ltd v Williamson [1965] 1 WLR 404 (CA)����������������������������������������������� 58 Lloyds Bank v Bank of America National Trust and Savings Ltd [1938] 2 KB 147 (CA)����������������������������������������������������������������������������������������������������������������� 64, 303 Lloyds Bank v Savory [1933] AC 201 (HL) 229������������������������������������������������������������������������������������ 183 Load v Green (1846) 15 M&W 216, 153 ER 828���������������������������������������������������������������������������� 64, 179 Lockyer v Gibb [1967] 2 QB 243 (CA)���������������������������������������������������������������������������������������������������� 12 Logbook Loans Ltd v OFT [2011] UKUT 280��������������������������������������������������������������������������������������� 323 London & County Banking Co Ltd v London & River Plate Bank Ltd (1888) 20 QBD 232��������������������������������������������������������������������������������������������������������������������������� 131 London Flight Centre (Stansted) Ltd v Osprey Aviation Ltd [2002] BPIR 1115���������������������������������� 307 Lonrho v Fayed (no 2) [1992] 1 WLR 1������������������������������������������������������������������������������������������������ 211 Lord Advocate v University of Aberdeen 1963 SC 533����������������������������������������������������������������������������� 25 Lord Napier & Ettrick v Hunter [1993] AC 713 (HL)�������������������������������������������������������������������� 315–16 Lord v Price (1874) LR 9 Ex 54������������������������������������������������������������������������������������������������������������� 193 Lotus Cars Ltd v Southampton Cargo Handling Plc [2000] 2 All ER��������������������������������������������������� 249 Lowson v Coombes [1999] 3 WLR 720������������������������������������������������������������������������������������������������� 160 Lowther v Harris [1927] 1 KB 393���������������������������������������������������������������������������������������������������� 61–62 Lumsden & Co v TSB [1971] Lloyds Rep 114�������������������������������������������������������������������������������������� 183 Lysaght v Edwards (1876) 2 Ch 499������������������������������������������������������������������������������������������������������ 119 MA Sasson & Sons Ltd v Intl Banking Corpn [1927] AC 711 (PC)����������������������������������������������������� 150 Mackreth v Symmons (1808) 15 Ves Jun 329���������������������������������������������������������������������������������������� 312

Table of Cases xxv Macmillan Inc v Bishopsgate Investment Trust Plc (no 3) [1995] 3 All ER 747����������������������������������� 103 Malcolm v Scott (1847) 6 Hare 570, 67 ER 1290�������������������������������������������������������������������������� 102, 115 Malkins Nominees Ltd v Société Financière Mirelis SA [2004] EWHC 2641 (Ch)����������������������������������������������������������������������������������������������������������������� 195 Manchester Airport v Dutton [2000] 1 QB 133������������������������������������������������������������������������������������ 260 Manchester Trust Ltd v Furness [1895] 2 QB 539 (CA) 545���������������������������������������������������������������� 392 Mangles v Dixon (1852) 3 HLC 702����������������������������������������������������������������������������������������������� 100–01 Mara v Browne [1896] 1 Ch 199����������������������������������������������������������������������������������������������������������� 186 Marcq v Christie, Manson & Woods Ltd (t/a Christie’s) [2002] 4 All ER 1005������������������������������������ 190 Margarine Union GmbH v Cambay Prince Steamship Co [1969] 1 QB 219������������������������������� 192, 259 Marine Blast Ltd v Targe Towing Ltd [2004] EWCA Civ 346�������������������������������������������������������������� 248 Marten v Whale [1917] 2 KB 480 (CA)�������������������������������������������������������������������������������������������������� 70 Martin v Porter (1839) 5 M&W 351, 151 ER 149�������������������������������������������������������������������������������� 205 Martineau v Kitching (1872) LR 7 QB 436��������������������������������������������������������������������������������������������� 39 Mascall v Mascall (1985) 50 P&CR 119������������������������������������������������������������������������������������������������� 94 Mason v Lack (1929) 45 TLR 363��������������������������������������������������������������������������������������������������������� 129 Master v Miller (1791) 4 TR 320, 100 ER 1042�������������������������������������������������������������������������������������� 82 Mathew v TM Sutton Ltd [1994] 4 All ER 793����������������������������������������������������������������������195, 303, 331 MCC Proceeds Ltd v Lehman Bros [1998] 4 All ER 675 (CA)������������������������������������������������������������� 193 MCC v Lehman Bros [1998] 4 All ER 675 (CA)����������������������������������������������������������������������������� 21, 359 McDonnell v Mortgage Express Ltd [2001] EWCA Civ 887����������������������������������������������������������������� 162 McEntire v Crossley [1895] AC 457 (HL)��������������������������������������������������������������������������������������������� 257 McPhail v Doulton [1970] 2 All ER 228 (HL)���������������������������������������������������������������������������������������� 23 Mears v L & SWR (1862) 11 CBNS 850����������������������������������������������������������������������������������������� 205–06 Medforth v Blake [2000] Ch 86 (CA)����������������������������������������������������������������������������� 333, 336–37, 362 Melbourne Banking Corpn v Brougham (1882) 7 App Cas 307����������������������������������������������������������� 180 Melham Ltd v Burton [2006] UKHL 6, [2006] 1 WLR 2820��������������������������������������������������������������� 294 Menelaou v Bank of Cyprus [2015] UKSC 66�������������������������������������������������������������������������������� 230–31 Mercantile Bank of India Ltd v Central Bank of India Ltd [1938] AC 287�������������������������������������������� 58 Mercantile Credit Co. Ltd v Hamblin [1965] 2 QB 242 (CA)���������������������������������������������������������������� 58 Mercer v Craven Grain Storage Ltd [1994] CLC 328�������������������������������������������������������� 28–29, 213, 240 Merchant Banking Co v Bessemer Steel Co (1877) 5 Ch D 205������������������������������������������������������������ 310 Mercier v Mercier [1903] 2 Ch 98��������������������������������������������������������������������������������������������������������� 159 Meretz Investments Ltd v ACP Ltd [2006] EWHC 74������������������������������������������������������������������ 331, 334 Metaal Handel JA v Ardfields [1988] 1 Lloyds Rep 197����������������������������������������������������������������������� 242 Meux v Great Eastern Railway Co [1895] 2 QB 387������������������������������������������������������������������������������ 11 Michael Gerson (Leasing) Ltd v Wilkinson [2001] QB 514 (CA)����������������������������������������������69, 72, 255 Middleton v Pollock (1875) LR 20 Eq 29���������������������������������������������������������������������������������������������� 294 Miller v Race (1758) 1 Burr 42������������������������������������������������������������������������������������������������������ 188, 224 Mills v Charlesworth [1892] AC 231 (HL)������������������������������������������������������������������������������������������� 275 Milroy v Lord (1862) 4 De GF&J 264, 45 ER 1185����������������������������������������������������������������������24, 94, 97 Mirabita v Imperial Ottoman Bank (1878) 3 Ex D 164������������������������������������������������������������������������� 49 Mitchell v Ealing LBC [1979] 1 QB 1���������������������������������������������������������������������������������������������������� 245 Mitchell v Homfray (1881) LR 8 QBD 587������������������������������������������������������������������������������������������� 175 Mitsui & Co v Novorossiysk Shipping Co. [1993] 1 Lloyds Rep 311 (CA)������������������������������������� 52, 254 MK International Development Co Ltd v Housing Bank [1991] 1 Bank LR 74 (CA)�������������������������������������������������������������������������������������������������������� 134, 138 Model Board Ltd v Outer Box Ltd [1993] BCLC 623������������������������������������������������������������������� 285, 289 Moffatt v Kazana [1969] 2 QB 152������������������������������������������������������������������������������������������������� 26, 155 Monro v HMRC [2008] EWCA Civ 308����������������������������������������������������������������������������������������������� 314

xxvi  Table of Cases Moorgate Mercantile Co Ltd v Finch & Read [1962] 1 QB 701 (CA)������������������������������������������ 191, 198 Moorgate Mercantile Co Ltd v Twitchings [1977] AC 890 (HL) 916����������������������������������������������� 57, 59 Mordaunt Bros v British Oil and Cakes Mills [1910] 2 KB 502����������������������������������������������������������� 310 Morison & Co Ltd v Shaw Savill & Albion Co Ltd [1916] 2 KB 783���������������������������������������������������� 245 Morris v CW Martin & Sons [1966] 1 QB 716 (CA)��������������������������������������������������������������������������� 243 MS Fashions v BCCI [1993] BCC 70���������������������������������������������������������������������������������������������������� 293 Mulliner v Florence (1878) 3 QBD 485����������������������������������������������������������������������������������������� 304, 307 Muscat v Smith [2003] EWCA Civ 962������������������������������������������������������������������������������������������������ 294 Mutsui & Co v Flota Mercante Grancolombiana SA (The Ciudad de Pasto & Cuidad de Nieva) [1988] 1 WLR 1145 (CA)������������������������������������������������������������������������ 50 Naas v Westminster Bank [1940] AC 366 (HL)������������������������������������������������������������������������������������ 125 Nanka–Bruce v Commonwealth Trust [1926] AC 77 (PC)�������������������������������������������������������������������� 39 National Bank v Silke [1891] 1 QB 435������������������������������������������������������������������������������������������������ 130 National Coal Board v Gamble [1959] 1 QB 11������������������������������������������������������������������������������������� 46 National Coal Board v JE Evans & Co (Cardiff) Ltd [1951] 2 KB 861 (CA)��������������������������������������� 203 National Employers Mutual and General Insurance Ltd v Jones [1990] 1 AC 24 (HL)��������������������������������������������������������������������������������������������������������������������� 70–71 National Provincial Bank v Ainsworth [1965] AC 1175 (HL)������������������������������������������������������������� 180 National Westminster Bank Plc v Spectrum Plus Ltd [2005] UKHL 41��������������������������������351, 358, 366 Nawab Khan v Attar Singh [1936] 2 All ER 545 (PC)������������������������������������������������������������������������� 131 Nayyar v Denton Wilde Sapte [2009] EWHC 3218������������������������������������������������������������������������������ 162 Nelson v Greening & Sykes (Builders) Ltd [2007] EWCA Civ 1358����������������������������������������������� 121–22 Nelson v Larholt [1948] 1 KB 339������������������������������������������������������������������������������������������������� 171, 228 Neville v Wilson [1997] Ch 144 (CA)������������������������������������������������������������������������������������� 120–21, 325 Newlon Housing Trust Ltd v Alsulaimen [1999] 1 AC 313 (HL)��������������������������������������������������������� 125 Newtons of Wembley v Williams [1965] 1 QB 560 (CA)������������������������������������������������������������������ 71–72 Nicholson v Harper [1895] 2 Ch 415������������������������������������������������������������������������������������������������������ 68 Nicolls v Bastard (1835) 2 Cr M & R 659��������������������������������������������������������������������������������������������� 250 Nishi v Rascal Trucking Ltd 2013 SCC 33��������������������������������������������������������������������������������������������� 166 Noakes & Co Ltd v Rice [1902] AC 24 (HL)����������������������������������������������������������������������������������������� 321 Noblett v Hopkinson [1905] 2 KB 214���������������������������������������������������������������������������������������������������� 45 Nokes v Doncaster Amalgamated Collieries Ltd [1940] AC 1014��������������������������������������������������������� 106 North General Wagon and Finance Co v Graham [1950] 2 KB 7��������������������������������������������������������� 192 North Western Bank v John Poynter, Son & McDonald [1895] AC 56 (HL)���������������������������������������� 302 Nova (Jersey) Knit Ltd v Kammgarn Spinnerei GmbH [1977] 2 All ER 463 (HL)������������������������������ 142 Novoship (UK) Ltd v Mikhailyuk [2014] EWCA Civ 908�������������������������������������������������������������� 231–32 NW Robbie & Co v Whitney Warehouse [1963] 1 WLR 1324�������������������������������������������������������������� 347 O’Sullivan v Williams [1992] 3 All ER 385 (CA)��������������������������������������������������������������������������������� 252 Oakley v Lyster [1931] 1 KB 148����������������������������������������������������������������������������������������������������������� 189 OBG Ltd v Allan [2007] UKHL 21����������������������������������������������������������������������������������������������� 187, 201 OBG v Allan [2007] UKHL 21�������������������������������������������������������������������������������������������������������� 185–87 Offer-Hoar v Larkstore Ltd [2006] EWCA Civ 1079���������������������������������������������������������������������������� 102 Oliver v Davis [1949] 2 KB 727 (CA)��������������������������������������������������������������������������������������������� 134–35 On Demand Information v Michael Gerson (Finance) Plc [2001] 1 WLR 155 (CA)������������������������������������������������������������������������������������������������������������������� 258 Online Catering Ltd v Acton [2010] EWCA Civ 58���������������������������������������������������������������������� 274, 322 Oppenheimer v Attenborough [1908] 1 KB 221 (CA)���������������������������������������������������������������������������� 63 Orbit Mining and Trading Co Ltd v Westminster Bank Ltd [1963] 1 QB 794 (CA)���������������������������� 138 Orion Finance Ltd v Crown Financial Management Ltd [1994] 2 BCLC 607������������������������������������� 116 Österreichische Länderbank v S’Elite Ltd [1981] QB 565 (CA)����������������������������������������������������������� 141

Table of Cases xxvii Otkritie International Investment Management Ltd v Urumov [2014] EWHC 191�������������������������������������������������������������������������������������������������������������������� 233, 236 Oughtred v IRC [1958] Ch 383������������������������������������������������������������������������������������������������������������� 119 Oughtred v IRC [1960] AC 206 (HL)��������������������������������������������������������������������������������������������� 119–20 Pacific Motor Auctions Pty v Motor Credits (Hire Finance) [1965] AC 867 (PC)���������������������������������������������������������������������������������������������������������������������� 67–69 Palk [1993] Ch 330 (CA)���������������������������������������������������������������������������������������������������������������������� 331 Palk v Mortgage Services Ltd [1993] Ch 330����������������������������������������������������������������������������������������� 328 Palmer v Carey [1926] AC 703 (PC)���������������������������������������������������������������������������������������������������� 267 Parker v British Airways Board [1982] QB 1004 (CA)������������������������������������������������������������������� 12, 192 Pasto & Ciudad de Nieva [1988] 1 WLR 1145 (CA)������������������������������������������������������������������������������ 50 Patel v Mirza [2014] EWCA Civ 1047�������������������������������������������������������������������������������������������������� 161 Patrick v Colerick (1838) 3 M&W 483�������������������������������������������������������������������������������������������������� 202 Paxton ep Pope (1889) 60 LT 428���������������������������������������������������������������������������������������������������������� 338 Pearson v Rose and Young Ltd [1951] 1 KB 275 (CA)���������������������������������������������������������������������� 61–63 Pennell v Deffell (1853) 4 De GM &G 372������������������������������������������������������������������������������������������� 217 Pennington v Waine [2002] EWCA Civ 227������������������������������������������������������������������������������������� 95–97 Performing Right Society Ltd v London Theatre of Varieties Ltd [1924] AC 1 (HL)������������������������������ 90 Petch v Tutin (1846) 15 M&W 110, 153 ER 782������������������������������������������������������������������������������������ 49 Phelps v Sons-Smith & Co [2001] BPIR 326������������������������������������������������������������������������������������������� 93 Phillip Head & Sons v Showfronts Ltd [1970] 1 Lloyds Rep 140����������������������������������������������������� 38, 44 Phillips v Brooks Ltd [1919] 2 KB 243���������������������������������������������������������������������������������������������������� 65 Phillips v Phillips (1861) 4 De GF&J 208, 45 ER 1162������������������������������������������������������65, 79, 178, 181 Phillips v Phillips (1862) 4 De G F&J 208��������������������������������������������������������������������������������������������� 280 Phillipson v Kerry (1863) 11 WR 1034������������������������������������������������������������������������������������������������� 176 Phipps v Boardman [1967] 2 AC 46���������������������������������������������������������������������������������������������������������� 4 Photo Productions Ltd v Securicor [1980] AC 827 (HL)���������������������������������������������������������������������� 245 Pignataro v Gilroy [1919] 1 KB 459�������������������������������������������������������������������������������������������������������� 44 Pigot’s Case (1613) 11 Co Rep 26, 77 ER 177��������������������������������������������������������������������������������������� 139 Pitt v Holt [2013] UKSC 267���������������������������������������������������������������������������������������������������������������� 176 Plaice v Allcock (1866) 4 F &F 1074������������������������������������������������������������������������������������������������������ 307 Pletts v Beattie [1896] 1 QB 519������������������������������������������������������������������������������������������������������������� 45 Plevin v Paragon Personal Finance Ltd [2014] UKSC 61��������������������������������������������������������������������� 327 Poole v Smith’s Car Sales (Balham) Ltd [1962] 1 WLR 744������������������������������������������������������������������� 40 Port Swettenham Authority v Wu [1979] AC 580 (PC)������������������������������������������������������������������ 243–44 Portman BS v Taylor Hamlyn Neck [1998] 4 All ER 202��������������������������������������������������������������������� 235 Powell v Wiltshire [2004] EWCA Civ 534����������������������������������������������������������������������������������������������� 60 PPI v Nadir (no 2) [1992] 4 All ER 769������������������������������������������������������������������������������������������������ 235 Prest v Petrodel Resources Ltd [2013] UKSC 34, [2013] 2 AC 315������������������������������������������������������� 158 PrimeTrade AG v Ythan Ltd (The Ythan) [2005] EWHC 2399 (Comm)�������������������������������������������� 147 PS Chellaram & Co v China Ocean Shipping Co [1991] 1 Lloyds Rep 493����������������������������������������� 245 PST Energy 7 Shipping v OW Bunker Malta Ltd [2016] UKSC 23���������������������������������������������� 288, 382 R v Ashwell (1885) 16 QBD 190 (CA)�������������������������������������������������������������������������������������������� 13, 154 R v Chester and North Wales Legal Aid Area Office ep Floods of Queensferry Ltd [1998] 2 BCLC 436 (CA)��������������������������������������������������������������������������������������� 112 R v Middleton (1873) LR 2 CCR 38������������������������������������������������������������������������������������������������������ 155 Raiffeisen Zentralbank Österreich AG v Five Star General Trading LLC [2001] QB 825��������������������������������������������������������������������������������������������������������������� 84 Ramco (UK) Ltd v International Insurance Co of Hanover [2004] EWCA Civ 675���������������������������� 260 Ramsay v Magrett [1894] 2 QB 19�������������������������������������������������������������������������������������������������������� 275

xxviii  Table of Cases Rawlinson v Mort (1903) 93 LT 55��������������������������������������������������������������������������������������������������������� 52 Rawson v Samuel (1841) Cr & Ph 161������������������������������������������������������������������������������������������������� 294 RBG Resources Plc v Banque Cantonale Vaudoise [2004] SGHC 123���������������������������������������������������� 46 Re a Debtor No 66 of 1955 [1956] 1 WLR 1226 (CA)�������������������������������������������������������������������������� 293 Re Abbott [1900] 2 Ch 326�������������������������������������������������������������������������������������������������������������������� 171 Re Adams and Kensington Vestry (1884) 27 Ch D 394��������������������������������������������������������������������������� 23 Re Ames’ Settlement [1946] 1 Ch 217��������������������������������������������������������������������������������������������������� 164 Re Andrabell [1984] 3 All ER 407��������������������������������������������������������������������������������������������������������� 287 Re Armagh Shoes Ltd [1984] BCLC 405����������������������������������������������������������������������������������������������� 348 Re ASRS Establishment [2000] 1 BCLC 727����������������������������������������������������������������������������������������� 348 Re Atlantic Computers Plc [1992] Ch 505������������������������������������������������������������������������������ 289, 350–51 Re Baden (No 2) [1973] Ch 9 (CA) 24��������������������������������������������������������������������������������������������������� 24 Re BCCI (no 8) [1998] AC 214 (HL)�������������������������������������������������������������������������������������������� 291, 293 Re Beam Tube Products Ltd [2006] EWHC 486 (Ch)�������������������������������������������������������������������������� 352 Re Benjamin Cope Ltd [1914] 1 Ch 800����������������������������������������������������������������������������������������������� 351 Re Berkeley Securities (Property) Ltd [1980] 1 WLR 1589������������������������������������������������������������������� 108 Re Black Ant Co [2016] EWCA Civ 30������������������������������������������������������������������������������������������������� 283 Re Blakeley Ordnance Co (1867) 3 Ch App 154����������������������������������������������������������������������������������� 100 Re Blyth Shipbuilding and Dry Docks Co Ltd [1926] Ch 494 (CA)������������������������������������������������������� 36 Re Bond Worth [1980] Ch 228����������������������������������������������������������������������������������������264, 284–85, 287, 289, 305 Re Briggs [1906] 2 KB 209���������������������������������������������������������������������������������������������������������������������� 85 Re Brightlife [1987] Ch 200���������������������������������������������������������������������������������������������������������� 347, 349 Re Brumark [2001] UKPC 28��������������������������������������������������������������������������������������������������������������� 352 Re Capital Fire Insurance Association Ltd (1883) 24 Ch D 408 (CA)�������������������������������������������������� 309 Re CCG International Enterprises [1993] BCLC 1428������������������������������������������������������������������������� 349 Re Charge Card Services Ltd [1987] Ch 150����������������������������������������������������������������������������������������� 293 Re CKE Engineering Ltd [2007] BCC 975���������������������������������������������������������������������������������������������� 29 Re Cole [1964] Ch 175���������������������������������������������������������������������������������������������������������������������������� 52 Re Colt Telegram Group Ltd [2002] EWHC 2815���������������������������������������������������������������������������������� 25 Re Connolly Bros. [1912] 2 Ch 25��������������������������������������������������������������������������������������������������������� 281 Re Cosslett (Contractors) Ltd [2001] UKHL 58������������������������������������������������������������������������������������ 350 Re Cosslett [1998] Ch 495 (CA)������������������������������������������������������������������������������������������������������ 43, 304 Re Croftbell [1990] BCLC 844��������������������������������������������������������������������������������������������������������������� 361 Re Danish Bacon Co Ltd Staff Pension Fund [1997] 1 WLR 248��������������������������������������������������������� 118 Re David Allester Ltd [1922] 2 Ch 211������������������������������������������������������������������������������������������������� 298 Re Dawson [1915] 1 Ch 626����������������������������������������������������������������������������������������������������������������� 356 Re DH Curtis Ltd [1978] Ch 162���������������������������������������������������������������������������������������������������������� 294 Re Diplock [1948] Ch 465 (CA)�������������������������������������������������������������������������������������� 216–17, 219, 221 Re Eastern Capital Futures Ltd [1989] BCLC 371�������������������������������������������������������������������������������� 218 Re Eastgate [1905] 1 KB 465����������������������������������������������������������������������������������������������������������������� 180 Re Ellenborough [1902] 1 Ch 697����������������������������������������������������������������������������������������������������������� 84 Re Eykyn’s Trust (1877) 6 Ch D 115����������������������������������������������������������������������������������������������������� 158 Re GE Tunbridge Ltd [1995] 1 BCLC 34����������������������������������������������������������������������������������������������� 348 Re Glubb [1900] 1 Ch 354��������������������������������������������������������������������������������������������������������������� 175–76 Re Goldcorp [1994] 2 All ER 804 (PC)��������������������������������������������������������������������������������������������� 23, 36 Re Hallett (1879) 13 Ch D 686������������������������������������������������������������������������������������������������������������� 216 Re Hamlet International [1999] 2 BCLC 506 (CA)����������������������������������������������������������������������������� 304 Re Hardwick ep Hubbard (1886) 17 QBD 690����������������������������������������������������������������������������� 298, 302 Re Highway Foods Ltd [1995] 1 BCLC 209������������������������������������������������������������������������������������ 73, 286

Table of Cases xxix Re Hodson and Howes’ Contract (1887) 35 Ch D 668������������������������������������������������������������������������� 330 Re Holmes (1885) 29 Ch D 786������������������������������������������������������������������������������������������������������������� 104 Re Holt’s Settlement [1969] 1 Ch 100��������������������������������������������������������������������������������������������������� 120 Re Horne and Hellard (1885) 29 Ch D 736������������������������������������������������������������������������������������������ 347 RE Jones Ltd v Waring and Gillow [1926] AC 670 (HL)���������������������������������������������������������������� 136–37 Re Kelcey [1899] 2 Ch 530��������������������������������������������������������������������������������������������������������������������� 268 Re Kent and Sussex Sawmills Ltd [1947] Ch 177������������������������������������������������������������������������������������ 82 Re Lashmar [1891] 1 Ch 258 (CA)������������������������������������������������������������������������������������������������������� 121 Re Lehman Bros [2012] EWHC 2997��������������������������������������������������������������������������������������������� 273–74 Re Lehman Bros International (Europe) [2010] EWHC 2619��������������������������������������������������������������� 23 Re Lind [1915] 2 Ch 345����������������������������������������������������������������������������������������������������30, 99, 268, 325 Re London Wines Co Ltd [1986] PCC 121�������������������������������������������������������������������������� 42, 56–57, 255 Re Margart Pty Ltd [1985] BCLC 314������������������������������������������������������������������������������������������ 356, 360 Re Maxwell Communications Corp (no 2) [1994] 1 BCLC 1������������������������������������������������������� 282, 293 Re McKerrell [1912] 2 Ch 648������������������������������������������������������������������������������������������������������������� 9, 84 Re Milan Tramways Ltd (1884) 25 Ch D 587��������������������������������������������������������������������������������������� 101 Re Monolithic Building Society [1915] 1 Ch 643 (CA)���������������������������������������������������������������� 269, 280 Re Morritt (1886) 18 QBD 222����������������������������������������������������������������������������������������������������� 332, 338 Re Mortlake [1992] BCC 32�������������������������������������������������������������������������������������������������������������������� 82 Re New Bullas [1994] 1 BCLC 485 (CA)���������������������������������������������������������������������������������������������� 349 Re North East Buyers Litigation [2014] UKSC 52�������������������������������������������������������������������������������� 282 Re Oatway [1903] 2 Ch 356������������������������������������������������������������������������������������������������������������������ 216 Re PAL SC Realisations Ltd [2010] EWHC 2850��������������������������������������������������������������������������������� 363 Re Paradise Motors Ltd [1968] 1 WLR 1125 (CA)������������������������������������������������������������������������������� 125 Re Park Gate Waggon Works Company (1881) 17 Ch D 234��������������������������������������������������������������� 107 Re Peachdart Ltd [1984] Ch 131��������������������������������������������������������������������������������������� 27–28, 285, 287 Re Permacell Finesse Ltd [2007] EWHC 3327�������������������������������������������������������������������������������������� 363 Re Portbase Clothing Ltd [1993] Ch 388����������������������������������������������������������������������������������������� 282–83 Re Pumfrey (1883) 22 Ch D 255����������������������������������������������������������������������������������������������������������� 314 Re Real Meat Co [1996] BCC 254��������������������������������������������������������������������������������������������������������� 360 Re Ridgway (1885) 15 QBD 447����������������������������������������������������������������������������������������������������� 53, 154 Re Roberts [1946] Ch 1�������������������������������������������������������������������������������������������������������������������������� 159 Re Rose [1952] Ch 499 (CA)������������������������������������������������������������������������������������������������������������� 81, 95 Re Samuel [1945] Ch 408 (CA)������������������������������������������������������������������������������������������������������������ 190 Re Sayer [1957] Ch 423��������������������������������������������������������������������������������������������������������������������������� 23 Re Sharpe [1980] 1 WLR 219���������������������������������������������������������������������������������������������������������������� 166 Re Shipton Anderson & Co and Harrison Bros & Co Ltd [1915] 3 KB 676������������������������������������������� 49 Re Sick and Funeral Society [1973] Ch 51�������������������������������������������������������������������������������������������� 164 Re Southern Livestock Products Ltd [1964] 1 WLR 24������������������������������������������������������������������������� 308 Re Stapylton Fletcher [1995] 1 All ER 192���������������������������������������������������������������������������������������������� 42 Re Steel Wing Co Ltd [1921] 1 Ch 349���������������������������������������������������������������������������������������������������� 83 Re Stoneham [1919] 1 Ch 149���������������������������������������������������������������������������������������������������51, 53, 154 Re Stratton’s Disclaimer [1958] Ch 42 (CA)����������������������������������������������������������������������������������������� 125 Re Stucley [1906] 1 Ch 67��������������������������������������������������������������������������������������������������������������������� 312 Re Transbus International Ltd [2004] EWHC 932������������������������������������������������������������������������������� 365 Re TXU Europe Group Plc [2003] EWHC 1305����������������������������������������������������������������������������������� 324 Re United Railways [1960] Ch 52����������������������������������������������������������������������������������������������������������� 81 Re Vandervell (no 2) [1974] 1 All ER 47��������������������������������������������������������������������������������123, 157, 165 Re Vandervell (no 2) [1974] 3 All ER 205 (CA)����������������������������������������������������������������������������������� 124 Re Vandervell (no 2) [1974] Ch 269 (CA) 315������������������������������������������������������������������������������������� 123

xxx  Table of Cases Re Vinogradoff [1935] WN 68��������������������������������������������������������������������������������������������������������������� 157 Re Wait [1927] 1 Ch 606 (CA)������������������������������������������������������������������������������������������� 34, 48, 313–14 Re Way’s Trusts (1864) De GJ & S 364���������������������������������������������������������������������������������������������������� 93 Re Wells [1933] Ch 29����������������������������������������������������������������������������������������������������������������������������� 25 Re West Sussex Constabulary’s Widows’ and Children’s Benevolent Fund [1971] Ch 1����������������������������������������������������������������������������������������������������������� 171 Re Westerton [1919] 2 Ch 104����������������������������������������������������������������������������������������������������������������� 83 Re Williams [1917] 1 Ch 1���������������������������������������������������������������������������������������������������������������������� 93 Re Woodruffe’s Musical Instruments Ltd [1986] Ch 366���������������������������������������������������������������������� 282 Re Yorkshire Woolcombers Assoc [1903] 2 Ch 284 (CA)��������������������������������������������������77, 268, 278, 346 Reckitt v Barnett Pembroke & Slater [1928] 2 KB 244������������������������������������������������������������������������� 228 Redgrave v Hurd (1881) 20 Ch D 1������������������������������������������������������������������������������������������������������� 174 Reeves v Capper (1836) 5 Bing NC 136������������������������������������������������������������������������������������������������ 301 Relfo v Varsani [2014] EWCA Civ 360����������������������������������������������������������������������������������� 215, 220–21 Rice v Rice (1853) 2 Drew 73���������������������������������������������������������������������������������������������������������������� 280 Richards v Mayor of Kidderminster [1896] 2 Ch 212������������������������������������������������������������������� 274, 322 Roberts v Gill & Co [2010] UKSC 22, [2010] 2 WLR 1227������������������������������������������������������������� 89–90 Robins & Co v Gray [1895] 2 QB 501��������������������������������������������������������������������������������������������������� 305 Robot Arenas Ltd v Waterfield [2010] EWHC 115 (QB)���������������������������������������������������������26, 196, 246 Rochefoucauld v Boustead [1897] 1 Ch 196 (CA)�������������������������������������������������������������������������������� 168 Rogers Sons & Co v Lambert & Co [1891] 1 QB 318���������������������������������������������������������������������������� 243 Rogers v Challis (1859) 27 Beav 175����������������������������������������������������������������������������������������������������� 268 Rogers v Kennay (1846) 9 QB 592��������������������������������������������������������������������������������������������������������� 193 Rolfe Lubell & Co. v Keith [1979] 1 All ER 860������������������������������������������������������������������������������������ 139 Rolled Steel Products v British Steel [1986] Ch 246������������������������������������������������������������������������������ 209 Rookes v Barnard [1964] AC 1129�������������������������������������������������������������������������������������������������������� 199 Roxburghe v Cox (1881) 17 Ch D 520 (CA)����������������������������������������������������������������������������������� 100–01 Royal Brunei Airlines v Tan [1995] 2 AC 378 (PC)������������������������������������������������������������������������������ 232 Rushforth v Hadfield (1805) 6 East 519������������������������������������������������������������������������������������������������ 308 Rushworth v Taylor (1842) 3 QB 699���������������������������������������������������������������������������������������������������� 191 Russell-Cooke Trust Co Ltd v Elliott [2007] EWHC 1443 (Ch)����������������������������������������������������������� 353 Russell-Cooke Trust Co v Prentis [2002] EWHC 2227������������������������������������������������������������������������� 218 RV Ward v Bignall [1967] 1 QB 534����������������������������������������������������������������������������������������������� 37, 311 Ryall v Ryall (1739) 1 Atk 59�������������������������������������������������������������������������������������������������� 168, 171–72 Sachs v Miklos [1948] 2 KB 23�������������������������������������������������������������������������������������������������������������� 197 SAFA v Banque du Claire [2000] 2 All ER (Comm) 567 (CA)����������������������������������������������������������� 143 Saleslease Ltd v Davis [1999] 1 WLR 1664 (CA)���������������������������������������������������������������������������������� 198 Samuel v Jarrah Timber [1904] AC 323 (HL)�������������������������������������������������������������������������������������� 321 Sandeman & Sons v Tyzack & Branfort Steamship Co. Ltd [1913] AC 680 (HL)���������������������������������� 28 Sandeman Coprimar [2003] QB 1270 (CA)���������������������������������������������������������������������������������������� 249 Sandeman Coprimar SA v Transitos y Transportes Integrales SL [2003] EWCA Civ 113���������������������������������������������������������������������������������������������������������������� 245–49 Sanders Bros. v Maclean & Co. (1883) 11 QBD 327������������������������������������������������������������������������������ 17 Sanderson v Marsden & Jones (1922) 10 Lloyds Rep 467 (CA)����������������������������������������������������������� 202 Sandhurst Golf Estates Pty Ltd & Ors v Coppersmith Pty Ltd & Ors [2014] VSC 217��������������������������������������������������������������������������������������������������������������������������������� 377 Santley v Wilde [1899] 2 Ch 474����������������������������������������������������������������������������������������������������������� 320 Saunders v Vautier (1841) Cr & Ph 240, 41 ER 482���������������������������������������������������������20, 64, 113, 115, 121, 179, 193 SBC v Eagle Trust [1993] 1 WLR 484��������������������������������������������������������������������������������������������������� 236

Table of Cases xxxi SBC v Lloyds Bank [1980] AC 1169�������������������������������������������������������������������������������������������������������� 99 Schwarzschild v Harrods [2008] EWHC 521�������������������������������������������������������������������������������� 188, 245 Security Trust Co. v Royal Bank of Canada [1976] AC 503 (PC)��������������������������������������������������������� 281 Seear v Lawson (1880) 15 Ch D 426����������������������������������������������������������������������������������������������������� 107 Sekhon v Allissa [1989] 2 FLR 94.��������������������������������������������������������������������������������������������������������� 159 Sewell v Burdick (1884) 10 App Cas 74 (HL)��������������������������������������������������������������������������������������� 146 Shalson v Russo [2003] EWHC 1637�������������������������������������������������������������������������������������� 211, 219–21 Shamji v Johnson Matthey Bankers Ltd [1991] BCLC 36��������������������������������������������������������������������� 335 Shell (UK) Ltd v Total (UK) Ltd [2010] EWCA Civ 180���������������������������������������������������������������������� 194 Shepherd v Cartwright [1955] AC 431 (HL)���������������������������������������������������������������������������������������� 158 Shogun Finance Ltd v Hudson [2003] UKHL 62, [2004] 1 AC 919������������������������������������������������������� 65 Siebe Gorman v Barclays Bank [1979] 2 Lloyds Rep 142������������������������������������������������������������� 349, 351 Silven Properties Ltd v Royal Bank of Scotland Plc [2003] EWCA Civ 1409���������������������������������������� 336 Silverwood v Silverwood (1997) 74 P&CR 453������������������������������������������������������������������������������������� 160 Simpson v Norfolk & Norwich University Hospital NHS Trust [2011] EWCA Civ 1149�������������������������������������������������������������������������������������������������������������������� 108 Singer Co (UK) Ltd v Tees and Hartlepool Port Authority [1988] 2 Lloyds Rep 164������������������������������������������������������������������������������������������������������������������� 247 Singer Manfacturing Co v Clark (1880) 61 LT 591������������������������������������������������������������������������������� 297 Singh v Ali [1960] AC 167 (PC)������������������������������������������������������������������������������������������������������������ 153 Sir Elton John v Countess Joubeline 26 January 2001������������������������������������������������������������������������������� 4 Sir Robert McAlpine Ltd v Minimax [1970] 1 Lloyds Rep 397������������������������������������������������������������ 195 Skeate v Beale (1841) 11 A&E 983�������������������������������������������������������������������������������������������������������� 175 Slater v Simm [2007] EWHC 951��������������������������������������������������������������������������������������������������������� 120 Smith v Lloyds TSB Bank Plc [2000] 2 All ER (Comm) 693 (CA)������������������������������������������������������ 139 Solloway v McLaughlin [1938] AC 247 (PC)���������������������������������������������������������������������������������������� 196 Somes v British Empire Shipping (1860) 8 HLC 338���������������������������������������������������������������������������� 310 Sonicare International Ltd v East Anglia Freight Terminal Ltd [1997] 2 Lloyds Rep 48��������������������������������������������������������������������������������������������������������������������� 255 South Australian Insurance Co v Randell (1869) LR 3 PC 101������������������������������������������������������������ 241 South Staffordshire Water Co. v Sharman [1896] 2 QB 44��������������������������������������������������������������������� 12 Specialist Plant Services Ltd v Brathwaite Ltd [1987] BCLC 1 (CA)��������������������������������������������������� 285 Spectrum Plus Ltd [2005] UKHL 41����������������������������������������������������������������������������������������������������� 352 Spence v Union Marine Insurance Co (1868) LR 3 CP 427������������������������������������������������������ 28–29, 213 SPL Private Finance (PFI) IC Ltd v Arch Financial Products LLP [2014] EWHC 4268�������������������������������������������������������������������������������������������������������������������������� 233 SQ v RQ [2008] EWHC 1874 (Fam)���������������������������������������������������������������������������������������������������� 160 St Albans City and DC v International Computers [1997] FSR 251������������������������������������������������������ 35 Stadium Finance Co. v Robbins [1962] 2 QB 664����������������������������������������������������������������������������������� 63 Staffs Motor Guarantee v British Wagon Ltd [1934] 2 KB 305��������������������������������������������������������� 62, 68 Standard Chartered Bank Ltd v Walker [1982] 1 WLR 1410 (CA)����������������������������������������������������� 361 Standard Chartered Bank Ltd v Walker [1982] 3 All ER 938��������������������������������������������������������������� 362 Standard Chartered Bank v Dorchester LNG [2014] EWCA Civ 1382, [2015] 2 All ER 395��������������������������������������������������������������������������������������������������������������������������� 146 Standing v Bowring (1885) 31 Ch D 282 (CA)������������������������������������������������������������������������������������ 167 Starglade Properties Ltd v Nash [2010] EWCA Civ 1314��������������������������������������������������������������������� 233 State Securities v Liquidity [2006] EWHC 2644����������������������������������������������������������������������������������� 281 Stein v Blake [1996] AC 243 (HL)�������������������������������������������������������������������������������������������������������� 295 Stevenson v Beverley Bentinck Ltd [1976] 1 WLR 483 (CA)������������������������������������������������������������������ 74 Stock v Stock (1592) Pop 38, 79 ER 1156������������������������������������������������������������������������������������������������ 28

xxxii  Table of Cases Stoddart v Union Trust Ltd [1912] 1 KB 181 (CA)������������������������������������������������������������������������������ 101 Stone & Rolls Ltd v Moore Stephens [2009] UKHL 39������������������������������������������������������������������������� 162 Strand Electric & Engineering Co v Brisford Entertainments Ltd [1952] 2 QB 246 (CA)���������������������������������������������������������������������������������������������������������������� 204–05 Street v Mountford [1985] AC 809 (HL)���������������������������������������������������������������������������������������������� 348 Stroud Architectural Systems Ltd v John Laing Construction Ltd [1994] BCC 18������������������������������� 285 Stubbs v Slater [1910] 1 Ch 632 (CA)�������������������������������������������������������������������������������������������������� 331 Stump v Gaby (1852) 2 De GM&G 623����������������������������������������������������������������������������������������������� 180 Sutcliffe v Chief Constable of West Yorkshire [1996] RTR 86�������������������������������������������������������� 244, 247 Swift v Dairywise Farms Ltd [2000] 1 All ER 320�������������������������������������������������������������������������������� 112 Swiss Bank Corporation v Lloyds Bank 1982] AC 584 (CA)�������������������������������������30, 267, 320, 324–25 Swordheath Properties v Tabet [1979] 1 WLR 285������������������������������������������������������������������������������� 204 Syrett v Egerton [1957] 3 All ER 331 (CA)������������������������������������������������������������������������������������������� 268 Tai Hing Cotton Mill Ltd v Liu Chong Hing Bank Ltd [1986] AC 80 (PC)����������������������������������������� 142 Tailby v Official Receiver (1888) 13 App Cas 523 (HL)�����������������������������������������������������������30, 99, 268, 281, 325, 346 Tancred v Allgood (1859) 4 H&N 438��������������������������������������������������������������������������������������������������� 206 Tancred v Delagoa Bay & East Africa Railway Co (1889) 23 QBD 239������������������������������������������������� 83 Tappenden v Artus [1964] 2 QB 185 (CA)������������������������������������������������������������������������������������������� 306 Target Holdings Ltd v Redferns [1996] AC 421 (HL)��������������������������������������������������������������������������� 209 Taylor v Plumer (1815) 3 M&S 562������������������������������������������������������������������������������������������������������ 212 Tear v Freebody (1858) 4 CB (NS) 228������������������������������������������������������������������������������������������������� 189 Technocrats International v Fredic Ltd [2004] EWHC 692�������������������������������������������������������������������� 85 Thames Guaranty Ltd v Campbell [1985] QB 210������������������������������������������������������������������������������� 325 The Aliakmon [1986] AC 864 (HL)������������������������������������������������������������������������������������������������������ 194 The Argo Fund Ltd v Essar Steel Ltd [2006] EWCA Civ 241������������������������������������������������������������������ 94 The Berge Sisar [2001] UKHL 17��������������������������������������������������������������������������������������������������������� 300 The Chitral [2000] 1 Lloyds Rep 529���������������������������������������������������������������������������������������������� 16, 145 The Evia Luck [1992] 2 AC 152 (HL)��������������������������������������������������������������������������������������������������� 175 The Future Express [1993] 2 Lloyds Rep 542�������������������������������������������������������������������������������� 192, 300 The Halcyon Great [1984] 1 Lloyds Rep 283������������������������������������������������������������������������������������������ 85 The Hamburg Star [1994] 1 Lloyds Rep 399���������������������������������������������������������������������������������� 16, 248 The Jag Shakti [1986] AC 337 (PC)���������������������������������������������������������������������������������������������� 251, 299 The Makhutai [1996] AC 650 (PC)������������������������������������������������������������������������������������������������������ 249 The Manchester, Sheffield and Lincolnshire Rly Co v The North Central Wagon Co (1888) 13 App Cas 554 (HL)��������������������������������������������������������������������� 275, 323 The Pioneer Container [1994] 2 AC 324 (PC)������������������������������������������������������������������������ 241–42, 248 The Playa Larga [1983] 2 Lloyds Rep 171 (CA)���������������������������������������������������������������������������������� 197 The Prinz Adalbert [1917] AC 586 (PC)������������������������������������������������������������������������������������������������ 49 The Raven [1980] 2 Lloyds Rep 266����������������������������������������������������������������������������������������������������� 101 The Winkfield [1902] P 42 (CA)������������������������������������������������������������������������������������192, 195, 251, 253 Thomas v The Times Book Co [1966] 2 All ER 241�������������������������������������������������������������������������������� 52 Thompson v Dominy (1845) 14 M&W 403������������������������������������������������������������������������������������������ 146 Three Rivers District Council v Governor and Company of the Bank of England [1996] QB 292 (CA)������������������������������������������������������������������������������������������ 90–91 Thunder Air Ltd v Hilmarsson [2008] EWHC 355������������������������������������������������������������������������������ 184 Timpson’s Executors v Yerbury [1936] 1 KB 645 (CA)��������������������������������������������������������������������������� 93 Tinsley v Milligan [1994] 1 AC 340 (HL)������������������������������������������������������������������������������� 160, 162–63 Tomlin v Luce (1889) LR 43 Ch D 191 (CA)���������������������������������������������������������������������������������������� 334 Towers & Co. Ltd v Gray [1961] 2 QB 351��������������������������������������������������������������������������������������������� 14

Table of Cases xxxiii Transco Plc v United Utilities Water Plc [2005] EWHC 2784�������������������������������������������������������������� 204 Transcontainer Express Ltd v Custodian Security Ltd [1988] 1 Lloyds Rep 128���������������������������������� 250 Transport and General Credit Corporation v Morgan [1939] Ch 531�������������������������������������������� 313–14 Trendtex Trading Corporation v Credit Suisse [1982] AC 679 (HL)���������������������������������������������� 107–08 Tribe v Tribe [1996] Ch 107 (CA)��������������������������������������������������������������������������������������������������������� 161 Turley v Bates (1863) 2 H&C 200, 159 ER 83���������������������������������������������������������������������������������������� 39 Twinsectra Ltd v Yardley [1999] Lloyds Rep Banking 438 (CA)���������������������������������������������������������� 180 Ultraframe Ltd v Fielding [2005] EWHC 1638������������������������������������������������������������������������������������ 232 Underwood Ltd v Burgh Castle Brick and Cement Syndicate [1922] 1 KB 123������������������������������������� 38 Union Transport Finance Ltd v British Car Auctions Ltd [1978] 2 All ER 385������������������������������������ 250 United Bank of Kuwait Plc v Sahib [1997] Ch 107 (CA)������������������������������������������������������������� 104, 121 United City Merchants v Royal Bank of Canada [1983] 1 AC 168������������������������������������������������������� 148 United States of America and Republic of France v Dollfuss, Mieg et Cie and Bank of England [1952] AC 582 (HL) 605���������������������������������������������������������������������������������� 10 Uzinterimpex JSC v Standard Bank Ltd [2008] EWCA Civ 819�������������������������������������������������� 199, 202 Valeo Vision v Flexible Lamps Ltd [1995] RPC 205���������������������������������������������������������������������������������� 4 Valpy v Gibson (1847) 4 CB 837����������������������������������������������������������������������������������������������������������� 310 Van Lynn Developments Ltd v Pelias Construction Co Ltd [1969] 1 QB 607 (CA)������������������������������������������������������������������������������������������������������������������������ 85 Vandepitte v Preferred Accident Insurance Corpn of New York [1933] AC 70 (PC)�������������������������������������������������������������������������������������������������������� 89, 113–14, 194 Vandervell v IRC [1967] 2 AC 291 (HL)�����������������������������������������������������������������������122, 164, 171, 173 Vernon v Bethell (1761) 2 Eden 110, 28 ER 838����������������������������������������������������������������������������������� 320 Vestergaard Frandsen v Bestnet [2013] UKSC 31��������������������������������������������������������������������������������� 236 VFS Financial Services (UK) Ltd v Euro Auctions (UK) Ltd [2007] EWHC 1492�������������������������������������������������������������������������������������������������������������������������� 195 VFS Financial Services Ltd v JF Plant Tyres Ltd [2013] EWHC 346������������������������������������������������������ 74 Vinden v Hughes [1905] 1 KB 795�������������������������������������������������������������������������������������������������������� 133 Vine v Waltham Forest LBC [2000] 1 WLR 2383 (CA)������������������������������������������������������������������������ 203 Voaden v Champion [2002] EWCA Civ 89����������������������������������������������������������������������������������� 196, 246 Vowles v Isles Finance Co [1940] 4 DLR 357������������������������������������������������������������������������������������������ 63 Wait and James v Midland Bank (1926) 31 Com Cas 172��������������������������������������������������������������������� 41 Wait v Baker (1848) 2 Exch 1������������������������������������������������������������������������������������������������������������������ 44 Wallace v Evershed [1899] 1 Ch 891����������������������������������������������������������������������������������������������������� 356 Wallace v Woodgate (1824) Ry & Mood 193�������������������������������������������������������������������������������� 304, 308 Walsh v Lonsdale (1882) LR 21 Ch D 9������������������������������������������������������������������������������������������ 92, 325 Ward v Aeyre (1613) 2 Bulstrode 323, 80 ER 1157�������������������������������������������������������������������������������� 28 Wardar’s (Import and Export) Co v W Norwood & Sons [1968] 2 QB 663 (CA)���������������������������������� 43 Warner Bros. Records Ltd v Rollgreen Ltd [1976] QB 430 (CA)������������������������������������������������������� 88–89 Waters v Monarch Fire & Life Insurance Co (1856) 5 E&B 870����������������������������������������������������������� 260 Watts v Midland Bank Plc [1986] BCLC 15����������������������������������������������������������������������������������������� 362 Waverley BC v Fletcher [1996] QB 334 (CA)��������������������������������������������������������������������������������� 12, 192 Weddell v JA Pearce & Major [1988] Ch 26�������������������������������������������������������������������������������������������� 89 Weiner v Harris [1910] 1 KB 285 (CA)�������������������������������������������������������������������������������������������������� 60 Welcome Financial Services Ltd v Nine Regions Ltd (t/a Logbook Loans Ltd) [2010] EWHC B3������������������������������������������������������������������������������������������������������������� 74 Westdeutsche Landesbank Girozentrale v Islington LBC [1996] AC 669 (HL)������������������������������������������������������������������������������������������������������23, 36, 154, 167, 172–73, 211, 392 WF Harrison & Co Ltd v Burke [1956] 2 All ER 169 (CA)�������������������������������������������������������������������� 86

xxxiv  Table of Cases Whale v Viasystems Technograph Ltd [2002] EWCA Civ 480�������������������������������������������������������������� 281 White v City of London BS (1889) 42 Ch D 237 (CA)������������������������������������������������������������������������� 336 White v Garden (1851) 10 CB 919�������������������������������������������������������������������������������������������������������� 178 Whitehorn Bros v Davison [1911] 1 KB 463 (CA)��������������������������������������������������������������������20, 64, 178 Whittington v Seale-Hayne (1900) 82 LT 49���������������������������������������������������������������������������������������� 175 Whitwham v Westminster Brymbo Coal & Coke Co [1896] 2 Ch 538������������������������������������������������� 204 Wickham Holdings v Brook House Motors [1967] 1 WLR 295����������������������������������������������������� 195, 256 William Brandt’s Sons & Co Ltd v Dunlop Rubber Co Ltd [1905] AC 454 (HL)����������������������� 92–93, 98 William Leitch & Co v Leydon [1931] AC 90 (HL)������������������������������������������������������������������������������ 201 Williams & Glyn’s Bank v Boland [1981] AC 487 (HL)������������������������������������������������������������������������� 79 Williams v Atlantic Assurance Co Ltd [1933] 1 KB 81��������������������������������������������������������������������� 84, 88 Williams v Central Bank of Nigeria [2014] UKSC 10������������������������������������������������������������������ 231, 236 Williams v Hensman (1861) 1 J&H 546, 70 ER 862��������������������������������������������������������������������������������� 9 Williams v Williams (1863) 32 Beav 370�������������������������������������������������������������������������������� 168–69, 171 Wilson and Meeson v Pickering [1946] 2 KB 422 (CA)������������������������������������������������������������������������ 138 Wilson v Kelland [1910] 2 Ch 306������������������������������������������������������������������������������������������������ 224, 270 Wilson v Lombank [1963] 1 WLR 1294������������������������������������������������������������������������������������������������ 203 Wincanton Group v Garbe Logistics [2011] EWHC 905������������������������������������������������������������������������ 45 Wincanton Ltd v P&O Trans European Ltd [2001] EWCA Civ 227���������������������������������������������������� 258 Worcester Works Finance v Cooden Engineering Ltd [1972] 1 QB 210 (CA)������������������������������58, 68, 70 Worwood v Leisure Merchandising Services Ltd [2002] 1 BCLC 249��������������������������������������������������� 334 Wright v Vanderplank (1856) 8 De GM&G 133����������������������������������������������������������������������������������� 175 Wrightson v McArthur and Hutchinson [1921] 2 KB 807�������������������������������������������������������������� 52, 300 Wu Koon Tai v Wu Yau Lai [1997] AC 179 (PC)������������������������������������������������������������������������������������ 84 X v A [2000] 1 All ER 490��������������������������������������������������������������������������������������������������������������������� 314 Yearworth v North Bristol NHS Trust [2009] EWCA Civ 37���������������������������������������������������������������� 261 Yearworth v North Bristol NHS Trust [2009] EWCA Civ 37, [2010] QB 1����������������������������15, 246, 261 Yorkshire Bank Plc v Hall [1999] 1 All ER 879 (CA)���������������������������������������������������������������������������� 335 Young v Hitchens (1844) 6 QB 606, 115 ER 228������������������������������������������������������������������������������������� 25 Young v Kitchin (1878) 3 Ex D 127������������������������������������������������������������������������������������������������������� 101 Your Response Ltd v Database Business Media Ltd [2014] EWCA Civ 281, [2015] QB 41��������������������������������������������������������������������������������������������������������������������������������������� 35 Zeital v Kaye [2010] EWCA Civ 159������������������������������������������������������������������������������������������������������� 95 United States of America Kremen v Cohen 99 F Supp (2d) 1168 (2000)�������������������������������������������������������������������������������������� 187 Miller v Candy (1980) 39 ACTR 74������������������������������������������������������������������������������������������������������ 252 Olwell v Nissen & Co 173 P 2d 652 (1942)������������������������������������������������������������������������������������������� 200 RBC Dominion Securities v Dawson (1994) 111 DLR (4th) 230������������������������������������������������� 173, 225 Szteijn v J Henry Schroder Banking Corpn 31 NYS (2d) 631 (1941)��������������������������������������������������� 148

TABLE OF LEGISLATION

Australia Law of Property Act 1936 (S Aust) s15�������������������������������������������������������������������������������������������������������������������������������������������������������� 96 Personal Property Securities Act 2009������������������������������������������75–76, 110, 372, 374–76, 378, 380–84 s10���������������������������������������������������������������������������������������������������������������������������������������������������������� 4 s12�������������������������������������������������������������������������������������������������������������������������������������������������������� 75 s12(1)������������������������������������������������������������������������������������������������������������������������������������������������� 372 s12(2)������������������������������������������������������������������������������������������������������������������������������������������������� 372 s12(3)������������������������������������������������������������������������������������������������������������������������������������������������� 374 s19������������������������������������������������������������������������������������������������������������������������������������������������������ 376 s21������������������������������������������������������������������������������������������������������������������������������������������������������ 376 s34������������������������������������������������������������������������������������������������������������������������������������������������������ 379 s46���������������������������������������������������������������������������������������������������������������������������76–77, 373, 379, 380 s57������������������������������������������������������������������������������������������������������������������������������������������������������ 380 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s128���������������������������������������������������������������������������������������������������������������������������������������������������� 383 s133���������������������������������������������������������������������������������������������������������������������������������������������������� 384 s130���������������������������������������������������������������������������������������������������������������������������������������������������� 384 s132���������������������������������������������������������������������������������������������������������������������������������������������������� 384 ss136–138������������������������������������������������������������������������������������������������������������������������������������������ 384 s140���������������������������������������������������������������������������������������������������������������������������������������������������� 384 s142���������������������������������������������������������������������������������������������������������������������������������������������������� 383 s153���������������������������������������������������������������������������������������������������������������������������������������������������� 378 s164���������������������������������������������������������������������������������������������������������������������������������������������������� 379 s165���������������������������������������������������������������������������������������������������������������������������������������������������� 379 s300���������������������������������������������������������������������������������������������������������������������������������������������������� 380 Sale of Goods Act 1923 (NSW) s28�������������������������������������������������������������������������������������������������������������������������������������������������������� 68 Canada Personal Property Security Act 1980 (Ontario) s12������������������������������������������������������������������������������������������������������������������������������������������������������ 375 s33������������������������������������������������������������������������������������������������������������������������������������������������������ 381 Personal Property Security Act 1993 (Sask) s34������������������������������������������������������������������������������������������������������������������������������������������������������ 381

xxxvi  Table of Legislation s45������������������������������������������������������������������������������������������������������������������������������������������������������ 378 s47������������������������������������������������������������������������������������������������������������������������������������������������������ 380 European Union Directive (EC) 2002/47 on financial collateral arrangements (Financial Collateral Arrangements Directive) [2002] OJ L168/43 ��������������������������������������������������������������������������������� 271 Directive (EC) 2008/48 on credit agreements for consumers and repealing Council Directive 87/102/EEC (European Consumer Credit Directive 2008/48) ��������������� 328, 339 Directive 2009/44/EC amending Directive 98/26/EC on settlement finality in payment and securities settlement systems and Directive 2002/47/EC on Directive 2002/47/EC on financial collateral arrangements as regards linked systems and credit claims, [2009] OJ L146/3���������������������������������������������������������� 272 Arts 2–3 �������������������������������������������������������������������������������������������������������������������������������������������� 271 Ireland Companies Act 2014 s409���������������������������������������������������������������������������������������������������������������������������������������������������� 371 s412�������������������������������������������������������������������������������������������������������������������������������������������� 371, 386 New Zealand Property Law Act 1952 s89������������������������������������������������������������������������������������������������������������������������������������������������������ 329 Companies Act 1993 Sch7 cl 2(1)���������������������������������������������������������������������������������������������������������������������������������������� 385 Personal Property Securities Act 1999����������������������������������������������� 329, 332, 354, 371, 373, 375–76, 378, 380–81, 383–84, 390 s20������������������������������������������������������������������������������������������������������������������������������������������������������ 380 s36������������������������������������������������������������������������������������������������������������������������������������������������������ 376 s40���������������������������������������������������������������������������������������������������������������������������������������������� 375, 376 s41������������������������������������������������������������������������������������������������������������������������������������������������������ 376 s42������������������������������������������������������������������������������������������������������������������������������������������������������ 376 ss45–47���������������������������������������������������������������������������������������������������������������������������������������������� 354 s52������������������������������������������������������������������������������������������������������������������������������������������������������ 373 s56������������������������������������������������������������������������������������������������������������������������������������������ 76–77, 380 s73������������������������������������������������������������������������������������������������������������������������������������������������������ 381 s96����������������������������������������������������������������������������������������������������������������������������������������������������� 132, s108���������������������������������������������������������������������������������������������������������������������������������������������������� 383 s109���������������������������������������������������������������������������������������������������������������������������������������������������� 383 s110�������������������������������������������������������������������������������������������������������������������������������������������� 332, 383 s111���������������������������������������������������������������������������������������������������������������������������������������������������� 384 ss115–117������������������������������������������������������������������������������������������������������������������������������������������ 384 s120���������������������������������������������������������������������������������������������������������������������������������������������������� 329 ss120–123������������������������������������������������������������������������������������������������������������������������������������������ 384 s132���������������������������������������������������������������������������������������������������������������������������������������������������� 383 s147���������������������������������������������������������������������������������������������������������������������������������������������������� 378 s159���������������������������������������������������������������������������������������������������������������������������������������������������� 378 Property Law Act 2007������������������������������������������������������������������������������������������������������������ 329, 383–84 s50(7)��������������������������������������������������������������������������������������������������������������������������������������������� 86, 94

Table of Legislation xxxvii ss50–53������������������������������������������������������������������������������������������������������������������������������������������������ 86 s117�������������������������������������������������������������������������������������������������������������������������������������������� 329, 384 Receiverships Act 1993�������������������������������������������������������������������������������������������������������������������������� 383 s19������������������������������������������������������������������������������������������������������������������������������������������������������ 332 Sales of Goods Act 1908 s27A��������������������������������������������������������������������������������������������������������������������������������������������� 75, 380 United Kingdom Banking Act 1979 s47������������������������������������������������������������������������������������������������������������������������������������������������������ 183 Bills of Exchange Act 1882���������������������������������������������������������������15, 56, 129–31 133, 136–37, 139–41, 144, 151–52, 394 s2�������������������������������������������������������������������������������������������������������������������������������������������������������� 133 s3(1)��������������������������������������������������������������������������������������������������������������������������������������������������� 128 s7�������������������������������������������������������������������������������������������������������������������������������������������������������� 133 s8������������������������������������������������������������������������������������������������������������������������������������������������ 130, 132 s10������������������������������������������������������������������������������������������������������������������������������������������������������ 129 s20������������������������������������������������������������������������������������������������������������������������������������������������������ 137 s21���������������������������������������������������������������������������������������������������������������������������������������������� 131, 139 s22���������������������������������������������������������������������������������������������������������������������������������������������� 139, 141 s24������������������������������������������������������������������������������������������������������������������������������������������������������ 141 s27�������������������������������������������������������������������������������������������������������������������������������� 133–34, 136, 139 s29�������������������������������������������������������������������������������������������������������������������������������� 136–37, 139, 141 s30�������������������������������������������������������������������������������������������������������������������������������� 132–33, 136, 139 s31������������������������������������������������������������������������������������������������������������������������������������������������������ 132 s32������������������������������������������������������������������������������������������������������������������������������������������������������ 224 s34���������������������������������������������������������������������������������������������������������������������������������������������� 132, 133 s36���������������������������������������������������������������������������������������������������������������������������������������������� 138, 141 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s6(2)��������������������������������������������������������������������������������������������������������������������������������������������������� 353 s7�������������������������������������������������������������������������������������������������������������������������������������������������������� 338 s7A����������������������������������������������������������������������������������������������������������������������������������������������������� 338 s8�������������������������������������������������������������������������������������������������������������������������������������������������������� 276 ss9–10������������������������������������������������������������������������������������������������������������������������������������������������ 322 s11������������������������������������������������������������������������������������������������������������������������������������������������������ 276 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s14������������������������������������������������������������������������������������������������������������������������������������������������ 269–70 Companies Act 1985 s395���������������������������������������������������������������������������������������������������������������������������������������������������� 373 Companies Act 2006������������������������������������������������������������������������������� 270–71, 276, 279, 298, 340, 355, 362, 367, 369, 373, 394 Part 25��������������������������������������������������������������������������������������������������������������������������������270, 373, 394 s770������������������������������������������������������������������������������������������������������������������������������������������������������ 87 s859A�������������������������������������������������������������������������������������������������� 105, 269, 320, 322, 326, 355, 377 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Table of Legislation xxxix Companies (Floating Charges) (Scotland) Act 1961�������������������������������������������������������������������������� 346 Companies (Floating Charges and Receivers) (Scotland) Act 1972��������������������������������������������������� 346 Consumer Credit Act 1974 s8���������������������������������������������������������������������������������������������������������������������������������������������������������� 70 s16������������������������������������������������������������������������������������������������������������������������������������������������������ 267 s70������������������������������������������������������������������������������������������������������������������������������������������������������ 309 s73������������������������������������������������������������������������������������������������������������������������������������������������������ 309 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s8������������������������������������������������������������������������������������������������������������������������������������������������ 117, 151 Enterprise Act 2002��������������������������������������������������������������������������������������������������� 280, 363–64, 388–89 Sch16������������������������������������������������������������������������������������������������������������������������������������������������� 364 s250���������������������������������������������������������������������������������������������������������������������������������������������������� 364 s251���������������������������������������������������������������������������������������������������������������������������������������������������� 280 s252���������������������������������������������������������������������������������������������������������������������������������������������������� 363 Equality Act 2010���������������������������������������������������������������������������������������������������������������������������������� 159 s199���������������������������������������������������������������������������������������������������������������������������������������������������� 160 Factors Act 1889��������������������������������������������������������������������������������������������61, 66–67, 70–71, 73, 76–77, 300, 303, 380, 390 s1�����������������������������������������������������������������������������������������������������������������16–17, 64, 67, 299–300, 311 s2���������������������������������������������������������������������������������������������������������������60, 63–64, 68, 70, 76–77, 300 s3���������������������������������������������������������������������������������������������������������������������������������������������������������� 64 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xl  Table of Legislation Finance Act 1910 s74(5)������������������������������������������������������������������������������������������������������������������������������������������������� 118 Finance Act 1940����������������������������������������������������������������������������������������������������������������������������������� 125 Fraud Act 2006�������������������������������������������������������������������������������������������������������������������������������������� 186 s2�������������������������������������������������������������������������������������������������������������������������������������������������������� 187 Hire Purchase Act 1964������������������������������������������������������������������������������������������������������������������� 73, 256 s27������������������������������������������������������������������������������������������������������������������������������������������������ 74, 340 s29�������������������������������������������������������������������������������������������������������������������������������������������������������� 74 Innkeepers Act 1878 s1�������������������������������������������������������������������������������������������������������������������������������������������������������� 304 Insolvency Act 1986�������������������������������������������������������������������������������� 279–80, 289, 292, 303, 305, 336, 347, 354–56, 361–65, 385 Sch1������������������������������������������������������������������������������������������������������������������������������������������� 362, 365 Sch6��������������������������������������������������������������������������������������������������������������������������������������������������� 280 SchB1������������������������������������������������������������������������������������������������������������������289, 303, 355, 364, 365 s29������������������������������������������������������������������������������������������������������������������������������������������������������ 361 s42���������������������������������������������������������������������������������������������������������������������������������������������� 362, 363 s44���������������������������������������������������������������������������������������������������������������������������������������������� 336, 362 s48������������������������������������������������������������������������������������������������������������������������������������������������������ 362 s72A������������������������������������������������������������������������������������������������������������������������������������������� 354, 363 s123�������������������������������������������������������������������������������������������������������������������������������������������� 347, 361 s176A����������������������������������������������������������������������������������������������������������������������������������������� 354, 363 s232���������������������������������������������������������������������������������������������������������������������������������������������������� 186 s245���������������������������������������������������������������������������������������������������������������������������������������������������� 355 s248�������������������������������������������������������������������������������������������������������������������������������������������� 303, 306 s323���������������������������������������������������������������������������������������������������������������������������������������������������� 292 s344�������������������������������������������������������������������������������������������������������������������������������83, 324, 369, 374 Insolvency Act 1986 (Prescribed Part) Order 2003��������������������������������������������������������������������� 354, 363 Judicature Acts�������������������������������������������������������������������������������������������������������������������85, 92, 193, 325 s25(6) (1873 Act)�������������������������������������������������������������������������������������������������������������������������������� 86 Land Registration Act 1925 s27������������������������������������������������������������������������������������������������������������������������������������������������������ 372 s70������������������������������������������������������������������������������������������������������������������������������������������������������ 168 Law of Property Act 1925����������������������������������������������������� 9, 24, 82, 91–92, 103, 105–06, 117, 120–21, 124, 126, 167, 272, 283, 325–26, 328, 331, 335–36 s2���������������������������������������������������������������������������������������������������������������������������������������������������������� 79 s27�������������������������������������������������������������������������������������������������������������������������������������������������������� 79 s53������������������������������������������������������������������������������������������������������������������������������������������������������ 119 s53(1)(b)��������������������������������������������������������������������������������������������������������������������������24, 121, 167 s53(1)(c)��������������������������������������������������������������������������������������������� 91, 103, 117, 124–26, 272, 325 s53(2)������������������������������������������������������������������������������������������������������������������������������������� 120, 124 s91���������������������������������������������������������������������������������������������������������������������������������������������� 328, 331 s92�������������������������������������������������������������������������������������������������������������������������������������������������������� 79 s94���������������������������������������������������������������������������������������������������������������������������������������������� 106, 283 s101���������������������������������������������������������������������������������������������������������������������������������������������� 79, 331 s104���������������������������������������������������������������������������������������������������������������������������������������������������� 331 s105���������������������������������������������������������������������������������������������������������������������������������������������������� 331 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Table of Legislation xli s136��������������������������������������������������������������������������������������������������������������� 19, 34, 81, 87, 96, 105, 323 s137�������������������������������������������������������������������������������������������������������������������������������������������� 104, 126 s188�������������������������������������������������������������������������������������������������������������������������������������������������������� 9 s198���������������������������������������������������������������������������������������������������������������������������������������������������� 283 Law of Property (Miscellaneous Provisions) Act 1989 s1���������������������������������������������������������������������������������������������������������������������������������������������������������� 50 Limitation Act 1980 s20������������������������������������������������������������������������������������������������������������������������������������������������������ 327 Marine Insurance Act 1906 s53������������������������������������������������������������������������������������������������������������������������������������������������������ 309 Misrepresentation Act 1967 s2������������������������������������������������������������������������������������������������������������������������������������������������ 175, 261 Patents Act 1977������������������������������������������������������������������������������������������������������������������ 3, 278–79, 281 s1������������������������������������������������������������������������������������������������������������������������������������������������������������ 4 s2������������������������������������������������������������������������������������������������������������������������������������������������������������ 4 s4������������������������������������������������������������������������������������������������������������������������������������������������������������ 4 s7������������������������������������������������������������������������������������������������������������������������������������������������������������ 3 s25���������������������������������������������������������������������������������������������������������������������������������������������������������� 4 s30�����������������������������������������������������������������������������������������������������������������������������������������87, 278, 323 s33���������������������������������������������������������������������������������������������������������������������������������������������� 279, 281 Proceeds of Crime Act 2002����������������������������������������������������������������������������������������������������������������� 162 Sale of Goods Act 1893����������������������������������������������������������������������������������������������48, 67, 178, 311, 313 s11�������������������������������������������������������������������������������������������������������������������������������������������������������� 37 Sale of Goods Act 1979����������������������������������������������������������� 9, 30, 33–37, 40–41, 47–49, 55, 64, 66–67, 71, 73, 76–77, 119, 145–46, 178–79, 184, 240, 242, 254–56, 260, 265, 268, 276, 286, 288, 304, 309–12, 314, 380, 394 ss13–15���������������������������������������������������������������������������������������������������������������������������������������������� 242 ss16–20B���������������������������������������������������������������������������������������������������������������������������������������������� 33 s16�����������������������������������������������������������������������������������������������������������������������������������������������9, 36, 41 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5�����������������������������������������������������������������������������������������������������������������������������41, 43, 45, 48 s19�������������������������������������������������������������������������������������������������������������������������������������������������������� 48 s20A��������������������������������������������������������������������������������������������������������������������������������������������9, 33, 47 s20B������������������������������������������������������������������������������������������������������������������������������������������������� 9, 33 s21�������������������������������������������������������������������������������������������������������������������������������������������������� 55, 66 s23�����������������������������������������������������������������������������������������������������������������������������������������64, 178, 179 s24������������������������������������������������������������������������������������������������������������������������������ 66–67, 76–77, 255 s25���������������������������������������������������������������������������������������������������������66–67, 73, 76–77, 256, 265, 286 s26�������������������������������������������������������������������������������������������������������������������������������������������������������� 67 s27������������������������������������������������������������������������������������������������������������������������������������������������������ 145 s29������������������������������������������������������������������������������������������������������������������������������������������������������ 254 s39������������������������������������������������������������������������������������������������������������������������������������������������������ 309 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xlii  Table of Legislation s48�������������������������������������������������������������������������������������������������������������������������������������������������������� 66 s49���������������������������������������������������������������������������������������������������������������������������������������������� 288, 304 s53(1)������������������������������������������������������������������������������������������������������������������������������������������������� 101 s59�������������������������������������������������������������������������������������������������������������������������������������������������������� 40 s61(1)��������������������������������������������������������������������������������������������������������������������������������������������������� 36 s61(3)������������������������������������������������������������������������������������������������������������������������������������������������� 146 s61(5)��������������������������������������������������������������������������������������������������������������������������������������������������� 37 Senior Courts Act 1981 s49�������������������������������������������������������������������������������������������������������������������������������������������������� 90–91 Small Business, Enterprise and Employment Act 2015��������������������������������������������������������������� 110, 152 s1�������������������������������������������������������������������������������������������������������������������������������������������������������� 109 s13������������������������������������������������������������������������������������������������������������������������������������������������������ 152 Stamp Act 1891������������������������������������������������������������������������������������������������������������������������������������� 119 s1�������������������������������������������������������������������������������������������������������������������������������������������������������� 120 s54������������������������������������������������������������������������������������������������������������������������������������������������������ 120 Supply of Goods (Implied Terms) Act 1972 s8�������������������������������������������������������������������������������������������������������������������������������������������������������� 256 Supply of Goods and Services Act 1982��������������������������������������������������������������������������������������� 242, 246 s7�������������������������������������������������������������������������������������������������������������������������������������������������������� 242 ss8–10������������������������������������������������������������������������������������������������������������������������������������������������ 242 s13������������������������������������������������������������������������������������������������������������������������������������������������������ 244 Supreme Court Act 1981 (now Senior Courts Act 1981) s49�������������������������������������������������������������������������������������������������������������������������������������������������� 90–91 Supreme Court of Judicature Act 1873 s25(6)��������������������������������������������������������������������������������������������������������������������������������������������������� 82 Taxes Management Act 1970 s33������������������������������������������������������������������������������������������������������������������������������������������������������ 314 Theft Act 1968��������������������������������������������������������������������������������������������������������������������������������������� 186 s2�������������������������������������������������������������������������������������������������������������������������������������������������������� 254 Torts (Interference with Goods) Act 1977������������������������������������������� 41–42, 57, 183, 185, 188, 190–92, 194–97, 200–01, 203, 207, 245, 250, 253, 297, 303–04 s2�������������������������������������������������������������������������������������������������������������������������������������������������������� 201 s3����������������������������������������������������������������������������������������������������������������� 191, 195, 197, 201, 245, 303 s4�������������������������������������������������������������������������������������������������������������������������������������������������������� 207 s5�������������������������������������������������������������������������������������������������������������������������������������������������������� 196 s6�����������������������������������������������������������������������������������������������������������������������������������������199, 200, 255 s7�����������������������������������������������������������������������������������������������������������������������������������������195, 252, 255 s8���������������������������������������������������������������������������������������������������������������������������������192, 204, 243, 253 s10������������������������������������������������������������������������������������������������������������������������������������������������������ 194 s11�������������������������������������������������������������������������������������������������������������������������������183, 188, 190, 297 s12�������������������������������������������������������������������������������������������������������������������������66, 243, 250, 253, 304 s 13����������������������������������������������������������������������������������������������������������������������������������������������������� 250 ss12–13���������������������������������������������������������������������������������������������������������������������������������������������� 304 s14���������������������������������������������������������������������������������������������������������������������������������������������� 183, 185 Trade Marks Act 1994����������������������������������������������������������������������������������������������������������������������� 4, 323 s1������������������������������������������������������������������������������������������������������������������������������������������������������������ 4 s10���������������������������������������������������������������������������������������������������������������������������������������������������������� 4 s24������������������������������������������������������������������������������������������������������������������������������������������������������ 323 s24(3)������������������������������������������������������������������������������������������������������������������������������������������� 87, 278

Table of Legislation xliii ss24–25���������������������������������������������������������������������������������������������������������������������������������������������� 278 s32���������������������������������������������������������������������������������������������������������������������������������������������������������� 4 Trustee Act 2000 s3���������������������������������������������������������������������������������������������������������������������������������������������������������� 79 s5���������������������������������������������������������������������������������������������������������������������������������������������������������� 79 Unfair Contract Terms Act 1977�������������������������������������������������������������������������������������������������� 247, 337 Unsolicited Goods and Services Act 1971�������������������������������������������������������������������������������������������� 253 Statutory Instruments Companies (Particulars of Company Charges) Regulations 2008 ���������������������������������������������������� 269 Companies Act 2006 (Amendment of Part 25) Regulations 2013����������������������������������������������������� 270 Consumer Credit (Advertisements) Regulations 2010 ���������������������������������������������������������������������� 328 Consumer Credit (Amendment) Regulations 2010 ��������������������������������������������������������������������������� 328 Consumer Credit (Total Charge for Credit) Regulations 2010 ��������������������������������������������������������� 328 Consumer Protection from Unfair Trading Regulations 2008 ���������������������������������������������������������� 327 CPR 16.6 ����������������������������������������������������������������������������������������������������������������������������������������������� 295 CPR 19.5A������������������������������������������������������������������������������������������������������������������������������������� 195, 253 CPR 25.1(c)(v)�������������������������������������������������������������������������������������������������������������������������������������� 304 Financial Collateral Arrangements (No 2) Regulations ���������������������������117, 271–73, 291–92, 322–23, 325, 329, 365, 376, 383 Reg 12������������������������������������������������������������������������������������������������������������������������������������������������ 292 Reg 16������������������������������������������������������������������������������������������������������������������������������������������������ 322 Reg 17������������������������������������������������������������������������������������������������������������������������������������������������ 329 Reg 18������������������������������������������������������������������������������������������������������������������������������������������������ 329 Financial Markets and Insolvency (Settlement Finality and Financial Collateral Arrangements) (Amendment) Regulations 2010 ������������������������������������������271, 292, 329 Insolvency Act 1986 (Prescribed Part) Order 2003 �������������������������������������������������������������������� 354, 363 Insolvency Rules 1986��������������������������������������������������������������������������������������������������������������������������� 292 International Interests in Aircraft Equipment (Cape Town Convention) Regulations 2015�������������������������������������������������������������������������������������������������276–78, 281, 326, 341, 343, 375, 378, 394 Reg 6(2)��������������������������������������������������������������������������������������������������������������������������������������������� 277 Reg 14������������������������������������������������������������������������������������������������������������������������������������������������ 278 Reg 16���������������������������������������������������������������������������������������������������������������������������������������� 281, 378 Reg 19(2)������������������������������������������������������������������������������������������������������������������������������������������� 341 Reg 20������������������������������������������������������������������������������������������������������������������������������������������������ 375 Reg 21(2)������������������������������������������������������������������������������������������������������������������������������������������� 341 Mortgaging of Aircraft Order 1972������������������������������������������������������������������������������������������������������ 326 Motor Vehicles (Construction and Use) Regulations 1955 ����������������������������������������������������������������� 46 Privacy and Electronic Communications (EC Directive) Regulations 2003 ������������������������������������ 204 Transfer of Undertakings (Protection of Employment) Regulations 2006���������������������������������������� 106 Unfair Terms in Consumer Contracts Regulations 1999�������������������������������������������������������������������� 247 United States of America Restatement of Torts������������������������������������������������������������������������������������������������������������������������� 187 Uniform Commercial Code����������������������������������������������������������������������������������76, 78, 132, 145, 151 Art 2 Art 2.403������������������������������������������������������������������������������������������������������������������������������������������ 76 Art 3��������������������������������������������������������������������������������������������������������������������������������������������������� 151

xliv  Table of Legislation Art 4��������������������������������������������������������������������������������������������������������������������������������������������������� 151 Art 5��������������������������������������������������������������������������������������������������������������������������������������������������� 150 Art 7����������������������������������������������������������������������������������������������������������������������������������������������������� 78 Art 7.501������������������������������������������������������������������������������������������������������������������������������������������ 78 Art 9��������������������������������������������������������������������������������������������������������������������257, 341, 371, 381, 386 Art 9.203���������������������������������������������������������������������������������������������������������������������������������������� 375 Art 9.302���������������������������������������������������������������������������������������������������������������������������������������� 132 Art 9.305���������������������������������������������������������������������������������������������������������������������������������������� 376 Art 9.309���������������������������������������������������������������������������������������������������������������������������������������� 382 Art 9.313���������������������������������������������������������������������������������������������������������������������������������������� 382 Art 9.317������������������������������������������������������������������������������������������������������������������������������������������ 77 Art 9.320������������������������������������������������������������������������������������������������������������������������������������������ 77 Art 9.324���������������������������������������������������������������������������������������������������������������������������������������� 381 Art 9.328���������������������������������������������������������������������������������������������������������������������������������������� 381 Art 9.406���������������������������������������������������������������������������������������������������������������������������������������� 110

TABLE OF CONVENTIONS, TREATIES, ETC

Bolero rulebook 1999����������������������������������������������������������������������������������������������������������������������������� 18 Cape Town Convention on Security Interests in Mobile Equipment��������������������������������� 276–77, 281, 378, 394 Comite Maritime International (CMI) Rules on Electronic Bills of Lading��������������������������������������� 18 EBRD Model Law on Secured Transactions 2004������������������������������������������������������������������������������� 387 ESS-Databridge system 2004������������������������������������������������������������������������������������������������������������������ 18 eUCP������������������������������������������������������������������������������������������������������������������������������������������������ 148–49 Hague-Visby rules����������������������������������������������������������������������������������������������������������������������������������� 16 SWIFT eUCP Guidelines���������������������������������������������������������������������������������������������������������������������� 149 UCP 600���������������������������������������������������������������������������������������������������������������������������������� 148–51, 301 UN Convention on the Assignment of Receivables in International Trade��������������������������������������� 110

xlvi 

1 The Basic Concepts of Personal Property Law I. Introduction There are a number of basic concepts in the law of personal property, some of which are common to land law as well, although our focus in this book is on personal property and in particular private property rights.1 Indeed the distinctions between land or real property and personal property and between personal and proprietary rights are among the most basic we see. This chapter is devoted to building these concepts up. It will set the scene for the rest of the book. The chapter is divided into a number of sections. Firstly we examine the different types of asset with which we are concerned. Subsequently we look at the different ways of owning assets. In English law we can hold property in one of three ways. We can hold it, or own it, outright. This is what we look at in the second section of this chapter along with the different ways of understanding legal title and possession. I may also hold property on trust. It is important to see what we mean by legal title before we look at this, because usually the trustee—the person holding on trust—has legal title. He also has various obligations. We look at the private express trust briefly. Later in the book it will be explained how equitable interests under trusts are transferred and protected. However, for more detail on the trust a dedicated trusts textbook should be consulted. I can also hold the asset as security for an obligation owed by another party (D). In these cases I am D’s creditor and have a right in an asset, title to which (either legal or equitable) is normally held outright by D, although mortgages are an exception to this. When the obligation is discharged, so is the security interest. That security interest allows me to exercise a power—such as sale—over the asset to generate money to be applied to discharge the obligation. The chapter concludes with an examination of different modes of original acquisition of title, of therefore previously un-owned or new assets.

1  On different types of ‘non-private property’ see A Clarke and P Kohler, Property Law: Commentary and Materials (Cambridge, CUP, 2005) ch 1.

2  The Basic Concepts of Personal Property Law

II.  Subdividing Personal Property Personal property can be defined in short as property other than land or real property. ­Personal property is therefore often referred to as personalty, as opposed to realty. Division

Tangible property (choses in possession)

Subdivision Example

Stone/car/pen

Intangible property (choses in action) Pure intangible

Documentary intangible

Debt, copyright, patent

Cheque or bill of exchange/share warrant

A.  Tangible and Intangible Assets The table above demonstrates that property can be divided into property we can touch (tangible, or choses in possession) and that we cannot (intangible, or choses in action).2 Chattels are often thought of as the paradigmatic property asset, but they are much less important than intangibles in the modern economy. There is controversy over what precisely can be owned. One particular controversy is over whether we own parts of our own bodies. On the whole it seems that we can own parts of our own bodies, or of others’ bodies, and with some protections to preserve human dignity this seems right.3 Care must be taken with the term ‘chattel’, however. There are both chattels real and chattels personal. Leasehold interests in land are chattels real, and are dealt with in land law texts.

B.  Dividing Intangibles Intangibles can be divided into several categories. We encounter several types of pure intangible asset in this book. There are debts, shares and intellectual property to name but three and there are different ways of holding property in them. Debts or simple contractual rights that the other party do X or pay money are the simplest type of chose in action and these are often traded to provide business finance. There is also the paradoxical category of the documentary intangibles which we look at first.

i.  Documentary Intangibles Despite the oxymoronic name, these are reasonably straightforward. They rely on the existence of a document. If A writes B a cheque for £50 with his Royal Bank of Scotland cheque 2 

E McKendrick (ed), Goode on Commercial Law 4th edn (London, Penguin, 2010) 51–53. Douglas ‘Property Rights in Bodily Material’ in I Goold et al (eds) Persons, Parts and Property (Hart Oxford 2014) 89. See for further discussion M Quigley, ‘Property in Human Biomaterials—Separating Persons and Things?’ (2012) 32 OJLS 659; J Wall ‘The Legal Status of Body Parts: A Framework’ (2011) 31 OJLS 783; R Nwabueze ‘Proprietary Interests in Organs in Limbo’ (2016) 36 LS 279. 3 S

Subdividing Personal Property 3

book, B has a right that the Royal Bank pay him £50. That is a right that cannot be touched; it is intangible. B can also transfer the right to C. However, this is dependent on the continued existence of the paper cheque, which is also protected in law in the same way as any other chattel, or physical chose in possession. If the cheque burns in a fire, the right is dead with it. Because the existence of the intangible right to be paid is dependent on, and represented by, a document it is called a documentary intangible, highlighting its hybrid nature. Cheques, as we will see, are examples of bills of exchange and we will return in chapter six to what a bill of exchange is and the methods by which they can be transferred.4

ii.  Intellectual Property There are whole books written on intellectual property,5 and this can therefore only be a sketch. There are several different types of intellectual property, but they all share the characteristic that they are creatures of statute, with the possible exception of trade secrets or confidential information. We start with the statutory rights. Copyright is a right in the form of written or recorded information, and usually lasts for 70 years from the author’s death.6 It does not protect the content per se, although if the content is confidential it might be protected via a different route through an action in breach of confidence.7 Copyright protects specific categories of works,8 such as literary works (which includes software), artistic and dramatic works, if they are sufficiently original in that work was done to put it together. It is likely that these categories are not exhaustive.9 Unlike some other intellectual property rights, copyright does not depend on any type of registration. There does not need to be very much work done to prove a degree of originality under the traditional UK approach. Putting together a phone directory will suffice.10 Under ­European rules mere mechanical or routine labour will not count. The work will have to be the author’s own intellectual creation, involving creative choices such that there is some individualisation of the work,11 although the work done in making phone directory may be protected via a different route.12 By contrast, patent and trade mark rights are registrable. The registrability of these intellectual property rights causes complications when we examine security rights in intellectual property in chapter 11. In order to gain protection for a patent therefore there must be a formal application to the UK Intellectual Property Office (IPO), which has the power under section 7 Patents Act 1977 to grant a patent valid throughout the UK. To succeed,

4 

See chapter six, part II A. L Bently and B Sherman Intellectual Property Law, 4th edn (Oxford, OUP, 2014). Copyrights Designs and Patents Act 1988, s 12. 7  T Aplin (ed) Cornish, Llewellyn and Aplin: Intellectual Property Law, 8th edn (London, Sweet and Maxwell, 2013) para 8.02 gives the example of a secret society whose rules are copied. That gives rise to a copyright action, but if the rules were simply paraphrased only a confidence action. 8  Copyright, Designs and Patents Act 1988, ss 1, 3. 9  SAS Institute Inc v Worldwide Programming Ltd [2013] EWHC 69, [2013] RPC 17, [27] (Arnold J). 10  Kelly v Morris (1886) LR 1 Eq 697; Bently and Sherman Intellectual Property Law (2014) (n 5) 93. 11  Bently and Sherman Intellectual Property Law (2014) (n 5) 98–102. 12  ibid 107–108. 5  6 

4  The Basic Concepts of Personal Property Law

that application must demonstrate some degree of novelty and invention. The step must go beyond all previously available material to be novel, and be a step that would not be obvious to a person skilled in the area to count as sufficiently inventive. It must be capable of industrial application and not be against public policy or morality.13 If granted, the patent is publicly available, but the method of manufacture or business process is not one that another party is permitted to use for the duration of the patent—usually 20 years.14 The use of the patented process can, however, be licensed and these patent licences (or licences to use any other intellectual property rights) often provide a way for the patent holder to make money and can be valuable assets for the licensee, which can be treated as property rights in themselves.15 A trade mark is a mark, sign or logo which the business uses to identify and distinguish its goods and services for marketing purposes from those provided by another undertaking,16 and this justifies the business having the exclusive use of the logo so as not to confuse others into thinking they were buying something other than they thought. It also functions as a means of quality assurance, as trade mark owners must have unitary control over the product quality and the legal and practical ability to ensure that the quality is consistent. It is registrable so as to qualify for protection by application to the IPO under section 32 Trade Marks Act 1994. Registration lasts for ten years, after which an application for re-registration must be made. The owner may prevent other parties from using the sign or a similar sign so as to confuse or take advantage of the reputation of the mark;17 it is the use of a similar sign on identical goods that is the most common alleged infringement. There has been a long-running argument as to whether confidential information is property. The locus classicus is Phipps v Boardman.18 That case revolved around the question whether trustees had committed a breach of duty in buying shares in a company as a result of information acquired as trustees. Their Lordships were split. Lord Hodson, for instance, argued that confidential information could legitimately be regarded as property.19 Lord Upjohn by contrast denied this.20 In Douglas v Hello! Lindsay J talked of confidential information and trade secrets as being assets, and of ownership of information.21 There are dicta that decide bona fide purchase of the information negates liability for damages in breach of confidence, although an injunction may still be available.22 Bona fide purchase is an important restrictor of equitable property. Yet to treat information as private property in this way renders innocent donees liable, which is here inappropriate.23 Private property rights are

13 

Patents Act 1977, ss 1–2, 4. ibid s 25. 15  Such as under statutory personal property security regimes; see eg Personal Property Securities Act 2009 (Cth) ss 10, 105. 16  Trade Marks Act 1994, s 1. 17  ibid s 10. 18  [1967] 2 AC 46; See R Pattenden and D Sheehan (eds) The Law of Professional-Client Confidentiality, 2nd edn (Oxford, OUP, 2016) paras 1.08–1.11. 19  ibid 107, 1115 (Lord Guest). 20 ibid 127, 102 (Lord Cohen), and 89–90 (Viscount Dilhorne); see also Force India Formula One Team Ltd v 1 Malaysia Racing Team SDN BHD [2012] EWHC 616. 21  [2003] EWHC 786, [2003] 3 All ER 996, [195–196]; ABC v Lenah Game Meats [2001] HCA 63, (2001) 208 CLR 199. 22  Sir Elton John v Countess Joubeline 26 January 2001; Valeo Vision v Flexible Lamps Ltd [1995] RPC 205. 23 R Arnold ‘Circumstances Importing an Obligation of Confidence’ (2003)119 LQR 193, 195; Fyffes Group v Templeman [2000] 1 Lloyds Rep 643; Wheatley v Bell [1982] 2 NSWLR 544, 549. 14 

Subdividing Personal Property 5

therefore inappropriate, although the obligation relating to the information is property as it is a chose in action. Such a chose in action would be transferable.24

iii.  Equity and Debt Securities The issue of equity and debt securities—or bonds—is an important part of corporate finance. All companies limited by shares need to issue at least one such share. Not all companies issue debt securities or bonds, but they can be very important financing tools as well as personal property assets.25 The basic difference is that the holder of an equity share hopes the company will be profitable and they receive dividends. The holder of a debt security has an expectation of being repaid—before the holder of an equity security receives anything. A debt security therefore is a type of transferable loan. Although the primary market in which such securities are issued may be small, the secondary market is much bigger. There are different types of debt securities, depending for example on their maturity dates. Equity shareholders in a company are the company’s members, and the relationship between them and between the shareholder and the company is governed by the articles of the company’s association. There are different types of shares which a company can issue, the most common being ordinary shares and preference shares. Ordinary shares are defined nowhere. They are in effect any shares, which are not defined to be any other type of shares. Preference shares, for example, usually provide for a fixed annual payout defined as a percentage of par value.26 Par value is the nominal value of the shares on issuance. This fixed payout is paid in priority to other, usually ordinary, shareholders. Shares and debt securities can be held in very complex patterns. It is possible, although rare, for securities (usually bonds) to be issued as bearer securities, embodied in a piece of paper and therefore documentary intangibles. Shares by contrast were usually registered securities; a share certificate issued as evidence of ownership. More commonly today shares are uncertificated and dematerialised. They exist in short only electronically and through a clearing system known as CREST.27 This process of dematerialisation allows for intermediated securities. The issuer issues the whole amount of shares or bonds to single holder. This is immobilised, so it cannot be transferred, and held in a central depositary. That depositary then holds for a series of intermediate holders, each of whom has a securities account with the top-tier holder. Each intermediary operates securities accounts in behalf of customers and the number of tiers can be multiplied or lessened. The advantage of these accounts is that all the information is held centrally and electronically, and such intermediated securities will count as financial collateral, details of which are examined in chapters 11 and 14. Transfers between the parties take place through a process of credits and debits.28

24 

T Aplin ‘Confidential Information as Property’ (2013) 24 KLJ 172, 187. M Bridge, L Gullifer, G McMeel and S Worthington (eds) The Law of Personal Property (London, Sweet and Maxwell, 2013) para 23.001. 26  ibid para 23.007. 27  ibid paras 23.035–23.036. 28  L Gullifer (ed) Goode on Legal Problems of Credit and Security 5th edn (Oxford, OUP, 2013) para 6.07 has a number of diagrammatic representations of how interests can be held. 25 

6  The Basic Concepts of Personal Property Law

III.  Ownership, Possession and Legal Title A. Ownership Ownership plays a pivotal role in property law, but it is a concept difficult to define. We first see what counts as ownership. There are different ways to treat this question. We can ask ourselves how English law actually treats ownership and property rights generally from a doctrinal perspective, and much of the book is devoted to exactly this question. Here we are more interested in a theoretical perspective. We then move to a more doctrinal perspective to look at joint ownership.

i.  What Type of Right is Ownership? We might say that ownership is the highest possible right in a thing that exists. The person with the best possible right to the thing is the owner. However, ownership is not just a right it is, or may be, a bundle of rights and incidents. Tony Honoré listed a number in a famous book chapter entitled simply ‘Ownership’.29 These include the 1. right to possess, or to have exclusive physical control 2. right to use, which Honoré confined to personal use 3. right to the income, which will include any natural income—apples from an apple tree, lambs from a sheep, but also eg rental income from an apartment 4. right to manage and deal with the asset, control its use by others and ability to licence others to make personal use of it 5. right to the capital; this is the right to deal with the asset as you see fit 6. right to security of possession or ownership; that is the right to prevent others from making use of the asset 7. the right of transmissibility, the ability to give it away, or sell it so that the transferee acquires precisely the rights you had 8. absence of term; this refers to the nature of the right as not limited in time—a right to use the asset only for ten years for example will not satisfy this. This idea of the bundle of rights derives from a combination of Honoré and Hohfeld. Hohfeld30 believed that there were different types of ‘right’ very broadly conceived which needed to be kept separate from each other and which could only exist between two individual people. Ownership of a thing was therefore a bundle of claim-rights that each individual other person not interfere with the owner’s asset, and liberties or permissions to do things with the asset.31 The bundle of rights view of property is often criticised as rendering property rights too—even infinitely—malleable as the rights can be added or subtracted according to some well thought-through policy-making.

29 

T Honoré, ‘Ownership’ in AG Guest (ed), Oxford Essays in Jurisprudence (Oxford, OUP, 1961) 108. Hohfeld, ‘Some Fundamental Legal Conceptions as Applied in Judicial Reasoning’ (1913) 23 Yale Law Journal 16. 31  Critiqued by J Penner, ‘“The Bundle of Rights” Picture of Property’ (1996) 43 Los Angeles Law Review 711. 30  WN

Ownership, Possession and Legal Title 7

There are many other views of ownership.32 One such is that of Henry Smith. Smith has argued33 that we have to see property rights as mediated through a thing—this is why they are often labelled rights in rem. We have seen already the different types of intangible assets that there are, and he argues that the bundle thesis suggests that things are a mere backdrop to these rights and a largely dispensable one; notions of ownership are with the rise on intangibles simply a matter of intelligent policy.34 He rejects this notion, but also argues that even where ‘bundle theorists’ go further and accept a right to exclude or to use as fundamental they are being reactive and that the bundle picture is consistent, in essence, with too many pictures of property.35 For Smith, once we understand property we realise that it is more than the sum of its parts. Insistence on mediating the right through a thing means that the right to exclude others from the thing emerges holistically.36 The right to exclude then becomes vital—and we see this later in this chapter in seeing why equitable rights under a trust are proprietary. Smith calls it one of the basic features of property, and derives the right to alienate property from that as well.37 This mediation of property through a thing is also found in Penner’s discussion. Penner’s view is the property right is the right to exclusively determine the use of a thing.38 It is the right to exclude others from the thing that secures us in the use of it for our own benefit, enables us to pursue our ends and provides the ultimate justification for the institution. Alienability as an incident of property alone is not uncontroversial, however. While Penner, for example, accepts the right to give assets away as being inherent in the right of property, he denies that the right to sell is inherent in property.39 The basis for this is that it also depends on the right to contract which, while it may too be based on personal autonomy, is a different type of exercise of autonomy. As a general rule, however, we assume that the transmissibility or assignability of the property is an incident of ownership rights, although it is not a necessary incident. There are circumstances in which choses in action are non-assignable, and at the margins even rights in tangible assets can be difficult to alienate. Water rights for example can be tricky because of the need to accommodate downstream appropriators. We examine nonassignability of choses in action in particular in chapter four,40 but the general rule is that if I own it I can transfer it, and frequently we think of it the other way round. If I can transfer a right I must own it. These rights of alienability and exclusion, Smith, argues are integral and yet not absolute.41 Given as we will see in chapter three, for example, that legal title to a chattel can be lost through the actions of someone in possession of the asset where it is transferred to a

32  J Penner, ‘Ownership, Co-Ownership, and the Justification of Property Rights’ in T Endicott et al (eds), Properties of Law: Essays in Honour of Jim Harris (Oxford, OUP, 2006) 166, 182–183. 33  H Smith ‘Property as the Law of Things’ (2012) 125 Harvard L Rev 1691. 34  ibid 1692. 35  ibid 1698. 36  ibid 1699–1798. 37  ibid 1710. 38  J Penner The Idea of Property (Oxford, OUP, 1997) 208–209. 39  J Penner, ‘Value, Property and Unjust Enrichment: Trusts of Traceable Proceeds’ in R Chambers, J Penner and C Mitchell (eds), Philosophical Foundations of the Law of Unjust Enrichment (Oxford, OUP, 2009) 306, 308. 40  See chapter four, part V. 41  Smith (n 33) 1704.

8  The Basic Concepts of Personal Property Law

third party that is certainly true of English law. Lametti argues that property responds to a mix of justificatory arguments, and refers to this as the deon-telos of property.42 In explaining what he means by deon-telos, Lametti refers to the Dworkinian division of rights-based, duty-based and goal-based arguments.43 For Dworkin, principles compete against each other and may have differing weights depending on context and property law for Lametti is simply an arena in which this competition is played out.44 Goal-based or instrumental arguments may include the good administration of society or more particular economic or instrumental goals, such as marketability which determine the character of our property institution, or particular aspects of it such as nemo dat examined in chapter three. Rights-based (deontological) ones might include autonomy, the right to make meaningful choices in our lives,45 and the consequent right to exclude others from our property made so central by James Penner. Deon-telos identifies such universal imperatives and moral and ethical duties, but at the same time it refers to teleological functionalist arguments on societal goals and the regulation of social wealth. In other words private property can only be justified by reference to what the particular society believes is a just distribution of resources, or a just method of distributing, earning or acquiring those resources, and a society may have all sorts of different ideas that impact on such a question, which will entail that different societies can have very different justifications for different conceptions of property.46 Concentrating purely on our rights creates much too strong a paradigm for property and neglects the teleological aspects of it.

ii.  Joint Ownership Doctrinally single ownership is not too difficult. Ownership rights may be shared, though. Co-ownership takes one of two forms. It may be a joint tenancy or a tenancy in common. Joint tenants share the four unities. 1. 2. 3. 4.

possession interest title time47

The unity of possession means that the co-owners have a contemporaneous right to possess or control the whole of the property. Neither party in a joint tenancy is entitled as against the other to exclusive possession. Assuming the property to be tangible, if he carries out an act, arrogating that to himself and excluding the other party, he commits a wrong, that of conversion, with which we deal in chapter eight, part II. The unity of interest means that each joint tenant has exactly the same rights over the asset; that of title implies that the parties’ rights were created by the same act and the unity of time that they were created at the same time. If those requirements are met collectively the joint tenants are treated as if

42 

D Lametti ‘Property and (Perhaps) Justice’ (1998) 43 McGill LJ 663, 670. R Dworkin, Taking Rights Seriously (London, Duckworth, 1978) 171. 44  Lametti (n 42) 670–671. 45  ibid 669. 46  ibid 681–683. 47  S Worthington, Personal Property Law: Text and Materials (Oxford, Hart, 2000) 49–50. 43 

Ownership, Possession and Legal Title 9

they were a single owner with each being as entitled to the whole of the thing as the others. Consequently when a joint tenant dies the other joint tenant(s) simply acquire his share. This right of survivorship is a cardinal feature of joint tenancy.48 Joint tenancy therefore inevitably devolves to sole ownership eventually. No right of survivorship applies in a tenancy in common. Choses in action can only be held at law as joint tenants.49 A tenant in common, by contrast, has an undivided share, and the only unity the tenants in common need is the unity of possession. Tenancies in common can be created in a number of ways; there may, for example, be a transfer indicating the two parties are to have separate interests; eg a transfer to parties to hold ‘equally’. The co-owners may contribute unequally to the asset, or mixture. A joint tenancy may also be severed50 and severance can occur in a number of different ways. A joint tenant may purport to transfer an undivided share to a third party.51 The joint tenants may simply agree that they will hold as tenants in common instead.52 The third means of express severance occurs where there is a course of dealings where each joint tenant conducts himself on the basis that he has an undivided share in the property.53 However, as McFarlane points out if one joint tenant makes a mistake and leaves his share in his will that does not sever the joint tenancy.54 Insolvency also severs the joint tenancy. Two tenants in common therefore may have a 50 per cent share each. Where a tenant in common has a 50 per cent or greater share he may apply to the court for an order dividing the bulk.55 This idea of tenancy in common and the ability to split the bulk to obtain full ownership of corresponding assets will become important in the sale of goods context, covered in detail in chapter two, part II C, where in some cases a buyer can as an intermediate step become a tenant in common of an undifferentiated bulk of goods. In Re Stapylton Fletcher,56 for example, cases of wine sold to customers were set off to one side and segregated from unsold stock. However, the cases were not further separated or sub-divided by customer. Judge Paul Baker QC held that the wine was identified for the purposes of section 16 Sale of Goods Act 1979, which requires that property can only pass in identified assets. Property passed because of the common intention of the parties and the customers became tenants in common of the separated bulk.57 There is a similar statutory solution in pre-payment cases. I could sell you 5000 tons of wheat from a silo with 10,000 tons. On payment you become 50 per cent owner of the bulk; only when the goods are loaded and despatched can you be 100 per cent owner of 5000 tons.58

48 

ibid 49. Re McKerrell [1912] 2 Ch 648. This does not imply that assets bought from a joint bank account are necessarily owned jointly. Bridge et al (n 25) para 4.009. 50  B McFarlane, The Structure of Property Law (Oxford, Hart, 2008) 540–548. 51  ibid 544. 52  Burgess v Rawnsley [1975] Ch 429. 53  Williams v Hensman (1861) 1 J&H 546, 70 ER 862. 54  McFarlane (n 50) 546–547. 55  Law of Property Act 1925, s 188(1). 56  Re Stapylton Fletcher [1994] 1 WLR 1181. 57  ibid 1200. 58  Sale of Goods Act 1979, s 20A; as we will see in chapter two, part II C ii this is not quite the same type of tenancy in common as at common law; see Sale of Goods Act 1979 s 20B. 49 

10  The Basic Concepts of Personal Property Law

B. Possession Possession is not straightforward, although there is a presumption that the person in possession is the owner, and vice versa.59 Lord Jowitt commented in 1952 that English law has never satisfactorily defined or developed a worked-out theory of possession. This remains true today.60 It may also be inevitable; there are certainly different possible views. Possession is a concept whose application may vary with context and the different policies applying in different areas. On the flipside, whilst most of the cases turning on possession are criminal cases where possession of a prohibited thing is an offence, but Harris and others have argued that there is no reason why possession should have a different meaning elsewhere.61 There are, however, a number of general points that can be made. The first point is that it is said possession is essentially factual and indivisible in the sense that at any given time only one person is actually and physically in possession. Care must be taken with this statement.62 What it means is that adverse claimants cannot share possession. The law will say that one has the right to exclude the other; both bailors and bailees at will have rights to immediate possession, but that of the bailor is relatively stronger. The second point is that there is a difference between possession and contractual rights to the asset. Lord Brandon in The Aliakmon said, In order to enable a person to claim in negligence for loss caused to him by reason of loss of or damage to property, he must have had either the legal ownership of or a possessory title to the property concerned at the time when the loss or damage occurred, and it is not enough for him to have only had contractual rights in relation to such property which have been adversely affected by the loss of or damage to it.63

The basis in fact that possession has means that there is no such thing as equitable ­possession64 and this can be seen as our third general point. A party is either in possession or at law entitled to possession. Alongside actual possession the right to take immediate possession, otherwise referred to as constructive possession, also counts as possessory title. Such rights to immediate possession may be created by contract. My right as a bailee to possess the asset may be, and usually is, founded in contract. An example of this might be the right of a warehouseman to retain possession of assets belonging to his clients and stored in the warehouse. However, Lord Brandon’s point is that there is a difference between an unconditional contractual right to immediate possession and other rights that might be given by a contract. If for example you agree to sell your car to me, I have a contractual right to be given possession of the car, but that is not the same as having possession already. The idea of possession therefore, despite its difficulties, has immense significance. The special property, as it is somewhat unhelpfully called, of bailees and pledgees, is dependent

59 

Ramsay v Margrett [1894] 2 QB 18. United States of America and Republic of France v Dollfuss, Mieg et Cie and Bank of England [1952] AC 582 (HL) 605. 61  DR Harris, ‘The Concept of Possession in English Law’ in AG Guest (ed) Oxford Essays in Jurisprudence (Oxford, OUP, 1963) 69; J de Meyrick, ‘The Mental Elements of Possession’ (1984) 58 Australian Law Journal 202. 62  M Bridge Personal Property Law, 4th edn (Oxford: OUP, 2015) 19. 63  Leigh & Sillavan Ltd v Aliakmon Shipping Co Ltd [1986] AC 785 (HL) 809. 64  LS Sealy and RJA Hooley, Commercial Law: Text, Cases and Materials 4th edn (Oxford, OUP, 2008) 74, and hence no such thing as an equitable pledge. 60 

Ownership, Possession and Legal Title 11

on possession. The major means of protecting legal rights to property; the tort of ­conversion responds to interferences with possession and rights to possession.65 Ownership also seems to depend on the owner having the best right to possess. There are several types or forms of possession66 1. De facto possession is the closest to the lay meaning of the term. It is actual ­control of, or detention of, the thing. It consists of two elements a) the fact of physical ­possession—corpus possessionis, or manual indicium and b) the intention to possess— animus possidendi, or cognitive indicium. 2. Legal possession may be retained by someone who is not in actual possession. 3. Constructive possession is the right to take actual possession from a party who may be in de facto possession. There are some exceptional cases where those with apparent control will be taken not to be in possession. These include dinner party guests holding knives and forks. The important point about the dinner party guests is that they lack animus possidendi. They are said to be in custody67 of the assets but not in possession. In Meux v Great Eastern Railway Co68 an employee of the claimant placed a portmanteau of his in the hands of an employee of the defendant railway company. His livery or uniform, which was the claimant’s own property was in the luggage and was destroyed when the luggage fell on the tracks and was crushed by a train. The claimant succeeded in her damages claim against the company for damage to the livery. For present purposes, however, it is sufficient to note that the claimant’s employee had been in custody but not possession of the livery. That rule was reaffirmed by the NSW Court of Appeal in Burnett v Randwick City Council69 where directors of an insolvent company claimed the right to sue in conversion for interference with the company’s assets. Tobias JA held they were custodians in charge of the equipment by mere licence and unable to sue. The company was in possession.70

i.  De facto Possession De facto, or actual possession, requires both indicia of possession—manual and cognitive.71 It is quite possible to be in actual possession of a thing without physically holding it in your hands. What is required is that there be factual control of it. When I come to work therefore I do not relinquish possession of my furniture at home. Nor do I have to physically hold my car in my hands; it’s just too big. The corpus possessionis therefore consists of the power to factually control to the exclusion of others. The degree of factual control required will depend on the nature of the asset in question. The degree of control required for smaller

65 

S Green and J Randall, The Tort of Conversion (Oxford, Hart, 2009) 75; chapter eight, part II. 109–112; F Pollock and R Wright, An Essay on Possession in the Common Law (Oxford, OUP, 1888) 26–28; Bridge et al (n 25) paras 2.038–2.041 suggest an alternative classification. 67  AP Bell, Modern Law of Personal Property in England and Ireland (London, Butterworths, 1989) 61–62; Bridge (n 62) 20-22. 68  Meux v Great Eastern Railway Co [1895] 2 QB 387. 69  Burnett v Randwick City Council [2006] NSWCA 196. 70  ibid [96–97]; see TY Lin Personal Property Law (Academy Publishing Singapore 2014) 131–135 on possession by employees and agents. 71  Green and Randall (n 65) 109–112. 66  ibid

12  The Basic Concepts of Personal Property Law

items will be greater than for larger ones. In The Tubantia72 for example there was a conflict over entitlement to salvage of a wreck of a Dutch vessel sunk in 1916. The claimants had already done work at great cost and extracted a small amount of cargo when the defendants also attempted to salvage the wreck. The claimants were said to be in possession despite the fact that their divers and equipment were not permanently on site, but only weather and tides permitting. There was both sufficient physical control and an intention to control. In Parker v British Airways Board73 Parker found a bracelet on the floor of the defendant’s departure lounge while waiting for his flight. He handed the bracelet to an official, stating that he wished the bracelet back if the true owner did not come forward. The board sold the bracelet. Although Parker was not the true owner, the court found he had acted properly and had rights of possession over the bracelet and that the board had breached them by selling the item. If, however, BAB had manifested an intention to exercise control over anything in the departure lounge through their actions, they might have had a better right than Parker because the bracelet would have been in their possession by virtue of being in the lounge.74 They had not done so; there was no evidence that they searched for lost articles and any control they exercised was merely to decide who entered and stayed there. If the premises are purely private and the occupants exercise considerable control they are, however, likely to be in possession of any asset found there.75 This would be so even if they had no idea that the asset was there. In South Staffordshire Water Co. v Sharman76 the defendant, while cleaning a pool of water on the claimant’s land and at their instruction, found two rings. He declined to give them to the claimant, but failed also to discover the true owner. The claimant took action arguing that they had a better right to the rings than the defendant. They were successful. The difference was that unlike BAB the water company had clearly evinced an intention to take full possession of the land and in those circumstances prima facie the possessor of land has a better title to assets found than the finder. Donaldson LJ suggested in Parker v BAB that there was a continuum of scenarios between no control at all being exercised as for example in the case of public parks and total control being exercised.77 On the facts of the two cases we might say Parker v BAB was perhaps roughly in the middle of such a continuum, and South Staffordshire Water nearer the case of total control. In respect of the intention to control two things are important. The possessor must know of the existence of the object and he must intend to exclude everyone else from possession. This imports a mental element into the concept which may be important in some criminal proceedings. In Lockyer v Gibb78 the question was whether the defendant was in possession of drugs in contravention of the Dangerous Drugs Act 1965. It was held that the prosecution

72 

The Tubantia [1924] P 78. Parker v British Airways Board [1982] QB 1004 (CA); Armory v Delamirie (1772) 1 Str 505, 93 ER 644; Webb & O’Connell v AG [1988] IR 353 (SC). 74  [1982] QB 1004 (CA) 1018 (Donaldson LJ). 75  Bell (n 67) 41–42. 76  South Staffordshire Water Co. v Sharman [1896] 2 QB 44; Waverley BC v Fletcher [1996] QB 334 (CA) is slightly different as the park where the item was found was public land, but the finder did not have the right as against the council to dig items up. 77  [1982] QB 1004 (CA) 1019. 78  [1967] 2 QB 243 (CA). 73 

Ownership, Possession and Legal Title 13

had to prove that she knew she was in possession of the items, but not that they were in fact drugs. Lord Parker said, In my judgment it is quite clear that a person cannot be said to be in possession of some article which he or she does not realise is, for example, in her handbag, in her room, or in some other place over which she has control. That I should have thought is elementary; if something were slipped into your basket and you had not the vaguest notion it was there at all, you could not possibly be said to be in possession of it.79

The rule that a person cannot be in possession of something he does not know anything at all about requires some qualification, however. If I know that something has come into my possession but I do not know what it is I can still be said to be in possession as long as it falls within the class of objects that I am prepared to take charge of or if I take with the intention of controlling it no matter what it is.80 I may also be mistaken as to what the asset is. In that case I am not in possession if my mistake is as to the identity of the asset, but I am in possession if it is a mistake purely about attributes,81 a distinction which can prove problematic.82

ii.  Legal Possession A person in legal possession will usually be in actual possession, but he need not be. We have seen a party may be in physical possession of a thing without the intention to control it, which will count as mere custody. By the same token I may intend to control something even though I do not have physical manual control over it. It is essential, however, that I have control.83 It is this that is of most importance for legal possession. The legal possessor has the ultimate right to decide who has the factual use of the asset at any given time.84 I do not cease to possess my cutlery when I give knives and forks to my dinner guests,85 who merely have custody of them. This is disputed by Douglas, who argues possession is a simple fact and legal possession is fictional and unhelpful; what is really protected when the dinner party guests walk off with the cutlery is ownership.86

iii.  Constructive Possession In a bailment the bailor hands over the asset to the bailee often but not always purely for safe keeping. If a bailee holds possession completely at the bailor’s will, both bailee and bailor have rights to immediate possession.87 Because the bailor is not physically in control of the asset he is said to be in constructive possession. Constructive possession therefore refers to the party’s right to have actual possession delivered to him immediately. The right to take immediate possession is immediate constructive possession, and also an ­indication of

79 

ibid 248. Bell (n 67) 38. 81  ibid 39–40; R v Ashwell (1885) 16 QBD 190 (CA). 82  See chapter seven, part II. 83  Green and Randall (n 65) 111. 84  ibid 86–87. 85  ibid 88. 86  S Douglas Liability for Wrongful Interference with Chattels (Oxford, Hart, 2011) 32–33. 87  City Fur Manufacturing Co Ltd v Fureenbond (Brokers) London Ltd [1937] 1 All ER 799; Palmer on Bailment 3rd edn (London, Sweet and Maxwell, 2009) para 1.033; for an alternative analysis see McKendrick (n 2) 47. 80 

14  The Basic Concepts of Personal Property Law

continued legal possession of the asset.88 Holders of bills of lading are also said to be in constructive possession of the goods, because the bill gives an immediate right to possession. Qualified constructive possession arises where a person only has a right to possess if a given condition is fulfilled.89 Bailees may for example have the right to retain possession even against the owner for a period of time. Such are called term bailees and the best example is a pledgee who has the right to retain possession until he is paid or until the obligation secured by the pledge is discharged. The term bailor has no immediate possessory interest in the asset. A pledgor therefore only has the right to demand the asset back when the debt for which the pledge is security is redeemed. In these cases the bailee or pledgee is said to have legal possession, and the bailor constructive, but not legal, possession. The term bailor has only a reversionary right in the assets and this is reflected in the differing protection of the parties’ rights in tort, as we see in chapter eight.90 Constructive and legal possession cannot therefore be said to be synonymous. The constructive possessor is never in actual de facto possession while the legal possessor may be.

C.  Legal Title We can divide legal title into two sorts: possessory and documentary. This is admittedly something of a false contrast as documentary title carries with it rights to possession, but it reflects the fact that title can be derived from a document, or in some other way and this difference has legal consequences. Title is therefore a type of proprietary right. My right to be handed possession of the car in my earlier example is a purely personal right.

i.  Possessory Title91 Title at common law is in fact shorthand for the claimant’s right, or entitlement, to possess the thing. A party need not be in immediate possession but merely have an immediate right to it to be able to, or have title to sue in tort. Ownership and possession are therefore intertwined in English common law. Possession generates a rebuttable presumption of ownership, and also a relative legal title to the asset no matter how possession comes about. For Douglas this is somewhat unhelpful. Possession is simply a way of independently acquiring ownership.92 In this book we will continue to refer to title rather than ownership, however. Thieves have title, but it would be hard to say that they are owners. English law is also said not to know a vindicatio action;93 other than rights of recaption, a self-help remedy to immediate repossession of the asset, there are no specific remedies for personal property at common law. A vindicatio action is a specific remedy; it is a claim,

88 

Green and Randall (n 65) 86, fn 24; Towers & Co. Ltd v Gray [1961] 2 QB 351 (CA) 361–362 (Lord Parker CJ). On this see Sealy and Hooley (n 64) 74. 90  See chapter eight, part (IV) for the tort of reversionary injury which protects the term bailor’s interest. 91  N Palmer, ‘Possessory Title’ in E McKendrick and N Palmer (eds), Interests in Goods 2nd edn (London, LLP, 1998) 63. 92  Douglas (n 86) 31; see also L Rostill ‘Relative Title and Deemed Ownership in English Personal Property Law’ (2015) 35 OJLS 31. 93  See for example Douglas v Hello! [2007] UKHL 21, [2008] 1 AC 1, 87–88 (Baroness Hale); WJ Swadling, ‘Property’ in AS Burrows (ed), English Private Law 3rd edn (Oxford, OUP, 2013) paras 4.37–4.40. 89 

Ownership, Possession and Legal Title 15

‘That cow Daisy is mine’. English law does not do this. Rather it complains, ‘You have interfered with my superior rights to possess Daisy; please pay me damages for that wrong’. This is the essence of the tort of conversion. The vindicatio was a Roman law action, although even in Roman law a money remedy, the condemnatio pecuniaria, was awarded. In Roman law Quiritary ownership was absolute.94 One either owned or one did not. English common law is different. You have greater or lesser rights to possession. There can therefore be several co-existent titles to property.95 Historically, according to Swadling, this explains the lack of vindicatio. He argues that talk of ownership is impossible in a system that recognises the relativity of title.96 Indeed it is worth stressing that for Swadling English law has no concept of ownership at all. This cannot be so. Relativity of title implies merely that there are two (at least) titles. I cannot say my rights are relatively better than yours if nobody but myself has rights over the asset. If therefore I take possession of a wild animal, there are no other interests in the animal and even in English law I can be said to own it. Absolute ownership does therefore exist in English law. We might define it as the best possible title that there is and supporting this case law talks of ownership too,97 and ownership, as an idea, is used in the Sales of Goods Act 1979 and Torts (Interference with Goods Act 1977.98 It is usually said that only absolute title is possible in an intangible. Consequently a person either has title or he does not have title. The title is with the person entitled to sue on the claim. The right is said to be necessarily unitary,99 but, as we see in chapter four, the effect of the rule in Dearle v Hall100 is that this is not entirely accurate. We must make a distinction at this point between interest and title. Both the true owner of an asset and person in possession animo domini has an independent legal interest in the asset. As against each other the true owner has an indefeasible title, and the possessor a lesser title. In other words the titles are relative but the interests absolute. A person’s interest in an asset is the sum total of his rights he has. His title measures the strength of that interest.101 The right to take or retain immediate possession is the interest; title measures its strength.

ii.  Documentary Title There are a number of documents of title in personal property law. These can be documents of title to money or to things. A bill of exchange is a document of title to money. It is an order by A to B to pay C a sum of money. Bills of exchange are extensively regulated by the Bills of Exchange Act 1882 and we will come to them in much more detail in chapter six.102 If a bill of exchange is stolen the thief ’s possession of the document confers good title against any third party, although as between the thief and original bearer the latter clearly

94  B Nicholas, An Introduction to Roman Law (Oxford, OUP, 1962) 99–100. Scott argues this is not quite right. H Scott, ‘Absolute Ownership and Legal Pluralism in Roman Law’ [2011] Acta Juridica 23. 95  Armory v Delamirie (1772) 1 Str 505, 93 ER 644. 96  WJ Swadling, ‘Rescission, Property and the Common Law’ (2005) 121 LQR 123, 133. 97 Eg Yearworth v North Bristol NHS Trust [2009] EWCA Civ 37, [2010] QB 1. 98  Bridge et al (n 25) paras 2.021–2.022. 99  A proposition discussed by D Fox, ‘Relativity of Title at Law and in Equity’ [2006] CLJ 330, 362. 100  Dearle v Hall (1828) 3 Russ 1, 38 ER 475; see chapter four, part IV B. 101  McKendrick (n 2) 34; Sealy and Hooley (n 64) 69. 102  See chapter six, part II.

16  The Basic Concepts of Personal Property Law

has a better title until the thief negotiates it (transfers it) to a bona fide purchaser for value without notice—a holder in due course under the Act.103 The holder in due course takes free of the original holder’s rights. The main document of title to goods is the bill of lading. Indeed, at common law it is the only document of title to goods. There are also a number of statutory documents of title. Section 1(4) Factors Act 1889 provides a list of documents of title for the purposes of that Act, a list also incorporated into the Sales of Goods Act 1979. By contrast with bills of exchange bona fide purchasers of bills of lading cannot take a better title to the goods than the transferor of the bill. The holder of the bill is not in actual possession of the goods, but he has the right on production of the bill to immediate possession and to delivery of the goods, he therefore has constructive possession of the goods, and legal title to them. In the Jag Shakti104 therefore it was decided that the pledgee of a bill of lading has a right to possess the bill and as such also has constructive possession of the cargo until the secured obligation owed to him is discharged. On that basis the pledgee was awarded the full value of the cargo when it was lost. We examine pledge in chapter 12.105 One exception to this rule of legal title is that where the bill of lading refers to an undivided share of a bulk, it may still provide the holder with a right that the portion of the bulk be delivered, and operate as a document of title despite the lack of constructive possession.106 There are two types of bill of lading. A bill of lading may be made out either ‘to order’ or to bearer. If it is so made out, it is a negotiable bill meaning that rights to possession of the goods represented by the bill can be transferred via the transfer of the bill itself; we examine how this is done in chapter six.107 It is absolutely clear that a negotiable bill of lading is a document of title at common law.108 Not all bills of lading are, however, negotiable. An example of one that was not is that involved in The Chitral.109 The bill of lading was made out with Al-Ghaith as the consignee. It went on ‘if order state notify party’. No other party was ever stated and David Steel J held it was not a negotiable bill as no person to whose order it could be transferred had been stated.110 These are called straight bills of lading. It is less clear whether a straight bill is a document of title. JI MacWilliam Co. Inc. v Mediterranean Shipping Co (The Rafaela S)111 suggests that a straight bill is a ‘bill of lading or other document of title’ for the purposes of the Carriage of Goods by Sea Act 1971, which introduces the Hague-Visby rules on carrier’s liability into English law, although not for the purposes of the Carriage of Goods by Sea Act 1992, which regulates the transfer of contractual rights and liabilities on transfer of the bill. That raised the question whether the bill was a document of title at common law. In The Rafaela S the bill had to be produced to

103 

McKendrick (n 2) 533. The Jag Shakti [1996] 1 Lloyds Rep 1; Transcontainer Express Ltd v Custodian Security Ltd [1981] 2 Lloyds Rep 128; The Hamburg Star [1994] 1 Lloyds Rep 399. 105  See chapter 12, part II. 106  Bridge et al (n 25) para 22.032. 107  See chapter six, part IV. 108  S Girvin, Carriage of Goods by Sea, 2nd edn (Oxford, OUP, 2011) para 8.07; Y Baatz and S Dromgoole, ‘The Bill of Lading as a Document of Title’ in E McKendrick and N Palmer (eds) Interests in Goods, 2nd edn (London, LLP, 1998) 547. 109  The Chitral [2000] 1 Lloyds Rep 529. 110  ibid 532. 111  JI MacWilliam Co. Inc. v Mediterranean Shipping Co [2005] UKHL 11, [2005] 2 AC 423. 104 

Ownership, Possession and Legal Title 17

enable delivery to take place, and that was thought, albeit obiter, to be critical to the question whether it was a document of title at common law,112 although it is not a bill of lading for the purposes of the Carriage of Goods by Sea Act 1992, although it is for the purposes of the 1971 Act. In practice, given its non-negotiability its being a document of title at common law may not have great significance. However, it appears to be the main distinction between a straight bill of lading and a sea waybill which is merely a receipt and need not be produced to take actual delivery. The bill of lading is a document used in international sales transactions as a means of ensuring that delivery takes place and the relevant party—be that the buyer or the seller— has control over the goods at any given point in time. It operates as evidence of the contract between shipper and carrier, and actually is the contract between the consignee and carrier once the bill is transferred to the latter. It also operates as a receipt for the goods. Up until the late nineteenth century the phrase document of title was used in a literal sense to indicate that passage of the bill of lading from one party to another passed ownership of the goods where that was the intention of the parties just as delivery of the property itself would do so.113 It remains the case that property in goods can pass through transfer of the bill of lading, but this need not be the case.114 Where goods are agreed to be sold under a contract of sale for example it is the contract that governs when property passes. As we see in chapter two, property passes when it is intended to pass.115 The contract may for example provide that property is not to pass until the goods are paid for. This means that there is a bailment with the carrier as bailee.116 Contractual rights and liabilities, but not those under a bailment, are transferred by the Carriage of Goods by Sea Act 1992 when the bill of lading is transferred between holders. This takes place either by simple delivery in the case of a bearer bill or by indorsement and delivery in the case of an order bill. The scheme of the Act is essentially that rights under the contract are transferred to any lawful holder, but they are only liable when they demand delivery of the goods, or make a claim under the contract of carriage. Once delivery is made the bill is no longer an effective document of title and cannot transfer constructive possession. It is then spent. However, if there is a misdelivery of goods the bill is not spent.117 An electronic bill of lading can easily replicate some of the functions of the bill—­ particularly the function of acting as a receipt for the cargo and evidence of the contractual terms.118 There is a question, however, whether an electronic document can count as a document of title at common law, under section 1(4) Factors Act 1889 or the Carriage of

112  ibid 451; APL Pte Ltd v Peer Voss [2002] SGCA 41, [2002] 4 SLR 481; P Todd, ‘Bills of Lading as Documents of Title’ [2005] JBL 762; Lin (n 70) 275–277; GH Treitel, ‘The Legal Status of Straight Bills of Lading’ (2003) 119 LQR 608. 113  Sanders Bros. v Maclean & Co. (1883) 11 QBD 327, 341. 114  East West Corp v DKBS 1912 [2003] EWCA Civ 83, [2003] QB 1509, 1516. 115  Sale of Goods Act 1979, s 17; chapter two, part II B. 116  Borealis AB v Stargas Ltd [2001] UKHL 17, [2002] 2 AC 205, 219 (Lord Hobhouse), but see G Treitel, ‘Bills of Lading: Liabilities of Transferees’ [2001] LMCLQ 344, 352. 117  Girvin (n 108) paras 8.28-8.30; Baatz and Dromgoole (n 108) 591. 118  McKendrick (n 2) 988; Carriage of Goods by Sea Act 1992, s 4; C Pejovic, ‘Documents of Title in Carriage of Goods by Sea: Present Status and Possible Future Directions’ [2001] JBL 461, 484; on electronic bills of lading generally see N Gaskell, ‘Bills of Lading in an Electronic Age’ [2010] LMCLQ 233.

18  The Basic Concepts of Personal Property Law

Goods by Sea Act 1992. The Law Commission in 2001 seemed to obliquely suggest not,119 and continued that fully electronic bills of lading have not yet been developed. This difficulty aside, the effects of a bill of lading have as a matter of fact been largely replicated in electronic form. Bolero, for example, which is a company limited by guarantee and registered in England, set up an electronic registry for bills of lading and bills are created, exchanged and delivered through their system. That system has not caught on in a major way,120 although it avoids the problems of earlier systems such as that under the CMI Rules. The CMI rules involve the transmission of electronic keys issued by the carrier between parties.121 The purpose of the key under the CMI rules is to provide security, but also to designate the holder of the bill, who has the Right of Control and Transfer. That right includes both a right to delivery and to transfer the right to another party. On transfer of the ‘bill’ the transferor’s private key is cancelled and a new one issued to the transferee. The advantages of the latter system include that fulfilling the evidentiary purpose of a bill of lading, but the rules make no provision for rights and liabilities under the carriage contract to be transferred; they will only be transferred if the electronic bill counts as a bill of lading under the Carriage of Goods by Sea Act 1992, which is very doubtful. The Bolero system introduced in 1999 is underpinned by the Bolero rulebook122 which provides a contractual framework by which the bill is created and transferred. More recently still the ESS-Databridge system entered the market in 2004. We will concentrate here on Bolero. Only members of Bolero can send instructions to the Title Registry and when they are received and acted upon the Registry sends an acknowledgement to all interested parties and maintains a record of all indorsements on the bill. The fact that it is a closed club means paper documents are still frequently produced in cases where only one party to the transaction is a member. To create a Bolero bill the carrier sends an instruction to the Title Registry designating both a shipper and a holder of a new Bolero Bill of Lading or BBOL. The carrier must also designate a ‘to order’ party, or a consignee (usually the buyer), or endorse the bill in blank, thus making the holder a bearer holder. The default is that the shipper (usually also the seller) is listed as the bearer holder. If a carrier designates a consignee the bill is non-transferable. It is therefore the equivalent of a straight bill of lading. In other circumstances it is the equivalent of a negotiable bill. The bill lists the goods shipped in the same way as a paper bill and therefore serves equally as a receipt. It also acts as evidence of the contract of carriage. In the default case where the shipper is bearer holder, he can send instructions to the Registry identifying a new bearer holder. Once paid, the seller can designate the buyer as holder of the BBOL. The buyer can then sell the goods on, and

119  Law Commission, Electronic Commerce: Formal Requirements in Commercial Transactions (2001) para 4.8; Carriage of Goods by Sea Act 1992 s 1 has cautious provision for Electronic Data Interchange; M Goldby Electronic Documents in Maritime Law (Oxford, OUP, 2013) paras 6.42–6.44 argues that an electronic bill could qualify under the 1889 Act. 120  S Beecher, ‘Can the Electronic Bill of Lading go Paperless?’ (2006) 40 International Lawyer 627; Girvin (n 108) para 13.24. 121  On these see Girvin (n 108) paras 13.16-13.23; S Mills (ed), Goode on Proprietary Rights and Insolvency in Sales Transactions 3rd edn (London, Sweet and Maxwell, 2010) paras 4.65, 4.70–4.71; M Goldby, ‘The CMI Rules on Electronic Bills of Lading’ [2008] LMCLQ 56. 122  See www.bolero.net/integration/rulebook; for the ESS-Databridge system see www.essdocs.com/ess-databridge-story/legal-framework; R Aikens, R Lord and M Bools, Bills of Lading, 2nd edn (London, LLP, 2016) paras 2.134–2.136.

Equitable Title under a Trust 19

instruct the Registry that the third party sub-purchaser be designated as holder of the bill. When the ship arrives the Registry surrenders the bill to the carrier allowing delivery to the last holder. Once surrendered, no further transactions can be carried out using the Bolero bill. The bill is essentially spent. In a paper-based system the 1992 Act provides that on transfer the bill itself becomes the contract and all rights and liabilities are transferred. The Bolero system provides that on transfer the new holder or consignee takes on all rights and liabilities relating to the carriage contract and the bailment of the goods to the carrier. Those of the previous holder are extinguished. It provides in other words for a novation of the contract between the parties, and an attornment of the goods by the carrier to the transferee with Bolero acting as its agent. We look at attornment in chapter ten, part III. The system simulates the necessary steps to make a bill effective and negotiable, but this must all be done by contract, as the current statutory provisions for shifting contractual liabilities assume—largely—the need for a physical paper-based bill.

IV.  Equitable Title under a Trust123 Equitable title is usually said to be absolute in that I either have it or I do not. This may not be quite right, however. We will see in later chapters that there are a set of priority rules that govern entitlement to assets in equity. In chapter four we examine, for example, the assignment of debts. Assignment can be at law under section 136 Law of Property Act 1925. Multiple assignments of the same debt are perfectly possible in equity and the priority between them is governed by the rule in Dearle v Hall. Competing claims can exist to the same chose in action because of the relativity of equitable title.124 An important vulnerability of equitable interests is that the holder of an equitable interest may be deprived of it by a bona fide purchaser for value, looked at in detail under chapter nine on claims contingent on tracing. If the claimant had an equitable interest in the property and the defendant purchased the asset in good faith for value being unaware of the claimant’s interest and having no reason to be so aware the defendant obtains good title to the asset, and the claimant loses his equitable interest.125 This provides an important difference with legal property rights which are not so vulnerable except in two cases. The defence of bona fide purchase is a defence to claims based on legal title in those cases where the property is money,126 or by statute in cases of bills of exchange. The reasoning behind this is that money would be useless as a medium of exchange and currency if this were not so. The second case is that where a party has the legal right to rescind a transaction for fraud or duress, that right is also vulnerable to bona fide purchase, although slightly oddly the

123 

See generally J Penner, The Law of Trusts 10th edn (Oxford, OUP, 2016). Fox (n 99) 352–353; McKendrick (n 2) 43–45. 125  S Worthington, Equity, 2nd edn (Oxford, Clarendon Press, 2006) 95–97. 126  Miller v Race (1738) 1 Burr 452, 97 ER 398; the requirements for bona fide purchase are slightly different in equity and at law. See chapter nine, part II D. 124 

20  The Basic Concepts of Personal Property Law

burden of proof is reversed so the claimant must prove that the defendant is not in good faith.127

A.  What is a Trust?128 Normally the trustee has legal title, although it is possible to be a sub-trustee and hold equitable title under a trust on trust for another party. These sub-trusts are extensively used in commercial situations in the context of intermediated securities. We will assume that trusts are trusts of legal title in this section. There are four requirements for a private express trust: 1. 2. 3. 4.

Assets Trustees Beneficiaries Personal obligations on the trustee

What does it mean to say I hold my car on trust for you? I have legal title. That means I have the right at law to drive it around, hire it out as a taxi etc. You have equitable title, or equitable ownership. There are two situations we must consider. Firstly, there is the case where the legal owner has some duties to perform regarding the property. The trust instrument (most trusts are in writing although not all need to be) will set out what the trustee has to do. Perhaps the trustee is to hire the car out and pay the proceeds to the beneficiary, or perhaps he merely has to allow the beneficiary to drive it. The second situation is where the legal owner has no duties to perform. This is what is known as a bare trust, often used in commercial transactions where assets are held by nominees to the order of the beneficiary.129 In either case the car must be used solely for the benefit of the equitable owner, whose right is that the trustee safeguard it and use it for his benefit. The legal owner can derive no benefits from the property,130 but he has a number of duties. The trustee must manage the property for the benefit of the equitable owner, and any benefit he derives from the property can be stripped from him. The delegation of management functions is one of the most useful aspects of a trust. If the trustee refuses to properly manage the property B can enforce the trust and compel him to do so. In extremis the court can order the removal of the trustee and appoint another.131 The beneficiary can, however, demand the property be transferred to him. The beneficiary of the trust can decide to become the full legal owner of the property. In Saunders v Vautier132 the trust was to accumulate the income of the stock subject to the trust until the beneficiary was 25. However, the beneficiary wanted the stock to be transferred when

127 

Whitehorn Bros v Davison [1911] 1 KB 463 (CA). See eg P Jaffey ‘Explaining the Trust’ (2015) 131 LQR 377. 129  See eg E Ford, ‘Trustees and the Use of Nominees’ (1997) 11 Trust Law International 18; G Moffatt, Trusts Law: Text and Materials, 5th edn (Cambridge, CUP, 2009) 431–432. 130  Which triggers the applicability of fiduciary duties on which see Penner (n 123) ch 12. 131  Jones v Firkin-Flood [2008] EWHC 2417 (Ch). 132  Saunders v Vautier (1841) Cr & Ph 240, 41 ER 482. For an argument that this is the beneficiary exercising a Hohfeldian power to create a duty to transfer legal title see T Cutts ‘The Nature of Equitable Property: A Functional Analysis’ (2012) 6 Journal of Equity 44. 128 

Equitable Title under a Trust 21

he was 21. As the sole beneficiary he was entitled to this. He had a right that the trustee put him in possession. We can say therefore that a trust is an obligation. As an obligation there must be two ­parties—a trustee and a beneficiary. It must be capable of being enforced. If it can be ignored it is not much of an obligation. The obligations are onerous. In the old parlance of equity we would say that equity acted upon the conscience of the trustee to prevent him from exercising his legal rights inappropriately. That type of talk is not particularly helpful, but McFarlane talks of the beneficiary having a right against a right.133 That is a pretty obscure term, but what it means is that the beneficiary (B) has an equitable right that the trustee (T) use his legal rights (his legal title to the car, or right against the bank to be paid) only for his (B’s) benefit (and the trustee has an equitable obligation to do so). This is the core trust duty and arises when T becomes aware of it. Between the legal and equitable owner the latter is treated as the owner, but between the former and third parties the legal owner is treated as if he had full power over the property. However, the trust is also a property right. We saw earlier that critical features of a property right are that it can be enforced against an indefinite group of people. If the trust is a trust of £1m and the trustee’s obligation is to manage the funds and pay the income to the beneficiary that is clearly a personal obligation. I cannot, as the beneficiary, sue someone other than the trustee for not investing the money. That is silly; they have nothing to do with the trust. If, however, the trustee misapplies asset and for instance gives it away as a birthday present to a third party the proprietary rights held by the beneficiary can lead to obligations being imposed on the third party, who now obtains legal title and becomes the trustee. The beneficiary therefore has two sorts of rights: 1. Personal rights against the trustee; rights that cannot (like the right to be paid income) be enforced against third parties.134 2. Rights to exclude third parties from the asset. These rights to exclude third parties from unrestricted enjoyment of the assets make the beneficiary’s rights proprietary.135 The only difference from legal rights is that where the third party is a bona fide purchaser for value without notice—ie one who gives more than merely nominal consideration, and does not know, nor ought to know of the trust, the third party takes free of the equitable interest. The beneficiary cannot enforce his rights. However, that still enables the beneficiary to enforce against an indefinite group. We examine ways in which this is done in chapter nine on tracing and claims contingent on tracing. This does not mean that the trustee does not have proprietary rights. He does. Imagine a thief steals the car. The trustee retains rights against the thief to the asset; at law he can sue for redelivery of the car or compensation under the tort of conversion. That legal right he has solely for the beneficiary’s benefit. The trustee must sue. Indeed it is notable that the beneficiary cannot sue the thief;136 he can only insist that the trustee do so or circumvent 133  McFarlane (n 50) 23–25; B McFarlane and R Stevens, ‘The Nature of Equitable Property’ (2010) 4 Journal of Equity 1. Against this see J Penner ‘The (True) Nature of the Beneficiary’s Equitable Proprietary Interest under a Trust’ (2014) 27 CJLJ 473. 134  R Nolan, ‘Equitable Property’ (2006) 122 LQR 232, 252–253. 135  ibid 250; see also R Nolan, ‘The Limits of Equitable Property’ (2006) 1 Journal of Equity 18. 136  MCC v Lehman Bros [1998] 4 All ER 675 (CA); K Barker, ‘Equitable Title and Common Law Conversion: The Limits of the Fusionist Ideal’ [1998] RLR 150; Palmer (n 87) paras 2.017–2.020; see chapter eight, part II C for details on standing to sue in conversion.

22  The Basic Concepts of Personal Property Law

that litigation by taking over the trustee’s cause of action. McFarlane goes further to argue on this basis that only the trustee has a proprietary right. The beneficiary has a persistent right.137 He divides rights into property, personal and persistent rights. Property rights are rights that relate to a thing and impose a prima facie duty on the rest of the world.138 ­Personal rights are rights that a particular person or persons act in a given way. McFarlane argues that equitable proprietary rights are part way between property and personal rights and do not behave in the same way as either category. He argues that they are not rights against people, nor are they rights directly against assets or property. It is true that an equitable proprietary right is one step removed from the asset but it is still a right to exclude an indefinite group of people from the benefit of an asset or a thing. This is so even where it is a trust of a chose in action. Choses in action, as we will see, can be assigned to third parties. Where the legal holder does this without authority granted by the equitable title holder the latter can enforce rights over the chose in action against the third party. Although McFarlane and Pretto-Sakmann have argued that only things locatable in space are the subject of property law,139 a thing is properly some—or anything that can be conceived—indeed, the very use of the word ‘something’ when we say a bank account is something we have is proof of a linguistic intuition that intangibles can be reified. These trusts are called private express trusts. Private express trusts are created because the parties intend to create a trust to benefit private parties. Other types of trust exist as well. In particular, charitable trusts are enforceable purpose trusts. However, some noncharitable purpose trusts are also enforceable. Express, constructive and resulting trusts have private beneficiaries. The difference is the reason they are created. Express trusts are created because the parties intend to create them. Sometimes what happens if they fail is a resulting trust. There are two sorts of resulting trust on the traditional view—the automatic resulting trust and the presumed resulting trust. The automatic resulting trust comes into being on the failure of an express trust. A presumed resulting trust comes into being when it is unclear what is to happen to the property. We examine resulting trusts in chapter seven, which is concerned with defective transfers of property.140 Constructive trusts are trusts that are created by the law without reference to the settlor’s intentions, and we will come across examples of constructive trusts throughout the book.

B.  Creation of an Express Trust This is a very brief description of the law; reference should be made to dedicated trusts textbooks for more detail. There are three parties involved in the creation of this type of trust. They are the settlor, the trustee and the beneficiary. The settlor can also be the trustee, and declare that he holds the property on trust. However, he can sometimes be a third party not just in law, but in fact as well, so that the property is transferred from the settlor

137 

McFarlane (n 50) 25. ibid 22. 139  ibid 27; A Pretto-Sakmann, Boundaries of Personal Property (Oxford, Hart, 2005) 106; Smith (n 33) 1711 acknowledges that resources that cannot be spatially separated as Pretto-Sakmann requires, such as information, lead to a mixture of common and private rights, but argues that they are things nonetheless. 140  See chapter seven, part III. 138 

Equitable Title under a Trust 23

to the trustee, divesting the former of any interest in the property whatsoever, and splitting ownership of the property into two. In order to create a trust the settlor needs to make three things certain. It must be certain that he intended to create a trust; it must be certain what property he intended to be subject to the trust, and it must be certain whom he intended to benefit. Lord Langdale explained in Knight v Knight,141 As a general rule, it has been laid down, that when property is given absolutely to any person, and the same person is by the giver recommended, entreated or wished to dispose of that property in favour of another that recommendation, entreaty, or wish, shall be held to create a trust first, if the words are so used that upon the whole they ought to be construed as being imperative secondly, if the subject … be certain thirdly, if the objects or persons intended to have the benefit… are also certain.

Certainty of intention can be expressed as follows. While the settlor need not use the word trust, it must be clear what he intended to do. Words of hope, desire and expectation therefore will not suffice as they do not indicate a clear intention to create an obligation.142 The certainty of subject matter requirement is relatively self-explanatory. The trustee owes an obligation to the beneficiary, but he owes an obligation not in a vacuum but relating to a piece of property. His obligation is to hold this asset for the beneficiary. He can only do this, and have an obligation that can be enforced if we know what asset it is.143 There appears to be a distinction between tangible objects where it needs to be absolutely clear which assets are involved,144 and intangibles such as shares where a small amount of uncertainty is allowed—eg a trust of 50 from 950 shares is valid,145 despite not indicating exactly which shares. Briggs J explains such a trust in Re Lehman Bros in terms of equitable co-ownership under a tenancy in common.146 The same analysis could be extended to tangible, but fungible, assets, such as a trust of ten out of 50 tons of sugar. Certainty of objects is more difficult. It is a cardinal principle that the court must be able to carry out the trust if the trustee is unable or unwilling to do so. It must be possible for the trustee to know who is to have the benefit of his management of the property. The trustee has an obligation to manage the property on behalf of someone. He needs to know who that is—obligations cannot be owed in a vacuum; they must be owed to someone. The certainty of objects rules ensure that we know who that is, but they differ depending on what type of trust it is. If the trust leaves no discretion to the trustee as to the distribution of the assets, the trustee must be able to draw up a fixed and complete list of all the beneficiaries.147 If the trustee does have some discretion as to distribution, the trustee need only be able to say of any individual presenting himself as a possible beneficiary whether he is eligible or not.148 Indeed so long as he can make a determination about a substantial

141 

(1840) 3 Beav 148, 49 ER 58, 68. Re Adams and Kensington Vestry (1884) 27 Ch D 394; Jones v Lock (1865) 1 Ch App 25; Lamb v Eames (1871) 6 Ch App 597. 143  Westdeutsche Landesbank Girozentrale v Islington LBC [1996] AC 669 (HL) 705 (Lord Browne-Wilkinson). 144  Re Goldcorp [1994] 2 All ER 804 (PC). 145  Hunter v Moss [1994] 1 WLR 452 (CA). 146  Re Lehman Bros International (Europe) [2010] EWHC 2619, [232]; Bridge et al (n 25) paras 23.025–23.027. 147  IRC v Broadway Cottages [1955] Ch 20; Re Sayer [1957] Ch 423. 148  McPhail v Doulton [1970] 2 All ER 228 (HL). 142 eg

24  The Basic Concepts of Personal Property Law

number of possible beneficiaries it will not matter if there are some about whom the answer cannot be proven,149 although the trustees will only be entitled to consider those they can prove to be within the class. If the settlor is not also trustee he must validly transfer title to the property to the trustee to be held on trust.150 We see a qualification to this rule—the ‘every efforts’ doctrine—in chapter four, part III B ii. This is known as constitution of trusts. Any formalities151 must also be complied with. In practice, most trusts are in writing irrespective of whether it is legally required.

C.  Uses of the Trust in Commercial Contexts We have already seen that nominee accounts are trusts where shares are held by nominees. We also saw in the section on equity and debt securities the idea of intermediated securities. In such an indirect system there are multiple tiers, so that the issuing corporation issues a jumbo certificate to a top tier holder (in the USA Cede & Co is pretty much the monopoly top-tier holder),152 which is usually a brokerage or clearing house and increasingly small parts are divided up amongst lower tier holders, who hold securities accounts with the toptier provider. There is systemic risk in this type of structure in that the insolvency of one part of the structure may have a domino effect on others, and to combat this the Geneva Convention on Intermediated Securities provides substantive rules about the rights of the different parties, how the securities are held, and transferred and the position in insolvency; the UK has not ratified or adopted the convention. Additionally, the content of the entitlements under the convention largely match those under English law where the analysis is one of trust.153 In England the structure is one of trust and sub-trust; the intermediary is a trustee for its customers who are beneficial coowners of the pool of securities held on their behalf. A second-tier intermediary is itself therefore an equitable co-owner holding on trust. This isolates parties from the insolvency of their intermediary-trustee.154 This is essential. To make the system work, it is essential that each investor have a relation exclusively with the immediate intermediary, and this is true of the trust stricture where a beneficiary must look only to his trustee. Briggs J explains this in Re Lehman Bros.155 Where A (the top tier holder) acquires property for the account of B (the intermediary or end-investor) A has legal title. With the caveat that the law should not impose a trust if personal rights suffice, he argued that the intermediate-tier holder has equitable title under a trust and that further tiers are created

149 

Re Baden (No 2) [1973] Ch 9 (CA) 24 (Megaw LJ). Milroy v Lord (1862) 4 De GF&J 264, 45 ER 1185. 151  Law of Property Act 1925, s 53(1)(b); on the purpose of formality requirements in trusts law see S Gardner, An Introduction to the Law of Trusts, 3rd edn (Oxford, Clarendon Press, 2011) 87–88. 152  L Thevenoz ‘Who Holds Intermediated Securities? Shareholders, Account Holders and Nominees’ (2010) 15 Uniform L Rev 845, 847. 153  Gullifer (n 28) para 6.18. 154  ibid para 6.17. 155  [2010] EWHC 2914, [225–226]. 150 

Original Modes of Acquisition 25

by sub-trust.156 Trusts are also relevant to bonds because of the operation of the secondary market. Holders of debt securities are often numerous and their identity unknown to the debtor. This means that it is frequently easier to have the securities issued under a trust deed where there is a bond trustee who deals with the issuer and has the power to decide when proceedings are to be brought; often in fact the actual holders will be precluded from suing themselves,157 unless the trustee has been instructed to do so and refused.

V.  Original Modes of Acquisition A.  Legal Title Legal ownership may be acquired by a number of means. These can be divided into original and derivative modes of acquisition. Original acquisition means taking ownership of something that previously did not have an owner. Derivative ownership derives from the ownership of another party. We look in this first section at original acquisition of legal title. This can be done by taking possession of an ownerless thing, such as a wild animal; this is called occupatio. In Young v Hitchens158 the question was whether a fishing boat had reduced a shoal of pilchard to possession and taken ownership when another two boats came and took away some of the fish. It was said that the fact the claimants had not closed the aperture to take possession meant no action was maintainable. When one asset is produced by another by natural means the owner of the first owns the second. A sheep-owner owns the lambs; the owner of an apple tree, the apples; this is known as accession by natural means. Assets may also be reduced to possession and ownership by severance from the land by the landowner. An asset may also be abandoned by its owner in which case the next person to reduce it to possession acquires ownership; there is little authority for this, but it seems the sensible solution, and is the Quebecois position.159 The goods should not revert bona vacantia to the Crown, as is the rule in Scotland under the maxim res nullius est fit domini Regis.160 It is likely that abandonment requires a proven intention to abandon and renounce the asset for all purposes,161 in which case title might turn to the landowner. Hickey has recently

156  HD Gabriel ‘The Application of the Geneva Convention for Intermediated Securities’ (2012) 9 Macquarie J Business Law 166. 157  Re Colt Telegram Group Ltd [2002] EWHC 2815; Elektrim SA v Vivendi Holdings 1 Corp [2008] EWCA Civ 1178. 158  (1844) 6 QB 606, 115 ER 228; The Tubantia [1924] P 78. 159  § 934–935 QCC. 160  Lord Advocate v University of Aberdeen 1963 SC 533; A Bell, ‘Bona Vacantia’ in E McKendrick and N Palmer (eds), Interests in Goods 2nd edn (London, LLP, 1998) 207, 211. This despite suggestions to the contrary in Re Wells [1933] Ch 29; Bridge et al (n 25) para 9.006. 161  Arrow Shipping Co Ltd v Tyne Improvement Commissioners [1894] AC 508; Moorhouse v Angus & Robertson (No 1) Pty Ltd [1981] 1 NSWLR 700; Johnstone and Wilmot Pty v Kaine (1928) 23 Tas LR 43; Cook v Saroukis (1989) 97 FLR 33; abandonment is likely to be hard to prove and comes up most in the criminal context. S Thomas, ‘Do Freegans Commit Theft?’ (2010) 30 LS 98, 104–114; A Hudson, ‘Is Divesting Abandonment Possible in the Common Law?’ (1984) 100 LQR 110.

26  The Basic Concepts of Personal Property Law

taken the view that the law should not allow divesting abandonment.162 He suggests that the theft cases can be decided on other grounds—essentially it is not necessary to claim that the property does not ‘belong to another’; rather it suffices to say that he was not dishonest. Secondly, he argues that party autonomy does not justify an ability to abandon; rather the law should encourage use as opposed to non-use. Yet these considerations do not in truth seem to trump the ability to abandon. It may be that where an item poses risks to others, that an owner should be deemed continuously responsible for it until another takes on ownership, but the right to abandon should be respected. Given that, the critical feature determining which party has the better right is which party reduced it to possession first as determined by factual control and intention to control in the normal way discussed above.163 We must, however, remember that a finder will not be able to immediately keep or use the asset as his own unless it was ownerless or abandoned. In circumstances where an asset was lost and not consciously abandoned the loser of the item will not lose legal title to them and will therefore have a better title enforceable against the finder.164 The position of finders of goods and their obligations to the loser of the items are, however, disturbingly unclear, mostly because of the paucity of cases involving the actual owner and the finder. We will examine the position of finders vis-à-vis losers further in chapter ten.165 However, distinguishing the two cases—abandonment and not—will both be critical and very difficult. In the context of finding chattels on newly bought land, Edelman QC, sitting as a judge in Robot Arenas Ltd v Waterfield, which involved the question of the entitlement of the buyer of land to subsequently destroy equipment previously used as an arena for the television series Robot Wars, said, If the circumstances ought to put the purchaser on notice that the property might not have been abandoned, an enquiry of the vendor or the vendor’s agents … would be appropriate… Whether the purchaser is obliged to wait for a response to the enquiry before doing anything with the property would depend upon the circumstances. The more valuable (whether in monetary terms or as a personal item) the property might possibly be, the more the purchaser might reasonably be required to await a response before treating the property as if it had been abandoned. The less valuable the property appears to be, and in particular if its continued presence on the property is causing inconvenience to the purchaser, the more reasonable it might be for the purchaser to treat the property as having been abandoned if it has not been collected or claimed within a reasonable period of time.166

Other original means of acquisition are highly underdeveloped areas of English law where the vocabulary is mostly borrowed from Roman law,167 largely by taking the Roman term and adding an ‘n’ to the end. We have seen an example—occupatio(n) already. These doctrines are, however, important in solving many of the difficulties we will encounter in chapter 11, where sellers attempt to retain title to products they sell and anything made from those items.168 They include cases where goods become fixtures or accessions (in Roman law

162 

R Hickey ‘The Problem of Divesting Abandonment’ [2016] Conv 28. R Hickey, Property and the Law of Finders (Oxford, Hart, 2010) 51–52. Moffatt v Kazana [1969] 2 QB 152. 165  See chapter ten, part II E. 166  Robot Arenas Ltd v Waterfield [2010] EWHC 115 (QB), [22]. 167  Bridge (n 62) 130–136. 168  See chapter 11, part V A. 163  164 

Original Modes of Acquisition 27

accessio). The owner of the greater and more valuable thing becomes owner of an attached lesser thing; where paint is applied to a canvas, the owner of the canvas as the more valuable object owns the paint as it cannot be removed. However, where a thing can be removed relatively straightforwardly there is no accession. In Hendy Lennox (Industrial Engines) Ltd v Grahame Puttick Ltd169 for example generating sets were bought and attached to engines. Each generating set had a unique serial number and could be easily unbolted from the engines. Consequently the supplier of the generators retained title to them, not having been paid and having the benefit of a contractual clause that property only passed on payment. There are a number of problems with accession, however. It is unclear how the dominant asset is to be defined or what degree of annexation constitutes accession. What if a new artistic masterpiece were painted on the canvas? The way the paint was applied would make the whole much more valuable; should that entail the canvass annexing to the paint? Specification (in Roman law specificatio) takes places when a thing is turned by labour into something else with a different identity. In Re Peachdart Ltd170 leather was cut and sewed and used to make handbags; the parties had anticipated this would happen as the sale was to a bag manufacturer, Peachdart. Title to the leather passed to the manufacturer and the seller (Freudenberg) was said to retain at most a floating charge over the handbags and the proceeds of their sale, which was void for non-registration. There was at no stage any requirement on the manufacturer to identify which bags were sold to which customers, so as to be able to say whether they had sold a bag on their own account or as Freudenberg’s agent and bailee,171 which would have entitled Freudenberg to claim the sale price as their property. After a piece of leather was worked into a handbag or work had started on the handbag the property therefore passed to Peachdart. In Borden v Scottish Timber Products Ltd172 resin was bought and processed into chipboard. The resin was, however, irreversibly incorporated into a new product and the sellers’ ownership of the resin was destroyed and replaced by at most a charge. This is in effect an application of the Roman rule that the manufacturer obtains ownership of the new product.173 However, one difficulty is drawing the line between this and other doctrines. It was suggested in argument in Peachdart that the buckles and other add-ons to the leather to make the handbag acceded to the leather to make the seller owner of the handbags.174 There may also be difficulties in cases where the supplier of materials purports to retain title to the materials until he has been paid, even through the manufacturing process destroying the original assets, or where the parties purport to allocate ownership in the product.175 Where the manufacturer has used the other party’s assets without permission he will be a converter. In those cases Jones v de Marchant176 provides some guidance. A fur coat 169  Hendy Lennox (Industrial Engines) Ltd v Grahame Puttick Ltd [1984] 2 All ER 152; EC Arnold, ‘The Law of Accession to Personal Property’ (1922) 22 Columbia Law Review 103, 118; S Worthington, Proprietary Interests in Commercial Transactions (Oxford, Clarendon Press, 1997) 136–138. 170  Re Peachdart Ltd [1984] Ch 131. 171  Ibid 142–143 (Vinelott J). 172  Borden v Scottish Timber Products Ltd [1981] Ch 25. 173  Palmer (n 87) para 8.012; this was in Roman law often subject to a requirement to compensate the other party. 174  [1984] Ch 131, 135 (Littman), discussed 141–142 (Vinelott J). 175  Clough Mill v Martin [1985] 1 WLR 111 (CA) 119 (Robert Goff LJ). 176  Jones v de Marchant (1916) 28 DLR 561; Foskett v McKeown [2001] 1 AC 102 (HL) 133 (Lord Millett); Bridge (n 62) 134.

28  The Basic Concepts of Personal Property Law

made largely but not entirely from the manufacturer’s wife’s fur stoles was given to his mistress. Because the court decided that selling the coat and dividing the proceeds by the value of the goods used was impossible the wife was given the full ownership of the coat. This looks punitive and confiscatory and it may be that the fairest result is to hold under a legal tenancy in common by reference to the value of the materials with any doubts resolved against the wrongdoer. If the new product is therefore for example made entirely with the innocent party’s goods it belongs to him.177 However, English law does not permit common law tracing to be used to trace assets into manufactured products. It does this because of its singular focus on the individual original asset. Were such tracing to be possible, the sellers in Re Peachdart could have been said to be legal tenants in common of the handbags in proportion of the value of the leather they supplied to the other raw materials used in the manufacturing process, including any leather supplied by other suppliers. Commingling may take the form of confusion (confusio) or commixtion (commixtio). Confusion refers to the mixture of fluids (oil), or where the contributions are inextricably mixed, and commixtion to the mixture of granular things (wheat/barley), where there is no inextricable mixture. These two situations are similar enough that the rules are the same. In both cases the goods are said to be fungible; fungibility is usually defined in terms of physical interchangeability—in other words it physically does not matter whether the claimant has one ton of barley, or oil rather than a different ton of the same substance from the given bulk. In these circumstances the parties usually share ownership of the bulk as tenants in common, at least where the mixture takes place with the consent of both parties, or by accident.178 Where there is a conflict between value and volume in quantifying the shares of the mixture value prevails.179 As between innocent parties, if there is no evidence of value or amounts the tenancy is in half shares. The situation is different in cases of wrongdoing. In Indian Oil Corporation Ltd v Greenstone Shipping SA (The Ypatianna)180 the owners of a ship chartered to transport oil mixed the Russian crude oil they were chartered to carry with their own. The receivers received less oil than was endorsed on the bill of lading. Staughton J held that where assets were wrongfully mixed with assets of the same type, quality and nature the parties owned in common in proportion to the amounts inputted. The receivers were entitled to receive the quantity stated on the bill of lading and were entitled to damages for short delivery, caused by the admixture.181 Any doubt is always resolved against the wrongdoer,182 even to the extent of awarding the innocent party everything. A question which was not resolved was what

177 

Arnold (n 169) 105–109; Worthington (n 169) 141–143. Mercer v Craven Grain Storage [1994] CLC 328; Spence v Union Marine Insurance Co Ltd (1868) LR 3 CP 427; PBH Birks, ‘Mixtures’ in E McKendrick and N Palmer (eds), Interests in Goods, 2nd edn (London, LLP, 1998) 227, 235; Bridge et al (n 25) paras 9.021–9.022. 179  Birks (n 178) 247; Arnold (n 169) 119–120; Worthington (n 169) 139–141; G McCormack, ‘Mixtures of Goods’ (1990) 10 LS 293, 298. 180  Indian Oil Corporation Ltd v Greenstone Shipping SA [1988] QB 345; Sandeman & Sons v Tyzack & Branfort Steamship Co. Ltd [1913] AC 680 (HL). 181  [1988] QB 345, 370–371. 182  Glencore Intl v MTI [2001] 1 Lloyds Rep 284; Stock v Stock (1592) Pop 38, 79 ER 1156; Ward v Aeyre (1613) 2 Bulstrode 323, 80 ER 1157; Buckley v Gross (1868) 3 B&S 566, 122 ER 213; these cases for Palmer turn on their individual facts (n 87) para 8.014. 178 

Original Modes of Acquisition 29

happened where the oil was of different grades. In Glencore International v Metro Trading International Inc183 Moore-Bick J decided that the same result should apply. The question arises where the rules as to commixtion are the same. In Roman law they were not. However, Birks argued that the rules should be the same because the mixing process destroys the identifiability of the constituent parts even if it does not destroy the actual parts.184 Two cases support this proposal. In Spence v Union Marine Insurance Co185 cotton belonging to different owners was marked individually and shipped from Mobile to Liverpool. The ship was wrecked and some of the cotton had to be sold. The markings were obliterated by the seawater, rendering it an innocent commixtion. It was held that the losses were born pro rata by the different owners and that they owned the cotton whose owners were unidentifiable as tenants in common to the proportions put in to the hold at Mobile. A more recent decision is Hill v Reglon.186 Amongst other things, the case raised the question of ownership of mixed scaffolding. Reglon’s scaffolding and Action’s scaffolding had been mixed by a third party—ACS Hire. The New South Wales Court of Appeal held that the two parties held as tenants in common. A special case of commixtion may be the scenario where for example two people pour grain into a third party’s silo and that third party is entitled to deal with the goods on the basis that he returns goods of the same type. In this scenario even if all the original goods are used up the mixers may be able to claim a tenancy in common over the new goods. In Mercer v Craven Grain Storage187 for example the bailee of a quantity of grain did not have to deliver the exact grains of wheat back. It was sufficient that he deliver an equivalent quantity. The defendant storage society signed agreements with member farmers to store their grain and gave them certificates showing the weight and grade deposited. The grain as stored as a commingled mass and reduced and replenished from time to time with the consent of the members. The storage society sought to defend an action for conversion when they failed to redeliver by saying the farmer had lost title to the grain when the amount stored was reduced, but the House of Lords took the view that the farmers had an interest in the mass in proportion to the amount they had deposited, irrespective of the fact that the exact grains of wheat deposited had been removed and sold. Although this is a commixtion case there seems no reason not to apply the same rules to confusion cases. One important qualification needs to be made at this point. It is impossible to create a legal tenancy in common in corporeal money (notes and coins) in this way. This is because of the relative untraceability of money.188 We look again at the traceability at common law of assets through mixtures and manufacturing processes in chapter nine,189 and the question becomes relevant to the validity of retention of title clauses. 183 

[2000] EWHC 199 (Comm), [2001] 1 Lloyds Rep 284. Birks (n 179) 238. 185  Spence v Union Marine Insurance Co (1868) LR 3 CP 427; Jones v Moore (1841) 4 Y& C Ex 351, 160 ER 1041; Gill and Duffus v Scruttons [1953] 2 All ER 977; R Hickey, ‘Dazed and Confused: Accidental Mixtures of Goods and the Theory of Acquisition of Title’ (2003) 66 MLR 368, 373–376. 186  Hill v Reglon [2007] NSWCA 295; Big Top Hereford Pty Ltd v Thomas [2006] NSWSC 1159; Re CKE Engineering Ltd [2007] BCC 975; Coleman v Harvey [1989] 1 NZLR 723; Swindle v Matakana Estate Ltd [2011] NZHC 1345, [2012] 1 NZLR 806, [106] (Kos J). 187  Mercer v Craven Grain Storage Ltd [1994] CLC 328; LD Smith, ‘Bailment with Authority to Mix and Substitute’ (1995) 111 LQR 10. 188  D Fox, Property Rights in Money (Oxford, OUP, 2008) para 1.61; Hickey (n 163) 378–379. 189  See chapter nine, part II A. 184 

30  The Basic Concepts of Personal Property Law

B.  Equitable Title We have already briefly examined one mode of original acquisition of equitable title through the declaration of a private express trust. Equitable ownership may therefore be acquired originally in a number of ways190 1. By defective transfer of legal ownership, dealt with in chapter seven. 2. By a purported present transfer for consideration of a future or after-acquired asset. 3. By an agreement to transfer either legal or equitable ownership of specific items. This will only apply to assets not subject to the Sale of Goods Act 1979. 4. By, as we have seen, a declaration of trust, or transfer of legal title to another to hold on trust. Some of these cases are sometimes said to depend on the applicability of specific performance;191 the basis for this is the maxim that equity will look at as done that which ought to be done. On one level this is pretty useless as it begs the question of what ought to be done, but equity’s acknowledgement of an unconditional mandatory obligation to transfer specific assets through (along with other requirements) the availability of specific performance tells us what ought to be done, and this is recognised by creating a constructive trust. Where the purchase price has been paid, this will generate a constructive trust in cases of sale of shares in (say) private companies or land (our case 3). The principle that the buyer obtains the benefit of a constructive trust if the contract is specifically enforceable also applies in some cases of equitable mortgages, where there is a specifically enforceable agreement to create a legal mortgage.192 Nonetheless it has been argued that we cannot take the importance of specific performance too far. The specific performance principle does not seem to apply for instance in cases of fixed charges over future assets, or the transfer of rights in future assets generally, and floating charges; in those cases the charge attaches to the asset once it falls into possession immediately, if the consideration has been executed, without the chargor needing to do anything else to make it so. The chargee has an inchoate interest which bites once the asset falls into possession and for priority purposes is deemed to have arisen as soon as the agreement was made.193 This distinction, if right, causes a strange anomaly in the law of sales of personalty other than goods. Sarah Worthington has explained it as follows. Imagine I agree to sell you shares in a public company. The contract is not specifically enforceable and no constructive trust arises. If I agree to sell you shares I expect to own (in the same company) then if you pay, a constructive trust arises on my acquisition of the shares.194 She claims specific enforceability is needed for both cases, which would mean that the agreement to sell shares I expect to own in the public company would not be specifically enforceable and no constructive trust would arise. Swadling rejects the vendor-purchaser trust in all cases

190 

McKendrick (n 2) 43. Worthington (n 169) 198–206 but see for a contrary view McFarlane (n 50) 235–237. Swiss Bank Corporation v Lloyds Bank 1982] AC 584 (CA) 596 (Buckley LJ); see chapter 13, part II B. 193  Tailby v Official Receiver (1888) 13 App Cas 523; Re Lind [1915] 2 Ch 345; the confusion suggesting specific enforceability was required stems from Holroyd v Marshall (1862) 10 HLC 191, 11 ER 999; see McKendrick (n 2) 667–670; Bridge et al (n 25) para 7.072. 194  Worthington (n 169) 199. 191  192 

Conclusion 31

by displacing the relevance of specific performance in all events, suggesting that the trust cannot ever be coherently explained,195 thus also avoiding the anomalies. In a chapter in the same book as Swadling’s piece, however, Chambers has defended the rule that the trust is generated by rights to specific performance. It is, as Chambers points out, deeply embedded in our legal practice, too deeply to be dug out without disaster.196 More than that, it has a clear rationale: to protect the two parties’ interest in the performance of the contract. The relationship is regulated through different equities, including the purchaser’s lien,197 discussed in chapter 13.

VI. Conclusion This chapter has attempted to set the scene for subsequent chapters. Many of the topics discussed here are somewhat Cinderella-esque in the way they have been comparatively neglected in modern scholarship. Modern academics tend to assume they know about possession and move on to other sexier parts of personal property law and in particular the areas of personal property with real and immediate commercial relevance such as charges and security interests, or assignment of choses in action and the recently important topic of non-assignability. These areas do bear scrutiny, however. It is not obvious that many of our assumptions—such as the absolutist nature of equitable title—are really correct or compatible with other nostrums we take for granted such as the need for priority rules. The rules studied here therefore provide a base for further study.

195  WJ Swadling, ‘The Vendor-Purchaser Constructive Trust’ in S Degeling and J Edelman (eds), Equity in Commercial Law (Sydney, Law Book Co, 2006) 463. See on future property discussions in chapter two, part II C iii. 196  R Chambers, ‘The Importance of Specific Performance’ in S Degeling and J Edelman (eds), Equity in Commercial Law (Sydney, Law Book Co., 2006) 431. 197  PG Turner, ‘Understanding the Constructive Trust between Vendor and Purchaser’ (2012) 128 LQR 582, 600–604.

32 

2 Transfer of Legal Title to Tangibles I. Introduction We saw in chapter one, part II that assets can be divided into a number of categories. Of personal property (non-land) assets there are two main groups—choses in possession and choses in action. Choses in possession are things that can be possessed. They are tangible property assets—cars, boats, stones, cats, etc. English law recognises three methods of voluntary or consensual conveyance of legal title to such goods—under the Sale of Goods Act 1979, deed and delivery. These, we will take in turn. Following on from previous ­editions, McKendrick in his edition of Goode on Commercial Law suggests four—sale, exchange (where no money consideration exists on either side), loan (where an item is provided for consumption on the basis that an equivalent item will be returned) and gift.1 This is a list of transactions, however, not a list of modes of conveyance; exchange, loan and gift are all perfected via delivery (in most cases). There are also cases in which property passes automatically as a matter of law. Many of these borrowed their terminology from Roman law and added an ‘n’ to the end, and so we talk for example of confusio(n) and accessio(n). This is, as we saw in chapter one, an underdeveloped area of English law.2

II.  Passage of Property under Sale of Goods Act 1979 Passage of property in the context of the sale of goods is governed by sections 16–20B of the Sale of Goods Act 1979. For commercial purposes, the point at which property passes, assuming the solvency of the parties, is important for three reasons. Risk in the goods prima facie passes with property.3 As between the seller and the buyer this determines who is liable should goods be destroyed. If therefore risk has passed to the buyer and the goods are destroyed in transit, the buyer must still pay the price. It also determines who is entitled to insure the goods. The second consequence is that usually the seller may not sue for the price until property has passed,4 and the third important reason to know when property passes

1 

E McKendrick (ed), Goode on Commercial Law, 4th edn (London, Penguin, 2010) 44 fn 100, 50 and 220. M Bridge, Personal Property Law, 4th edn (Oxford, OUP, 2015) 130; see chapter one, part V A. 3  Sale of Goods Act 1979 s 20. 4  ibid s 49. 2 

34  Transfer of Legal Title to Tangibles

is that whether property—or a right to possession—has passed will determine who has the right to sue third parties for damage to the goods.5 Risk and property need not, however, pass together. In consumer contracts under section 29(2) Consumer Rights Act 2015 risk does not pass until the consumer takes possession; this would prevent the consumer being liable for the price despite destruction of the goods in transit (unless by section 29(3) they are carried by a carrier engaged by the consumer). The law on passage of property (as apart from risk) applies to consumer sales as well as commercial sales as the Consumer Rights Act 2015 does not deal with passage of title; the Law Commission recently, however, questioned whether it is appropriate for the same rules on title transfer to apply in both types of sales contract.6 It does seem better that the law be the same in both cases, lest arguments arise as to whether the consumer or other rules apply depending on which is most favourable. Goods are defined by the Act as including all personalty except things in action or money.7 Consequently, the transfer of legal title to debts is governed by section 136 of the Law of Property Act 1925 and not the Sale of Goods Act. Shares as things in action (simply a bundle of rights against other members of the company and the company itself) are not, however, covered by the Act either. This causes a difference in treatment in that a specifically enforceable contract of sale of personalty may lead to the buyer acquiring equitable title in advance of legal title.8 This will never be true of goods, because as soon as the property is specific and deliverable legal title passes. In Re Wait,9 Atkin LJ said that the Act was a complete code as to the effects of a contract of sale. It is of course still possible to create legal and equitable interests in goods outside the Act.10 Although Lord Hanworth was a ­little more circumspect, holding that the prerequisites for specific performance had not in any case been met,11 the authority is now so entrenched for the proposition that equitable title in goods does not pass prior to legal title as to be unassailable.12 It may, however, be true of shares that a specifically enforceable contract for their sale will generate a constructive trust. There are other questions as to what counts as ‘goods’ for the purposes of the Act. Green and Saidov, for example, argue that software should be counted as goods for the purpose of the Act.13 This has been controversial with some argument that transactions concerned with software—as opposed to the disc on which it is stored—are not sales transactions. Rather the argument goes that it is a licence. Green and Saidov reject this, arguing that the disc is sold to the consumer, but so is the software. A separate arrangement covers the associated intellectual property rights and that is where any licence, properly so-called, is relevant. The analogy they draw is with a book. The reader has bought the book they hold in their

5  JN Adams and H MacQueen (eds), Atiyah’s Sale of Goods, 12th edn (Basingstoke, Longman, 2010) 307–08. See also TY Lin ‘Does Ownership Matter in the Sale of Goods?’ [2011] JBL 749. 6  Law Commission, Consumer Prepayments on Retailer Insolvency (Law Comm CP no 221, 2015) ch 13. 7  Sale of Goods Act 1979 s 61. 8  The rule might be put that an unconditional mandatory obligation to transfer specific property gives rise to a constructive trust: S Worthington, Proprietary Interests in Commercial Transactions (Oxford, Clarendon Press, 1997) 152. M Bridge, L Gullifer, G McMeel and S Worthington (eds) The Law of Personal Property (London, Sweet and Maxwell,) para 10.013. See chapter one, part V B. 9  Re Wait [1927] 1 Ch 606 (CA). 10  ibid 635–36. 11  ibid 621. 12  However, see S Eaton and R Friel, ‘Protecting Prepaying Buyers of Unascertained Goods: Why “Pay before you Go” may be Bad for You’ (2007) 36 Common Law World Review 50. 13  S Green and D Saidov, ‘Software as Goods’ (2007) JBL 161.

Passage of Property under Sale of Goods Act 1979 35

hands, but has not bought the right to violate my copyright in it. Green and Saidov go on to argue that software is properly a ‘good’ by going through the characteristics of software and suggesting that it is tangible, and moveable. It always exists as a physical attribute to be controlled in that it always exists in physical form as a particular alignment of magnets and switches on a storage medium. It can also be moved, transmitted or downloaded. They argue that a failure to understand the true nature of software might lead to the unsatisfactory situation where software placed on a compact disc is treated differently from that downloaded from the internet, when the choice is essentially an arbitrary consumer preference.14 In both cases software has a corporeal presence—in the download case as a set of electrical pulses, which become a particular alignment of magnets on the computer hard drive. In St Albans City and DC v International Computers,15 Sir Iain Glidewell, however, opined in obiter dicta that software on a disc could be seen as goods for the purpose of the Act, where the buyer acquires possession of the disc but not otherwise.16 Treating these cases differently has very unfortunate outcomes, however. Nonetheless treating software as goods for the purposes of the Sale of Goods Act raises difficult questions about its convertibility, which we look at in chapter eight part II A, and seems inconsistent with the rule we see there that databases, which presumably also exist as a set of magnet alignments, cannot be converted. A question of increasing importance, though, is the relationship between the goods and software (and the IP rights connected to it). The computer on which I write this is useless without its operating system, yet I have not bought the operating system. Microsoft retains intellectual property rights in the software. Currently my buyer’s rights, were I to sell the machine, are therefore vulnerable to enforcement of those IP rights, if their use is governed by a non-transferable licence—which in some cases they are. Sean Thomas recommends reforming the law so a bona fide purchaser of the goods without notice cannot be sued by the IPR holder.17

A. Classification The Sale of Goods Act 1979 makes a twofold classification into specific goods and unascertained. Specific goods are defined to be goods identified exactly and agreed at the time of contracting. In Kursell v Timber Operators v Contractors Ltd,18 a contract was entered to purchase all the merchantable timber in a Latvian forest, the Lühde Forest, on 20 August 1920. It was argued that the timber was specific property and that therefore property in the timber had passed to the buyers. This was important as the Latvian Government nationalised the forest. If property had passed beforehand the risk of nationalisation was on the

14  ibid 166; DA Poyton, ‘Dematerialised Goods and Liability in the Electronic Environment: The Truth is “There is no Spoon (Box)”’ (2005) 19 International Review of Law Computers and Technology 83, 94–95. 15  St Albans City and DC v International Computers [1997] FSR 251. 16  ibid 265–66; Your Response Ltd v Database Business Media Ltd [2014] EWCA Civ 281, [2015] QB 41, [20]. 17  S Thomas ‘Goods with Embedded Software: Obligations under Section 12 of the Sale of Goods Act 1979’ (2012) 26 Intl Rev of Law, Computers and Technology 165, 177. Thomas further considers the interconnections between sales and IP law in S Thomas ‘Sale of Goods and Intellectual Property: Problems with Ownership’ [2014] Intellectual Property Forum 25. 18  Kursell v Timber Operators v Contractors Ltd [1927] 1 KB 298 (CA).

36  Transfer of Legal Title to Tangibles

buyer and not the seller. However, the description was not such that the goods were specific goods. Merchantable timber was defined as “all trunks and branches of trees but not seedlings and young trees of less than six inches in diameter at a height of four feet from the ground’. Consequently, there were a series of measurements to be carried out to decide if particular trees were merchantable. That being the case, Lord Hanworth said the goods were not exactly identified and so were not specific; they were unascertained goods.19 Unascertained goods are unidentified at the time of contracting in the sense that although the contract may refer to (say) 1000 tons of wheat, it says nothing about which 1000 tons are to be sold. For property to pass the wheat must later become identified; we will see how this is done later on. Unascertained goods may be wholly unascertained, or an unascertained part of a known bulk—1000 tons out of 4000 tons of wheat in the silo. In a term coined by Sir Roy Goode, this is sometimes referred to as quasi-specific goods.20 It is important to note, however, that where a buyer purchases 25 per cent of the bulk cargo of a named ship that he or she is purchasing specific goods even though the buyer will hold as a tenant in common; goods are defined in section 61(1) of the Sale of Goods Act 1979 as including an undivided share in goods. To generalise this point, a percentage or other share of a given quantity of goods will count as specific goods.

B.  Sale of Specific Goods Section 16 of the Sale of Goods Act 1979 sets out the rule, common to all other systems of transfer of title, that the goods must be ascertained before property can pass. This is fairly trite, and Lord Mustill described it as common sense in Re Goldcorp.21 We see the same rule elsewhere—a trust cannot be created without there being certainty of subject matter for instance.22 Where the goods are specific that requirement is already met. The only remaining rule is contained in section 17, which states that property passes when it is intended to pass. For example, in retention of title cases property does not pass until it is paid for. Critically therefore there is no requirement for delivery in sale. Property may pass before it is delivered although there is usually a factual connection in that the events typically coincide.23 Section 17(2) goes on to say that the intentions of the parties are to be deduced from the contract and the surrounding circumstances. This will include well-established commercial custom. It is, for instance, very well established that under a CIF contract property passes on payment in exchange for the documents.24 More usefully section 18 contains five rules. These are not, however, rules in the sense that they must be obeyed. They are more properly presumptions applying in the absence 19 

ibid 308. In current editions see McKendrick, Goode on Commercial Law (2010) (n 1) 231–33 and S Mills (ed), Goode on Proprietary Rights and Insolvency in Sales Transactions, 3rd edn (London, Sweet and Maxwell, 2010) paras 1.45–1.46. 21  Re Goldcorp [1994] 2 All ER 804 (PC). 22  Westdeutsche Landesbank Girozentrale v Islington LBC [1996] AC 669 (HL). 23  An example of a case where property passed before the asset was delivered (or even its manufacture completed) is Re Blyth Shipbuilding and Dry Docks Co Ltd [1926] Ch 494 (CA). 24  M Bridge, The International Sale of Goods, 3rd edn (Oxford, OUP, 2013) para 7.10; on CIF (Cost, Insurance, Freight) contracts generally see also LS Sealy and RJA Hooley, Commercial Law: Text, Cases and Materials, 4th edn (Oxford, OUP, 2008) 498–507. 20 

Passage of Property under Sale of Goods Act 1979 37

of contrary evidence of intention. When there is no evidence of what the parties intended about passage of property, these presumptions step in to provide default settings, which can, it seems, be rebutted by relatively slight evidence.25 The following subsections will examine those rules.

i.  Rule 1 Section 18 rule 1 states that where there is an unconditional contract for the sale of specific goods in a deliverable state property in the goods passes immediately after the contract is concluded. An illustration of this is contained in the case of Dennant v Skinner & Collorn.26 The purchaser of a car at auction made misrepresentations as to his own identity. On the hammer coming down, the contract for sale of the particular car in question was concluded. The auctioneer, however, accepted a cheque on the basis that property would only pass once the cheque was honoured. The cheque was dishonoured and the seller wished to argue that property in the car had not passed. Hallett J said that the agreement with the auctioneer about property passing was made after the contract for sale was concluded. There was nothing in the terms and conditions accompanying the auction to suggest that property would pass at a time after the hammer came down rather than immediately as the hammer came down.27 In short, this agreement came too late to count; property in the car had already passed. Two questions therefore arise; the first is what counts as an unconditional contract, and the second is when the goods are in a deliverable state. To appreciate the problems of interpretation, we need to remember two basic facts. The first is that terms in a contract can be divided into conditions, innominate terms and warranties.28 To interpret unconditional in this context as not subject to conditions in the sense of a vital term of the contract which would allow the buyer to terminate the contract were it breached would lead to some absurd conclusions. The same sort of problem arises with the idea of deliverable state. Deliverable state is defined by section 61(5) of the Sale of Goods Act 1979 as being a state where the buyer is obliged to take delivery. This would lead to some equally odd conclusions. The buyer is entitled to reject goods if they do not meet their description, or are not of satisfactory quality; it would be odd to say the least if that entailed property not passing. Fortunately with the repeal of the old section 11(1)(c) of the Sale of Goods Act 1893 we do not need to give unnatural constructions to ‘unconditional contract’ to avoid the loss of a right to reject goods.29 ‘Unconditional’ in fact refers to the absence of conditions precedent or subsequent, on which the passage of property depends,30 and the phrase ‘deliverable state’ is also given a narrow meaning, so that goods are in a deliverable state if, assuming they are what they purport to be, nothing else need be done to them to oblige the buyer to take delivery.31 25 

RV Ward Ltd v Bignall [1967] 1 QB 534 (CA) 545; Re Anchor Line (Henderson Bros) Ltd [1937] Ch 1 (CA). Dennant v Skinner & Collorn [1948] 2 KB 164. 27  ibid 171–72. 28  E Peel (ed), Treitel’s Law of Contract, 14th edn (London, Sweet and Maxwell, 2015) paras 18.04–18.06. 29  Adams and MacQueen, Atiyah’s Sale of Goods (hereinafter referred to as ‘Atiyah’) (2010) (n 5) 312; McKendrick, Goode on Commercial Law (2010) (n 1) 252–54; see Varley v Whipp [1900] 1 QB 513; Ollett v Jordan [1918] 2 KB 41. 30  M Bridge (ed), Benjamin’s Sale of Goods, 9th edn (London, Sweet & Maxwell, 2014) para 5.019. 31  See also McKendrick, Goode on Commercial Law (2010) (n 1) 254; Sealy and Hooley, Commercial Law: Text, Cases and Materials (2008) (n 24) 326–27. 26 

38  Transfer of Legal Title to Tangibles

In practice this has not caused any difficulty; such cases as there are on the question of deliverable state under section 18 have been relatively straightforward. In Kursell for instance the timber was not in a deliverable state. We have already seen that it was not clear exactly which trees or pieces of wood were covered by the contract. This also explains why the goods were not specific goods. They were not in a deliverable state until the wood had been identified and cut. A very similar decision is Underwood Ltd v Burgh Castle Brick and Cement Syndicate.32 That case involved the sale of a condensing engine, which was at the time of the contract affixed to the ground at the seller’s premises. In loading the engine onto the train for delivery, an accident damaged it extensively and the buyers refused to take it. Rowlatt J said: I think the important point is that the parties were dealing with an article which was a fixture to the premises, and that is different from the case of a loose chattel. The buyers’ intention was to buy an article which would be a loose chattel when the processes of detaching and dismantling it were completed, and to convert it into a loose chattel these processes had first to be performed.33

In both these cases something needed to be done by the seller—although it could just as easily have been by a third party—to put the goods into a deliverable state; that process had not been completed at the time of the accident. The asset did not therefore fall under the criteria in rule 1, and at the time of the accident property had not passed.

ii.  Rules 2 and 3 Rules 2 and 3 state: Rule 2: Where there is a contract for the sale of specific goods and the seller is bound to do something to the goods for the purpose of putting them into a deliverable state, the property does not pass until the thing is done and the buyer has notice that it has been done. Rule 3: Where there is a contract for the sale of specific goods in a deliverable state but the seller is bound to weigh, measure, test, or do some other act or thing with reference to the goods for the purpose of ascertaining the price, the property does not pass until the act or thing is done and the buyer has notice that it has been done.

Essentially therefore, rule 1 deals with cases of unconditional contracts and rules 2 and 3 with conditional contracts for the sale of specific goods. Since the conditions usually refer to things that need to be done to make the goods deliverable, many of the important rule 2 cases are also cases examined under rule 1. There is no residual general rule for conditional contracts. The Law Commission proposed a modification to rule 2 in the context of consumer sales. Their reasoning was that there might be some doubt as to whether goods are deliverable should the retailer promise to personalise—perhaps by engraving a ring— the goods before delivery. In an insolvency context the Commission felt this unacceptably uncertain and recommended property pass on the conclusion of the contract of sale for specific goods even if the seller has further work to do.34 The suggested reform can be supported, but if there really is uncertainty about the date when goods become deliverable for 32 

Underwood Ltd v Burgh Castle Brick and Cement Syndicate [1922] 1 KB 123; Atiyah (2010) (n 5) 314–15. Underwood [1922] 1 KB 123, 125; Philip Head & Sons v Showfronts Ltd [1970] 1 Lloyds Rep 140. 34  Law Comm (n 6) para 13.22; Law Commission Consumer Prepayment in Retailer Insolvency (Law Comm no 368 2016) para 9.58. 33 

Passage of Property under Sale of Goods Act 1979 39

the purposes of these rules, however, any change should affect all types of sale of goods not just consumer contracts. In any case it is very doubtful that the law is so uncertain. A court would almost certainly hold that a ring the consumer had asked to be subsequently engraved was deliverable—after all, the consumer could have taken the ring and paid an independent engraver. In the context of rule 3 it becomes important for the passage of property whether it is the seller or some other party who must act to ascertain the price. If it is the buyer, the case falls out of section 18 altogether.35 In Turley v Bates36 therefore the seller was able to sue for the price despite the buyer not having weighed the fire clay subject to the contract. Property had passed in the entire heap of fire clay on the making of the contract with the weighing only being relevant to determining the contract price—not the timing of passage of title. If the seller was obliged to weigh the clay to ascertain the price, rule 3 may well have applied. Likewise, if the buyer must act to put the goods in a deliverable state the case falls out of ­section 18. In these cases the court would have to fall back on section 17. Under rule 3 it must be clear that the measurement is in fact being done to ascertain the price and not check that a previously agreed provisional price is accurate.37

iii.  Rule 4 This is a slightly odd rule, but like the others may be excluded by contrary intention.38 It stands out from the others, because it refers to goods on a sale or return basis. The rule states: When goods are delivered to the buyer on approval or on sale or return or other similar terms the property in the goods passes to the buyer (a) when he signifies his approval or acceptance to the seller or does any other act adopting the transaction; (b) if he does not signify his approval or acceptance to the seller but retains the goods without giving notice of rejection, then, if a time has been fixed for the return of the goods, on the expiration of that time, and, if no time has been fixed, on the expiration of a reasonable time.

A sale or return transaction is one where the buyer takes the goods on the basis that the buyer will pay for those he or she keeps. Any goods the buyer returns will not have to be paid for. You might enter into such an agreement with an off-licence if you were hosting a party, saying that you will take 50 bottles of wine, and any unopened bottles will be returned and not paid for. In these cases there is only an offer to sell and no actual sale at all when the goods are delivered. A sale on approval may be a different type of transaction and in fact is a different type of transaction in the United States—a binding sale with a condition subsequent allowing for return of unsuitable goods.39 The Act treats them the same

35  Nanka–Bruce v Commonwealth Trust [1926] AC 77 (PC); Atiyah (2010) (n 5) 317–18. Bridge et al (n 8) para 10.037. 36  Turley v Bates (1863) 2 H&C 200, 159 ER 83. 37  Martineau v Kitching (1872) LR 7 QB 436, 451. 38  M Bridge, The Sale of Goods, 3rd edn (Oxford, OUP, 2014) para 3.27. 39  Atiyah (2010) (n 5) 318; McKendrick, Goode on Commercial Law (2010) (n 1) 259–61 acknowledge that they may be different; Sealy and Hooley argue they have the same meaning: Commercial Law: Text, Cases and Materials (2008) (n 24) 333.

40  Transfer of Legal Title to Tangibles

way for the purposes of passage of property and this makes it more straightforward to treat the two expressions as having the same meaning. There is therefore no contract until the goods are accepted. At that point property passes and the contract comes into being. If so, it is merely an adaptation of rule 1 to a particular circumstance. Goods can be accepted by a conscious act adopting the transaction, usually telling the seller he or she accepts the goods or acting inconsistently with the seller’s ownership of the assets by using or consuming them, ie drinking the wine in the earlier example. Such acts are not necessary. Rule 4b therefore contains a modification of the usual rule in contract.40 Rule 4b entails that silence can be acceptance. Remaining silent until a fixed period has passed will count as an acceptance of the offer. This was precisely the fact scenario that did not give rise to a contract in Felthouse v Bindley41 where the uncle said that unless he heard from his nephew by a particular time he would consider the horse sold. The nephew said nothing, but the Court refused to find that there was a contract whereby he would purchase the horse from his uncle. It becomes particularly important to know when a ‘reasonable time’ has elapsed and the uncertainty of this may occasionally become important should one party become insolvent. It appears that the conduct of the seller may be a relevant factor. Time runs from the date of delivery.42 The major case on this is Poole v Smith’s Car Sales (Balham) Ltd.43 That decision involved the claimant placing two cars into the custody of the defendant. The defendant was empowered to sell them, with a minimum price being payable to the claimant if they were sold. One was sold. Eventually the claimant wrote asking for the other to be returned. It was not; the explanation was that it was held to the order of a customer. Eventually the claimant wrote, demanding its return in three days or the car would be considered sold. It was not returned within that timeframe but was eventually returned albeit damaged. The Court decided that it was a sale or return contract and that the car was not returned in a reasonable time frame. Property had therefore passed. More importantly, Ormerod LJ said that the question whether a reasonable time had passed was one of fact.44 Equally, it becomes important to know what counts as a rejection, or an acceptance. Pledging the goods as security for example will count as an acceptance, as will any other act consistent only with his being the purchaser.45 In Atari Corporation v Electronics Boutiquestores UK Ltd,46 the defendants did not pay for the computer games in question by the due date, although they wrote in January 1996 to say that unsold stock was being held, pending an inventory as they had decided to cease stocking the games. The contract indicated ‘full sale or return by 31 January 1996’. The Court of Appeal decided that the letter was a valid rejection of unsold stock despite the fact that the precise games had not been identified. What was required was that the games be identified within a reasonable time and either delivered or held for collection by the seller.47 The effect of a notice of rejection then is to determine the contract and vest an immediate right to possession of the goods in the 40 Peel, Treitel’s

Law of Contract (hereinafter referred to as ‘Treitel’) (2015) (n 28) paras 2.043–20.047. Felthouse v Bindley (1862) 11 CB (NS) 869, 142 ER 1037. 42  Benjamin (2014) (n 30) para 5.050; Atiyah (2010) (n 5) 321. 43  Poole v Smith’s Car Sales (Balham) Ltd [1962] 1 WLR 744. 44  ibid 749; Sale of Goods Act 1979 s 59. 45  Kirkham v Attenborough [1897] 1 QB 201; Genn v Winkel (1912) 107 LT 434. 46  Atari Corporation v Electronics Boutiquestores UK Ltd [1998] QB 539 (CA). 47  ibid 546–47 (Waller LJ). 41 

Passage of Property under Sale of Goods Act 1979 41

seller,48 thus obliging the buyer to make them available or deliver them back to the seller. If the buyer does not redeliver the goods the seller has a right of action under the Torts (Interference with Goods) Act 1977.49 While the goods are in his or her possession, the ‘buyer’ is regarded as the seller’s bailee,50 which means that the onus is on the buyer to demonstrate that he or she was not negligent in any case of loss or damage of the goods,51 but if there is no fault damage to the goods is at the risk of the ‘seller’ as there is no completed sale.52

C.  Unascertained Goods The touchstone rule for unascertained goods is section 16 of the Sale of Goods Act 1979. Property cannot pass until it is known in what goods they are to pass. The primary provision is section 18 rule 5(1), which provides for property to pass when goods are appropriated to the contract. Section 16 requires that the goods be ascertained. However, it is important to note that appropriation and ascertainment are not the same thing. This is clear from the case of Karlshamm Oljefabriker v Eastport Navigation Co.53 The buyers had purchased 6000 tons of copra, which was shipped in a total cargo of 22,000 tons from the Philippines to Sweden. The balance was to be offloaded at Rotterdam and Hamburg before delivery to the buyers in Sweden. It was discovered that more copra was onboard than had been thought. 500 tons was sold to another buyer, and resold to the claimant. On delivery in Sweden a further 825 tons was damaged by seawater. The question arose as to whether the buyers were entitled to sue in tort as the owners of the damaged copra at the time of the accident. Mustill J held that appropriation under rule 5(1) was not a necessary condition for the passage of title.54 The goods were ascertained, however, when, after delivery under other contracts at Rotterdam and Hamburg, only copra destined for the buyer was on board. All that was necessary was that the goods be ascertained and that the parties intended that property pass. Mustill J said: It is true that the property in an undivided bulk will not normally pass before appropriation. But this is because in most cases the act of ascertainment is simultaneous with the act of appropriation, and without ascertainment there can be no transfer of title. The present case is, however, an exception, for if the reasoning of Wait & James v Midland Bank is applicable here there was an ascertainment during the voyage. This released the inhibition on the passing of property, and all that remains to be considered is the intention of the parties. Did they intend that the transfer of title should be held up until the completion of discharge, or did they intend that the claimants should be able to say of the cargo ‘That is all ours,’ from the moment at Hamburg when the interests of all the other buyers had been satisfied?55

48 

ibid 550 (Phillips LJ). Benjamin (2014) (n 30) paras 5.052–55. 50  ibid para 5.044; Atari [1998] QB 539 (CA) 548–49 (Phillips LJ). 51  On liability of bailees, see chapter 10, part II B ii. 52  Elphick v Barnes (1880) 5 CPD 321; this was a sale on approval, see Sealy and Hooley, Commercial Law: Text, Cases and Materials (2008) (n 24) 334. 53  Karlshamm Oljefabriker v Eastport Navigation Co [1982] 1 All ER 208; Wait and James v Midland Bank (1926) 31 Com Cas 172; Atiyah (2010) (n 5) 332. 54  Karlshamm [1982] 1 All ER 208, 214–15. 55  ibid 216. 49 

42  Transfer of Legal Title to Tangibles

In that case there was no appropriation because the sellers had not themselves indicated that the remaining copra would be earmarked to the contract. The process of identification or ascertainment was wholly passive. This result has now been confirmed by rules 5(3) and (4) of section 18 which were inserted by the Sale of Goods (Amendment) Act 1995.56 This case can be usefully contrasted with that of Re London Wines Co Ltd 57 In that case the buyers were issued with certificates of title. They bought a particular quantity of wine and were issued with certificates to the effect that they owned that amount of wine. There was, however, no earmarking of particular bottles for particular buyers or of a bulk of bottles from which the buyers’ wine would be sourced. This was unlike Karlshamm where it was clear the buyers’ goods would come from the copra in the ship’s hold. Consequently, although Oliver J said that ascertainment by exhaustion was possible, those buyers who claimed property had passed to them because they had bought the whole stock of a particular description of wine still lost because at no point was an identified bulk earmarked for appropriation to their contracts. In other words, the seller remained free to change its mind and source the wine owed to its customers from elsewhere. A second group who claimed that property in a given proportion of the wine left over after deliveries to other customers passed to them failed for the same reason. Even the third group of claimants who had received assurances either from the company or the warehouse failed because no ascertainment had in fact taken place. However, they were able to take advantage of another doctrine. They argued that representations had been made to them and that they had relied to their detriment. Consequently, the company was now estopped from setting up as against them that property had not passed. Clearly the estoppel by representation that goods were appropriated could not affect third parties as estoppel is merely a rule of evidence that prevents the representor from leading evidence as to the falsity of the representations. The claimant bank was claiming to take the wine under its floating charge. Oliver J said that the estoppel affecting the warehouseman could not affect the bank as no property had in fact passed. However, the estoppel could enable the plaintiff to sue in trover. Trover was abolished by the Torts (Interference with Goods) Act 1977, but the decision in Re London Wines was in fact handed down in 1975, despite the fact it was only reported in 1986, which explains the reference. Re London Wines was followed and developed further in Re Stapylton Fletcher.58 In that case there were two separate companies at issue. One company, Ellis, Son & Vidler individually allocated bottles of wine to customers. A record of customers and the number of cases of wine allocated to each customer was kept on a master card index, and updated periodically. Stapylton Fletcher, by contrast, made no attempt to segregate bottles or allocate them to different customers. Baker QC, sitting as a judge, held that under section 16 ascertainment occurred on irrevocable physical separation from the bulk, which was usually immediately before delivery. It could also be done by simple separation where no delivery was made and that if that occurred the seller held as tenant in common of the bulk from the point of separation.59 Similarly, property could pass to a group of customers where the 56 

Sealy and Hooley, Commercial Law: Text, Cases and Materials (2008) (n 24) 321. Re London Wines Co Ltd [1986] PCC 121; Re Goldcorp [1994] 2 All ER 806; Mills, Goode on Proprietary Rights and Insolvency in Sales Transactions (2010) (n 20) paras 1.58–1.61. 58  Re Stapylton Fletcher [1995] 1 All ER 192; Mills, Goode on Proprietary Rights and Insolvency in Sales Transactions (2010) (n 20) paras 1.62–1.65. See also Swindle v Matakana Estate [2011] NZHC 1345, [2012] 1 NZLR 806, [81–85, 90–95] (Kos J). 59  Re Stapylton Fletcher [1995] 1 All ER 192, 209–10. 57 

Passage of Property under Sale of Goods Act 1979 43

wine was segregated from the mass so that the customers could know that their wine would come from that group of cases, even if the individual bottles were not appropriated to particular customers. In that case the customers would own as tenants in common between themselves.60 After that point once the bulk was reduced in size by deliveries to various customers, ascertainment could take place by exhaustion.

i.  Rule 5 Rule 5 states that in a sale of unascertained goods, property passes when there has been an unconditional appropriation of goods to the contract. Because this can be excluded by contrary intention, it is not a sufficient condition for property to pass and in fact because of the rules on ascertainment by exhaustion is not necessary either. The concept of unconditional appropriation is important in other areas of personal property as well. A fixed charge, for example, exists where an asset has been unconditionally appropriated to the payment of the relevant secured debt.61 Essentially an unconditional appropriation occurs where some ascertained assets are earmarked irrevocably to the contract.62 This may be by loss of control over the goods or by assent. Usually this will be by the seller, but it need not be. It may be an act of attornment by a third party bailee who is storing the goods for the seller.63 This is what occurred in Wardar’s (Import and Export) Co v W Norwood & Sons.64 A third party, the owner of the cold store in which the goods were stored, appropriated the goods to the contract in favour of the buyer when, acting on instructions from the seller, he left the kidneys sold out on the pavement on bogies and accepted the delivery note from the ­carriers.65 However, loading took almost four hours and by the time it had finished the kidneys had thawed out and became unfit for human consumption. Property had, however, already passed when loading began. The sellers were therefore able to sue for the price. In Aldridge v Johnson,66 a contract was made to exchange 32 bullocks for 100 quarters of barley; Aldridge who owned the bullocks would also pay £23 to make up the difference in the valuation of the livestock and grain. The barley was measured from a larger bulk. Three quarters of the sacks sent to pack the barley were filled and then emptied back out again; the property in the barley which was packed and unpacked did in fact pass to Aldridge. Property in the barley that was never packed did not do so. Lord Campbell CJ said that the claimant had inspected the barley and approved it. Therefore, when the defendant seller took the barley and filled the claimant’s sacks he was doing so by the direction of the buyer.67 When the sacks were filled property passed immediately; the fact that the sacks were in point of fact emptied afterwards did not change that. These two cases are consistent with the view that an unconditional appropriation takes place where the seller’s decision 60  ibid 210; contrast Customs & Excise Comrs v Everwine [2003] EWCA Civ 953 [31] (Keene LJ) where some of the bottles stored had not yet been sold and no tenancy in common was found; see Sealy and Hooley, Commercial Law: Text, Cases and Materials (2008) (n 24) 320. 61  Re Cosslett [1998] Ch 495 (CA); on attachment of security see chapter 11, part IV A. 62  Atiyah (2010) (n 5) 323–28; McKendrick, Goode on Commercial Law (2010) (n 1) 256–58. 63  Attornment is covered in chapter ten, part III. 64  Wardar’s (Import and Export) Co v W Norwood & Sons [1968] 2 QB 663 (CA). 65  ibid 671–572 (Harman LJ). 66  Aldridge v Johnson (1857) 7 E&B 885, 119 ER 1476. 67  Aldridge v Johnson (1857) 7 E&B 885, 899, 119 ER 1476, 1481; Langton v Higgins (1858) 4 H&N 403, 157 ER 896; Benjamin (2014) (n 30) para 5.079.

44  Transfer of Legal Title to Tangibles

to use these particular goods becomes a firm one, that a seller may sufficiently earmark the goods whilst still continuing in possession. This, Bridge comments, is a difficult approach to police. When is the setting aside final as opposed to tentative, where the seller would be able to change his or her mind?68 Appropriation therefore requires the consent of the buyer. In Carlos Federspiel v Charles Twigg69 Pearson J said that simply setting goods to one side was insufficient. The seller could change his mind; consequently appropriation takes place by agreement of the parties— although in some cases the contract confers the assent of the buyer in advance;70 assent may also take place after the appropriation.71 We saw under rule 4 that in some cases property can pass and a contract can be formed by silence; Pignataro v Gilroy72 indicates a similar rule here. After a reasonable time following notice of an appropriation of goods to the contract, the buyer is assumed to have assented to the appropriation. Bridge describes this position as unsatisfactory. In Pignataro the contract goods were stored in a warehouse. The buyer paid by cheque and requested a delivery order. The seller told him the goods were ready and the buyer did nothing for a month. Bridge argues correctly that it is unclear at what point property actually passed in Pignataro,73 a criticism that also applies to rule 4 cases. Pearson J, however, summarised the law neatly in Carlos Federspiel and the summary bears complete quotation. A mere setting apart or selection of the seller of the goods which he expects to use in performance of the contract is not enough. If that is all, he can change his mind and use those goods in performance of some other contract and use some other goods in performance of this contract. To constitute an appropriation of the goods to the contract, the parties must have had, or be reasonably supposed to have had, an intention to attach the contract irrevocably to those goods, so that those goods and no others are the subject of the sale and become the property of the buyer. Secondly, it is by agreement of the parties that the appropriation, involving a change of ownership, is made, although in some cases the buyer’s assent to an appropriation by the seller is conferred in advance by the contract itself or otherwise. Thirdly, an appropriation by the seller, with the assent of the buyer, may be said always to involve an actual or constructive delivery. If the seller retains possession, he does so as bailee for the buyer. There is a passage in Chalmers’ Sale of Goods Act, 12th ed., at p. 75, where it is said: ‘In the second place, if the decisions be carefully examined, it will be found that in every case where the property has been held to pass, there has been an actual or constructive delivery of the goods to the buyer.’ I think that is right, subject only to this possible qualification, that there may be after such constructive delivery an actual delivery still to be made by the seller under the contract. Of course, that is quite possible, because delivery is the transfer of possession, whereas appropriation transfers ownership. So there may be first an appropriation, constructive delivery, whereby the seller becomes bailee for the buyer, and then a subsequent actual delivery involving actual possession,

68 

Bridge (2014) (n 38) para 3.68; see also Law Comm (n 6) para 2.101. Carlos Federspiel v Charles Twigg [1957] 1 Lloyds Rep 240; Wait v Baker (1848) 2 Exch 1; Benjamin (2010) (n 30) paras 5.074–5.078. 70  As in Aldridge v Johnson (1857) 7 E&B 885, 119 ER 1476. 71  Phillip Head & Sons v Showfronts Ltd [1970] 1 Lloyds Rep 140; Atiyah (2014) (n 5) 330–31. 72  Pignataro v Gilroy [1919] 1 KB 459. 73 Bridge, The Sale of Goods (2014) (n 38) para 3.72. 69 

Passage of Property under Sale of Goods Act 1979 45 and when I say that I have in mind in particular the two cases cited, namely, Aldridge v. Johnson, sup., and Langton v. Higgins, sup. Fourthly, one has to remember Sect. 20 of the Sale of Goods Act, whereby the ownership and the risk are normally associated. Therefore as it appears that there is reason for thinking, on the construction of the relevant documents, that the goods were, at all material times, still at the seller’s risk, that is prima facie an indication that the property had not passed to the buyer. Fifthly, usually but not necessarily, the appropriating act is the last act to be performed by the seller. For instance, if delivery is to be taken by the buyer at the seller’s premises and the seller has completed his part of the contract and has appropriated the goods when he has made the goods ready and has identified them and placed them in position to be taken by the buyer and has so informed the buyer, and if the buyer agrees to come and take them, that is the assent to the appropriation. But if there is a further act, an important and decisive act to be done by the seller, then there is prima facie evidence that probably the property does not pass until the final act is done.74

In Carlos Federspiel the seller had been paid and was bound to ship a cargo of bicycles and tricycles from a UK port. He had packed the goods in crates marked with the buyer’s name and address. Delivery never took place as the seller became insolvent and a receiver took the goods. Pearson J held that property did not pass. The goods had not in fact been delivered to the carrier and rule 5(2) did not therefore bite;75 the intention was that property did not pass until shipment. It seems critical that the sellers were responsible for arranging shipment. The decision does, however, also support the position that the seller must put the goods out of his or her physical power. In international sales by means of a CIF contract goods are said to be appropriated when the seller passes on to the buyer details of the shipment including the identity of the ship in what is known as a notice of appropriation.76 Where the goods are in a bulk, however, this neither ascertains the goods and nor does property pass. Rule 5(2) makes it clear that delivery to a carrier for the purposes of transmission to the buyer will also count as an unconditional appropriation unless the seller reserves the right of disposal. For this to bite, the carrier must be an agent of the buyer. This dovetails with section 32(1) which states that where the seller is authorised to send the goods to the buyer, delivery to the carrier is deemed to be a delivery to the buyer. Delivery to the buyer is therefore the commonest example there can be of an unconditional appropriation. The particular delivery obligations the parties have do make a difference to when property passes. Where for example the buyer is to take delivery from the seller’s premises, property may well pass before delivery when the goods are segregated and earmarked for collection and the seller holds as bailee.77 There appears not to be any general rule in cases where the seller is to personally deliver the goods. It may take place before delivery is complete,78 or it may have to wait until delivery takes place.79 This is a question purely of fact, and turns on whether there has been a contractual commitment to deliver from a particular bulk and whether the buyer has been informed that such an appropriation has been made. 74 

Carlos Federspiel [1957] 1 Lloyds Rep 240, 246–47. ibid 256; Wincanton Group v Garbe Logistics [2011] EWHC 905, [41]. Bridge (2014) (n 38) para 3.66; Sealy and Hooley, Commercial Law: Text, Cases and Materials (2008) (n 24) 337–38. 77  Bridge (2014) (n 38) para 3.68. 78  Pletts v Beattie [1896] 1 QB 519. 79  Noblett v Hopkinson [1905] 2 KB 214; Langton v Higgins (1858) 4 H&N 403, 157 ER 896. 75 

76 

46  Transfer of Legal Title to Tangibles

Passage of property may, however, be delayed even though the property is appropriated to the contract. It may be that appropriation is not unconditional because property is only to pass on payment,80 but other stipulations might suffice. One example of this parallels the presumption contained in rule 3. In National Coal Board v Gamble81 a sale of coal included a stipulation that the coal be weighed before the lorry left the depot. The lorry was in fact four tons overweight, and the transport firm was convicted of an offence under the Motor Vehicles (Construction and Use) Regulations 1955. Lord Goddard stated that property in the coal did not pass on loading, but only once the lorry was weighed and the weighbridge ticket issued to the driver.82 The explanation for this may be that there was no unconditional appropriation on the lorry being loaded; rather there was an appropriation conditional on the weighbridge ticket being accepted. On the basis of this the coal board as seller were guilty of aiding and abetting the offence. The weighbridgeman could and should have, because the coal was still the National Coal Board’s, insisted on unloading the excess coal. In the context of consumer contracts the Law Commission has recommended a modification. Unconditional appropriation they suggested in their consultation paper on Consumer Prepayment in Retailer Insolvency is too uncertain a concept for retail staff to apply and they suggested a simple (and not necessarily even irreversible) identification test, such as labelling with the consumer’s name or order number. On appointment of administrators it is then a simple question of fact whether identification has occurred.83 The difficulty with the Law Commission consultation paper proposals was, however, that the question being asked is much the same as before. At what point should the seller be unable to change his mind, withdraw the goods back into the general mass and use different goods to fulfil the contract? They suggested that the identification need not be irrevocable, but this cannot in truth be correct because as soon as property passes it will be a conversion or trespass to use them for any purpose other than delivery. The proposals do, however, have the merit that the Pignataro problem, which occurs when no explicit assent to appropriation is received from the buyer and so it is unclear when appropriation takes place does not arise; property passes immediately on the separation of the goods and notice to the buyer. ­Acceptance need not take place. In their final report the Law Commission changed tack and set out a non-exhaustive list of cases in which goods would be identified, allowing title to pass.84 Such a list is useful, but as a non-exhaustive list is merely a clarification of some cases where goods will be considered unconditionally appropriated. It cannot be considered a major reform of the law.

ii.  Section 20A: Quasi-Specific Goods The phrase ‘quasi-specific goods’ is not found anywhere in the Act. However, it has come to refer to a particular category of unascertained goods—a given proportion from an identified bulk, where it is a breach for the seller to source the goods from a different bulk. In RBG Resources Plc v Banque Cantonale Vaudoise85 it was not said from which of the seller’s 80 

Healy v Howlett & Sons [1917] 1 KB 337. National Coal Board v Gamble [1959] 1 QB 11. 82  ibid 18; Sealy and Hooley, Commercial Law: Text, Cases and Materials (2008) (n 24) 333. 83  Law Comm (n 6) para 13.40; Law Comm (n 34) paras 9.59–9.60. 84  Law Comm (n 34) para 9.65; recommendations 5a–5b. 85  [2004] SGHC 123, [2004] 3 SLR 421. 81 

Passage of Property under Sale of Goods Act 1979 47

warehouses delivery would take place. No goods were therefore appropriated to the contract, but it was also held that there was no sale from a specified bulk—ie specified by warehouse. A notice of appropriation identifying the ship from which delivery would take place might constitute an identification of a bulk if there is agreement for it to do so.86 The amount to be taken is specified in terms of a numerical amount, eg 200 tons from the bulk, or any other specification other than a fraction or percentage. We saw that a sale of a fractional part of a bulk counts as a sale of specific goods creating a tenancy in common of the whole bulk. Worthington has explained that it underestimates equity to argue that a numerically defined proportion is problematic.87 However, equity only helps us with the case where the parties seek to create a trust or to sell assets that are not defined to be goods under the Sale of Goods Act 1979. It does not aid us where they seek to make a sale. Section 20A of the Sale of Goods Act 1979 covers this case, and tells us when legal title passes, although it is again subject to contrary party intention. For the section to apply three conditions need to be satisfied. First, as we have seen, there must be a sale of a given quantity of a fungible bulk—say 5000 tons of wheat. Second, the bulk from which the wheat is to come must be identified—a given silo with 10,000 tons. Third, the buyer must have paid for at least some of the goods. Where the full price has been paid, property passes with the buyer becoming a tenant in common of the bulk. In the example of the 5000 tons of wheat, if the identified silo contains 10,000 tons, the buyer and seller will be owners of a 50 per cent share in 10,000 tons of wheat. If the buyer pays half the price, the buyer becomes a tenant in common as to 25 per cent of the bulk. The share of the bulk that the buyer has at any given time will fluctuate as he or she takes delivery of the wheat and as the size of the bulk fluctuates; if therefore the seller appropriates 2000 tons to a different contract of sale, the buyer will be tenant in common as to 5/8 of 8000 tons. If the buyer then takes delivery of 1000 tons of grain, the buyer will have a 4/7 share of 7000 tons. Dealings of this nature, where the seller sells goods out of the bulk are valid because section 20B(1) deems that the co-owners consent to a sale by another co-owner. There is an assumption that if the bulk is reduced below the level of the goods sold and paid for the seller’s share disappears entirely. This deals with the following problem, put by McKendrick.88 Let us imagine that 1000 tons of grain are supposed to be loaded onto a ship and five buyers purchase 200 tons each and pay in full. They are each 20 per cent tenants in common under the statutory rules. Imagine that after the first three buyers are satisfied there is in fact only 100 tons left; the loading was in fact short 200 tons of grain. Section 20(B) states that the fourth and fifth parties own in common and can claim 50 tons each. However, they have no claim against the first three parties for taking too much from the ship which they would have done had the usual common law rules on tenancy in common applied. The same type of problem can apply if there is an over-sale, so the seller sells 1,200 tons out the 1,000 ton bulk. Section 20A applies so each buyer has a sixth share, and on delivery of 2,000 tons to the sixth buyer, the first five are deemed to consent.89

86 

Bridge et al (n 8) para 11.019. S Worthington, ‘Sorting out Ownership Interests in a Bulk: Gifts, Sales and Trusts’ (1999) JBL 1, 5. 88  E McKendrick, ‘The Passing of Property in Part of a Bulk’ in E McKendrick and N Palmer (eds), Interests in Goods, 2nd edn (London, LLP, 1998) 385, 398–400; see also Atiyah (2010) (n 5) 336–38, McKendrick, Goode on Commercial Law (2010) (n 1) 243–50. 89  Bridge et al (n 8) paras 11.031–034 for the interaction with section 24. 87 

48  Transfer of Legal Title to Tangibles

Consequently, it will become clear that the buyer does not become full owner of any particular goods until they are unconditionally appropriated to the contract in the same way as usual under rule 5, or until the goods are exhausted. Section 18, rule 5(3) provides that in these cases where the bulk is reduced to a quantity equal to or less than the quantity contracted for in the contract of sale and the buyer under that contract is the only buyer to whom goods are due out of the bulk, the remaining goods are appropriated automatically to the contract and property passes.90 Matters may be slightly different in the context of sale of shares, for example, where precise identification may not be needed. In this context equitable property to 50 out of 1000 shares might pass on the conclusion of the contract despite the precise 50 not being identified.91 This requires that the shares be shares in a private company—otherwise the contract is not specifically enforceable. This is essential as only where there is a specifically performable contract will equity look at as done that which ought to be done and impose a constructive trust. It was never clear prior to the Sale of Goods Act 1893 to what extent this rule that precise identification is not required so long as the contract was specifically performable might apply to sales of goods. Re Wait92 settled the question, however, that the rule could not apply to sales of goods under the Act.

iii.  Future Goods It is quite impossible to be the present owner of something that does not exist.93 Yet, futures contracts are very common. They represent attempts by commercial parties to lock in now a price for goods in the future. They are a gamble; it may be that prices come down. However, commercial parties enter into these contracts to smooth out fluctuations in the prices of their raw materials and because taking both the times when they lose and those when they win into account everything evens itself out over time. What then is the effect of a sale of future goods? The contract is binding as an agreement to sell the goods.94 If I agree to sell next year’s wheat harvest to you, and the weather is such that it is ruined, there is no breach, but if I refuse to plant wheat, that is a breach of my contract. Once the vendor acquires the property, matters change. At law the wheat may be ascertained when it has grown if I am selling the entire harvest,95 or it may be that I must unconditionally appropriate a quantity of wheat to the contract. There is a distinction therefore between future goods which are unascertained and those that are ascertained. The example of a purchase of the whole wheat harvest refers to ascertained goods because the harvest is identified at the point of sale, although the wheat will need severing in order for property to pass as otherwise it would be undeliverable. However, title to other specifically identified future property may pass immediately when the buyer acquires it, or it comes into

90  See also Sale of Goods Act 1979 s 18 r 5(4) which extends that rule to cases where the bulk is reduced to, or less than, the aggregate of several quantities due to a buyer under different contracts. This is the Karlshamm rule discussed earlier. Atiyah (2010) (n 5) 338–39. 91  Hunter v Moss [1994] 1 WLR 452 (CA). 92  Re Wait [1927] 1 Ch 606; Atiyah (2010) (n 5) 340–41. 93  Norman v Federal Commissioner of Taxation (1963) 109 CLR 9 (HCA). 94  Sale of Goods Act 1979 s 5(3); Sealy and Hooley, Commercial Law: Text, Cases and Materials (2008) (n 24) 322–23. 95 McKendrick, Goode on Commercial Law (2010) (n 1) 250–51.

Passage of Property under Sale of Goods Act 1979 49

existence.96 An agreement for 200 tons of next year’s harvest, however, is by contrast unascertained as we do not know which 200 tons will pass. In that case 200 tons will need to be appropriated to the contract in order for property to pass.

D.  Reservation of the Right of Disposal The purpose of section 19 of the Sale of Goods Act 1979 is to counter the presumptive passing of property in section 18.97 There is, however, no explicit linkage between the sections, other than where in section 18 r 5(2) the Act says that delivery to a carrier is an appropriation of the goods unless a right of disposal is reserved. Section 19(1) provides: Where there is a contract for the sale of specific goods or where goods are subsequently appropriated to the contract, the seller may, by the terms of the contract or appropriation, reserve the right of disposal of the goods until certain conditions are fulfilled; and in such a case, notwithstanding the delivery of the goods to the buyer, or to a carrier or other bailee or custodier for the purpose of transmission to the buyer, the property in the goods does not pass to the buyer until the conditions imposed by the seller are fulfilled.

The courts have not been slow to hold that the subsection applies. In Re Shipton Anderson & Co and Harrison Bros & Co Ltd 98 the owner of a parcel of wheat sold it on terms that payment was to be within seven days ‘against transfer order’. The wheat was requisitioned by the Government, and the Court of Appeal held that the terms indicated a reservation of a right of disposal.99 Most cases of section 19 involve the seller’s attempts to secure payment of the purchase price. Although an unpaid seller will have the unpaid seller’s lien,100 as Bridge points out, there will still be cases where that is insufficient.101 A seller may, for example, wish to retain property even though he or she has lost possession. Alternatively, in the international sales context where the seller will retain a lien over shipping documents, such as the bill of lading, he or she may be planning on pledging the shipping documents as security for finance provided to him or her. The unpaid seller’s lien cannot be transferred and therefore the seller would have to retain legal title to the property.102 In international sales transactions, the most common way of reserving the right of disposal involves the bill of lading. The presumptive case set out in section 19(2) in fact involves the bill of lading. Section 19(2) fails to state that the seller retains title to the assets.103 That said the case law suggests that the seller does indeed retain legal title.104 The carrier issues a bill of lading to the order of the seller (not the buyer), naming the seller as consignee. 96  Petch v Tutin (1846) 15 M&W 110, 153 ER 782; see also chapter 11, part IV A for the similar effect of an attempt to create present security over future assets. 97  Bridge, (2014) (n 38) para 3.76; Bridge et al (n 8) paras 10.054–10.055. 98  Re Shipton Anderson & Co and Harrison Bros & Co Ltd [1915] 3 KB 676; Atiyah (2010) (n 5) 328–29. 99  ibid 680 (Lord Reading CJ); 683 (Darling J); 684 (Lush J). 100  Sale of Goods Act 1979 s 48; see chapter 12, part III D. 101 Bridge, The Sale of Goods (2014) (n 38) para 3.80. 102  On the non-transferability of liens, see H Beale, M Bridge, L Gullifer and E Lomnicka (eds), The Law of Security and Title Based Financing, 2nd edn (Oxford, OUP, 2012) para 5.71; see chapter 12, part II for the law on pledges. 103  Bridge (2014) (n 38) para 3.04. 104  Mirabita v Imperial Ottoman Bank (1878) 3 Ex D 164; The Prinz Adalbert [1917] AC 586 (PC); The Miramichi [1915] P 71.

50  Transfer of Legal Title to Tangibles

In those cases the seller can indorse the bill to the buyer once payment has been received and the buyer can then take delivery.105 In the Ciudad de Pasto,106 cartons of prawns were shipped on the defendant’s vessels. The buyers had paid 80 per cent of the purchase price. The prawns were found to be damaged on discharge. The Court held that only the owner of the prawns could sue the ship owner. As the bills of lading were made out to the order of the sellers there was a presumption, which may in fact be a very weak one, that the sellers had reserved the right of disposal until the remaining balance was paid. Consequently, property had not passed to the buyer. Section 19(3) provides for a little used practice. Where the seller delivers the bill of lading along with a bill of exchange for acceptance by the buyer, if the latter fails to accept the bill of exchange he must return the bill of lading. In those circumstances property and the right to the delivery of the goods remains with the seller.107 In domestic sales transactions it is not uncommon for unpaid sellers to reserve the right of disposal by means of a reservation of title clause.108 These are clearly doctrinally unproblematic because of the combination of section 19(1) and more importantly section 17(1). The property in the asset is not intended to pass until payment and a retention of title clause can therefore be seen as no more than an application of section 17. The great advantage of such a clause is that until property passes nothing vests in the buyer and should the buyer become insolvent the goods do not vest in the liquidator or trustee in bankruptcy. A further advantage, to the seller, is the current lack of any registration obligation.

III. Deed The transferor of property may sign and deliver a deed. The requirements of a deed are set out in section 1 of the Law of Property (Miscellaneous Provisions) Act 1989. The instrument must make it clear on its face that it is intended to be a deed, and be signed and witnessed either by a single witness who attests the donor’s signature was made in his or her presence or by two witnesses where the deed is signed at the donor’s instruction. The deed becomes effective when it is delivered, although delivery means no more than any act indicating an intention to be bound over and above signing the document.109 The Law Commission canvassed the idea that the deed would have to be physically delivered. This met with little support and they withdrew the suggestion,110 so the general rule remains that the beneficiary of a deed need not know anything about it for it to be effective. This is a very old rule; in Boughton v Boughton,111 for example, a deed was executing to benefit the testator’s daughters, but he subsequently made a will to a different effect. However, despite the voluntary deed never being communicated to the daughters, it had never been

105 

Bridge (2014) (n 38) para 3.79; Bridge, The International Sale of Goods (2013) (n 24) paras 8.34–8.38. Mutsui & Co v Flota Mercante Grancolombiana SA (The Ciudad de Pasto & Ciudad de Nieva) [1988] 1 WLR 1145 (CA). 107 Bridge, The International Sale of Goods (2013) (n 24) paras 8.41–8.42. 108  See chapter 11, part VI A. 109  Bridge (2015) (n 2) 175. 110  Law Commission, ‘Deeds and Escrows’ (Law Com No 163, 1987) [2.7]–[2.10]. 111  Boughton v Boughton (1739) 1 Atk 625, 26 ER 393. 106 

Delivery 51

cancelled. The will could not therefore override the deed. Doe d Garnons v Wright112 is even clearer. Bayley J expressly said that a deed could be delivered without the party executing it ever giving up possession.113 What matters is that there are acts that unequivocally evince an intention to be bound by the deed.

IV. Delivery Delivery is the usual method for perfecting a gift (or a loan or exchange) and almost all the cases on delivery are also cases of gift. It is also the only practical way of passing title to corporeal money (notes and coins).114 This is because corporeal money does not count as ‘goods’ under the Sale of Goods Act and so even where cash is paid for goods, title to the cash passes to the seller by delivery. Where passage of legal title is to take place in goods in the absence of a contract of sale, the general rule is that property passes on delivery or transfer of possession and intention to pass to property. Two questions therefore arise for this section of the chapter. First, what counts as delivery, or the transfer of possession, and second what counts as intention.

A.  Transferring Possession Delivery means the passage of possession from the donor to the donee. This provides the donee with possessory title to the goods. Without this the transfer is imperfect and there are few means of recourse. This transfer of possession must be clear and unequivocal and the obvious example is the handing of the item to the donee. Delivery is absolutely essential to the transfer of legal title by this method, as the name of the mode of conveyance implies. Cochrane v Moore115 involved the purported gift of a quarter-share in a horse. The owner told the stables of the gift but did not communicate it to the defendant. The horse was sold and the defendant claimed a share of the proceeds. Fry LJ said that Cochrane was in fact constituted a trustee of a quarter-share in the horse.116 The decision therefore leaves open whether there can be a delivery of a share, but it is hard to see how a share under a tenancy in common being intangible can ever be physically delivered. Nonetheless, Fry LJ concluded:117 No gift or grant of a chattel was effectual to pass it whether by parol or by deed, and whether with or without consideration unless accompanied by delivery: that on that law two exceptions have been grafted, one in the case of deeds, and the other in that of contracts of sale where the intention of the parties is that the property shall pass before delivery.

The donee may already be in possession of the goods. In Re Stoneham,118 for example, the goods in question were a quantity of oak furniture, arms and armour. These were already 112 

Doe d Garnons v Wright (1826) 5 B&C 671, 108 ER 250. ibid 256. D Fox, Property Rights in Money (Oxford, OUP, 2008) paras 3.32–3.52. 115  Cochrane v Moore [1890] 2 QBD 57 (CA). 116  ibid 73. 117  ibid 72–73; Irons v Smallpiece (1819) 2 B& Ald 551, 106 ER 467. 118  Re Stoneham [1919] 1 Ch 149. 113  114 

52  Transfer of Legal Title to Tangibles

in the possession of the donee. PO Lawrence J said although delivery was needed there was no reason why it should not have been prior to the words of gift, so long as the donor knew the goods were in the possession of his intended donee.119 A further example of delivery without transfer of actual possession might be the case where I make a gift to you of an asset I had previously loaned to you. These are cases of constructive delivery because you are already physically in possession. However, physical delivery is obviously difficult to accomplish with bulky chattels. In such cases other means of transferring possession may be allowable. However, this must be carefully done. English law has been reluctant to allow even the clearest words of gift to override the need for an unequivocal change of possession. This causes undoubted evidential difficulties, historically between husband and wife, or vice versa, but in modern times between any cohabitants. In Re Cole,120 for example, the husband who later became bankrupt showed his wife around their new home and said of the furniture and other chattels ‘Look; it’s all yours.’ On this basis the wife claimed an entitlement to the proceeds of sale over that of her husband’s trustee in bankruptcy. Pearson LJ said that the acts relied on were equivocal, consistent both with an intention that his wife be put into possession of the goods as owner of them and with his retaining possession, but allowing her the use of the goods as his wife.121 Yet, it is clear that symbolic delivery is possible. In Re Cole Harman LJ recognised two possibilities—the case of a gift of a church organ where the donor put the donee’s hand on the organ while uttering the words of gift, and the case where a father left the room leaving his daughter in sole charge of the furniture, although the latter seems more equivocal.122 In Wrightson v McArthur and Hutchinson,123 the relevant goods were stored in two rooms with no other goods. The donee was given the keys to these rooms and that was deemed to count as delivery, because it entailed a licence had been given to the donee to enter the defendant’s premises and take the items away. Constructive delivery through the passage of constructive possession will also count. Hence the delivery of a bill of lading, passing constructive possession to the goods, along with intention to pass title will do so. A related way to transfer possession is through attornment. In chapter 10 we will see that a warehouseman, or anyone else holding assets on my behalf may attorn to a third party by saying that he holds on behalf of a third party instead.124 Often, this will count as delivery under sales law, but it can also be used to effect delivery for the purposes of transfer by delivery.

119  ibid 153–54; delivery may be by the donee finding the asset on an assurance that if he found it he could keep it. See Thomas v The Times Book Co [1966] 2 All ER 241. 120  Re Cole [1964] Ch 175. 121  ibid 192. 122  ibid 187–90; the two cases relied on were Kilpin v Ratley [1892] 1 QB 582 and Rawlinson v Mort (1903) 93 LT 55 respectively. 123  Wrightson v McArthur and Hutchinson [1921] 2 KB 807. 124  Mitsui & Co v Novorossiysk Shipping Co [1993] 1 Lloyds Rep 311 (CA) 324 (The Gudermes); Dublin City Distillery v Doherty [1914] AC 823 (HL); Palmer on Bailment, 3rd edn (London, Sweet and Maxwell, 2009) para 25.004; chapter 10, part III.

Conclusion 53

B. Intention The intention of the transferor must be clear. In Re Ridgway,125 which involved a purported gift by a bankrupt of a pipe of port to his son prior to the bankruptcy, Cave J said that circumstances must be proven that indicate there was to be an immediate intention to make a gift of the wine,126 but decided that on the facts the transferor was to remain in control of the asset at least for the time being, and hence there was in point of fact no gift. Clearly some interpretation is required. In Day v Royal College of Music127 boxes arrived unannounced from Sir Malcolm Arnold at his daughter’s house. They contained paintings, sculptures, an Oscar, wine and manuscript copies of his work. His son got a postcard saying, ‘All the books, pictures, sculptures etc are for you and Katherine to share and keep, or sell if you like! Dad’. The Court of Appeal held that the word ‘etc’ in the postcard referred to everything in the boxes not specifically mentioned, including the manuscripts, which made up the disputed property. The donee’s intention is also relevant. A transfer of property cannot be imposed on a donee. In the case of a simple delivery of a chattel to a donee this is relatively straightforward. If the donee refuses to take delivery, there is no completed gift. There will be cases where the donee must subsequently repudiate the gift. One might be the case, like Re Stoneham, where the donee is already in possession of the asset when the donor makes his or her intention clear and so perfects the gift.128 In these circumstances the donee must decide to disclaim the interest transferred to him or her, although, all other things being equal, it is usually assumed that the donee accepts the goods.129

V. Conclusion This chapter has sought to explain the three modes of consensual conveyance in English law. We have examined the requirements of sale of goods, that the goods be identified and that property passes when it is intended to pass. This entailed an examination of what counted as goods. While the actual rules on passage of property in sales transactions appears straightforward there is actually much more to the area than might be thought. The interrelationships between the different concepts of ascertainment and appropriation and the parties’ intention are complex and we need to examine the rules in a number of different factual contexts. Nonetheless, the basic rule in sales law is that property passes when it is intended to pass under section 17 of the Sale of Goods Act 1979. The other two modes of conveyance are deed and delivery and we examined the requirements of each. In both

125 

Re Ridgway (1885) 15 QBD 447. ibid 449. 127  [2013] EWCA Civ 191. 128  J Hill, ‘The Role of the Donee’s Consent in the Law of Gifts’ (2001) 117 LQR 127, 130–33. 129  ibid 142–43. 126 

54  Transfer of Legal Title to Tangibles

cases there is a requirement of intention to pass property, although it seems that a physical delivery as such of the deed is not required. These two modes of conveyance are much less contested and context dependent than sale. This is because the deed—which will have to state what the asset is—is all that is required and ascertainment and appropriation which cause the difficulties in sales are implicit in the requirement for a physical delivery.

3 Nemo Dat Quod Non Habet I. Introduction The common law doctrine of nemo dat quod non habet, otherwise known as the nemo dat rule, states that nobody can transfer what they do not have. I cannot sell, transfer by deed or by delivery legal title to an asset to which I do not have legal title. We largely concentrate here on choses in possession, but the rule at law is also relevant to choses in action. A similar rule in equity makes it impossible, apart from overreaching or bona fide purchase, to transfer title unencumbered by existing equitable interests. We return to overreaching at the end of the chapter. We can illustrate the general rule at law with the case of Cundy v Lindsay1 where title did not pass. A fraudster called Blenkarn had signed his name to resemble Blenkiron and Co., a reputable firm that was situated just up the road from where he was living. The claimant sent him goods and was never paid; the fraudster sold the goods on to the defendant whom the claimant then sued. In form the question was whether the vendor’s mistake rendered the contract void or voidable.2 Lord Cairns said that the claimant knew nothing of the fraudster and intended to contract with the company. His mistake was in thinking that he was contracting with the company rather than the fraudster.3 The contract was therefore void. Property did not pass to the rogue by the contract or by delivery. Given that title did not pass to the rogue, it could not therefore pass to the third party. This is now trite law and is partially enacted4 in section 21 Sale of Goods Act 1979. The section states Subject to this Act, where goods are sold by a person who is not their owner, and who does not sell them under the authority or with the consent of the owner, the buyer acquires no better title to the goods than the seller had, unless the owner of the goods is by his conduct precluded from denying the seller’s authority to sell.

The common law rule has a wider ambit than the Act because the Act refers only to sale; the common law rule also applies to other modes of conveyance. There are a series of exceptions, however, to this rule (partly statutory and partly common law) which we examine in the first substantive section. Although the exceptions to the common law rule have justly been described as a patchwork they do have some common threads: an owner who has held

1 

(1878) 3 App Cas 459 (HL). Swadling, ‘Unjust Delivery’ in AS Burrows and A Rodgers (eds), Mapping the Law (Oxford, OUP, 2006)

2  WJ

291. 3  (1878) 3 App Cas 459 (HL) 465. 4  JN Adams and H MacQueen (eds), Atiyah’s Sale of Goods 12th edn (Basingstoke, Longman, 2010) 361–362.

56  Nemo Dat Quod Non Habet

someone else out as entitled to deal with the asset will often be estopped from denying that he was so entitled; secondly, a person in possession is sometimes able to pass better title because possession is an indicator of ownership and hence ‘false wealth’; thirdly, a bona fide transferee should be protected against defects in the transferor’s title of which he had notice.5

II.  Exceptions to Nemo Dat Section 21 contains within it two different exceptions to the rule. The first is that where the seller has the authority or consent of the owner. In cases where the seller has authority the usual rules of agency apply and reference should be made to such books. The second exception is that the true owner or original owner is estopped from denying the recipient’s good title. We deal with this exception first. One major exception to the nemo dat rule will be dealt with in chapter six. That is negotiation. The holder of a negotiable instrument, such as a cheque or other bill of exchange, may even if a thief, pass good title to a bona fide purchaser for value,6 called a holder in due course under the Bills of Exchange Act 1882. Such assets are documents of title to money, as seen in chapter one. They are therefore instruments of payment and objects of commerce, rather than assets with any intrinsic use value that needs to be protected separately. Essentially, their function requires them to be as liquid as possible. Goods, however, are not instruments of payment and objects of commerce. They do have intrinsic uses themselves, which need to be protected, and this requires exceptions to the nemo dat rule to be narrower. Documents of title to goods are treated differently than those to money therefore, precisely because goods are treated differently. They can be negotiated—and the means by which this occurs is seen in chapter six—but title better than that of the transferor can only be passed under the exceptions discussed here.

A. Estoppel Section 21 provides no insight into when an owner might be precluded from denying the passage of title. We have, however, already seen the effect of estoppel in the decision of Re London Wines considered in the previous chapter in connection with appropriation of goods under the Sale of Goods Act.7 In that case the buyers were issued with certificates of title to their purchases of wine. Each bought a given quantity of wine and was issued with a certificate to the effect that they owned that amount of wine. There was, however, no earmarking of particular bottles for particular buyers; no appropriation of the goods had taken place as required by the Sale of Goods Act for the passage of title. There were three groups of claimant. The third group of claimants had received assurances either from

5  M Bridge, L Gullifer, G McMeel and S Worthington (eds) The Law of Personal Property (London, Sweet and Maxwell, 2013) para 13.011; on false wealth see also L Gullifer ‘Exceptions to the Nemo Dat Rule in Relation to Goods’ in J de Lacy (ed) The Reform of UK Personal Property Security Law (London, Routledge, 2010) 188. 6  LS Sealy and RJA Hooley, Commercial Law: Text, Cases and Materials 4th edn (Oxford, OUP, 2008) 519–520. 7  Re London Wines Co Ltd [1986] PCC 121.

Exceptions to Nemo Dat  57

the company or the warehouseman that goods had been appropriated. They failed in their argument that title had passed because no appropriation had in fact taken place. However, they were able to take advantage of another doctrine. They argued that representations had been made to them that goods were earmarked for them and that they had relied to their detriment on those representations. Consequently the company was now estopped from arguing as against those representees that property had not passed. The claimant bank was claiming to take the wine under its floating charge. Accepting the point that estoppel is a rule of evidence, Oliver J said that the estoppel affecting the warehouseman could not affect the bank as no property had in fact passed. However, the estoppel could enable the claimant to sue in trover. This is not because property had passed, but because the defendant was estopped from denying that it had done so. However, the bank, not being itself estopped, was able to deny the passing of property. Trover was abolished by the Torts (Interference with Goods) Act 1977, but the decision in Re London Wines was in fact handed down in 1975, which explains the reference. There appear to be two cases where estoppel operates. The first is where the owner has represented in some way that the seller is the true owner of the goods or has authority to sell. The second is where the owner neglects to put the buyer right. The latter is sometimes called estoppel by negligence,8 although there is in fact, as we see later, no such thing as estoppel by negligence.

i.  Estoppel by Representation of Authority to Sell, or of Ownership Henderson & Co. v Williams9 is an example of the first type of estoppel. In that case the claimants were sugar merchants and the defendants a warehouseman. The facts were that Grey & Co. was induced by fraud to sell 150 bags of sugar to a fraudster, Fletcher, who pretended to be a long-standing customer of theirs. They instructed the defendant warehouseman to attorn to Fletcher. Fletcher resold the goods to the claimants, but by then Grey & Co had discovered the fraud and asked the warehouseman to withhold the goods. Fletcher’s purchaser was unable to take delivery and claimed conversion of his goods. The claimant had in fact been suspicious of Fletcher and made inquiries of the defendants who ultimately reassured them that the goods were held to their order. The warehouseman was consequently estopped from impeaching the claimant’s title. Lord Halsbury also decided that the true owners, Grey & Co, had represented that Fletcher had authority to sell and could not now resile from that. I think it was made out before us that here there was no contract at all, and if the case had turned upon that question alone I should say that no property had passed. But that is not the only question. There may be a question where, although no property had in fact passed, yet the true owner has allowed another person to hold himself out as the owner in such a way as to make an innocent person enter into a contract, which contract being performed cannot be set aside.10

The true owner may therefore either allow a representation to be made that the seller has authority to sell despite not being the owner, or that he is the owner. Apparent authority is 8  Moorgate Mercantile Co Ltd v Twitchings [1977] AC 890 (HL) 916 (Lord Edmund-Davies); Atiyah (n 4) 364–365; E McKendrick (ed), Goode on Commercial Law, 4th edn (London, Penguin, 2010) 452. 9  Henderson & Co v Williams [1895] 1 QB 521 (CA). 10  ibid 525.

58  Nemo Dat Quod Non Habet

almost invariably referred to in English courts as a form of estoppel, requiring a representation that the ‘seller’ is an agent of the purported principal and has authority to sell, reliance by the representee on that representation and alteration of the latter’s position.11 Bridge has argued that a party clothed with apparent authority to sell does pass good title to the third party.12 There has, however, been some doubt in the cases as to whether property ‘really’ passes, given that the normal effect of an estoppel is purely evidential. Nonetheless Eastern Distributors Ltd v Goldring held that it does so.13 The requirement for this to occur is that the sale take place within the seller’s purported authority. The question of authority does not arise where the seller is held out as purportedly being the owner, as owners would never need a third party’s approval to sell assets.14 The decision in Henderson can be usefully contrasted with Farquharson Bros. & Co. v King.15 In that case the claimants stored imported timber with a dock company, the Surrey Commercial Docks. They had instructed the company to accept delivery orders and transfers signed by their clerk; on receipt of the orders the dock would release timber to Farquharsons’ customers. The clerk fraudulently sold timber, allegedly on behalf of one Bayley, to the respondent who knew nothing of the claimants at all. However, because the claimants had not held the clerk out as having authority to sell they were able to deny that he had such authority. The clerk could not clothe himself in authority, either actual or apparent, by pretending to act on behalf of ‘Bayley’ and therefore no title passed to the respondents. The mere fact that the clerk had authority to sign delivery orders, or had possession of goods that he did not own did not bring the doctrine of estoppel into play. In Henderson by contrast the purchaser had been explicitly reassured on Fletcher’s right to sell. Similarly illustrating the latter point that possession per se is no representation of authority to deal is Central Newbury Car Auctions Ltd v Unity Finance.16 The claimants agreed a hire purchase deal over a car with a fraudster, who called himself Cullis. A series of further transactions took place before the claimants attempted to reclaim the car from the defendants. The majority of the Court of Appeal held that entrusting the car to Cullis was not a representation that he could deal with it; the log book clearly stated that it did not prove legal ownership.17

ii.  Estoppel by Negligence In Mercantile Credit Co. Ltd v Hamblin18 the defendant, Hamblin, asked an apparently respectable motor dealer, Phelan, to obtain a loan on the security of her, the defendant’s, 11  Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480; Sealy and Hooley (n 6) 121–122. 12  M Bridge, The Sale of Goods, 3rd edn (Oxford, OUP, 2014) para 5.61. 13  Eastern Distributors Ltd v Goldring [1957] 2 QB 600 (CA) 611 (Devlin J), overruled in Worcester Works Finance v Cooden Engineering Ltd [1972] 1 QB 210 (CA) on a point relating to the seller in possession exception. See also Lloyds and Scottish Finance Ltd v Williamson [1965] 1 WLR 404 (CA) 410 (Salmon LJ); Atiyah (n 4) 372–373; Sealy and Hooley (n 6) 363; M Bridge (ed) Benjamin’s Sale of Goods, 9th edn (London, Sweet and Maxwell, 2014) para 7.008. 14  McKendrick (n 8) 457–458. 15  Farquharson Bros. & Co. v King [1902] AC 325 (HL); Atiyah (n 4) 366–369. 16  Central Newbury Car Auctions Ltd v Unity Finance [1957] 1 QB 371 (CA). 17  ibid 391 (Hodson LJ); see also Mercantile Bank of India Ltd v Central Bank of India Ltd [1938] AC 287 (PC); McKendrick (n 8) 454 sets out a number of indicia for determining whether there has been a representation. 18  Mercantile Credit Co Ltd v Hamblin [1965] 2 QB 242 (CA).

Exceptions to Nemo Dat  59

car. However, the dealer completed hire purchase forms, which the defendant had already signed in blank, as an offer to sell the car to the claimants. The question arose whether the defendant was estopped from denying the sale. The case is expressed in terms of duties of care and in terms of proximity between the parties—precisely the terms used in consideration of the tort of negligence. The defendant was said to owe the claimant a duty of care in respect of documents presented to him; however, it was said that because she was well acquainted with the dealer who appeared to be respectable she had been entitled to trust him. Pearson LJ said, In order to establish an estoppel by negligence, the finance company has to show (i) that the defendant owed it a duty to be careful, (ii) that in breach of that duty she was negligent, (iii) that her negligence was the proximate or real cause of it being induced to part with the £800 to the dealer.19

It is difficult to see, however, how concepts relevant to the tort of negligence can be at issue here. The case is properly to be explained on the basis that the defendant made no relevant representation as to Phelan’s authority to sell the car. A similar case is Moorgate Mercantile Co. Ltd v Twitchings.20 A car dealer was offered a car for sale, the seller saying it was not subject to a hire purchase agreement. The dealer checked with Hire Purchase Information (HPI) and was told there was no agreement. In fact there was. The defendant purchasers attempted to argue that the claimants were estopped from asserting their title under the agreement because of their negligence in not registering that agreement. Their first argument that HPI was acting as an agent in giving out the wrong information was rejected. HPI acted entirely on its own behalf and in any case the information they gave out was accurate—that being not that there was no hire purchase agreement, but merely that one had not been registered. The fact that almost every such agreement was registered did not make this a representation that there was no agreement. Although the House of Lords indicated a belief that the hire purchase company had been negligent or careless in not registering they said there was no duty of care affecting other parties. This case can, however, be adequately explained without reference to duties of care. HPI gave out accurate information and the claimants simply drew a false inference from it. Only if there were an obligation to register would the hire purchase company have been affected, but that would have been because of their failure to register not through any estoppel. As we see in chapter 15, under a Personal Property Security Act style system, the hire purchase would have had to be registered. To find against the claimants would in effect have made registration compulsory, a policy decision best left to the legislature. Goode on Commercial Law suggests21 it should not be sufficient that the owner might by suitable means have prevented the seller from disposing of the goods, but remained silent and failed to do so. Silence can, however, occasionally count as a representation, the main exception being that the party made a representation that X was true (and it was) and failed to correct the representation when X became untrue.22

19 

ibid 271; Atiyah (n 4) 369–372. Moorgate Mercantile Co. Ltd v Twitchings [1977] AC 890 (HL); Coventry Shepherd & Co v Great Eastern Rly Co (1883) 11 QBD 776. 21  McKendrick (n 8) 452. 22 E Peel (ed), Treitel’s Law of Contract, 14th edn (London, Sweet and Maxwell, 2015) para 9.141; With v O’Flanagan [1936] Ch 575. 20 

60  Nemo Dat Quod Non Habet

iii.  Other Estoppels Other types of estoppel may also be in play here. Despite usually being confined to land, proprietary estoppel might be relevant,23 but is treated in detail in land law books. Estoppel per rem judicatam provides another exception to nemo dat and Powell v Wiltshire24 illustrates the point. A dispute broke out over the ownership of a light aircraft. Ebbs sued Wiltshire for recovery of the plane, and in the meantime had purported to sell the aircraft to the second to fourth defendants, who sold it to the claimant, Powell. Wiltshire obtained a declaration that he was the owner of the aircraft in proceedings to which the claimant and other defendants in the subsequent action were not party. In this subsequent action the claimant Powell claimed he was entitled to the aircraft. The Court of Appeal held that the claimant was only estopped in rem judicatam from claiming good title if his title was acquired after the judgment, which it had not been. Wiltshire and Ebbs by contrast were bound by the estoppel.25 Estoppel in rem judicatam is a personal estoppel that only binds parties to the action to which it relates. Consequently Ebbs was estopped from denying as against Wiltshire that the latter had a better title to the aircraft. Powell could be in no better position than Ebbs once judgment was handed down, because he would have acquired a title bound by the estoppel. However, because he acquired the aircraft prior to judgment he was not so estopped.

B.  Factors Act 1889 s 2 Section 2 Factors Act 1889 provides: (1) Where a mercantile agent is, with the consent of the owner, in possession of goods or of the documents of title to goods, any sale, pledge, or other disposition of the goods, made by him when acting in the ordinary course of business of a mercantile agent, shall, subject to the provisions of this Act, be as valid as if he were expressly authorised by the owner of the goods to make the same; provided that the person taking under the disposition acts in good faith, and has not at the time of the disposition notice that the person making the disposition has not authority to make the same.

i.  Sale by a Mercantile Agent A mercantile agent is defined as a mercantile agent having in the course of his business authority to sell, buy, consign or raise money on security of goods. That is unhelpful, but the mercantile agent needs to be some known kind of commercial agent rather than an independent contracting party.26 The mercantile agent must be in possession of the asset in question at the time of its disposition or sale.27 In Weiner v Harris28 for example the

23 

S Worthington, Personal Property Law: Text and Materials (Oxford, Hart, 2000) 396. Powell v Wiltshire [2004] EWCA Civ 534, [2005] QB 117; Benjamin (n 13) para 7.019. Powell v Wiltshire [2004] EWCA Civ 534, [2005] QB 117, 122. 26  Belvoir Finance Co. Ltd v Harold G Cole & Co. Ltd [1969] 1 WLR 1877; on this exception see Atiyah (n 4) 374–380. 27  Beverley Acceptances Ltd v Oakley [1982] RTR 417; McKendrick (n 8) 461–462. 28  Weiner v Harris [1910] 1 KB 285 (CA). 24  25 

Exceptions to Nemo Dat  61

claimant was accustomed to send jewellery to Fisher who travelled around the country as a jewellery retailer. The terms were sale or return. Fisher also agreed: The goods referred to … are your property, and to remain so until sold or paid for, they being only left with me for the purpose of sale or return, and not be kept as my own stock. The goods I receive from you are to be entered at cost price, and my remuneration for selling them is agreed at one half the profit.

Fisher was held on that basis to a mercantile agent.29 This meant that when goods were pledged to the defendants by the agent under section 2(1) Factors Act 1889 the claimant was not able to recover them. In Lowther v Harris30 the claimant wished to sell a quantity of furniture and a tapestry. He engaged Prior to find a buyer but on the basis that he would have no authority to complete a sale without prior sanction or permission. Prior falsely represented that he had agreed a sale to one Woodhall in order to induce the claimant to agree to move the tapestry. Prior then sold it to the defendant, who was in good faith and acted in the course of his business. The court held that Prior was a mercantile agent. Wright J said that Prior was in possession of the tapestry in his capacity as a mercantile agent. He became so after he was allowed to remove the tapestry on the claimant’s sanctioning the sale to Woodhall.31 Despite the consent of the claimant to Prior’s possession having been obtained by fraud, the sale was a good sale. This comes close to the position that anyone receiving goods from the owner as an agent for their sale is a mercantile agent. This step has not, however, been taken. Remember that the agent must be a commercial agent who has authority to sell in the customary course of his business. If he has no business at all, but the goods are entrusted to him in one particular case, he is not a mercantile agent.32 The question also largely turns on the extent to which courts are prepared to countenance new forms of mercantile agency.33 In other words it turns on each individual fact scenario. One further key restriction is that at the time the asset is put into the possession of the alleged agent, he must be acting as a mercantile agent. It will not therefore avail a purchaser of the goods that the selling party subsequently became a mercantile agent.34 In Pearson v Rose and Young Ltd35 Denning LJ explained that the basis of the exception for mercantile agents was that if the true owner has consented to leave the property in the hands of the owner, he has clothed the latter with apparent authority to sell them. However, the true owner is protected by the requirement that he consent to pass possession into the hands of the agent.36 In Pearson the claimant had entrusted the car to the dealer in order for the dealer to see what offers he could obtain. The dealer’s possession was purely provisional and the claimant had not intended to provide the dealer with the registration documents for the vehicle. However, the dealer tricked him into providing them and sold the car for his

29 

ibid 294 (Fletcher Moulton LJ). Lowther v Harris [1927] 1 KB 393. 31  Ibid 398–399; Folkes v King [1923] 1 KB 282. 32  See McKendrick (n 8) 462. 33  Bridge (n 12) para 5.91. 34  Heap v Motorists Advisory Agency Ltd [1923] 1 KB 577, 588 (Lush J); Gerrard Fairfax Holdings Ltd v Capital Bank plc [2006] EWHC 3439 (Comm); [2007] 1 Lloyds Rep 171. 35  Pearson v Rose and Young Ltd [1951] 1 KB 275 (CA); McKendrick (n 8) 462–463. 36  [1951] 1 KB 275 (CA) 286. 30 

62  Nemo Dat Quod Non Habet

own benefit. The question was whether the third party buyer had good title. Title did in fact pass from the claimant. Denning LJ rejected the view that consent procured by fraud was no consent at all.37 Instead he argued that the effect of fraud was to make the consent voidable and if an innocent third party obtains the goods before the owner attempts to reclaim the goods he is protected. This obviously overlaps to some extent with the next exception that we deal with—that of voidable title. There is a distinction, however.38 Section 2(4) of the 1889 Act provides for a presumption that the mercantile agent’s possession is with the consent of the true owner. Further section 1(2) provides for a presumption that if the agent has physical custody, he is in possession. This presumption of possession can be displaced and was so displaced in Lowther v Harris where the fraudster’s initial custody of the tapestry was in his capacity as a mere licensee of the address. It should be remembered he only became a mercantile agent in possession when the original owner agreed to its removal from the premises and the purported sale to Woodhall. Section 2(3) provides that where a mercantile agent was in possession of the goods with the consent of the owner his possession of any documents of title is also deemed to be with the consent of the owner. Where for example goods are consigned to a carrier and the agent obtains a bill of lading, dealings with the bill of lading are therefore covered by the section. The document need not, however, be a bill of lading. Section 1(4) has a wider definition of document of title which turns on whether the party in possession of the goods would be expected to surrender possession to the possessor of the document.39 Section 2(2) deals with the owner’s retraction of consent and provides that it is ineffective so long as the third party has no notice of it and is in good faith. In practice this will be almost impossible to rebut, rendering consent effectively ‘unretractable’. Denning LJ also dealt in Pearson with the question of the agent being entrusted with possession for a purpose other than sale—to repair the goods, for example. This does not count. Additionally, the consent must be to possession in the mercantile agent’s capacity as a mercantile agent.40 In Astley Industrial Trust v Miller41 Lomas Bros took delivery as motor dealers of a Vauxhall car. Droylsden Self-Drive wished to purchase such a vehicle and the claimant finance company was approached. A hire purchase agreement was reached and the car released by Lomas to Droylsden on the basis of its being used in the self-drive business. Ultimately Droylsden defaulted, but the car had been resold to one of their customers. They were mercantile agents, but were not acting in that capacity when they took delivery of the Vauxhall because the car was to be used for the specific purposes of the self-drive business only.42 The defendants had not obtained good title and were ordered to return the car to the claimants. This point is further illustrated by the decision in Staffs Motor ­Guarantee v ­British Wagon Ltd.43 Heap was a motor dealer and entered into a sale and leaseback agreement of a lorry with the defendant finance company. Heap then sold the lorry to the claimants who were in good faith throughout. The claimants attempted to run an argument based on

37 

ibid 287–288; see also Du Jardin v Beadman Bros [1952] 2 QB 712. M Bridge, Personal Property Law, 4th edn (Oxford, Clarendon Press, 2015) 212. 39  On documents of title see chapter one, part III C ii. 40  [1951] 1 KB 275 (CA) 288; Belvoir Finance Co Ltd v Harold G Cole & Co Ltd [1969] 1 WLR 1877, 1881 (Donaldson J). 41  Astley Industrial Trust v Miller [1968] 2 All ER 36. 42  ibid 42. 43  Staffs Motor Guarantee v British Wagon Ltd [1934] 2 KB 305. 38 

Exceptions to Nemo Dat  63

s­ ection 2 Factors Act. This failed because Heap was not in possession as a mercantile agent, but as a bailee. Mackinnon J said, Because one happens to entrust his goods to a man who is in other respects a mercantile agent, but with whom he is dealing not as a mercantile agent but in a different capacity, I do not think that it is open to a third party who buys the goods from that man to say that they were in his possession as a mercantile agent and that therefore he had power to sell them to a purchaser and so give him a good title to them. The claimant must be able to assert not only that the goods were in the man’s possession as a mercantile agent, but also that they were entrusted by the owner to him as a mercantile agent.44

The agent must act in the ordinary course of business in his capacity as a mercantile agent when he sells the goods. In Oppenheimer v Attenborough45 Buckley LJ said this entailed operating from normal business premises in a normal way, giving the third party no reason to suspect there was anything odd going on. This has been fleshed out very little. It is a question of fact in any particular case and needs to be looked at in the context of the particular trade. In Stadium Finance Co. v Robbins46 for example it was held that a party making a sale of a car without the ignition key or registration book would not be acting in the normal course of business. Benjamin suggests that without the registration documents the agent in possession of the car cannot be a mercantile agent, but is merely a bailee,47 and Oppenheimer provides a contrasting decision where it was not customary for agents to pledge diamonds—but only owners. Such a pledge was nonetheless held to be in the ordinary course of business. Given that he is acting in the normal course of business, section 2(1) contains a further proviso relating to the conduct of the buyer. The buyer must be in good faith and have no notice of any defects in the agent’s authority to make the disposition. These two requirements are separate,48 and the burden lies very clearly on the purchaser to demonstrate both his good faith and lack of notice; good faith in this context refers to the party’s honesty. It would be rare for purchasers to know that the agent was acting in excess of his authority. It may be much more plausible, however, to argue that he had at least constructive notice of any lack of authority. That said, while attempts have been made to argue that constructive notice suffices, in general the common law has been reluctant to important constructive notice into commercial transactions.49 It is unlikely therefore that it applies here.50

ii.  Pledge by a Mercantile Agent Although the rules are basically the same, it is worth illustrating them because a mercantile agent might actually have greater power to deal with the goods than the owner himself.

44 

ibid 313. Oppenheimer v Attenborough [1908] 1 KB 221 (CA) 230–231. 46  Stadium Finance Co. v Robbins [1962] 2 QB 664; Pearson v Rose & Young Ltd [1951] 1 KB 275. 47  Benjamin (n 13) para 7.044; Bridge et al (n 5) para 13.052. 48  Heap v Motorists Advisory Agency Ltd [1923] 1 KB 577, 589–590 (Lush J). 49  Vowles v Isles Finance Co [1940] 4 DLR 357; see also in a different context Vinelott J’s comments in Eagle Trust plc v SBC Securities Ltd [1994] 1 WLR 484. 50  Bridge (n 12) para 5.115. There is a Singaporean decision that constructive notice suffices. See TY Lin ­Personal Property Law (Academy Publishing Singapore 2014) 642–644; Diamond Centre Pte Ltd v R Esmerian Ltd [1996] 3 SLR 132. Lin does not favour constructive notice, however. 45 

64  Nemo Dat Quod Non Habet

In Lloyds Bank Ltd v Bank of America National Trust and Savings Association51 the claimant bank loaned money to Strauss & Co and took security in the form of a pledge over goods, which gave them the power of sale over those assets. As part of their security, the bank received the bills of lading relating to the goods subject to the pledge, surrendered them back to Strauss & Co and took trust receipts from the firm. This allowed Strauss & Co to sell the assets as trustees for the bank. The trust receipts were the only source of any authority in the firm to deal with the documents. Without them they would have had no rights to act at all. That constituted them a mercantile agent for the bank.52 Strauss & Co re-pledged the bill of lading to the defendants, who were in good faith throughout, as security for further finance. That pledge was deemed to be valid. The Factors Act contains a number of provisions regarding pledges. In particular, section 3 provides that a pledge of the documents of title by a mercantile agent is a pledge of the goods to which they relate. Consequently the firm had effectually pledged the goods to the defendants. There is some uncertainty53 over the scope of section 2 with regard to non-negotiable documents; however, it seems to allow a mercantile agent to make an effective pledge of the goods by negotiating a document which is a document of title only under section 1(4) Factors Act 1889, even if it is not a bill of lading, which would be impossible for an owner of the goods.54

C.  Voidable Title Section 23 Sale of Goods Act 1979 re-enacts the common law rule that where a seller has a voidable title to goods and sells then to a bona fide purchaser for value the purchaser takes good title. This is so irrespective of whether the title is voidable at law or in equity.55 In the usual case we might expect that the purchaser would have to prove his good faith. However, this appears not to be correct. The burden is on the claimant to demonstrate that the buyer is not in good faith.56 This is the reverse of the burden of proof in other exceptions to the nemo dat rule. The burden ought in fairness and consistency therefore to fall on the purchaser to show that he is in good faith.57 In order to obtain the goods back the seller must rescind the contract before the goods are sold on. A common case of this is where the contract under which the seller obtained the goods was induced by misrepresentation. This sale must take place before the original owner of the goods exercises his right to rescind the contract. On rescission legal or equitable title to the goods vests in the rescindor, who if exercising an equitable right to rescind may collapse the trust thereby created.58 The rescinding party must do so by giving notice to the other party, although if he cannot be found other action may suffice.59 This avoids

51 

Lloyds Bank Ltd v Bank of America National Trust and Savings Association [1938] 2 KB 147 (CA). ibid 164–165. 53  Bridge (n 12) paras 5.104–5.105. 54  ibid para 5.106. 55  Load v Green (1846) 15 M&W 216, 153 ER 828. 56  Whitehorn Bros. Ltd v Davison [1911] 1 KB 463. 57  WJ Swadling, ‘Rescission, Property and the Common Law’ (2005) 121 LQR 123, 131–132. 58  Under the rule in Saunders v Vautier (1841) Cr & Ph 240, 41 ER 482; on powers to rescind see chapter seven, part IV C. 59  Car & Universal Finance Co. Ltd v Caldwell [1965] 1 QB 525. 52 

Exceptions to Nemo Dat  65

the problem of the disappearing rogue to whom notice cannot be given for obvious reasons. The voidable title exception allows the purchaser of an equitable interest to take free of the original owner’s right to rescind.60 The power to rescind is a vested proprietary right, but is because of this rule more vulnerable to bona fide purchase than an interest under a trust. There is an important difficulty in some cases in deciding whether the contract is void or voidable. In Phillips v Brooks Ltd61 a fraudster called North purported to be Sir George Bullough and acquired through fraud a ring worth some £450. The jeweller knew that Sir George existed and checked the details he was given in the telephone directory. Horridge J said that if a man contracts with someone who is actually present then he is assumed to have meant to contract with the person in sight and hearing, even though, had there not been the fraudulent misrepresentation, the contract would not have been made.62 In Ingram v Little,63 however, the majority of the Court of Appeal held on almost identical facts that the contract was not intended to be made with the person physically present, but only the honest person impersonated. The question of with whom the party intended to contract was treated as a question of fact. Lewis v Avery,64 however, reaffirmed the presumption that you deal with the party physically present. In Cundy v Lindsay the fraudster was never physically present and the contract was, as we saw earlier, held void. There is considerable difficulty in making the required distinctions between these cases and deciding whether a contract is voidable in which case the third party can take advantage of this exception, or void in which case he cannot. In Shogun Finance Ltd v Hudson65 the law in this area was thoroughly reviewed. The case involved Hudson purchasing a Mitsubishi Shogun from a crook who promptly disappeared. The crook obtained the car from Shogun Finance. The crook pretended to be Durlabh Patel and produced Patel’s stolen driving licence. Lord Nicholls pointed to the distinction that seems to exist between Phillips v Brooks and Cundy v Lindsay that in the former the rogue was physically present, and in the latter he was not, as an unsatisfactory one. He also believed the contract would in all cases be voidable rather than void. He said, ‘The legal principle in these cases cannot sensibly differ according to whether the transaction is negotiated face-to-face, or by letter, or by fax, or by e-mail, or over the telephone…’66 Lord Millett and he would both have overruled Cundy v Lindsay. Lord Millett said, It has had an unfortunate influence on the development of the law leading to an unprincipled distinction between face to face transactions and others and to the indefensible conclusion that an innocent purchaser’s position depends on the nature of the mistake of a third party.67

He agreed with Lord Nicholls that where two individuals deal with each other by whatever medium, and agree terms of a contract, then a contract will be concluded between them, notwithstanding that one has deceived the other into thinking that he has the identity of a

60  Phillips v Phillips (1861) 4 De GF&J 208, 45 ER 1162; D O’Sullivan, ‘The Rule in Phillips v Phillips’ (2002) 118 LQR 296. 61  Phillips v Brooks Ltd [1919] 2 KB 243. 62  ibid 246. 63  Ingram v Little [1961] 1 QB 31. 64  Lewis v Avery [1972] 1 QB 198. 65  Shogun Finance Ltd v Hudson [2003] UKHL 62, [2004] 1 AC 919. 66  ibid 938–939. 67  ibid 960–961. Bridge et al (n 5) para 13.030 express a preference for the minority view.

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third party. In such a case the contract will be voidable. However, they were in the minority. Lord Hobhouse and Lord Walker in the majority treated the case as being one purely of construction of the contract. Lord Phillips defended Cundy v Lindsay and the distinction it draws between face to face dealings and others. Cundy v Lindsay exemplifies the application by English law of the approach to identifying the parties … In essence this focuses on deducing the intention of the parties from their words and conduct. Where there is some form of personal contact … I would favour the application of a strong presumption that each intends to contract with the other … Where dealings are exclusively in writing there is no scope or need for such a presumption.68

These questions are all covered in detail in contract law textbooks.69 It suffices for present purposes to note that the nice distinctions, being drawn in the cases should not have the drastic effect on the rights of third parties that they currently appear to have. They are worth noting in the context of a personal property book, however, because the distinctions of identity and attributes of the transferee rear their heads again in cases concerning the nullity of a conveyance of legal title dealt with in chapter seven, part II.70

D.  Sale under a Power of Sale Section 21(2) Sale of Goods Act 1979 states that the Act does not affect any common law or statutory powers of sale. There are a large number of statutory powers, two of which we will see in more detail later in the book, namely the bailee’s power of sale under section 12 Torts (Interference with Goods) Act 1977 seen in chapter ten, part (II)(C) and the power under the unpaid vendor’s lien in section 48 Sale of Goods Act 1979 seen in chapter 12, part III D. At common law the most important is the power of sale of a pledgee under his security, which may be restricted by the Consumer Credit Act 1974 and is also discussed in chapter 12, part II C. Where a power of sale exists clarity suggests that a good title should flow to the purchaser, but this is frequently left to inference rather than being stated explicitly.

E.  Sale by a Seller or Buyer in Possession This is governed by sections 24 and 25(1) Sale of Goods Act 1979, which are closely related to sections 8 and 9 Factors Act 1889. Section 24 provides 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, or by a mercantile agent acting for him, of the goods or documents of title under any sale, pledge, or other disposition thereof, 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.

68 

ibid 976. Treitel (n 22) paras 8.034–8.041. 70  See Bridge et al (n 5) para 13.031 for the proposition that such nuances of the contract formation should not affect the purchaser-defendant. 69 

Exceptions to Nemo Dat  67

Section 8 Factors Act 1889 also includes references to agreements for sale, pledge or other disposition by the seller in possession. It may be that section 8 was intended to be repealed by the Sale of Goods Act 1893, but this was in fact forgotten when the time came.71 Section 25(1) has a similar provision for buyers in possession: Where a person having bought or agreed to buy goods obtains, with the consent of the seller, possession of the goods or the documents of title to the goods, the delivery or transfer by that person, or by a mercantile agent acting for him, of the goods or documents of title, under any sale, pledge, or other disposition thereof, to any 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 or transfer were a mercantile agent in possession of the goods or ­documents of title with the consent of the owner.

Again, the only difference with section 9 Factors Act 1889 is the inclusion in the latter of references to agreements for sale made by the buyer in possession. Importantly neither section validates the sale, but the delivery.72 This will have an impact on the timing of the passage of title to the second buyer; it will have to wait until delivery rather than be complete—at least in the case of specific goods—on the conclusion of any contract. All four of these statutory provisions refer to documents of title. At common law the only document of title is the bill of lading. The possession of the bill of lading entitles the holder to possession of the goods, which we saw is the essence of legal title. The relevant statutory definition of documents of title is found in section 61(1) Sale of Goods Act 1979 which incorporates the definition alluded to above in section 1(4) Factors Act 1889; many of these documents have, however, nothing to do with title, except in that they evidence title. All four provisions also talk of mercantile agents. By section 26 Sale of Goods Act 1979 the definition of mercantile agent in the 1889 Act is imported into the Sale of Goods Act.

i.  Seller in possession The first requirement of section 24 is that the seller has already sold the goods to the first buyer. If he had merely made an agreement to sell to the first buyer, the second buyer would not need the assistance of an exception to nemo dat. Property would not have passed to the first buyer and until property passes there is no sale.73 The second requirement is that the seller be in possession of the item sold. It seemed clear at one stage that the seller must be in possession as seller and not in any other capacity. This remains the position favoured by Merrett, who argues that the seller continues in possession for the purposes of the section only if there has not been any delivery or where the seller’s continued physical possession is solely attributable to the sale agreement.74 However, in Pacific Motor Auctions Pty v Motor Credits (Hire Finance)75 Motordom entered into a display agreement with the respondents (Motor Credits) whereby the respondents would buy cars from Motordom, which would then be displayed in the latter’s showroom. M ­ otordom

71 

Sealy and Hooley (n 6) 378. Cahn v Pockett’s Bristol Channel Steam Packet Co Ltd [1899] 1 QB 648. 73  Sale of Goods Act 1979, s 2(4). 74  L Merrett, ‘The Importance of Delivery and Possession in the Passing of Title’ [2008] CLJ 376, 389; Fadallah v Pollak [2013] EWHC 3159. 75  Pacific Motor Auctions Pty v Motor Credits (Hire Finance) [1965] AC 867 (PC). 72 

68  Nemo Dat Quod Non Habet

would then resell the cars in its own name and account to the respondents. In 1960 the respondent withdrew Motordom’s authority to deal with the cars they had purchased, but a number were subsequently sold anyway to the appellants. The Privy Council held that the appellants obtained good title to the cars under section 28(1) Sale of Goods Act 1923 (NSW)—the corresponding New South Wales seller in possession provision. Motordom had in fact been a mercantile agent, but Lord Pearce said the seller in possession provision was not limited to any class of seller,76 nor was it necessary for the seller to be in possession qua seller. All that was necessary was that the seller in point of fact remained in continuous physical possession of the goods. He went on that the safe thing for the respondents to have done on rescinding authority to sell the cars would be to have retaken possession of their goods.77 This was accepted by Worcester Works Finance Ltd v Cooden Engineering Co78 and has an important consequence. For the purposes of section 2 Factors Act 1889 the agent must be in possession in his capacity as a mercantile agent. This construction was extended to section 24 by Staffs Motor Guarantee v British Wagon Co. Ltd. Possession would have to be in the party’s capacity as seller; Pacific Motor Auctions would appear to reverse this, but in Fadallah v Pollak79 Richard Seymour QC, sitting as the judge, referred to the Pacific Motors case and concluded that the critical question was in what capacity the party acquired the property before the second sale, stating that the seller should have possession in his capacity as seller after all. He drew the distinction that in Pacific Motor Auctions the goods had never left the physical possession of the seller who could therefore pass good title; in Fadallah by contrast the seller only obtained possession after the first sale and section 24 did not apply. Possession in section 24 cases can also be constructive possession; if the seller remains in constructive possession he can sell and give good title.80 If so, one would think that constructive delivery of the cars would suffice to break the seller’s possession, but this was denied in Pacific Motor Auctions where Motordom was a bailee for Motor Credits. Lord Reid said there were no cases holding that the section did not apply where the seller attorned to the buyer—acknowledging that he held the goods for the buyer—and held as bailee.81 On the face of the section it appears that the goods need to be actually delivered to the second buyer for his title to trump the first buyer’s.82 This will cover cases of transfer of documents of title as well, so that actual delivery of the document of title to the second buyer is required for his title to trump that of the first buyer. In Gamer’s Motor Centre (Newcastle) Pty Ltd v Natwest Wholesale Australia Pty Ltd,83 however, the High Court of Australia held that a constructive delivery of goods would suffice under section 28(2) Sale of Goods Act 1923 (NSW), which was in fact the ‘buyer in possession’ provision. The appellant, Gamer, sold vehicles to dealers, one of whom, Evans & Rose Pty Ltd, sold them on to the respondent, NatWest Wholesale. Evans, however, retained possession under a ‘floor plan agreement’ for the marketing of the vehicles to consumers. The appellant who had the

76 

ibid 883. ibid 888; see also Mitchell v Jones (1905) 24 NZLR 932. 78  [1972] 1 QB 210 (CA) 217 (Lord Denning). 79  [2013] EWHC 3159, [42–47] 80  City Fur Manufacturing Co. Ltd v Fureenbond Brokers (London) Ltd [1937] 1 All ER 799. 81  [1965] AC 867 (PC) 885 (Lord Reid). 82  Nicholson v Harper [1895] 2 Ch 415; NZ Securities & Finance Ltd v Wrightcars Ltd [1976] 1 NZLR 77. 83  Gamer’s Motor Centre (Newcastle) Pty Ltd v Natwest Wholesale Australia Pty Ltd (1987) 163 CLR 236 (HCA); Atiyah (n 4) 385–386. 77 

Exceptions to Nemo Dat  69

­ enefit of a retention of title clause in the contract with Evans & Rose Pty Ltd was never b paid and attempted to reclaim the vehicles. It failed, because the receipt delivered by Evans to Natwest Wholesale had the effect that Evans held the cars as bailee for NatWest Wholesale and not therefore Gamer; title had therefore passed to Natwest Wholesale. Goode on Commercial Law criticises this decision on the basis that every seller of specific or ascertained goods is a bailee for the buyer and this strips the delivery requirement of all meaning.84 It does, however, only object to the construction in the context of the seller in possession rule. This construction of delivery was nonetheless accepted by Forsythe International (UK) Ltd v Silver Shipping Co Ltd.85 In Michael Gerson (Leasing) Ltd v Wilkinson86 Emshelf Ltd sold goods to the claimant finance company in 1995 on a sale and leaseback basis. The goods never left their premises. However, their acknowledgment that they held the goods on account of the buyer finance company and that the buyer was owner counted as a constructive delivery of the goods with an immediate bailment of the goods back to themselves,87 this, despite the fact that the buyer never had independent control of the goods, which should be required for constructive possession. It was, however, conceded that Pacific Motor Auctions was right and that Emshelf therefore continued in possession for the purposes of section 24. Emshelf purported to sell some of the goods (the so-called schedule 3 goods) again in 1996 to the second defendants, State Ltd, on a sale and leaseback basis. In February 1997 Gerson terminated the sale and leaseback arrangements and purported to sell the goods to Sagebush. The equipment was never paid for. Gerson claimed that property was only to pass on payment and therefore they were owners. State also subsequently terminated its agreement and sold the schedule 3 goods to Sagebush. All the goods were subsequently sold to Wilkinson. If Emshelf were a seller in possession, section 24 bit to allow State to obtain good title of the schedule 3 goods and both State and Wilkinson would be able to withstand the claimant, Gerson’s allegation of conversion regarding those goods. The court held that because the second sale to State Ltd involved another delivery of constructive possession there was delivery sufficient to allow section 24 to bite,88 despite the goods never physically moving from Emshelf ’s premises at any time. Title passed to State Ltd and neither defendant was therefore a converter as against the claimant regarding the schedule 3 goods. Given that Sagebush never paid Gerson for the goods it bought, and that Gerson had a retention of title clause, the question also arose as to whether Sagebush was a buyer in possession for the purposes of section 25(1). If they were Wilkinson obtained good title from it and was not a converter as regards those assets either. We examine this question later under the buyer in possession head. Clarke LJ also rejected the contention that possession had to be possession within the meaning of section 1(2) Factors Act in order for section 24 to come into play; rather possession has its normal common law meaning.89

84 

McKendrick (n 8) 466–467. Forsythe International (UK) Ltd v Silver Shipping Co Ltd [1994] 1 WLR 1334, 1347–1349; see Atiyah (n 4) 393–394. 86  Michael Gerson (Leasing) Ltd v Wilkinson [2001] QB 514 (CA). 87  ibid 526. 88  ibid 527–528. 89  ibid 527; see also L Gullifer, ‘Constructive Possession after the Sale of Goods (Amendment) Act 1995’ [1999] LMCLQ 93, 104–106. 85 

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Under section 24 the transaction entered into by the seller in possession must be a ‘sale, pledge or other disposition’. Sale has the usual meaning attributed by the Sale of Goods Act. Disposition seems to have a wide and uncertain ambit. It does, however, require a conscious act. Lord Denning in Worcester Works Finance Ltd v Cooden Engineering Co. Ltd said a disposition was any act by which a new interest whether legal or equitable is created.90 This is too wide, allowing subsequent equitable interests to override legal ones. The disposition should be a disposition of legal title. Other members of the Court of Appeal merely talked in terms of transfer of property.91 Disposition may catch delivery under an executory conditional sale or hire purchase agreement. The argument in favour of the second purchaser is clearer under section 8 Factors Act 1889 which extends protection to purchasers taking under an agreement for sale.92 However, it seems unlikely that a purely gratuitous disposition or transfer will suffice to bring a transaction under the section.93

ii.  Buyer in Possession Moving to buyers in possession, section 25(1) puzzlingly refers to a person who has bought goods. If the buyer has actually bought goods title will vest in him anyway, making the subsection redundant. There are, however, at least two circumstances in which this makes sense. There are occasions when a voidable title passes to the buyer and an innocent third party buys after the seller has publicised an intention to rescind.94 In these cases the voidable title exception does not apply, but section 25(1) may still do so. Secondly there may be cases where an unpaid vendor’s lien may yet be exercised. The words ‘agreed to buy’ will catch cases of conditional sales,95 but hire purchase agreements will not be included because the bailee may choose not to exercise the option to purchase.96 In Lee v Butler,97 however, Mrs Lloyd was in possession of furniture under a ‘hire and purchase’ agreement with the claimant, Lee, whereby a sum was paid to hire the furniture and later a further sum would be paid, on which payment the property in the furniture passed. She sold the furniture to the defendant, who was in good faith and without notice of the agreement. The defendant successfully, under section 9 Factors Act 1889, claimed that good title had passed. This provision also allows those in possession under a retention of title clause to pass good title to assets bought but not yet paid for.98 The buyer in possession must receive the goods or the documents of title with the consent of the seller. The authorities on consent go the same way as the parallel authorities on section 2 Factors Act 1889.99 In National Employers Mutual and General Insurance

90 

[1972] 1 QB 210 (CA) 218. ibid 219 (Phillimore LJ); 220 (Megaw LJ); Atiyah (n 4) 386–387. 92  Bridge (n 12) para 5.148. 93  Benjamin (n 13) para 7.064, who also sees references to equitable interests as difficult. 94  Bridge (n 12) para 5.154; McKendrick (n 8) 469. 95  Marten v Whale [1917] 2 KB 480 (CA). 96  Bridge (n 12) para 5.155; there has been a general assimilation of hire purchase and conditional sales agreements under Consumer Credit Act 1974, s 8 to exclude the latter from the exception; Bridge et al (n 5) para 13.080. A buyer in possession may still pass title under a conditional sale where the 1974 Act does not apply—eg where credit is over £15,000 or extended to a company. Atiyah (n 4) 389–391. 97  Lee v Butler [1893] 2 QB 318 (CA). 98  Atiyah (n 4) 394–395. 99  ibid 391. 91 

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Ltd v Jones100 thieves stole Hopkin’s car. There was then a chain of sales until the defendant bought the car. Every purchaser of the car was in good faith. Hopkin’s insurers, who had bought out her interest in the car, sued for possession. The House of Lords held that the Factors Acts and Sale of Goods Act 1979 were not intended to enable a bona fide purchaser to override the true owner’s title where their title derived from a thief. The Act will only apply where there has been a valid sale at the beginning of the story. If this were not the case, the combined effect of the seller and buyer in possession provisions would be to protect all bona fide purchasers where their seller is in possession.101 The question whether the buyer is in possession qua buyer is unlikely to arise, but the line with respect to section 25(1) ought to be consistent with section 24;102 ie it ought not to matter. The most complex issue in relation to section 25(1) is the cross-reference to mercantile agency. This is the most significant difference with section 24 which makes no similar cross-reference. The cross-reference is a requirement that the sale by the buyer in possession is (or would be) in the normal course of business of a mercantile agent, although the buyer need not necessarily be a mercantile agent. In Newtons of Wembley v Williams103 the claimants sold a car to Andrew who promptly disappeared, leaving a dishonoured cheque with the claimants. Andrew sold the car to Bliss who then sold on to the defendants. It was held that the claimants had in fact done all they could do to contact Andrew to rescind the contract. However, and notwithstanding this, the transfer of the car to the third party was said to be effective. Andrew had obtained possession of the car with the owner’s consent. Consequently he was taken to have the powers of a mercantile agent and the transfer to the defendant was effective under section 9 Factors Act 1889. Pearson LJ explained that the buyer in possession did not have to be a mercantile agent, but the transaction would be treated as if he were one.104 He dealt with the implied reference to the ordinary course of business of a mercantile agent by saying that although someone not a mercantile agent could not so act, the section meant that the court considered whether the buyer would have been acting the usual course of business were he actually a mercantile agent. This may cause problems in that a sale by a private individual will for example not take place on business premises; however, the particular sale in Newtons of Wembley took place in a London street market and this was regarded as in the ordinary course of business. All that is required therefore for this prerequisite to be met is a general observance of business form. This question of mercantile agency and whether the buyer-in-possession’s actions have the quality of being in the normal course of business should not be relevant to the effectiveness of the sale or delivery. Indeed it may deprive the subsection of any real scope of application;105 clearly the requirements are almost meaningless where the buyer in possession does not carry on a business of his own. In Australia and New Zealand this form of words has been interpreted not to create any new requirements, but simply to validate the transaction as if it were all were true. In other words the buyer is fictionally deemed to be a mercantile agent acting 100 

National Employers Mutual and General Insurance Ltd v Jones [1990] 1 AC 24 (HL). ibid 60–61 (Lord Goff). 102  Bridge (n 12) para 5.156; Merrett (n 74) 395 argues that possession should be qua seller, and qua buyer respectively. Lin (n 50) 659 therefore argues that the impact of sections 24 and 25 is less than might be thought. In Singapore the effect is lessened again by the withdrawal of section 25 protection in conditional sales. 103  Newtons of Wembley v Williams [1965] 1 QB 560 (CA). 104  ibid 578–579. 105  Atiyah (n 4) 396–398; Benjamin (n 13) para 7.081; McKendrick (n 8) 471–472. 101 

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in the normal course of business.106 This type of fictional deeming should not form part of modern English law, and the desired result (the same as in Australia and New Zealand) should be obtained through new wording. The buyer and seller in possession exceptions are therefore considerably wider in some respects than the voidable title exception. In Newtons of Wembley the dealer had taken steps to avoid the contract prior to the contract with the second buyer, Bliss. The rogue was therefore no longer empowered to transfer his voidable title, but by invoking the mercantile agency test the third buyer, the defendant was saved.107 The dealer’s initial consent was deemed to carry on because the second buyer had no notice of its withdrawal. We saw earlier that under section 24 the seller need only have constructive possession. The same is true here of buyers in possession. In Four Point Garage Ltd v Carter108 the defendant (Carter) bought a car from a third party (Freeway). Freeway did not have the specific make and model in stock and so arranged to buy it from the claimant (Four Point Garage). Four Point delivered the car directly to the defendant, but mistakenly thought that it had only been leased to him. The defendant on his part thought delivery had been made by the third party and knew nothing of the claimant. The contract of sale between Four Point and Freeway contained a retention of title clause. The dealer defaulted and the claimant attempted to rely on the retention of title clause, arguing that title had not passed to Freeway and hence not to the defendant. Simon Brown J, however, held there was no difference between delivery to the purchaser who delivered on to a sub-purchaser and direct delivery to the sub-purchaser. In the latter case the intermediate buyer took constructive possession of the chattel delivered, and could therefore be a buyer in possession. Retention of title clauses do not preclude authority to resell in the normal course of business or preclude title passing to the sub-buyer.109 Consequently the claimant’s retention of title clause was defeated and the defendant had good title to the car. There must, however, be a delivery by the intermediate buyer. In Forsythe International (UK) Ltd v Silver Shipping Co Ltd it was held that there must be some voluntary act by the buyer in possession to transfer possession to the third party. Forsythe sold bunker fuel to Petroglobe, who charted the ship (The Saetta) from Silver. Forsythe retained title to the fuel until it was paid for. Petroglobe had serious financial difficulties and failed to keep up the hire charges. Silver terminated the charterparty and took possession of the ship. Clarke J held that Silver converted the bunker fuel when they burnt it. Petroglobe as buyers in possession had done nothing to deliver the oil. A symbolic act should, however, suffice to transfer possession.110 In Michael Gerson (Leasing) Ltd v Wilkinson, as we have seen, Emshelf failed to keep up payments to Gerson on the sale and leaseback agreement between those parties whereby Emshelf sold the goods to Gerson and leased them back. Gerson purported to sell the equipment to Sagebush having terminated the agreement with Emshelf. Apart from the question concerning section 24 there was also, as we have seen, a question

106  Gamer’s Motor Centre (Newcastle) Pty Ltd v Natwest Wholesale Australia Ltd (1987) 163 CLR 236 (HCA); Jeffcott v Andrew’s Motors [1960] NZLR 721. 107  Bridge (n 12) para 5.159. 108  Four Point Garage Ltd v Carter [1985] 3 All ER 12. 109  ibid 15–16; Aluminium Vaassen v Romalpa Aluminium [1976] 1 WLR 676; Goode on Commercial Law supports the Gamer’s rule in this context (n 8) 470 n 127. 110  [1994] 1 WLR 1334, 1345–1346; Atiyah (n 4) 393–394.

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c­ oncerning section 25(1). Sagebush did not pay for the goods and therefore when it sold on to Wilkinson there was a question whether they were buyers in possession of the schedule 3 goods able to transfer good title to Wilkinson. Clarke LJ held that at no time had Gerson consented to Sagebush being in possession of the goods and so Wilkinson could not take title under section 25(1).111 There was no voluntary act on the part of Gerson. Constructive delivery from the intermediate buyer will, however, also suffice.112 The meaning of disposition is the same in both sections, so for example just as gratuitous dispositions are excluded from protection under section 24, so they are excluded under ­section 25(1) as well.113 A further important question is the difference between a sale and an agreement to sell or buy. The difference turns on the fact that property passes where there has been a sale, but where there is merely an agreement to sell or buy has not yet done so. Where there is an agreement to sell or to buy between the buyer in possession and the third party the case will fit into section 9 Factors Act 1889 despite being excluded from section 25(1) Sale of Goods Act 1979. This further inclusion causes its own slightly odd problem. In Re Highway Foods Ltd114 meat was sold by Harris to Highway Foods subject to a retention of title clause and then sub-sold to Kingfry, again subject to a retention of title clause. The goods were returned to Harris for safety checks; Highway Foods had meanwhile failed to pay the contract price under their agreement with Harris. Harris and Kingfry concluded a new contract of sale for the same price after Harris purportedly repossessed the goods under their retention of title clause. The question turned on who owned the meat at the time of this new contract. If Harris, they were entitled to the price against Kingfry, but if Kingfry the price was payable to Highway Foods under the original arrangement between themselves and Highway. Highway Foods’ receivers attempted to rely on section 9 Factors Act 1889, arguing that, although there had been no sale, there had been an agreement to sell between the buyer (Highway) and subbuyer (Kingfry). Title therefore passed to the latter party when Highway delivered the meat to Kingfry. The upshot of this, the receivers claimed, was that Harris was unable to repossess the meat from them for non-payment and had only a personal claim in debt against Highway Foods. The court rejected this, and, as Tettenborn points out, quite properly. It would be odd if an agreement that did not pass title from one who has title can have the effect of passing title when made by one who does not have title.115 The sub-buyer had authorised and lawful possession, but this was insufficient to allow it to override the seller’s title, and the assets could be repossessed and resold directly to Kingfry. Yet if this is right, it is hard to see what ambit section 9 (and presumably likewise section 8) Factors Act 1889 actually has.

F.  Hire Purchase Act 1964116 Hire purchasers are not buyers in possession, because the contract is structured so that they are merely bailees with an option to purchase. For more detail on hire purchase see the 111 

[2001] QB 514 (CA) 535. Benjamin (n 13) para 7.077. 113  ibid para 7.080. 114  Re Highway Foods Ltd [1995] 1 BCLC 209. 115  A Tettenborn, ‘Reservation of Title: Nemo Dat and Double Sale’ [1996] CLJ 26; Bridge (n 12) para 5.169. 116  Atiyah (n 4) 399–401; McKendrick (n 8) 473–478. 112 

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treatment of commercial applications of bailment.117 Section 27 Hire Purchase Act 1964 states that if the third party purchaser of a car or other motor vehicle from a hire purchaser is a private purchaser in good faith and without notice of the seller’s interest the disposition has effect as if title had vested in the hire purchaser, even if the private purchaser bought from a trade purchaser (who would not get good title under the section). The disposition must be complete while the vehicle is still on hire purchase and a debt is outstanding on that contract.118 Disposition is limited to the definition in section 29, which requires a consideration in money; settlement of a prior debt will not suffice.119 These two categories of purchaser are mutually exclusive; if you carry on a business trading in vehicles or lending on the security of such vehicles, you can never be treated for the purposes of the section as a private purchaser.120 The reason for the distinction is likely to be the ability of trade purchasers to protect themselves. In GE Capital Bank plc v Rushton121 the company bought vehicles as the bank’s agent on hire purchase and offered them for sale. The company sold a number of vehicles to the defendant, who intended to resell them, and sold one to a Mr Jenking. On the liquidation of the company the bank sought to recover the vehicles. It was held that section 29(2), which defined trade purchaser, was directed at the business of the purchaser and the purposes for which the vehicle was purchased. The defendant had purchased the vehicles with a view to resale and that made him a trade purchaser, and therefore a converter of the cars.122 This meant that the private purchaser of a VW Golf, Jenking, was protected by section 27(3) as a private purchaser from a trade purchaser. In order for the third party purchaser to have notice of the interest he must have actual notice that the car is on hire purchase at the time of his own purchase. In Barker v Bell123 Hudson held a car on hire purchase terms from Auto Finance Services (Hallamshire) Ltd. He failed to keep up the payments and sold the car to Ness, falsely representing that all payments due under a hire purchase agreement had been made. A chain of sales then took place with the car finally coming into the possession of the claimant. The car was repossessed by the finance company. Ness was held to be protected from liability under the implied condition of title as he had had no actual notice of the subsisting hire purchase agreement. This in fact meant, Lord Denning said, that the claimant need not have surrendered the car to the finance company.124

G. Reform Originally, the law allowed an exception in market overt. That meant that so long as the asset was sold in the open the purchaser got good title. That may have made sense in m ­ edieval 117 

Chapter ten, part IV A. Kulkarni v Manor Credit (Davenham) Ltd [2010] EWCA Civ 69, [2010] 2 Lloyds Rep 431; L Merrett, ‘Is Possession Nine Tenths of the Law in the Sale of Goods?’ [2010] CLJ 236. 119  VFS Financial Services Ltd v JF Plant Tyres Ltd [2013] EWHC 346, [2013] 1 WLR 2987. 120  Stevenson v Beverley Bentinck Ltd [1976] 1 WLR 483 (CA); Welcome Financial Services Ltd v Nine Regions Ltd (t/a Logbook Loans Ltd) [2010] EWHC B3. 121  GE Capital Bank plc v Rushton [2005] EWCA Civ 1556, [2006] 1 WLR 899. 122  ibid 915–916 (Moore-Bick J). 123  Barker v Bell [1971] 1 WLR 983 (CA). 124  Ibid 986; Benjamin (n 13) para 7.099. 118 

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times when the true owner would have been at the market and had an opportunity to object, but one commentator called it a thieves’ charter before its abolition.125 Market overt had one important characteristic, however, as an exception. It demonstrated that the point of all the exceptions to nemo dat is to allow the ready marketability of assets and the protection of the bona fide third party. The basic rule is there to maintain proper protection for the owner. There is a tension; clearly if I steal your car and sell it on to a third party and that means you lose your title to the car, legal title to chattels loses much of its meaning. If one of the major incidents of property rights is the ability to exclude others, you have lost the right to exclude the third party. Yet the nemo dat principle has also been described as the ‘perfect impediment to commerce’.126 On what basis do we decide how far to go? One important point to remember is that this will in part depend on the type of asset in question. Negotiation, which we see in chapter six, has the potential (if it is negotiation of a bill of exchange) to transfer a better title than the transferor had to the holder in due course. The reason for this is that bills of exchange are meant (like cash) as a means of payment; they are instruments of commerce. Goods by contrast, as suggested earlier, are not primarily instruments of commerce. They have an intrinsic value to their owner which needs protection. They are not meant for the sole purpose of being swapped for something else. Consequently, although some exceptions to nemo dat are needed to make commerce possible, the exceptions should be less extensive. A second point is that there are moves to reform the English law of secured transactions, which may result in a Personal Property Security Act. Whether it will result in this is currently uncertain as a variety of different proposals are currently in play, but as we see in chapter 15, all current Personal Property Security (or Securities) Acts (PPSAs) in the commonwealth contain what are called ‘taking free’ provisions.127 A ‘taking free’ provision sets out circumstances in which a grantor-debtor, who has created a charge or security interest in favour of a grantee-creditor, can transfer the asset subject to the charge or security interest to a third party so the latter takes an unencumbered right to the chattel. Although on the face this seems a different set of circumstances to the ones under consideration here, we also see that a security interest under a PPSA is defined much wider than under current law. Many of the cases dealt with above under the buyer-in-possession or sellerin-possession provisions involve sales and leaseback of goods or retention of title clauses where the supplier of goods seeks to retain title to them so that he may re-possess them as his own property should there be default by the buyer. Sales and leaseback transactions, hire purchase agreements and retention of title clauses128 will be treated as security interests for the purpose of a PPSA at the very least to the extent that they ‘in substance secure payment of an underlying obligation’. If so, they will be taken out of the ambit of the Sale of Goods Act and into the ambit of a new PPSA. Consequently, we find for example that sections 27(1A) and (2A) Sale of Goods Act 1908 (NZ) explicitly provide that the seller and buyer-in-possession rules under the New Zealand legislation only apply where the Personal

125  BJ Davenport, ‘Consultation—How—how not to do it’ (1994) 110 LQR 165; B Davenport and A Ross, ‘Market Overt’ in E McKendrick and N Palmer (eds), Interests in Goods, 2nd edn (London, LLP, 1998) 347. 126  Lin (n 50) 614. 127  See eg Part 2.5 Personal Property Securities Act 2009 (Cth). 128  See eg Personal Property Securities Act 2009 (Cth) s 12.

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Property Securities Act 1999 does not. Simply providing for a PPSA to have priority may not be entirely satisfactory. PPSA legislation across the commonwealth does not provide for exceptions to nemo dat in terms of good faith as occurs under the Factors Act 1889 and Sale of Goods Act 1979, but provides for the third party not to take free if he has a specified degree of actual or constructive knowledge.129 An example of this would be that section 46(1) Personal Property Securities Act 2009 (Cth)130 allows for a buyer or lessee of an asset to take free of a perfected security interest created by the buyer’s seller, where the property was transferred in the ordinary course of the seller’s or lessor’s business. Section 46(2) provides for the exceptions, such as that the buyer or lessee has actual knowledge that it is in breach of the terms of the security interest. This creates a tension—is there a good reason for provisions dealing with the same sort of issue to be framed differently? A third point is that even with a PPSA there will still be room for the applicability of this complex patchwork of exceptions outside the scope of secured transactions law, and rationalisation would still be required. Fadallah v Pollak for example is a case where a claimant to ownership fell through the gaps between section 2 Factors Act 1889 and sections 24 and 25 Sale of Goods Act 1979. The Law Commission did indicate an intention in 2005 to look at the question as project number 11 in their Ninth Programme of Law Reform,131 although it later decided to defer the question.132 Other moves have been made to suggest reforms. The Department of Trade and Industry for instance issued an eight-page consultation paper, but this was largely met with derision because of its brevity and its lack of any serious engagement with the policy issues at stake.133 One solution, a general principle that a party to whom goods have been voluntarily entrusted may pass better title than they themselves have, has already been mooted by ­Gullifer.134 Her solution, like that of the Uniform Commercial Code, is to prefer the position of the purchaser over the original owner; the effect is to improve the marketability of goods. The owner is usually the most efficient loss bearer in that he has the ability to take out insurance to protect his title.135 Any English reform should be along these lines and, to avoid problems of deciding which exception applies, should explicitly state that it does not apply if there is an applicable rule under any future Personal Property Securities Act. Article 2-403 UCC provides: (1) A purchaser of goods acquires all title which his transferor had or had power to transfer except that a purchaser of a limited interest acquires rights only to the extent of the interest purchased. A person with voidable title has power to transfer a good title to a good faith purchaser for value… (2) Any entrusting of possession of goods to a merchant who deals in goods of that kind gives him power to transfer all rights of the entruster to a buyer in ordinary course of business.

129  D McGill ‘Transfer of Title by a Non-Owner: The Exceptions to Nemo Dat under the Personal Property Securities Act 2009 (Cth)’ (2011) 39 ABLR 208, 224–225. 130  Mirrored (or mirroring) by Personal Property Securities Act 1999 (NZ) s 56. 131  Law Commission, Ninth Programme of Law Reform (Law Comm no 293 2005) para 1.16. 132  Law Commission, Tenth Programme of Law Reform (Law Comm no 311 2008) paras 4.2–4.4. 133  McKendrick (n 8) 481–482; on reform proposals see Atiyah (n 4) 401–404. 134  Gullifer (n 5) 221–222. 135  S Thomas ‘The Role of Authorisation in Title Conflicts under Retention of Title Clauses: Comparisons with English and American Law’ (2014) 33 CLWR 29.

Exceptions to Nemo Dat  77 (3) ‘Entrusting’ includes any delivery and any acquiescence in retention of possession regardless of any condition expressed between the parties to the delivery or acquiescence and regardless of whether the procurement of the entrusting or the possessor’s disposition of the goods have been such as to be larcenous under the criminal law.

This question of who the most efficient loss bearer is, is critical to the operation of article 2-403(2) UCC. The argument is that when A ‘entrusts’ assets to another person (B) voluntarily, A puts it out of his hands to decide which third party, if any, receives them from B. It will be seen that the definition of entrusting under article 2-403(3) would encompass many of the situations envisaged in sections 2, 8–9 Factors Act 1889 and sections 24–25 Sale of Goods Act 1979, although a buyer in possession (for instance) in current English law does not have to be a merchant. A reform of English law along these lines would provide a considerable rationalisation of the current law. Combined with a PPSA and provisions such as that in article 9 or section 46 Personal Property Securities Act 2009 (Cth) where a retention of title clause can be defeated by a buyer (and in Australia a lessee) in the ordinary course of business the rationalisation would be almost complete. As for the justification for an article 2-403 type provision, Goode on Commercial Law puts it like this: if my judgment as to the trustworthiness of the party in possession is defective I should not be able to put the consequences on the third party,136 particularly where the party in possession is a merchant dealing in such goods and is acting in the ordinary course of business so might be expected to make on-sales. I ought to be able to make checks as to his identity and so on. I cannot complain if my own actions render me vulnerable.137 Article 2-403 does not protect me against buyers in possession who are not engaged in business; an on-sale by a consumer is probably unlikely to be common, but at the same time if I misjudge the consumer’s likelihood to sell on why should the third party suffer?138 To the third party the position is the same in that he receives an asset he now cannot use. However, the policy in favour of marketability does not bite as much in cases where on-sale is less likely. This explains the importance in article 2-403 and corresponding provisions in article 9 dealing with when a third party takes free of a security right of the dealing being ‘in the ordinary course of business’.139 It explains the importance in floating charge jurisprudence of the assets being such that they could be expected to be disposed of in the ordinary course of business,140 and references to ordinary course of business in the Factors Act 1889. If you could not, as a buyer, rely on the seller’s apparent right to sell, you might be tempted to make separate checks or not buy at all. By contrast, if the property is simply stolen I do not have the opportunity to make the identity checks as an entruster, and probably you are not buying the asset from a shop or merchant which habitually deals in this type of goods and so you have a greater reason to be suspicious, although given that consumers do sell domestic items to each other on a one-off basis this cannot be taken too far. If the entruster is a thief the merchant can only 136 

McKendrick (n 8) 450–451. A view going all the way back to Lickbarrow v Mason (1787) 2 TR 63, 100 ER 35. 138  Some protection in the case of security interests is given by §9-320(2) UCC and an English reform could be crafted to include protection for a consumer interest buying from another consumer without full title or with title subject to a security. 139  Article 9-317, 9-320 UCC. See also Personal Property Securities Act 2009 (Cth) s 46; Personal Property Securities Act 1999 (NZ) s 56. 140 See Re Yorkshire Woolcombers Assoc [1903] 2 Ch 284 (CA); chapter 14. 137 

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transfer the thief ’s title and so the buyer is vulnerable to the original owner.141 This is a hard case, but the argument might be put that the buyer is purchasing from a merchant and so can have done no more to reasonably protect himself.142 It has been said that the doctrine, ‘allows people safely to engage in the purchase and sale of goods without conducting a costly investigation of the conduct and rights of all previous possessors in the chain of distribution’.143 However, in addition we need always to remember that the owner has not put the goods into that position, and he deserves protection also. One notable point is that the section says nothing—unlike the current English ­provisions—about documents of title to goods.144 This is quite deliberate; article 7 UCC provides separate mechanisms for dealing with nemo dat conflicts with documents.145 If a purchaser takes the documents by due negotiation under article 7-501 UCC they will take a superior title to the goods and the document, and this can be true even if the documents are stolen (unlike if goods are stolen) although the true owner of the documents must have placed the documents ‘into the stream of commerce’ whereupon he takes the risk of their being misappropriated.146 Due negotiation requires to be done in the regular course of banking and finance. What this means is that the party to whom documents of title are negotiated in American law under the UCC can be in a better position than the purchaser of goods where there is no such document. This is an important aspect of the US system,147 but importantly article 7 is concerned with international trade and, apparently, following commercial practice, diverges from domestic treatment. Essentially the additional hurdles of due negotiation are intended to ensure that bills of lading are treated by commercial parties more like bills of exchange. The question arises therefore whether documents of title should be treated differently from the goods themselves in England. In principle, the answer should surely be no; there is room for argument that American law here has gone too far to the possession vaut titre approach. As Lord Devlin said in Kum v Wah Tat Bank Ltd, ‘A negotiable bill of lading is not negotiable in the strict sense; it cannot, as can be done by the negotiation of a bill of exchange, give to the transferee a better title than the transferor has got, but it can by endorsement and delivery give as good a title’.148 If adopted, allowing the transferee of a document of title to be in a better position than a purchaser of goods would seem be a change in the law. It is not obvious that it is a necessary change.

III. Overreaching Overreaching is a concept usually thought of as being a land law idea. However, overreaching takes place whenever a purchaser of property takes it free from any interests or powers

141 

KF Jillson ‘Article 2-403 UCC: A Reform in Need of Reform’ (1979) 20 William & Mary L Rev 513, 552. ibid 517–518. 143  Johnson v Johnson Products Inc v Dal Intern Trading Co 798 F 2d 100, 104 (1986). 144  S Thomas ‘Transfer of Documents of Title under English Law and the Uniform Commercial Code’ [2012] LMCLQ 573. 145  ibid 585. 146  ibid 601–603. 147  ibid 605. 148  [1971] 1 Lloyds Rep 439 (PC) 446. 142 

Overreaching 79

in the hands of a third party, which instead attach to the proceeds of sale.149 In the case of a trust therefore the purchaser of trust property takes free of the beneficiary’s interests which instead attach to the proceeds of sale in the hands of the trustee. It is for this reason that we often talk of a trust fund rather than the beneficiary’s having an interest specifically in one particular asset. It is therefore an aspect of the complex of rules looked at in this chapter allowing third parties to take free of interests encumbering the asset, or someone’s title to the asset. Normally this is not possible either at law, or in equity.150 It will become important later in the book when we examine the floating charge, because that mode of taking security may rely heavily on the idea of overreaching to allow the chargor to sell or deal with the assets.151 Because it helps illuminate the idea of property in a fund, it may also be relevant to the question of the proper basis of proprietary claims by trust beneficiaries contingent on tracing.152 Returning to the context of the trust, trustees overreach an interest when they have the right as against their beneficiaries to make the disposition. What is vital, however, is that the trustees have power to make the disposition so as far as the purchaser is concerned. A trust deed may for instance provide a purchaser is not to be affected by any breach of trust. Overreaching will still occur, despite the fact that the beneficiaries still have the right to sue the trustee for breach of trust.153 Overreaching is a necessary corollary of powers in the trustee to dispose of property and make investments.154 Such powers of investment, and they are almost inevitable in most trusts, would fail without overreaching. Statutory authority is not required in order for overreaching to take place although it may impose restrictions as it does where the property is land.155 The notion of overreaching is also a necessary corollary of any intra vires disposition under a power of sale under a mortgage.156 The purpose of the process is to ensure the ready ­marketability of assets. Overreaching is not the same as bona fide purchase, although it may have the same effect. If the disposition is intra vires—ie the trustee is not in breach of trust and overreaching takes place, it does not matter whether the purchaser knows of the trust or not. In fact if gifts are allowed under the trust it does not matter if the donee gives no consideration either. The defence of bona fide purchase only operates where there is a valid cause of action in the beneficiary. This will be so where the trustee has acted in breach of trust, or outside the authority to deal with the trust assets.157 Bona fide purchase protects a party who gives valuable consideration and does not know, nor has any reason to think that there has been a breach of trust by the seller. To take advantage of bona fide purchase in equity the claimant must not have constructive notice

149 

R Nolan, ‘Property in a Fund’ (2004) 120 LQR 108. Phillips v Phillips (1861) 4 De GF&J 208, 45 ER 1162. 151  Chapter 14, part III C. 152  Chapter nine, part III A. 153  Nolan (n 149) 113. 154  See Trustee Act 2000, ss 3–5, but powers are also expressly included in trust instruments where they need no statutory force. See Nolan (n 149) 112. 155  Law of Property Act 1925, ss 2, 27; Contrast City of London Building Society v Flegg [1988] AC 54 (HL) and Williams & Glyn’s Bank v Boland [1981] AC 487 (HL). 156  Law of Property Act 1925, ss 92, 101; see chapter 13, part III B on powers of sale in mortgages. 157  Nolan (n 149) 115–116; see chapter nine, part II D on bona fide purchase, and chapter nine part III A ­generally on the basis for a tracing claim. 150 

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of any defects in the title and the consideration must be executed. All equitable interests are vulnerable to the bona fide purchase of a legal estate. No legal title is vulnerable to bona fide purchase except title in money or bills of exchange,158 where the requirements may be slightly different in that actual notice is required to defeat the defence and the consideration given may be either executed or executory. Legal rescissory powers to revest title are also, as we see in chapter seven, part (IV)(B)(ii), subject to bona fide purchase. These are necessary exceptions to nemo dat; money for example simply would not fulfil its function otherwise.

IV. Conclusion We saw in the first section the complex patchwork of exceptions to the nemo dat rules found both at common law and under different statutes—primarily the Sale of Goods Act and Factors Acts. There is scope for reform and rationalisation of the rules in terms of providing third parties with protection where the owner entrusted an asset to a merchant dealing in the ordinary course of business, and this is also the major ‘taking free’ rule under the Commonwealth Personal Property Securities Acts. We saw how such reform might come about and work in the final subsection. Overreaching provides for an exception to nemo dat where it relates to an equitable interest under a trust—or maybe we see in chapter 14 under a floating charge. There are yet a number of exceptions to nemo dat that are not covered in this chapter. The whole idea of negotiability of bills of exchange and holders in due course is premised on the belief that marketability of these documents is more important than security of title and this justifies far bigger inroads into the security of the holder’s title than in the case of goods.

158  Miller v Race (1738) 1 Burr 452, 97 ER 398; D Fox, Property Rights in Money (Oxford, OUP, 2008) ch 8 for an explanation of the rules both at law and in equity; for a comparison with the rules on the status of holders in due course of bills of exchange see chapter six, part III A iv.

4 Assignment of Legal Choses in Action I. Introduction We move here from transfer of chattels or choses in possession to that of choses in action. Assignment needs to be distinguished from both negotiation and novation. Assignment involves the transfer of the benefit of a chose in action from one person to another. Novation involves the ‘transfer’ of the burden,1 or more accurately the destruction of one obligation and creation of another. Re United Railways2 describes novation as comprising two distinct elements—the annulment of one debt and the creation of a substitute debt. Negotiation is the act of transfer of a negotiable instrument by delivery with any necessary indorsement and provides an exception to the nemo dat rule. It allows the holder of a negotiable instrument to pass good title to a bona fide purchaser for value. Assignment may be legal or statutory, or equitable. Equitable assignment predates the possibility of legal assignment. The common law indeed refused to give effect to assignments of choses in action on the grounds that they were not property but merely personal obligations which were special to particular parties.3 This chapter is divided into three further parts. First we examine the statutory assignment of legal choses in action under section 136 of the Law of Property Act 1925 and in brief the slightly different ways in which shares, debt securities and intellectual property rights can be transferred; second, we examine equitable assignment of choses in action, including the Re Rose4 line of authority. Third, we must examine those rules common to both types of assignment. The commercial background is that contractual rights, particularly debts, need to be freely assignable. There is a thriving market in debts where parties will sell on debts or income streams that accrue in the future at a discount in order to raise money to be used now. This is called factoring. There are two main types of factoring transaction—notification and non-notification factoring. The distinction between them turns on whether the debtor is notified that the benefit of the obligation has been transferred. Non-notification factoring is also known as invoice factoring. There are further distinctions depending on whether the factor has recourse to the assignor in cases of debtor default or not. As notice is currently a pre-requisite for legal assignments, non-notification factoring is always done by equitable assignment. This is increasingly common in commercial transactions, because

1 

See generally J Bailey, ‘Novation’ (1999) 14 JCL 189. Re United Railways [1960] Ch 52. 3  M Bridge, Personal Property Law, 4th edn (Oxford, Clarendon Press, 2015) 233. 4  Re Rose [1952] Ch 499 (CA). 2 

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of suppliers’ reluctance to have their dealings with factors becoming known to their customers. Indeed, invoice factoring is now the predominant form of factoring. Receivables financing may be drawn into a reformed registration scheme for security interests, dealt with in chapter 15,5 although in all these cases outright assignments are only covered for the purposes of registration and priority; they remain outright assignments and the assignee is entitled to retain all the proceeds.

II.  Statutory (Legal) Assignment At common law the general rule was that choses in action could not be assigned. The reason for this is essentially historical. The term chose in action originally applied to personal rights and obligations, which the law could not see as being proprietary. To this was added the fear of maintenance, which occurred when someone with no real interest in the chose taking it over and suing on it.6 Neither consideration, however, could properly justify the breadth of the rule that developed. Indeed this was recognised early on. In Master v Miller,7 Ashurst J listed a number of cases where the common law had recognised assignments and he continued that the courts of equity had always recognised the breadth of the common law rule as absurd. Assignments to or by the Crown were always valid. Powers of attorney were another way around the rule. The assignor of a debt would grant the assignee a power of attorney to act on his or her behalf in collecting it and as a fee for that kept the whole proceeds. Smith and Leslie also suggest that negotiable instruments were developed as an exception.8 These were piecemeal exceptions and a more general method was required. ­Section 136(1) of the Law of Property Act 1925 has its origins in section 25(6) of the Supreme Court of Judicature Act 1873. It provides: Any absolute assignment by writing under the hand of the assigner (not purporting to be by way of charge only) of any debt or other legal thing in action, of which express notice in writing has been given to the debtor, trustee or other person from whom the assignor would have been entitled to claim such debt or thing in action, is effectual in law (subject to equities having priority over the right of the assignee) to pass and transfer from the date of such notice— (a) the legal right to such debt or thing in action; (b) all legal and other remedies for the same; and (c) the power to give a good discharge for the same without the concurrence of the assignor:

As with any transfer of property, three things are needed. The assignor must manifest his or her intention to transfer the chose in action. The chose must be a present chose and the identity of the assignee must be clear. In such circumstances the assignee is entitled to sue in

5  See H Beale, M Bridge, L Gullifer and E Lomnicka (eds), The Law of Security and Title Based Financing 2nd edn (Oxford, OUP, 2012) paras 7.108–7.128. On the distinction with charges see Lloyds and Scottish Finance Ltd v Cyril Lord Carpet Sales Ltd [1992] BCLC 609 (HL); Re Kent and Sussex Sawmills Ltd [1947] Ch 177; Re Mortlake [1992] BCC 32. 6  M Smith and N Leslie, The Law of Assignment 2nd edn (Oxford, OUP, 2013) para 10.07. 7  Master v Miller (1791) 4 TR 320, 100 ER 1042. 8  Smith and Leslie, The Law of Assignment (2013) (n 6) para 10.10.

Statutory (Legal) Assignment 83

his or her own name for the debt, irrespective of the provision of consideration.9 We should note that section 344 of the Insolvency Act 1986 provides that a general assignment of book debts by a party (an individual) engaged in any business should be registered under the Bills of Sale Act 1878. If it is not the assignment is void. We can contrast this with other types of assignment which can only be done in equity. Although there is statutory language suggesting that assignments may be made by charge, this is not strictly accurate. The important distinguishing feature between absolute assignments and charges is the difference in the intention of the assignor. In the case of the latter the intention of the chargor is to appropriate a fund to the payment of a debt.10 This is significantly different from an assignment.11 The distinction can be best understood by taking the point of view of the debtor. Assume the debtor wishes to pay the debt. Where the assignment is said to be by way of charge, the debtor will not know who to pay until what (if anything) the assignor owes the assignee is settled.12 This raises the question of legal mortgages of choses in action; it is possible to have an assignment by way of mortgage (including a charge incorporating provision for a mortgage). In chapter 13 we will see that this requires that the provisions of section 136 must be abided. Often the mortgages of such rights are expressed as first ‘absolute assignments’. Importantly this means that there is a distinction between an absolute and an outright assignment. English law recognises three ways of holding property; it may be held outright, on trust or by way of a security right. In Durham Bros v Robertson13 a firm of builders delivered to the claimant a document assigning a debt until sums advanced with interest ‘from time to time’ were repaid. This was held to be an assignment by way of charge for the purposes of the Act. The critical point in deciding this was that the assignment was defeasible on the repayment of the advances. However, Chitty LJ also said that a mortgage of debts due to the mortgagor made in the ordinary form with a proviso for a right to reassignment is an absolute assignment. Indeed, he went further and said that an absolute assignment could be by way of security and equity would imply the right to reassignment.14 What was important was whether the assignee had the legal power to give a good discharge for the debt. A similar case is Hughes v Pump House Hotel Co Ltd15 where Mathew LJ said that what mattered was whether the whole right in the estate passes to the mortgagee. Nobody is entitled to control the assignee’s acts with the assigned property.16 A mortgage could therefore be an absolute assignment. What is critical is whether there is evidence of the assignor having an express or implied right to redeem the subject matter in deciding whether the assignment is outright or as security.17 Assignment of part of a debt cannot be absolute, because the assignee will need to join the other parties interested in the debt to the action;18 indeed it has been said that the

9 

Re Westerton [1919] 2 Ch 104. Re Cosslett (Contractors) Ltd [1998] Ch 495 (CA) 508 (Millett LJ). 11  G Tolhurst, The Assignment of Contractual Rights, 2nd edn (Oxford, Hart, 2016) 43–47. 12  E Peel (ed), Treitel’s Law of Contract, 14th edn (London, Sweet and Maxwell, 2015) para 15.012. 13  Durham Bros v Robertson [1898] 1 QB 765 (CA). 14  ibid 771–72; Tancred v Delagoa Bay & East Africa Railway Co (1889) 23 QBD 239. 15  Hughes v Pump House Hotel Co. Ltd [1902] 2 KB 190. 16  Burlinson v Hall (1884) 12 QBD 347. 17 Tolhurst, The Assignment of Contractual Rights (2016) (n 11) 46. 18  Re Steel Wing Co Ltd [1921] 1 Ch 349. 10 

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assignee will need to sue in the name of the assignor.19 Conditional assignments cannot be absolute. This is also true of insurance policies; until loss occurs there is only a conditional right to payment from the insurer.20 A number of questions arise. First, what counts as a debt under section 136? What writing or notice requirements are there? We take these in turn.

A.  What can be Assigned? Section 136 talks of debts and other legal things in action. We talk about the latter at the end of this section of the book, but a debt is, for the purposes of the section, a sum certain due under a contract. The section covers equitable choses in action, but this does not matter much in practice as statutory assignment of such choses gives no rights that equitable assignment does not. We will deal with transfer of purely equitable rights in the next chapter. An assignment is the transfer of an existing right. There can be no assignment of rights which do not exist or belong to the assignor, although a purported assignment of future rights may operate as an agreement to transfer in the future. In Norman v Federal Commissioner of Taxation,21 a taxpayer purported to assign in 1956 to his wife by way of gift all the interest derived during the year of income ending 30 June 1958 from a sum of £3,000, being part of a sum deposited by him on loan with a firm. The loan was for no fixed term and the firm was at liberty to repay it, or any part of it, at any time without notice. Windeyer J said: As it is impossible to own something that does not yet exist, it is impossible for someone to make a present gift of something that does not yet exist, however, sure he may be that it will come into existence.22

He therefore held, with other members of the High Court of Australia, that the right to interest on the loan did not yet exist and could not be assigned. In Re Ellenborough23 the transferor had when the deed was exercised only a hope of inheriting under a will—wills can be revoked at any time—and Buckley J said that a spes successionis was not a property right in English law. However, he carried on that an attempted grant of future or uncertain property could operate as an agreement to make a grant if supported by consideration; such an assignment will be effective immediately without any further act by the assignor. Nonetheless on the facts it was a voluntary deed unsupported by such consideration and therefore was unenforceable.24 Assignment of a future debt to satisfy a future uncertain indebtedness

19  Williams v Atlantic Assurance Co Ltd [1933] 1 KB 81 (CA) 100 (Slesser LJ); this is because it is impossible to have a legal tenancy in common of a chose in action: S Worthington, Personal Property Law: Text and Materials (Oxford, Hart, 2000) 49, Re McKerrell [1912] 2 Ch 648. On joint tenancies and tenancies in common see chapter one, part III A ii. 20  Raiffeisen Zentralbank Österreich AG v Five Star General Trading LLC [2001] QB 825. 21  Norman v Federal Commissioner of Taxation (1963) 109 CLR 9. 22  ibid 23. 23  Re Ellenborough [1902] 1 Ch 697; Holt v Heatherfield Trust Ltd [1942] 2 KB 1. 24  ibid 699–700; contrast this with the beneficiary’s rights under an unadministered estate which are present property rights: Wu Koon Tai v Wu Yau Lai [1997] AC 179 (PC).

Statutory (Legal) Assignment 85

is an assignment by way of charge,25 and similarly a charge over a fund belonging at law to someone else is a partial equitable assignment.26

B.  Writing and Notice Requirements i.  Writing Requirements No particular form of words is required by section 136, but the assignor must sign the document his or herself. In Technocrats International v Fredic Ltd,27 none of the assignments were signed by the assignor but his wife, albeit with his full authority. Field J held that ‘under the hand of the assignor’ meant that this was invalid. Smith and Leslie describe such a result, albeit without citing Technocrats, as un-commercial, and indeed it is.28 There is little justification for insisting on a physical act by one particular party. The only qualification to this rule that the assignor must always physically sign might be where a firm is involved. In Re Briggs29 one partner in a two-partner firm purported to assign the debts of the firm without the other partner being aware of the transaction. Bigham J did not in point of fact decide it was a good assignment under the Judicature Acts, but he did say that whether it was valid as a deed or not it was a good equitable assignment.30 This was based on the apparent authority of partners to bind the firm of which they are a member. The question remains open whether the writing requirements can be met electronically, but the Law Commission has suggested that statutory requirements for writing and a signature are generally capable of being satisfied by email.31

ii. Notice The Act requires that written notice be given to the debtor. In Van Lynn Developments Ltd v Pelias Construction Co Ltd32 the question arose whether the written notice to the debtor, which included no date for the assignment and in fact suggested notice had already been given, sufficed. Denning LJ made it clear that these flaws were not fatal, and went on to suggest that the debtor would be entitled to sight of the actual assignment to satisfy himself it was good.33 Widgery LJ made the more general point that it was wrong to suppose that a special document prepared and headed as a notice was necessary to satisfy the statute.34 However, if a date is given it must be correct; otherwise it will be construed as a notice of a

25 

The Halcyon Great [1984] 1 Lloyds Rep 283. Colonial Mutual General Insurance Co Ltd v ANZ Banking Group Ltd [1995] 1 WLR 1140 (PC). 27  Technocrats International v Fredic Ltd [2004] EWHC 692. 28  Smith and Leslie, The Law of Assignment (2013) (n 6) paras 16.30–16.31. 29  Re Briggs [1906] 2 KB 209. 30  ibid 211–12. 31  Law Commission, ‘Electronic Commerce: Formal Requirements in Commercial Transactions’ (2001) part 10; AG Guest and YK Liew (eds), Guest on the Law of Assignment, 2nd edn (London, Sweet and Maxwell, 2015) para 2.16; J Pereira Fernandes SA v Mehta [2006] EWHC 813, [2006] 1 WLR 1543. 32  Van Lynn Developments Ltd v Pelias Construction Co Ltd [1969] 1 QB 607 (CA). 33  ibid 614. 34  ibid 615. 26 

86  Assignment of Legal Choses in Action

non-existent assignment.35 The general, and most important, point is that it must be clear from the notice that there has been an assignment.36 In Curran v Newpark Cinemas Ltd37 it was said that section 136 did not require that notice to the debtor necessarily be given by the assignee, although in practice it usually is. At the same time the case decides that the same writing can be used both as the assignment itself and notice to the obligor. In Holt v Heatherfield Trust Ltd38 the assignor, Partington, received judgment on a debt owing to him by Chloride, and assigned that judgment debt to Holt in part payment of a debt owed by him to Holt. Partington also owed money to the defendants, who obtained a garnishee order that Chloride pay them instead of Partington. The question arose as to the efficacy of the assignment before notice was given to the debtor. Absence of notice, it was held, did not affect the efficacy of the assignment between assignor and assignee. Until then it was effective as an equitable assignment, although not as a statutory assignment, and the assignee might sue, joining the assignor as co-claimant, or if he did not consent, as codefendant. The garnishee order therefore did not affect the judgment debt Partington had assigned to Holt. We should note here that New Zealand has removed notice as a requirement for the validity of statutory assignment.39 The purpose of the notice requirements is the obvious one of allowing the debtor to know who he or she owed the money to. To summarise there are four effects of notice:40 1. It is, in England, a condition of the validity of a statutory assignment, although even without writing there may still be a valid equitable assignment. 2. Until the debtor is given notice of the assignment, the debtor is entitled to treat the assignor as his or her creditor and payment to the creditor-assignor discharges the debt. After notice is given only payment to the assignee discharges the debt. The assignor is unable to give a good discharge.41 3. Notice prevents modifications of the agreement being made between assignor and debtor, which affect the assignee.42 Some, but not all, equities and sets-off arising between the assignor and debtor cannot be asserted against the assignee after the debtor has been given notice of the assignment. We look at the ‘subject to equities’ rule below in part IV A. 4. Notice also has priority implications in that priority between successive assignments is governed by the order in which the debtor receives notice, where the later assignee did not already have notice of the earlier assignment by some other means. A later assignee may gain priority by giving notice first; we examine this in part IV B.

35 

WF Harrison & Co Ltd v Burke [1956] 2 All ER 169 (CA). James Talcott Ltd v John Lewis Ltd & North American Dress Co Ltd [1940] 3 All ER 592. Curran v Newpark Cinemas Ltd [1951] 1 All ER 295. 38  Holt v Heatherfield Trust Ltd [1942] 2 KB 1. 39  Property Law Act 2007 (NZ) ss 50–53; R Fenton, ‘Assignments—Abolition of the Requirement of Written Notice in New Zealand’ (2010) 126 LQR 183. 40 Peel, Treitel’s Law of Contract (2015) hereinafter referred to as ‘Treitel’ (n 12) paras 15.021–15.023. 41  Brice v Bannister (1878) 3 QBD 569; Donaldson v Donaldson (1854) Kay 711, 69 ER 303; Smith and Leslie, The Law of Assignment (2013) (n 6) para 13.69(1); but see arguing the contrary CH Tham, ‘Notice of Assignment and Discharge by Performance’ (2010) LMCLQ 38. 42  Smith and Leslie, The Law of Assignment (2013) (n 6) para 13.69. 36  37 

Statutory (Legal) Assignment 87

C.  Equity and Debt Securities As we saw in chapter one, equity shares can be certificated or uncertificated. To transfer certificated shares the seller needs to fill in a share transfer form and the buyer must request registration in the register of the company’s members.43 As we see later, if there is no registration the buyer or transferee remains at best equitable owner of the shares. The transfer is strictly speaking—and despite the title of the chapter, not an assignment, but a novation. This is essential because obligations as well as rights are transferred. Uncertificated shares are usually transferred through CREST whereby the buyer’s and seller’s instructions are settled simultaneously on the chosen date. The purchase price is transferred at the same time as the shares are transferred from one to the other operator’s register which acts in the same way as the company’s register for certificated shares, and this process probably takes place by novation.44 Debt securities are easily tradeable; they are designed to be sold on a secondary market. As with equity shares, they may be certificated or uncertificated. Bearer securities are treated in chapter six, as an example of a negotiable instrument. With registered securities, transfer takes place on the registration of the transferee on the issuer’s register of members.45 Uncertificated securities can be transferred through CREST. In both the case of equity and debt securities if the ultimate holder’s interest is equitable because the issue was intermediated in some way the process is different. In practice, there is simply a set of credits and debits made at the transferor and transferee’s accounts with the intermediary.

D.  IP rights The rules for intellectual property are similar to those under section 136 Law of Property Act 1925. An outline of different IP rights can be found in chapter one. Section 90 Copyright, Designs and Patents Act 1988 provides that copyright may be assigned and to be effective it must be in writing, signed by or on behalf of the assignor. Section 222 is in the same form as regards design rights. Section 30 Patents Act 1977 provides for assignments on patent in the same form. The assignment is valid if it is not registered, but registration has advantages. One is that a registered assignee has priority over earlier unregistered rights over the patent under section 33,46 provided he did know of the earlier transaction. Historically, trademarks were restricted in their assignability because they were conceived of as demonstrating the source of goods and so to divorce the mark from the source was to mislead consumers. This concern has died away in modern times.47 Section 24(3) Trade Marks Act 1994, like the other legislative provisions, allows an assignment to be effective if in writing signed by or on behalf of the assignor. Section 25 provides for registration of the assignment, and for registered assignments to take in priority to unregistered. It is also possible to license the use of these intellectual property rights without assigning the actual rights themselves. 43 

Companies Act 2006, s 770. See M Bridge, L Gullifer, G McMeel and S Worthington (eds) The Law of Personal Property (London, Sweet and Maxwell, 2013) paras 32.031–32.045. 45  ibid para 32.113. 46  L Bently and B Sherman, Intellectual Property Law, 4th edn (Oxford, OUP, 2014) 646. 47  ibid 1097–1098. 44 

88  Assignment of Legal Choses in Action

III.  Equitable Assignment An assignment not falling within section 136 may be effective as an equitable assignment where:48 —— —— —— ——

the assignment is not absolute, because it is, for example, a partial assignment the assignment is not in writing signed by the assignor no written notice of the assignment has been received by the debtor the assignment is, for example, of future property.

The effect of an equitable assignment of a debt or IP right is that the assignee acquires only equitable rights and the assignor retains the legal rights. McFarlane therefore goes so far as to suggest that an equitable assignment is equivalent to a trust of the chose in action. What actually happens, according to McFarlane, is not that the assignor’s right is transferred to the assignee, but that the assignee obtains a right against the assignor’s right. The assignor has a duty as regards a specific right to transfer it or its proceeds to the assignee.49 ­McFarlane is correct that there is a trust; a new equitable interest in the chose in action is created.50 It appears to be a constructive trust. It is also possible to declare an express trust over a chose in action.51 Smith acknowledges that the means of declaring a trust are much the same as for an equitable assignment of a legal chose in action, and suggests the main difference is the complexity of the dispositions that can be made by express trust, saying that the beneficiaries of a trust are likely to be more complex and numerous than those of an equitable assignment.52 The equation of equitable assignments of legal choses with constructive trusts of the chose has significant implications for questions of joinder and non-assignment clauses. If the trust analysis is correct, it is limited to equitable assignments of legal choses in action. Equitable assignments of equitable choses are dealt with in chapter five.

A. Joinder One important difference between legal and equitable assignment was said to be that an equitable assignee must sue in the name of the assignor,53 but a legal assignee sues in his or her own name. This was said to be because in an equitable assignment, the assignor retains the right to give a good discharge because he or she retains legal title to the debt. As stated in Warner Bros Records Ltd v Rollgreen Ltd,54 the equitable assignee does not have any legal

48 

LS Sealy and RJA Hooley, Commercial Law: Text, Cases and Materials, 4th edn (Oxford, OUP, 2008) 955. B McFarlane, The Structure of Property Law (Oxford, Hart, 2008) 212–14. 50  Smith and Leslie, The Law of Assignment (2013) (n 6) para 11.12. J Edelman and S Elliott, ‘Two Conceptions of Equitable Assignment’ (2015) 131 LQR 221, but see TY Lin, Personal Property Law (Singapore, Academy Publishing, 2014) 843 arguing that this misses the commercial realities of the situation. 51  Smith and Leslie, The Law of Assignment (2013) (n 6) ch 14. 52  ibid para 14.22. 53  Williams v Atlantic Assurance Co Ltd [1933] 1 KB 81; Warner Bros. Records Ltd v Rollgreen Ltd [1976] QB 430 (CA); Crouch v Credit Foncier of England Ltd (1873) LR 8 QB 374. 54  Warner Bros Records Ltd v Rollgreen Ltd [1976] QB 430 (CA). 49 

Equitable Assignment 89

rights against the debtor. Normally the assignor will sue on behalf of the assignee. If the assignor does not the assignee may sue and join the assignor as a co-defendant. The rule is set out by Chitty LJ in Durham Bros v Robertson. He said: In his suit in equity the assignee of a debt, even where the assignment was absolute on the face of it, had to make his assignor, the original creditor, party in order primarily to bind him and prevent his suing at law, and also to allow him to dispute the assignment if he thought fit… Further, the assignee could not give a valid discharge for the debt to the original debtor unless expressly empowered so to do.55

If the equitable assignee requires a substantive legal remedy, joinder of the assignor has therefore been said to be required as a matter of substantive law.56 This is the Vandepitte procedure, named after the decision in Vandepitte v Preferred Accident Insurance Corpn of New York,57 and is designed to shortcut litigation by the equitable assignee to force the assignor to sue. Particularly in cases of collusion between the assignor and the obligor, the assignee is said to be able to launch an action in his or her own name and equity will compel the debtor to pay the assignee.58 The view that joinder was always required as a substantive matter was rejected, however, in Kapoor v National Westminster Bank plc59 where there had been an assignment of only part of a debt, which could therefore only take effect in equity. Kapoor then went bankrupt and the creditors were asked to approve an individual voluntary arrangement (IVA); the question was the ability of the equitable assignee to vote. Etherton LJ said that an equitable assignee will usually be obliged to join the assignor, but purely for the procedural goal of preventing the debtor from being vulnerable to double recovery,60 and this was confirmed in Roberts v Gill & Co. This appears implicitly to recognise that the obligor owes obligations directly to the equitable assignee. Only if the assignee seeks a substantive legal remedy need the assignor be joined as a matter of substantive law. If the remedy sought is equitable joinder is procedural only. Joinder can, on this view, then be dispensed with by the court, and where there is no joinder the action still stops time running for limitation purposes for instance.61 In Weddell v JA Pearce & Major62 therefore, equitable assignees, David and Florence Weddell, launched a negligence claim (a common law action). The defendants had been asked to advise on a contract of sale entered into by the claimant. The claimants became bankrupt and their trustee in bankruptcy assigned to them all claims against the defendants. The claimants launched their professional negligence claim prior to the defendants having notice of the assignment. The defendants claimed that the action was a nullity as the right to sue was at the time of claim lodged in the trustee in bankruptcy. Scott J said that an equitable assignee could sue in his or her own name, but could not obtain a perpetual injunction or damages

55 

Durham Bros v Robertson [1898] 1 QB 765 (CA) 769–70. Assignment (2016) (n 11) 63; Warner Bros v Rollgreen Ltd [1976] QB 430; G Tolhurst, ‘Equitable Assignment of Legal Rights: A Resolution to a Conundrum’ (2002) 118 LQR 98. 57  Vandepitte v Preferred Accident Insurance Corpn of New York [1933] AC 70 (PC). 58  Roberts v Gill & Co [2010] UKSC 22, [2010] 2 WLR 1227, 1246–47 (Lord Collins); Long Leys Co Pty Ltd v Silkdale Pty Ltd (1991) 5 BPR 11,512. 59  [2011] EWCA Civ 1083, [2012] 1 All ER 1209. 60  ibid [30]; Bexhill (UK) Ltd v Razzaq [2012] EWCA Civ 1376. 61  Central Insurance Co Ltd v Seacalf Shipping Corporation [1983] 2 Lloyds Rep 25 (CA) (The Aiolos). 62  Weddell v JA Pearce & Major [1988] Ch 26. 56 Tolhurst

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without joinder of the assignor.63 The equitable assignee would, however, be able to obtain interim relief. Merely commencing an action is not the same as enforcement. This should be right as the defect can be cured by joining the assignor. The opposite question whether an equitable assignor could sue without joining the equitable assignees was raised in Three Rivers District Council v Governor and Company of the Bank of England.64 Customers had deposited money with Bank of Credit and Commerce International (BCCI) which subsequently went insolvent. They brought misfeasance proceedings against the Bank of England for negligent supervision of the bank. The claims were assigned in equity to the liquidators of BCCI who were not initially party to the suit. The defendants claimed that the bank, as equitable assignee, must also be joined in the action. The depositors obliged, but said this was for form’s sake only and carried on with their action, the liquidators having indicated no desire to engage in the action. The Bank of England argued that the depositors had no cause of action because they had assigned it to the liquidators of BCCI. The issue was therefore in effect whether an equitable assignor of a chose in action retains a cause of action. Where either assignor or assignee sues alone the court said it could, and in fact did, as a procedural requirement, compel the joinder of the other so as to avoid double jeopardy and protect the debtor.65 Joinder, it was said, was needed because in practice the equitable assignee is the party interested in the action, but the assignor must be joined to enable him or her to dispute the assignment; alternatively if the assignor sues the assignee must be joined to prevent the assignor taking the benefit of the chose in action. The question in Three Rivers, however, was a substantive question. The bank argued the liquidators, as equitable assignees, had the cause of action; ex facie they had said they were not pursuing it and were not interested. If the equitable assignees did not care, the assignors should be barred from pursuing the action. The Court of Appeal accepted this. Peter Gibson LJ’s objection, for example, was that it was confusing for the equitable assignors not to plead that they were suing in a representative capacity, while accepting the assignment and for the assignees to say they made no claim.66 Etherton LJ in Kapoor went a bit further, saying that the equitable assignors had to sue in a representative capacity, and if they did not they had no right to sue at all.67 In Three Rivers Peter Gibson LJ went on that section 49 of the Supreme Court Act 1981 (now the Senior Courts Act 1981) demanded that the liquidators’ equitable title take priority over the depositors’ legal rights. In fact the depositors remained parties after another amendment to the statement of claim gave the liquidators the status of claimants in the action, but using the names of the depositors. However, given that the liquidators and depositors were both joined and would have been bound by the judgment anyway the whole objection by the bank appears rather pointless. The true position is this. The equitable assignor retains legal title to the chose in action,68 and therefore the debtor still owes the obligation to the assignor, who is the only party 63  ibid 40; Performing Right Society Ltd v London Theatre of Varieties Ltd [1924] AC 1 (HL); Roberts v Gill & Co [2010] UKSC 22, [2010] 2 WLR 1227, 1247 (Lord Collins); contrast Mountain Road (no 9) Ltd v Michael Edgely Corp Pty Ltd [1999] 1 NZLR 335. 64  Three Rivers District Council v Governor and Company of the Bank of England [1996] QB 292 (CA). 65  ibid 298–99 (Staughton LJ) 307 (Peter Gibson LJ). 66  ibid 313–16. 67  [2011] EWCA Civ 1083, [2012] 1 All ER 1209, [30], but see PG Turner ‘May the Assignee of Part of a Debt Vote at the Creditor’s Meeting?’ [2012] CLJ 270. 68  A Tettenborn, ‘Equitable Assignment and Procedural Quibbles’ [1995] CLJ 499; B McFarlane and R Stevens, ‘The Nature of Equitable Property’ (2010) 4 Journal of Equity 1, 7. See Edelman and Elliott (n 50) 241–246.

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able to give a good discharge for the debt, although he or she has an obligation to act for the benefit of the equitable assignee, and therefore has the insufficiency of title to sue for their own benefit referred to in Kapoor. Joinder is therefore, as suggested above, a substantive requirement where the assignee seeks a legal remedy. Section 49 of the Senior Courts Act 1981 is not intended to have any part in this type of question. In McFarlane’s terminology the assignee has a right against the assignor’s right—a trust interest. Equitable assignees, like beneficiaries of a trust, do have a right to sue on the legal chose, but that is a derivative action. The assignee, as Smith explains, takes over the assignor’s legal cause of action where the assignor cannot or will not sue. This is consistent with the fact that the assignee’s action is not a complete nullity and has limitation effects. It is an extension of the beneficiary’s ability to take over the trustee’s action where it is clear that the trustee cannot or will not sue; as such the assignee cannot be in a better position than the assignor and the third party is able to take advantage of any defences and set-offs against the assignor.69 By contrast, Staughton LJ70 in Three Rivers DC and Tolhurst both argue that each party has a cause of action against the debtor—one an equitable and the other a common law cause of action.71 Tolhurst describes as a stumbling block the notion that the assignee is enforcing a legal right and that the assignee’s rights are merely against the assignor.72 His ultimate preferred analysis is unorthodox, suggesting that where the obligor fails to perform his or her contract the assignee may sue for equitable compensation under an equitable contractual wrong, or for an equitable debt. He argues that where the assignee seeks a purely equitable remedy such as specific performance to enforce the legal right joinder is procedural.73 Tolhurst accepts this might be controversial, but argues it is not meant as a radical development—citing equitable damages in lieu of specific performance as another example—but he acknowledges that where joinder remains procedurally required the claimant may as well claim common law damages or debt. He also suggests74 that the trust model must recognise that equity was never able to progress further to recognise a transfer of the interest, but that the point of an equitable assignment is precisely that the interest has been transferred. It remains, though, difficult to see what purely equitable remedy there might be available to the assignee against the debtor which does not subvert rules at law regarding privity of contract and rights of third parties to sue.

B.  Requirements of Equitable Assignment i.  Assignment of Debts: The Pre-Judicature Act Rules These rules cover cases of the absolute assignment of legal choses in action that do not follow the required formality for section 136 assignments. Assignments of equitable choses in action, or further assignments of the chose by the equitable assignee will require to be in writing under section 53(1)(c) of the Law of Property Act 1925, covered in chapter five. 69 Smith and Leslie, The Law of Assignment (2013) (n 6) paras 11.39–11.47; Hayim v Citibank [1987] AC 730 (HL). 70  Three Rivers DC [1996] QB 292 (CA) 303. 71  Tolhurst, ‘Equitable Assignment of Legal Rights’ (2002) (n 56) 108–09. 72  ibid 114. 73  ibid 121–22; Tolhurst The Assignment of Contractual Rights (2016) (n 11) 405–06. 74 Tolhurst The Assignment of Contractual Rights (2016) (n 11) 67–68.

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They will also cover cases of the assignment of part of a debt which is impossible at law. A debt cannot be recovered piecemeal at law, although the partial assignee can bring an action in equity to enforce its rights, joining the assignor so as to determine the rights of all involved.75 The assignee is therefore the equitable owner of his or her rights, and the effect is that the assignor and assignee become equitable co-owners with the assignee’s rights being also assignable.76 In Elders Pastoral Ltd v Bank of New Zealand (no 2),77 Lord Templeman commented that the simplest form of equitable assignment was an agreement that a debt due to the creditor be paid by the debtor to a third party. In William Brandt’s Sons & Co Ltd v Dunlop Rubber Co Ltd,78 merchants agreed that the money received from the sale of goods would be paid straight to the bank in payment of debts due to the bank. Lord McNaughten said: Why that which would have been a good equitable assignment before the statute should now be invalid and inoperative because it fails to come up to the requirements of the statute, I confess I do not understand. The statute does not forbid or destroy equitable assignments or impair their efficacy in the slightest degree. Where the rules of equity and the rules of the common law conflict, the rules of equity are to prevail. Before the statute there was a conflict as regards assignments of debts and other choses in action. At law it was considered necessary that the debtor should enter into some engagement with the assignee. That was never the rule in equity… In certain cases the Judicature Act places the assignee in a better position than he was before. Whether the present case falls within the favoured class may perhaps be doubted. At any rate, it is wholly immaterial for the plaintiffs’ success in this action.79

The upshot of this dictum is that modes of equitable assignment prevailing before the Judicature Acts are still available to assignors after the passage of the Act. This is not uncontroversial. Windeyer J in Norman v Federal Commissioner of Taxation said that Lord McNaughten was talking about assignments for value, which would succeed as equitable assignments through the application of the maxim that equity looks at as done that which ought to be done. Where value has been given equity will enforce the agreement through specific performance. Since it will order the assignment to take place at law, it considers that it has already taken place as an equitable assignment. If by contrast there is to be a gift of the chose in action, Windeyer J thought all the statutory requirements must be met.80 Windeyer J is right that the doctrine in Walsh v Lonsdale that equity looks at as done that which ought to be done bites to create an equitable assignment only where there is an agreement to make a legal assignment for value.81 Lord McNaughten is, however, right that the intended effect of fusion of law and equity was to be procedural only. The Supreme Court of Judicature Acts were not intended to effect substantive changes to the law. If therefore a voluntary oral assignment succeeded in equity before the Acts, it should do so afterwards. The Law of Property Act 1925 was not intended to be mandatory, but facilitative. It provided an additional mechanism to assign rights, not the sole mechanism. Before the Judicature Acts 75 

Norman v Federal Commissioner of Taxation (1963) 109 CLR 9 (HCA) 29–30 (Windeyer J). Assignment of Contractual Rights (2016) (n 11) 88. 77  Elders Pastoral Ltd v Bank of New Zealand (no 2) [1990] 1 WLR 1478 (PC) 1483. 78  William Brandt’s Sons & Co Ltd v Dunlop Rubber Co Ltd [1905] AC 454 (HL). 79  ibid 461–62; German v Yates (1915) 32 TLR 52. 80  Norman v Federal Commissioner of Taxation (1963) 109 CLR 9 (HCA) 28; Corin v Patton (1990) 169 CLR 540 (HCA); Olsson v Dyson (1969) 120 CLR 365 (HCA). 81  Smith and Leslie, The Law of Assignment (2013) (n 6) para 11.68. 76 Tolhurst, The

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assignment was therefore part of equity’s exclusive jurisdiction and survives. Treitel is right therefore to suggest that an oral assignment ought not to fail merely because it is oral,82 so long as the intention to make a gift is clear. Lord McNaughten went on: An equitable assignment … may be addressed to the debtor. It may be couched in the language of command. It may be a courteous request. It may assume the form of mere permission. The language is immaterial if the meaning is plain. All that is necessary is that the debtor should be given to understand that the debt has been made over by the creditor to some third person. If the debtor ignores such a notice, he does so at his peril.83

It must be plain that the assignor intended there to be an assignment. However, there is no requirement that this intention be expressed in writing. In Coulter v Chief Constable of Dorsetshire Police84 the chief constable attempted to enforce a judgment taken out in the name of his now retired predecessor. It was held that there was an implied equitable assignment to the successor chief constable. Patten J said that unlike a legal assignment, an equitable assignment need take no particular form so long as the intention to assign is clear. He held that the chief constable was under a fiduciary obligation to hold the benefit of the debt for his successors and that the foundations of an equitable assignment were therefore already there. The resignation of one and appointment of another chief constable sufficed as a trigger.85 The intention must be clear or there may be confusion with related doctrines, such as mandate. In Timpson’s Executors v Yerbury,86 Mrs Timpson was the beneficiary of a New York trust and the question arose whether she was entitled to income although it was always remitted at her instructions to other people. It was held that it was not an equitable assignment. The question turned on the difference between an irrevocable assignment and a revocable mandate. Lord Wright said there was no apparent intention to irrevocably transfer property to another. All that happened was that Mrs Timpson decided in each case to make a remittance and instructed the trustees to make the payment. That mandate could have been cancelled at any time.87 Where there is no such intention to irrevocably pass the right to payment and there is a mere revocable request to pay a mandate exists.88 The subject matter of the assignment must be identified sufficiently clearly and some act needs to be done to indicate that the transfer is taking place.89 Notice to the debtor or obligor is not required for a valid equitable assignment. In ­Gorringe v Irwell India Rubber and Gutta Percha Works,90 a limited company (Irwell) being indebted to Heilbutt Symons & Co wrote them a letter assigning a debt owing to them (Irwell) to Heilbutt. No notice of the assignment was given to Irwell’s debtor (Cayzer, Irvine & Co) until after a petition to wind Irwell up was presented. This was held a good equitable assignment. 82  Treitel (2015) (n 12) para 15.035. There may, however, be other reasons for the assignment not to count as a perfect gift. 83  William Brandt’s Sons & Co Ltd v Dunlop Rubber Co Ltd [1905] AC 454 (HL) 462. 84  Coulter v Chief Constable of Dorsetshire Police [2004] EWHC 3391, [2004] 1 WLR 1425. 85  ibid 1430. 86  Timpson’s Executors v Yerbury [1936] 1 KB 645 (CA). 87  ibid 659; Re Williams [1917] 1 Ch 1. 88  Comptroller of Stamps (Vict) v Howard-Smith (1936) 54 CLR 614 (HCA). 89  Phelps v Sons-Smith & Co [2001] BPIR 326. 90  Gorringe v Irwell India Rubber and Gutta Percha Works (1886) 34 Ch D 128; Re Way’s Trusts (1864) De GJ & S 364, 46 ER 416, but see contra Mountain Road (no 9) Ltd v Michael Edgley Corp Pty Ltd [1999] 1 NZLR 335; O Chin-Aun, ‘Notice in Equitable Assignment of Choses in Action’ (2002) 18 Journal of Contract Law 107.

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What the court will not do—in keeping with a longstanding rule—is transform a failed attempt to do something other than an assignment into an assignment. In The Argo Fund Ltd v Essar Steel Ltd91 the defendant, Essar, entered as a borrower into an unsecured loan agreement with a syndicate. Syndicate members were unable to transfer their interest except to other financial institutions. The claimant, to whom some syndicate members had purported to transfer their interest, wished to claim payment of the relevant part of the debt from Essar. The claimant was in fact held to satisfy the criterion of being a financial institution and the transfer was held valid. The court also decided that the syndicate agreement provided for two mutually exclusive means of transfer—novation and assignment. A failed novation would not be turned into a valid assignment. This is consistent with the broad thrust of the decision in Milroy v Lord.92 Milroy executed a voluntary deed purporting to assign 50 of his shares to Lord to be held on certain trusts. The shares were only transferable by entry in the company books. No such entry was made. Lord held a power of attorney, which would have allowed him to make the transfer to himself as trustee. He did not. It was held that Milroy had not intended for himself to be the trustee; further because Lord did not exercise the power of attorney and was not bound to exercise it, equity would not treat it as if there were a transfer. Turner LJ, having said that the transferor might transfer an asset to his beneficiary, transfer it to trustees on trust or declare himself a trustee, went on: The cases, I think, go further to this extent: that if the settlement is intended to be effectuated by one of the modes to which I have referred, the court will not give effect to it by applying another of those modes. If it is intended to take effect by transfer, the court will not hold the intended transfer to operate as a declaration of trust, for then every imperfect instrument would be made effectual by being converted into a perfect trust.93

ii.  The ‘Every Efforts’ Doctrine This then leads us to the second mode of equitable assignment of a legal chose in action. Turner LJ also held: In order to render a voluntary settlement valid and effectual, the settler must have done everything which, according to the nature of the property comprised in the settlement was necessary to be done in order to transfer the property and render the settlement binding upon him.94

There is an exception to this, sometimes called the ‘every efforts’ doctrine. It applies to both land and to personalty, especially shares. It also applies to the assignment of legal and equitable choses in action in New Zealand law as a result of section 50(7) of the Property Law Act (NZ) 2007, which provides for the assignment to be complete in equity when the assignor has done all that he or she can do to make the assignment. In Mascall v Mascall95 the claimant bought a house for £9000 close to his own intending to get his daughter who was ill to move in. She refused. However, he transferred the house

91  The Argo Fund Ltd v Essar Steel Ltd [2006] EWCA Civ 241, [2006] 2 All ER (Comm) 104; similarly, see Co-Operative Group Ltd v Birse Developments Ltd [2014] EWHC 530 (TCC) where the required consent to an assignment was not sought, and Stuart-Smith J refused to construe it as a trust. 92  Milroy v Lord (1862) 4 De GF&J 264, 45 ER 1185. 93  ibid 1189–90. 94  ibid 1189. 95  Mascall v Mascall (1985) 50 P&CR 119.

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to his son for a purported consideration of £9000. The claimant and the son had a row and the former attempted to recover the property on the grounds it was still his, as the son had never registered the transfer. The court held that a gift was complete in equity when the transferor had done all he or she could do to transfer the property. The claimant had executed the transfer and handed over the land certificate, so the transfer was complete, even though the transfer had not been registered. In Re Rose96 shares were transferred to a trustee. The transfer, being of registered certificated shares, required registration. This was not done before the death of the transferor. The question was whether the shares were part of the transferor’s estate. It was decided not. Equity would treat the gift as complete so long as the transferor had done all that was in his power to ensure the transfer. Jenkins LJ said: The circumstance that the transferee must do a further act in the form of applying for and obtaining registration in order to get in and perfect his legal title, having been equipped by the transferor with all that is necessary to enable him to do so, does not prevent the transfer from operating in accordance with its terms as between the transferor and transferee, and making the transferee the beneficial owner.97

In Pennington v Waine98 the second defendant, Harry Crampton, had been made a director of the company. It was a requirement that directors hold shares in the company. So he could fulfil this requirement, Ada Crampton made out a share transfer form and executed it. However, it was never given to the defendant or to the company and the transfer was never registered. Rather the auditor, Pennington, gave it to a member of his staff who ‘placed it on file’. In an action by the executors of Ada’s will the question came up as to the validity of the transfer. It was said that it would have been unconscionable for Ada to deny the transfer and the beneficiaries under her will could be no better off. The effect of this is, as in Holt v Heatherfield Trust, that the assignment is effective as between the assignor and assignee. The assignor holds his or her shares on constructive trust for the assignee until the latter steps in to perfect his or her title. It is not completely clear how this works. In particular, as regards shares, parties may be able to circumvent any discretion of the directors not to register shareholders who threaten the company by forcing the transferor to operate the shares in accordance with the undesirable equitable interest-holder’s wishes.99 In fact, in the circumstances of Pennington v Waine, Ada was said not to be in the position of an ordinary bare trustee. If an application had been made for an order that the shares be transferred, the answer would have been that none was necessary. The only reason why Harry was not registered was that he had not asked for this to be done by the company.100 He had been told that he need not do anything in order to satisfy the requirement to hold shares in the company. The representation is vital. It may have given rise to an estoppel, but even if the company were estopped from denying his legal interest, this would clearly not have affected third parties. Ada should indeed be seen as a bare trustee. In Zeital v Kaye101 Raymond Zeital completed a stock transfer form, naming Stefka as the transferee of shares in a company, Dalmar, which had purchased a flat for letting. In 1998, 96 

Re Rose [1952] Ch 499 (CA). ibid 518–9. 98  Pennington v Waine [2002] EWCA Civ 227, [2002] 1 WLR 2075. 99  J Garton, ‘The Role of the Trust Mechanism in the Rule in Re Rose’ (2003) Conv 364, 370–71. 100  Hurst v Crampton Bros (Coopers) Ltd [2002] EWHC 1375, [2003] 1 BCLC 304, 308. 101  [2010] EWCA Civ 159, [2010] 2 BCLC 1. 97 

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the company was struck off the register, although the flat continued to be let. It was not until August 2003 that Raymond gave the form to Stefka. He also gave her a second stock transfer form, without adding her name as transferee or dating it. He did not hand over the share certificate along with that second stock transfer form. After Raymond’s death in 2004, Stefka purported to appoint herself a director and obtained the restoration of the company to the register. In September 2004 the company entered into a members’ voluntary liquidation, and the flat was sold. A dispute arose concerning the proceeds of the sale, which turned on the beneficial ownership of the shares in the company. Raymond had died intestate and the shares would devolve to his daughters, Giselle and Kim, if the transfers to Stefka had failed. The court decided that once a legal owner of shares hands a share transfer form over and the share certificate, the donee is in a position to register his title and becomes automatically equitable owner. Raymond had done none of these things and so the shares devolved on the intestacy rules. The case seems to return to Re Rose. Later in Curtis v ­Pulbrook102 the defendant made purported gifts of shares to his wife and daughter, but without sending them either a stock transfer form or the original share certificates. Briggs J first held that he had no power to issue the shares to his wife and daughter, and more importantly for our purposes, held that they could not perfect the gifts of his own shares without assistance from him. The Re Rose test was not met. Nor was there any detrimental reliance on the part of his wife or daughter to justify rendering him a constructive ­trustee.103 Essentially, Pennington becomes a rule about estoppel. In Corin v Patton104 the High Court of Australia decided that so long as the transferor had done everything he was to do, and which only the transferor could do, there would be a valid equitable assignment.105 That case did not concern assignment of choses in action, but transfers of land. Olsson v Dyson106 did concern debts, and applied the rule in that context. A company was indebted to Dyson to the tune of £2000 at 8 per cent per annum. Dyson gave oral instructions to the managing director that he was to pay his wife, who he had also told could have the money. The High Court of Australia held that there was no legal or equitable assignment of the debt. Section 15 of the Law of Property Act 1936 (S Aust) (the equivalent to section 136 of the Law of Property Act 1925) was not applicable as there was no writing. Kitto J, giving the main majority speech, did go on to say that equity would sometimes hold that there was a valid and effectual assignment despite the lack of writing, as where there was valuable consideration. However, equity would not perfect an imperfect gift.107 Because there was no writing there was no perfect gift. In other words, the method of equitable assignment in Brandt’s where a gratuitous oral assignment will count does not apply, because every effort to make the transfer has not been made by the assignor. He still needed to put it in writing. Windeyer J was in dissent, by holding that there was a novation, but said that if the transferor had done all he had to do to perfect the gift, he would be unable to retract it; again he thought this was not the case on these facts.108 There 102 

[2011] EWCA Civ 167, [2011] 1 BCLC 638. ibid 649–650. 104  Corin v Patton (1990) 169 CLR 540 (HCA). 105  ibid 558–59 (Mason CJ and McHugh J). 106  Ollsson v Dyson (1969) 120 CLR 365 (HCA); Norman v Federal Commissioner of Taxation (1963) 109 CLR 9 (HCA) 28–29 (Windeyer J). 107  Ollsson v Dyson (1969) 120 CLR 365 (HCA) 375–76. 108  ibid 386–87. 103 

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was no writing and equity would not perfect an imperfect gift. The application of the ‘every efforts’ doctrine in this context is now clearly part of Australian law,109 although Olsson v Dyson appears to make this exclusive. The ‘every efforts’ doctrine and Brandt need not, however, be thought of as inconsistent, although the extent to which the ‘every efforts’ doctrine might be needed if the Brandt line of authority is right can be questioned. The question that requires an answer is that answered in the previous subsection of this chapter and is whether the statute was intended to be mandatory, or as Smith and Leslie argue, merely facilitative.110 If not, and the assignment is perfected under Brandt, it is perfected through a pre-existing mechanism of equity and the donor is not required to make the assignment in writing. McFarlane critiques the every efforts doctrine, saying that it is hard to see why the transferor should be under a duty to the transferee vis-à-vis his or her shares or other rights because the transferor did his or her best, but failed.111 He argues that it is simply not ­possible for a transfer to be valid in equity if it is not valid at law. Equity follows the law and if the law lays down a set of criteria, equity cannot contradict those criteria. Clearly the result in Pennington v Waine is unsatisfactory because there is no clear definition of ­unconscionability112 and Briggs J in Curtis v Pulbrook wondered whether there was any identifiable policy objective behind the rules.113 The particular mischief that the rule in Milroy v Lord is supposed to meet is, however, simple. Property transfer rules and formalities should be met. If some cases are treated differently and validated without formality, like cases may not be treated alike. It may be that we want to ensure that transferors are forced to stop and think before they transfer intangibles lest they do it accidentally. There is also a particular need for evidentiary certainty in cases involving intangibles.114 The flipside of this is that it is important to look to our intentions—Peter Birks once commented in a different context that it is hard to send someone away empty-handed because they used the wrong piece of paper.115 Historically equity has refused to do precisely this, looking to the intention not the form, and it is on this maxim that the qualifications to Milroy v Lord have been built.116 From a legal certainty point of view Re Rose is clear. The donor needs to do everything only the donor can do. Once the donor has done so there is nothing further the donor can do to demonstrate his or her intention to transfer. That will be fact-specific, but it is a clear and workable test and will not lead to significant numbers of like cases being treated differently. The result, however, of not allowing this qualification is to give the donor a locus poenitentiae to pull back a transfer when he or she has completed his or her side of the transfer. That will seem unfair to many.

109 Worthington, Personal

Property Law: Text and Materials (2000) (n 19) 235–42. Smith and Leslie, The Law of Assignment (2013) (n 6) para 11.129. 111  Corin v Patton (1990) 169 CLR 540 (HCA) 564–65. 112  J Penner, The Law of Trusts, 10th edn (Oxford, OUP, 2016) 227–228; M Halliwell, ‘Perfecting Imperfect Gifts and Trusts: Have we Reached the End of the Chancellor’s Foot?’ (2003) Conv 192, but see Garton, ‘The Role of the Trust Mechanism in the Rule in Re Rose’ (2003) (n 99) 374–76. Smith and Leslie The Law of Assignment (2013) (n 6) para 11.117. 113  [2011] EWHC 167, [2011] 1 BCLC 638, 650. 114  For more on the purposes of formality, see S Gardner, An Introduction to the Law of Trusts, 3rd edn (Oxford, Clarendon Press, 2011) 87–88. 115  PBH Birks, ‘Before we Begin: Five Keys to Land Law’ in S Bright and J Dewar (eds), Land Law: Themes and Perspectives (Oxford, OUP, 1998) 457. 116  H Tijo and T Yeo, ‘Re Rose: The Shorn Lamb’s Equity’ (2002) LMCLQ 296, 299. 110 

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The qualification therefore seems justifiable, despite McFarlane’s concerns. The addition of what is in effect an estoppel qualification—representation followed by detrimental reliance is also in line with established equitable principle.

iii.  The Relevance of Notice In William Brandt’s Sons & Co Ltd v Dunlop Rubber Co Ltd, Lord McNaughten said that as between assignor and assignee an assignment is complete without notice.117 It is worth recapping what effects it does have, however. There are three main effects of notice in ­equitable assignments: 1. Where the debtor is given notice of an equitable assignment, only the assignee can give a good discharge for the debt and the assignor is unable to do so. If therefore, for example, the assignment is for part of a debt and the debtor pays the assignor, he or she will have to make payment anew to the assignee.118 Until then the debt is due to the assignor, which can cause problems to non-notification factors if the assignor becomes bankrupt and the proceeds of the assigned debts are untraceable. 2. It will also be relevant to the question of the equities, subject to which the assignee takes the contractual right assigned. Equities arising between the assignor and the debtor after notice has been given cannot be asserted vis-à-vis the assignee, only those of which the debtor could have availed his or herself against the assignor at the time of assignment, or are otherwise closely connected with the assigned debt. We consider this in detail later in part IV A. 3. Notice enables the assignee to prevail against other assignees. As we saw in considering the effect of notice in statutory assignments, a later assignee can gain priority by giving notice to the debtor first. We consider this rule, that in Dearle v Hall,119 in detail in part IV B of this chapter, but it is a heavily criticised rule which can cause difficulties in cases of non-notification factoring, as the factor is always vulnerable to notification factoring arrangements. Tham has correctly questioned the first effect, leaving open the position on the other effects of notice. He argues that if the contract terms require A to pay B the assignment in equity of the debt does not affect that. The equitable assignor is treated as the trustee of the legal chose in action for the assignee. Thus the debtor only ever owes the duty at common law to the assignor who must use his or her rights for the benefit of the assignee.120 Tham does, however, suggest that notice to the debtor may be construed as an offer to vary the contract so payment to the assignee discharges the debt. That offer can be accepted by payment, but if the debtor does not accept the offer and pays the assignor the debtor is still discharged,121 and the assignor is obliged to pay the money over to the assignee.

117 

Brandt’s [1905] AC 454 (HL) 462. Jones v Farrell (1857) 21 De G&J 208, 44 ER 703; Brice v Bannister (1878) 23 QBD 569; Treitel (2015) (n 12) para 15.022. 119  Dearle v Hall (1828) 3 Russ 1, 38 ER 475; see Smith and Leslie, The Law of Assignment (2013) (n 6) ch 27. 120  Tham, ‘Notice of Assignment and Discharge by Performance’ (2010) (n 41) 50–51. 121  ibid 58. 118 

‘Subject to Equities’ and Priority Rules 99

iv.  The Relevance of Consideration Consideration is not required for a valid statutory assignment, but the role of value in equitable assignment is complex. An important point must be made at the start; consideration, or its lack, can only affect the relationship between assignor and assignee. Any prejudice to the debtor can be removed by joinder of all parties. Value, as we saw in chapter one, part V B, allows for equitable assignment in advance of statutory assignment. A contract for valuable consideration to statutorily assign a chose in action will create an equitable assignment of the chose. That can be explained as an application of the vendor-purchaser constructive trust rule and is dependent on the availability of specific performance. This will apply, for example, to equitable mortgages. A contract to create a legal mortgage will, if specifically enforceable, and the consideration is executed, create an equitable mortgage.122 A purported assignment of future property will only operate as an agreement to assign it in the future if it is for valuable consideration.123 The consideration in these cases must be actually executed and so whether the criteria for specific performance of executory contracts have been met is irrelevant; the operation of this rule causes some odd results in the case, for example, of sale of shares, which we saw in chapter one, part V B. The transfer occurs automatically in these cases. In cases of future assignments the assignee has an immediate interest in the subject matter as soon as it comes into existence. In these circumstances the assignment is said to relate back. It is said to date from the date of the contract referring to it, and so the assignee is deemed to have had more than merely contractual rights prior to the assets coming into existence. This has a significant impact on the rating of the assignment for priority purposes. Re Lind124 demonstrates the point by showing that the relevant time for the application of the priority rules is the date of the agreement, and a mortgagee of a chose in action may enforce it even if the asset was acquired after the mortgagor’s insolvency. Value is not required for other equitable assignments of legal choses in action;125 we saw that equitable assignment of existing choses in action may take place by way of gift. The effect of a floating charge in biting on future assets is also not explicable on the basis of the availability of specific performance and is therefore not contingent on the provision of valuable consideration.126

IV.  ‘Subject to Equities’ and Priority Rules Questions arise as to priorities, and connected to that whether the assignees take subject to equities. We will take these in turn. 122  SBC v Lloyds Bank [1980] AC 1169; see chapter 13, part II C; see generally S Worthington, Proprietary Rights in Commercial Transactions (Oxford, Clarendon Press, 1997) 198–207. 123  Re Ellenborough [1903] 1 Ch 697; Holroyd v Marshall (1861) 10 HLC 191, 11 ER 999; Tailby v Official Receiver (1888) 13 App Cas 523; see E McKendrick (ed), Goode on Commercial Law, 4th edn (London, Penguin, 2010) 667–70. 124  Re Lind [1915] 2 Ch 345; Tolhurst, The Assignment of Contractual Rights (2016) (n 11) 94–97; Beale et al, The Law of Security (2012) (n 4) para 6.15. 125  J McGhee (ed), Snell’s Equity, 33rd edn (London, Sweet and Maxwell, 2015) paras 3.019. 126  WJ Swadling, ‘The Vendor-Purchaser Constructive Trust’ in S Degeling and J Edelman (eds), Equity in Commercial Law (Sydney, Law Book Co, 2006) 463.

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A.  ‘Subject to Equities’ The phrase is usually used to refer to cases where the debtor can raise a right he or she has against the assignor arising prior to notice of the assignment in an action brought by the assignee. James LJ said in Roxburghe v Cox: An assignee of a chose in action, according to my view of the law, takes subject to all rights of setoff and other defences which were available against the assignor, subject only to this exception, that after notice of an assignment of a chose in action the debtor cannot by payment or otherwise do anything to take away or diminish the rights of the assignee as they stood at the time of the notice.127

Joyce J put it like this in Edward Nelson & Co Ltd v Faber & Co: It is a general rule with respect to a chose in action that an assignee takes it subject to all the equities—in other words, whatever defence by way of set-off or otherwise the debtor would be entitled to set up against the assignor’s claim up to the time of his receiving notice of the assignment he may also raise and maintain against the assignee.128

Set-off is covered in chapter 11,129 but essentially forms a means of reducing a debt owing by an amount owed to the debtor. The operation of this rule is dictated by two principles. First, set-off can only occur where there is mutuality between the parties. There are several different forms of set-off: contractual, insolvency, equitable transaction and independent (or statutory) set-off. Mutuality essentially refers to the requirement that the debts be between the same parties in the same capacity. Consequently, a debt owed by A to B cannot be set off against a debt owed to A by C, nor can an assignment be subject to such set-off. Equity does, however, modify this principle so that a debtor (A) can set off against the equitable assignee of the debt (B) a separate legal debt the assignee (B) owes A, despite A not being able to set it off against the assignor (C). An assignee takes subject to equities, but notice of the assignment to the debtor fixes the date at which those equities are decided. The rule is said to be based on the fact that the assignor cannot assign a right greater than the one he or she has.130 The assignee should be in no better position than the assignor. This is an aspect of nemo dat and applies even against bona fide purchasers for value,131 unless the debt is embodied in a negotiable instrument. The nemo dat explanation does, however, fail to encompass all the cases in which we might want set-off to apply to assignment, and may suggest cases should be covered that are not. Tettenborn puts it thus.132 If the debtor (D) gives his or her creditor (C), to whom the debtor owes £1000, £600 of credit after C has assigned the debt to A, but before D knows this, D can plausibly be said to rely on this £600 as reducing his or her debt to C. D’s expectation should be given effect against A, and is protected by independent set-off. There are also some suggestions that the assignee is only

127 

Roxburghe v Cox (1881) 17 Ch D 520 (CA) 526. Edward Nelson & Co Ltd v Faber & Co [1903] 2 KB 367, 375. 129  Chapter 11, part V B. 130  Re Blakeley Ordnance Co (1867) 3 Ch App 154; Graham v Johnson (1869) LR 8 Eq 36; Tolhurst, The Assignment of Contractual Rights (2016) (n 11) 385. 131  Mangles v Dixon (1852) 3 HLC 702, 10 ER 278; Edward Nelson & Co Ltd v Faber & Co Ltd [1903] 2 KB 367. 132  A Tettenborn, ‘Assignees, Equities and Cross-Claims: Principle and Confusion’ (2002) LMCLQ 485, 486–88; P Pichennoz and L Gullifer, Set-Off in Arbitration and Commercial Proceedings (OUP, Oxford, 2014) para 7.25. 128 

‘Subject to Equities’ and Priority Rules 101

vulnerable to equities against the original assignor,133 but it is more plausible on a nemo dat explanation that defences against the intermediate assignee should also be available; the assignee cannot assign more than he or she had assigned to him or her. There are two types of equities. There are substantive equities that are traditional vitiating factors, such as fraud or misrepresentation that relate directly to the chose,134 or equitable transaction set-off which is a substantive and not merely procedural defence. For equitable transaction set-off to apply, the relevant claims must have such a sufficiently close connection that it would be inequitable or manifestly unjust for the claimant’s claim to succeed without giving credit to the cross-claim.135 It is traditionally described in terms of impeachment of title, which explains why it is considered a vitiating factor inherent in the assigned chose.136 A tort claim for fraud in inducing the debtor to enter the contract cannot, however, be set off under this rule.137 This is because the tort claim is a separate chose in action from the contractual right assigned, even if fraudulently induced. An assignee will always take subject to contractual set-off. Where the contract between assignor and debtor contains provision for set-off to take place automatically that defines the scope of the right the assignor has and therefore the scope of the right he or she can assign to the assignee.138 The second type of equity comprises the effect of procedural set-off, which relates purely to a state of account between the parties in terms of claims and cross-claims. Only independent set-off, whether statutory or equitable, counts as an equity of this second type to which an assignment is subject.139 Independent set-off works as follows. A cross-claim arising out of some other transaction which is independent of the chose assigned may be set off against the assignee only if it is a debt or other liquidated claim and it accrues before notice is given to the debtor.140 In these cases, because it is merely a procedural matter the debts are not in fact set off against each other until the date of judgment; as a corollary the crossclaim must have arisen at the time of suit,141 although it need not have fallen due. There is controversy over the position of common law abatement, which allows a buyer to reduce a claim by the assignee for the price by a sum to represent the reduced value of the goods as a result of the assignor’s breach of contract.142 If it is a purely procedural defence it falls

133 

ibid 491; The Raven [1980] 2 Lloyds Rep 266; Re Milan Tramways Ltd (1884) 25 Ch D 587. Smith and Leslie, The Law of Assignment (2013) (n 6) para 26.30. 135  Federal Commerce & Navigation Co Ltd v Molena Alpha Ltd [1978] 1 QB 927 (CA); Bim Kemi v Blackburn Chemicals Ltd [2001] EWCA Civ 457, [2001] 2 Lloyds Rep 93, 99–102 (Potter LJ); Geldof Metaalconstructie NV v Simon Carves Ltd [2010] EWCA Civ 667, [2010] 4 All ER 847. 136  Smith and Leslie, The Law of Assignment (2013) (n 6) para 26.88; GJ Tolhurst, ‘Assignment, Equities, The Trident Beauty and Restitution’ (1999) CLJ 546, 556; see chapter 11, part V B ii for more detail. Impeachment of title is now considered an unhelpful way of putting the test. See Bim Kemi AB v Blackburn Chemicals Ltd [2001] EWCA Civ 457, [2001] 2 Lloyds Rep 92, 99–101 (Potter LJ). 137  Stoddart v Union Trust Ltd [1912] 1 KB 181 (CA); criticised by Sealy and Hooley, Commercial Law: Text, Cases and Materials (2008) (n 48) 994. 138 Tolhurst, The Assignment of Contractual Rights (2016) (n 11) 444; Mangles v Dixon (1852) 3 HLC 702, 10 ER 278; see chapter 11, part V B i. 139  See on this Smith and Leslie, The Law of Assignment (2013) (n 6) para 26.31. 140  Roxburghe v Cox (1881) 17 Ch D 520 (CA). 141  L Gullifer (ed), Goode on Legal Problems of Credit and Security, 5th edn (London, Sweet and Maxwell, 2013) para 7.42. 142  Derham on the Law of Set-Off, 4th edn (London, Sweet and Maxwell, 2010) para 13.91; Young v Kitchin (1878) 3 Ex D 127; Gilbert-Ash (Northern) Ltd v Modern Engineering (Bristol) Ltd [1974] AC 689 (HL) 717 (Lord Diplock); Sale of Goods Act 1979 s 53(1). 134 

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within the second type of equity; if it is a substantive defence it falls within the first class and an assignee may be subject to it on the nemo dat rule. It seems accepted that in England common law abatement has a substantive effect; by contrast in Australia it is settled that it is merely procedural.143 The answer to this question is important because, as we have seen, the extent to which an assignee can be affected by an equity depends on when notice of the assignment was received by the debtor. The first type of equity mentioned affects the chose whenever notice of the assignment was received. This is because they came into being when the chose was created, or reflect an inherent weakness, whether legal or equitable, in the chose itself.144 They are substantive defences and the assignor cannot assign a right better than the one the assignor has. This rule applies to common law abatement if it is a substantive defence. It also applies to equitable transaction set-off which takes place, as we saw, where the crossclaim is so closely associated with the transaction, giving rise to the chose that it would be inequitable not to allow set-off.145 The assignee therefore must take subject to claims arising after the debtor has notice of the assignment where they are sufficiently connected for equitable transaction set-off to apply. Where a trust is created of the chose, or it is assigned in equity, one would expect that subsequent cross-claims effective against the assignor also affect the assignee. In cases of equitable assignments, however, the debtor may be enjoined from pleading set-offs arising after notice of the assignment, because there is no mutuality between the parties, or ordered to pay the equitable assignee directly.146 Equally set-offs arising between debtor and beneficiary may be pleaded and this is often explained in terms of unconscionability. Another aspect of the rule on ‘subject to equities’ is that the assignee can recover no more than the assignor could have done.147 In Offer-Hoar v Larkstore Ltd148 the owner of a site (Starglade) sold it with full planning permission and the benefit of all soil investigations to the claimant, Offer-Hoar, and the first defendant (Larkstore). Technotrade had previously produced a report saying the land was suitable for two storey developments. Larkstore Ltd began to build, relying on the report but without Technotrade’s explicit consent for their use of the report. It was forced to stop because of a landslip, which caused damage to property owned by the claimants. The claimant sued the first defendant for losses caused by the landslip. Starglade then assigned the rights under the soil report to the first defendant. The assignor’s assignment of the report amounted to an assignment of the benefit of a cause of action against Technotrade in negligence and breach of contract for failure to warn of the risks of landslides, and the defendant took the assignment in order to recoup both their

143  In England see Gilbert-Ash (Northern) Ltd v Modern Engineering (Bristol) Ltd [1974] AC 689 (HL) 717; in Australia see Healing (Sales) Pty Ltd v Inglis Electrix Pty Ltd (1968) 121 CLR 584 (HCA) 601 (Kitto J). Both rely on Mondel v Steele (1841) 8 M&W 858, 151 ER 1288 for contradictory outcomes. 144  Smith and Leslie, The Law of Assignment (2013) (n 6) para 26.49; Tolhurst, The Assignment of Contractual Rights (2016) (n 11) 439. 145  Bim Kemi AB v Blackburn Chemicals Ltd [2001] EWCA Civ 457, [2001] 2 Lloyds Rep 93; this can include breach of the contract. Government of Newfoundland v Newfoundland Railway Co (1888) 13 App Cas 199 (PC); see Business Computers Ltd v Anglo-African Leasing Ltd [1977] 1 WLR 578. 146  Malcolm v Scott (1847) 6 Hare 570, 67 ER 1290; see generally Gullifer and Pichennaz (2014) (n 132) paras 7.07–7.10, 7.31. 147  Smith and Leslie, The Law of Assignment (2013) (n 6) para 26.23. 148  Offer-Hoar v Larkstore Ltd [2006] EWCA Civ 1079, [2006] 1 WLR 2926.

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own losses and their liability to the claimants. As Mummery LJ pointed out, the perceived problem with recovery by the first defendant against Technotrade was chronological.149 Starglade had assigned the benefit of the report some years after the landslip. Technotrade attempted to argue that because Starglade had suffered no loss, there was no liability to Larkstore for substantial damages because they could be liable to pay no more than the assignor could recover. That argument failed. Although Mummery LJ approved the general rule, he said it did not avail Technotrade. He said: The purpose of the principle is to protect the contract-breaker/debtor from being prejudiced by the assignment in having, for example, to pay damages to the assignee which he would not have had to pay to the assignor, had the assignment never taken place. The principle is not intended to enable the contract-breaker/debtor to rely on the fact of the assignment in order to escape all legal liability for breach of contract.150

Further, the court recognised that a cause of action is no more than a right to have a matter adjudicated. If the assignee has in fact suffered no loss he or she will not recover substantial damages. Rix LJ commented that this was no more than a case of the courts ensuring that where there was a real loss there was a real remedy, and examined the question alongside those of damages in contract for third party losses.151

B. Priorities The rule is that in Dearle v Hall. That is an exception to the usual rule that equitable interests take priority from the date they are created. The rule in Dearle v Hall is that priority between successive assignments of the same chose in action depends on notice to the debtor, provided that the assignee giving notice was at the time of the assignment (not the time of giving notice) unaware of any competing assignment. It was in fact formulated in the context of competing claims to equitable interests rather than a legal debt but has been assumed to apply to legal choses in action as well. As a rule formulated in the context of choses in equity, it is the priority rule governing successive assignments of equitable interests under a trust under section 53(1)(c) of the Law of Property Act 1925. The rule will not apply to shares152 or chattels. It seems unlikely that the rule applies to priority disputes between a person claiming a chose by virtue of an assignment and one claiming it by any other method.153 In those cases the normal methods of priority resolution apply. In Dearle v Hall itself Brown assigned part of an annuity to Dearle and part to Sherring. Some years later he purported to assign the whole annuity to Hall. Hall had no notice of the competing assignments, and gave notice to the trustee of the annuity. Because he was the

149 

ibid 2933. ibid 2936. 151  ibid 2946. M Bridge et al The Law of Personal Property (2013) (n 44) para 28.003. 152  Macmillan Inc v Bishopsgate Investment Trust Plc (no 3) [1995] 3 All ER 747, 761–62. 153  Smith and Leslie, The Law of Assignment (2013) (n 6) paras 27.97–27.104; E Pfeiffer Weinkellerei-Weineinkauf v Arbuthnot Factors Ltd [1988] 1 WLR 150; Hill v Peters [1918] 2 Ch 273. Gullifer Goode on Legal Problems of Credit and Security (2013) (n 141) para 5.78 provides an example of how a registered fixed charge will bind a subsequent assignee/factor—although if the factor purchases before the charge is registered and has no other notice the rule in Dearle v Hall seems to apply. 150 

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first to give notice he had priority. Sir Thomas Plumer justified this decision on three bases. First, he argued that equitable assignments require notice to be given to the party with legal title. Second, notice converted the legal holder into a trustee of the chose. Third, notice was needed to prevent further fraudulent assignments. This third reason may not be obvious. As Smith and Leslie put it, by failing to give notice, the first assignee leaves the assignor in apparent possession of the chose and tacitly allows a fraud to be committed on the second assignee. In such circumstances it is only fair that the first assignee be postponed.154 The rule was confirmed in Foster v Cockerell155 where it was held that the second incumbrancer who gives notice to the trustee takes priority over the first who has not yet given such notice. It is now firmly entrenched in English law. That said, the decision in Dearle v Hall related originally to the perfection of the assignee’s title. This part of the decision relating to Sir Thomas Plumer’s first two reasons for his decision is no longer good law;156 notice is no longer required to perfect an equitable assignment. The rule is now a simple priority rule, and as such may import some idea of relativity of title into choses in action in that implies an exception to nemo dat—ie an assignor may assign more than once. It may not apply where the second assignee gives no value.157 Section 137 of the Law of Property Act 1925 extends the rule to equitable interests in land and capital monies. There are usually said to be two parts or limbs to the rule. The first we have seen. It is that the first assignee to give notice to the fundholder or party who owes the relevant obligation has priority. Priority dates from the time notice is received and not the time it is given.158 Notice does not need to be in any particular form, except that where we are concerned with equitable interests in real property or choses in possession notice should be in writing. A second limb is said to exist that if the second assignee already has notice of the first assignment he or she will be unable to gain priority by giving first notice to the debtor.159 That may not in fact be the end of the rule. There is considerable authority to the effect that if the debtor knew of the first assignment anyway the second assignee could not take advantage of the first limb of the rule.160 In Arden v Arden,161 for example, Kay J said that notice to the debtor would not give the assignee priority over an earlier encumbrance of which the debtor already had knowledge, but of which formal notice had not been given. The second part of the rule was not part of the decision in Dearle v Hall. It did not need to be as Hall had no notice of the prior assignments. De Lacy has suggested that the basis for the second limb is slim and its continued acceptance merits fresh consideration by the courts.162 That has not yet happened and there are circumstances in which the second 154  Smith and Leslie, The Law of Assignment (2013) (n 6) para 27.61; United Bank of Kuwait Plc v Sahib [1997] Ch 107 (CA) 119, but see Bridge et al (2013) (n 44) para 36.013 for a critique of this ‘false wealth’ justification. 155  Foster v Cockerell (1835) 3 Cl & Fin 456, 6 ER 1508; see Sealy and Hooley, Commercial Law: Text, Cases and Materials (2008) (n 48) 1010. 156  J de Lacy, ‘Reflections on the Ambit of the Rule in Dearle v Hall and the Priority of Personal Property Assignments—Part 1’ (1999) 28 Anglo-American Law Review 87, 110–11. 157  Smith and Leslie, The Law of Assignment (2013) (n 6) paras 27.64, 27.82. United Bank v Sahib [1997] Ch 107. 158  Calisher v Forbes (1871) 7 Ch App 109, 113; McGhee (ed), Snell’s Equity (2015) (hereinafter referred to as ‘Snell’) (n 125) paras 4.053–4.058. 159  Re Holmes (1885) 29 Ch D 786. 160  Smith and Leslie, The Law of Assignment (2013) (n 6) paras 27.83–86. 161  Arden v Arden (1885) 29 Ch D 702, 708; Lloyd v Banks (1868) LR 3 Ch App 488; Ipswich Permanent Money Club v Arthy [1920] 2 Ch 257. 162  De Lacy, ‘Reflections on the Ambit of the Rule in Dearle v Hall and the Priority of Personal Property ­Assignments—Part 1’ (1999) 126.

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limb might be triggered. Where for example the assignment needs to be registered under section 859A of the Companies Act 2006, priority is given to registered security interests over unregistered. Once a mortgage is registered under this provision, however, although registration counts as notice to subsequent creditors it will not count as notice under the first part of the rule in Dearle v Hall. It may trigger the second limb, however, and give notice to the assignee that there is a competing claim. In those cases the subsequent assignee is subordinated in priority to the previous assignee. On one level the rule, or at least the first limb, seems to make good sense in that the debtor requires notice so he knows to whom the obligation is owed, yet as Bridge et al argue it is not obvious that this justification supports Dearle v Hall as opposed to a rule that the debtor be able to discharge his obligation through performance to the assignor.163 The second limb is definitely somewhat dubious. De Lacy argues that a priority rule should be of absolute application and the engrafting of exceptions, particularly ones based on subjective inquiries into the assignee’s (or even the debtor’s) knowledge, renders it no longer an efficient and effective system.164 Nonetheless, in defence of the rule we might say that the debtor needs to know who he or she is to pay; the assignment is essentially of the benefit of his or her obligation to pay. It seems reasonable for the debtor to assume that once he or she has been informed of an assignment, he or she is entitled without further worry to pay the known assignee without worrying that he or she might have to pay out twice. However, the rule remains subject to extensive criticism. Oditah in particular has criticised the rule as it applies to statutory assignments.165 It has been said to be based on the rule that assignments are subject to equities, and therefore166 a legal assignment is for priority purposes treated as if it were equitable; an equitable assignment is subject to equitable interests held by third parties, including equitable assignments of the same chose, which take priority depending on notice to the debtor. The effect of this, as Guest and Liew point out, is that an equitable assignee can by virtue of giving notice first take priority over a statutory assignee who cannot claim the benefit of a bona fide purchase.167 This is a peculiar outcome, but one said to be because section 136 is procedural in its effect. It merely allows a party unable to sue in his or her own name without joining the assignor to do so.168 It affects no other rules as to assignment. Oditah rejects this, arguing that the section does not purport to say anything about priorities. Section 136 says nothing therefore on the applicability of the rule in Dearle v Hall.169 Oditah has also argued that the rule in Dearle v Hall is inconsistent with the usual rule that first in time prevails (as applies in equity) or nemo dat (at law). It allows subsequent assignees to improve their position by quickly giving notice irrespective of when the assignment was in fact made.170 Oditah also critiques the application of the double payment justification set out above. He suggests this proves too much. Importantly, the debtor can either join both competing assignees or if the

163 

Bridge et al (2013) (n 44) para 36.015. ibid para 36.016; De Lacy (n 162) 126–27. 165  F Oditah, ‘Priorities: Equitable versus Legal Assignments of Book Debts’ (1989) 9 OJLS 513; Beale et al, The Law of Security (2012) (n 4) para 14.10; McKendrick, Goode on Commercial Law (2010) (n 123) 695–96. 166  Law of Property Act 1925 s 136(1). 167  Guest and Liew (2015) (n 31) para 6.30. 168  D McLaughlin, ‘Priorities—Equitable Tracing Rights and the Assignment of Book Debts’ (1980) 96 LQR 90. 169  Oditah, ‘Priorities: Equitable versus Legal Assignments of Book Debts’ (1989) (n 165) 515–16. 170  ibid 521. 164 

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debtor pays the wrong one recover the money in an action for restitution based on mistake of fact.171 Further, in cases where there are assignments of large numbers of receivables, the giving of notice is impractical and expensive. This also gives rise to the risk of fraud in cases of non-notification factoring where the purchaser of debts gives no notice to the debtor. The assignor could re-assign to a party who does give notice to the debtor.172 Oditah suggests another preferable and simpler priority system. Whether legal assignments take priority over previous equitable assignments should be governed in the usual way by the bona fide purchase defence. The purchaser of a legal estate takes free of equitable interests of which he or she had no notice, provided that the purchaser gives valuable consideration. He suggests that the doctrine of tabula in naufragio will also apply. An assignee of an equitable interest without notice can therefore get in the legal title and take free of equitable interests even if between paying and obtaining legal title he or she acquired notice of those equitable interests.173 We examine bona fide purchase in detail in chapter nine.174 As we saw in the introduction to this chapter, there are moves to reform personal property security legislation in England and assignments of choses in action may be drawn in. The Law Commission has proposed that all assignments of receivables be included in the charges register and that priority be on a first to register basis.175

V.  Non-Assignable Choses in Action Choses in action can be non-assignable by contract or they may be non-assignable as a matter of general law.

A.  Non-Assignability in Law Choses in action may be unassignable by statute.176 Personal rights cannot be assigned at common law. The benefits of completely personal contracts are therefore unassignable. The contract may be one for personal services for example—employment contracts cannot at common law be assigned.177 The nature of a contractual right as personal or impersonal is guided by presumed party intention.178 Parties must positively intend or be presumed to intend that the contract right is unassignable.

171 

ibid 524–25. et al, The Law of Security (2012) (n 4) para 7.91; McKendrick, Goode on Commercial Law (2010) (n 123) 789. 173  Oditah, ‘Priorities: Equitable versus Legal Assignments of Book Debts’ (1989) (n 165) 527–32; unlike Snell (2015) (n 125) para 41.006, Oditah holds that the doctrine survives s 94(3) of the Law of Property Act 1925. 174  Chapter nine, part II D. 175  Law Commission, ‘Company Security Interests’ (Law Com No 296, 2005) part IV. 176  eg under Pensions Act 1995 s 91. 177  Nokes v Doncaster Amalgamated Collieries Ltd [1940] AC 1014, 1026; an exception to this may lie under Transfer of Undertakings (Protection of Employment) Regulations 2006 r 4(1). 178  G Tolhurst, ‘Assignment of Contractual Rights: The Apparent Reformulation of the Personal Rights Rule’ (2007) 29 Australian Bar Review 4; Smith and Leslie, The Law of Assignment (2013) (n 6) para 24.06. 172  Beale

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The question of non-assignability is also bound up into questions of maintenance and champerty. A person is guilty of maintenance if he or she supports litigation in which the person has no legitimate interest without just cause or excuse. Champerty is an aggravated form of maintenance and occurs when a person maintaining another’s litigation ­stipulates for a share of the proceeds of the action or suit, and both doctrines may impact on ­assignment.179 Historically in fact the reason why assignment of choses in action was forbidden at law was because it was thought always to be maintenance.180 In particular the assignment of causes of action may be illegal and void under these rules.181 In Trendtex Trading Corporation v Credit Suisse182 the general rule is set down that there can be no assignments of bare rights to litigate, because this savours of champerty. There are a number of exceptions, including assignments by trustees in bankruptcy, liquidators and at least in Australia company administrators.183 Where there has been a separate property transaction to which the cause of action is incidental, there will also be no champerty.184 However, the most important exception is that if the assignee has a genuine commercial interest in enforcing the right for his or her own benefit the assignment will not be struck down. This is subject to a caveat. If, despite the commercial interest the assignment was not designed to protect or further that interest, the assignment is still champertous and void. Trendtex contracted to sell cement to an English company, but was not paid under the letter of credit taken out by the buyer. Trendtex purported to assign its cause of action for the purchase price to Credit Suisse, a substantial creditor of Trendtex. On the facts Lord Wilberforce held that the Swiss bank did have a substantial and genuine interest in the litigation as they had guaranteed Trendtex’ costs and could not recover its own debts against Trendtex if Trendtex itself was unsuccessful.185 However, the potential introduction of third parties with no interest in the transaction would, and did on the facts, cause problems. Reichel comments correctly that the question of what made a commercial interest ‘genuine’ was not sufficiently explored in Trendtex.186 The term is unquestionably very context-specific and this has led to significant amounts of litigation. In Brownton Ltd v Edward Moore Imbucon Ltd,187 for instance, Man sought advice from EMR on the installation of a computer system. The system failed and Man took legal action. EMR pleaded that the installers Cossor had breached their contract and they were joined as co-defendants. A settlement with EMR was reached and Man assigned its cause of action against Cossor to EMR. EMR was said to have a genuine commercial interest in the assignment because they had been sued in respect

179  Smith and Leslie, The Law of Assignment (2013) (n 6) para 23.01; British Cash and Parcel Conveyors Ltd v Lamson Store Service Co Ltd [1908] 1 KB 1006 (CA) 1014 (Fletcher Moulton LJ); Giles v Thompson [1994] 1 AC 142 (HL) 161 (Lord Mustill). 180  Lampet’s Case (1612) 10 Co Rep 46, 77 ER 994. 181  Although since Criminal Law Act 1967 s 13 it will not count as a crime or a tort. 182  Trendtex Trading Corporation v Credit Suisse [1982] AC 679 (HL). 183  Seear v Lawson (1880) 15 Ch D 426, 433 (Jessel MR); Re Park Gate Waggon Works Company (1881) 17 Ch D 234; Re Bacchus Distillery Pty Ltd (2014) 98 ACSR 539 [64–67] (Judd J). 184  Conversely, transfer of the cause of action independently of the property might be champertous. Glegg v Bromley [1912] 3 KB 474; Brownton v Edward Moore Imbucon Ltd [1985] 3 All ER 499 (CA) 507 (Lloyd LJ). 185  Trendtex Trading Corporation v Credit Suisse [1982] AC 679 (HL) 694; Smith and Leslie, The Law of ­Assignment (2013) (n 6) para 23.20. 186  D Reichel, ‘The Law of Maintenance and Champerty and the Assignment of Choses in Action’ (1983) 10 Sydney Law Review 166, 178–79; A Tettenborn, ‘Assignment of Rights to Compensation’ (2007) LMCLQ 392, 395. 187  Brownton Ltd v Edward Moore Imbucon Ltd [1985] 3 All ER 499 (CA).

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of the same transaction and damages against Cossor would reduce its liability to Man.188 On the question of the genuine nature of the commercial interest, however, the Court of Appeal merely said that in looking at whether the assignee has a genuine commercial interest the transaction must be looked at in the round and it will not fail because the assignee has no interest in one part of the action or one head of the damages claimed, or may make a profit,189 although it seems that the assignee must have an interest in the assignor or its business which the assignment may protect. The courts have been more reluctant to accept assignment of tortious rights than contractual ones. Personal tort claims—for example, for personal injury, negligence or ­defamation—are said not to be assignable.190 McMeel suggests at least some tort claims should be assignable, however.191 The position is not easy to state, but the position that tort claims are straightforwardly unassignable is no longer sustainable. In Simpson v Norfolk & Norwich University Hospital NHS Trust192 Catchpole had contracted MRSA at the Norfolk & Norwich University Hospital (NNUH). At the same time Simpson had also contracted MRSA at the hospital before dying of cancer. Catchpole sued the hospital seeking damages, but then assigned the claim to Simpson’s widow for £1. She claimed to take up the action not for financial reasons, but to ensure that the hospital would undertake more effective infection control procedures. Moore-Bick LJ said that a cause of action in tort, which might include ‘a cause of action in tort for personal injury’ could be assigned if there was a ­genuine commercial interest.193 On the facts the interest in pursuing a campaign against the hospital was thought insufficient to support the assignment, which was therefore void.194 Unhelpfully Moore-Bick LJ also said he could not definitively state what would count as a sufficient interest. Unjust enrichment claims are potentially assignable if the Trendtex criteria are met.195 Contractual debts are assignable and it is not enough to render a debt unassignable that it is disputed.196 The boundary line was explored in Camdex International v Bank of ­Zambia (BoZ).197 The Central Bank of Kuwait deposited sums of money with the defendant bank, and when it became clear that they would not be paid by the BoZ, without litigation assigned the debts to the claimant. The Court of Appeal held that the assignment of a debt was valid even if the need for litigation to recover the money was anticipated. What matters is whether there is a bona fide dispute as to the validity of the action. If there is such

188 

ibid 505–06. ibid 509; Snell (2015) (n 125) para 3.040. On the point that the operation of ‘genuine commercial interest’ is highly fact-specific see EWC Payments Pty Ltd v Commonwealth Bank of Australia [2014] VSC 207 [76] (Elliot J). 190  Kovarfi v BMT & Associates Pty Ltd [2012] NSWSC 1101; 24 Seven Utility Services Ltd v Rosekey Ltd [2003] EWHC 3415, [25-31]; Treitel (2015) (n 12) paras 15.059-15.060 argues that tort claims cannot be assigned, but also that the rule is open to criticism. 191  G McMeel, ‘The Modern Law of Assignment: Public Policy and Contractual Restrictions on Transferability’ (2004) LMCLQ 483, 497. 192  [2011] EWCA Civ 1149, [2012] QB 640. 193  ibid [24]. 194 ibid [28]; WorkCover Queensland v AMACA Pty Ltd [2012] QCA 240; Smith and Leslie, The Law of Assignment (2013) (n 6) para 23.35. 195  Haxton v Equuscorp Pty Ltd [2012] HCA 7, (2012) 246 CLR 498, 525–526 (French CJ); Smith and Leslie, The Law of Assignment (2013) (n 6) para 23.58, but see Re Berkeley Securities (Property) Ltd [1980] 1 WLR 1589, 1611. 196  McMeel, ‘The Modern Law of Assignment’ (2004) (n 191) 495. 197  Camdex International v Bank of Zambia [1998] QB 22 (CA). 189 

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a ­dispute the rules on maintenance and champerty are potentially engaged. Hobhouse LJ went on and said, answering a different point: It does not raise a question of maintenance or public policy that the terms of the assignment include provision that the assignee may account to the assignor for some or all of the proceeds of litigation to recover the assigned debt. The assignee of a debt is as free as anyone else to choose what he will do with the fruits of any litigation.198

B.  Non-Assignability by Contract Contractual rights may be made unassignable by contract, but under section 1 Small Business, Enterprise and Employment Act 2015, the Secretary of State is given power to issue regulations banning clauses prohibiting assignment of receivables.199 A party may attempt to prohibit assignment for a number of reasons. There may be some characteristics of its co-contracting party it considers to be essential and without which the party would not have contracted in the first place. A debtor may wish to retain the right to set off liabilities due to him or her against the debt. Although this is possible to some extent after assignment, there are restrictions. We have seen that liabilities accruing after the notice of assignment cannot be set off against the assignee, but these arguments may in many cases be less convincing than they appear. Set-off, for example, rarely arises with receivables;200 that said, in many financial transactions there are specific reasons for the clause, important to the particular market. Syndicated loans may permit assignment only to some institutions without consent being obtained. In derivatives contracts, which rely on close-out netting, mutuality is vital and so restrictions on assignment are essential.201 Non-assignment clauses do create commercial difficulty outside these areas, however.202 General receivables financing, for example, involves a steady stream of receivables being assigned to the financier who provides funds to the assignor to carry on its business. Financiers worry the most about bans on assignment when a notification factoring arrangement is in place, which would typically be the case with smaller firms. Because the customers would not know of the assignment, financiers are less concerned in cases of invoice factoring, where it is common for the agreement to state that the proceeds are held on trust for the financier and this is, as we see, unaffected by an anti-assignment clause.203 Some businesses miss out on invoice factoring, however, because of concerns about their ability to collect and hold the proceeds on trust.

198 

ibid 33. The Business Contract Terms (Restrictions on Assignment of Receivables) Regulations are currently in draft form; there was an expectation that they would become law in early 2016, but no timetable currently exists for implementation. 200  H Beale, L Gullifer and S Paterson ‘A Case for Interfering with Freedom of Contract: An EmpiricallyInformed Study of Bans on Assignment’ [2016] JBL 203, 206–208. 201  L Gullifer, ‘Should Clauses Prohibiting Assignment be Overridden by Statute?’ (2015) 4 Penn State J of Law and Intl Affairs 47, 64–65; this was effectively republished: L Gullifer ‘Should Clauses Prohibiting ­Assignment be Overridden by Statute?’ in L Gullifer and O Akseli (eds) Secured Transactions Law Reform (Oxford, Hart, 2016) 319. 202 Gullifer, Goode on Legal Problems of Credit and Security (2013) (n 141) para 3.38. For details of two smallscale empirical studies, see H Beale, L Gullifer and S Paterson ‘Bans on Assignment Clauses: Views from the Coal Face’ (2015) 30 JIBFL 463. 203  Gullifer (2015) (n 201) 53. 199 

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Financiers do, however, check for anti-assignment clauses—and this carries both a cost and a risk of missing something and a consequent invalid assignment—and they may seek a waiver of the ban, but that waiver might not always be granted,204 and this proves a good reason for the proposed statutory override. Interestingly, one of the major points raised by customers in insisting on a ban on assignment was that they might not have otherwise issued or approved the invoice assigned, and this made them more relaxed about supply chain finance where the customer arranges matters with the financier.205 Supply chain finance, although it may be seen as a workaround and one promoted by the UK Government, may, however, have the effect of extending credit terms and forcing businesses to pay for a longer financing period, which they might not otherwise have chosen for themselves.206 Akseli comments that it remains unclear whether English law has struck the right balance, or that anti-assignment clauses should be permitted at all;207 the effect after all is that the cost of finance is raised. Draft regulations under the Small Business, Enterprise and Employment Act 2015 provide for the banning of some anti-assignment clauses to the extent they involve receivables. The devil, as always, will be in the detailed definition of receivables, and the scope of the restrictions, so for example, the clauses can continue in the financial context mentioned earlier. Currently the draft Business Contract Terms (Restrictions on Assignments of Receivables) Regulations define receivables as ‘a right to be paid any amount under a contract or under any other contract between the same parties’. This seems too wide, although there are exemptions for financial services contracts, contracts creating interests in land and contracts where one party is not acting in the course of trade or a business. Bruce Whittaker, in his review of the Australian Personal Property Securities Act 2009, argued that ‘account’ should be restricted to debts commonly used to raise finance,208 which seems appropriate here also. Article 9 of the UN Convention on the Assignment of Receivables in International Trade also provides for the effectiveness of assignments in certain cases, irrespective of purported contractual limitations.209 Responses to the BIS consultation on nullifying bans on assignments were mixed and at the time of writing amended draft regulations are awaited.210 We must though try to balance the need to allow receivables financing to take place without difficulty and the parties’ legitimate concerns about the identity of their counterparty. There are a number of possible questions. First the question whether the assignment is wholly void or merely ineffective against the debtor. Second, what obligations does the assignor have with regards to the assignee? Does a non-assignment clause preclude equitable assignments, trusts or charges of the debt?

204 

Beale, Gullifer and Paterson (n 200) 217–220, 224–226. ibid 221. 206  Gullifer (2015) (n 201) 57. 207  O Akseli, ‘Contractual Prohibitions on Assignment of Receivables: An English and UN Perspective’ (2009) JBL 650. 208  B Whittaker A Review of the Personal Property Securities Act 2009: Final Report (2015) 61–63; the ­Australian provision on restricting non-assignment clauses is Personal Property Securities Act 2009 (Cth) s 81; UCC §9-406(d) also nullifies most bans of the assignments of accounts (as defined by the UCC). 209  See also United Nations Commission on International Trade Law (UNCITRAL), ‘Legislative Guide on Secured Transactions’ (2007) 92–93 and recommendation 24. 210 BIS Nullification of Ban on Invoice Factoring Clauses (2014); BIS Nullification of Ban on Invoice Factoring Clauses Summary of Responses (2015); BIS Government Response: Invoice Finance, Nullifying the Ban on Invoice Assignment Contract Clauses (2015). 205 

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Non-assignment clauses have, despite the policy arguments as to whether they should be permitted (or not), been repeatedly upheld. In Linden Gardens Trust Ltd v Lenesta Sludge Ltd211 the benefit of a building contract was assigned despite the contract explicitly stating that it may not be assigned without consent. The House of Lords held that a party may have a genuine commercial interest in ensuring that its contractual relations with its co-contracting party were preserved and that a non-assignability clause was therefore in principle valid.212 Lord Browne-Wilkinson relied for this proposition on the decision in Helstan Securities Ltd v Hertfordshire CC.213 The County Council had entered into a contract for road works to be done. The contractor was not to assign any part of the benefit of the contract without the council’s written consent. Croom-Johnson J upheld this. The effect of these cases is to render the assignment void and of no effect in the sense that the debtor is fully able to discharge his or her debt by payment to the ‘assignor’. Essentially one of the attributes of the chose is non-assignability, and this seems in principle the correct view of non-assignment clauses. Tolhurst and Carter argue that there are several reasons for preferring what they call the property view.214 Most importantly, it is consistent with the other rules on assignment. Non-assignability, they suggest, is just an example of nemo dat. If the assignor cannot make the assignee a contracting party the assignment only has property implications and there is no difficulty with saying an assignor cannot give away property he has no power to give away. As we will see, assignability is not an all-or-nothing issue. The non-assignability of a chose in action goes only so far as intended.215 There is a separate question as to whether there is a promise not to assign so as to give rise to an action for breach of contract for attempting to assign—even if that assignment is null and void. Lord Browne-Wilkinson accepted that a clause preventing the assignment of the fruits once received would be against public policy, but did so tentatively.216 Nonetheless that position must be right. The debtor has no interest in what transpires after the debtor has discharged his or her debt. The debtor also has no interest in the position as between assignee and assignor and therefore so long as the debt can be discharged by paying the assignor, the latter’s contractual obligation to transfer to the assignee may remain. English law currently adopts the position that the debtor may in these cases ignore a notice of assignment, but it regards the contract as effective between assignor and assignee.217 This raises the question of the effect of the transfer in equity, on which there is little authority. Goode suggests that a non-assignment clause is void for grounds of public policy if it purports to render a transfer void and prevent beneficial transfer of the contract right itself.218 The debtor has no interest in the position between assignor and assignee—that the former may have an equitable obligation to account to the latter should, according to Goode, make no difference to him or her. The second point is that as a matter of contract

211 

Linden Gardens Trust Ltd v Lenesta Sludge Ltd [1994] 1 AC 85 (HL). ibid 103–04 (Lord Browne-Wilkinson); Bawejem Ltd v MC Fabrications Ltd [1999] 1 BCLC 174 (CA). 213  Helstan Securities Ltd v Hertfordshire CC [1978] 3 All ER 262. 214  GJ Tolhurst and J Carter ‘Prohibitions on Assignment: A Choice to be Made’ [2014] CLJ 405, 422–433. 215 Tolhurst The Assignment of Contractual Rights (2016) (n 11) 287. 216  Linden Gardens Trust Ltd v Lenesta Sludge Ltd [1994] 1 AC 85 (HL) 108; R Goode, ‘Contractual Prohibitions against Assignment’ (2009) LMCLQ 302, 304–05. 217 Gullifer, Goode on Legal Problems of Credit and Security (2013) (n 141) para 3.38. Co-Operative Group Ltd v Birse Developments Ltd [2014] EWHC 530 (TCC) [65] (Stuart-Smith J). 218  Goode, Contractual Prohibitions against Assignment’ (2009) (n 216) 306. 212 

112  Assignment of Legal Choses in Action

law, A and B cannot by contract affect the position between A and C. The parties simply do not have the power to deny the proprietary effects between A and C; the most they can do is ensure that B can always discharge the debt by paying A. For Goode, therefore, equitable assignments are valid despite a non-assignment clause. One response to this, raised by Michael Bridge, is to say that the process of joinder gives rise to complications and possibly additional legal expense on the part of the obligor and that the joinder of an unwilling assignor as co-defendant strips away the semblance of an action being brought by that same assignor.219 Non-assignment clauses have been held to prohibit equitable assignment as well. In R v Chester and North Wales Legal Aid Area Office ep Floods of Queensferry Ltd,220 the clause was in the following terms, ‘The subcontractor shall not assign the whole or any part of the benefit of this subcontract nor shall he sublet the whole or any part of the subcontract works without the previous written consent of the contractor.’ This was held to bar equitable assignments. Millett LJ said, ‘The sub-contract expressly prohibits any assignment of the claim, not merely any legal assignment, and in my opinion an equitable assignment is as much within the prohibition as a legal assignment.’221 The only possible remaining rights in the assignee on a purported assignment were therefore purely contractual. Hobhouse LJ left open the possibility that a trust of the proceeds may follow,222 and that should indeed be permissible. Holding the money received on trust is not the same as holding the chose on trust. Once the debt is enforced and discharged the obligor no longer has any interest in how the money is used. The question then arises whether the prohibition on both legal and equitable assignment can be extended to a prohibition on the declaration of a trust over the chose. It certainly cannot be extended to trusts over the proceeds of the chose once received and a promise to make trust over such after-acquired property if made for value will bite immediately once the proceeds are received to render the creditor a trustee.223 That ought to be ­permissible.224 In Don King Productions Ltd v Warren225 the claimant and first defendant entered into a partnership agreement, which purported to assign the benefit of existing management agreements with the defendant to the claimant. These could not take effect because of the existence of non-assignment clauses in those contracts, and because they involved personal services. There was no express prohibition on a trust being declared. The parties then entered a second partnership agreement whereby the claimant and first defendant agreed to hold the benefit of the management and promotion agreements on trust for the p ­ artnership.

219 

M Bridge, ‘The Nature of Assignment and Non-Assignment Clauses’ (2016) 132 LQR 47, 61 R v Chester and North Wales Legal Aid Area Office ep Floods of Queensferry Ltd [1998] 2 BCLC 436 (CA). 221  ibid 442; CH Tham, ‘Equitable Assignment and Anti-Assignment Clauses’ in J Neyers (ed), Exploring Contract Law (Oxford, Hart, 2009) 283, 284 describes ‘a general acceptance of anti-assignment clauses as effective to invalidate equitable assignment’. 222  R v Chester [1998] 2 BCLC 436 (CA) 445–46. 223  Linden Gardens Trust Ltd v Lenesta Sludge Ltd [1994] 1 AC 85 (HL) 106 (Lord Browne-Wilkinson); Re ­Turcan (1888) 40 Ch D 5. 224  McMeel, ‘The Modern Law of Assignment’ (2004) (n 191) 500; Akseli, ‘Contractual Prohibitions on Assignment of Receivables’ (2009) (n 207) 658. 225  Don King Productions Ltd v Warren [2000] Ch 291; Swift v Dairywise Farms Ltd [2000] 1 All ER 320; John Taylors v Masons [2001] EWCA Civ 2106, [2005] 1 WTLR 1519. Smith and Leslie The Law of Assignment (2013) (n 6) paras 25.27–25.36. 220 

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The Court of Appeal decided that this trust was valid.226 It had been argued that allowing a trust to be declared would defeat the point of the anti-assignment clause because the beneficiary would be able to sue the debtor, joining the trustee as a co-defendant under the Vandepitte procedure, or require the trustee to sue in situations where he or she might not otherwise have chosen to enforce his or her legal rights. Lightman J at first instance in Don King said this rule would not apply in cases of non-assignable contracts; he would not allow the procedure to be used in cases where to do so would abrogate the protection the debtor had secured from intrusion by third parties. The beneficiary would not therefore be able to control enforcement of the chose in action.227 Morritt LJ on appeal also denied that the beneficiary would be able to interfere in the contracts forming the subject matter of the trust.228 The beneficiary will also not be able to collapse the trust under the rule in Saunders v Vautier;229 in this Don King must be right, as collapsing the trust implies that legal title to the chose is transferred, but this is impossible. Tolhurst also believes the type of trusts this implies is not possible, arguing that if the trust beneficiary must necessarily be able to call for an assignment or bring an action against the obligor in his own name that would defeat the point of the prohibition.230 Nonetheless, the result in Don King is unobjectionable. The assignee did not acquire rights against the debtors; all that happened was when the partnership accounts were taken the value of the assigned debt was deducted from the assignor’s share. However, it does seem wrong to call this a trust; rather there is at most an equitable accounting obligation, and it is hard to see how this differs in its substantive effect from a contractual agreement to treat the assets as if they were partnership property when the arrangement collapsed, a route apparently approved by Lightman J.231 In Barbados Trust Co (BTC) Ltd v Bank of Zambia,232 the relevant contract rights could not be assigned to a bank or other financial institution without prior consent; however, that consent was deemed to be forthcoming if the assignor had no reply within 15 days of a request that consent be given to a proposed assignment. There was also a restriction against assignments to parties not counting as ‘a bank or other financial institution’. In a series of assignments GMO Emerging Country Debt LP became an intermediate assignee before BTC took the final assignment. GMO Emerging Country Debt LP was not a qualifying institution. Bank of America which had purportedly assigned the chose to GMO Emerging Country Debt LP executed a trust deed in favour of BTC as soon as the validity of the assignments was questioned. On the first issue whether Bank of America (BoA) was itself a valid assignee of the chose despite clearly being a bank, the Court of Appeal held that it was not because on the date of the assignment to BoA there was no consent to the assignment by the debtor—Bank of Zambia.233 On the second issue of whether the trust was 226  Don King [2000] Ch 291 (CA) 327; See Bridge (2016) (n 219) 62–66 on the rather ambiguous nature of the discussion of trusts. 227  Don King [2000] Ch 291 (CA) 321. 228  ibid 335–36; Beale et al, The Law of Security (2012) (n 4) para 7.84. 229  Don King [2000] Ch 291 (CA) 321 (Lightman J); Saunders v Vautier (1841) Cr & Ph 240, 41 ER 482; Goode, Contractual Prohibitions against Assignment’ (2009) (n 216) 312–13. 230 Tolhurst, The Assignment of Contractual Rights (2016) (n 11) 290; A Tettenborn, ‘Assignments, Trusts, Property and Obligations’ in J Neyers (ed), Exploring Contract Law (Oxford, Hart, 2009) 267, 274–75. 231  Don King [2000] Ch 291, 322; Tettenborn, ‘Assignments, Trusts, Property and Obligations’ (2009) (n 230) 268. 232  Barbados Trust Co (BTC) Ltd v Bank of Zambia [2007] EWCA Civ 148, [2007] 2 All ER (Comm) 445. 233  ibid 466, 468 (Rix LJ).

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valid, Rix LJ did not hold that the anti-assignment clause prohibited all alienations. He suggested the most obvious explanation as to why an assignment was invalid was that the assignor, although holding a property right—the chose in action—did not have the power to assign. The chose was one that was inherently untransferable, which would mean at most that the assignee has contractual rights against the assignor for failure to assign. However, the assignor of such a chose did not lack the power to make itself a trustee of the chose.234 Rix LJ also discussed whether the beneficiary of such a trust could bring an action directly. He argued that the rule that the trustee could be joined as co-defendant arose from the nature of the trust and said that if he had had to decide the issue he would have made the Vandepitte procedure available to the beneficiary of the trust.235 Waller LJ agreed with this, arguing that a trust was permissible, but that a trust and an equitable assignment were different.236 He in fact would have gone further and allowed the claimant to sue on the claimant’s own account without joining the trustee at all. Hooper LJ in dissent on this point said that the result of allowing BTC to sue as a trust beneficiary was the same as allowing it to be an equitable assignee. Hooper LJ argued that an equitable assignment required the consent of the defendant which had never been sought and a trust should require the same. Consequently, he held that it was an illegitimate attempt to evade a contractual prohibition to create a trust.237 This is criticised by Smith and Leslie on the grounds that it is the trustee who enforces the rights not the beneficiary.238 McFarlane and Tettenborn argue that an equitable assignment of a legal chose in action and a trust of it are effectively identical,239 and therefore on an equitable assignment any cheque or other money received by the assignor is held on trust for the assignee.240 The logical consequence is that if the former (equitable assignment) is prohibited, so should the latter (a trust). Edelman and Elliott accept this, but also say quite correctly that it does not answer the question whether the debtor should have a valid defence against the equitable assignee, or simply a damages claim against the assignor.241 Tettenborn acknowledges, however, that there is another possibility, namely that both equitable assignments and express trusts should be permitted despite the non-assignment clause. To refute this, he argues that equity largely treated the equitable assignee as owner of the chose; in particular set-offs arising between obligor and assignor subsequent to notice of the assignment were ineffective as against the assignee or trust beneficiary as there is no mutuality. This might make the obligor worse off as against the assignee than the assignor. Yet it may be possible to protect against this by prohibiting the creation of trusts over the chose. Whatever the outcome of such a clause between the trustee and beneficiary, the debtor ought to be able to preserve his rights of set-off.242 There are also, Tettenborn argues, 234 

ibid 471–72; Explora Group Plc v Hesco Bastion Ltd [2005] EWCA Civ 646, [2005] All ER (D) 271 (Jul) [104]. BTC Ltd v Bank of Zambia [2007] EWCA Civ 148, [2007] 2 All ER (Comm) 445, 479. 236  ibid 460–61. 237  ibid 482–83. 238  Smith and Leslie, The Law of Assignment (2013) (n 6) para 25.40; Goode, ‘Contractual Prohibitions against Assignment’ (2009) (n 216) 314–15. 239 McFarlane, The Structure of Property Law (2008) (n 49) 212–14; Tettenborn, ‘Assignments, Trusts, Property and Obligations’ (2009) (n 230) 279–80; see also A Tettenborn, ‘Trusts of Unassignable Agreements’ (1998) LMCLQ 498; A Tettenborn, ‘Trusts and Unassignable Agreements—Again’ (1999) LMCLQ 353. Edelman and ­Elliott (n 49). This position is denied by M Smith, ‘Equitable Owners Enforcing Legal Rights’ (2008) 124 LQR 517. 240  But see Goode, Contractual Prohibitions against Assignment’ (2009) (n 216) 309–10. 241  Edelman and Elliott (n 49) 248–249. 242  Pichennaz and Gullifer Set-Off (2014) (n 132) para 7.31. 235 

Non-Assignable Choses in Action 115

cases where equity required the debtor to pay the equitable assignee directly. ­Tettenborn lastly argues that we should remember the point of the clause is at least in part to p ­ revent the debtor being subject to an undesired or undesirable party’s decision to enforce or not.243 While this may occur anyway as new directors with a more hard-headed approach join creditor companies, for example, the law should not provide easy ways to avoid a legitimate attempt by debtors to reduce the risk. Goode rejects this, arguing that the effect of set-off cannot be as suggested above.244 The obligor cannot be made worse off and given that, there is no reason not to allow the trust which only affects relations as between trustee and beneficiary; whether BTC Ltd v Bank of Zambia is correct therefore seems to turn on whether the protection the obligor desired from such unexpected (and less advantageous) set-offs is retained or not and whether the rule in Saunders v Vautier applies. The question remains highly controversial therefore. Certainly neither Tettenborn nor Hooper LJ seems concerned about the result that the Bank of Zambia might evade liability to anyone if BoA would not sue and BTC could not sue,245 a result Goode finds nonsensical. There remains no difficulty, however, according to Lightman J in Don King, albeit obliquely, and Rix LJ in Barbados Trust Co. in a clause expressly prohibiting both trusts and equitable assignments.246 However, without such redrafting, what this means is that as Bridge puts it, ‘the trust mechanism has the capability of restoring marketability to contract rights and debts that are subject to non-assignment clauses’.247 In Foamcrete Ltd v Thrust Engineering Ltd248 PTE (UK) Ltd and Thrust entered into a joint venture agreement. Thrust, under a separate agreement, agreed to buy PTE’s stock and work-in-progress for the joint venture. Two years prior to those agreements, PTE had granted a fixed and floating charge in favour of its bank under a debenture. On PTE’s insolvency the bank assigned the debenture to Foamcrete and gave notice to the defendant that payments due to PTE should now be made to Foamcrete. Thrust claimed the assignment was ineffective under an anti-assignment clause in the joint venture agreement. However, Mummery LJ took the view that the bank had a right in the debts owing from Thrust as a result of the floating charge. That equitable interest was prior to the non-assignment clause and therefore was said not to be subject to the prohibition against assignment under the joint venture.249 It could therefore be assigned. Mummery LJ indicated therefore an exception to the availability of non-assignment. He explained this on the basis that the grant of the debenture to the bank was no breach of the anti-assignment clause as the debenture was prior to the non-assignment clause, but Tettenborn has correctly argued that this is beside

243  Malcolm v Scott (1847) 6 Hare 570, 67 ER 1290; Tettenborn, ‘Assignments, Trusts, Property and Obligations’ (2009) (n 230) 279–81; G McCormack, ‘Debts and Non-Assignment Clauses’ (2000) JBL 422, 437. Tham, ‘Equitable Assignment and Anti-Assignment Clauses’ (2009) (n 221) 308–10 consider Tettenborn’s objection to be overstated. On set-off see chapter 11, part V B and on ‘subject to equities’ see part IV A of this chapter. 244  Goode, Contractual Prohibitions against Assignment’ (2009) (n 216) 314–15. 245  BTC Ltd v Bank of Zambia [2007] EWCA Civ 148, [2007] 2 All ER (Comm) 445, 482–83. 246  Don King [2000] Ch 291, 319–20; BTC Ltd v Bank of Zambia [2007] EWCA Civ 148, [2007] 2 All ER (Comm) 445, 468–69. Bridge (n 219) 67 points out that these are obiter dicta and the question has never been tested in court. 247  Bridge (n 219) 67. 248  Foamcrete Ltd v Thrust Engineering Ltd [2000] EWCA Civ 351, [2000] All ER (D) 2439; Beale et al, The Law of Security (2012) (n 4) para 7.89. 249  Foamcrete Ltd v Thrust Engineering Ltd [2000] EWCA Civ 351, [2000] All ER (D) 2439 [29]–[30].

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the point; it is simply inconsistent with a non-assignment clause to allow assignment of the rights covered by it.250 The unassignable rights in favour of PTE under the joint venture agreement could not therefore be included in the floating charge or assigned by the bank to Foamcrete, and Thrust was not obliged to recognise the crystallisation of the floating charge over those rights or the title of the bank’s assignee. There are a number of cases in which consent is required, but it is stipulated that this consent must not be unreasonably withheld. These clauses are common in leasehold agreements; here there are considerations of the undesirability of a tenant that may not be present in other contexts. A balance needs to be struck here, but the landlord’s decision can be entirely self-interested.251 What if consent is withheld? Can the assignee claim that because no reasonable debtor could object the assignment is valid? In Hendry v Chartsearch Ltd252 the claimant and his wife ran a company called Interface; they were in dispute with the defendants over two agreements entered into relating to data processing. The agreements contained non-assignment clauses, but with a proviso that it would not be unreasonably withheld. Consent was never sought for the contested assignments; and the defendants disputed the validity on the basis that consent had not been sought let alone provided. On subsequently being asked for consent, the defendants refused to grant it and said that as the parties were in dispute no consent would be forthcoming. Henry and Millett LJJ held that that consent had to be sought and that the assignor could not assert that consent could not reasonably be refused and so it was unnecessary to even ask for it.253 The assignments were consequently invalid. Sometimes and despite the non-assignment clause, parties may be estopped from denying the efficacy of the assignment.254

VI. Conclusion Despite, or perhaps because of, the antiquity of some of the rules concerning assignment of legal choses in action, the law is apparently surprisingly undeveloped, and the area has been described as lacking any apparent underlying principle.255 Some rules are still in spite of their age unclear in their ambit—in particular, the ‘subject to equities’ rule causes continual problems, and the effect of non-assignment clauses remains a topic of heated discussion. Neither ought to be so, but the uncertainty persists despite the immense commercial importance of the area; the discovery that a debt is a saleable commodity has been credited as starting modern capitalism, and assignment is of vital importance as a financing tool in factoring and invoice discounting transactions. Once the principles become clearer, however, answers to many of the more difficult questions emerge into the sunlight.

250  A Tettenborn, ‘Prohibitions on Assignment’ (2001) LMCLQ 472; Gullifer, Goode on Legal Problems of Credit and Security (2013) (n 141) para 3.45, which also includes criticism of the Court of Appeal’s conceptualisation of the floating charge; McCormack, ‘Debts and Non-Assignment Clauses’ (2000) (n 234) 432. 251  Bridge et al (2013) (n 44) para 29-029; Barclays Bank plc v Unicredit Bank AG [2012] EWHC 3655. 252  Hendry v Chartsearch Ltd [1998] CLC 1382 (CA). 253  ibid 1393. 254  Orion Finance Ltd v Crown Financial Management Ltd [1994] 2 BCLC 607. 255 Tolhurst, The Assignment of Contractual Rights (2016) (n 11) 3–4.

5 Disposition of Subsisting Equitable Interests I. Introduction Section 53(1)(c) of the Law of Property Act 1925 states that a disposition of an equitable interest subsisting at the time of the disposition must be in writing signed by the person disposing of the same. Section 8 of the Electronic Communications Act 2000 creates a power to issue a statutory instrument to modify a statute to facilitate electronic communication. No statutory instrument has been issued in this area, but there seems no particular reason why email should not count as sufficient writing if the party’s name is appended to the email.1 The consequence of an oral transaction covered by the paragraph is that it is void. It has no effect and the status quo ante remains. If it is in writing the transferee obtains equitable title, but legal title to trust assets remains with the same person. Since no new trust is created there are, for example, no new perpetuity issues. Section 53(1)(c) does not only apply to outright transfers of equitable interests under trusts. Transfers of equitable easements are also governed by the paragraph. Consequently, it has a greater reach than merely personal property. In those cases where the mortgage is a mortgage of an equitable interest the creation of the mortgage is governed by the paragraph. We will see more about equitable mortgages in chapter 13, part II C. Another case in which one might think the paragraph should operate is to regulate the transfers of intermediated securities. As we saw in chapter one, these are debt or equity securities where the ultimate holder has an equitable interest under a trust/sub-trust structure and the top-tier intermediary has legal title to all the securities. In practice, a process of credits and debits of the parties’ accounts with the intermediary is used.2 Intermediated securities, however, are often financial collateral— treated in more detail in chapter 11—and the Financial Collateral Arrangements (No 2) Regulations 2003 disapply section 53(1)(c) in those cases where the regulations apply. The purpose of the disapplication is to reduce formality requirements and increase liquidity. It is a formality requirement and has a primarily evidential function3 in locating where the equitable interest lies if it has been moved from its original owner. This is important for the trustee, who needs to know who his or her beneficiary is. It helps prevent the risk of

1 

J Pereira Fernandes SA v Mehta [2006] EWHC 813, [2006] 1 WLR 1543. See on this M Bridge, L Gullifer, G McMeel and S Worthington (eds) The Law of Personal Property (London, Sweet and Maxwell, 2013) para 32.050. 3  See S Gardner, An Introduction to the Law of Trusts, 3rd edn (Oxford, Clarendon Press, 2011) 88–89 on the general purposes lying behind formality requirements. 2 

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the trustee performing in favour of the wrong party. It is also important for the ­authorities. Most of these cases involve the Inland Revenue Commissioners (now Her Majesty’s R ­ evenue and Customs, HMRC) who had an interest in that stamp duty, the tax involved in these cases, was levied on instruments not transactions, although the tax was calculated, when an inter vivos transaction by instrument was carried out, on the value (an ad valorem duty) of the transfer.4 Transferors therefore frequently sought to avoid tax by effecting transfers orally. The tax was effectively abolished in 2003, rendering the tax implications negligible.

II.  Five Scenarios: When is Writing Required? There are a number of possibilities; we will posit a general rule at the end of the chapter.

A.  The ‘Plain Vanilla’ Case There may be a straightforward transfer from A to B. This is what one might call the plain vanilla case. The trust beneficiary A tells B that he or she wishes B to be beneficiary instead. This must be done in writing. If the alleged disposition is conditional, or otherwise contingent on some eventuality transpiring, or is defeasible or revocable it cannot be a disposition.5

B.  Directions to the Trustee to Hold on Trust Our second case is illustrated by Grey v IRC.6 Hunter was the beneficiary of a trust, but he directed the trustees to hold the shares subject to the trust for his grandchildren, directing them to hold 3000 shares for each of his five grandchildren; he later created a sixth settlement to cater for any born subsequently. This was initially done orally and confirmed later in writing. The question arose as to when that disposition became effective. It was held that the directions as to the shares, although not operating as an assignment of Hunter’s equitable interest, were nonetheless a disposition. Morris LJ said, ‘The notion of a transfer is involved where the transfer takes place by way of assignment and where it takes place by way of direction to trustees to hold for a donee or donees.’7 Consequently, the new settlements came into being and were effective from the date of the subsequent writing; at that point the tax became due from the transferees, which explains why the case is Grey and not Hunter v IRC. This was confirmed in the House of Lords,8 which stated that the word disposition would have the same meaning as in normal parlance, although there was little serious attempt to get to grips with the idea of disposition in the House.

4 

Finance Act 1910 s 74(5). Re Danish Bacon Co Ltd Staff Pension Fund [1997] 1 WLR 248, 255–56. 6  Grey v IRC [1958] Ch 690 (CA). 7  ibid 720–21. 8  Grey v IRC [1960] AC 1 (HL). 5 

Five Scenarios: When is Writing Required? 119

C.  Contracts for Valuable Consideration: Sales of Equitable Interests The third scenario involves contracts for the sale of equitable interests. In Oughtred v IRC,9 shares were held under a settlement by trustees on trust for Mrs Oughtred for life with reversion to her son Peter. By an oral agreement it was agreed that Peter would exchange his interest in the shares for other shares owned by Mrs Oughtred. A week later documents were executed to reflect the agreement. If there had been an effective oral disposition there would have been only nominal stamp duty. If not, the documents executed the transfer and therefore, as we saw above, ad valorem stamp duty would be payable. Upjohn J at first instance held that writing was not required to transfer the equitable interest from Peter to Mrs Oughtred because a constructive trust came into existence transferring beneficial title to his mother. He said: This was an oral agreement for value, and, accordingly, on the making thereof Peter…became a constructive trustee of his equitable reversionary interest…No writing to achieve that result was necessary…s 53 has no application to a trust arising by construction of law.10

The question was not addressed in the Court of Appeal, and in the view of the majority in the House of Lords the question could be decided as a matter of the construction of the Stamp Act 1891. They did not therefore address as a matter of ratio decidendi the question of whether the oral agreement had transferred equitable title to the shares. Nonetheless Lord Cohen, one of the minority, and Lord Denning who was in the majority suggested obiter that Peter was left with some type of title as a sub-trustee. Lord Cohen for instance said: Mr Wilberforce was prepared to agree…Peter became a constructive trustee of his equitable reversionary interest in the settled property for the appellant, but he submitted that none the less section 53(1)(c) applied, and, accordingly, Peter could not assign the equitable interest to the appellant except by a disposition in writing. My Lords, with that I agree.11

Lord Denning said: I do not think that the oral agreement was effective to transfer Peter’s reversionary interest to his mother. I should have thought that the wording of section 53(1)(c) clearly made a writing necessary…and section 53(2) does not do away with that necessity.12

If this is right, the initial transfer merely made Peter a sub-trustee for his mother. The basis for this is the same rule that we have come across before in that a specifically enforceable contract of sale generates a constructive trust. We saw that this does not work for goods where the contract falls under the Sale of Goods Act 1979. Once the contract is specifically enforceable, in those cases legal title will have passed under the provisions of section 18 rule 1. However, equitable interests are personalty, but not goods. Consequently the general rule is that an unconditional mandatory obligation to transfer specific property generates a constructive trust.13 This contract of sale would be specifically enforceable, which g­ enerates

9 

Oughtred v IRC [1960] AC 206 (HL). Oughtred v IRC [1958] Ch 383, 390. 11  Oughtred v IRC [1960] AC 206 (HL) 230. 12  ibid 233. 13  Lysaght v Edwards (1876) 2 Ch 499; S Worthington, Proprietary Interests in Commercial Transactions (Oxford, Clarendon Press, 1997) 197. 10 

120  Disposition of Subsisting Equitable Interests

such an obligation; damages would be inadequate. There was a particular reason why the agreement had been made—to tidy up the equitable interests and make the ownership structure of the shares less complex; there were also some tax implications. Writing was, however, still required to transfer Peter’s residual equitable title to his mother. The constructive trust might come into existence without formality, but Peter still retained an interest that had to be separately transferred. The trustee still owed him an obligation to provide the full benefit of the shares after his mother’s death. Lord Radcliffe, however, agreed with Upjohn J that the entire beneficial interest was transferred under the constructive trust. Immediately after the oral agreement was made, Peter dropped out of the picture: The son owned an equitable reversionary interest in the settled shares; by his oral agreement…he created in his mother an equitable interest in his reversion, since the subject matter of the agreement was property of which specific performance would be decreed by the court…the appellant transferred to her son the shares… the consideration for her acquisition of his equitable interest; on the transfer he became…trustee of his interest for her. She was the effective owner of all outstanding equitable interests…it was open to her, if she so wished, to let the matter rest without calling for a written assignment.14

In Lord Radcliffe’s view there was no intermediate title, or at least no intermediate title that required writing to be transferred. Section 53(2) of the Law of Property Act 1925 provides that constructive, implied and resulting trusts are exempt from the formality requirements. They are created and operate wholly without writing. Leaving aside the question whether implied trusts are a separate category or whether this was merely legislative overkill by the draftsman, Lord Radcliffe’s argument was that as a constructive trust had come into being no writing was required for any purpose. The disagreements between the judges and members of the House in Oughtred and the fact that the case was ultimately decided on the basis of sections 1 and 54 of the Stamp Act 1891 meant they did not decide whether writing was needed. Lord Denning for instance said that even if the oral agreement were sufficient to transfer Peter’s reversionary interest, the subsequent written transfer attracted stamp duty.15 Everything said on the matter in the House of Lords was therefore obiter. The question therefore remained open as to whether writing was needed in this type of case to transfer the intermediate equitable title, or whether the entire equitable interest transferred automatically on creation of the constructive trust consequent on the contract of sale. In Neville v Wilson,16 JE Neville (JEN) Ltd held all the shares in Universal Engineering Co (UEC) Ltd except for 120 held by the directors as nominees, or bare trustees for JEN. In 1965 the directors of UEC decided to transfer all shares in UEC owned by JEN to the shareholders of JEN. JEN was subsequently liquidated, and an agreement made to distribute its assets, such as the shares in UEC to the shareholders. The question arose of who owned the 120 shares which had been held as nominees. The directors could no longer hold on trust for JEN as it no longer existed. The Court decided that the effect of the oral agreement to liquidate the company and distribute

14 

Oughtred v IRC [1960] AC 206 (HL) 227–28. ibid 233; see also ibid 241 (Lord Jenkins). 16  Neville v Wilson [1997] Ch 144 (CA); Re Holt’s Settlement [1969] 1 Ch 100; Slater v Simm [2007] EWHC 951 [24] (Peter Smith J). 15 

Five Scenarios: When is Writing Required? 121

its assets to its shareholders included the shares in UEC and therefore the shares held by nominees on behalf of JEN were included. JEN Ltd’s equitable interest in the 120 shares was therefore held on constructive trust for the shareholders and no writing was therefore needed to transfer the equitable interest from JEN to the shareholders. Nourse LJ rested this result very clearly on the fact that the contract to liquidate JEN and distribute its assets had generated a constructive trust, and section 53(2) therefore applied.17 If therefore there is a specifically enforceable contract for the sale or transfer of an equitable interest, no writing is required and this seems to be confirmed by cases on the corresponding New South Wales legislation.18 There have been suggestions that references to specific performance are misconceived and that where legal title to shares is held by a nominee, dealings with the equitable title pass that equitable title once an agreement to sell the shares is made, and payment is made of the purchase price without any need for writing.19 It is hard, however, to see why the act of payment should have such far-reaching effects.

D.  Express Sub-Trusts If the equitable owner of property chooses to create an express sub-trust in favour of a third party, that is again not a disposition of the owner’s interest. The reason for this is that a new equitable interest is being created. Green argued that both assignments and declarations of trust extinguish the beneficial interest in the hands of the transferor. Both should require writing.20 The beneficiary of the sub-trust, however, acquires a new right that the sub-trustee use his or her equitable rights (that the head trustee use his or her legal rights in a particular way) only for the beneficiary’s benefit. This is not a disposition of the equitable interest.21 The sub-trustee still has his or her equitable interest, and the head trustee still owes an obligation to the sub-trustee. Unless the declaration must be evidenced in writing under, for example, section 53(1)(b) of the Law of Property Act 1925 because it is a subtrust over land, an oral declaration will suffice. However, if the sub-trust is a bare sub-trust the counter-argument goes that there is a disposition of a subsisting equitable interest. It is a disguised disposition, because the sub-trustee drops out.22 Writing is therefore needed, but this is different to the constructive sub-trust where writing is never required. This is somewhat dubious. It is dubious because although the sub-trustee cannot stand in the way of the head trustee giving effect to the ultimate beneficiary’s wishes he or she does not drop out; he or she can still obtain legal title and hold to the beneficiary’s order.23 In Nelson v Greening & Sykes

17  Neville v Wilson [1997] Ch 144 (CA) 155–58; on difficulties with this result including the apparent lack of a contract between JEN and the shareholders, see P Milne, ‘Oughtred Revisited’ (1997) 113 LQR 213, 214; United Bank of Kuwait Plc v Sahib [1997] Ch 107, 129 (Chadwick J). 18  Halloran v Minister Administering National Parks and Wildlife Act 1974 (2006) ALJR 519; P Turner, ‘The High Court of Australia on Contracts to Assign Equitable Rights’ [2006] Conv 390. 19  Chinn v Collins [1981] AC 533 (HL) 548 (Lord Wilberforce); M Thompson, ‘Mere Formalities’ [1996] Conv 366. 20  B Green, ‘Grey, Oughtred and Vandervell—A Contextual Reappraisal’ (1984) 47 MLR 385, 396. 21  B McFarlane, The Structure of Property Law (Oxford, Hart, 2008) 570. 22  Grainge v Wilberforce (1889) 5 TLR 436; see also Re Lashmar [1891] 1 Ch 258 (CA). 23  Green, ‘Grey, Oughtred and Vandervell’ (1984) (n 20) 398; this is an application of the rule in Saunders v Vautier (1841) Cr & Ph 240, 41 ER 482. See chapter one, part IV A.

122  Disposition of Subsisting Equitable Interests

(Builders) Ltd24 the defendants had agreed to sell a plot of land to the claimant, Nelson. The money was advanced to the claimant by Hanley. Disputes arose about various covenants prior to conveyance when the defendants held on constructive trust and the question arose as to who the real purchaser was. The importance of this question was that a charging order had been made against the claimant’s interest in the land. The trial judge held that the claimant was a nominee for Hanley. Hanley ultimately argued that the claimant’s interest under the constructive trust dropped away, leaving him as the beneficiary. The claimant would not then have had anything that could be charged. The Court of Appeal decided, in a ruling that applies as much to personal property as to land, that although the trustee might find it more convenient to deal with the beneficiary of a sub-trust that did not mean that the sub-trustee dropped out of the picture.25 Consequently, there is no true disposition. The sub-trustee starts and ends the transaction with the same interest.

E.  The Vandervell Saga The fifth case to be examined is the Vandervell saga. In Vandervell v IRC26 Vandervell arranged to transfer to the Royal College of Surgeons (RCS) a number of shares in order to endow a chair in Pharmacology, with an option for his trustee company to buy them back. The Inland Revenue claimed that he had not divested himself fully of the beneficial interest in the shares, and was consequently liable to surtax. The Inland Revenue’s argument was that although Vandervell had transferred the shares to the RCS, the RCS had, as part of the agreement, granted an option to the trustee. An option is itself an equitable proprietary right in the thing subject to it. Since the trustee company retained a relationship with Vandervell in that he retained the right to decide on what trusts the shares would be held after the option was exercised, he retained a residual proprietary right. In short the trustee company held the option on resulting trust for Vandervell. This was an automatic resulting trust. We will examine resulting trusts in more detail in chapter seven, part III, but automatic resulting trusts are said to arise in cases where the claimant has made a transfer on terms that leave it unclear where the equitable interest is to go. One easy illustration is as follows. If I transfer assets to you to hold on trust and the declaration fails to make clear who the beneficiaries are, you remain a trustee but in the absence of other instructions a trustee for me. Vandervell had not succeeded in divesting himself of all interests in the property. The Inland Revenue succeeded on this point. Vandervell v IRC also decided the following point. It will be remembered that in Grey v IRC the House of Lords decided that where a beneficiary of a trust instructed the trustee to hold the property on trust for another that was a disposition of the equitable interest requiring writing. Vandervell was the original beneficiary of the trust of the shares. His instruction to the trustee company was to transfer the beneficial and legal interest to the RCS. That did not require writing. Had he merely wanted his equitable interest transferred that would have required writing. The rationale for this seems to be that in cases where writing is required an equitable interest exists, or subsists, at the start of the transaction. 24  25  26 

Nelson v Greening & Sykes (Builders) Ltd [2007] EWCA Civ 1358, [2007] All ER (D) 270 (Dec). ibid [50]–[58]. Vandervell v IRC [1967] 2 AC 291 (HL).

Five Scenarios: When is Writing Required? 123

At the end of the transaction it still exists, but it is in the hands of a third party. However, Vandervell’s original equitable interest was extinguished. Lord Upjohn indeed said this explicitly, ‘The section is in my opinion directed to cases where dealings with the equitable estate are divorced from the legal estate.’27 The Royal College of Surgeons did not hold equitable title. Vandervell’s trustee company did not hold on trust for the RCS; rather the Royal College held the legal title to the shares outright. Perhaps an explanation is required. Richard Nolan has provided one, arguing that the decision is best seen as an example of overreaching.28 That is the process, seen in chapter three, by which a purchaser of property in an authorised sale by the trustee takes free of the beneficiary’s equitable interests.29 His view is that the trustee’s action in giving away the shares overreached Vandervell’s interest and it was an authorised transfer precisely because of the instruction that Vandervell had given to the trustee company. This goes some way to explaining the comments of Lord Upjohn that the paragraph only applies to dealings with the equitable estate alone. Overreaching never applies to dealings with the equitable interest itself.30 It applies to dealings with the assets subject to the trust. McFarlane’s solution is similar. For him the purpose of the paragraph was to ensure the trustee did not wrongfully perform his duty by acting for the benefit of the wrong person. This risk did not arise. The transaction put an end to the duty, and the trustee could not but be involved in the transaction.31 The trustee company exercised its option in 1961. The trustee declared that the shares would be held on trust for Vandervell’s children, and indeed purchased the shares with money from the children’s settlement. That use of money from their trust was treated as evidence of a declaration of trust over the shares in their favour.32 There is a difficulty, however, in that if you own asset A, you own its product; if you own the tree, you own the apples. If you own the option, you own the shares. Consequently, the trustee company prima facie held the shares on resulting trust for Vandervell. It is unclear that the mere fact of the use of the children’s money could constitute them as sole beneficiaries of a trust over the shares purchased. Vandervell therefore executed a disclaimer in 1965, disclaiming all rights and interests in the shares. The Inland Revenue claimed on that basis that he had retained an interest in the shares until 1965, and taxed his estate on the dividends. The executors of Vandervell’s estate felt compelled to sue the trustee for the dividends. They succeeded at first instance. Megarry V-C explained that the option was held on trust for Vandervell so the shares received after its exercise must also be held on trust for him.33 Very broadly the Court of Appeal held that new trusts had been declared which displaced the resulting trust on which the option had been held. This led to a problem in that it entailed a disposition of an equitable interest held by Vandervell to the children. This was not in writing as required by section 53(1)(c). In short it seemed identical to Grey v IRC. As Penner puts it, the decision was that Vandervell was fully aware of and assented 27 

ibid 312. R Nolan, ‘Vandervell v IRC: A Case of Overreaching’ (2002) CLJ 169. 29  Note that it could be authorised as far as the purchaser is concerned but still result in liability of the trustee for breach of trust. See R Nolan, ‘Understanding the Limits of Equitable Property’ (2006) 1 Journal of Equity 18, 24. 30  Nolan, ‘Vandervell v IRC: A Case of Overreaching’ (2002) (n 28) 182. 31 McFarlane, The Structure of Property Law (2008) (n 21) 572–73. 32  Re Vandervell (no 2) [1974] Ch 269 (CA) 315, 325. 33  Re Vandervell (no 2) [1974] 1 All ER 47, 72. 28 

124  Disposition of Subsisting Equitable Interests

to the trustee’s exercise of the option to hold on trust for the children and that amounted to a declaration of trust in their favour.34 Lord Denning MR held that a resulting trust lives and dies with no writing at all.35 When the trusts were declared the resulting trust therefore terminated. This is based on section 53(2), which exempts the operation of resulting trusts from the effects of section 53(1). The standard criticism that is levelled against this position is one of statutory construction. The termination of a resulting trust is not encompassed within the subsection which refers only to ‘creation and operation’.36 A literal interpretation might therefore seem to buttress the critiques that have been levelled against the decision. McFarlane has argued that the difficulty really stems from two different but equally plausible resulting trust arguments. Is there a resulting trust for Vandervell because the option was on trust for Vandervell, or for the children because their money was used?37 Vandervell intended the option to be exercised and the children to obtain an equitable interest; consequently, he gave his authorisation to the exercise of the option with the shares being held on trust for the children. Nobody could be unjustly enriched at his expense. The children by contrast did not consent to their money being used to buy the shares back. In effect McFarlane argues that there is a resulting trust for the children, because if Vandervell were the beneficiary he would be unjustly enriched at their expense. This could then be converted without writing into an express trust for the children.38 There are other ways of protecting the children. They could have had the benefit of a lien. Nonetheless, McFarlane’s solution is generally plausible. An automatic resulting trust arises in favour of the children. The trustee company cannot hold outright and cannot hold for Vandervell, because of his declared intention that it should not do so. That trust for the children was later confirmed by the declaration of an express trust. McFarlane has described section 53(2) as redundant;39 he argues that the purpose of the formalities to prevent the trustee performing in favour of the wrong person applies no matter how the duty arises, but there is not normally any liability on a resulting trustee or trustee of a constructive trust until he or she knows of the trust.40 This must be right; there cannot be a requirement for writing in cases where nobody realises that there is a trust.

III.  Surrender v Disclaimer In IRC v Buchanan,41 the testator’s granddaughter had a life interest in the property, remainder to her children. She surrendered in favour of her children her life interest, as did her father. Surrenders, we should note, are also occasionally referred to as releases. This was treated as a disposition of equitable property, which therefore needed writing under section 53(1)(c) of the Law of Property Act 1925. Lord Goddard CJ commented without 34 

J Penner, The Law of Trusts, 10th edn (Oxford, OUP, 2016) 171–172. Re Vandervell (no 2) [1974] 3 All ER 205 (CA). 36  Green, ‘Grey, Oughtred and Vandervell’ (1984) (n 20) 417. 37 McFarlane, The Structure of Property Law (2008) (n 21) 573–75. 38  ibid 575. 39  ibid 576. 40  P Matthews, ‘All About Bare Trusts’ (2005) Private Client Business 266, 269. 41  IRC v Buchanan [1958] Ch 289. 35 

Priorities 125

qualification that a surrender was a disposition.42 Green concludes on the basis of this case that a surrender so as to enlarge the trustee’s estate to absolute ownership is a disposition. Surrender can include cases where there is merger with another interest, as was the case in IRC v Buchanan where a surrender had to be in favour of the remaindermen—the children. Disposition may therefore in some cases involve the interest disposed ceasing to exist.43 A surrender is different from a disclaimer, which prevents the equitable interest vesting in the first place; as such disclaimer in this context bears comparison with the role of the donee’s consent, which we discussed in chapter two, part IV B, in cases of gifts of chattels or passage of property by simple delivery. In neither case does the law force a party to take assets that the party does not want. This explains why the disclaimer needs to take place soon after the purported disposition. The authority for this is Re Paradise Motors Ltd.44 Watson made a gift of 350 shares in a private company to his stepson (Johns), later taking 300 back. Johns, however, knew nothing of this and when the liquidator of the company told him he owned 50 shares, he said ‘I have no shares … I want no shares’, explaining this because of his antipathy towards his stepfather. Johns later changed his mind and claimed the shares as his own. The usual position is that in order to make a valid disclaimer the donee must have a reasonably clear appreciation of the property concerned. However, Danckwerts LJ said that generalisation had no application to the case, where Johns had made it absolutely clear that whatever or however much it was he did not want it. He also said that the formality rules did not apply because a disclaimer operated by way of avoidance and not disposition.45 In Re Stratton’s Disclaimer46 a widow disclaimed her interest under her husband’s will and the property went to her three sons. She died five years later. The dispute arose over liability for estate duty. This, it was held, was not a transfer of property. The disclaimer operated as an extinguishment of Mrs Stratton’s rights to the specific bequests in question. The disclaimer must take effect within a reasonable time of the gift having been made and the donee’s knowledge of it, otherwise the gift becomes effective and the donee must use the normal conveyancing methods to divest himself of the unwanted asset;47 it then becomes a surrender of the asset which requires writing. It remained true, however, that on the proper construction of the Finance Act 1940, estate duty on the assets was due from Mrs Stratton’s estate.

IV. Priorities Priority between competing assignments of choses in equity is governed by the rule in Dearle v Hall.48 This states that priority is accorded to the first assignee to give notice to the 42 

ibid 296. Green, ‘Grey, Oughtred and Vandervell’ (1984) (n 20) 409; this is confirmed in the slightly different context of leases by Newlon Housing Trust Ltd v Alsulaimen [1999] 1 AC 313 (HL). 44  Re Paradise Motors Ltd [1968] 1 WLR 1125 (CA). 45  ibid 1142–43; see for the general rule requiring knowledge of the property disclaimed Naas v Westminster Bank [1940] AC 366 (HL). 46  Re Stratton’s Disclaimer [1958] Ch 42 (CA). 47  J Hill, ‘The Role of the Donee’s Consent in the Law of Gifts’ (2001) 117 LQR 127. 48  Dearle v Hall (1828) 3 Russ 1, 38 ER 475; F Oditah, ‘Priorities: Legal versus Equitable Assignments of Book Debts’ (1989) 9 OJLS 513, 527; chapter four, part IV B. 43 

126  Disposition of Subsisting Equitable Interests

trustee unless he or she has notice at the time of the assignment to him or her of the previous competing claim.49 This notice must be in writing if it is to preserve priority against competing claims. This makes sense in cases where there are relatively few trustees, especially where a proposed assignee has made inquiry of the trustees and no prior incumbrance is disclosed. There seems little other protection possible to the assignee. However, there is in fact no rule that the assignee should inquire or that the trustee should inform him or her of competing assignments. The rule is purely mechanical in its operation.50

V. Conclusion Six rules can be extracted from the case law: 1. Where there is a conveyance of the same equitable interest to a new owner, writing is required. 2. However, where there is a specifically enforceable contract for the sale of that interest, a constructive sub-trust arises and no writing is required. 3. Where the conveyance involves the third party obtaining absolute ownership of the asset, so they hold legal title outright, no writing is needed, because the transaction is effected via overreaching. Section 53(1)(c) of the Law of Property Act 1925 is in fact wholly irrelevant to this transaction. 4. Where a resulting trust is extinguished, no writing is required. 5. If a new express sub-trust is created, no writing is required. 6. It appears that no writing is required for a disclaimer, but may in some cases be needed for a surrender or a release.

49  50 

Law of Property Act 1925 s 137(3). Foster v Cockerell (1835) 3 Cl & Fin 456, 6 ER 1508.

6 Negotiation and Negotiable Instruments I. Introduction The concept of negotiation and negotiability is an old one.1 However, negotiable instruments in international trade are increasingly giving way nowadays to other means of making payments, such as electronic funds transfers. It is notable that one of the most common bills of exchange, the cheque, is falling into disuse by individuals and consumers.2 Negotiation, however, merits our attention for a number of reasons. Sealy and Hooley mention two. They first argue that bills of exchange are still used to a significant extent in international trade.3 Bills of exchange tend to be used in cases where a seller allows the buyer a period of credit but still needs funds in the interim. The seller may draw a bill on the buyer or a bank payable 60, 90 or 120 days after sight. Before the bill has been accepted (ie the buyer or bank accepts liability to pay), he or she can negotiate the bill to third parties and receive funds in advance of maturity, or may discount it after acceptance. A bill for £10,000 payable 120 days after sight might be accepted and sold on (discounted) for £9,500. The drawer has the money now and the purchaser can make a profit, not £500, but the amount by which £500 exceeds the payable interest rate. One context in which this occurs is called forfaiting. Forfaiting involves the non-recourse discount of bills drawn by an exporter on an importer for the price of goods. Bills of exchange are also frequently used in conjunction with documentary credits, and this showcases the important differences between assignment and negotiation. Second, Sealy and Hooley emphasise that protection of the bona fide purchaser is paramount in negotiation.4 This represents an exception to the rule of nemo dat, discussed in chapter three and is a way in which holders of documentary intangibles can obtain a better title than the previous holder. The documentary intangible, as we saw in chapter one, is a hybrid. It is for some purposes a chattel, eg liability for conversion,5 1 

See, eg JS Rogers, The Early History of the Law of Bills and Notes (Cambridge, CUP, 1995). Council, The Future of Cheques in the UK (2009) set a target date of 2018 to phase out cheques altogether, but the Council announced in 2011 that it was shelving the target. 3  LS Sealy and RJA Hooley, Commercial Law: Text, Cases and Materials, 4th edn (Oxford, OUP, 2008) 515–16; E McKendrick (ed), Goode on Commercial Law, 4th edn (London, Penguin, 2010) 519. See 1096–97 on discounting and negotiation. TY Lin Personal Property Law (Academy Publishing Singapore 2014) 320–322 on what he calls the ‘indirect monetary’ and ‘direct credit’ functions of bills of exchange. 4  Sealy and Hooley, Commercial Law: Text, Cases and Materials (2008) (n 3) 516. 5 G Soldini, ‘Conversion of Negotiable Instruments: An Overview’ (2001) Banking Law Journal 395; see ­chapter eight, part II on conversion generally. See chapter one, part III C ii for comment on documents of title as ­documentary intangibles. 2  Payments

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but also a document representing a debt or chose in action. The standard explanation for this exception is that it encourages free marketability of financial instruments and aids wealth creation and business. In this, bills of exchange are different to goods where the commercial imperative to free marketability exists, but is counter-balanced (as we saw in chapter three) by a need to protect goods because of the intrinsic use that an owner might wish to put them to. This chapter is divided into four main sections. The first examines the question of what a negotiable instrument actually is; the second looks at the transfer and enforcement of the typical example of a negotiable instrument, the bill of exchange; the third looks at negotiation of bills of lading, which, although different in character, is included for two reasons. The first is simply the terminology used to refer to the bill’s transfer is negotiation in both cases, and the second that while bills of lading are referred to as documents of title to goods, bills of exchange have been called documents of title to money. The final section looks at the commercial use of the bill of exchange in the context of the documentary credit.

II.  What is a Negotiable Instrument? There is no statutory definition of a negotiable instrument, although it is important to remember that a negotiable instrument is an independent obligation and an autonomous contract, separate from any underlying commercial transaction, and enforceable as such. Goode on Commercial Law describes a negotiable instrument as one which by statute or mercantile usage may be transferred by delivery or indorsement to give a better title to the recipient.6 The intention behind the instrument is critical in a negative sense—no instrument intended to be non-negotiable can be negotiable,7 and courts are careful not to take too broad a view of what is negotiable. We might also note at this point that the complications in negotiable instruments law are many and caused by the combination of their being transferable items of property and also contractual liabilities.

A.  Examples of Negotiable Instrument i.  Bills of Exchange and Promissory Notes Bills of exchange and promissory notes are negotiable instruments. A promissory note is an unconditional written promise signed by the promisor to pay the promisee (or someone else he or she orders to be paid—this is the meaning of the phrase ‘to order’) a sum of money either on demand or at a particular given future time.8 What is important is that the note is anticipated to be potentially transferable or negotiable to third parties. An IOU therefore is not a promissory note, but merely an acknowledgement of indebtedness.9 6 McKendrick, Goode

on Commercial Law (2010) (n 3) 512; Lin (2014) (n 3) 326–328. For this rule in the context of cheques, see Bills of Exchange Act 1882 s 81; Hibernian Bank Ltd v Gysin [1939] 1 KB 483 (CA). 8  Bills of Exchange Act 1882 s 83. 9  Sealy and Hooley, Commercial Law: Text, Cases and Materials (2008) (n 3) 799–802. 7 

What is a Negotiable Instrument? 129

Despite the lack of general statutory definition of a negotiable instrument, section 3(1) of the Bills of Exchange Act 1882 does define a bill of exchange as follows: A bill of exchange is an unconditional order in writing, addressed by one person to another, signed by the person giving it, requiring the person to whom it is addressed to pay on demand or at a fixed or determinable future time a sum certain in money to or to the order of a specified person, or to bearer.

The main distinction between bills of exchange and promissory notes therefore is that bills are addressed to a person other than the payee.10 We need to be clear on the terminology used in discussions of bills of exchange, on which this chapter concentrates: 1. The drawer is the person who gives the order to pay and signs the bill. If I write a cheque, which is a special example of a bill of exchange, I am the drawer of the bill or cheque. 2. The drawee is the person ordered to pay. The bank which issues the cheque book is therefore the drawee. 3. When the drawee indicates via his or her signing of the bill a willingness to pay, the drawee is called the acceptor. This is important in cases where payment is to be deferred. The drawee in those cases accepts the bill and promises to pay later. These are referred to as term bills. Some bills are demand bills (cheques are demand bills drawn on a bank).11 This means that when the bill is presented to the drawee, he or she either pays or does not. There is no separate step of acceptance. Both are permissible. Section 10 of the Bills of Exchange Act 1882 provides that a bill is a demand bill if no time for payment is specified, or it is explicitly stated to be payable on demand, presentation or at sight. Section 11 states that a bill is payable at a fixed or determinable future time if it is expressed to be payable at a particular time, eg 60 days after sight, or a certain number of days after a given event, which is 100 per cent certain to occur. Acceptance is not such an event, given the possibility that a bill may be dishonoured by non-acceptance.12 4. The payee is the person identified as to be paid. The payee may be the bearer if the bill is made out to the bearer, ie the possessor.13

ii.  Two Senses of Negotiation: Bills of Exchange and Bills of Lading We need to distinguish documents of title to goods such as bills of lading from documents of title to money embodying payment obligations at this point in the chapter. The bill of exchange embodies a payment obligation in that the possessor of the bill is presumptively entitled to payment; it is a document of title to money. The possessor of a bill of lading, a document of title to goods, is presumptively entitled to delivery up or possession of the goods. That is not quite the same as saying that he or she is the owner of the asset, however. As we saw in chapter one, possession can be divorced from ownership, and the right to possession can be embodied in a document.14 For present purposes, 10 

Mason v Lack (1929) 45 TLR 363; Kirkwood v Carroll [1903] 1 KB 531 (CA). Bills of Exchange Act 1882 s 73. Korea Exchange Bank Ltd v Debenhams (Central Buying) Ltd [1979] 1 Lloyds Rep 548 (CA); Hong Kong and Shanghai Banking Corporation Ltd v GD Trade Co. Ltd [1998] CLC 238; C Forsyth, ‘When is a Bill of Exchange not a Bill of Exchange? The Effect of Inadvertent Deletions’ (1999) CLJ 18. 13  Sealy and Hooley, Commercial Law: Text, Cases and Materials (2008) (n 3) 533. 14  Chapter one, part III C ii. 11  12 

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the important distinction between bills of lading and bills of exchange as negotiable instruments is the meaning given to negotiation. With a bill of exchange the true owner is entitled to possession of the document and therefore to payment by the drawee. A thief might then steal the bill and sell it to a bona fide purchaser for value without notice of the theft. That person is known as a holder in due course and takes free of the defects.15 In other words, his or her title supplants that of the original holder of the bill. It is this quality of the bill of exchange that makes it negotiable. In Kum v Wah Tat Bank Ltd,16 however, Lord Devlin said: A negotiable bill of lading is not negotiable in the strict sense; it cannot, as can be done by the negotiation of a bill of exchange, give to the transferee a better title than the transferor has got, but it can by endorsement and delivery give as good a title.17

There is a similar distinction in the bills of exchange context between transferability and negotiability. Section 8(1) of the Bills of Exchange Act 1882 states that a bill indicating that it is not transferable is not negotiable. A non-transferable bill is non-negotiable. The terms are in fact hopelessly mixed up in the Act, but transfer must take place for there to be negotiation. Chalmers and Guest explain that transferability entails that the recipient on delivery of the instrument may sue upon it and negotiation entails that the transferee may obtain better title than the transferee.18 Typically a bill of exchange is made non-transferable by being drawn payable to the payee only. In Hibernian Bank v Gysin,19 the Court of Appeal seems to have taken the view that in cases where a bill payable to order was marked non-negotiable it was also non-transferable. Yet, there is no reason why it could not be non-negotiable but still capable of transfer subject to equities. In National Bank v Silke it was held, albeit obiter, that bills payable to order could not be made non-transferable,20 although they can be made non-negotiable. The implication is that non-negotiable order bills are transferable subject to equities.

B.  Becoming a Negotiable Instrument There are two ways a type of document can become negotiable. It may become so by mercantile usage and the categories of negotiable instrument are therefore not closed.21 A document may also be made negotiable by statute, although it is clear that bills of exchange were accepted as being negotiable before the Bills of Exchange Act 1882 recognised them as such. In Devonald v Rosser & Sons,22 which was a decision unrelated to negotiable instruments,

15 

Bills of Exchange Act 1882 s 38. Kum v Wah Tat Bank Ltd [1971] 1 Lloyds Rep 439 (PC). 17  ibid 446. 18  AG Guest (ed), Chalmers and Guest on Bills of Exchange and Cheques, 17th edn (London, Sweet and Maxwell, 2009) para 5.002. 19  Hibernian Bank v Gysin [1939] 1 KB 483. 20  National Bank v Silke [1891] 1 QB 435; NE Elliott, J Phillips and J Odgers (eds), Byles on Bills of Exchange and Cheques, 29th edn (London, Sweet and Maxwell, 2013) paras 8.003–8.004. 21  On possible new negotiable instruments, see H Beale (ed), Chitty on Contracts, 32nd edn (London, Sweet and Maxwell, 2015) vol 2 para 34.190. M Bridge, L Gullifer, G McMeel and S Worthington (eds) The Law of Personal Property (London, Sweet and Maxwell, 2013) paras 22-015–22-016. 22  Devonald v Rosser & Sons [1906] 2 KB 728 (CA). 16 

Transfer and Operation of Bills of Exchange 131

Farwell LJ suggested that usage must be reasonable, certain and notorious to count as a mercantile custom.23 This can, however, be applied in the bills context. In Easton v London Joint Stock Bank,24 Bowen LJ was clear that in order to make an instrument negotiable the custom alleged to have that effect must be a general and not merely a local one. Courts are keen not to over-extend the concept of negotiability. In Nawab Khan v Attar Singh,25 for instance, the claimant deposited almost 44000 rupees with the defendants and took a note from the defendant, whereby the latter promised to repay the capital in two years with interest. This was said to be a deposit receipt and not a promissory note because there was no explicit undertaking to pay. Lord Atkin said, ‘Receipts and agreements generally are not intended to be negotiable, and serious embarrassment would be caused in commerce if the negotiable net were cast too wide.’26 It may be clear therefore from the terms of the instrument that it is not negotiable. In Crouch v Credit Foncier of England27 the defendant company issued to Macken a debenture in May 1869. It was subsequently stolen from him and purchased by the claimant. The defendants who knew of the robbery refused to pay. The claimant argued that the debenture was a promissory note and therefore negotiable to themselves as bona fide purchasers. Blackburn J relied on Miller v Race28 for the proposition that if an instrument is by mercantile custom transferable by delivery and capable of being sued on by the bearer, it could be a negotiable instrument. Bills of exchange were negotiable as satisfying both conditions.29 However, he said this was a covenant under seal and covenants were not negotiable by the practice of merchants. On the facts, therefore, conditions imposed on the contract between the parties prevented it from being a negotiable instrument.

III.  Transfer and Operation of Bills of Exchange30 A distinction must be drawn between the transfer from the drawer to the first holder which is needed to complete the contract and subsequent transfers between holders. The first transfer is called the issue of the bill.31 Delivery is vital. Section 21 of the Bills of Exchange Act 1882 provides that transfer or delivery of the bill is required to complete any contract under the bill, be that between the initial or any subsequent parties. Further, it is important to remember that a bill of exchange is a chattel. It can therefore be transferred as a chattel.32 As a chattel, it can be protected by the tort of conversion which will enable the claimant to recover the full value of the bill. It can also be assigned in the same way as a book debt33 23 

ibid 743. Easton v London Joint Stock Bank (1886) 34 Ch D 95 (CA) 113. 25  Nawab Khan v Attar Singh [1936] 2 All ER 545 (PC). 26  ibid 550; Claydon v Bradley [1987] All ER 522. 27  Crouch v Credit Foncier of England (1873) LR 8 QB 374; Goodwin v Robarts (1875) LR 10 Exch 337; London & County Banking Co Ltd v London & River Plate Bank Ltd (1888) 20 QBD 232. 28  Miller v Race (1738) 1 Burr 452, 97 ER 398. 29  Crouch v Credit Foncier of England (1873) LR 8 QB 374, 381. 30  In brief see M Bridge, Personal Property Law, 4th edn (Oxford, Clarendon Press, 2015) 261–64. 31  Elliott, Phillips and Odgers, Byles on Bills of Exchange and Cheques (2013) (hereinafter referred to as ‘Byles’ (n 20) para 9.001. 32  Embiricos v Anglo-Austrian Bank [1905] 1 KB 677. 33  Dawson v Isle [1906] 1 Ch 633. 24 

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using the rules of assignment covered in chapter four, parts II and III. We have already seen that the basic idea of negotiability is that it enables the transferee to take free of defects in title—provided that the transferee is a holder in due course, and we see the requirements for that later. This means a subsequent title by negotiation can override a prior title by sale or assignment,34 or can perfect title in the hands of a holder who obtained it from a thief. In the same way that title to the bill can be transferred, it can also be made subject to security interests, which give the creditor rights of recourse against the bill. The mechanics of this are not much discussed in the English literature; however, the United Nations Commission on International Trade Law (UNCITRAL) has recommended the security holder receive the benefit of any rights securing payment of the bill. However, they also suggest that the law should provide that a security right in a negotiable instrument is subordinate to the rights of a protected holder under negotiable instruments law, and largely this is replicated by commonwealth Personal Property Security Acts. In other words, the rights of a holder in due course should trump those of a security holder.35 We examine security rights in detail in chapters 11–15 of this book.

A.  Transfer of a Bill of Exchange i.  Modes of Transfer Bearer bills are transferred by delivery alone, which is the passage of possession—actual or constructive. Constructive delivery will therefore suffice.36 A bearer bill is one expressed to be payable to the bearer, or where the last or only indorsement is in blank.37 In practice bearer bills are rarely issued because of the risks. Any person who obtains possession, however he or she does so, will be entitled to sue for the money and give a good discharge. There are simply insufficient safeguards against fraud.38 A bill payable to order will be expressed in terms of ‘pay X, or to his order’; this means the drawee should pay X or anyone else X should instruct them to pay. Such bills are transferred by indorsement and delivery.39 X indorses the bill by indicating on the bill to whom the money should be paid and signing it.40 X is then known as the indorser, and the new payee the indorsee. If X signs the bill without specifying an indorsee, it is an indorsement in blank and the bill becomes a bearer bill.41 It appears that a transferee for value may compel the transferor to indorse the bill.42

34 Guest, Chalmers and Guest on Bills of Exchange and Cheques (2009) (hereinafter referred to as ‘Chalmers and Guest’) (n 18) para 5.067. 35  Uniform Commercial Code (UCC) §9-302; Personal Property Securities Act 1999 (NZ) s 96. UNCITRAL, ‘Legislative Guide on Secured Transactions’ (2007) recommendations 25, 102, 105. 36  Byles (2013) (n 20) para 9.004; Beale, Chitty on Contracts (2015) (hereinafter referred to as ‘Chitty’) (n 21) para 34.033; Bills of Exchange Act 1882 s 31(2). 37  Bills of Exchange Act 1882 s 8(3). 38 McKendrick, Goode on Commercial Law (2010) (n 3) 528. 39  Bills of Exchange Act 1882 s 31(3). 40  ibid s 32; Chitty (2015) (n 21) para 34.086–34.088; McKendrick, Goode on Commercial Law (2010) (n 3) 528–30. 41  Bills of Exchange Act 1882 s 34. 42  Byles (2013) (n 20) para 18.043.

Transfer and Operation of Bills of Exchange 133

However, transferees may give no consideration. There is no rule that the transfer of a negotiable instrument must be for value to be valid.43 What happens should the payee of an order bill be fictitious? Section 7(3) of the Bills of Exchange Act 1882 states that where the payee is fictitious, the bill may be treated as a bearer bill. It is clear that where the payee is completely non-existent that the bill must become a bearer bill and that where the payee is in existence but never intended to receive payment the subsection may also bite.44 Where there is a blank indorsement, the holder may insert a direction to pay to his or her order or a third party’s order and convert the indorsement to a special indorsement,45 which does specify the person to whom payment is to be made. There is some doubt as to whether this is the case in Australia. In Miller Associates (Australia) Pty Ltd v Bennington Pty Ltd,46 Sheppard J held that a bearer bill did not by special indorsement lose its character as a bearer bill.47 Importantly, however, although the indorsement does not convert it into an order bill, the putative indorser still incurs all the liabilities of an indorser under an order bill.

ii.  Mere Holders of Bills of Exchange The right to enforce payment of a bill lies with its holder. Section 2 of the Bills of Exchange Act 1882 defines a holder as the payee, indorsee or bearer of a bill. The 1882 Act identifies three types of holder—the mere holder, holder for value and holder in due course. The mere holder has the least protection. He or she is a holder other than for value who does not claim title through transfer from a holder in due course. The mere holder can transfer the bill and sue on it in his or her own name, but title to sue is vulnerable to claims of failure or absence of consideration. In other words if there was no consideration given for the tender of the bill or that consideration totally failed, the bill need not be paid. In short in the absence of consideration the bill is nudum pactum.48

iii.  Holders for Value A holder may be a holder for value, and there is a presumption that value is given by any party whose signature appears on the bill.49 It is somewhat unclear what value means under bills of exchange law.50 The 1882 Act states that value means anything that will support a simple contract, or payment of an antecedent debt or liability.51 The latter possibility contained in section 27(1)(b) is usually taken as an exception to the usual common law rule 43 

Easton v Pratchett (1835) 1 Cr M & R 798, 149 ER 1302. Clutton v Attenborough [1897] AC 90 (HL); Bank of England v Vagliano Bros [1891] AC 107 (HL); Vinden v Hughes [1905] 1 KB 795; P Salvatori, ‘Vagliano’s Case Revisited’ (1979) 3 Canadian Business Law Journal 296; McKendrick, Goode on Commercial Law (2010) (n 3) 559–60. 45  Bills of Exchange Act 1882 s 34(4). 46  Miller Associates (Australia) Pty Ltd v Bennington Pty Ltd [1975] Federal LR 112. 47  ibid 117; McKendrick, Goode on Commercial Law (2010) (n 3) 529; Chalmers and Guest prefer this solution for English law (2009) (n 18) para 5.027, but see Chitty (2015) (n 21) para 34.022 for the contrary view. 48  Chitty (2015) (n 21) para 34.096; McKendrick, Goode on Commercial Law (2010) (n 3) 531. 49  Bills of Exchange Act 1882 s 30(1); Byles (2013) (n 20) para 19.003. 50  A Ward, ‘The Nature of Negotiation under Documentary Credits’ (1999) Journal of International Banking Law 292, 294; R Jack, A Malik, D Quest (eds), Documentary Credits, 4th edn (London, Sweet and Maxwell, 2009) para 2.21. 51  Bills of Exchange Act 1882 s 27(1). 44 

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on past consideration. Goode on Commercial Law denies this, arguing that except where a bill is taken as security for a past indebtedness, it is merely an application of the well established rule that discharge of the liability is good consideration for payment.52 In Currie v Misa,53 for example, the claimants were bankers. One of their customers, Lizardi, got into financial difficulties and owed some £83,436. Lizardi, on being pressed repeatedly for payment, handed over cheques for £1999, 3s. These were drawn by the defendant on their bank in favour of Lizardi or bearer. The defendants claimed that no value for the cheques had been given and resisted payment. Lush J held that a bill of exchange is offered and accepted as conditional payment of the debt, and as discharging liability. The condition is that the debt revives if the bill is not paid.54 The claimants had therefore given value for the bill by accepting it as payment of Lizardi’s debt and could claim on it. Section 27(2) provides that where value has been given at any time for the bill the holder is a holder for value as against the acceptor and anyone party to the bill prior to the value being given even if he or she has not given any value for the bill. The subsection only applies to bills once they have been negotiated. Thus, if Alan draws a bill on Bert, who accepts it in payment for goods supplied and Bert negotiates it to Chloe for value who gives it gratuitously, and so without consideration being given in return, to David, David is a holder for value as regards Alan and Bert, but not as regards Chloe. There are two important possible limitations, to which we return under the heading of ‘Defences’ in part III B ii. The first is that as between immediate parties to the bill, consideration must move between those parties and not from third parties, or there is a good defence to an action. The second qualification is that the subsection envisages value being given by a party to the bill and not a stranger. As against a remote party, holders can therefore rely on the subsection to make themselves holders for value.55 Immediate parties are those in a direct relationship with each other and include the drawer and acceptor, payee and drawer or indorser and indorsee.56 Other parties are remote parties. Chloe as indorser is an immediate party to David as indorsee. David is as regards Bert a remote party; David can enforce the bill against Bert, but not Chloe. In Oliver v Davis,57 for example, Davis borrowed £350 from Oliver and gave him a postdated cheque. He was later to have difficulty repaying the money and his fiancée’s sister, Woodcock, gave him a cheque for £400 but later discovered he was already married. She wanted to stop her cheque to him and contended that she could do so as there had been no valuable consideration given for the cheque. In the Court of Appeal, Evershed MR argued that the phrase antecedent debt or liability in section 27 referred to a debt or liability only of the drawer or acceptor of the bill not the debt or liability of any other party.58 There was therefore no consideration for Woodcock’s cheque made out to Oliver, because he, as payee, had given no consideration to her, the drawer, for it. They were immediate parties and he should not therefore receive judgment; she was able therefore to stop the cheque. One thing 52 McKendrick, Goode

on Commercial Law (2010) (n 3) 531–32. Currie v Misa (1875) LR 10 Exch 153. 54  ibid 163–64. 55  Sealy and Hooley, Commercial Law: Text, Cases and Materials (2008) (n 3) 549–51; MK International Development Co Ltd v Housing Bank [1991] 1 Bank LR 74 (CA) 80 (Mustill LJ); Chalmers and Guest (2009) (n 18) para 4.007. 56  Byles (2013) (n 20) para 18.015; Chalmers and Guest (2009) (n 18) para 4.005. 57  Oliver v Davis [1949] 2 KB 727 (CA). 58  ibid 735; Chitty (2015) (n 21) paras 34.060–34.061. 53 

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that might have tipped the balance would have been if Oliver had promised to forbear from suing Davis on the basis of her issuing the cheque.59 There seems little reason, however, given the rule in Currie v Misa, why accepting a cheque in discharge of a debt owed by a third party should not be good consideration for the cheque.60 In Diamond v Graham,61 Diamond agreed to lend £1650 to Herman by way of cheque (cheque one). In return, Herman agreed to procure a cheque (cheque two) for £1665 from the defendant Graham, and did so by writing Graham a cheque (cheque three) for £1665; Diamond was to have cheque two in his hands before issuing cheque one to Herman. ­Graham’s cheque (cheque two) was dishonoured, and Diamond sued for payment. The Court of Appeal gave judgment on the cheque. By releasing cheque one in favour of Herman at the request of Graham, Diamond had given value for cheque two. Indeed, when Herman provided Graham with cheque three to induce him to write cheque two in favour of Diamond, Herman had also provided value for it, despite not being a party of any sort to the bill in question.62 Robert Goff J observed in Hasan v Willson63 that if that latter observation implied that as between immediate parties consideration may move from third parties it was inconsistent with authority. Graham and Diamond as drawer and payee respectively were immediate parties and the alleged consideration moved from Herman. Robert Goff J argued Danckwerts LJ’s comments were obiter and applied Oliver v Davis.64 In Churchill and Sim v Goddard,65 the appellants were the agents of a Finnish timber exporter (Raahes) and took on responsibility for the debts of the buyers, minus his own commission. They in turn recovered from the buyers. The appellants (C&S) sent two bills of exchange to the respondent buyers (Goddard). C&S were the drawers of the bills and Goddard the acceptor. Goddard therefore accepted liability to pay the appellants or to the appellants’ order, the intention being that C&S would recoup its payment to the sellers through the bills of exchange. The appellants paid the net invoice price to Raahes, and received the duly accepted bills back from Goddard. Goddard subsequently rejected the goods and refused to pay on the bills. The effect of a decision that they were able to refuse payment would be not merely that the agents took the risk of the buyers being unable to pay for the goods and hence being unable to recoup the payment already made to the sellers, but also that they would be guarantors of the sellers’ performance of his obligations as breach by the seller would enable the buyer to refuse payment on the bill of exchange, thus preventing them from recouping the payment they had already made to Raahes. The Court of Appeal held that value had been given for the bill in the form of the delivery of the shipping documents and consequent delivery of the timber; the subsequent rejection of the goods did not alter that.66 That the sellers were in breach of a separate contract of sale was not relevant. All the agents had promised in return for acceptance was delivery from a ship, which had taken place. 59 

Fullerton v Provincial Bank of Ireland [1903] AC 309 (HL). AEG (UK) Ltd v Lewis [1993] 2 Bank LR 119; see Anon [1993] JBL 275, Sealy and Hooley, Commercial Law: Text, Cases and Materials (2008) (n 3) 548–49. 61  Diamond v Graham [1968] 1 WLR 1061 (CA); J Thornely ‘Consideration for Negotiable Instruments’ (1968) CLJ 196. 62  Diamond v Graham [1968] 1 WLR 1061 (CA) 1064; Chalmers and Guest (2009) (n 18) paras 4.024–4.025. 63  Hasan v Willson [1977] 1 Lloyds Rep 431, 442; Pollway v Abdullah [1974] 1 WLR 493. 64  Byles (2013) (n 20) para 19.015. 65  Churchill & Sim v Goddard [1937] 1 KB 92 (CA). 66  ibid 105 (Lord Roche); 111 (Scott LJ). 60 

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Section 27(3) of the Bills of Exchange Act 1882 provides that a holder of a bill with a lien over it is deemed to be a holder for value. A lien which we look at in more detail in chapter 12 is a right to retain possession of an item until the lienholder has had a debt satisfied. In Barclays Bank Plc v Astley Industrial Trust,67 for example, Mabon’s Garage Ltd had a large overdraft at the claimant bank and the bank received five cheques drawn by the defendant payable to Mabon’s in respect of hire purchase agreements. The bank subsequently paid two of Mabon’s cheques it would otherwise have dishonoured. The bank had a lien over the cheques against Mabon to secure the overdraft facility and therefore was a holder for value.68 A holder for value may, like a mere holder, sue on the bill in his or her own name.69 Unlike a holder in due course, and like a mere holder, the holder for value takes subject to defects in title of prior holders.

iv.  Holders in Due Course The last type of holder is the holder in due course. A holder in due course is a holder who takes before it is overdue a complete and regular bill without notice of any previous dishonour, and takes it in good faith for value and without notice of defects in the previous holder’s title.70 Good faith for these purposes means honesty.71 Effectively, he or she is a bona fide purchaser for value without notice, and can by section 29(3) transfer a good title to third parties. Holders are assisted by a presumption in section 30(2) of the Bills of Exchange Act 1882 that holders are holders in due course. The subsection provides: Every holder of a bill is prima facie deemed to be a holder in due course; but if in an action on a bill it is admitted or proved that the acceptance, issue, or subsequent negotiation of the bill is affected with fraud, duress, or force and fear, or illegality, the burden of proof is shifted, unless and until the holder proves that, subsequent to the alleged fraud or illegality, value has in good faith been given for the bill.

Holders are also aided by the presumption in section 21(2) that if a bill is in the hands of a holder in due course there was a proper delivery made by all parties prior to that point so as to render them liable on the bill. The onus is therefore on the defendant to show that one or more of the conditions for the claimant’s holder in due course status are not satisfied.72 The first complication is that some parties cannot be holders in due course. The main qualification is that the original payee cannot be a holder in due course, despite being listed in section 2 as a holder. In RE Jones Ltd v Waring and Gillow73 Bodenham purchased furniture on hire purchase and tendered a cheque to the respondents. The cheque was dishonoured and the furniture was repossessed. Bodenham then fraudulently induced the appellants to draw a cheque for £5000 to the order of the respondents. The rogue tendered 67 

Barclays Bank Plc v Astley Industrial Trust [1970] 2 QB 527. ibid 539. 69  Bills of Exchange Act 1882 s 38(1); McKendrick, Goode on Commercial Law (2010) (n 3) 532–33. 70  Bills of Exchange Act 1882 s 29; McKendrick, Goode on Commercial Law (2010) (n 3) 533–37. 71  Bills of Exchange Act 1882 s 90; Jones v Gordon (1877) 2 App Cas 616; for a comparison with the different test for bona fide purchase of money see D Fox, Property Rights in Money (Oxford, OUP, 2008) para 8.54. 72  Byles (2013) (n 20) para 19.004; Chalmers and Guest (2009) (n 18) para 4.081. 73  RE Jones Ltd v Waring and Gillow [1926] AC 670 (HL); DCD Factors Ltd v Ramada Trading Ltd [2007] EWHC 2820, [2008] Business LR 654, [31] (Lloyd Jones J); Chalmers and Guest (2009) (n 18) para 4.059. 68 

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the cheques to the respondents in payment of his own debt and took back the furniture. The appellants recovered the money on the basis of their mistake that the respondents were financing the manufacture of cars they (the appellants) were purchasing. Viscount Cave LC rejected the contention that the defendants were holders in due course of the bill.74 A holder in due course is someone to whom the bill has been negotiated and consequently the original payee cannot be a holder in due course as he or she is the first party in a position to negotiate the bill to another party. Another qualification is that creditors cannot take negotiable instruments in payment of debts, or as security for payment of debts, owing under certain regulated credit agreements.75 Byles, however, argues that the decision did not specifically lower the protection accorded to a payee-holder to below that of a holder in due course.76 Once one party has become a holder in due course, section 29(3) of the Bills of Exchange Act 1882 provides that any future or subsequent holder of the bill is also a holder in due course (or has the same rights) whether or not he or she gives value.77 In Jade International Steel Stahl und Eisen GmbH & Co KG v Robert Nicholas (Steels) Ltd,78 Jade drew a bill payable 120 days after sight to themselves or their order on Nicholas for the price of steel supplied. Jade indorsed and discounted the bill, meaning that Jade received less than its face value in return for negotiating it on. After a series of negotiations, Midland Bank took as a holder in due course. Nicholas accepted the bill but later dishonoured it. The bill was passed back to Jade who sued. The question was whether they could claim to be a holder in due course so as not to be subject to the counter-claim for defective steel. The Court of Appeal held yes. Geoffrey Lane LJ said that, although Jade was not a holder in due course initially because he was the drawer, the subsequent holders were holders in due course and once Jade took the bill back it was ‘inoculated’ with that title, giving them all the rights of a holder in due course.79 Thornley has commented that this result would affect a significant number of relationships and expand the range of liability.80 It seems right, however, that a good title once obtained remains. It is consistent with the general nemo dat principle. There is, however, an important qualification. A bill may be negotiated back to the drawer or a prior indorser or acceptor, but to prevent circuitry of action he or she cannot sue anyone to whom he or she was previously liable on the bill.81 The bill must be complete and regular on its face. These are separate requirements. A bill is incomplete if any material detail is missing, such as the name of the payee. Section 20 of the Bills of Exchange Act 1882, however, gives prima facie authority to a party to whom a blank but signed bill is delivered to fill it for any amount if the party does so within a reasonable time. The drawer, even if the instrument is filled up fraudulently, may not deny 74 

RE Jones Ltd v Waring and Gillow [1926] AC 670 (HL) 680. Consumer Credit Act 1974 ss 123–25. 76  Byles (2013) (n 20) para 18-031. In fact, it may peculiarly be higher in some cases. See Bridge et al (n 21) para 31.024. 77  Byles (n 20) paras 18.011–18.012. Donees of the bill from a holder in due course should benefit from this, but this is not without its critics. Bridge et al (n 21) para 31.016. 78  Jade International Steel Stahl und Eisen GmbH & Co. KG v Robert Nicholas (Steels) Ltd [1978] QB 917 (CA); Chalmers and Guest (2009) (n 18) para 4.074. 79  Jade International [1978] QB 917 (CA) 924. 80  J Thornley, ‘Reverse Negotiation of Bills?’ (1978) CLJ 236; Sealy and Hooley, Commercial Law: Text, Cases and Materials (2008) (n 3) 561. 81  Chalmers and Guest (2009) (n 18) para 5.052; Chitty (2015) (n 21) para 34.091. 75 

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its validity. If another party changes his or her position on the faith of the bill’s validity, the drawer may be estopped as against that party from denying the forgery or want of authority.82 There is some, although probably erroneous, authority that this can convert the holder into a holder in due course.83 The problem with this proposition is that section 29(1) requires a holder in due course to take a complete bill, but at the time the holder took it, it was incomplete. That fact cannot be altered. A bill is irregular if it contains a feature that would reasonably put the holder on notice that there might be some kind of problem with the bill. This is a question of fact. Unusual or unauthenticated alterations and erasures would suffice for example.84 In Arab Bank Ltd v Ross85 the claimant bank discounted two promissory notes by the defendant, Ross. The notes were made out in the name of a Palestinian firm as payee and indorsed by a partner of the firm to the Arab Bank, but omitting the word ‘company’ from the indorsement. It was held that that omission meant that the payee and indorsee may not be the same ­person. It was therefore an irregular bill, and the Arab Bank could not therefore be a holder in due course. Denning LJ made the following important observation: Regularity is a different thing from validity. The Act itself makes a careful distinction between them. On the one hand an indorsement which is quite invalid may be regular on the face of it. Thus the indorsement may be forged or unauthorized and, therefore, invalid… but nevertheless there may be nothing about it to give rise to any suspicion. The bill is then quite regular on the face of it. Conversely, an indorsement which is quite irregular may nevertheless be valid… Regularity is also different from liability. The Act makes a distinction between these two also. On the one hand a person who makes an irregular indorsement is liable thereon despite the irregularity… Conversely, a regular indorsement will not impose liability if it is forged or unauthorized.86

The bill must not be overdue,87 and the holder must have no notice of any previous dishonour of the bill. If an indorsement is not actually dated subsequent to maturity, it is assumed to have been made prior to maturity.88 It is overdue if not paid or presented on the day it falls due, or, in the case of a demand bill, has circulated for an unreasonable time.89 What amounts to an unreasonable time will be determined on the facts of the individual case. The holder of an overdue bill takes it subject only to those defects of title affecting it at maturity or dishonour.90 The main question regarding value is whether anyone who gives value for the purposes of being a holder for value gives value for the purposes of being a holder in due course. Mustill LJ in MK Development Co Ltd v The Housing Bank91 thought he did. In Clifford 82  Orbit Mining and Trading Co Ltd v Westminster Bank Ltd [1963] 1 QB 794 (CA) 827–28 (Sellers LJ); Wilson and Meeson v Pickering [1946] 2 KB 422 (CA). 83  Glennie v Bruce Smith [1908] 1 KB 263, 268–69. 84 McKendrick, Goode on Commercial Law (2010) (n 3) 534–35; Chalmers and Guest (2009) (n 18) paras 4.053–4.054. 85  Arab Bank Ltd v Ross [1952] 2 QB 216; Byles (2013) (n 20) para 18.005. 86  Arab Bank Ltd v Ross [1952] 2 QB 216, 226–27. 87  Bills of Exchange Act 1882 s 36(2); Chalmers and Guest (2009) (n 18) para 4.054. Bridge et al (n 21) comment that it is difficult to see the rationale for this; it may be difficult to negotiate if overdue, but why should a holder taking for a sufficient discount not hold in due course? 88  Bills of Exchange Act 1882 s 36(4). 89  ibid s 36(3). 90  Chalmers and Guest (2009) (n 18) para 5.042; Bills of Exchange Act 1882 ss 36(2), 36(5); Alcock v Smith [1892] 1 Ch 238 (CA) 263 (Lindley LJ). 91  MK Development Co. Ltd v The Housing Bank [1991] 1 Bank LR 74, 80.

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Chance v Silver92 the Court of Appeal came to the same conclusion. By contrast, Goode on Commercial Law argues that the implication of section 29 is that a holder in due course must give value,93 because section 29(1) talks of the holder being a holder in due course if he or she took the bill in good faith and for value. Section 27, by contrast, provides that so long as value is given the holder is a holder for value, even if he did not give value. Hitchens has argued that the Court of Appeal’s position in Silver may be preferable given the section 30(2) presumption in favour of a holder being a holder in due course. The position in S­ ilver means that if the presumption is rebutted, the holder need only prove value was given; ­section 30(2) makes no reference to who must supply the value.94

B.  Liability and Enforcement The rules as to liability on the promise to pay that is inherent in the bill of exchange and the rules as to who can sue are not the same as the rules as to validity of the title of the holder. The transfer may therefore be valid, allowing the indorsee to keep money paid under the bill without the indorser being liable to the indorsee if the bill is not paid.

i. Liability The drawer, acceptor or indorser of a bill of exchange will only be liable on it if they have capacity to contract,95 the contract is complete and irrevocable and he or she has signed the instrument.96 A person may of course sign an instrument as agent for another. Directors, for example, will sign bills on behalf of the company and will not themselves be liable on the bill.97 Section 21(1) of the Bills of Exchange Act 1882 states, as we have seen, that all contracts relating to the bill are incomplete and revocable until delivery. It is delivery therefore that makes them irrevocable. Section 64 of the Bills of Exchange Act 1882 deals with material alterations of the bill. Essentially, all parties to the bill are required to assent to changes to the date, sum payable or place of payment; otherwise the bill is void, although a holder in due course has the option, if the change is not apparent, of enforcing the original terms. In order to show that the alteration is material, it must affect the nature and character of the instrument and it must be potentially prejudicial to the obligor.98 This avoidance provision has an important consequence. Once avoided, the bill is no longer a bill but a worthless piece of paper and damages in conversion are nominal.99 The debt, however, is not necessarily

92 

Clifford Chance v Silver [1992] Bank LR 11. on Commercial Law (2010) (n 3) 535–36. 94  LK Hitchens, ‘Holders for Value and their Status: Clifford Chance v Silver’ (1993) JBL 571; in Barclays Bank v Astley Industrial Trust Ltd [1970] 2 QB 527, 536 (Milmo J) the parties expressly disclaimed reliance on the presumption. 95  Bills of Exchange Act 1882 s 22(1). 96  ibid s 23. 97  ibid s 26; Bondina Ltd v Rollaway Shower Blinds Ltd [1986] 1 All ER 564 (CA); Rolfe Lubell & Co. v Keith [1979] 1 All ER 860. 98  S Jain, ‘Material Alteration of Negotiable Instruments: Review of the Rule in Pigot’s Case’ (2008) JBL 246, 257; Pigot’s Case (1613) 11 Co Rep 26, 77 ER 177. 99  Smith v Lloyds TSB Bank Plc [2000] 2 All ER (Comm) 693 (CA); C Hare, ‘Loss Allocation for Materially Altered Cheques’ (2001) CLJ 35; they would under normal circumstances be the face value of the bill. 93 McKendrick, Goode

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discharged and Jain has described the rule on avoidance as uncertain in its effects and called for it to be confined to cases of fraud.100 Ultimate liability lies with the acceptor; the drawer and indorsers are in effect guarantors of his or her liability, unless the negotiation is done ‘without recourse’. In Duncan, Fox & Co v North and South Wales Bank,101 it was held that the indorser of a bill of exchange is a surety or guarantor of payment to the holder. Having paid he or she is entitled to the benefit of any security deposited with the holder by the acceptor.102 An acceptor is a person who has accepted liability to pay, and therefore, under section 54(1) of the Bills of Exchange Act 1882, engages to pay. If it is overdue, the bill is treated as a demand bill. The flipside is section 53(1) of the Bills of Exchange Act 1882, which states that a drawee who does not accept the bill is not liable on it. An acceptance is valid under section 17 of the 1882 Act if it is written on the bill and signed by the acceptor. The holder of a bearer bill who transfers it by mere delivery is not liable on the bill because he or she has not signed it, although the holder may be liable under a collateral warranty.103 It is therefore the signature that is critical in determining the parties’ liability. In Credit Lyonnais Nederland NV v ECGD,104 Hobhouse LJ said the act of drawing a bill of exchange imposes no obligation to accept it. Any obligation to accept had to come from some other source. On the facts of that case there was a separate collateral contract guaranteeing acceptance. Once accepted, on maturity the acceptor became liable to pay.105 There are a number of statutory estoppels affecting the acceptor under section 54(2) of the 1882 Act. The acceptor is precluded as against the holder in due course from denying the following: —— The drawer’s existence, capacity to contract or his or her signature. —— If payable to the drawer’s order his or her capacity to indorse, but not the validity of the individual indorsement (which may still be invalid for fraud or forgery). —— In the case of a bill payable to or to the order of a third party, the existence of the payee and his or her capacity to indorse. Consequently the acceptor must pay the holder in due course (but not the mere holder or holder for value) if estopped from denying these matters. Section 55 of the Bills of Exchange Act 1882 provides for the liability of the drawer and the indorser.106 Section 55(1) provides that the drawer engages that on presentation the bill will be accepted and paid and that the drawer will compensate an indorser who is compelled to pay on the bill where this does not happen. He or she is precluded by a statutory estoppel from denying to a holder in due course the existence and capacity to indorse of the original payee. Section 55(2) makes similar provision for indorsers in that he or she promises that the bill will be accepted and paid. There are two statutory estoppels against the indorser. The indorser is precluded from denying to a holder in due course the drawer’s signature or previous indorsements. The indorser is also precluded from denying to subsequent indorsees his or her title to the bill at the time of the indorsement, or that it was a valid bill. This is the only statutory estoppel available to a party other than the holder in due course. 100 

Jain, ‘Material Alteration of Negotiable Instruments’ (2008) (n 98) 261–62. Duncan, Fox & Co v North and South Wales Bank (1880) 6 App Cas 1 (HL). ibid 18–19; Chalmers and Guest (2009) (n 18) para 7.015. 103  Bills of Exchange Act 1882 s 58(2); McKendrick, Goode on Commercial Law (2010) (n 3) 538. 104  Credit Lyonnais Nederland NV v ECGD [1998] 1 Lloyds Rep 19 (CA). 105  ibid 39; Bills of Exchange Act 1882 s 54(1). 106  Chalmers and Guest (2009) (n 18) paras 7.020–7.028. 101  102 

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There is also the question of the liability of quasi-indorsers, and as always a note of caution must be added; ‘quasi’ terminology is rarely helpful, but a quasi-indorser is a party signing the bill despite never being a holder in the chain of title.107 As they are not holders of the bill they cannot in fact be indorsers. However, section 56 provides for a stranger signing a bill to incur the liability of an indorser to a holder in due course. A person may do this, if he or she wishes to guarantee payment by prior parties and this is not infrequent in commercial practice.

ii. Defences The availability of defences against holders when they sue for payment on the bill depends on the type of holder they are. Mere holders are the most vulnerable, being vulnerable to almost all defences. The holder in due course is the best protected. Section 38(2) of the Bills of Exchange Act 1882 provides that a holder in due course holds free from any defect of title of prior parties, as well as from mere personal defences available to prior parties, and may enforce payment against all parties liable on the bill. Negotiability is, as we have said before, therefore an exception to the usual nemo dat rule, so if Alan steals a bill of exchange and negotiates to Chloe as a holder in due course the defect in the validity of Alan’s title is cured. In this way bills are treated like cash. However, bills of exchange are vulnerable in ways that cash is not. There are two types of defence which we will take in turn. There may be real defences arising from the invalidity of the bill itself, to which the holder in due course may be vulnerable. Because the bill is itself a contract, contractual vitiating factors apply, such as the incapacity of the drawer or non est factum;108 others include material alteration or discharge of the bill or want of authority in drawing or transferring it. In cases of incapacity of the drawer as a corporation or a minor, the bill may, however, be enforced against other parties to the bill.109 Section 24 of the Bills of Exchange Act 1882 provides that a bill with a forged signature is inoperative. A person who takes under a forged indorsement therefore obtains no good title,110 although this can be cured by subsequent negotiation to a holder in due course,111 because a subsequent indorsement is treated as a fresh drawing, and the indorser is statutorily precluded from denying the bill’s validity to subsequent indorsees under section 55(2) of the Bills of Exchange Act 1882. A holder for value also takes subject to real defences, such as forgery of a signature or lack of contractual capacity. It is possible for a party to be estopped from denying a forgery under a common law or equitable estoppel. In Greenwood v Martins Bank112 the wife repeatedly forged her husband’s signature on cheques, but the husband said nothing about these forgeries. His wife killed herself and he started an action to recover the money from the bank. It was held that he had had a duty to reveal the forgeries once he knew about them, but having chosen not to do so he was now estopped at common law from denying the validity of the cheques. 107 

ibid paras 7.031–7.033; McKendrick, Goode on Commercial Law (2010) (n 3) 542–46. Goode on Commercial Law (2010) (n 3) 557; other real defences may be fraud, duress, undue influence. Chalmers and Guest have a more complete list (2009) (n 18) para 5.070; on non est factum see Credit Lyonnais v PT Barnard & Associates Ltd [1976] 1 Lloyds Rep 557. 109  Bills of Exchange Act 1882 s 22(2). 110  Lacave & Co v Credit Lyonnais [1897] 1 QB 148; on forged and unauthorised signatures see McKendrick, Goode on Commercial Law (2010) (n 3) 554–57. 111  Bills of Exchange Act 1882 s 29(2); Österreichische Länderbank v S’Elite Ltd [1981] QB 565 (CA). 112  Greenwood v Martins Bank [1933] AC 51 (HL). 108 McKendrick,

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The silence amounted to a representation that the cheques were regular. Although silence cannot usually amount to a representation, it will do so where there is a duty to speak.113 There is, however, no wider duty of care to check that forged cheques are not presented for payment. In Tai Hing Cotton Mill Ltd v Liu Chong Hing Bank Ltd114 the terms of the contract was not sufficiently clear as to impose a definite duty on the company to check its bank statements for forgeries. The Privy Council therefore held that the particular forged cheques on those facts had to be refunded to the company and that the bank would have to bear the loss.115 The difference with Greenwood was that there was in Tai Hing no duty on the customer to inform the bank or to take precautions to ensure that no forged cheques were presented for payment. In the former case there was such a duty because the husband actually knew of the forgeries over a long period, and had a duty to the bank to take care not to facilitate fraud. The customer in Tai Hing had not facilitated any fraud. There are also personal defences, the second type of defence, which are extrinsic to the bill of exchange itself.116 These include rights to avoid liability for misrepresentation, rights of set-off and any claims for failure or absence of consideration—eg non-performance of the underlying contract. These do not vitiate the bill itself nor do they produce a break in the chain of title. A holder in due course is not concerned with personal defences arising between prior parties to the bill. In Cebora SNC v SIP (Industrial Products) Ltd,117 therefore, the two companies had entered into an exclusive distribution agreement which broke down. The claimants claimed on outstanding bills of exchange and were met by a crossclaim for breach of contract. Stephenson LJ stated that bills of exchange should be treated as cash and bona fide purchasers for value of the bill should be free to ignore any set-offs or counter-claims arising on the underlying transaction. Judgment on the bill would not be stayed by such counter-claims.118 Sir Eric Sachs called this a ‘pay now, argue later’ rule.119 Section 38 of the Bills of Exchange Act 1882 makes no mention of holders for value, who Denning LJ, speaking in Arab Bank v Ross, included in a generic conception of other ‘holders’ for the purposes of the availability of defences.120 This implies that the holder for value takes the bill subject to defences or equities, which do not invalidate the entire bill, to a claim for payment which were available to prior parties. Goode on Commercial Law argues that the rule is that such defences may be raised against any holder whether remote or immediate other than a holder in due course.121 It concedes that there is an exception that failure of consideration may not be raised against a holder for value merely because the acceptor received no consideration. Scott LJ said of holders for value in Churchill & Sim v Goddard that as between immediate (but by implication not remote) parties the defendant is entitled to prove complete failure or absence of consideration moving from the claimant

113 

E Peel (ed), Treitel’s Law of Contract, 14th edn (London, Sweet and Maxwell, 2015) paras 9.136–9.161. Tai Hing Cotton Mill Ltd v Liu Chong Hing Bank Ltd [1986] AC 80 (PC). 115  ibid 111. 116 McKendrick, Goode on Commercial Law (2010) (n 3) 553. 117  Cebora SNC v SIP (Industrial Products) Ltd [1976] 1 Lloyds Rep 271 (CA). 118  ibid 277–78. 119  ibid 279; Nova (Jersey) Knit Ltd v Kammgarn Spinnerei GmbH [1977] 2 All ER 463 (HL). 120  Arab Bank v Ross [1952] 2 QB 216 (CA) 229. 121 McKendrick, Goode on Commercial Law (2010) (n 3) 553–54; B Geva, ‘Equities as to Liabilities on Bills and Notes’ (1980) 5 Canadian Business Law Journal 53, 78; B Geva, ‘Absence of Consideration in the Law of Bills and Notes’ (1980) CLJ 360, 365–66. 114 

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as a defence to a claim on the bill.122 As between drawer (C&S) and acceptor (G), the acceptor would have been able to raise absence of consideration (had there been an absence of consideration on the facts), but could not raise it against a subsequent holder for value, who is not a holder in due course, but is a remote party. Purely personal defences or cross-claims such as unliquidated damages claims cannot be relied upon against a remote party holder for value. It must be an equity to which were the negotiation in fact an assignment, the assignment would be subject.123 If therefore Alan is induced by misrepresentation to endorse the bill to Bert who negotiates it to Chloe, who is not a holder in due course (perhaps the bill is now overdue), Alan may set up the misrepresentation against Chloe. In GMAC Commercial Finance Ltd v Mint Apparel Ltd,124 GMAC provided credit to China Export Finance by way of invoice discounting. CEF paid Chinese exporters 80 per cent of their invoice and drew a bill of exchange on their behalf for the full value. The importer, here Mint Apparel, accepted the bill, which CEF then sold onto GMAC. On CEF’s insolvency, GMAC indorsed the bills (now overdue) to itself under its power of attorney, and sued Mint, who raised a defence of set-off of various liquidated claims it argued (in the end unsuccessfully) it could raise against CEF. Teare J rather elliptically suggested that a claim for set-off available to the acceptor against an immediate party might also be available against a holder for value.125 On this basis Alan, in our example, should also, under section 27(2), be able to set up against Chloe any rights of set-off against the drawer, the existence of which were never established in GMAC itself. Where a holder in due course sues as agent for another, any set-off or defence available against the third-party principal is available against the holder. In Barclays Bank Ltd v Aschaffenburger,126 therefore, BCI drew 18 bills accepted by the defendant; they were indorsed in blank and delivered to the claimant bank. Two were dishonoured and the defendants raised a set-off as a defence. Lord Denning said that to the extent the holder was suing as agent or trustee, he was subject pro tanto to a set-off available against the principal or beneficiary.127

iii. Enforcement Demand bills of exchange are simply presented for payment. As a general rule presentment for acceptance is not required, unless the bill explicitly requires it, which it never does, because a commitment to make immediate payment would be pointless. However, a bill may also be payable 60 days after sight, for example. In those circumstances the holder will present the bill to the drawee in order that he or she should have had sight of the bill and 60 days later payment will be due.128 In these circumstances the holder must present the bill for acceptance within a reasonable time or the drawer and indorsers will be excused liability,129 but a bill payable 60 days after some other event—delivery of goods for ­example—need not actually be presented for acceptance. Section 41 of the 1882 Act sets out 122  Churchill & Sim v Goddard [1937] 1 KB 92 (CA) 109–10; SAFA v Banque du Claire [2000] 2 All ER (Comm) 567 (CA) 575 (Waller LJ); Chalmers and Guest (2009) (n 18) para 4.024. 123  On ‘subject to equities’ in assignment, see chapter four, part IV A. 124  GMAC Commercial Finance Ltd v Mint Apparel Ltd [2010] EWHC 2452 (Comm). 125  ibid [26]. 126  Barclays Bank Ltd v Aschaffenburger [1967] 1 Lloyds Rep 387 (CA). 127  ibid 389. 128  Bills of Exchange Act 1882 s 39; Chalmers and Guest (2009) (n 18) para 6.004. 129  Bills of Exchange Act 1882 s 40; Chalmers and Guest (2009) (n 18) para 6.009.

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the way in which presentment for acceptance must take place; essentially it must be made to the drawee during business hours; if the drawee fails to accept it, he or she dishonours it by non-acceptance.130 In those circumstances the holder has the right on giving notice of dishonour to proceed immediately against the drawer and indorser(s). If no notice of dishonour by non-acceptance is given, the other parties are discharged from liability,131 but if notice is given the holder may proceed directly against the drawer and indorsers.132 Delay in giving notice can be excused if the delay is caused by circumstances beyond the payee’s control and is not because of his or her negligence.133 Protesting the bill is the process of formally establishing its dishonour. This is not always necessary; there is no need to protest UK bills, only foreign bills, which are defined as bills other than those drawn and payable in the ‘British Isles’ or drawn there on a person resident.134 The process for protest is that the bill is re-presented by a notary public to the acceptor, and if dishonoured the notary notes that on the bill and following this a formal declaration of protest is made.135 Although the amount due under a bill can be sued for in debt, where the bill is dishonoured by non-acceptance, damages are calculated under section 57 of the Bills of Exchange Act 1882. The amount of the bill and interest may be recovered as they would be under an action for debt. However, the expenses of noting or protesting the bill are also recoverable. Section 45 provides that bills must be presented for payment. Once accepted, failure to pay the bill on valid presentment constitutes dishonour by non-payment.136 A bill must be presented in the following way. Where the bill is not payable on demand, presentment must be made on the day it falls due. Where by contrast the bill is payable on demand presentment must be made within a reasonable time after its issue or indorsement. What counts as a reasonable time is a matter of fact. Presentment must be at a proper place, usually the drawee’s place of business. In Yeoman Credit Ltd v Gregory137 the claimants drew two bills of exchange on Express Coachcraft Ltd payable at National Provincial Bank, which were accepted. The defendant indorsed the bills as surety. The claimants were told that no funds were available and the bills should be presented at the Midland Bank. The claimants did so, but were refused payment. The following day the bills were presented at the National & Provincial Bank, which also refused to pay. Megaw J held that although the defendants were entitled to have the bill presented at the National & Provincial Bank on the due date, the bill was presented a day late and therefore no liability arose.138

iv. Discharge139 Discharge of the bill is not the same as discharge of the party to the bill. A party is discharged when the amount due is paid by the party or a prior party, or the bill is not duly 130 

Bills of Exchange Act 1882 s 43; Chalmers and Guest (2009) (n 18) paras 6.029–6.030. Bills of Exchange Act 1882 s 48. 132  Byles (2013) (n 20) para 11.011. 133  Bills of Exchange Act 1882 s 50(1); there are a number of circumstances in s 50(2) where notice of dishonour need not be given at all. 134  ibid s 4. 135 McKendrick, Goode on Commercial Law (2010) (n 3) 551. 136  Bills of Exchange Act 1882 s 47. 137  Yeoman Credit Ltd v Gregory [1963] 1 WLR 343. 138  ibid 353–54. 139  Byles (2013) (n 20) para 13.001; McKendrick, Goode on Commercial Law (2010) (n 3) 563–64; Chalmers and Guest (2009) (n 18) ch 8; Chitty (2015) (n 21) paras 34.122–34.124, 35.138–34.141. 131 

Negotiation of Bills of Lading 145

presented, or notice of dishonour is not given. A bill is discharged when nobody is potentially liable on it. It may be discharged by payment,140 the acceptor becoming holder in his or her own right at or after maturity,141 express waiver or cancellation of the bill. The holder may therefore unconditionally renounce his or her right to obtain payment under the bill,142 or it may be cancelled by the holder in a way apparent on the face of the bill.143

IV.  Negotiation of Bills of Lading The bill of lading is transferred or negotiated in much the same way as a bill of exchange. It is possible for a bill of lading to be expressed in such a way as to make it a straight or nonnegotiable bill.144 If the bill is made out simply to a named consignee it will not be transferable, although it may still be a document of title requiring presentation before delivery of the goods. Unlike in cases of bills of exchange there is no presumption that the bill of lading is an order bill. If a bill of lading is145 designated to ‘order’, it is transferable by indorsement by the shipper and delivery. The recipient of the bill is the party to whom delivery is due—the consignee. If it is made out to a named consignee ‘or order’, it is transferable by indorsement of the consignee. If the consignee’s name is shown as ‘holder’ it is transferable by delivery only as a bearer bill. In Keppel Tatlee Bank Ltd v Bandung Shipping Pte Ltd146 the Court of Appeal of Singapore decided that a bill of lading could be indorsed in blank. It then became a bearer bill of lading capable of transfer or negotiation purely by delivery. This very closely parallels the mechanisms by which bills of exchange are negotiated; they too can be negotiated by delivery alone if they are bearer bills or by special indorsement to a named indorsee, or as in Keppel Tatlee Bank by a blank indorsement. It also reflects the distinction under the Bolero system briefly outlined in chapter one between blank endorsements and designations of a ‘to order’ party. Reference should be made back to chapter one, part IV C ii for details of Bolero. There is one critical difference, however; as we have stressed repeatedly, negotiation of a bill of lading gives the transferee no better title than the transferor, unless one of the exceptions to the nemo dat rule laid out in chapter 3 applies.147 By the same token if a security interest is taken in the goods and the bill of lading passed to a transferee, the latter takes subject to the security interest in the same way as if he received the goods. Negotiation of the bill transfers constructive possession of the goods to which it relates and therefore represents a constructive delivery of those goods. In the context of the Sale of Goods Act 1979 that fulfils the seller’s delivery obligation under section 27.148 Importantly, 140 

Bills of Exchange Act 1882 s 59. ibid s 61. 142  ibid s 62(1). 143  ibid s 63(1). 144  The Chitral [2000] 1 Lloyds Rep 529; see chapter one, part III C ii. 145 McKendrick, Goode on Commercial Law (2010) (n 3) 981–82; Y Baatz and S Dromgoole, ‘The Bill of Lading as a Document of Title’ in E McKendrick and N Palmer (eds), Interests in Goods, 2nd edn (London, LLP, 1998) 547, 556. 146  Keppel Tatlee Bank Ltd v Bandung Shipping Pte Ltd [2002] SGCA 46, [2003] 1 SLR 295. 147  S Thomas ‘Transfers of Documents of Title under English Law and the Uniform Commercial Code’ [2012] LMCLQ 573, 579; for a discussion of some of these exceptions see R Aikens, R Lord, M Bools, Bills of Lading 2nd edn (London, LLP, 2016) paras 6.43–6.61. 148  But see Aikens, Lord and Bools (n 147) (2016) paras 5.11–5.30. 141 

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the transfer of a bill of lading does not at common law effect a transfer of the rights and obligations under the contract of carriage,149 nor in the absence of an attornment does it allow the transferee to sue for breach of any bailment obligations.150 To get around this rule that contractual and other duties did not transfer, it was in some cases possible to imply a new contract between the transferee of the bill and the carrier; the transferee took on responsibility to pay freight and in return the carrier agreed to deliver the goods and take responsibility for loss. This was known as a Brandt v Liverpool contract after the seminal case of that name where it was used.151 The problem is now addressed by the Carriage of Goods by Sea Act 1992 which provides in section 2 that the bill of lading transfers to the consignee or indorsee the rights of the original shipper under the contract of carriage. The Act cannot, however, apply to electronic bills. A holder for the purposes of the Act is a person with possession of the bill who must also satisfy one of three requirements. The person must be the consignee or have had—under section 5(2)—the bill negotiated to him or her through it being delivered or indorsed over to him or her, or hold a spent bill.152 Mere delivery of the bill to a named consignee makes him or her a holder. The requirements of section 5(2) were considered in Standard Chartered Bank v Dorchester LNG.153 The Court of Appeal noted that there was a difference between the position of a consignee, who, as we have seen, merely has to be in possession of the bill, and an indorsee, where there must be a delivery of the bill. It concluded that there were two voluntary acts in that the indorser must intend to deliver the bill and the indorsee to accept it.154 Additionally, it must be a valid indorsement. In The Dolphina155 the indorsing party had an obligation to return the bill of lading; once KOSB had paid, the intention was the bill was spent for the purposes of transferring rights, but KOSB went ahead and falsely indorsed it over to BOC, who did not then become a holder of the bill for the purposes of the Act.156 This, however, means that it is difficult to know the validity of the indorsement without being aware of the underlying circumstances, which is commercially undesirable. The next requirement is that the consignee is a lawful holder. A lawful holder is one who takes in good faith. Good faith is not defined in the Act, but should be taken to have the same meaning as in the Bills of Exchange Act 1882, or Sale of Goods Act 1979.157 This is all that is required for a named consignee to become a lawful holder.158 In most cases the effect of the section is to produce a statutory assignment of the shipper’s contractual rights 149 

Thompson v Dominy (1845) 14 M&W 403, 153 ER 532; Sewell v Burdick (1884) 10 App Cas 74 (HL). S Mills (ed), Goode on Proprietary Rights and Insolvency in Sales Transactions, 3rd edn (London, Sweet and Maxwell, 2010) para 4.32; Palmer, Palmer on Bailment, 3rd edn (London, Sweet and Maxwell, 2009) para 20.012; Baatz and Dromgoole, ‘The Bill of Lading as a Document of Title’ (1998) (n 146) 551–52. 151 See Brandt v Liverpool, Brazil & River Plate Steam Navigation Co Ltd [1924] 1 KB 575. For discussion see Aikens, Lord and Bools (n 147) (2016) paras 8.19–8.25. 152  See generally later in the book, chapter 10, part IV C. 153  [2014] EWCA Civ 1382, [2015] 2 All ER 395. 154  ibid [20–28]; P Todd ‘Banks as Holders under the Carriage of Goods by Sea Act’ [2015] LMCLQ 155; Aikens, Lord and Bools (n 148) (2016) paras 8.41–8.46. 155  [2011] SGHC 273, [2012] 1 Lloyds Rep 304. 156  ibid [166–185]. 157  Aegean Sea Traders Corporation v Repsol Petroleo SA [1998] 2 Lloyds Rep 39, 60–61; Sir Guenter Treitel and F Reynolds (eds), Carver on Bills of Lading, 3rd edn (London, Sweet and Maxwell, 2011) para 5.025; Aikens, Lord and Bools (n 147) (2016) paras 8.58–8.60; see Bills of Exchange Act 1882 s 90; Sale of Goods Act 1979 s 61(3). 158  UCO Bank v Golden Shore Transportation Pte Ltd [2005] SGCA 42, [2006] 1 SLR 1. 150 

Negotiation of Bills of Lading 147

to the holder of the bill. However, there are cases in which the contractual rights vesting in the holder may differ from the shipper’s rights.159 The most obvious case of this is where there are extrinsic terms agreed between shipper and carrier. In Leduc v Ward160 a bill of lading for the carriage of goods from Fiume to Dunkirk did not allow deviation to Glasgow. The shipper knew the ship would go to Glasgow. As between those parties—shipper and carrier—there was no breach of contract. No such deviation was permitted by the contract between carrier and indorsee. If, subject to some exceptions, possession of the bill does not give rise as against the carrier to a right to possess the goods (ie it is a spent bill) it does not transfer rights of suit under the bill.161 The lawful holder of the bill when he or she demands delivery of the goods or makes a claim under the contract of carriage becomes subject to the liabilities under the contract under section 3 of the 1992 Act. The effect is that the holder of the bill who enforces his or her rights is also subject to the liabilities under the bill. This is an example of the principle of mutuality of benefit and burden.162 In East West Corporation v DKBS163 the question arose whether the fact that A had been divested of his rights of suit under the contract meant in addition that he had lost his rights under bailment and the appurtenant tort actions, bearing in mind there had been no attornment.164 The decision was that he had not been. Palmer, however, correctly criticises this result on the basis that it thwarts the purpose of the Carriage of Goods by Sea Act 1992.165 The difficulty is that the loss may not be suffered by the party with rights of suit. Section 2(1) transfers the right to sue, but not property. If the goods are then damaged before property passes, the party with the right to sue under the contract has no real incentive to do so; although the party may under section 2(4) sue on behalf of the owner, there is no obligation to do so.166 The bill serves as a receipt by the carrier. It is therefore prima facie evidence for the shipper and conclusive evidence for the consignee that the goods were received. It evidences the goods’ apparent condition and the terms of the contract of carriage between the shipper and carrier,167 and as between the carrier and consignee actually is the contract by virtue of the way in which it is the vehicle for the transfer of rights and liabilities. The use of bills of lading is cumbersome. In those cases of international trade where goods are shipped, say, from Dover to Calais, the buyer is unlikely to obtain the bill of lading soon enough to take delivery, and a non-negotiable sea waybill, which need not be presented to obtain delivery, is often used. Indeed, bills of lading are never used in air freight. However, such waybills do not aid the parties in cases where goods are bought and

159 

Treitel and Reynolds, Carver on Bills of Lading (2011) (n 157) para 5.028. Leduc v Ward (1888) 20 QBD 475. 161  Carriage of Goods by Sea Act 1992 s 2(2). 162  Borealis AB v Stargas Ltd (The Berge Sisar) [2001] UKHL 17, [2002] 2 AC 205, 227 (Lord Hobhouse); PrimeTrade AG v Ythan Ltd (The Ythan) [2005] EWHC 2399 (Comm), [2006] 1 Lloyds Rep 457. See also Aikens, Lord and Bools (n 147) (2016) paras 8.94–8.107. 163  East West Corporation v DKBS [2003] EWCA Civ 83, [2003] QB 1509. 164  See chapter 10, part III. 165 Palmer, Palmer on Bailment (2009) (n 150) para 20.030; see also Margarine Union v Cambay Prince [1969] QB 214 for the prerequisites of the right to sue in negligence, which are also divorced from the rights to sue on the contract. 166  R Bradgate and F White, ‘The Carriage of Goods by Sea Act 1992’ (1993) 56 MLR 188, 200–202. 167 McKendrick, Goode on Commercial Law (2010) (n 3) 988; Carriage of Goods by Sea Act 1992, s 4. 160 

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sold several times while at sea. The solution to this may involve a series of indemnities, but the carrier still runs a considerable risk in releasing goods without a valid bill of lading.168

V.  Commercial Uses of Bills of Exchange A.  Documentary and Negotiation Credits The fact that bills of exchange can be made payable at a fixed future date means that they are ideally suited to international trade transactions where the buyer may not wish to pay immediately on shipment. Indeed, they are often used in conjunction with documentary credits. Approximately 10–15 per cent of world trade is conducted on such credit terms, although that is still dwarfed by the volume of trade on open account where goods are shipped and payment made at an agreed time afterwards. The ICC Global Trade Surveys come out every year and provide an analysis of the trends in trade finance for the previous six months. However, the gist is that documentary credits are frequently resorted to by parties who do not know each other, because they have the assurance of payment by a trusted and known bank, despite charges running between 3 per cent and 6 per cent of the value of the credit, plus extra flat fees, for eg amendments to the credit. It also allows the goods themselves to be used as collateral for bank finance via the trust receipt mechanism examined in chapter 12.169 In some cases the proceeds of the letter of credit itself might be assigned to the bank, either absolutely or by way of charge, as security for an advance to the beneficiary. A straight documentary credit is essentially an autonomous contract, a bank’s guarantee of payment against specified documents.170 Its duty is to pay when the beneficiary presents certain documents to it, even if there is a breach of the underlying contract of sale.171 However, the bank will be able to refuse to pay if there is fraud to which the seller or beneficiary is party.172 The fraud defence is a very narrow defence, providing an exception to the autonomy rule that credits and the underlying transaction are divorced from each other. It provides that where there is a fraudulent statement in a document known to the presenter of the documents the paying bank can recover, or refuse to pay.173 There may be, indeed in almost all circumstances there is, a confirming bank in the seller’s own jurisdiction which takes on liability to the seller subject to reimbursement by the issuing bank.174 Usually therefore there are a number of banks involved. The buyer (B) makes a contract of sale with the seller (S). The seller asks for payment by documentary 168  Mills (n 150) paras 4.43–4.50, Borealis AB v Stargas Ltd (The Berge Sisar) [2001] UKHL 17, [2002] 2 AC 205, 230 (Lord Hobhouse); parties often stipulate for a bill of lading where it is wholly unnecessary, adding to the problem, Mills (n 150) paras 4.63–4.64; see also Baatz and Dromgoole ‘The Bill of Lading as a Document of Title’ (1998) (n 146) 580–82. 169  Chapter 12, part II B; However, see McKendrick, Goode on Commercial Law (2010) (n 3) 1060–61. 170  ICC Guide to Documentary Credit Operations (ICC no 515, 1994) 15 provides a summary of the parties’ objectives in choosing to effect payment by documentary credit. 171  Uniform Customs and Practice for Documentary Credits (UCP) 600 arts 4a and 5. 172  United City Merchants v Royal Bank of Canada [1983] 1 AC 168. 173  Szteijn v J Henry Schroder Banking Corpn 31 NYS (2d) 631 (1941). 174 McKendrick, Goode on Commercial Law (2010) (n 3) 1065.

Commercial Uses of Bills of Exchange 149

credit and the buyer approaches his or her bank to open or issue a credit. That bank is the issuing bank (IB). IB, if not paying direct, will approach a correspondent bank in the seller’s country, which either confirms the credit, thus adding its own promise to pay the seller, or simply advises that the credit has been opened. The seller in the case of a confirmed credit now has an enforceable contractual promise to pay from the buyer, issuing bank and the confirming bank (CB). If he or she presents documents in conformity with the requirements of the credit to CB, CB will pay and send the documents to IB which will check them and if in conformity pay CB under an independent obligation175 before presenting them to the buyer for reimbursement. If the documents are not in order CB can reject the documents within five days and refuse to pay, but usually the bank will pay even on nonconforming documents.176 Where electronic documents are used, the eUCP (Uniform Customs and Practice for Documentary Credits) supplements but does not replace the UCP;177 it follows the UCP, except where necessary. For the supplement to apply, the letter of credit must expressly incorporate the eUCP. The same type of process is used. The bank examines carefully the documents to see that they comply, but the eUCP says nothing about the technical specification of the documents. Documents must be rejected for non-conformity within five days, as required under UCP 600.178 However, the eUCP has not caught on, partly because not all the required documents can be produced electronically. The bank may promise to pay cash. Payment may also be made by a bill of exchange, although this is increasingly uncommon as the requirements to physically accept or indorse a bill is cumbersome. The bank may promise to accept a bill drawn on it, or to negotiate a bill drawn on the issuing bank. Drafts—bills of exchange—drawn on the buyer are not permitted.179 Often where payment is at sight of the document, a sight bill of exchange will be drawn. A deferred payment undertaking may also be used.180 Where this is by a bill of exchange payable a set number of days after sight, it is an acceptance credit, which the confirming bank will accept in favour of the beneficiary. We have seen that often the payee will then wish to discount such bills by negotiation. A deferred payment credit is one where a bill is not involved, but where the bank promises to pay at a set future date, often up to 360 or 390 days hence. It too can be discounted prior to payment and this is usually what is intended. The confirming bank, which has promised to pay later, may pay now and take an assignment of the beneficiary’s rights under the credit, but the advantages are less as assignment is subject to equities,181 and negotiation of a bill of exchange to a good faith bank for value is not. Article 12(b) of the UCP 600 was intended to reverse the effects of Banco Santander v Bayfern, which held that assignment of rights under a deferred payment credit were subject to equities; Horowitz has argued, however, that the UCP 600 does not

175 

UCP 600 art 7(c). R Mann, ‘The Role of Letters of Credit in Payment Transactions’ (2000) 98 Michigan Law Review 2494. eUCP art e1; SWIFT eUCP Guidelines para 5.3; JG Barnes and JE Byrne ‘E-Commerce and Letter of Credit Law and Practice’ (2001) 35 International Lawyer 23, 26; Jack Documentary Credits (2009) (n 49) paras 14.6–14.9. 178  UCP 600 art 14b; eUCP art e7. 179  UCP 600 art 6c. 180  J Ulph ‘The UCP 600: Documentary Credits in the 21st Century’ (2007) JBL 355, 372. 181  On ‘subject to equities’ generally see chapter four, part IV A; in this context in particular see Banco Santander SA v Bayfern Ltd [2000] 1 All ER (Comm) 776. The decision has been followed in Singapore and South Africa; Crédit Agricole Indosuez v BNP Paribas [2000] 2 SLR 1; Vereins-und Westbank v Veren Investments Ltd 2000 (4) SA 238. 176  177 

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touch the question of the confirming bank taking an assignment of the beneficiary’s rights to payment, which will still always be subject to equities.182 Negotiation credits also exist,183 provide greater protection to the confirming bank in these cases and are the more common variety in the United Kingdom. Letters of credit are never negotiable. Negotiation credits merely permit negotiation. The issuing bank’s undertaking in these cases is not merely to accept drafts drawn on it up to the agreed amount in the credit and pay the seller, or reimburse the advising or confirming bank. It also extends to a nominated bank which is authorised to negotiate bills of exchange drawn by the seller (usually on the issuing bank).184 Under an open negotiation credit that undertaking extends to any bank. The issuing bank may instead nominate a particular bank; if so it is a restricted negotiation credit. If the nominated bank is a confirming bank it will come under an obligation to negotiate in those circumstances. A nominated bank which is not a confirming bank comes under no such obligation.185 The main difference with a straight credit is that the negotiation bank obtains a right to payment on the bill in its own right and the original beneficiary of the credit drops out; the bank also acquires rights of recourse against the drawer if the drawee (the issuing bank) of the bill dishonours it.186 As negotiation of the bill has taken place, the negotiation bank is entitled to payment as a holder in due course even in cases of fraud.187 Inevitably this leads to an important link between the law on letters of credit and negotiable instruments. This link has become strained. The discussion about negotiation credits is, for instance, bedevilled by inconsistent use of the term negotiation in the two areas. Negotiation means giving of value under documentary credits law, but means something quite different under bills of exchange law. Indeed, negotiation need not be of a bill under letter of credit parlance; any document may be negotiated;188 if documents other than bills of exchange are negotiated rights under the 1882 Act will not follow. It is also not certain that value for the purposes of becoming a holder for value or in due course is the same as value under the UCP.189 Contrary to negotiable instruments parlance, a bank’s undertaking to negotiate does not make it a negotiation bank unless it is nominated as such. If therefore a bank negotiates the seller’s draft without authority, the purchasing bank will acquire no rights under the letter of credit, although bills of exchange law may give him or her some rights.190 If there

182  D Horowitz, ‘Banco Santander and the UCP 600’ (2008) JBL 508; for her latest views see D Horowitz, Letters of Credit and Demand Guarantees: Defences to Payment (Oxford, OUP, 2010) paras 4.05–4.21; see also McKendrick, Goode on Commercial Law (2010) (n 3) 1069–70. 183  JE Byrne, ‘Negotiation in Letter of Credit Practice and Law: The Evolution of the Doctrine’ (2007) 42 Texas International Law Journal 561; for a critique of the operation of negotiation credits in practice see JF Dolan, ­‘Negotiation Letters of Credit’ (2002) Banking Law Journal 409. 184  Sealy and Hooley, Commercial Law: Text, Cases and Materials (2008) (n 3) 854; UCP 600 art 2. 185  UCP 600 art 12a. 186  ibid arts 7(c), 8(c); Bills of Exchange Act 1882 s 47; MA Sasson & Sons Ltd v Intl Banking Corpn [1927] AC 711 (PC); McKendrick, Goode on Commercial Law (2010) (n 3) 1073–75. 187  DCD Factors Plc v Ramada Trading Ltd [2007] EWHC 2820, [2008] Bus LR 654. 188  UCP 600 art 2(2); Byrne, ‘Negotiation in Letter of Credit Practice and Law’ (2007) (n 183) 571. 189  D Sheehan, ‘Rights of Recourse under Documentary (and Other) Credit Transactions’ (2005) JBL 321, 338; this remains true under UCP 600 where an actual advance of funds is required; value under the 1882 Act is broader. R Dole, ‘The Effect of UCP 600 upon UCC Art 5 with Respect to Negotiation Credits and the Immunity of Negotiating Banks from Letter of Credit Fraud’ (2008) 54 Wayne Law Review 735, 778–80. 190  Sheehan, ‘Rights of Recourse under Documentary (and Other) Credit Transactions’ (2005) (n 189) 338–39, 341–42; Byrne, ‘Negotiation in Letter of Credit Practice and Law’ (2007) (n 183) 575–76; McKendrick, Goode on Commercial Law (2010) (n 3) 1097.

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is authority to negotiate the bank is bound by the UCP 600, will be able to recover, but can have no recourse outside the terms of the credit.191 Indeed, Byrne’s final conclusion is that the differences are such that negotiable instruments law cannot form the basis for negotiation in letters of credit.192 Whether this is right or not the interplay between the two areas of law is extremely complex.

B.  Electronic Bills of Exchange and Electronic Negotiation There has been a decline in the use of negotiable instruments and bills of exchange in particular over the last few years as electronic systems take over. Commercial parties responded to this in the bill of lading context with the Bolero system, and others. One possibility is therefore the creation of an electronic bill of exchange. A significant difference of opinion exists about the feasibility of these instruments in electronic form. Mann has argued strongly that modern technology offers mechanisms for confirming payment authorisations that are much more effective than a physical signature. Negotiability, he argues, arose at a time when parties were well known to each other, and that its time is past.193 Indeed, Rogers has urged us to take a step back, question and ultimately ditch the entire area of the law. Writing in the context of articles 3 and 4 Uniform Commercial Code, he argues that the law of negotiable instruments is wholly unsuitable as a law of financial transactions, because it is actually a law about the transfer of documents and these transfers and indorsements of documents now rarely take place. Consequently, the relevance of law that historically built up around indorsees trying to find a way of avoiding paying on the document is questionable at the very least.194 All that said, the current difficulty in relation to negotiable electronic bills of exchange is that bills of exchange must by law be in paper form. This is because of the formal requirements set out in the 1882 Act, including the requirements for writing and signatures. Although in other contexts it seems that email for instance will meet writing criteria and requirements, Sealy and Hooley have argued that the definition in section 3(1) of the 1882 Act has too many references to paper-based concepts.195 This is a barrier to fully electronic bills (and also to fully electronic documentary credits in all circumstances), although ­section 8 of the Electronic Communications Act 2000 provides that a minister may modify legislation to enable or facilitate the use of electronic communications or storage where otherwise it would be required to be done in writing or with a signature.196 It should not be thought that bills are entirely hardcopy based, however. There is a procedure whereby cheques can be presented by electronic transmission of the relevant information. This is called cheque truncation.197 Banks in the UK never developed a fully truncated system, but 191  Sheehan, ‘Rights of Recourse under Documentary (and Other) Credit Transactions’ (2005) (n 189) 339–40; Byrne, ‘Negotiation in Letter of Credit Practice and Law’ (2007) (n 183) 578; see 581–93 on the effect of fraud. 192  Byrne, ‘Negotiation in Letter of Credit Practice and Law’ (2007) (n 193) 594. 193  R Mann, ‘Searching for Negotiability in Payments and Credits Systems’ (1997) 44 University of California, Los Angeles Law Review 951. 194  JS Rogers The End of Negotiable Instruments (Oxford, OUP, 2012) ch 2. 195  Sealy and Hooley, Commercial Law: Text, Cases and Materials (2008) (n 3) 534. 196  G Villalta Puig, ‘Electronic Bills of Exchange and Promissory Notes in Australia’ (2000) 7 Murdoch University Electronic Journal of Law 3, available at www.murdoch.edu.au/elaw/issues/v7n3/puig73b.html. 197  Chalmers and Guest (2009) (n 18) paras 13.024–13.028; Bills of Exchange Act 1882 s 74B; B Geva, ‘Recent International Developments in the Law of Negotiable Instruments and Payment and Settlement Systems’ (2007) 42

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section 13 Small Business, Enterprise and Employment Act 2015 now allows for cheque imaging and inserted a new part 4A into the Bills of Exchange Act 1882, sections 89A–89F. The part in essence provides that a cheque, or another bill of exchange to be paid by a banker on physical presentment, may be presented to the presentee bank by providing an electronic image of the front and back of the cheque.198 It is also possible to replicate the entire function of a bill of exchange contractually with a series of electronic promises to pay. However, the statutory protection to holders in due course or bona fide purchasers would be impossible.199 If Mann is correct, however, this does not matter. Frisch and Gabriel agree and have argued that the main differences between negotiation and assignment can be replicated by contract, those being that the holder in due course takes free of personal defences and has the benefit of warranties by the drawer and indorsers to pay should the acceptor fail to do so. The assignee does not take free of such defences.200 The Law Commission commented in 2001 that they were unaware of demand for fully negotiable electronic bills of exchange.201 That was more than 15 years ago, and it seems right that the matter be looked at afresh. If there were such a demand, one suggestion has been an electronic central registry of ownership interests like Bolero which could mimic the control achieved by possession of the paper. This would prevent unauthorised copying, could be heavily encrypted and would still allow for indorsements by way of electronic allonges (tags or additions) with the indorser’s unique identification or digital signature.202

VI. Conclusion The bill of exchange grew up as a result of increasing multilateralism in trade and commerce and provides a useful method of credit and payment in a number of contexts and this chapter has looked at two in particular—the documentary and negotiation credit. The increase in other, electronic for the main part, methods of payment means, however, that there is less and less call for negotiable instruments. Reference should be made to books on banking law for details of other means of payment. Nonetheless, attempts are being made to find ways of importing the advantages of negotiability into the electronic arena. Negotiability is also important from a purely theoretical viewpoint in that it links with the nemo dat rule covered in chapter three and provides an important means of avoiding the rule that the transferee can never receive a better title than the transferor had to give. While negotiation of bills of lading, which serve as documents of title to goods, cannot achieve this result, negotiation of bills of exchange which serve as documents of title to money do. Texas International Law Journal 685, 687–99; B Crawford, ‘Electronic Presentment of Cheques in Canada: Digital Official Images of Eligible Bills’ (2008) 87 Canadian Bar Review 203. 198 

For discussion see Chitty (2015) (n 21) paras 34.152–34.153. Sealy and Hooley, Commercial Law: Text, Cases and Materials (2008) (n 3) 534. D Frisch and HD Gabriel, ‘Much Ado about Nothing: Achieving Essential Negotiability in an Electronic Age’ (1995) 31 Idaho Law Review 747, 758–59. 201  Law Commission, ‘Electronic Commerce: Formal Requirements in Commercial Transactions’ (2001) [9.7]. 202  J Newell and M Gordon, ‘Electronic Commerce and Negotiable Instruments’ (1995) 31 Idaho Law Review 319, 330–32. 199  200 

7 Defective Transfers and Payments I. Introduction The previous five chapters have described the ways in which property in goods and intangibles can be transferred, as well as how equitable interests are transferred. This chapter looks at the consequences of defective transfers of property or defective payments of money. The distinction must be made; payments of money between bank accounts do not involve the assignment of choses in action, but if sufficiently flawed proprietary consequences may follow. There are several different possibilities and we do not deal with all of them here: 1. The transfer may be so defective that no title passes. 2. The transfer may have a defect such that the transferee holds the money or other asset on trust for the transferor. 3. The transfer may be effective in its terms, but the transferor retains a power to rescind the transaction and vest title in him or herself. 4. The transfer is effective to transfer legal title to the defendant, but the defendant is obliged to return a sum of money equivalent to its value because of, for example, the claimant’s mistake. This is a personal unjust enrichment claim and will not be pursued in this book. Reference should be made to textbooks on restitution for further details.1 It is with the first three possibilities that this chapter concerns itself. It is divided into three main sections, looking at each in turn.

II.  Void Transfers In chapter two we saw that legal title could be transferred in one of three ways. It can be transferred by contract, by deed or delivery. These three modes of conveyance interact. A contract may be void and be incapable of transferring title, but delivery of the asset may still transfer title. An example of this is where the contract is illegal. Singh v Ali2 involved the sale of a lorry, which was registered with the seller as owner in order to deceive the transport authorities and induce the issue of a haulage permit. The Privy Council decided the

1 

See for instance GJ Virgo, The Principles of The Law of Restitution, 3rd edn (Oxford, OUP, 2015). Singh v Ali [1960] AC 167 (PC); Bowmakers v Barnet Instruments [1945] 2 KB 325; Belvoir Finance Co v Stapleton [1971] 1 QB 219 (CA). 2 

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contract was illegal, but that property in the lorry passed to the buyer, as the buyer did not need to rely on the illegality to make his case to title; he merely had to point to the delivery and the intention to pass title. By contrast in Cundy v Lindsay3 a fraudster called Blenkarn signed his name to resemble Blenkiron and Co, a reputable firm situated just up the road from where he was living. The claimant sent him goods and was never paid; the fraudster sold the goods on to the defendant whom the claimant then sued. Lord Cairns said that the claimant knew nothing of the fraudster and intended to contract with the company. His mistake was in thinking that he was contracting with the company rather than the fraudster. The contract was therefore void and property did not pass to the fraudster and hence not to the third party either.4 Given that title could not pass under the contract it could only do so by delivery, although Lord Cairns seems to have thought that if property did not pass under the contract it could not do so at all. William Swadling has criticised the decision on this basis, arguing that the nullity of the contract is irrelevant to whether the title to the goods passes.5 On the back of this, he argues for a principle of abstraction in English law. This is an idea more familiar to German lawyers. In German law the Abstraktionsprinzip does posit a total separation between contract and conveyance.6 The nullity of the contract has no effect on the conveyance. This can be contrasted with a causal system. In a causal system the nullity or invalidity of the contract will have an immediate and ineluctable effect on the validity of the conveyance. In principle Swadling is correct that the nullity of the contract need not lead to the nullity of the conveyance if the prerequisites of a valid delivery are met. We saw in chapter two that there are two distinct requirements for a valid delivery. The goods must in fact be delivered—actual or constructive possession must pass—and the transferor must intend to pass title to the transferee.7 Factors vitiating intention can therefore, if sufficiently fundamental, vitiate both the contract and the passage of property by delivery. Mistakes that will count for these purposes are as follows. There may be a mistake as to the identity of the transferee, as in Cundy v Lindsay, or the subject matter transferred. In R v Ashwell8 the accused asked for a loan of a shilling, but received a sovereign. Both parties believed at the time the coin was a shilling. On discovering it was a sovereign, the accused appropriated it. The case was brought as one of larceny, or in modern terms theft, but turned on whether property in the coin had in fact passed. If it had passed it could not be larceny. The accused was convicted. This must be right. In order to validly transfer property I must intend to transfer this asset to you. In R v Ashwell the intention to transfer a sovereign was not present, and therefore title could not pass from the victim to the recipient. In the same way in Cartwright v Green9 a bureau was delivered to the defendant who found some money in a desk and took it. There was no intention to hand the money over to the defendant; property did not therefore pass from the victim to the defendant and the defendant was

3 

Cundy v Lindsay (1878) 3 App Cas 459 (HL). ibid 465–66. 5  WJ Swadling, ‘Rescission, Property and the Common Law’ (2005) 121 LQR 123, 141–42. M Bridge, L Gullifer, G McMeel and S Worthington (eds) The Law of Personal Property (London, Sweet and Maxwell, 2013) para 15.082; Westdeutsche Landesbank Girozentrale v Islington LBC [1996] AC 669. 6  T Weir (tr), K Zweigert and H Kötz, An Introduction to Comparative Law (Oxford, Clarendon Press, 1977) 177–89 (there is no discussion in later editions). 7  See on this eg Re Stoneham [1919] 1 Ch 149; Re Ridgeway (1885) 15 QBD 447; chapter two, part IV. 8  R v Ashwell (1885) 16 QBD 190. 9  Cartwright v Green (1803) 8 Ves Jun 405, 32 ER 412. 4 

Void Transfers 155

guilty of larceny. In R v Middleton10 Middleton applied to withdraw money from his post office account. He was permitted to do so, but the clerk looking at a warrant for someone else gave him £8/16s/10d. Middleton realised the error, but took the money and was ­convicted of larceny. A mistake as to liability will not prevent property from passing, but R v Middleton is not such a case. In order to validly pass title I must intend to give this asset to you. In R v Middleton that proviso was not present; the clerk intended to give the money to someone else, believing that Middleton was the person named in the warrant. Swadling has challenged this, saying that the clerk intended physically to hand the money to the person physically there and so the intention to pass title was present.11 Inevitably this entails some excavation of the transferor’s actual intention, but it seems that even if Swadling is correct about R v Middleton there will be circumstances where the transferee is not physically present where the rule in that case can be applied and where legal title will not pass because of a mistake as to the identity of the transferee. A fortiori from these cases is the scenario in Moffatt v Kazana.12 In that case the claimant had left a tin of money up a chimney and on selling the house moved out without taking the tin. The buyer found the tin and the case revolved around whether title had passed to the purchaser of the house. It had not. The tin was not a fixture, and nobody seriously argued it was. Title did not therefore pass automatically to the buyer of the house, and although there was a physical transfer of possession the claimant’s total ignorance that the tin was in the chimney prevented title passing. In cases of fraud or theft, the thief is sometimes said to hold his or her lesser legal title on trust for the victim,13 but as Chambers explains this cannot be right;14 the fact of the theft alone provides an insufficient reason to impose a trust in addition to the legal remedies the victim has. What if the asset is money? Chattel money (notes and coins) will be treated the same, but bank money (credit balances in an account) cannot be, and arguments in favour of imposing a trust seem more plausible.15 There is some dispute as to whether there is an action in unjust enrichment or not. ­Burrows has argued that it is an unjust enrichment claim.16 An unjust enrichment action has a minimum of three probanda:17 1. Is the defendant enriched? 2. Is the defendant enriched at the claimant’s expense? 3. Is there an unjust factor, or cause of action? 10  R v Middleton (1873) LR 2 CCR 38; the rules are similar to rules as to nullity of contract for mistake as to the identity of the co-contracting party. See E Peel (ed), Treitel’s Law of Contract, 14th edn (London, Sweet and Maxwell, 2015) paras 8.034–8.041; D Fox, Property Rights in Money (Oxford, OUP, 2008) paras 4.116–4.146; see also chapter three, part II C on voidable title. 11 WJ Swadling, ‘Unjust Delivery’ in AS Burrows and A Rodger (eds), Mapping the Law (Oxford, OUP, 2006) 277. 12  Moffatt v Kazana [1969] 2 QB 152. 13  See, eg J Tarrant, ‘Thieves as Trustees: In Defence of the Theft Principle’ (2009) 3 Journal of Equity 170. 14  R Chambers, ‘Trust and Theft’ in E Bant and M Harding (eds), Exploring Private Law (Cambridge, CUP, 2010) 223, 237; but see Fox, Property Rights in Money (2008) (n 10) paras 4.101–4.106. More recently, the argument has been raised in the context of the theft of intangible property. Armstrong v Winnington Networks Ltd [2012] EWHC 10, [2012] 3 WLR 835; D Sheehan ‘Bona Fide Purchase, Knowing Receipt and Proprietary Claims to Land and Carbon Credits’ (2013) 24 King’s LJ 424. 15  For a discussion see S Barkehall Thomas, ‘Thieves, Owners and the Problem of Title: Part 2—Money’ (2012) 6 Journal of Equity 1. 16  AS Burrows, The Law of Restitution 3rd edn (OUP, Oxford, 2011) 403–09. Virgo (n 2015) (n 1) 542 disagrees. 17  PBH Birks, An Introduction to the Law of Restitution, revised edn (Oxford, Clarendon Press, 1989) 34.

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Shortly before his death Birks began to espouse an absence of basis approach to unjust enrichment.18 This approach asks whether there is a legally valid reason for the transfer between claimant and defendant. If there is not restitution follows. It is beyond the scope of this book to look at this issue in detail, but it will rear its head again later when we examine the proper basis of the resulting trust. There are difficulties with an unjust enrichment claim in this context—on either view. Swadling argues that the recipient is not enriched because the legal owner retains legal title.19 That is dubious. The recipient has an original title through bare possession, which definitely enriches the recipient, but this is not derivative, so we can say with certainty that the recipient is not enriched at the expense of the owner. Indeed it may not matter. The only way that a defendant can avoid a claim in unjust enrichment is to say, ‘I am not enriched because the property is yours.’ From the defendant’s perspective, this is a self-defeating argument.20 In making this point, Robert Stevens is in fact concerned to defend the availability of an unjust enrichment claim, making the point that any argument on his behalf that knocks it out in fact demonstrates the existence of another ground of claim. Given the ferocious nature of the tort of conversion as an alternative, however, most cases can be expected to be argued in conversion. This action is not a vindicatio; it asserts not ‘That’s mine’, but ‘You have interfered with my superior rights to possess that item, please pay me damages to compensate me for my loss.’ It is a strict liability tort for interference with a party’s possession or rights to possess a tangible asset, providing damages assessed on the value of the asset plus any consequential loss.21 In most cases of wholly void transfers where the claimant retains his or her legal title a conversion action will be applicable if the defendant does not return the asset.

III.  Resulting Trusts We can divide this section into three main subsections. The first deals with presumed resulting trusts, the presumption of advancement and the effect on both presumptions of transactional illegality. The second deals with failing trusts. The third section examines the dispute as to the basis of the resulting trust and the impact of that on cases of void contracts and whether a resulting trust arises in such cases. The voluntary conveyance resulting trust arises where the claimant transfers assets to the defendant gratuitously and there is no evidence that the claimant intended a gift. The purchase money resulting trust arises when A’s money is at least in part used to purchase property in the name of B. The failed trust resulting trust arises where A attempts to create an express trust, but fails to do for

18 

PBH Birks, Unjust Enrichment, 2nd edn (Oxford, OUP, 2005) ch 5. WJ Swadling, ‘Ignorance and Unjust Enrichment: The Problem of Title’ (2008) 28 OJLS 627. 20  R Stevens, ‘Three Enrichment Issues’ in AS Burrows and A Rodger (eds), Mapping the Law (Oxford, OUP, 2006) 49, 63–64. See on this issue Burrows, The Law of Restitution (2011) (n 16) 194–198, arguing that unjust enrichment lies and title passes to the defendant on satisfaction of the claim just as it does in conversion; see chapter eight part II D i. 21  Damages reflect the full loss caused to the claimant; Douglas v Hello! (no 3) [2007] UKHL 21, [2008] 1 AC 1, 90 (Baroness Hale); Kuwait Airways v Iraqi Airways [2002] UKHL 19, [2002] 2 AC 883 (HL) 1090 (Lord Nicholls). 19 

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some reason.22 The orthodoxy is set out in Megarry VC’s classic judgment in Re Vandervell (no 2).23 Megarry V-C said:24 Where A effectually transfers to B any interest in any property…a resulting trust for A may arise in two distinct classes of case…a) The first class of case is where the transfer is not made on any trust…the question is not one of the automatic consequences of a dispositive failure by A but one of presumption. The property has been carried to B and from the absence of consideration and any presumption of advancement B is presumed to hold the beneficial interest for A…b) The second class of case is where the transfer to B is made on trusts which leave some or all of the beneficial interest undisposed of…The resulting trust here does not depend on any intentions or presumptions but is the automatic consequence of A’s failure to dispose of what is vested in him.

A.  Voluntary Conveyance and Purchase Money Trusts Equity, it is said, cynically assumes that if the transfer was not for good consideration, it was not meant to transfer the asset so as to give the transferee the benefit of it. In the absence of a contrary presumption, the presumption of resulting trust therefore throws the onus of proof onto the transferor to show that the transfer was meant to transfer title outright. The ultimate foundation of the presumed resulting trust is Dyer v Dyer25 where Eyre CB said: The clear results of all the cases, without a single exception, is that the trust of a legal estate… whether taken in the names of the purchasers and others jointly, or in the name of others without that of the purchaser… results to the person who advances the purchase money.26

i.  Presumption of Resulting Trust Following that old case, there has been a significant amount of confirming case law on the subject, although many of the cases confirm it in a negative way by rebutting a presumption of resulting trust. This is not surprising given that almost no cases turn on what the presumption is or what its basis might be. Indeed, we are, as Chambers points out, somewhat dissatisfied in those cases where the presumptions are dispositive.27 Very occasionally they are dispositive. In Re Vinogradoff 28 a number of shares were transferred from Mrs Vinogradoff to her granddaughter and herself. Her granddaughter was four years old. The mother died and the Court decided that the property was held on resulting trust for Mrs Vinogradoff ’s estate, there being, as we will see, no presumption of advancement between grandparents and grandchildren. It was held that the presumption had not been altered by the statutory provision that minors could not be trustees. This case has been subject to a significant amount of criticism; indeed James Penner has described it as an atrocity 22 

WJ Swadling, ‘Explaining Resulting Trusts’ (2008) 124 LQR 72, 72–73. WJ Swadling, ‘A New Role for Resulting Trusts?’ (1996) 16 LS 110, 113. 24  Re Vandervell (no 2) [1974] 1 All ER 47, 68–69. 25  Dyer v Dyer (1788) 2 Cox Eq 92, 30 ER 42. 26  ibid 43. 27  R Chambers, ‘Is there a Presumption of Resulting Trust?’ in C Mitchell (ed), Constructive and Resulting Trusts (Oxford, Hart, 2010) 267, 270. See also J Glister, ‘Is there a Presumption of Advancement?’ (2011) 33 Sydney Law Review 39. 28  Re Vinogradoff [1935] WN 68; Re Muller [1953] NZLR 879. 23 

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of a decision.29 In Saylor v Madsen’s Estate30 the question arose whether a joint account was held on resulting trust. The testator had directed half his estate be divided between his children, and half his grandchildren. An action was taken against the executrix, one of the children, for failing to include a bank account in the estate. The bank account had been held in the joint names of the executrix and the deceased. Having decided that the presumption of advancement did not apply because the executrix daughter was not a minor, the presumption of resulting trust applied. Insufficient evidence was adduced to rebut it. The executrix therefore failed in her claim that she succeeded to the joint bank account by right of survivorship; rather she held her share on resulting trust for the estate. The presumption can also apply where assets are transferred to a company—even where the company is wholly controlled by the transferor.31 The presumptions are rebuttable by evidence at the civil standard of proof.32 Mellish LJ commented in Fowkes v Pascoe that the presumption would be of different weight in different circumstances.33 What this means is that a greater or lesser amount of countervailing evidence will be needed to rebut the presumption depending on circumstances. In general, if the recipient is seeking to rebut the presumption and show that he or she was intended to be outright owner of the asset, the evidence of that must be contemporaneous with or prior to the physical transfer of the asset.34 The effect of the presumption has been steadily downgraded, to the extent that it is now normally only when there is no evidence at all as to the true intentions of the parties that the courts have recourse to it.35

ii.  Presumption of Advancement The presumption of advancement is sometimes said to be a presumption of an intention to make a gift unless the contrary is positively proven. This is Chambers’ position. Swadling denies it is a presumption at all, but merely evidence rebutting that of resulting trust. Whichever it is we will describe it in this section as a presumption. In Bennet v Bennet36 Jessel MR described the presumption of advancement in these terms: The doctrine is this, that where one person stands in such a relationship to another that there is an obligation on that person to make provision for the other and we find either a purchase or an investment in the name of the other of an amount that would constitute a provision for the other the presumption arises of an intention…to discharge the obligation.37

The presumption applies between husband and wife. Malins V-C said in Re Eykyn’s Trust, ‘When a husband transfers money or property into his wife’s name only then the presumption is that it is intended as a gift or advancement to the wife absolutely at once.’38 We can 29 

J Penner, The Law of Trusts 10th edn (Oxford, OUP, 2016) 134. Saylor v Madsen’s Estate [2007] SCC 18, [2007] 1 SCR 838; The Venture [1908] P 218. 31  Prest v Petrodel Resources Ltd [2013] UKSC 34, [2013] 2 AC 315. 32  Pecore v Pecore [2007] SCC 17, [2007] 1 SCR 838; Fowkes v Pascoe (1875) LR 10 Ch App 343 (CA) 352 ­(Mellish LJ). 33  Fowkes v Pascoe (1875) LR 10 Ch App 343 (CA) 352 (Mellish LJ). 34  Shepherd v Cartwright [1955] AC 431 (HL) 445–446 (Viscount Simonds). 35 There was, for example, documentary evidence in Aroso v Coutts & Co [2002] 1 All ER (Comm) 241; ­Goodman v Gallant [1986] 1 All ER 311 (CA). 36  Bennet v Bennet (1879) 10 Ch D 474 (CA). 37  ibid 476–77. 38  Re Eykyn’s Trust (1877) 6 Ch D 115, 118; Mehta Estate v Mehta Estate (1993) 104 DLR (4th) 24. 30 

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contrast this decision with that in Mercier v Mercier39 where land was bought and conveyed into the husband’s name out of a joint bank account composed almost entirely of the wife’s money. It was held that she had not intended to make a gift to her husband. The presumption also applies in cases where the transfer is of assets from father to child. In Re Roberts,40 for example, a father took out and paid for a life insurance policy on his son’s life, paying out £500 on his son’s death. After his death the executors argued that the premiums were recoverable from his son. Evershed J held that they were not. The presumption of advancement had not been rebutted.41 It does not apply to transfers from mother to child, however. Jessel MR said in Bennet v Bennet that a court of equity recognised no obligation on a mother to provide for her child and therefore there was no presumption of advancement between them.42 Obiter Neuberger LJ said in Laskar v Laskar43 that the presumption of advancement should apply between mother and daughter. It certainly applies where the mother is a widow in loco parentis.44 The rule has also been challenged in Australia. In Nelson v Nelson45 Mrs Nelson bought a property in the name of her children, so she could later apply for grant aid from the Government for a second property. She later sought and received grant aid to buy another property, which she would not have received had the Government been aware she had previously bought a property. The High Court of Australia held that there was a presumption of advancement, and that she would be presumed to have intended the transfer of property to her children as a gift. The lack of presumption between both parents and children has also been challenged in Canada, although there in fact the presumption might be limited in parental cases to dependent children on the basis that once independent the child no longer requires support or gifts from parents.46 That is likely to miss the point of parental relations with children, however. Parents have a continuing relationship with their children that last even after they become financially independent. Some parents wish to make financial gifts, sometimes very substantial, irrespective of the fact that the children may not need the money to survive. Glister puts it differently. The presumption of advancement is not related to a common law duty to maintain, but to advance and set up in life.47 For Glister this is not inconsistent with confining the presumption to minors.48 He does deny that the presumption should be confined to dependent children, however. For Glister this confuses the question of when the presumption arises with that of whether the evidence reinforces or rebuts it. Section 199(1) of the Equality Act 2010 abolishes the presumption of advancement altogether; subsection (2) leaves the previous law in place for anything that occurred

39 

Mercier v Mercier [1903] 2 Ch 98. Re Roberts [1946] Ch 1. 41  ibid 4; Antoni v Antoni [2007] UKPC 10, [2007] WTLR 1335. 42  Bennet v Bennet (1879) 10 Ch D 474 (CA) 476–77; Sekhon v Allissa [1989] 2 FLR 94. 43  Laskar v Laskar [2008] EWCA Civ 347, [2008] 1 WLR 2695. 44  Abaowa v Close Invoice Finance Ltd [2010] EWHC 1920 [92]–[96] (Picken QC); Penner, The Law of Trusts (2016) (n 29) 142. 45  Nelson v Nelson (1995) 184 ALR 538 (HCA). 46  Pecore v Pecore [2007] SCC 17, [2007] 1 SCR 795; Saylor v Madsen’s Estate [2007] SCC 18, [2007] 1 SCR 865; Laskar v Laskar [2008] EWCA Civ 347, [2008] 1 WLR 2695. 47  J Glister, ‘The Presumption of Advancement’ in C Mitchell (ed), Constructive and Resulting Trusts (Oxford, Hart, 2010) 289, 311–12. 48  ibid 292. 40 

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prior to the bill’s commencement into law.49 It looks increasingly unlikely, though, that the section will ever be brought into force.

iii.  Disallowing Reliance on the Presumptions: Illegality Where a claim to an interest under a resulting trust is based on an illegal transaction, the resulting trust will not be allowed. This is based on a principle of public policy that parties ought not to be allowed to obtain any benefit from illegality. The law on illegality has caused a great deal of angst and we will trace the development of the law in this section before getting to the most recent authoritative statement of English law. In Tinsley v Milligan50 Milligan deliberately left herself off the legal title to land owned by her partner Tinsley so as not to prejudice her social security claim. That was an illegal concealment of ownership. Tinsley and Milligan broke up and the latter claimed an equitable interest in the house. Despite the illegality she was able to assert her interest, on the grounds that it arose because of a presumption of a declaration of trust purely on the basis of her contributions to the purchase price. She obtained an interest under a resulting trust. The case was followed in Lowson v Coombes51 where a man bought a house for his mistress and conveyed it into her name, although he intended to keep ownership. The purpose was to prevent his wife from claiming a share in any divorce. Again, he was able to obtain a ruling that a half share of the house was held on resulting trust for him. He did not need to rely on the illegality. Nelson v Nelson, which we have already seen, however, relies on the policy behind the illegality. In that case Mrs Nelson bought property with a subsidy obtained illegally from the Federal Australian Government. Mrs Nelson could only recover the assets, which she had transferred to her daughters to induce the Government to pay the subsidy, if she repaid the subsidy. This concentration on the policy behind the invalidating provision is vital. The only relevant question should be whether that policy is furthered or hindered by refusing a resulting trust. Nelson v Nelson, however, does have one flaw. The Court should not have made it a condition of relief that money be repaid to the Federal Government. The Federal Government had its own restitutionary rights which it could (and certainly would) have exercised. The rules also applied to the presumption of advancement. In Ali v Khan52 the question was whether a father could rebut the presumption that he intended to benefit his children and obtain the property back. He had sold the property to two of his daughters for £25,000, who took out a mortgage over the house to secure the loan, despite the market value being £75,000. Upon a further conveyance which rendered his daughter Shazia the sole registered proprietor, she tried to evict the rest of the family. Mr Khan alleged that it was not intended that his daughters acquire full title, but merely an interest in proportion to their financial contributions and that he had an equitable interest in the property. He also relied on the fact he had done work on the property. At first instance it was held that there was a presumption of advancement; rebutting the presumption would entail deceiving the mortgage 49  For a critique, see J Glister, ‘Section 199 of the Equality Act 2010: How not to Abolish the Presumption of Advancement’ (2010) 73 MLR 807. 50  Tinsley v Milligan [1994] 1 AC 340 (HL). 51  Lowson v Coombes [1999] 3 WLR 720; Silverwood v Silverwood (1997) 74 P&CR 453. 52  Ali v Khan [2002] EWCA Civ 974, [2009] WTLR 187; Collier v Collier [2002] EWCA Civ 1095, [2002] BPIR 1057; SQ v RQ [2008] EWHC 1874 (Fam), [2009] 1 FLR 935.

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lender as to the true ownership of the house. On appeal this was rejected; there would only be a question of illegality or deceit of the lender if Khan had tried to assert priority over the mortgagee. It was not proven that he intended to do so. This general reliance principle was frequently criticised as arbitrary and unrelated to the merits of the case.53 This must be right. The result of cases should not depend on whether a party can rely on a presumption of resulting trust or advancement. The law will not take proper account of the policy reasons for the prohibiting provision. The rule does have one thing going for it, however. Allowing a claim that is directly founded on illegality may well call the integrity of the legal system into question. That laudable principle has been found hard to apply, however.54 Tribe v Tribe,55 however, illustrated a general exception to the principle. This is the principle of locus poenitentiae. A claimant is allowed to claim restitution provided he or she is seeking to withdraw from the transaction before the illegal purpose is carried through. Tribe transferred shares in his business to his son in order to put his assets out of reach. The business sold ladies’ clothing from shops, some of which were in poor repair, but under full repairing leases. The landlords had therefore made dilapidation claims against Tribe. His transfer of the shares to the son was in effect for no consideration. The landlord made no demands for payment and the father was able to obtain the shares back. Although his purpose was illegal, he could rebut the presumption of advancement as the purpose had not been carried out. The creditors had not been deceived because they had not appreciated that the assets had been transferred. The merits of Tribe v Tribe are questionable, though. Tribe had wanted to ensure that his assets were protected from his creditor landlords and in fact that was precisely the outcome that resulted. Equally questionable is the rule that withdrawal is established by the agreement’s becoming impossible to carry out for reason out of the control of the claimant.56 The Law Commission recommended that the reliance principle be abandoned. They suggested that it leads to arbitrary results and in 1999 suggested a structured discretion for all cases of illegality, based on the seriousness of the illegality, the knowledge of the parties of the illegality, and concerns about deterring illegality and promoting legality.57 The Commission subsequently largely dropped these recommendations.58 In January 2009 they published a consultative report, which was followed in March 2010 by the final report. Their current recommendations, which track very closely those trailed in 2009, include a much narrower discretion which ‘should only apply to cases where the trust arrangement has been created or exploited in order to conceal the beneficiary’s equitable interest in connection with the commission of an offence.’59 The Law Commission made it clear that the discretion applies not only where the criminal purpose has been acted upon, but

53  eg Chambers, ‘Is there a Presumption of Resulting Trust?’ (2010) (n 27) 271–72; PS Davies, ‘The Illegality Defence—Two Steps Forward One Step Back’ (2009) Conv 182, 190–94; Tribe v Tribe [1996] Ch 107 (CA) 118 (Nourse LJ). 54  N Strauss ‘Ex Turpi Causa Non Oritur Actio’ (2016) 132 LQR 236, 257. 55  Tribe v Tribe [1996] Ch 107 (CA). 56  Patel v Mirza [2014] EWCA Civ 1047, [2015] 2 WLR 405. 57  Law Commission, ‘Illegal Transactions: The Effect of Illegality on Contracts and Trusts’ (Law ComCPNo 154, 1999) part VIII. 58  Law Commission, ‘The Illegality Defence’ (Law ComCP No 186, 2009) [6.91]. 59  ibid [6.101]; See Law Commission, ‘The Illegality Defence’ (Law Com No 320, 2010) [2.24]–[2.102] for the final shape of the discretion, and Appendix A for a draft bill.

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also in cases covered by the withdrawal exception.60 The discretion would also apply to cases where the criminal intention is formed after the trust is created, but would there be limited to cases where the purpose is that of the beneficiary and has been carried out.61 In other cases the courts would continue to balance the policy factors involved and the Law Commission commented that they were pleased to see this process continue in a number of 2009 decisions.62 Concerns over the previous discretion revolved around uncertainty that it would cause in property rights. The current proposals would still cause uncertainty, although part of the uncertainty is now over the question of when the discretion applies and when normal trust rules apply.63 An example of this already exists in McDonnell v Mortgage Express Ltd64 where the McDonnells obtained funds for the purchase of land through a mortgage fraud. At first instance the judge (overruled on appeal) suggested a distinction between the Tinsley type case where the funds, however sourced, were used for an illegal purpose and cases, such as McDonnell, where the source of the funds was itself unlawful. The judge therefore held the illegality tainted the transaction sufficiently to deny the McDonnells any equitable title to the land. The Court of Appeal, however, held the money was simply the McDonnells’ money and allowed them an interest.65 Davies has suggested that the Law Commission will entrench similar uncertain distinctions to the judge at first instance;66 in some cases therefore the discretion would not bite and the earlier common law would remain in place. The Law Commission accepted that the statutory discretion would not cover all cases where the reliance principle is currently used. Nonetheless, it argued that cases like McDonnell would be treated under the Proceeds of Crime Act 2002 and require no civil intervention.67 The Law Commission’s proposals are also vulnerable to the criticism that it ought always be possible to go through the process of deciding what the policy factors justifying the tagging of the transaction, or the parties’ purposes, as illegal actually require rather than resorting to discretion.68 The Government announced in March 2012 that it was minded not to implement the Law Commission’s recommendations.69 The latest and authoritative final statement of the law came in Patel v Mirza.70 The case should largely be welcomed. Patel paid £620,000 to Mirza to bet on the price of RBS shares. Patel expected to get insider information on the effect of a government announcement and so, had the plan been carried though, there would have been a criminal offence committed; indeed, the agreement amounted to a conspiracy to commit insider trading. Mirza refused to repay the money. At first instance and in the Court of Appeal it was held that Patel would have to rely on his illegality to obtain restitution and so could not recover the money. In the

60 

Law Commission, ‘The Illegality Defence’ (Law Com No 320, 2010) [2.29]. ibid [2.42]. 62  ibid [3.10]; these decisions were Stone & Rolls Ltd v Moore Stephens [2009] UKHL 39, [2009] 1 AC 1391 and Gray v Thames Trains Ltd [2009] UKHL 33, [2009] 1 AC 1339; see also Nayyar v Denton Wilde Sapte [2009] EWHC 3218; K/S Lincoln v CB Richard Ellis Hotels Ltd [2009] EWHC 2344. 63  Davies, ‘The Illegality Defence’ (2009) (n 53) 195–96. 64  McDonnell v Mortgage Express Ltd [2001] EWCA Civ 887, [2002] 1 FCR 162. 65  ibid 167. 66  Davies, ‘The Illegality Defence’ (2009) (n 53) 194–96. 67  Law Commission ‘The Illegality Defence’ (Law Com No 320, 2010) [2.43]–[2.44]. 68  D Sheehan, ‘The Law Commission on Illegality: The End (at Last) of the Saga’ (2010) LMCLQ 543 69  Ministry of Justice, Report on the Implementation of Law Commission Proposals (2012) paras 51–52. 70  [2016] UKSC 42. 61 

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Court of Appeal it was held that it was sufficient to displace this and that the scheme was not executed, and therefore Patel should succeed.71 In the Court of Appeal Gloster LJ importantly held that we should consider whether the policy behind the illegality was stultified by allowing the claim.72 In other words—just as argued above—what matters is the policy behind the prohibition and what would best advance that policy, along with the degree of connection between the conduct and the claim, and the disproportionality of disallowing a claim in restitution. The case then went to the Supreme Court, where Lord Toulson said that there were two discernible policy rationales in the law. The first was that a person should not profit from his own wrongdoing. The second is that the law must be coherent and not self-defeating.73 In other words, we must consider the policy behind the prohibition, but we would not start from the assumption that restitution was to be barred. Indeed, he suggested the latter rationale—that the law not be self-defeating—was the more important and we should not focus too much on whether the defendant ‘gets something’ from his actions.74 In the end he held that Tinsley v Milligan should not be followed and agreed both with the criticisms of the case that its formalism generated arbitrary distinctions75 and with the approach of Gloster LJ in the Court of Appeal. The mischief she detected in Patel was the avoidance of market abuse by exploiting price sensitive and secret (or at least unpublished) information. That never happened, and so the claimant could get his money back. Normally you might think the claimant would recover in restitution or unjust enrichment, but it is notable that Lord Toulson did not, however, identify a cause of action in unjust enrichment. Lord Kerr therefore characterised Lord Toulson’s approach as one of weighing up competing policy considerations, and contrasted it with an unjust enrichment claim approach. It is unfortunate that Lord Kerr then rejected the unjust enrichment approach.76 It was an approach favoured by Lord Clarke and Lord Sumption, however. Lord Sumption held, for example, that there is an ineffective transaction because of the illegality and restitution merely gives effect to that.77 Indeed, he took the approach to extremes arguing that even in a case of paying somebody for murder restitution should be available.78 On the facts of the case it may have been better to say that because the Government announcement never happened the insider information never materialised; that meant there was a failure of consideration and as the policy behind the prohibition on insider dealing did not apply restitution did not stultify the policy. The important question is whether the policy behind the illegality is furthered or hindered. We should also be mindful of a concern of Peter Birks’ that illegality not provide a lever and safety net.79 In other words we cannot have a result that encourages the payee to commit the offence. Despite not really identifying an unjust factor either, Lord Sumption did characterise the ‘range of factors’ approach of Lord Toulson

71 

[2014] EWCA Civ 1047, [2015] 2 WLR 405. ibid [65–67]. 73  [2016] UKSC 42, [99]. 74  ibid [100–101]; described by Lord Neuberger at [174] as ‘reliable and helpful guidance’. 75  ibid [110–115]; see also Lord Sumption at [236–238]. 76  ibid [128]. 77  ibid [249–250]; this tends to suggest an absence of basis approach to unjust enrichment on which see D Sheehan ‘Unjust Factors or Restitution Sine Causa’ [2008] OUCLF 1. 78  ibid [254]. 79 Birks, Unjust Enrichment (2005) (n 18) 247–248. 72 

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as ‘unprincipled because it loses sight of the reason why legal rights can … be defeated on account of their illegal factual basis.’80 Lord Mance was the only justice who separately discussed locus poenitentiae, arguing that it must be seen as an integral part of the overall principle, which was to focus on the need to avoid inconsistency without depriving claimants of the ability to put themselves (back) in the position they should have been in.81 Locus poenitentiae has been displaced as a separate independent principle.

B.  Automatic Resulting Trusts Automatic resulting trusts are the other type of trust highlighted by Megarry J in Re Vandervell. They arise in cases where an asset is transferred to a transferee in such a way as there is uncertainty as to the location of some of the equitable interest. We saw briefly in chapter one how a settlor would create a private express trust.82 One of the requirements for the creation of such a trust is that the three certainties be satisfied. It must be certain that I intended to create a trust, over what assets and for whose benefit. If I transfer property to you to hold on express trust ‘for my favourite undergraduate student’, the identity of my favourite student is uncertain. There is a failure of the express trust for uncertainty of objects. Vandervell v IRC83 is not precisely this case, but it is very similar and involves a resulting trust as a result of failure to properly create an express trust. Vandervell wanted to endow a chair at the Royal College of Surgeons (RCS). He arranged to transfer to them a number of shares, with an option for his trustee company to buy them back. The Inland Revenue claimed that he had not divested himself fully of the beneficial interest in the shares. The argument was that although Vandervell had transferred the shares to the RCS, the RCS had, as part of the agreement, granted an option to the trustee. An option is itself a proprietary right in the thing subject to it. The trustee company retained a relationship with Vandervell in that he retained the right to decide on what trusts the shares would be held after the option was exercised. He had failed to name beneficiaries of such a trust. There was therefore a resulting trust over the option in favour of Vandervell. Lord Upjohn said, ‘If the beneficial interest was in A and he fails to give it away effectively to another or others or on charitable trusts it must remain in him.’84 This is an example of proprietary arithmetic reasoning. Assume our ownership interest is a cake. I can give the transferee a segment, but if I do I still have a chunk left, whether I intended to have this chunk or not. Therefore, if I only manage to give away the legal title the equitable remains behind. Chambers correctly does not accept this. He says it is impossible to only give away some of the ownership interest in this way.85 There is no separate equitable title for me to retain. Before the trust arises 80 

[2016] UKSC 42, [262–265]. ibid [192–202]. 82  Chapter one, part IV B. 83  Vandervell v IRC [1967] 2 AC 291 (HL); Re Ames’ Settlement [1946] 1 Ch 217; Air Jamaica v Charlton [1999] 1 WLR 1399 (PC). 84  ibid 313; see also Re Sick and Funeral Society [1973] Ch 51 (Megarry J) 59. 85  R Chambers, Resulting Trusts (Oxford, Clarendon Press, 1997) 53; Swadling, ‘Explaining Resulting Trusts’ (2008) (n 22) 99–100; Mee suggests that the retention idea has some theoretical and historical cogence but that it is ultimately insufficient to explain the trust. J Mee, ‘Automatic Resulting Trusts: Retention, Restitution or Reposing Trust’ in C Mitchell (ed), Constructive and Resulting Trusts (Oxford, Hart, 2010) 207, 214–21. 81 

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I have full ownership. I can either successfully divest myself of that, or retain all of it. I must give full ownership away and receive a new equitable interest back. Resuming the Vandervell saga, the trustee company exercised its option in 1961. The trustee declared the shares would be held on trust for Vandervell’s children. In 1965 Vandervell executed a disclaimer, by which he disclaimed all rights and interests in the shares. The Inland Revenue claimed he retained an interest until 1965, and taxed his estate on the dividends. The executors therefore, forced to pay tax on the dividend income, felt obliged to sue the trust for those dividends. They succeeded at first instance, where the decision was that prior to 1965 the shares were held on trust for Vandervell, as the option had been.86 They lost on appeal in Re Vandervell (No 2).87 Very broadly the Court of Appeal held that new trusts had been declared in favour of the children which displaced the resulting trust in favour of Vandervell on which the option had been held. Lord Denning said: It [The resulting trust] comes into existence wherever there is a gap in the beneficial ownership. It ceases to exist whenever that gap is filled by someone becoming beneficially entitled. As soon as the gap is filled by the creation or declaration of a valid trust the resulting trust comes to an end.88

Essery v Cowlard89 is a different type of case. The Vandervell saga involves an initial failure of a trust leading to a resulting trust. Essery, by contrast, involves a valid trust failing subsequently. A settlement was made in 1877 in consideration of an intended marriage. A quantity of stock, the property of the intended wife, was to be held on trust for her benefit, that of the husband and children. The marriage never took place. It was held that the trusts, originally valid, therefore failed, and the fund resulted back to the intended wife who provided it. It did so, because it was clear the trustee was never intended to hold outright, although in the usual case a subsequent failure of basis will have no impact in proprietary terms.

C.  The Basis for the Resulting Trust There are, as we will see in this section, two types of resulting trust: 1. Presumed declaration of a trust resulting trusts. 2. Automatic resulting trusts, responding to failure of consideration. There is also a class of trusts responding to lack of authority, although these may be orthodox tracing claims and therefore constructive trusts. We also examine the trust response to void contracts and the potential applicability of the general defence of change of position.

i.  Presumed Resulting Trusts The debate discussed here is primarily one between William Swadling and Robert Chambers, who took up a view first mooted by the late Peter Birks, although other views exist.90 86 

Re Vandervell (no 2) [1974] 1 All ER 47. Re Vandervell (no 2) [1974] 3 All ER 295 (CA). 88  ibid 311. 89  Essery v Cowlard (1884) 26 Ch D 194; but see Swadling, ‘A New Role for Resulting Trusts?’ (1996) (n 22) 118. 90  J Mee, ‘Presumed Resulting Trusts, Intention and Declaration’ [2014] CLJ 86; E O’Dell, ‘The Resulting Trust’ in C Rickett and R Grantham (eds), Structure and Justification in Private Law (Oxford, Hart, 2008) 379. For an 87 

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The debate has very recently shifted in character to a question as to whether the presumption of resulting trust is a true presumption, or whether the presumption of advancement is. Swadling argues that historically the fact presumed was a declaration of trust for the transferor.91 Consequently, presumed resulting trusts can have nothing to do with unjust enrichment.92 Historically this is plausible. The trust arose out of the old common law use, and the resulting use could plausibly be seen as based on an assumption that the feoffor intended or declared that the feoffee would hold on use.93 Swadling argues that true legal presumptions are dispositive of the result, can be rebutted by contrary evidence, and are not invoked when there is no gap in the evidence. All three conditions are met in resulting trust cases.94 Once the presumption is made, a legal conclusion can be drawn. If the presumption is of a declaration of trust, a trust follows in the same way as if the declaration is proven by evidence.95 Evidence and presumption are simply two equivalent modes of proof. A presumption of a declaration of trust for oneself may seem implausible in modern conditions. Even Swadling appears to have become uncomfortable with it, arguing that it might be changed, but has not been yet.96 Nonetheless, the presumption is rebuttable. If there is proven to be no declaration, the presumption does not apply. Birks and Chambers initially suggested, however, that the presumption is one that the transferee was not intended to have the benefit of the property.97 There are problems with this position. The most obvious is that the cases do not consistently bear it out, although many cases are equally consistent with both positions. In Re Sharpe,98 for instance, the claimant gave her son and daughter-in-law a quantity of money which they used to build an extension onto the house for her to live in. Eventually she and they fell out and she attempted to reclaim her money, and a proprietary right in the house on the basis that her contribution to the extension provided her with an interest under a resulting trust as she had received no consideration for the money. She failed. The Court held that the money had been intended as a loan and that rebutted the presumption of resulting trust. Intention to lend is as consistent with the son and daughter-in-law’s being intended to take the benefit of the money, as it is inconsistent with a declaration of trust. In Fowkes v Pascoe,99 however, Sarah Baker purchased annuities in the name of herself and her grandson, John Pascoe, and others in her name and that of Mary Clapham, who

assessment of the merits of the various alternative views concentrating on Swadling and Chambers, see J Penner, ‘Resulting Trusts and Unjust Enrichment: Three Controversies’ in C Mitchell (ed), Constructive and Resulting Trusts (Oxford, Hart, 2010) 237; Penner, The Law of Trusts (2016) (n 29) 138–142. 91 

Swadling, ‘Explaining Resulting Trusts’ (2008) (n 22) 112. Confirmed in the (slightly different) Canadian context by Nishi v Rascal Trucking Ltd 2013 SCC 33, [2013] 2 SCR 438; for comment see R Chambers ‘The Presumption of Resulting Trust: Nishi v Rascal Trucking’ (2014) 51 Alberta L Rev 667. 93  Swadling (n 22) 113–15; Cook v Fountain (1676) 3 Swans 585, 36 ER 985; but see Chambers, ‘Is there a Presumption of Resulting Trust?’ (2010) (n 27) 276–78 also relying on Cook v Fountain. 94  Swadling, ‘Explaining Resulting Trusts’ (2008) (n 22) 77–79. 95  ibid 93. 96  ibid 84. 97  R Chambers, ‘Resulting Trusts’ in AS Burrows and A Rodger (eds), Mapping the Law (Oxford, OUP, 2006) 247; for his initial thoughts see PBH Birks, ‘Restitution and Resulting Trusts’ in S Goldstein (ed), Equity and Contemporary Legal Developments (Jerusalem, Hebrew University of Jerusalem, 1992) 335, 347. 98  Re Sharpe [1980] 1 WLR 219. 99  Fowkes v Pascoe (1875) LR 10 Ch App 343; Swadling, ‘Explaining Resulting Trusts’ (2008) (n 22) 81. 92 

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lived with her. The Court of Appeal held that this raised a presumption of resulting trust, one rebutted by evidence to the contrary. James LJ said: The evidence in favour of gift and against trust is…irresistable. Is it possible to reconcile with mental sanity the theory that she put £250 into the names of herself and her companion and £250 into the names of herself and the defendant…as trustees upon trust for herself?100 The Court clearly believed it was not possible to reconcile this with the parties’ sanity and denied the resulting trust. In Standing v Bowring101 we are told that a resulting trust could not be imposed because the evidence shows that no trust was intended. Both cases suggest that the judges believed the presumption being rebutted was one of an expressed intention to create a trust, although they are equally consistent in their result with the Birks/­ Chambers thesis. More importantly, Lord Browne-Wilkinson in Westdeutsche Landesbank Girozentrale v Islington LBC102 expressly supported Swadling. In that case the issue at hand was whether the effect of a void interest rates swap agreement gave rise to proprietary consequences allowing the courts to grant compound interest. Lord Browne-Wilkinson said that resulting trusts are imposed to give effect to the parties’ presumed intention.103 He seems, perhaps ironically, to have misunderstood Swadling’s position and meant all resulting trusts respond to a presumed intention of the parties, however, even failed trust resulting trusts, where the presumed intention in question is to return the property to the settlor. Swadling has argued correctly that this is not a presumption but a conclusion. There is no gap in the evidence in these cases, requiring a presumption to fill it.104 Alongside the cases which seem to favour Swadling, there are cases which are on their face explicitly in Birks’ and Chambers’ favour. Lord Millett for instance said in Air Jamaica v Charlton: Like a constructive trust a resulting trust arises by operation of law…but it arises whether or not the transferor intended to retain a beneficial interest…he almost always does not…it responds to the absence of any intention on his part to pass a beneficial interest to the recipient.105

Chambers suggests that there are cases impossible to explain on Swadling’s theory. It is, he argues, impossible to generate a resulting trust on the basis of a presumed declaration of trust in circumstances when a declaration of trust proven by evidence would be, or has been shown to be, ineffective. In Hodgson v Marks106 Hodgson was persuaded to put the legal title to her house in Evans’ name. He sold it to Marks, having given Hodgson to believe that she would own in all but name. An express trust was unenforceable because section 53(1) (b) of the Law of Property Act 1925 requires trusts over land to be evidenced in writing. There was no written trust. Despite the difficulty in sidestepping the ineffective declaration, as proven by evidence, by finding an effective declaration, as proven by presumption, 100 

Fowkes v Pascoe (1875) LR 10 Ch App 343, 348–49. Standing v Bowring (1885) 31 Ch D 282 (CA). 102  Westdeutsche Landesbank Girozentrale v Islington LBC [1996] AC 669 (HL) 708–09. 103  ibid 708; R Grantham and C Rickett ‘Resulting Trusts: The Failing Trust Cases’ (2000) 116 LQR 15, 19–20. 104  Swadling, ‘Explaining Resulting Trusts’ (2008) (n 22) 93. 105  Air Jamaica v Charlton [1999] 1 WLR 1399 (PC) 1412; Chan Yuen Lan v See Fong Mun [2014] SGCA 36, [44] (Rajah JA) also supporting the ‘absence of intention’ approach. In Singapore this need not imply an unjust enrichment approach: R Leow and T Liao ‘Resulting Trusts in Singapore: A Victory for Unjust Enrichment?’ [2014] CLJ 500. 106  Hodgson v Marks [1971] Ch 892 (CA). 101 

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Russell LJ argued there was no intention to make a gift, which could give rise to a resulting trust.107 Chambers suggests that the failed oral declaration of trust implied that there was a proven absence of intention to benefit the transferee. Swadling has argued that properly understood the oral express trust was enforced under the fraud doctrine in Rochefoucauld v Boustead,108 that Evans would be using the statute as an instrument of fraud by refusing the trust to which he agreed because it was oral. Since Hodgson was in actual occupation of the property, that trust bound Marks under the then applicable section 70(1)(g) of the Land Registration Act 1925. Chambers has now conceded that this is a valid analysis of the decision, although he still maintains it should be explained as a resulting trust.109 By the same token, Chambers argues that if the claimant knew nothing of the transfer he could not have intended to make a declaration of trust. In Williams v Williams,110 for example, a father’s solicitor mistakenly transferred property into the son’s name wrongly believing it his (the father’s) intention that he do so. The father knew nothing of this, which rebutted the presumption of advancement and led to a resulting trust. Yet the father’s ignorance of the transfer must also rebut any presumption that he had declared a trust. In Ryall v Ryall111 the executor of the estate misused money from the estate to purchase property— land—in his own name. On his death the legatees of the original estate applied for disbursement of sums owing to them. The decision was that where the purchase money for land was provided by A and the land put in the name of B there was a resulting trust. Again there was a resulting trust on the facts. Swadling agrees these cases cannot be explained in terms of a presumption of resulting trust if that is a presumption of a declaration of trust. He suggests, however, that Chambers’ view that the transferor in these cases had no intention to benefit the recipient is a conclusion and not an additional fact proven by presumption. There are no facts left unproven by evidence. These cases cannot be explained as presumed resulting trusts on any view of what might be presumed because there is no room for a presumption. They provide no evidence therefore that a presumed resulting trust does not respond to a presumption of a declaration of trust.112 In other words, Birks and Chambers misunderstood the nature of a presumption. This need not necessarily mean that a proprietary claim is inappropriate, merely that another explanation is needed. One explanation deployed by Swadling is that cases like Ryall v Ryall and (presumably also) Williams v Williams are orthodox tracing cases where the trust is usually seen as constructive.113 We examine the tracing cases in chapter nine, but we will note later that these cases may rely on the executor’s or solicitor’s lack of authority to use the money.

107 

ibid 933. Rochefoucauld v Boustead [1897] 1 Ch 196 (CA); WJ Swadling ‘A Hard Look at Hodgson v Marks’ in FD Rose and PBH Birks (eds), Restitution and Equity: Resulting Trusts and Equitable Compensation (Oxford, ­Mansfield Press, 2000) 61, 65–66; on the fraud doctrine generally see K Gray and S Gray, Elements of Land Law, 5th edn (Oxford, OUP, 2010) 830–32. 109  Chambers, ‘Is there a Presumption of Resulting Trust?’ (2010) (n 27) 278. 110  Williams v Williams (1863) 32 Beav 370, 55 ER 145; Re Kolari (1982) 36 OR (2d) 473; El Ajou v Dollar Land Holdings [1993] 3 All ER 717. 111  Ryall v Ryall (1739) 1 Atk 59; 26 ER 39; Sharp v MacNeil (1913) 15 DLR 73; Lane v Dighton (1762) Amb 402; 27 ER 274. 112  Swadling, ‘Explaining Resulting Trusts’ (2008) (n 22) 90. 113  WJ Swadling, ‘The Law of Property’ in FD Rose and PBH Birks (eds), The Lessons of the Swaps Litigation (Oxford, Mansfield Press, 2000) 242, 250. 108 

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Chambers has now shifted his position away from talk of unjust factors. He argues that although the courts do not currently discuss resulting trusts in terms of want of consideration, this is the basis on which the presumptions operate.114 He has accepted that the presumption of resulting trust, as he previously explained it, is not a true presumption. He takes the view, however, that the resulting trust responds to absence of basis, and that the presumption of advancement provides a presumption that the transferor intended a gift. Chambers’ current views therefore feed into an important current debate about the structure of the English law of restitution. Reference should be made to works on the law of restitution for the detail. However, we need to say something about this question here. Unjust enrichment claims, as we saw in the first substantive section, require proof of enrichment and proof that the enrichment is at the claimant’s expense. The controversy is over the cause of action. Gift is a valid legal ground for a transfer and therefore bars restitution. However, absent the presumption of advancement and absent any good consideration for the transfer, there is no basis for it. Restitution follows, and so too does a resulting trust. These cases are in Civilian terms known as condictio claims, where the claimant makes a transfer to the defendant for a putative purpose which fails. Normally that purpose is to discharge a debt. Where there is no debt therefore, the claimant’s argument is, ‘I paid to discharge debt X, but there was no debt. My purpose in making the payment failed and I should get the money back.’ Chambers’ solution is flawed, however. It fails to take into account that some of the factors which the law takes into account in deciding the form of proprietary response cannot be fitted into an absence of basis approach to unjust enrichment.115 One problem for Chambers is therefore the decision in Williams v Williams. As the father was ignorant of the transfer, it cannot be a transfer of assets with a putative purpose—be that to make a gift or discharge an obligation—that failed. Properly understood it is not a condictio claim at all, although Chambers bundles it up with other claims that are condictio claims, such as Chase Manhattan v Israel-British Bank116 where a mistaken payment was made because the claimant bank forgot it had paid already. The bank paid for the purpose of discharging an obligation they had already discharged. This gave rise to a constructive trust. Of course, that is not to say that a trust should not be available in cases like Williams v Williams merely that there are greater difficulties fitting resulting trusts into an absence of basis framework than Chambers admits. Tracing claims are typically cases where a trustee or other fiduciary has misapplied assets belonging to the claimant and the claimant wishes to argue that he retains an equitable proprietary interest in the asset or its traceable substitute. Remember that in Williams the father’s solicitor has misapplied the assets in transferring them to the children. The father is in this precise position and his claim should be treated as a tracing claim, which typically gives rise to a constructive trust. Another problem is that Chambers maintains that cases of rescission for fraud, misrepresentation, duress and undue influence should be conceived as powers to vest title in a traceable substitute.117 For Birks there was no difference between void and voidable contracts. 114 

Chambers, ‘Is there a Presumption of Resulting Trust?’ (2010) (n 27) 283. Sheehan, ‘Resulting Trusts, Sine Causa and the Structure of Proprietary Restitution’ (2011) 11 Oxford University Commonwealth Law Journal 1, 10–11. 116  Chase Manhattan v Israel-British Bank [1981] Ch 105. 117  R Chambers, ‘Tracing and Unjust Enrichment’ in J Neyers (ed), Understanding Unjust Enrichment (Oxford, Hart, 2004) 267, 299–300; R Chambers, ‘Resulting Trusts and Equitable Compensation’ (2001) 15 TLI 2, 7–8. 115  D

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In neither is there an initially valid legal ground; either the nullity or voidability of the contract or other transfer suffices as a lack of basis, triggering restitution.118 There must, Birks argued, be consistency across the law of unjust enrichment,119 and so the response to absence of basis must be the same in all cases. Birks did not express a preference for trusts, but said,120 ‘As between one payment not due and another, no distinction can be taken so far as concerns the kind of right which then arises.’ If the trust cases and power cases are to be explained as absence of basis, and either the nullity or voidability of the transfer suffices to demonstrate the absence of the basis, the distinction cannot be maintained without going behind the absence of basis to see the reason for that absence of basis—whether for instance it is duress, leading to a power, or mistake leading to a trust. This we cannot do.121 I have argued elsewhere that the absence of basis approach upsets contract law and should not be adopted.122 It also upsets trusts law.123 Swadling’s analysis that the presumed resulting trust responds to a presumption of a declaration of trust is preferable, although some mopping up needs doing to explain the ‘ignorance’ cases. They may, as we see later, be constructive trusts.

ii.  Automatic Resulting Trusts—Failure of Basis Swadling unfortunately concludes his article by saying that the automatic resulting trust defies legal analysis.124 This is, however, an unnecessary counsel of despair. The presumed resulting trust, as we have seen, has nothing to do with unjust enrichment. The question is whether automatic resulting trusts can be explained in this way. For Chambers the answer is yes. There is no basis for the transfer and therefore restitution and a resulting trust follows. For Swadling the answer is no; he argues that unjust enrichment never gives rise to a proprietary response.125 This seems implausible. At least some resulting trusts respond to unjust enrichment, as do rescissory powers to re-vest or vest title in traceable substitutes examined in part IV and chapter nine. My example of an automatic resulting trust earlier was of a transfer to you to hold on trust ‘for my favourite student’. We do not know who that is. It is difficult to say that the transfer is at the expense of the student because we can’t say who it is. What, however, we do know is that the asset originated from me and therefore it is reasonably straightforward to say that it is at my expense. Further, it is also relatively straightforward to say that the defendant would be enriched if the defendant were to keep the asset for his or her own benefit because that was never what was intended. The question now is what the unjust factor or the cause of action might be. One immediate possibility as an unjust factor or cause 118 Birks, Unjust

Enrichment (2005) (n 18) 188–89. ibid 189. 120  ibid 192. 121  Sheehan, ‘Resulting Trusts, Sine Causa and The Structure of Proprietary Restitution’ (2011) (n 115) 19–20. 122  D Sheehan, ‘Unjust Factors or Restitution of Transfers Sine Causa’ (2008) Oxford University Comparative L Forum 1, available at http://ouclf.iuscomp.org, but see T Baloch, ‘The Unjust Enrichment Pyramid’ (2007) 123 LQR 636; A Goymour, ‘Premature Tax Payments and Unjust Enrichment’ (2007) CLJ 24. 123  Sheehan, ‘Resulting Trusts, Sine Causa and The Structure of Proprietary Restitution’ (2011) (n 115) 7. 124  Swadling, ‘Explaining Resulting Trusts’ (2008) (n 22) 102. 125  WJ Swadling, ‘Property and Unjust Enrichment’ in J Harris (ed), Property Problems: From Genes to Pension Funds (London, Kluwer, 1996) 130; see also J McGhee (ed), Snell’s Equity, 33rd edn (London, Sweet and Maxwell, 2015) para 25.02 on unjust enrichment theory and para 25.022 for the presumption that the donor did not intend the donee to take beneficially in an automatic resulting trust case. 119 

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of action is failure of consideration. Failure of consideration typically occurs where I do not obtain the quid pro quo or counter-performance I was expecting.126 In the context of a void contract therefore I might perform my side of the bargain and the other party then says, ‘This is void; I’m not performing.’ I have given something for nothing and can recover the value of my performance. In these cases of automatic resulting trust the term quid pro quo might be inappropriate but the basis on which the transfer takes place has failed. I transferred the assets on the basis that there would be a valid trust for my favourite student. There is no such trust. This is essentially Chambers’ analysis in Mapping the Law.127 In Vandervell v IRC and my own example, for example, the trust failed immediately for want of objects. Failure of consideration normally gives rise personal restitution. We see this in the next section concerned with void contracts. There is an important distinction, however. The claimant transferred the asset to the defendant on the basis that he would be a trustee. There was no intention that the defendant held legal title to the assets outright and unencumbered. This intention is one that the law respects in setting up the automatic resulting trust. This is a position accepted by Mee; however, he rejects the idea that this is related to unjust enrichment, but simply part of background set of default rules.128 Given that the resulting trustee will not, as we will see, be able to plead change of position against the settlor, it may seem to make little difference what view we take, although it may be important in questions of limitation periods, or choice of law.129 It is also important in explaining the fact that there is a newly created interest not present beforehand. It is more difficult to identify cases of subsequent failure of consideration, giving rise to a resulting trust. Nonetheless, in Essery v Cowlard130 a settlement was made in 1877 in consideration of an intended marriage. A quantity of stock, the property of the intended wife, was to be held on trust for her benefit, and that of the husband and children. The marriage never took place. It was held that the trusts, originally valid, therefore failed, and the fund resulted back to the donor.

iii.  Lack of Authority We saw in the previous section that there are some cases which cannot be explained on the basis of a presumed declaration of trust. Cases, such as Ryall v Ryall and Williams v Williams, where the claimant was unaware of the transfer are explicable on the basis of the immediate transferor lacking the authority to make the transfer,131 and that providing the required unjust factor. In the usual case the immediate transferor will be a trustee mistransferring trust assets, or an agent mis-transferring assets. As we have seen, these cases are simply standard tracing cases. For now the important point is that the cases in question

126 

Fibrosa Spolka Ackcjyna v Fairbairn Lawson [1943] AC 32 (HL). R Chambers, ‘Resulting Trusts’ in AS Burrows and A Rodger (eds), Mapping the Law (Oxford, OUP, 2006) 247, 261–62. See also Burrows, The Law of Restitution (2011) (n 16) 402. 128  Mee, ‘Automatic Resulting Trusts’ (2010) (n 85) 232–34. 129  See G Panagopoulos, Restitution in Private International Law (Oxford, Hart, 2000). 130  Other cases include Re Abbott [1900] 2 Ch 326 and Re West Sussex Constabulary’s Widows’ and Children’s Benevolent Fund [1971] Ch 1. 131  P Jaffey, The Nature and Scope of Restitution (Oxford, Hart, 2000) 315; R Chambers and J Penner, ‘Ignorance’ in S Degeling and J Edelman (eds), Unjust Enrichment in Commercial Law (Sydney, Law Book Co, 2008) 253; Lipkin Gorman v Karpnale [1991] 2 AC 541 (HL); Nelson v Larholt [1948] 1 KB 339. 127 

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say that they were resulting trusts, although Swadling questions whether this is part of their ratio decidendi. Nonetheless, the Chancellor, for example, said in Ryall v Ryall that the means of coming at this by resulting trust is excepted from the Statute of Frauds. If the estate is purchased in the name of one and the money paid by the other, it is a trust notwithstanding there is no declaration in writing.132

In Lane v Dighton, materially identical to Ryall, but involving a life tenant using capital money, Lord Hardwicke said that the life tenant’s heir was charged as a trustee, because where lands are purchased in the name of the one with funds of the other it is a resulting trust and out of the statute.133 Swadling is right that they cannot be explained on the basis of a presumption of a declaration of trust; however, they are certainly functionally identical to purchase money resulting trusts.134 He argues they are constructive trusts. It probably does not matter what label we place on them in terms of the practical effect on the trustee or beneficiary, but calling them constructive trusts fits rather better with the fact that they are trusts arising by operation of law and that they can be easily seen a contingent on tracing where the trust is normally characterised as constructive. Presumed resulting trusts, Swadling argues, are not trusts arising by operation of law, and these are not automatic resulting trusts as traditionally classified. On the other hand, it may fit rather better with the purchase money context to say that the trust is resulting rather than constructive. Chambers also points out two further advantages. First, a resulting trust is not a discretionary remedial response; the door is still, he argues, marginally ajar for a discretionary remedial constructive trust in English law.135 More importantly, resulting trusts do not depend on wrongdoing, which matters once the property reaches innocent third parties. It might matter elsewhere, because lack of authority need not entail wrongdoing.136 There being good arguments either way, it may be best to see them as constructive, but also resulting,137 in pattern if nothing else.

iv.  Void Contracts: Westdeutsche Landesbank Girozentrale v Islington LBC Birks argued that cases such as Westdeutsche Landesbank Girozentrale v Islington LBC should give rise to a proprietary response,138 although it is clear from the decision that the recipient of property under a void contract receives unencumbered and outright legal title to the property.139 In that case the local authority had entered into a swaps agreement with the bank. It transpired that the contracts were void as ultra vires the local authority. The bank succeeded in Westdeutsche on the basis of failure of consideration. The swap was an

132 

Ryall v Ryall (1739) 1 Atk 59, 60; 26 ER 39, 39; Chambers, ‘Trust and Theft’ (2010) (n 14) 238. Lane v Dighton (1762) Amb 402, 413–14; 27 ER 274, 275. 134  LD Smith, The Law of Tracing (Oxford, OUP, 1997) 294–95. 135  Chambers, ‘Trust and Theft’ (2010) (n 14) 239–40; Evans v European Bank [2004] NSWCA 82, (2004) 61 NSWLR 75, 96 (Spigelman CJ). 136  In particular where cases of fiduciary self- or fair-dealing is concerned, C Mitchell, ‘Causation, Remoteness and Fiduciary Gains’ (2006) 17 King’s College Law Journal 325; see also Chambers and Penner, ‘Ignorance’ (2008) (n 131) 264–66. 137  B Häcker, ‘Causality and Abstraction in the Common Law’ in E Bant and M Harding (eds), Exploring Private Law (Cambridge, CUP, 2010) 200, 214. 138 Birks, Unjust Enrichment (2005) (n 18) 190. 139  S Worthington, Personal Property Law: Text and Materials (Oxford, Hart, 2000) 355. 133 

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open one which meant that there were still payments that needed to be made. The claim was therefore simply that the claimant-bank had made payments, not received counter-­ payments and now never would receive such payments. The basis—counter-performance— on which they had paid had failed. They were entitled to restitution; however, the House of Lords decided that they were not entitled to a proprietary claim. This was important, because although the local authority was not insolvent, a trust claim meant that the bank could claim compound interest as opposed to merely simple interest.140 Birks, however, as we have seen, argued that equity’s response to an initial failure of basis should be proprietary in all cases.141 This is not right as a matter of English law, however. Resulting trusts do respond to failed or defective transfers but only in very particular circumstances. These void contract cases involve sufficient evidence of the parties’ intentions. There is no room for any presumption of a declaration of trust. They are not presumed trusts, but nor are they automatic. ­Westdeutsche cannot give rise to a resulting trust on the same basis as Vandervell v IRC because the bank validly and objectively intended the local authority at all times to hold the money received outright.

v.  Change of Position142 This is a generic defence to unjust enrichment claims. Lord Goff said in Lipkin Gorman v Karpnale, ‘Where an innocent defendant’s position is so changed that he will suffer an injustice if he is called upon to repay, or repay in full, the injustice of making him pay outweighs the injustice of denying the plaintiff restitution.’143 Change of position normally involves the disenrichment of the defendant. That means the defendant must be able to show that he or she spent money in reliance on an assumption that the assets received were the defendant’s to do with as he or she pleased. Lord Goff ’s formulation does not demand that this be the case; however, all successful cases to date have involved the defendant’s spending the money in reliance on the security of receipt.144 So long as the defendant is honest he or she may take advantage of the defence—it does not seem to matter if the defendant is careless in thinking that the assets received belonged to him or her or that there were reasons to believe that there were problems with the transfer.145 Nor does the defendant have to prove that specific items of expenditure must be provably linked to particular receipts,146 just that expenditure grew as a result of the receipts. The difficulty with the applicability of this defence is that, although the resulting trustee does not have all the fiduciary and management duties of the express trustee, and is not liable for any breach of duty unless he or she knew or ought to have known that there had previously been a breach of duty, the beneficiary still has a right to particular assets. 140 

Westdeutsche [1996] AC 669 (HL) 682–90 (Lord Goff), 702–09 (Lord Browne-Wilkinson). Enrichment (2005) (n 18) 188. 142  E Bant, The Change of Position Defence (Oxford, Hart, 2009). 143  Lipkin Gorman v Karpnale [1992] 2 AC 548 (HL) 579; G Virgo, ‘Change of Position: The Importance of being Principled’ (2005) RLR 39; Virgo (n 1) (2015) 678–700; Burrows, The Law of Restitution (2011) (n 16) 524–50. 144  But see Birks, Unjust Enrichment (2005) (n 18) 258–61; Commerzbank v Gareth Price-Jones [2003] EWCA Civ 1663; [2003] All ER (D) 303 (Nov). 145  State Bank of NSW v SBC (1995) 39 NSWLR 350. 146  RBC Dominion Securities v Dawson (1994) 111 DLR (4th) 230. 141 Birks, Unjust

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The trustee’s actions with different assets cannot affect that.147 Where unjust enrichment generates an equitable interest under a trust, therefore, change of position has no impact, although it may do so where the right is merely a power to vest title in a traceable substitute, dealt with in chapter nine, or a power contingent on a right of rescission, dealt with in the next section of this chapter.

IV.  Voidable Transfers148 We have seen that there are three modes of conveyance in English law. An asset may be transferred by contract, by delivery or by deed. This section can be divided into three. First, we examine the question of when contracts and other conveyances can be rescinded before we look second at bars to rescission and finally the effect of rescission both at law and in equity. In principle, a right to rescind a transaction is a power to vest title in the asset or its proceeds and that is itself a proprietary right, the qualities of which will be explored in the third part. A contract or a deed may be rescinded through bringing legal proceedings or by simply giving notice to the other party. It has, however, been held that notice is not always needed. In Car & Universal Finance Co v Caldwell,149 the fraudster could not be traced after he had purchased a car from the owner and sold it on. The owner discovering the fraud contacted the police and this was held to be sufficient to rescind the contract and vest title in the car. In cases of money we must remember that rescission of the contract does not in itself revert title to the money to the payor. However, this is a distinction without a difference as the same act will rescind the contract and the payment.150

A.  Instances of Voidability i. Induced Flaws in the Claimant’s Intention: Misrepresentation, Duress and Undue Influence Misrepresentation, duress and undue influence typically allow for the rescission of a contract, or other conveyance. Any type of misrepresentation will suffice, be it an innocent, negligent or fraudulent misrepresentation. In Redgrave v Hurd151 the claimant advertised to sell his solicitor’s practice, an advertisement answered by the defendant. The defendant asked how much business the practice had. There was a discrepancy between the amount of actual and claimed business, which amounted to some £100, although the defendant in resisting the claim for specific performance did not allege that the misrepresentation was

147  WJ Swadling, ‘Arguments for Proprietary Restitution’ (2008) 28 LS 508, 514; Foskett v McKeown [2001] 1 AC 102 (HL). 148  This section essentially (but not in its entirety) adopts the analysis in B Häcker, ‘Proprietary Restitution after Impaired Consent Transfers: A Generalised Power Model’ (2009) CLJ 324. 149  Car & Universal Finance Co v Caldwell [1965] 1 QB 525; Häcker, ‘Proprietary Restitution after Impaired Consent Transfers’ (2009) (n 148) 331–32. 150 Fox, Property Rights in Money (2008) (n 10) para 6.18. 151  Redgrave v Hurd (1881) 20 Ch D 1.

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fraudulent or false to the claimant’s knowledge. The Court decided that the contract might be rescinded where one party had been induced to enter into it by material statements that turned out not to be true. If the misrepresentation is fraudulent or negligent, damages may also be available either at common law,152 or under the Misrepresentation Act 1967. The 1967 Act also allows for damages to be awarded in lieu of rescission in certain circumstances where the misrepresentation is not fraudulent.153 Innocent misrepresentations do not attract damages but may attract an indemnity so that the representee is not out of pocket.154 In Re Glubb155 the Court of Appeal held that testamentary gifts to charities induced by an innocent misrepresentation were voidable in equity, even if not at law. Undue influence also allows rescission of gifts or contracts. There are two types of undue influence—actual undue influence and presumed undue influence. The difference between them need not detain us and can be explored in contract textbooks.156 As an example of undue influence in Allcard v Skinner,157 the claimant sought to recover gifts made to her religious order in pursuance of her vows after she decided to leave the order. The Court decided that the gifts were voidable, not void. She had been subject to undue influence in that she had not been in a position to make a fully independent decision as to the wisdom of the gifts to the order. They could therefore be rescinded.158 Duress also permits of rescission, although there are no clear examples demonstrating its proprietary impact. Originally only duress to the person159 and duress to goods, where goods were illegally detained,160 would suffice. However, it is now clear that economic duress will also suffice.161 The aim of the courts is to distinguish between agreements which are the result of mere commercial pressure and those which are the consequence of unfair exploitation or duress. The question is sometimes said to be whether the pressure was legitimate or illegitimate.162 A threat may be illegitimate because what is threatened is a legal wrong, but it need not be a wrong. The coercive effect must be judged individually on the facts of the case, and this can also be explored further in contract textbooks.

ii. Mistake Worthington has described the law in this area as confused.163 We saw in the first part of this chapter that where a physical transfer of an asset or corporeal money is made, mistakes as to the identity of the asset, or the transferee will vitiate the transfer so as to leave legal title in the transferor, but where there is only a causative mistake that the title to the money or 152 

Derry v Peek (1889) LR 14 App Cas 337. Misrepresentation Act 1967 s 2(2). Whittington v Seale-Hayne (1900) 82 LT 49. 155  Re Glubb [1900] 1 Ch 354; Deutsche Morgan Grenfell v IRC [2006] UKHL 546, [2007] 1 AC 558, 592 (Lord Scott). 156 Peel, Treitel’s Law of Contract (2015) (hereinafter referred to as ‘Treitel’) (n 10) paras 10.013–10.014. 157  Allcard v Skinner (1887) LR 36 Ch D 145; Mitchell v Homfray (1881) LR 8 QBD 587; Wright v Vanderplank (1856) 8 De GM&G 133, 44 ER 340; Cheese v Thomas [1994] 1 WLR 129. 158  Re GoldCorp [1995] AC 72 (HL) 102 (Lord Mustill). 159 eg Barton v Armstrong [1976] AC 104 (PC). 160  Skeate v Beale (1841) 11 A&E 983, 113 ER 688. 161  The Evia Luck [1992] 2 AC 152 (HL). 162  Treitel (2015) (n 10) paras 10.006–10.010. 163  S Worthington, Equity, 2nd edn (Oxford, Clarendon Press, 2006) 305; G McCormack, ‘Mistaken Payments and Proprietary Claims’ (1996) Conv 86. 153  154 

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asset passes and the recipient has a purely personal obligation to pay the money back or the value of the asset. In Chase Manhattan v Israel-British Bank the claimants mistakenly paid the defendants a second time through the bank clearing system, having forgotten they had made a previous payment. That generated a constructive trust according to Goulding J.164 Virgo has described this as a fundamental mistake,165 although this is unlikely. It was not a mistake as to the identity of the money transferred or the transferee. Other than these fundamental mistake cases, a causal mistake should be sufficient in non-contractual payments for personal relief only.166 This covers Chase Manhattan which ought not therefore to have attracted proprietary relief. The mistake there was such that it was clear the paying bank intended to pay the money to the defendant-payee. Fox has argued quite strongly that the fact the bank paid intending to discharge an instruction or mandate to pay that had already been discharged proves an objective intention to pay and that the recipient receive title outright. No proprietary claim should be available.167 It is sometimes said that mistaken gifts may be voidable, although Re Glubb denied this.168 In Pitt v Holt,169 the Supreme Court reviewed the case law and said that for the equitable jurisdiction to set aside a mistaken voluntary disposition to be invoked, the donor must either make an error as to the legal character of the transaction or a fact or matter of law ‘basic to the transaction’.170 Lord Walker, giving the sole judgment, also invoked a seriousness criterion to protect the donee against too ready liability, saying the mistake must be of sufficient gravity that not to give relief would be unconscionable.171 On the facts the mistake as to adverse tax consequences did not count as a mistake as to legal effect and relief was denied. What this means, however, is that English law in effect has a separate law of rescission of mistaken gifts by deed,172 and this is disquieting as it is hard to see the substantive difference between the cases. Where there is a delivery we have already seen that the test is one of ‘fundamental mistake’ to render the transfer void or a merely causative mistake to trigger personal obligations. Voidability does not feature. Häcker argues that the difficulty of adequately defining the threshold of seriousness required means that the test adopted in Pitt v Holt will be difficult to consistently apply, and she suggests that English law should

164 

Chase Manhattan v Israel-British Bank [1981] Ch 105, 117–20. G Virgo, The Principles of the Law of Restitution, 3rd edn (Oxford, OUP, 2015) 575–576. 166  Barclays Bank v WJ Simms, son & Cooke Ltd. [1980] QB 677; Law Commission, ‘Restitution: Mistakes of Law and Ultra Vires Public Authority Receipts and Payments’ (Law Com No 227, 1994) [2.2]. 167 Fox, Property Rights in Money (2008) (n 10) paras 3.90–3.91 but see, defending the result in Chase ­Manhattan, Burrows, The Law of Restitution (2011) (n 16) 235–37, and D Salmons, ‘The Availability of Proprietary Restitution in Cases of Mistaken Payments’ [2015] CLJ 534, 563. 168  But see Lady Hood of Avalon v Mackinnon [1909] 1 Ch 476; Gibbon v Mitchell [1990] 3 All ER 338; Phillipson v Kerry (1863) 11 WR 1034; Walker v Armstrong (1856) 8 De GM&G 531, 44 ER 495; Ellis v Ellis (1909) 26 Times LR 166 and Re Walton’s Settlement [1922] 2 Ch 509. Tang Hang Wu, ‘Restitution for Mistaken Gifts’ (2004) 20 Journal of Contract Law 1. 169  Pitt v Holt [2013] UKSC 267, [2013] 2 AC 108. 170  ibid [122]. 171  ibid [124–128]; N Lee ‘Futter v HMRC: The Rule in Re Hastings-Bass and of Mistake Reviewed’ [2014] Conv 175, 179–181; P Davies and G Virgo ‘Relieving Trustees’ Mistakes’ [2014] RLR 74, 79–83. For a recent application of the decision see re Pallen Trust 2015 BCCA 222. 172  B Häcker ‘Mistaken Gifts after Pitt v Holt’ [2014] CLP 333. 165 

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simply rely on causation.173 Perhaps a fundamental mistake will render the deed void; this might be under the doctrine of non est factum, which is a doctrine permitting a claimant to nullify a document which they signed believing it was a fundamentally a different ­document.174 This is an exceptionally narrow defence, however, and in any case it seems unduly complex to have three levels of response depending on what type of conveyance is used. Perhaps what is important is that there is a deed and not merely an informal delivery, but that fact alone Häcker argues simply means the court’s assistance is required not that the substantive test itself should be different.175

B.  Bars to Rescission i.  Restitutio in Integrum Normally, a party who wishes to rescind a contract is required to restore to the other party any benefits he or she obtained under the contract. This is the counter-restitution requirement. Rescission at law, which is possible for fraudulent misrepresentation and duress, requires exact counter-restitution. That is the recipient is required to restore the precise assets acquired. This is usually not possible, but equity softens those requirements. In Erlanger v New Sombrero Phosphate Co176 there was a fraudulent misrepresentation in a share prospectus by the company. The Court held that provided it was possible to make substantial restitution, rescission was possible. Because it is almost always possible to make restitution of the value of the assets in money terms, this is now a rare bar to rescission. Changes in position can be taken into account through counter-restitution. McFarlane has the example of a transfer by gift. Modifying that example slightly, the donor (B) gives a bicycle to a third party (A) as a result of an innocent misrepresentation, and A having saved up £150 to buy the bicycle blows the savings on an extravagant meal.177 The donor had a power to re-vest title in the asset. However, the donor can only do so by paying £150, because B has changed position to this amount.

ii.  Third Party Rights The scenario envisaged here is where a rogue, as he or she is frequently termed, sells the item onto an innocent third party without notice of the fraud. The victim is not able to rescind the contract as against the innocent third party. This is easy to explain in cases of equitable rescission. All equitable rights are subject to bona fide purchase. Indeed it is argued that purchasers of equitable rights in the subject matter of the contract take free of rights to

173 

ibid 359–365. Gallie v Lee [1971] AC 1004 (HL). 175  Häcker (n 172) 371. 176  Erlanger v New Sombrero Phosphate Co (1877) LR 5 Ch D 73. 177  B McFarlane, The Structure of Property Law (Oxford, Hart, 2008) 334; McFarlane’s example actually involves a spontaneous mistake, which probably does not, as we have seen, give rise to a proprietary response. See also Bant, The Change of Position Defence (2009) 93–114 on the relationship between counter-restitution and the defendant’s change of position. 174 

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rescind. The right to rescind is said to be a mere equity.178 We will examine this idea of the mere equity in the next section. In contracts of sale the right to rescind is assumed by section 23 of the Sale of Goods Act 1979, which was discussed in chapter three on the nemo dat rule.179 It provides: When a seller of goods has a voidable title to them, but his title has not been avoided at the time of the sale, the buyer acquires a good title to the goods, provided he buys them in good faith and without notice of the sellers’ defect of title.

In Lewis v Averay180 Lewis sold his car to a rogue, who paid by cheque, after he had said that he was the well-known television actor, Richard Green, and produced a Pinewood Studios’ pass bearing an official stamp and photograph to prove it. Needless to say, the cheque was not met, but in the meantime the rogue had sold the car on to Averay, an innocent purchaser. The Court of Appeal held that the plaintiff ’s right to rescind had thereby been lost. The right to rescind was also subject to bona fide purchase even before the Sale of Goods Act 1893 confirmed this. In White v Garden181 there was a fraudulent sale of a quantity of iron and the Court held that the contract was void at the election of the vendor until the property passed—as it had—into the hands of a bona fide purchaser. The other slightly odd thing about the bona fide purchase defence is the burden of proof. The purchaser usually has to make out his or her defence, but in this context the burden is on the victim. It is therefore the claimant who must prove that the defendant is not a bona fide purchaser for value.182 This runs counter to the burden of proof as it exists in other exceptions to the nemo dat rule. Swadling is right to question the oddity of the burden of proof.183 However, there is a good explanation for a general bona fide purchase defence in this context, despite the usual immunity of legal title (except in money) from bona fide purchase, which is that the legal right to rescind is a hidden right in the same way that equitable interests under a trust are hidden from the view of purchasers. The ready marketability of the assets requires therefore that there be such a defence.

iii. Laches In cases of fraud, lapse of time itself does not bar rescission, although it may be evidence of affirmation. By contrast, in Leaf v International Galleries,184 a picture was sold by the gallery to a buyer, both parties believing it to be a Constable. In fact it was not. It was held that there was no remedy other than warranty or misrepresentation. The buyer attempted to rescind for innocent misrepresentation, but did so after a five-year period had elapsed from the purchase date. His right to do so was barred by laches or lapse of time. This was not evidence of affirmation as the claimant sought to rescind immediately the truth was discovered. Lapse of time such as would enable a reasonably diligent person to discover the truth will therefore bar relief.185 178  Phillips v Phillips (1861) 4 De GF&J 208, 45 ER 1164; D O’Sullivan, ‘The Rule in Phillips v Phillips’ (2002) 118 LQR 296. 179  Chapter three, part II C. 180  Lewis v Averay [1972] 1 QB 198 (CA). 181  White v Garden (1851) 10 CB 919, 135 ER 364. 182  Whitehorn Bros. v Davison [1911] 1 KB 463. 183  Swadling, ‘Rescission, Property and the Common Law’ (2005) (n 5) 131–32. 184  Leaf v International Galleries [1950] 2 KB 86 (CA). 185  Treitel (2015) (n 10) paras 9.121–9.122.

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iv. Affirmation A contract cannot be rescinded if it has been affirmed. In order to affirm a contract, the representee must affirm it after discovering the truth and with full knowledge of the right to rescind. I cannot waive a right to rescind I do not know I have, except if I am aware of facts that would enable a reasonable man to deduce the truth.186 Affirmation may also be inferred from failure to take up the right to rescind.

C.  What Type of Interest is a Power? In fraud or duress cases where the right to rescind is legal, Caldwell v Car & Universal Finance Ltd187 proceeds on the assumption that rescission of an executed contract allows the recovery of legal title to the subject matter of the contract. This should enable the claimant to launch an action in conversion. However, it appears that the exercise of the power does not retrospectively make the possessor a converter, although refusal to hand the asset over subsequent to rescission will be a conversion.188 Similarly, equitable title is revested by equitable rescission.189 On the exercise of an equitable power in rem, a trust is created which is collapsible under the rule in Saunders v Vautier.190 There is, however, no immediate or retrospective breach of trust committed. Modern cases have a tendency to treat this as a resulting trust.191 Swadling, however, has attempted unsuccessfully to argue that the proprietary effects of rescission should be displaced. He does this as part of his wider argument that English law knows a principle of abstraction and therefore the voidability of the contract has no impact on the conveyance. On the face of the matter, where it is a contract of sale property passes under the contract, and the voidability of the contract should therefore affect the conveyance. However, he has two arguments. The first is a historical argument. He argues that the courts took a wrong turn in that properly understood the case of Load v Green,192 commonly taken for authority that rescission of a contract has proprietary implications, did not in fact decide as much. Whether this is so or not, that rescission does have a proprietary effect is the position we have reached, albeit one vulnerable to bona fide purchase, which has been confirmed in one particular context by section 23 of the Sale of Goods Act 1979. The rule may be immovably entrenched except by legislation. Swadling also has a conceptual argument.193 He argues that where a contract is rescinded at law, the property may have passed unimpeachably by delivery in the meantime. Yet as Häcker has pointed out, the 186 

ibid paras 9.0116–9.120. Caldwell v Car & Universal Finance Ltd [1965] 1 QB 525; Load v Green (1846) 15 M&W 216, 153 ER 828. 188  Hunter BNZ Finance Ltd v CG Maloney Pty Ltd (1988) 18 NSWLR 420; Häcker, ‘Proprietary Restitution after Impaired Consent Transfers’ (2009) (n 136) 331–32. 189  Alati v Kruger (1955) 94 CLR 216 (HCA) 224; Häcker, ‘Proprietary Restitution after Impaired Consent Transfers’ (2009) (n 136) 330. 190  Saunders v Vautier (1841) Cr & Ph 240, 41 ER 482. 191  El Ajou v Dollar Land Holdings [1993] 3 All ER 717, 734 (Millett J); on the effect of the power see Häcker, ‘Proprietary Restitution after Impaired Consent Transfers’ (2009) (n 136) 329–31; on the classification of the trust see Fox, Property Rights in Money (2008) (n 10) paras 6.40–6.42; McGhee, Snell’s Equity (2015) (n 125) para 25.026. 192  Load v Green (1846) 15 M&W 216, 153 ER 828; Swadling, ‘Rescission, Property and the Common Law’ (2005) (n 5) 143–52. 193  Swadling, ‘Rescission, Property and the Common Law’ (2005) (n 5) 139–42. 187 

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Defective Transfers and Payments

mere change in possession of an item once property has already passed should not destroy the claimant’s power in rem. Once title has passed voidably, it cannot pass again through delivery, nor can defects in title be repaired.194 These voidability cases, typically cases where transactions may be set aside for fraud or mistake, may be mere equities and not proprietary rights at all, as the Irish Court of Appeal suggested in Re Ffrench’s Estate.195 Häcker also argues that the power to rescind is not a proprietary right,196 but this is not so. There is an immediate proprietary response. In Stump v Gaby197 the deceased had executed a conveyance to his solicitor in what was described as ‘embarrassed circumstances’. The right to rescind was devisable, an incident of a proprietary right, and the claimant’s heir was therefore entitled to exercise the right to rescind. The case did not, however, preclude the characterisation of a right being a power in rem to vest title.198 Dickinson v Burrell199 was almost the same as Stump v Gaby; there was a voidable conveyance of land to the defendants by James Dickinson. He subsequently conveyed the same land on trust for himself for life and his children in remainder. The children sued to rescind the original conveyance. Lord Romilly MR held that the equitable right to rescind had passed to the new grantees.200 The rights are also enforceable against third parties such as trustees in bankruptcy.201 These cases support the idea that some type of proprietary right, not just a mere equity, or inchoate right is created. Worthington suggests that these cases do not overturn a conclusion that there is no property right, but only a mere equity because the transmissibility of the interest is common to both concepts.202 This seems merely to accept the narrowness of the distinction; it is best to accept it is one without a difference. A power in rem to vest title is an interest in possession, not a contingent or future one. However, as a right related to a thing, enforceable against an indefinite group, it is a fully-fledged proprietary right. The sole difference with other such rights is one of priority.203

194 B Häcker, ‘Rescission of Contract and Revesting of Title: A Reply to Mr Swadling’ (2006) RLR 106, 109–10; she has now suggested this type of ‘double transfer’ of legal title might be possible Häcker, ‘Causality and Abstraction in the Common Law’ (2010) (n 124) 210–11, but her earlier views seem preferable. 195 Re Ffrench’s Estate (1887) 21 LR Ir 83; National Provincial Bank v Ainsworth [1965] AC 1175 (HL), but see R Chambers, ‘Tracing and Unjust Enrichment’ in J Neyers et al (eds), Understanding Unjust Enrichment (Oxford, Hart, 2004) 263, 300; D Sheehan, ‘Proprietary Remedies for Mistake and Ignorance: An Unseen Equivalence’ (2002) RLR 69, 75–77. 196 Häcker, ‘Proprietary Restitution after Impaired Consent Transfers’ (2009) (n 136) 330; E Bant, ‘Trusts, Powers and Liens: An Exercise in Ground-Clearing’ (2009) 3 Journal of Equity 286, 298. 197 Stump v Gaby (1852) 2 De GM&G 623; 42 ER 1015; Cave v Cave (1880) 15 Ch D 639; Twinsectra Ltd v Yardley [1999] Lloyds Rep Banking 438 (CA). 198 Gresley v Mousley (1859) 4 de GM&G 78; 45 ER 31; Melbourne Banking Corpn v Brougham (1882) 7 App Cas 307 and Latec Investments Ltd v Hotel Terrigal Pty Ltd (1965) 113 CLR 265. 199 Dickonson v Burrell (1866) LR 1 Eq 337. 200 ibid 342. 201 Re Eastgate [1905] 1 KB 465; Re Goldcorp [1995] AC 74 (HL) 102 may suggest otherwise in corporate insolvency, but this inconsistency seems undesirable in policy terms. 202 S Worthington, ‘The Proprietary Consequences of Rescission’ (2002) RLR 28, 39–40; Bristol & West BS v Mothew [1998] Ch 1 (CA) 22–23 (Millett LJ); Daly v Sydney Stock Exchange (1986) 160 CLR 377 (HCA) 389 (Brennan J). 203 D Fox, ‘Overreaching’ in PBH Birks and A Pretto (eds), Breach of Trust (Oxford, Hart, 2002) 95, 103; Fox, Property Rights in Money (2008) (n 10) para 6.35.

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This arises because the defence of bona fide purchase is said to operate differently in mere equities in that mere equities are vulnerable to bona fide purchasers for value of an equitable interest.204 This has been criticised as unjustifiably downgrading the protection accorded to the trust beneficiary.205 We also find that an unexercised power can be defeated by intervening property rights, such as crystallised floating charges.206 There are also, as O’Sullivan points out, reasons to believe that Lord Westbury did not mean in Phillips v Phillips207 to introduce a rule that mere equities are susceptible to bona fide purchase of equitable interests.208 McFarlane, however, clearly indicates that the two types of interest are quite different. A trust interest is subject to bona fide purchase of legal title, which he describes as a persistent right. McFarlane calls mere equities powers to acquire a persistent right.209 It is a purely factual power to inform the chargor of his or her duty to hold the property on trust. Penner has critiqued this concept of a factual power as incoherent; after all anyone presumably has the power to discover the facts and inform the transferee.210 Penner also draws an example from the law of tracing, where McFarlane also makes use of the power to acquire a persistent right. The trustee misapplies trust property and the third party recipient pays it into his or her bank account. We would expect the beneficiary to have a claim over the bank account, but if the third party’s right to the money is unfettered, any rights to the enhanced bank balance are not traceably derived from anything the beneficiary had a right to, and McFarlane’s argument collapses. Yet in principle a power to acquire a trust interest can coherently be seen as more fragile than the trust interest. Indeed we might expect this; at law the analogous power to acquire legal title after a fraudulently induced transfer is more vulnerable in bona fide purchase than legal title itself. The analogy holds, and despite O’Sullivan’s caveats, seems immovably entrenched.

V. Conclusion There are a number of different ways in which legal title can be transferred between parties. Sometimes these methods or modes of conveyance fail. When they fail completely, nullifying one of the essential probanda for conveyance by delivery for example, legal title necessarily remains in the original party. Sometimes as we have seen the transferor makes a physical transfer but the evidence of his or her intention one way or the other is absent. In those cases there is a presumption of a declaration of trust, giving rise to a presumed

204 

B Häcker, ‘Rescission and Third Party Rights’ (2006) RLR 21, 31. JCW Wylie, Irish Land Law (London, Professional Books, 1975) para 3.077; R Nolan, ‘Dispositions involving Fiduciaries: The Equity to Rescind and the Resulting Trust’ in FD Rose and PBH Birks (eds), Restitution and Equity (Oxford, Mansfield Press, 2000) 89. 206  Re Goldcorp [1995] AC 74 (HL) 102. 207  Phillips v Phillips (1861) 4 De GF&J 208, 45 ER 1164. 208  O’Sullivan, ‘The Rule in Phillips v Phillips’ (2002) (n 168) 308–11. 209 McFarlane, The Structure of Property Law (2008) (n 167) 23–25, 308–14. 210  J Penner, ‘Book Review’ (2009) RLR 250, 256–57. 205 

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resulting trust. Automatic resulting trusts arise where property is transferred to a trustee on an ineffectual trust basis; the transferee cannot take outright because he or she was intended to hold on trust. This can be seen as fitting the unjust enrichment mould. In cases where the transferor intends to transfer the property outright and there is some vitiation of his or her intention by way of mistake, duress or undue influence the transfer may be rescindable or voidable. In those cases the claimant has a power to re-vest title in the transferred asset or its traceable proceeds. In the rare cases of this being a legal power legal title is re-vested, and, in the more common case of equitable rescission, equitable title.

8 Protection of Legal Title via Tort Law I. Introduction This chapter outlines the law on the protection of legal title. This is normally done through the law of tort. Apart from negligence, which is left to the main tort textbooks, there are two main torts to examine—trespass to goods and conversion, which we examine in turn. The third section examines two lesser remedies, the wrong of reversionary injury and the uncertain scope of common law replevin. Much of the protection is statutory, delivered by the Torts (Interference with Goods) Act 1977, which applies to all personal property other than money and choses in action.1 These actions taken together form a sophisticated and coherent system of protection.

II. Conversion It has been said that there is no definition of the tort of conversion,2 and Tettenborn argues that the tort is something of a mishmash, attempting to do several things at once in the same cause of action,3 and meet objectives that sit rather uneasily together. The tort is a tort of strict liability4 and contributory negligence is no defence.5 The essence of the tort of conversion is that it protects the claimant’s superior title, or superior possessory rights. It is committed when the defendant denies the claimants’ rights by acting in such a way that the claimant cannot effectively exercise his or her own rights over the asset in question. The tort importantly does not protect property.6 We saw in chapter one that the essence of common law title is the right to possess,7 but it is possible to have a superior right to possess despite

1 

Torts (Interference with Goods) Act 1977 s 14(1). Bridge, Personal Property Law, 4th edn (Oxford, Clarendon Press, 2015) 87; W Prosser, ‘The Nature of Conversion’ (1956) 42 Cornell Law Quarterly 168 tries to provide one, which has been overlooked. 3  A Tettenborn, ‘Conversion, Tort and Restitution’ in E McKendrick and N Palmer (eds), Interests in Goods, 2nd edn (London, LLP, 1998) 825; S Douglas, ‘The Nature of Conversion’ (2009) CLJ 198, 206–07. 4  Lancashire and Yorkshire Railway Co v MacNicoll (1918) 88 LJKB 601; Tettenborn suggests that fault should be introduced as a requirement Tettenborn, ‘Conversion, Tort and Restitution’ (1998) (n 3) 830–31. 5  Torts (Interference with Goods) Act 1977 s 11(1), but see Banking Act 1979 s 47; Lloyds Bank v Savory [1933] AC 201 (HL) 229 (Lord Wright); Lumsden & Co v TSB [1971] Lloyds Rep 114. 6  S Green and J Randall, The Tort of Conversion (Oxford, Hart, 2009) 47–48. 7  Chapter one, part III C i. 2  M

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not being the owner. Consequently a pledgee who has a mere security interest can sue the pledgor in conversion if the latter takes the secured asset without payment of the debt.8 As a strict liability tort, the tortfeasor need not be aware of the defendant’s title; he or she must intend the actual acts, but need not intend to deny or interfere with anyone’s title;9 it suffices if he or she intends to assert a right which is as a matter of fact inconsistent with the owner’s rights. Lawrence J put it like this in Lancashire and Yorkshire Railway Co v MacNicoll, ‘A conversion may take place although there is no intention to commit a wrong.’10 In Ashby v Tolhurst11 the owner of a car parked it in a car park with an employee of the car park operator in attendance. When he returned, the employee had given the keys to someone else who had driven the car away. The owner sued in conversion. He lost. If the employee had purported to deal with the car as the owner, the car park owner might have been liable for conversion. However, he did not. The attendant did not intend to deny the owner’s rights or act inconsistently with them. Quite the contrary he thought—wrongly—he was handing the car over to its owner.12 This might still be negligence, however. The owner of the car is not without remedy.

A.  What Property can be Converted? The tort is actionable per se, which means that no damage need be shown, but the interference with the asset must be such that it is a serious interference with the claimant’s superior right to possess the asset, so as to amount to a denial of the claimant’s title. Douglas therefore argues that conversion amounts to an assertion by the defendant of exclusive control over the asset, and this provides the distinguishing feature from the tort of trespass to goods.13 What this also means, however, is that conversion only protects rights in things that can be possessed. It only protects rights in tangible assets. Controversially Green argues that this ought to include software products as software can be possessed and does exist in physical form as a set of magnets arrayed in a particular way on the physical storage medium.14 Software’s protection through conversion has not in fact been tested in court, but Green and Randall argue that software has a physical presence on the disc and a person can be excluded from it through passwords and by uninstalling the programme, or deleting it.15 In chapter 12 we see that it has been decided that a common law lien cannot exist over an electronic database as there can be no possession of it.16 Databases too might be said to have something of a physical presence on a disc, and so this

8  Green and Randall, The Tort of Conversion (2009) (n 6) 51; Milgate v Kebble (1841) 3 Man & G 100, 133 ER 1073. 9  Caxton Publishing Co Ltd v Sutherland Publishing Co Ltd [1939] AC 178 (HL) 202 (Lord Porter). 10  Lancashire and Yorkshire Railway Co v MacNicoll (1918) 88 LJKB 601, 603. 11  Ashby v Tolhurst [1937] 2 KB 242 (CA). 12  ibid 256–57. 13  Douglas, ‘The Nature of Conversion’ (2009) (n 3) 211. 14  S Green, ‘Can Digitised Products be the Subject Matter of Conversion?’ (2006) LMCLQ 568; Pacific Software Technology Ltd v Perry Group Ltd [2004] 1 NZLR 164; in principle the same should be so of stored electronic documents, but see Thunder Air Ltd v Hilmarsson [2008] EWHC 355 [28]–[29] (Patten J). On software as goods for the purposes of the Sale of Goods Act 1979 see chapter two part II. 15  Green and Randall, The Tort of Conversion (2009) (n 6) 119–121. 16  Your Response Ltd v Datastream Business Media Ltd [2014] EWCA Civ 281, [2015] QB 41.

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suggests Green and Randall’s argument as to the relevance of such changes on the disc will not gain much purchase. The tort cannot, however, protect rights in choses in action because they cannot be possessed, although clearly the rights can be infringed. Section 14(1) of the Torts (Interference with Goods) Act 1977 states that the statutory regime does not apply to ‘things in action and money’. This was reaffirmed in OBG v Allan.17 The defendants were receivers who were in good faith when they assumed control of the claimants’ business. It transpired that their appointment was invalid, and the claimants brought conversion and trespass actions, also relating to the debts and contractual rights they had. Essentially, the receivers had settled debts owing by North West Water Plc on behalf of the company which they were not entitled to do; there was an important kink, however, in that OBG had in the meantime gone into voluntary liquidation and the liquidator had validly accepted the payment as full satisfaction for debts owing to OBG. The defendants accepted liability as regards the tangible assets, but denied it as regards the intangible. Green argues that there is a physical difference between the assets, but much less legal difference. The tort, she argues, protects property and possession is merely the evidence of that property.18 She points to the fact that the defendants had deprived the claimants of the benefit of the choses in action, preventing the claimants from exercising similar rights and therefore acted inconsistently with the latter’s rights. That should generate an action in conversion. Writing with Randall, she argues that the relevant manual indicia depend on the asset in question. For intangibles it is the measure of control and exhaustibility that is important.19 Where control over the chose in action is directly and invalidly assumed, (which will almost necessarily be exclusive) conversion should be available.20 The majority in OBG v Allan took a different position, however. They denied that conversion is available. While possession is seen as a fact; rights to possess are not and it is the protection of those rights that OBG v Allan reaffirmed which form the basis for conversion. For the majority therefore the only possible causes of action on the facts were the torts of procuring a breach of contract and causing loss by unlawful means. The elements of neither of those torts were made out. One difficulty, for example, was that there was no breach of any contract,21 and therefore no inducement to breach. Lord Hoffmann, with whom Lords Walker and Brown agreed, argued that the whole of the statutory modification of the tort of conversion under, for example, the Torts (Interference with Goods) Act 1977 had been on the basis that it applied only to chattels and this was confirmed in the statute itself; it was now too great a step to extend it to choses in action.22 It is true that this left the claimants without a remedy. If that is thought a problem, and Lord Hoffmann seemed unperturbed,23

17  OBG v Allan [2007] UKHL 21, [2008] 1 AC 1; S Green, ‘To Have and to Hold? Conversion and Intangible Property’ (2008) 71 MLR 114; A Tettenborn, ‘Liability for Interfering with Intangibles: Invalidly Appointed Receivers, Conversion and the Economic Torts’ (2006) 122 LQR 31; in Australia it has been acknowledged that the law might develop to allow conversion of intangibles. Telecom Vanuatu Ltd v Optus Networks Pty Ltd [2005] NSWSC 951. 18  Green, ‘To Have and to Hold?’ (2008) (n 17) 116. 19  Green and Randall, The Tort of Conversion (2009) (n 6) 132. 20  ibid 137; S Green, ‘The Subject Matter of Conversion’ (2010) JBL 218, 226–29. 21  OBG v Allan [2007] UKHL 21, [2008] 1 AC 1, 40. 22  ibid 42–44. 23  ibid 45.

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it should, however, be tackled in other ways. As Green and Randall argue, if there is no protection against misuse of intangible assets, the law provides no remedy for what is likely to be a substantial proportion of a party’s assets,24 and the vast majority of the assets of any substantial business. The minority in the House of Lords agreed that the economic torts could not be extended to protect the claimants. Lord Nicholls and Baroness Hale therefore (unlike the majority) suggested that intangibles should not fall outside the tort of conversion.25 Noting that documentary intangibles such as bills of exchange were protected via conversion, Lord Nicholls said that the common characteristic of intangible rights protected by the tort of conversion is not the essentially arbitrary significance of a piece of paper, but the fact they are contractual rights; as such other contractual rights than those embodied in documents should be protected. He did, however, explicitly leave open the question of how other intangible property, such as shares, should be protected.26 The majority decision in OBG v Allan does therefore seem on this basis to leave us a lacuna in the law. Lord Hoffmann had after all explicitly rejected the view of Mance LJ in the Court of Appeal that there was an alternative route to liability—a tort by which a purported (but invalidly appointed) agent can be strictly liable for causing the principal loss by making him or her liable, by virtue of ostensible authority, under a disadvantageous contract.27 The agent and receiver is a fiduciary and by analogy with the rules on trusteeship de son tort where a party believing him or herself a trustee, but where the party was invalidly appointed, is liable for losses caused as if he or she were validly appointed,28 the defendant in OBG v Allan should also be liable. He was invalidly appointed, but believed himself validly appointed and acted in that capacity. If that causes losses he should be liable for those losses by the same token and in the same way as a trustee de son tort. This avoids any question of the inapplicability of section 232 of the Insolvency Act 1986, which provides that the acts of an individual as an administrative receiver, liquidator or provisional liquidator of a company are valid notwithstanding any defect in his or her appointment, nomination or qualifications. It is of course true that this is not a perfect analogy; it relies, as Mance LJ conceded, on the fiction that the losses would have been actionable had the receiver been validly appointed.29 In general, however, the law has a very comprehensive set of protective rights for accountholders where unauthorised or problematic payments are made from their account. Criminal offences under the Fraud Act 2006 and the Theft Act 1968 account for some protection, but account-holders might have unjust enrichment actions or actions in a patchwork of tort claims.30 It is true that there are gaps, and in 2011 Goymour suggested a new economic tort as a way to fill those gaps.31 Writing with Watterson a year later, she concluded that such cases where there is no effective tort remedy already will, however, be rare and the bank will 24 

Green and Randall, The Tort of Conversion (2009) (n 6) 137. OBG v Allan [2007] UKHL 21, [2008] 1 AC 1, 67 (Lord Nicholls), 88–89 (Baroness Hale). 26  ibid 69–70. 27  ibid 41. 28  Mara v Browne [1896] 1 Ch 199. 29  OBG v Allan [2005] EWCA Civ 106, [2005] QB 762, 791–92. 30  A Goymour and S Watterson ‘Testing the Boundaries of Conversion: Account Holders, Intangible Property and Economic Harm’ (2012) LMCLQ 204, 218–225; for a general comparison of conversion and theft see S Green, ‘Theft and Conversion—Tangibly Different?’ (2012) 128 LQR 564. 31  A Goymour, ‘Conversion of Contractual Rights’ (2011) LMCLQ 67, 90–91. 25 

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in such cases usually have acted outside its mandate so as to be compelled to re-credit the claimant’s account. Green has, however, commented that an extension of economic torts leaves a gap in the protection of property rights in that strict liability would not be available and the interest protected in intangible choses in action would in effect be downgraded.32 Goymour and Watterson’s counter-argument to which Green does not refer is that if conversion were extended, it would provide anomalous strict liability protection where the economic torts operating alongside it provide fault-based protection. Further, it would provide such protection in cases where the claimant could identify a reduction in the value of his or her assets, but the parallel case where his or her liabilities increase would be untouched, leading to an imbalance in the law’s protection. This latter argument seems convincing. The question has also come up in the United States whether intangible property or choses in action should be protected by conversion. Famously the question of whether internet domain names are so protected came up in the context of sex.com.33 The district court decided that they were not so protected, but that decision did not leave the rights unprotected. In fact they were protected by a series of other torts. The domain name in the sex.com case was obtained by fraudulently misrepresenting to the authority allocating the names (Network Solutions (now Verisign)) that the original owner was giving the domain name up. The Ninth Circuit Court of Appeals left things rather murkier. They said domain names were potentially convertible, but only on the basis that Californian law did not follow the Restatement of Torts which requires the intangible rights to be merged with a document—effectively limiting conversion to documentary intangibles.34 Then the Ninth Circuit remanded it back to the district court, but the parties settled. In such cases English law would give relief through the tort of deceit, and also through criminal law via section 2 of the Fraud Act 2006. The position seems clear therefore; intangibles need not be protected by conversion; they are adequately protected elsewhere. We have seen that the minority in OBG v Allan reason that it is possible to generalise the protection conversion gives to title to documentary intangibles to pure intangible property. The availability of conversion in cases of documentary intangibles, however, as Lord Hoffmann said in OBG Ltd v Allan, was to fill a gap in the law. The wrongful misappropriation of the document would cause actual loss to the true creditor who could not recover on the chose in action.35 Consequently, only in the case of a negotiable instrument is the intangible asset susceptible to true usurpation. A cheque as a bill of exchange is an order to a bank to pay a third party on demand a sum of money—say £100. With that piece of paper the third party can obtain payment. The paper itself is almost worthless, but the tort of conversion protects the third party’s right to the value it represents, the right to be paid £100.36 If, however, the instrument is void, damages will be on the basis of conversion of a small piece of paper.37 If conversion is extended to cover pure intangibles it becomes therefore a very

32  S Green, ‘OBG v Allan’ in S Douglas, E Waring and R Hickey (eds) Landmark Cases in Property Law (Hart Oxford 2015) 116, 121–125. 33  Kremen v Cohen 99 F Supp (2d) 1168 (2000); E Kohm, ‘When “Sex” Sells: Expanding the Tort of Conversion to Encompass Domain Names’ (2003) 23 Loyola of Los Angeles Entertainment Law Review 443. 34  Kremen v Cohen 337 F 3d 1024 (2003). 35  OBG v Allan [2007] UKHL 21, [2008] 1 AC 1, 44–45. 36  Hunter BNZ Finance v ANZ Banking Group [1990] VR 41; see Goymour, ‘Conversion of Contractual Rights’ (2011) (n 31) 70–81 for an analysis of the tort in this context. 37  Smith v Lloyds TSB Bank [2001] 1 All ER 424 (CA).

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different tort. When you induce a party not to pay debts owing to me, I can still enforce that debt.38 What matters is whether there has been a good discharge of the debt. If there has not been, and until the liquidator accepted the money in satisfaction of NWW’s debts, there was not, there can be no damage done to the claimant. Mance LJ’s contorted analogy proves unnecessary after all. Money may also be converted, but is not covered by the 1977 Act. However, money can only be converted if it has not gone into currency. What this means is that the bona fide purchaser of the money is not vulnerable to the action.39

B.  Acts Counting as Conversion40 The question in this section is what types of conduct will count as denying the claimant’s superior title. Green and Randall describe the test of sufficiency as whether the defendant’s act effectively transfers the possessory interest to the interferer,41 so that the claimant is deprived of the full benefit of the rights and cannot fully exercise them, even if the defendant no longer purports to exercise them.42 Exclusion of the claimant becomes an important feature of the tort. The line between trespass and conversion is therefore at issue in cases of damage or destruction of goods. Damaging goods by itself will be a trespass, but not necessarily a conversion, unless done with the intention of demonstrating or asserting an interest in the goods. Negligently damaging goods will not count as conversion, although it will count as the tort of negligence or trespass. There being no definition of the tort, most treatments merely outline the operation of the tort through examples of liability for different activities. There must be an act; omissions will not suffice and section 11(3) of the Torts (Interference with Goods) Act 1977 provides that merely denying another’s title is no conversion. Nonetheless, section 2(2) of the 1977 Act provides for a bailee to be a converter if he or she loses, or allows to be lost, goods held under the bailment. An example of a case under section 2(2) is Schwarzschild v Harrods43 where the defendant refused to hand over jewellery to the claimant-bailor. The goods must be demanded and an unequivocal refusal to deliver made; this clearly denies the claimant’s right to possess and therefore his or her title. Wrongfully taking the asset away—asportation—might be thought the obvious means. This will count as a trespass, but something else may be needed for a conversion.44 In Fouldes v Willoughby45 the defendant received complaints about the claimant’s behaviour on a ferry. In order to induce the claimant to leave, he put the claimant’s horses ashore, and 38 

S Douglas, ‘Converting Contractual Rights’ (2008) LMCLQ 129. Miller v Race (1758) 1 Burr 42, 97 ER 398; D Fox, Property Rights in Money (Oxford, OUP, 2008) para 9.08; Green, ‘The Subject Matter of Conversion’ (n 20) (2010) 231–33. 40  For an indicative list of such acts, see M Jones and A Dugdale (eds), Clerk and Lindsell on Torts, 21st edn (London, Sweet and Maxwell, 2014) para 17.08. There must be a physical act. S Douglas ‘Kuwait Airways Corporation v Iraqi Airways Corporation’ in S Douglas, E Waring and R Hickey (eds) Landmark Cases in Property Law (Oxford, Hart, 2015) 205. 41  Green and Randall, The Tort of Conversion (2009) (n 6) 64. 42  ibid 75–78. S Douglas Liability for Wrongful Interference with Chattels (Oxford, Hart, 2011) 64–68. 43  Schwarzschild v Harrods [2008] EWHC 521; S Douglas, ‘The Abolition of Detinue’ (2008) Conv 30, 46–49; Green and Randall, The Tort of Conversion (2009) (n 6) 78–79. 44  Fowler v Hollins (1872) LR 7 QB 616. 45  Fouldes v Willoughby (1841) 5 M&W 540, 151 ER 1153. 39 

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was not liable for conversion in doing so as he had not intended to exercise any dominion over them. What is required is an act asserting title or rights over the assets which are incompatible with the claimant’s title. The defendant here had not done this. He had not exercised complete or total control over the assets. He did not, for example, decide what was to happen to the horses once they were back on dry land. In Club Cruise Entertainment & Travelling Services Ltd v Department of Transport46 the actions complained about were those of a health and safety inspector in detaining a ship on which there had been a norovirus outbreak; it was decided that the detention notice was invalid, but that there had been nonetheless no conversion, because the notice did not deny the owner’s rights over the ship absolutely. Flaux J held that nothing that was done amounted to an exercise of dominion over the ship.47 Although there is clearly a difficult line to draw, it is questionable whether Flaux J was correct; preventing a ship whose purpose is to provide transport from doing so, is to exercise sufficient dominion to, at least temporarily, deny the owners’ rights, and a temporary deprivation may suffice to ground a conversion claim. In Aikens Agencies v Richardson48 for instance the defendant took the claimant’s van joyriding. Eventually the van was returned. McGregor J decided this was conversion. While the van was in the possession of the defendant he had full control and could have decided not to abandon it. He had the factual ability to decide how long to keep it for;49 the difficulty for a court is to draw a line between this type of case and where I pick up a friend’s phone to look at it and put it back. The difference seems to lie in whether I put it back or leave it out of deference for the owner’s rights. Oakley v Lyster50 further demonstrates the rule that the defendant must assume the right to decide upon the disposition of the assets. The claimant agreed to pull down an aerodrome near Salisbury. That involved the removal of some 8000 tons of macadam. The macadam became the claimant’s property and was by agreement of the owner of a nearby farm stored there. The farm was sold in 1929, and the defendant purchaser began removing the macadam, claiming he had bought it on purchase of the farm. The claimant objected on the basis that it was his macadam. The claimant then agreed to sell the material to Edney, who withdrew from the purchase of the macadam on learning of the dispute between the claimant and defendant. By insisting that nothing be taken away by the claimant or Edney until it was paid for, the defendant had converted the macadam. A classic example of conversion is to buy stolen goods, and take delivery. Property remains in the original owner even after the purchase. The purchaser is a converter. Purchase is a classic example of intending to exclude all others from the asset on an indefinite basis,51 unless the purchaser is protected by an exception to the general rule of nemo dat, covered in chapter three, part II. Indeed many cases requiring a decision on the applicability

46  Club Cruise Entertainment & Travelling Services Ltd v Department of Transport [2008] EWHC 2794, [2009] 1 Lloyds Rep 201. 47  ibid 211–12; see Jones and Dugdale, Clerk and Lindsell on Torts (2014) (hereinafter referred to as ‘Clerk and Lindsell’) (n 40) para 17.32. 48  Aikens Agencies v Richardson [1967] NZLR 65. 49  ibid 67; Douglas (2011) (n 42) 76. 50  Oakley v Lyster [1931] 1 KB 148; Simpson v Gowers (1981) 121 DLR (3d) 709 is very similar to Oakley, but the beans allegedly converted were held arguably to have been abandoned. 51  Fowler v Hollins (1872) LR 7 QB 616; the exercise of an invalid lien is also a conversion. Tear v Freebody (1858) 4 CB (NS) 228, 140 ER 1071.

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of such exceptions are conversion actions. The actions of an auctioneer in settling the price, however, is not a conversion, although the auctioneer will become a converter if he or she takes the goods into his or her possession in order to deliver them to the buyer.52 This is part of the question of ministerial handling; mere ministerial handling of goods on behalf of a non-owner is not a conversion,53 although the line is a difficult one to draw. It is not therefore a conversion for the auctioneer to return the goods to the non-owner on failure to conclude a sale, provided the auctioneer has no notice of the problem with title and is in good faith.54 In a different context, section 11(2) of the Torts (Interference with Goods) Act 1977 provides that receipt of an asset by a pledgee is a conversion if the delivery is an act of conversion. It is not per se a conversion to be in possession of goods without authority. This protects the finder of goods from a conversion action purely on the basis of their having found and picked up the item. It will be conversion if they proceed to use the item in any way, however, or refuse to re-deliver on demand.55 We examine the position of finders in more detail in chapter 10. In Caxton Publishing Co v Sutherland Publishing Co56 the House of Lords also took the view that merely being in possession of goods was not a conversion. There was a breach of copyright in that case. The defendants had used extracts from the claimant’s book Heating and Ventilating in their own publication. By section 7 of the Copyright Act 1911 the infringing publication was the property of the owner of the copyright. When those infringing pages were bound together to make a book there was a conversion under the section but not before, and the claimants were entitled to damages on the basis of a proportion of the value of the book. If possession is not per se sufficient for a conversion, in those cases where legal title to goods in the defendant’s possession is vested in a claimant under a right to rescind a contract for fraud or duress there is no automatic action for conversion. Subsequently, refusing to deliver the claimant’s property after a demand has been made, however, will count as an act of conversion.57 In Howard Perry & Co v British Railway Board,58 members of the National Union of Railwaymen had been ordered to refuse to transport steel to support a steel strike. The defendants refused the claimants permission to collect the steel themselves fearing retaliatory strike action. Megarry VC held that the refusal of permission was an unreasonable act, which interfered substantially in the claimant’s title to the steel for a potentially indefinite period. Consequently, there was an act of conversion. He said: This is no brief withholding made merely in order that the defendants may verify the plaintiffs’ title to the steel, or for some other purpose to confirm that the delivery of the steel would be proper. This is a withholding despite the plain right of the plaintiffs to the ownership and possession of the steel, on the ground that the defendants fear unpleasant consequences if they do not deny the plaintiffs what they are entitled to.59 52  Barker v Furlong [1891] 2 Ch 174; Consolidated Co v Curtis & Son [1892] 1 QB 495; see Clerk and Lindsell (2014) (n 40) para 17.73 on the auctioneers’ liability if he or she sells assets and accounts to the seller. 53  Re Samuel [1945] Ch 408 (CA). 54  Marcq v Christie, Manson & Woods Ltd (t/a Christie’s) [2002] 4 All ER 1005; F Meisel, ‘Return is No Conversion’ (2004) Conv 145. 55  Antariksa Logistics Pte v McTrans Cargo (S) Pte Ltd [2012] 4 SLR 250, [90]. 56  Caxton Publishing Co v Sutherland Publishing Co [1939] AC 178 (HL). 57  Hunter BNZ Finance Ltd v CG Maloney Pty Ltd (1988) 18 NSWLR 420. 58  Howard Perry & Co v British Railway Board [1980] 1 WLR 1375. 59  ibid 381.

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On those facts he made an order to deliver the steel up under section 3 of the Torts (Interference with Goods) Act 1977. There is, however, no need for a demand. The wilful retention of a chattel coupled with the intention to deny the true owner will entail liability. By contrast, however, finders are entitled to investigate the title of potential claimants to the goods and to insist on doing so. In Clayton v Le Roy60 the claimant’s watch was stolen. It was subsequently pledged and put up for sale by the pledgee at auction. Eventually it made its way back to the defendant’s shop; the defendant wrote to the claimant and the current possessor informing them of the situation. The claimant’s clerk called in, demanded the watch and upon being refused handed the writ over. The Court of Appeal held there was no act of conversion in refusing to deliver the watch. Fletcher Moulton LJ characterised the defendant’s conduct as showing no intention to deny the rights of the claimant; indeed he had written to inquire what he ought to do and received no reply.61 Refusing to hand over the watch to the clerk was also reasonable as he had shown no authority to receive it. It can be a conversion to take an asset lawfully but subsequently act illegally with regard to it. In Moorgate Mercantile Co Ltd v Finch & Read,62 the hirer under a hire-purchase agreement lent the car to Read who used it to smuggle goods. Customs & Excise impounded the car, forfeited and sold it. The hirer was in arrears and the hire purchase company took action against him and Read. The fact that the hirer was in arrears gave the hire purchase company the right to immediate possession. It could therefore sue in conversion. The fact that Read took the car, knowing that if he was discovered, the likely consequence would be that the authorities would forfeit the car causing loss to the owner, made his acts a conversion.63 Douglas has suggested that this poses a difficulty. The intention that Read had was to return the car to the owner. The exclusion of the owner because the car was impounded was unintended, and unintended exclusions do not lead to the tort being committed.64 In fact Danckwerts LJ fictionally supposed that Read had intended the loss of the car. It may be that the only way to reconcile the cases is to rest on the fact that the defendant has to be taken to bear the risk of losing the car in the course of illegal operations. It is worth noting, however, that it is not necessary to be in possession to be a converter, or even to have ever been in possession. Consequently, there are two types of converter: the acquirer who still has the asset and the handler who may no longer have the assets, or indeed may never had had possession.65 The critical point is whether the interest that conversion protects has been damaged and it is possible to interfere with the claimant’s rights to possess without being in possession yourself.

60 

Clayton v Le Roy [1911] 2 KB 1031 (CA). ibid 1050. 62  Moorgate Mercantile Co Ltd v Finch & Read [1962] 1 QB 701 (CA). 63  ibid 705–06. 64  Douglas, ‘The Nature of Conversion’ (2009) (n 3) 215–16; Douglas (2011) (n 42) 72–73; BMW Financial Services Ltd v Bhagwanai [2007] EWCA Civ 1230; Rushworth v Taylor (1842) 3 QB 699; Heald v Carey (1852) 11 CB 977, 138 ER 762. 65  Green and Randall, The Tort of Conversion (2009) (n 6) 65–67; Douglas Valley Finance Co Ltd v S Hughes (Hirers) Ltd [1969] 1 QB 738. 61 

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C.  Entitlement to Sue in Conversion All that is required is title to the goods. The claimant must have a right to immediate possession at the time the conversion takes place as against the defendant to sue in conversion, trespass or negligence.66 Consequently, a bailor for a fixed term or a pledgor has no entitlement to sue in conversion because he or she has neither possession nor a right to immediate possession.67 The right to possession is a future or contingent right. We can also illustrate this point with the facts of Brierly v Kendall68 where the claimant had assigned his furniture to the defendants as security for a debt. The latter were able to appoint a date for repayment and take possession of the goods if not paid. They needed, however, to give 24 hours notice of the repayment date. They failed to do so. Because the notice was bad, the claimant had a right to possess against the defendant, even though the goods had been effectively mortgaged and legal title assigned to the defendants. By contrast in Parker v British Airways Board (BAB),69 Parker found a bracelet on the floor of the defendant’s departure lounge while waiting for his flight. He handed the bracelet to an official, stating that he wished to have the bracelet back if the true owner did not come forward. The board sold the bracelet. Although Parker was not the true owner, the Court found he had acted properly and had rights of possession over the bracelet and that the board had breached them by selling the item. If, however, BAB had manifested an intention to possess the departure lounge through their actions, they might have had a better right than Parker because the bracelet would have been in their possession by virtue of being in the lounge. In that case Parker’s right to possess would be of lesser value than BAB’s and he would not be able to pursue an action against them. Importantly, this means that finders, by virtue of merely being finders, have good (relative) legal title to the items found, assuming that the landowner does not have a prior claim because of the degree of control exercised over the land and the need for the finder to perhaps dig the thing up without authority to do so.70 Bailees are therefore able to sue in conversion, as is anyone else with possessory title. Lightman J said in Costello v Chief Constable of Derbyshire, a case concerned with the claimant’s right against the police to have a car seized in the course of an investigation returned, that the fact of possession gives possessory title. Even a thief has title, albeit of limited value.71 In The Winkfield, Collins MR said that possession was good against a wrongdoer; the wrongdoer must treat the possessor as owner.72 However, a bailor or owner out of possession and with no right to immediate possession cannot sue in conversion. However, such a bailor will have an action for damage to his or her reversionary interest, which we will 66  The Future Express [1993] 2 Lloyds Rep 542; North General Wagon and Finance Co v Graham [1950] 2 KB 7; Hill v Reglon [2007] NSWCA 295; Margarine Union GmbH v Cambay Prince Steamship Co [1969] 1 QB 219 (The Wear Breeze), but see JR Faust, ‘Distinction between Conversion and Trespass to Chattels’ (1957) 37 Oregon Law Review 256, 259–60. 67  Gordon v Harper (1796) 7 TR 9, 101 ER 828; similarly, a person with rights to apply for grant of administration of an estate has no right to immediate possession until the grant is made and no title therefore to sue; Caudle v LD Law Ltd [2008] EWHC 374, [2009] 2 All ER 1020. 68  Brierley v Kendall (1852) 17 QB 937, 117 ER 1540. 69  Parker v BAB [1982] QB 1004; Armory v Delamirie (1772) 1 Str 505, 93 ER 644. 70  Waverley BC v Fletcher [1996] QB 334 (CA); see chapter one, part V A. 71  Costello v Chief Constable of Derbyshire [2001] 1 WLR 1437, 1450 and subject to Torts (Interference with Goods) Act 1977 s 8(1); G Battersby, ‘Acquiring Title by Theft’ (2002) 65 MLR 603. 72  The Winkfield [1902] P 42 (CA) 54–55.

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examine later. Indeed, a term bailor may be sued by his or her bailee in conversion if the bailor interferes with the latter’s possession. Lienholders may equally sue in conversion. In Rogers v Kennay,73 goods in the possession of the claimant under a lien were taken by the defendant in execution of a judgment against a third party. The Court held that the lien provided sufficient title for the claimant to be able to make a claim against the defendant, as a lien was a right to immediate possession. Possession of a bill of lading will give good title to sue with qualifications as the bill holder has constructive possession of the goods. Physical possession of the bill may, however, be on behalf of someone else, and only a person with a right to possess can validly transfer a bill to give title to sue. This deals with the problem of a set of bills which are negotiated separately. Having already transferred the right to possess, it cannot be transferred again.74 A mere contractual right to receive goods will not necessarily suffice to give a right to sue in conversion; rather it gives rise to a right to sue for interference with a contractual right. It is clear that if I enter a contract to buy goods I will have a right against the seller to deliver the goods. That does not mean that I have the right to sue third party converters of the goods. What the claimant needs is a contractual right to immediate possession.75 Equitable rights also do not suffice to ground a right to sue in conversion. In MCC Proceeds Ltd v Lehman Bros,76 the Court of Appeal said conversion was unavailable to a trust beneficiary. This is correct. A trust beneficiary, as we saw in chapter one, part IV A does not have a right to possess the assets subject to the trust. The beneficiary does have the right to demand that the trustee convey legal title to him or her,77 but does not have the immediate right to possess required except in unusual cases; the beneficiary may for instance be in actual possession,78 but even then the trustee may also still be entitled to sue in conversion.79 In International Factors Ltd v Rodriguez,80 the claimants purchased the book debts of a company of which the defendant was a director. It was a term of the agreement that any payments to the company with reference to the debts would be held on trust. Four cheques were paid into the company’s bank account in breach of this term. The trust, along with the company’s obligation to hand over the cheques immediately constituted a sufficient basis for an action in conversion. Sir David Cairns confirmed that a mere contractual right was insufficient, but said that this coupled with the trust was sufficient.81 At points Sir David suggested that equitable rights could give an entitlement to sue in conversion as a result of fusion. This seems to be wrong in principle. The Judicature Acts did not aim to make any substantive changes to the law.82 Fusion compels symmetry between similar actions protecting similar 73  Rogers v Kennay (1846) 9 QB 592, 115 ER 1401; the flipside is that owners cannot sue the lienholder for conversion because this would defeat the point of the security. See Lord v Price (1874) LR 9 Ex 54. 74  P Todd, ‘The Bill of Lading and Delivery’ (2006) LMCLQ 539. 75  Green and Randall, The Tort of Conversion (2009) (n 6) 97–102; Islamic Republic of Iran v Barakat Galleries Ltd [2007] EWCA Civ 1374, [2009] QB 22, 36 (Lord Phillips of Worth Matravers CJ); International Factors Ltd v Rodriguez [1979] QB 351. 76  MCC Proceeds Ltd v Lehman Bros [1998] 4 All ER 675 (CA); K Barker, ‘Equitable Title and Common Law Conversion: The Limits of the Fusionist Ideal’ [1998] RLR 150; Green and Randall, The Tort of Conversion (2009) (n 6) 103–06. 77  Saunders v Vautier (1841) Cr & Ph 240, 41 ER 482; chapter one, part IV B. 78  Healey v Healey [1915] 1 KB 938. 79  Barker v Furlong [1891] 2 Ch 174. 80  International Factors Ltd v Rodriguez [1979] QB 351. 81  ibid 357. 82  A Tettenborn, ‘Trust Property and Conversion: An Equitable Confusion’ (1996) CLJ 36, 38.

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rights, but conversion as protecting the right to possess has no equitable counterpart. In fact Sir David allowed a trust beneficiary actually in possession to sue for conversion on the basis of his independent legal title and broadened that to include all equitable titles. The actual result may therefore be defensible. There is a good argument that the contractual right to have the cheques handed over provided the claimants with a sufficient possessory right to ground an action.83 This apparent disadvantage of equitable title in not grounding conversion is balanced by two facts. First, equitable rights are not normally visible to third parties. The third party will assume that the party in possession has a right to possess and that liability, if there is to be any, will be owed to that visible party. Second, the trust beneficiary will be able to compel the trustee to sue in conversion, who may be able to recover any consequential losses of the beneficiary.84 In Shell (UK) Ltd v Total (UK) Ltd,85 the Court of Appeal discussed the analogous question of whether equitable title could ground a right to sue in negligence. The Court decided yes.86 It appeared to see this as a substantive legal principle. This, however, seems doubtful, except in cases where the equitable owner is also in legal possession of the thing, which is the vital feature of conversion. There is a procedure whereby the beneficiary of a trust can join the trustee as a co-defendant and sue in his or her name, taking over the trustee’s cause of action—the Vandepitte procedure encountered in chapter four in the context of the rights of equitable assignees.87 This, however, is a procedural device to short-circuit the need for multiple actions. If the decision is taken seriously, however, it is likely the same position will be taken on standing to sue in both conversion and trespass. Co-owners are in principle treated no differently to anyone else. They may recover the proportionate value of their interest. There are two qualifications to this. First, a co-owner may only sue other co-owners in cases of destruction and effective disposal of the whole asset to a third party. Where the parties are joint tenants neither party is entitled to exclusive possession of the assets. Most acts that effectively arrogates this right to a single party will be a conversion of the asset,88 although it should be noted that a wrongful pledge for example is not a conversion vis-a-vis the other co-owner. In Baker v Barclays Bank,89 for instance, the claimant and Bainbridge had a partnership making confectionary products. There were two sites in Nuneaton and in Hinckley. From April 1951 Bainbridge ran the business in Nuneaton on his own account and sent out invoices in his own name. He delivered the cheques to Jeffcott to pay into an account that was not a partnership account. The question arose whether the cheques were converted by the bank. Devlin J held that Bainbridge had converted the cheques by paying them into a non-partnership account; he had asserted exclusive control over the cheques to the exclusion of the claimant.90 He may do this, for 83 

ibid 40–41. Malkins Nominees Ltd v Société Financière Mirelis SA [2004] EWHC 2631 (Ch) [58]–[59] (Laddie J) relying on cases concerning recovery of third party losses. 85  Shell (UK) Ltd v Total (UK) Ltd [2010] EWCA Civ 180, [2011] QB 86. 86  ibid 102–03; but see The Aliakmon [1986] AC 864 (HL); A Rushworth and A Scott, ‘Total Chaos?’ (2010) LMCLQ 536; KFK Low, ‘Equitable Title and Economic Loss’ (2010) 126 LQR 507. 87  Chapter four, part III A. It is the trustee’s cause of action for conversion not the beneficiary’s. See J Edelman ‘Two Fundamental Questions for the Law of Trusts’ (2013) 128 LQR 66, 69–75 88  Torts (Interference with Goods) Act 1977 s 10(1); Clerk and Lindsell (2014) (n 40) para 17.70; on joint tenancy and tenancy in common see chapter one, part III A ii. 89  Baker v Barclays Bank [1955] 2 All ER 571. 90  ibid 576; Fraser v Kershaw (1856) 2 K&J 496, 69 ER 878. 84 

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example, by successfully passing title to a third party. If the asset has been delivered into the hands of a third party all the co-owners need to demand re-delivery.91 A separate question is how the common law deals with the possibility of there being several potential claimants. The common law has various mechanisms to guard against the possibility of double liability. The bailee, for example, must account to the bailor for the value of his or her losses, and will hold any surplus on trust.92 The Torts (Interference with Goods) Act 1977 also provides some elaborate rules for preventing double liability or double recovery. Section 7 provides that where two parties have separate causes of action based on interference with goods and are both joined in the action, any relief awarded is to be arranged in such a way as to avoid double recovery. If the two parties are not both parties to the action, the claimant shall pay the relevant amount to the other party to prevent double recovery, or in extremis refund the wrongdoer. Section 8 of the Act allows the alleged wrongdoer to set up the rights of a third party which are better than those of the claimant. That third party may under section 8(2)(c) be joined as a party to the action. Indeed, as a result of CPR 19.5A, this always happens.

D. Remedies Section 3 of the Torts (Interference with Goods) Act 1977 provides that the remedies for conversion are delivery up of the asset, injunctions and/or damages. Aggravated and exemplary damages may be available in some cases.93

i.  Damages for Loss While damages for conversion are to reflect the loss the claimant has actually suffered,94 damages are usually calculated by reference to the value of the asset in the market place at the date of the conversion,95 subject to adjustment. There is an exception in cases of hire purchase agreements. Where a third party converts the car, the finance company’s interest is seen as merely the diminishing amount of the unpaid instalments.96 If the asset cannot be returned or produced, the defendant must accept the highest plausible value of the goods.97 The following case provides an illustration of the rule. In Chubb Cash v John Crilley Ltd,98 91 

Clerk and Lindsell (2014) (n 40) para 17.45. Mathew v TM Sutton Ltd [1994] 4 All ER 793; N Palmer, ‘Possessory Title’ in E McKendrick and N Palmer (eds), Interests in Goods, 2nd edn (London, LLP, 1998) 63, 67–68; The Winkfield [1902] P 42; see chapter 10 part II D. 93  Sir Robert McAlpine Ltd v Minimax [1970] 1 Lloyds Rep 397, 421–22; Clerk and Lindsell (2014) (n 40) para 17.107. 94  VFS Financial Services (UK) Ltd v Euro Auctions (UK) Ltd [2007] EWHC 1492 [102] (Seymour QC). 95  Malkins Nominees Ltd v Société Financière Mirelis SA [2004] EWHC 2641 (Ch) [34] (Laddie J); H McGregor, McGregor on Damages, 19th edn (London, Sweet and Maxwell, 2014) para 36.011; on valuation of the assets see Clerk and Lindsell (2014) (n 40) paras 17.93–17.105; for a critique of this measure of damages see A Tettenborn, ‘Damages in Conversion—Exception or Anomaly?’ (1993) CLJ 128, 130–36. 96  Wickham Holdings v Brook House Motors [1967] 1 WLR 295, and if the goods are wrongfully repossessed by the bailor the bailee’s damages are limited to his or her interest only. McGregor, McGregor on Damages (2014) (n 95) para 36.063; on hire purchase generally see chapter 10, part IV A. 97  Colbeck v Diamanta (UK) Ltd [2002] EWHC 616. 98  Chubb Cash v John Crilley Ltd [1983] 1 WLR 599; it is usually for the claimant to prove market value, but in cases where the defendant has the goods but fails to produce them damages will be at the highest appropriate market value. Armory v Delamirie (1721) 1 Stra 505, 97 ER 625. 92 

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a cash register was seized in distraint but it was not the defendant’s register; it was on hire purchase from the claimant and outstanding payments were still due. The totality of the hire purchase price outstanding was claimed in damages. The Court decided that the correct measure was the market value of the asset, which had already been determined by the auction price at which it was sold. In effect it is a forced judicial sale of the asset converted. If there is no market in the goods the relevant damages are the cost of replacement;99 however, if the actual loss to the claimant is said to be less than the replacement value, the court must make a fact specific assessment of the true loss. If the goods are commercially worthless this should be taken into account.100 Judicial sale implies that the tortfeasor acquires title and indeed section 5(1) of the Torts (Interference with Goods) Act 1977 provides that on payment of the assessed damages and satisfaction of the judgment the claimant’s title to the goods is extinguished. This means that market value is the loss the claimant suffers as he or she no longer has title to the goods. The basic rule that full value can be recovered by any claimant who can establish actual possession applies also to those who can only show a limited interest.101 That claimant must, however, account for the surplus over the value of his or her interest to the true owner,102 which reflects the rule as to actual loss. Where goods have already been sold the proceeds are recoverable.103 The only exception is where the wrongdoer is the bailor. If the lessor under a hire purchase agreement wrongfully retakes the goods, the bailee’s recovery is limited to his or her own interest.104 Where goods fall in value, the defendant is liable for the market value at the time of the conversion even if an identical replacement has been provided. In BBMB Finance (Hong Kong) Ltd v EDA Holdings Ltd,105 therefore, a bonus issue of shares and the certificate were held on trust, but the certificate was converted by the defendant by selling them for a postdated cheque which was never cashed. The defendant subsequently purchased new shares at a lower price to replace the converted shares. The claimants obtained damages on the basis of the difference between the value of the shares at the time they were sold and the value of the replacement shares.106 This is a clear decision that as a matter of policy loss is caused at the moment of conversion in cases like BBMB and the return of shares goes to reducing the quantification of damages,107 but the defendant is not excused entirely from the full liability incurred at the date of the conversion. By contrast, in Brandeis Goldschmidt & Co v Western Transport Ltd108 the claimants issued a writ for the wrongful detention of a quantity of copper. The copper was ultimately handed back and used in the claimant’s manufacturing processes. The Court held that because the copper would not have been 99  J & E Hall Ltd v Barclay [1937] 3 All ER 620 (CA); Virgo suggests that where the claimant’s goods are sold without permission, the actual sale price is recoverable not as loss-based, but gain-based damages: G Virgo, The Principles of the Law of Restitution, 3rd edn (Oxford, OUP, 2015) 459. 100  Robot Arenas Ltd v Waterfield [2010] EWHC 115 (QB) [28]–[30]; Voaden v Champion [2002] EWCA Civ 89, [2002] 1 Lloyds Rep 623. 101  Green and Randall, The Tort of Conversion (2009) (n 6) 186. 102  ibid 172. 103  Lamine v Dorrell (1701) 2 Ld Raym 1216, 92 ER 303. 104  N Palmer (ed), Palmer on Bailment, 3rd edn (London, Sweet and Maxwell, 2009) para 37.031; the lessor’s damages should the bailee wrongfully sell are also calculated only by reference to his or her own interest. See chapter 10, part IV A on hire purchase. 105  BBMB Finance (Hong Kong) Ltd v EDA Holdings Ltd [1990] 1 WLR 409 (PC). 106  ibid 412–413 (Lord Templeman); Solloway v McLaughlin [1938] AC 247 (PC). 107  Green and Randall, The Tort of Conversion (2009) (n 6) 199–201. 108  Brandeis Goldschmidt & Co v Western Transport Ltd [1891] QB 864.

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resold by the claimants, they could not claim that they had lost money by not selling at the date of detention.109 McGregor suggests that the distinction is that Brandeis is a case of merely temporary detention.110 In cases of irreversible conversion there is a firmly established date of assessment, that of the conversion, but there is no such clear-cut date for valuation of damages in detention cases where the goods might still be returned, or were in fact returned, where matters are more uncertain.111 Under the rules of detinue, the date of valuation or quantification of damages was the date of judgment. Green and Randall argue that this rule may apply in cases of temporary deprivation reflecting its origin in detinue.112 It may also therefore apply to damages under section 2(2) of the 1977 Act which reflects the old rules of detinue sur bailment. There is, however, some tension. In quantifying damages in cases where the value of the goods converted increased before judgment date, the court has traditionally seen the increase in value as a type of consequential damage, recoverable under section 3(2) of the Torts (Interference with Goods) Act 1977. Where the price or value of the assets rise and then fall, the claimant will not obtain the highest value of the assets as damages. Those consequential losses must be proved as having been caused by the conversion and not being too remote. In Empresa Exportada de Azucar v Industria Azucarera Nacional SA (The Playa Larga),113 therefore, Ackner LJ acknowledged that where a defendant was shown to have profited from his wrong because of a rise in the value of the asset, that rise in value can be recovered. The difficulty is that this must be foreseeable; it is not automatic. The case arose from the military coup in Chile in 1973. The Playa Larga was discharging sugar sold by Cubazucar to Chilean company Iansa at the time. The Cuban Government made a decision that the Playa Larga should be withdrawn from Chile, notwithstanding the fact that although all the sugar had been paid for it had not yet been fully unloaded. Subsequently, the price of sugar on the world markets rose. On the facts in the Playa Larga the rise in the value of the sugar was of no interest to Iansa. There was no evidence that it would have sold the sugar on the international sugar markets at the higher price rather than into the domestic Chilean market. Equally, although Cubazucar could have sold at the higher price it did not do so. The rise was irrecoverable as damages.114 The flipside of this is that where the claimant was in part the author of his or her own loss the increase in value cannot be claimed. In Sachs v Miklos115 the defendant attempted to contact the claimant to say his furniture would be sold if he did not collect it. The furniture was sold; this was a conversion but the Court of Appeal said that if the claimant had known of the impending sale he could not claim the increased value of the goods in the meantime in damages. The Court did not decide the question whether the claimant had received the defendant’s letter saying the

109 

ibid 872–73.

110 McGregor, McGregor

on Damages (2014) (n 95) para 36.017. A Hudson, ‘Money Claims for Misuse of Chattels’ in E McKendrick and N Palmer (eds), Interests in Goods, 2nd edn (London, LLP, 1998) 837, 849. 112  Green and Randall, The Tort of Conversion (2009) (n 6) 173–75. 113  Empresa Exportada de Azucar v Industria Azucarera Nacional SA (The Playa Larga) [1983] 2 Lloyds Rep 171 (CA). 114  The Playa Larga) [1983] 2 Lloyds Rep 171 (CA) 181–82; Green and Randall, The Tort of Conversion (2009) (n 6) 177. 115  Sachs v Miklos [1948] 2 KB 23. 111 

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goods would be sold, however, and the question was remitted to the County Court. Where therefore the claimant is guilty of undue delay in making the claim, any rise in the asset’s value is not recoverable.116 Courts have, maybe without articulating this properly, begun to short-circuit the complications of dealing with this question as consequential loss by simply selecting the date of valuation they feel most appropriate in the circumstances.117 What matters, according to IBL v Coussens,118 is that the claimant be fairly compensated. In that case the dismissed chairman of a company refused to return two expensive cars. The chairman contended damages should be assessed on the basis of the lower price at which the company could have replaced them at the date of the initial conversion. Neill LJ suggested that it was unreasonable to have expected immediate replacement of the cars, but that if the claimants would have disposed of the cars it would be wrong to assess damages at current value.119 There are some clear examples of consequential damages, which cannot be manipulated by this mechanism of changing the valuation date as appropriate. Profits lost on contracts made with third parties will usually be treated as too remote and only available if the defendant could clearly foresee such loss. In Saleslease Ltd v Davis,120 for instance, the claimants had equipment on the defendant’s premises in the anticipation that the premises could be let with the equipment; this was not possible, but the claimants found other lessees for the equipment. They claimed that they had been obstructed in their recovery of their equipment. The Court of Appeal held that in order to recover consequential losses above the market value the claimants had to show that the loss was in the reasonable contemplation of the defendants. They had not informed the defendants that the lucrative contract to let the machines was only available from one customer and therefore the loss was too remote. Other examples of consequential loss are inconvenience, stress and unemployment.121 Lord Nicholls drew a distinction in Kuwait Airways Corporation v Iraqi Airways Co (Nos 4 & 5)122 between good faith and dishonest conversions. That particular case arose out of the Iraqi detention of airplanes belonging to the Kuwaiti national flag carrier during the second Gulf War. The test for remoteness of damages in conversion is that the loss should be reasonably foreseeable. However, in those cases where the tortfeasor is proven to have acted dishonestly, the wider test that losses flowing naturally and directly123 from the tort are recoverable should apply. He indicated that this was the case despite the fact that dishonesty or deliberate wrongdoing is not a necessary condition for wrongdoing under the tort.124 Lord Nicholls treated remoteness and causation as part of a twofold general inquiry. We have already seen that in the straightforward case where damages of the asset value are sought that there is little need for the inquiry. Sufficient causation is inherent in the cause of action,125 although nominal damages may be awarded if the asset would

116 

Green and Randall, The Tort of Conversion (2009) (n 6) 191–92. ibid 175. 118  IBL v Coussens [1991] 2 All ER 133 (CA). 119  ibid 143–144. 120  Saleslease Ltd v Davis [1999] 1 WLR 1664 (CA). 121  Hudson, ‘Money Claims for Misuse of Chattels’ (1998) (n 111) 858. 122  Kuwait Airways Corporation v Iraqi Airways Co (Nos 4 & 5) [2002] UKHL 19, [2002] 2 AC 883, 1096–98. 123  See also Moorgate Mercantile Co. Ltd v Finch & Read [1962] 1 QB 701 (CA). 124  Mildly criticised for this reason by Green and Randall, The Tort of Conversion (2009) (n 6) 195. 125  ibid 199. 117 

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inevitably have been destroyed in any event. We must be careful when applying rules of causation to conversion claims. In cases such as Kuwait Airways the relevant question is not what would have happened had the defendant not acted tortiously, but what would have happened if the claimant had retained possession. The concern was to counter the argument that had Iraqi Airways not taken the planes, the Iraqi army would have done so. Deprivation of the property is the loss complained of rather than loss consequential on any particular tortious acts, at least in cases of permanent deprivation.126 Can damages be increased if a chattel after its conversion is transformed into a more valuable one? The defendant may take steps to improve the chattel. In that case it is arguable, particularly in the case of the innocent converter, that if damages are based on the value of the improved chattel the claimant will be unjustly enriched if he or she receives the increased value.127 Section 6 Torts (Interference with Goods) Act 1977 puts the matter on a statutory basis. Improvers in good faith (and good faith purchasers from them) can have an allowance based on the value of the improvements. Most torts are subject to a duty to mitigate. Conversion is no different.128 It may take different forms but it may oblige for example the innocent party to go into the market to purchase a replacement. The leading case is Uzinterimpex JSC v Standard Bank Ltd.129 The claimant entered into a contract with AMJ under which they agreed to sell 50,000 mt of cotton on Free On Board (FOB) terms. AMJ arranged a letter of credit and advance payment guarantee and assigned to the bank all title in the cotton, but retained authority to deal with it so long as there was no default. Disputes arose between buyer and seller and the cotton was held for protracted periods in various warehouses. The defendant proposed sale of the cotton and to hold the money in an escrow account. This was rebuffed, but AMJ sold the cotton in due course to prevent its deterioration. This was held to be a conversion. MooreBick LJ started by accepting that there is a general duty to mitigate.130 He concluded that a duty to mitigate the ‘proprietary’ element of the loss, by which he meant damages to the value of the asset, arises whenever the property is converted. Moore-Bick LJ acknowledged, however, that there might be little the claimant can do.131 In cases where consequential loss is at issue, claimants should always take reasonable steps to minimise their loss. The claimant, Uzinterimpex, had failed to mitigate its loss. It ought to have accepted the perfectly reasonable offer to sell the cotton and place the money in an account controlled by a third party.

ii.  Exemplary Damages Exemplary damages are available in intentional torts, such as conversion. This type of ­damages is awarded—relevantly for our context—where there has been a deliberate and knowing commission of a tort and a calculated attempt to make a profit.132 They are very

126 

ibid 199; P Cane, ‘Causing Conversion’ (2002) 118 LQR 544. According to Greenwood v Bennett [1972] 2 QB 36, the mistaken improver or repairer may be able to claim an allowance for the work done at common law. 128  Green and Randall, The Tort of Conversion (2009) (n 6) 203–06. 129  Uzinterimpex JSC v Standard Bank Ltd [2008] EWCA Civ 819, [2008] 2 Lloyds Rep 453. 130  ibid 469–70. 131  ibid 472–73. 132  Rookes v Barnard [1964] AC 1129. 127 

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controversial, and some have argued strongly that they have no place in private law.133 K ­ uddus v Chief Constable of Leicestershire134 removed the former cause of action test—which said that such damages could only be awarded in torts for which they had previously been awarded, although Lord Scott did importantly say that where gain-based damages were available, as they will be here, that exemplary damages were unlikely to be appropriate.135

iii.  Restitutionary Damages136 The damages discussed so far are loss-based. Questions also arise as to whether the claimant can seek to recover any gains made by the defendant. This is sometimes but not always possible. Many of the restitutionary damages decisions are trespass cases and we look at those under the trespass head. The rules are the same for conversion. The claimant is able to recover damages on the basis of what the defendant would have had to pay for the right to do as he or she did. However, it is worth singling out at least one case that is contextually a conversion case, Hillesden Securities v Ryjack Ltd.137 Rayment leased a car to one Vigass. Vigass purported to sell the car to the defendants who used the car for their own purposes. Rayment assigned his rights to the claimant who brought an action for conversion. Ultimately the car was returned. The Court decided that consequential losses in conversion where proven were always available if they were not too remote, but where the claim was that the defendant had detained and used the asset, a reasonable hire charge was recoverable as restitutionary damages. An American case allows for actual profits to be obtained. The defendant had cynically used the claimant’s egg-washing machine to wash his eggs, which was much cheaper and more efficient than having human egg washers. The consequent profit that he made was recoverable by the claimant—not just a reasonable hire charge for the machine.138 Where the conversion is cynical this seems justified.

iv.  Defences: Allowances for Improvements and Change of Position Improvements made where defendants honestly believed themselves entitled can be given credit for the improvements.139 Section 6(2) of the 1977 Act provides that where a defendant has purchased the asset in good faith from the improver, the court can make these same allowances. In Glencore v MTI140 Moore-Bick J said: The owner of goods which are wrongfully taken and used to make a new commodity can recover them from the wrongdoer, even in their altered form, if he can identify them in that new commodity and show that it is wholly or substantially composed of them. In such cases the work carried out on the goods by the wrongdoer, as well as additions of small amounts of his own materials, are treated as attaching to the goods by accession.141

133  See eg A Beever ‘Justice and Punishment in Torts: A Comparative Theoretical Analysis’ in C Rickett (ed) Justifying Private Law Remedies (Oxford, Hart, 2008) 249; contra J Edelman ‘In Defence of Exemplary Damages’ in C Rickett (ed) Justifying Private Law Remedies (Oxford, Hart, 2008) 225. 134  [2002] 1 AC 221. 135  ibid [109]. 136  Green and Randall, The Tort of Conversion (2009) (n 6) 192–94. 137  Hillesden Securities v Ryjack Ltd [1983] 1 WLR 959. 138  Olwell v Nissen & Co 173 P 2d 652 (1942); J Edelman, Gain-Based Damages (Oxford, Hart, 2002) 139–40. 139  Torts (Interference with Goods) Act 1977 s 6(1). 140  Glencore v MTI [2001] 1 Lloyds Rep 284. 141  ibid 328.

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The claimant is able to claim ownership of the new thing including the accretions. An honest converter may, however, recover under the rules in section 6. If the wrongdoer’s asset is the greater, the wrongdoer appears to obtain good title to the acceded asset, but will still have to pay damages to the other party. There has been a question as to whether conversion is subject to change of position or not. Change of position is a defence to unjust enrichment claims. Lord Nicholls in Kuwait Airways suggested that anyone who converts goods should be accountable for the benefits that they receive and make restitution to the extent they are unjustly enriched.142 Bridge has suggested that damages for the tort already cover this.143 The fact therefore that conversion does aim, to some extent to vindicate title, and to reverse the defendant’s gain,144 and the fact that conversion can be committed completely innocently, suggest that change of position should be made available,145 although to date no case has ever decided as much.

v.  Delivery Up Historically it is said that the common law had no vindicatio action.146 A vindicatio action is an action in the form, ‘That’s mine.’ Originally, it was a Roman law action and despite its form always gave rise in classical law to a judgment in money—the condemnatio pecuniaria.147 Conversion is not in form that complaint, but a demand for damages for interfering with the claimant’s superior rights to possess. Partly this is due to the relative nature of title in English law and the absolute nature of ownership under Roman law. However, it still surprising that the courts had no way of ordering the delivery of the chattel for the old tort of detinue (abolished and essentially replaced by conversion by section 2 of the Torts (Interference with Goods) Act 1977) until the Common Law Procedure Act 1854. Even then the order to deliver would not be made unless damages were inadequate. The Torts (Interference with Goods) Act 1977 retains the remedy of delivery up in section 3(2), but does not affect how it is dealt with. Usually therefore delivery up is ordered only where damages are inadequate,148 and the discretion to make such orders has been very sparingly exercised by the courts.149 If there is to be such an order, there is no obligation that the defendant should physically move the goods. It is sufficient if the defendant allows the claimant to collect them.150 The defendant may also elect to deliver the goods up.

vi. Injunctions Where damages are inadequate, an injunction may be sought. In the usual case this will be because the claimant wishes to prevent the defendant from behaving wrongfully in the first place. In Calor Gas Ltd v Homebase Ltd151 the claimant supplied liquefied petroleum gas in 142 

Kuwait Airways [2002] UKHL 19, [2002] 2 AC 883, 1093. Property Law (2015) (n 2) 117. 144  Tettenborn, ‘Conversion, Tort and Restitution’ (1998) (n 3) 825. 145  S Hedley, Restitution: Its Division and Ordering (London, Sweet and Maxwell, 2001) 155–56. 146  OBG Ltd v Allan [2007] UKHL 21, [2008] 1 AC 1, 87 (Baroness Hale). 147  B Nicholas, An Introduction to Roman Law (Oxford, Clarendon Press, 1962) 101–02. 148  S Worthington, Personal Property Law: Text and Materials (Oxford, Hart, 2000) 580; Clerk and Lindsell (2014) (n 40) paras 17.89–17.90. 149  Green and Randall, The Tort of Conversion (2009) (n 6) 207–08; there may be a residual common law power to order redelivery; Capital Finance Co of Australia Ltd v CEO of Customs [2007] NSWSC 1367. 150  William Leitch & Co v Leydon [1931] AC 90 (HL) 106 (Lord Blanesburgh). 151  Calor Gas Ltd v Homebase Ltd [2007] EWHC 1173. 143 Bridge, Personal

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refillable cylinders. The defendant was a retailer of such cylinders. The defendant terminated its contract with Calor Gas which responded by seeking an injunction preventing the defendant’s misuse of cylinders brought back by customers. Henderson J accepted that on termination of the bailment the claimant company had an immediate right to possess the cylinders and the defendant’s actions in storing and using them in defiance of that was a clear conversion.152 He granted an interim injunction restraining Homebase from accepting returned cylinders from customers. Final injunctions restraining misuse of assets are also available.

vii. Recaption:153 Self-Help Remedies One important non-statutory remedy for conversion is recaption. This is a self-help remedy in cases where the other party’s initial possession was unlawful. Essentially it permits the owner of an asset to go and collect the asset from the converter; in some cases this may be obligatory to mitigate the claimant’s loss where it can be done relatively simply and without risk.154 It appears that force may be used, although the means used to recover must be reasonable. One of the more difficult cases is whether entry upon the land of another is permissible. Can, therefore, the exercise of the right of recaption be a defence to a trespass to land claim?155 In some cases it appears that the answer to that question is yes,156 at least where it can be done without serious damage to the other party’s land and the goods are shown to have got there by the latter’s hands. Indeed if it were not, the right would be largely nugatory.

III.  Trespass to Goods The difference between conversion and trespass to goods was explained by Atkin LJ in Sanderson v Marsden & Jones157 as follows. Conversion requires the defendant to act inconsistently with the owner’s rights and must evidence an intention to deprive him or her of those rights or assert those rights for him or herself, but a trespass can be much slighter in effect and includes any direct act disturbing the claimant’s possession however small or insignificant, and requires no intention to assert rights over the asset.158 Consequently, trespass can be sued on by either a party in actual possession or by a party entitled to demand immediate possession in the same way as an action for conversion can.159 Trespass to goods is therefore much easier to commit than conversion, but it still comes within the rubric of interference 152 

ibid [36]–[40]. Aitken, ‘The Abandonment and Recaption of Chattels’ (1994) 68 Australian Law Journal 263, 274–79; L Aitken, ‘Recovery of Chattels in the Common Law and Civil Law: Possession, Bailment and Spoliation Suits’ (2008) 82 Australian Law Journal 379; C Branston, ‘The Forcible Recaption of Chattels’ (1912) 28 LQR 262. 154  Uzinterimpex JSC v Standard Bank Plc [2008] EWCA Civ 819, [2008] 2 Lloyds Rep 453, 471 (Moore-Bick LJ); Green and Randall, The Tort of Conversion (2009) (n 6) 211. 155 Bridge, Personal Property Law (2015) (n 2) 122. 156  Patrick v Colerick (1838) 3 M&W 483, 150 ER 1235; Antony v Haney (1832) 3 Bing 187, 131 ER 372; Blade v Higgs (1861) 10 CB NS 713, 142 ER 634; Toyota Finance Australia Ltd v Dennis [2002] NSWCA 369, (2002) 58 NSWLR 101. 157  Sanderson v Marsden & Jones (1922) 10 Lloyds Rep 467 (CA) 472; Bushel v Miller (1718) 1 Str 128, 93 ER 428; Green and Randall, The Tort of Conversion (2009) (n 6) 63. 158  Penfolds Wines v Elliott (1946) 76 CLR 204 (HCA) 218 (Latham CJ). 159  ibid 242 (Williams J). 153  L

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with goods and the common rules of the Torts (Interference with Goods) Act 1977 will still therefore apply, relating to double liability, joinder, co-ownership and extinction of title. This section first examines the elements of trespass and then the remedies available.

A.  Elements of Trespass The tort of trespass to goods protects individuals against direct—and not indirect— interference with their possession of assets, so directly feeding poison to a dog is trespass, but simply leaving it for them to find is not.160 The interference must be deliberate in the sense of intentional. Douglas attempts to rationalize the law. He argues that the direct interference requirement no longer makes a great deal of sense, and that the cases have re-­oriented the law to a requirement of intentional interference. Douglas’ view has the advantage of allowing the same dividing line between trespass and negligence as between conversion and negligence, and to align trespass and conversion as strict liability torts requiring intentional action.161 Intention in the context of trespass, as in conversion, means that the defendant must intend to interfere with the chattel, but need not intend to cause harm.162 In Penfolds Wines v Elliott163 the appellants made wine and sold it in bottles, title to which they retained. The respondents sold wine in bulk to some customers and allowed the wine to be placed in the appellants’ bottles. Latham CJ said that the mere intentional taking or asportation of the claimant’s goods was a trespass.164 In National Coal Board (NCB) v JE Evans & Co (Cardiff) Ltd165 an electric cable had been placed under the council’s land, which did not know of the cable. The council contracted the defendants to dig a trench and provided a plan which did not show the cable. Damage resulted to the cable. The Court of Appeal held that there was no liability as the damage had been wholly accidental. They also pointed to the NCB’s trespass in laying the cable in the first place. In Kirk v Gregory166 it was held that where a party took jewellery from one room of a house to another that could be trespass. However, Bramwell and Amphlett BB held that where such asportation was necessary to keep the items safe and was carried out in a reasonable manner, there could be a defence. This is the defence of necessity, which is a defence to intentional torts generally.167 In general, however, asportation or detention of an asset with no material damage is a trespass to goods.168 It would only be a conversion if there were an intention to exercise control over them to the exclusion of others.169 In Wilson v Lombank170 the claimant bought a car from a vendor with no title to sell. He asked a garage to do repairs, which were completed, but the defendant, believing it to be his car, 160  M Bridge, L Gullifer, G McMeel and S Worthington (eds) The Law of Personal Property (London, Sweet and Maxwell, 2013) para 16.004; Hutchins v Maugham [1947] VLR 134. 161  Douglas (2011) (n 42) 107–110. 162  Ibid 112–114; something also accepted, despite their references to “direct” interference by Bridge et al (n 160) para 16.007 163  Penfolds Wines v Elliott (1946) 76 CLR 204 (HCA). 164  ibid 214. 165  National Coal Board v JE Evans & Co (Cardiff) Ltd [1951] 2 KB 861 (CA). 166  Kirk v Gregory (1876) 1 Ex D 55. 167  S Deakin, A Johnston and B Markesinis, Markesinis and Deakin’s Tort Law, 7th edn (OUP Oxford 2013) 780. 168  Vine v Waltham Forest LBC [2000] 1 WLR 2383 (CA) regarding wheel clamping of a car. 169  Penfolds Wines v Elliott (1946) 76 CLR 204 (HCA) 214–218 (Latham CJ). 170  Wilson v Lombank [1963] 1 WLR 1294; Deakin, Johnston and Markesinis, Markesinis and Deakin’s Tort Law (2013) (n 167) 389.

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took it from the forecourt. The defendants then realised it was not their car, but delivered it to the true owner. This was held to be no defence to an action for trespass. The claimant always had a right to possess the car and his claim was not defeated by the delivery to the true owner. However, section 8 of the Torts (Interference with Goods) Act 1977 provides that superior rights of a third party can be set up as a defence to claims of wrongful interference with goods. The question of ‘cyber-trespass’ has come up in the context of spam emails, spyware and internet pop-up advertisements, and has been particularly widely discussed in the United States. These things can be said to physically affect the users’ computers—particularly spyware which is a form of unwanted software or pop-ups where a program automatically causes the computer to act in a particular and unwanted manner. We have seen earlier in this chapter that databases cannot be subject to a possessory lien. As such it seems unlikely that the operation of computer files or programs will count as having sufficiently tangible effects to ground either a conversion or a trespass claim in England. That said, other torts may be available,171 in particular under the Privacy and Electronic Communications (EC Directive) Regulations 2003.

B. Remedies Given that trespass will not always involve taking the goods away, orders for delivery up may be less common than under conversion. Damages and injunctions prohibiting further trespassory action will be more common. The remedy for the tort is the recovery of damages for the loss, destruction or depreciation of the goods and losses from being deprived of its use, including any loss of profits. Damages can obviously be compensatory where loss has been caused to the claimant through physical damage to his or her property. There is authority to the effect that pure economic loss can be claimed in trespass.172 Deliberate trespass may be actionable per se without proof of special damage.173 There is also good authority that the damages for trespass to goods can be based on the benefit received by the defendant. Gain-based damages are available for the loss of the use of the asset, as they are in cases of conversion. In these circumstances it is uncontested that the claimant may recover the sum the defendant would have had to pay for the right to do as he or she did. In Strand Electric & Engineering Co v Brisford Entertainments Ltd,174 Lord Denning MR opined that where the defendant had made use of the asset during its tortious detention, the claimant could have restitutionary damages based on the hire value of the asset for the period. He said: A wrongdoer has made use of goods for his own purposes, then he must pay a reasonable hire for them, even though the owner has in fact suffered no loss. It may be that the owner would not have 171  G Wilson, ‘Internet Pop-ups: Your Days are Numbered’ (2004) 24 Loyola of Los Angeles Entertainment Law Review 567; D Garrie, A Blakley and MJ Armstrong, ‘The Legal Status of Spyware’ (2006) 58 Federal Communications Law Journal 157. 172  Transco Plc v United Utilities Water Plc [2005] EWHC 2784. 173  Penfolds Wines v Elliott (1946) 76 CLR 204 (HCA). 174  Strand Electric & Engineering Co v Brisford Entertainments Ltd [1952] 2 QB 246 (CA); Whitwham v Westminster Brymbo Coal & Coke Co [1896] 2 Ch 538; Swordheath Properties v Tabet [1979] 1 WLR 285; AS Burrows, The Law of Restitution, 3rd edn (Oxford, OUP, 2011) 648–49; Virgo, The Principles of the Law of Restitution (2015) (n 99) 449; note that the pre-1977 cases are often cases of detinue relied on in both conversion and trespass cases since.

Replevin and Reversionary Injury 205 used the goods himself, or that he had a substitute readily available, which he used without extra cost to himself. Nevertheless the owner is entitled to a reasonable hire. If the wrongdoer had asked the owner for permission to use the goods, the owner would be entitled to ask for a reasonable remuneration as the price of his permission. The wrongdoer cannot be better off because he did not ask permission.175

Can the claimant also recover the defendant’s actual profits? There are a set of nineteenth century trespass to land cases which should be generalised to trespass to goods. In those cases the defendant typically removes coal from the claimant’s land. As well as a wayleave for the use of the land—restitutionary damages—the defendant was also liable for the value of the coal.176 Arguably, this is conversion of the coal once it is removed from the land and turned into a chattel and therefore the value of the coal is an appropriate loss-based remedy. However, in principle if there is a cynical trespass (not amounting to a conversion) which generates actual profits in the defendant’s hands they should be recoverable. It appears that both aggravated and exemplary damages are available for deliberate trespass to goods. Redelivery of the asset in cases where it was removed may not affect damages in trespass,177 although as we have seen credit will be given for this in the case of damages for conversion.

IV.  Replevin and Reversionary Injury The origin of reversionary injury lies in two points. First, the co-owner was unable to sue other co-owners for conversion at common law. This, as we have seen, is no longer the case. However, a party with no right to immediate possession, such as a bailor for a fixed term, also had no action in conversion. This action, labelled reversionary injury by Clerk and Lindsell,178 therefore lies in cases where the act would be actionable were the claimant to have such a right to immediate possession and actual damage to the claimant’s interest is caused. It is a residuary type of liability aimed at mopping up situations where otherwise no liability would lie despite the clear nature of the claimant’s loss. It is only actionable on proof of loss; it is not actionable per se. It is therefore a vital part in the owner’s arsenal of remedies despite its obscure nature. In fact it ought not to be obscure. Green and Randall suggest quite correctly that while conversion protects rights to possession, reversionary injury protects the superior proprietary right which need not be linked with any possessory rights in the sense of superior rights to immediate possession.179 Nonetheless, and despite Andrew Tettenborn’s attempts to shine some light on the tort,180 it remains very rarely discussed. In Mears v L & SWR,181 it was held that the owner of a barge hired out to a bailee for a term which had not expired, was still able to sue for damage done negligently to the barge 175 

Strand Electric [1952] 2 QB 246 (CA) 254. Damages (2002) (n 138) 137–39; Martin v Porter (1839) 5 M&W 351, 151 ER 149. 177  A Hudson, ‘Trespass to Goods’ in E McKendrick and N Palmer (eds), Interests in Goods, 2nd edn (London, LLP, 1998) 809, 819–20. 178  Clerk and Lindsell (2014) (n 40) para 17.148–17.149. 179  Green and Randall, The Tort of Conversion (2009) (n 6) 47–48. 180  Albeit under a different name; A Tettenborn, ‘Reversionary Damage to Chattels’ (1994) CLJ 326. 181  Mears v L & SWR (1862) 11 CBNS 850, 142 ER 1029. 176 Edelman, Gain-Based

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by the defendant despite having no immediate right to possession. A term bailor or pledgor may therefore sue in reversionary injury if damage is caused. A similar case is HSBC Rail (UK) Ltd v Network Rail Infrastructure Ltd,182 where a train was damaged in a derailment. The relevant train operating company was compensated, but the bailor of the train, the claimant leasing company, also wished for compensation. The Court of Appeal held that a bailor without possession, or an immediate right to possession, only had a limited interest. This does not prevent the bailor from suing; they acknowledged there is a residual tort to protect the claimant from damage to his or her reversionary interest. The Court said, however, that there was no need for such a bailor to be compensated if the goods had been repaired, and therefore no loss had been caused. This actual damage may include permanent or temporary removal of the benefit of the reversionary interest. Both of the cases discussed are predicated on negligence. If there was no negligence there would have been no cause of action. Reversionary injury, however, does not always need negligence. In Tancred v Allgood183 the claimant was the owner of goods hired out to a bailee for an unexpired term. The claimant had no right to immediate possession and hence no right to sue in conversion. Nonetheless, when the defendant sold the goods to satisfy one of the bailee’s creditors the claimant was able to sue for damage to the reversionary interest. Tettenborn draws a distinction between these cases, calling the former quasi-negligence and the latter quasi-conversion.184 In reality it may be more useful to treat it as one tort which is actionable in different circumstances. If the asset is damaged, negligence need be proven; if lost or the defendant asserts rights to the exclusion of all others, it need not be. There are said to be two difficult cases concerning reversionary injury. Tettenborn points to the pledgor and mortgagee.185 In fact both of these parties should be seen as paradigm examples of the type of person who needs the tort. We have already seen that a bailor for a fixed term can sue in reversionary injury and that the bailor cannot sue in conversion. A pledgor is no more than a bailor with a conditional right to possession. There is no discernible distinction with Mears v L & SWR. This is borne out by Halliday v Holgate.186 ­Bentley held scrip certificates and borrowed a sum of money from the defendant, depositing the certificates with the defendant as security. The defendant sold 10 of the 15 scrip certificates to recoup the debt. The claimant, who was A’s trustee in bankruptcy could not sue in conversion because Bentley and therefore the claimant had had no immediate right to possess. However, Willes J commented that if the defendant had disposed of the reversionary right of the pledgor, an action might be available on proof of damage.187 Similarly, a mortgagee has a conditional right to possession on the mortgagor’s default and if damage is caused to the asset over which he or she has legal title, a cause of action should lie. Replevin188 is a summary process by which a party may obtain an order for the return of goods taken from him or her until the right to them has been determined. There is now

182 

HSBC Rail (UK) Ltd v Network Rail Infrastructure Ltd [2006] 1 All ER (Comm) 345 (CA). Tancred v Allgood (1859) 4 H&N 438, 157 ER 910; Dean v Whittaker (1824) 1 C&P 347, 171 ER 1225; S Green, ‘Understanding the Wrongful Interference Actions’ (2010) Conv 15, 21–25. 184  Tettenborn, ‘Reversionary Damage to Chattels’ (1994) (n 180) 330. 185  ibid 332. 186  Halliday v Holgate (1868) LR 3 Ex 299. 187  ibid 302. 188  See D Brennan, ‘Replevin and the Paradox of English Chattel Property’ (2008) 37 Common Law World Review 337; Hudson (n 3) 870; Green and Randall, The Tort of Conversion (2009) (n 6) 10. 183 

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a statutory process governed by section 144 of the County Courts Act 1984 for replevin,189 although there is also a statutory procedure for interim judgments for return of chattels under section 4 of the Torts (Interference with Goods) Act 1977. Markesinis and Deakin suggest that there is only a limited role for the common law process.190

V. Conclusion Conversion is a confused and confusing tort. It has a number of different functions, all rolled into one tort. That makes it difficult to describe except by references to examples, but some things seem clear. It protects the right to possess property—it protects either actual or constructive possession, however obtained, and is a strict liability tort. Any intentional act which does in fact interfere sufficiently with the right to immediate possession will generate a remedy. Lesser intentional interferences with rights to possess may be trespasses to goods. The real difference between the torts is the degree of interference, and Douglas has argued that this be reflected in the remedy, not the cause of action. He proposes a single wrongful interference tort therefore,191 something also proposed in the eighteenth report of the Law Reform Committee.192 Certainly the actions are similar enough that unification is possible, and as Douglas also points out, the Torts (Interference with Goods) Act 1977, which emerged as a response to the LRC’s report, provides for considerable harmonisation. There are also two minor actions—reversionary injury which can be sued on damage by those not immediately entitled to possession, and common law replevin which may no longer have a role, but has largely been supplanted by section 4 of the 1977 Act.

189 

Clerk and Lindsell (2014) (n 40) paras 17.152–17.153. Markesinis, Johnston and Deakin, Markesinis and Deakin’s Tort Law (2013) (n 167) 399. 191  Douglas (2011) (n 42) ch 7. 192  Law Reform Committee Conversion and Detinue (LRC no 18 1971) 3–8. 190 

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9 Protection of Equitable Title: Remedies for Misdirected Property I. Introduction This chapter is concerned with the case in which a trustee (T) holds property on trust for the beneficiary (B). T transfers an asset—100 British Telecom shares, for example—subject to the trust to a third party (C). That transfer is, for whatever reason, in breach of trust. The trustee is not authorised by the terms of the trust to make the transfer. Despite this, it is well established that legal title to the property passes to the transferee.1 However, this raises the question as to whether B is able to make a claim against the assets in C’s hands. The beneficiary ideally wants a proprietary claim; proprietary claims have two main advantages over personal claims in that they give the claimant priority in the defendant’s insolvency and allow the claimant to claim accretions in value. The latter means that should the asset, or a substitute for the asset, rise in value, the claimant will be able to claim the increase in value, and not merely the value that he or she initially lost. There are also possible personal claims. The recipient may also be liable in a claim for knowing receipt. Indeed, even where the third party has not received the asset the party may still be liable if he or she has dishonestly assisted the breach of trust. Those personal claims are dealt with only briefly in this chapter; dishonest assistance in particular cannot be described as peculiarly a ‘personal property’ claim. Further and unlike conversion they are dealt with adequately elsewhere. The beneficiary clearly also has a claim against the trustee that he or she account for any misapplied assets.2 This is again dealt with in more detail in trust law textbooks, and will not be covered here. The trust beneficiary’s rights therefore persist in the asset in the hands of third parties. The beneficiary’s rights also persist in substitute assets. If C swaps the trust asset for another asset, this does not immunise C from the possibility of a proprietary claim. It is not only equitable rights that can persist in this way. It has been suggested3 that the legal owner of property may trace into substitutes and claim priority in the defendant’s insolvency. This chapter is divided into three sections. The first section examines the tracing rules. Tracing is a means of breaking evidential difficulties, caused for example by mixtures and

1 

Rolled Steel Products v British Steel [1986] Ch 246, 304. Re Dawson [1966] NSWR 211; Target Holdings Ltd v Redferns [1996] AC 421 (HL); AIB Group v Mark Redler & Co [2014] UKSC 58, [2015] AC 1503; S Worthington, Personal Property Law: Text and Materials (Oxford, Hart, 2000) 638–42. 3 Worthington, Personal Property Law (2000) (n 2) 482. 2 

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mixed substitutions. If money is put in a bank account by several people and a yacht is then bought from money taken from the bank account, there is no obvious way of saying who has contributed what or how much to the purchase of the boat. The second section looks at the proprietary claim of both the trust beneficiary and in one specific case a claimant with a legal interest. The third section examines briefly the personal claims open to the beneficiary.

II. Tracing The tracing rules are said to be rules of evidence used to identify substitutes and mixtures as the product of the claimant’s original asset. If the claimant identifies his or her original asset, this is said to be following. If therefore in our original example B chooses to raise a claim against C for the exact asset, the British Telecom shares, transferred by T that is a case of following. If, however, B chooses to pursue C for the £10,000 he or she obtained when he or she sold the shares subsequently, that is tracing. The original trust assets were shares not money. That makes it appear as if tracing is a remedy. That is not so. Lord Millett was very clear in Foskett v McKeown that tracing is not a remedy. He said: Tracing is neither a claim nor a remedy. It is merely the process by which a claimant demonstrates what has happened to his property, identifies its proceeds and justifies his claim that the proceeds can properly be regarded as representing his property…But it does not affect or establish his claim…He will normally be able to maintain the same claim to the substitute asset as to the original asset.4

There is therefore an important analytical difference between tracing and claiming. Tracing is linked to no particular cause of action. Indeed, we can trace even if we have no cause of action, although it is at best unclear why we would want to. Lord Millett drew an important conclusion from this. There are said to be two types of tracing rule. There are common law tracing rules and equitable tracing rules. Traditionally it is said that common law tracing is very limited, and equitable tracing more expansive. However, it is also said that there needs to be a fiduciary relationship, or equitable proprietary interest, present before the claimant can resort to the rules of equitable tracing. In Agip (Africa) Ltd v Jackson,5 for instance, the claimant’s chief accountant had acted in breach of his fiduciary duty that he owed to the claimant company. He distributed misapplied money through the electronic banking system to various companies around Europe. Fox LJ decided that common law tracing could not help the claimants because it could not trace through electronic transfers.6 However, he did decide that the chief accountant was a fiduciary. The claimant’s money could therefore be traced in equity. Although the result of the case is clearly right, the need for a fiduciary relationship as a prerequisite for equitable tracing has been challenged. Birks and Burrows, writing separately, have argued that there ought to be a unitary

4  5  6 

Foskett v McKeown [2001] 1 AC 102 (HL) 128. Agip (Africa) Ltd v Jackson [1992] Ch 540 (CA). ibid 565.

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set of rules.7 This view has become something of an academic commonplace and Lionel Smith has argued: When a plaintiff wishes to conduct the exercise of tracing, he wishes to establish that the value inherent in his asset has been used to acquire another asset. That alone neither gives nor denies jurisdiction to…a court exercising equitable jurisdiction…it is an exercise that is neither peculiarly equitable nor peculiarly legal.8

Lord Millett denied in Foskett that there was a difference between the two sets of rules, although he expressly refused to decide the issue. Indeed in Foskett v McKeown he did not need to decide the matter. The facts of that case were that Murphy, the trustee, misappropriated funds from the trust to pay life assurance premiums on his own life. Subsequently he committed suicide and the insurance company paid out on the policy. The trust beneficiaries succeeded in obtaining a right to 40 per cent of the payout. However, as trust beneficiaries they were easily able to demonstrate that a fiduciary relationship existed. The basis for the argument is that the presence or otherwise of a fiduciary relationship can only be relevant to the existence of a cause of action. It is only relevant to whether a claim can be made, but if the rules of tracing are simply rules of evidence there is no valid reason to require any fiduciary relationship, or to confine common law claims to common law tracing.9 To do so is to distort fiduciary relationships. The reason is that if the courts find a meritorious claim, but cannot use equitable tracing, they will often manufacture a fiduciary relationship. A good example of this is Westdeutsche Landesbank Girozentrale v Islington LBC. Lord Browne-Wilkinson stated that a thief would be a fiduciary enabling the original owner to trace in equity.10 Yet, thieves are not fiduciaries and nor are they trustees.11 However, Rimer J at least formally maintained the distinction in Shalson v Russo.12 This is again obiter since Rimer J found a fiduciary relationship and proceeded to trace in equity. The two sets of claimants argued that Russo had fraudulently induced them to enter into transactions and ultimately had obtained £19.45 million from the Shalson claimants and $7.5 million from the Mimran claimants. They attempted to trace that money. Mimran argued that there was a constructive trust but failed; however, the alternative argument that they had a power to vest title in the traceable substitute in themselves succeeded. They could do so because they had a right to rescind the initial transaction for fraud, which gave a right to trace in equity.13 The law is slowly changing, but it is fair to say that the fiduciary relation requirement is still present in English law although perhaps supplemented by an alternative requirement of an equitable proprietary right. The first section therefore sets 7  PBH Birks, ‘On Taking Seriously the Difference between Tracing and Claiming’ (1997) 11 Trust Law International 1; AS Burrows, The Law of Restitution, 3rd edn (Oxford, OUP, 2011) 120–21. 8  LD Smith, The Law of Tracing (Oxford, OUP, 1997) 121–22. 9  J McGhee (ed), Snell’s Equity, 33rd edn (London, Sweet and Maxwell, 2015) para 30.054; at para 30.052 the editor comments that the distinction has diminished in importance. 10  Westdeutsche Landesbank Girozentrale v Islington LBC [1996] AC 669 (HL) 715–16. 11  R Chambers, ‘Trust and Theft’ in E Bant and M Harding (eds), Exploring Private Law (Cambridge, CUP, 2010) 223. See chapter seven, part II. 12  Shalson v Russo [2003] EWHC 1637, [2005] Ch 281, 314; Bank of America v Arnell [1999] Lloyds Rep Banking 399. There is a hint that equitable tracing is available to impose a trust on proceeds for the benefit of a legal title holder in Credit Agricole Corporation and Investment Bank v Papadimitriou [2015] UKPC 13, [2015] 2 All ER 974, but the distinction between the two types of tracing is referred to in FHR European Ventures v Mankarious [2014] UKSC 45, [2014] 3 WLR 545. 13  Shalson v Russo [2003] EWHC 1637, [2005] Ch 281, 321; Lonrho v Fayed (no 2) [1992] 1 WLR 1.

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out the common law tracing rules and where they are used, and the second sets out the equitable rules. The third section looks at the remedies available. These are closely linked to the tracing rules.

A.  Common Law Tracing This section sets out the common law tracing rules. These rules will be used where the claimant is seeking to take advantage of a common law cause of action and cannot demonstrate the existence of a fiduciary relationship.

i.  Physical Substitutions and Mixtures The common law allows tracing through substitutions in limited circumstances. Taylor v Plumer14 is usually taken to be the foundation for the common law exchange product rule—that the claimant can take an interest in cleanly exchanged substitute assets. There is a strong view, however, that it decided no such thing and in fact the Court of King’s Bench decided the question on Plumer’s equitable rights, and therefore historically the supposed divide between common law and equitable tracing is an error.15 That said, however, just because Taylor might have been about equitable rights does not mean the common law does not countenance such claims; it does appear to do so, as Millett LJ said in FC Jones v Jones.16 A clean substitution is a substitution where no mixture takes place. A mixed substitution is the opposite—an example would be the case where the trustee (T) makes an unauthorised gift of £1000 to the third party (C). C uses that £1000 and £1000 of his own money to purchase a second hand car. C has mixed his money with that derived from the trust and then substituted it for the car. Taylor v Plumer was a case of a clean substitution. Walsh was the claimant’s, Sir Thomas Plumer’s, agent and bought bullion and American stock, which he intended to use for his own purposes with the proceeds from cheques made out to Plumer. Walsh was later declared bankrupt. His assets therefore transferred to his trustee in bankruptcy, Taylor. The question for the Court was whether the bullion and stock was Sir Thomas’ or belonged to Taylor, Walsh’s trustee in bankruptcy. Lord Ellenborough said that property given to an agent for a specific purpose remained the property of the principal so long as it was identifiable and distinguished from other property.17 The cheques that Walsh had misused were therefore at all times Plumer’s property. The right to the property remained so long as the thing could be ascertained. It ceased when the means of ascertaining or deciding what piece of property belonged to the claimant failed. This, he said, would be so where the property was sold and the money was mixed with other money of the defendant’s in a general mass.18 Lord Ellenborough referred to this as monies having no earmark. Here there was no mixture. The bullion had been bought without any extra

14 

Taylor v Plumer (1815) 3 M&S 562, 105 ER 721. LD Smith, ‘Tracing in Taylor v Plumer: Equity in the Court of King’s Bench’ (1995) LMCLQ 240; S Khurshid and P Matthews, ‘Tracing Confusion’ (1979) 95 LQR 78. 16  FC Jones v Jones [1997] Ch 159 (CA) 169; LD Smith, ‘Taylor v Plumer’ in C Mitchell and P Mitchell (eds), Landmark Cases in the Law of Restitution (Oxford, Hart, 2006) 39, 61–62. 17  Taylor v Plumer (1815) 3 M&S 562, 105 ER 721, 726. 18  ibid 726. 15 

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money of Walsh’s. It therefore belonged to Sir Thomas. The common law can therefore trace money only through straight substitutions. However, cases suggest the common law is not so helpless in fungible property scenarios where the contributors become owners in common at law in undivided shares.19 A mixture of corporeal money, however, never produces a legal tenancy in common.20 Tenancy in common is a concept we came across in chapter one, and the relevant rules here are those of commingling, which comes in two types, confusion and commixtion depending on whether the mixture is of inseparable or separable substances respectively—typically fluids or granular substances. Tenants in common are said to hold in undivided shares. Division means physical division. There is no physical division between what the parties own. As an example, in Mercer v Craven Grain Storage21 a farmers’ co-operative agreed to store the growers’ grain for 10 years. Each member of the co-operative signed a similar agreement. On receipt by the society, the grain of one member was intermixed with grain of the same grade contributed by other members, and some from depositors who were not members. The commingled mass was continually drawn upon and replenished. Each member was given a receipt showing the weight and grade deposited. Problems arose when the co-op failed to redeliver wheat to certain growers. They claimed damages, and the co-op argued that they had lost title to the wheat. The question obviously arose as to whose grain was taken and whose grain remained behind. Wheat is fungible, and the case was one of innocent commixtion. The competing innocent parties were therefore said to hold as tenants in common, which we saw in chapter one, part III A ii. The House of Lords stated that the contributors, the wheat growers, owned the mixture in proportion to their contributions. However, if the tangible asset is lost entirely through the manufacture (specificatio) of an entirely new product it cannot be traced at common law, although Worthington has criticised this result as not in tune with modern policy needs,22 there being little reason why the product cannot be held on a legal tenancy in common calculated on the value of the inputs. The basis for the difficulty is the common law’s singular focus on the identifiability of the original asset. In some cases where the manufacture of a new asset is unauthorised, the party whose goods were wrongfully used may own the entire new asset. In Jones v de Marchant23 a fur coat made largely but not entirely from the manufacturer’s wife’s fur stoles was given to his mistress. Because the Court decided that selling the coat and dividing the proceeds by the value of the goods used was impossible, the wife was given the full ownership of the coat.

ii.  Bank Accounts The position appears to be different in cases where funds are transferred through bank accounts. The common law does not deal with this exceptionally common situation very well except in

19  F Sandeman & Sons v Tyzack & Branfoot Steamship Co [1913] AC 680; Spence v Union Marine Insurance Co (1868) LR 3 CP 427. See M Bridge, L Gullifer, G McMeel and S Worthington (eds) The Law of Personal Property (London, Sweet and Maxwell, 2013) paras 9.016–9.032. 20  D Fox, Property Rights in Money (Oxford, OUP, 2008) paras 7.29, 7.71–7.81. 21  Mercer v Craven Grain Storage [1994] CLC 328; LD Smith, ‘Bailment with Authority to Mix and Substitute’ (1995) 111 LQR 10. 22  S Worthington, Proprietary Interests in Commercial Transactions (Oxford, OUP, 1996) 142–43. 23  Jones v de Marchant (1916) 28 DLR 561; Foskett v McKeown [2001] 1 AC 102 (HL) 133 (Lord Millett).

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unusual circumstances. The difficulty that the common law has with cases where money is put in a bank account is illustrated well by Agip (Africa) Ltd v Jackson.24 The claimants were an oil company drilling in Tunisia. They maintained a dollar denominated account at a bank in Tunis. Their chief accountant perpetrated a fraud and money was electronically transferred to different third party recipients in Europe. In the last case the bank receiving the payment had already credited its customer when the request for repayment came in. The third party customer refused to repay the claimant and instructed that further transfers be made to fourth and fifth party recipients to satisfy its own obligations. We have already seen that the common law right to trace was defeated when the claimant’s money was mixed with other money in a bank account. Further, the claimant could not trace any money leaving the account in Tunis for other destinations. The common law cannot trace through electronic funds transfers. Interestingly, FC Jones v Jones25 illustrates a case in which the common law seems able to use its rules to deal with the use of bank accounts. A firm of potato growers went bankrupt. After the bankruptcy one of the partners withdrew money from the firm’s account and gave it to his wife who placed it in a new account with a broker and made a considerable sum speculating in potato futures. The Court said that the firm’s trustee in bankruptcy could trace into the proceeds of the defendant’s dealings. Here, however, there was a clean substitution. The money withdrawn from the firm’s account was substituted for the profits from the dealings and placed in a separate and new bank account. There was no mixing of money with Mrs Jones’ own. More importantly at every stage of the process there was a cheque. She paid for futures with a cheque and the profits were paid to her by cheque. A cheque is a physical piece of paper, albeit one representing a right to be paid—it is a documentary intangible, which we looked at in earlier chapters on basic principles, and negotiable instruments (chapters one and six). The twin facts that there was always a document and that Mrs Jones put none of her own money in the account rendered the money traceable at law. In fact, the actual result in Jones is problematic because Millett LJ said that legal title to the bank account was vested in the firm.26 This is problematic because banks should be entitled to believe the party named as account holder can give a good discharge for the debt. On Millett LJ’s solution Mrs Jones could not. Had the bank paid out to her, it would still have found itself liable to the firm for the money. Lipkin Gorman v Karpnale27 provides some further support for the common law’s ability to trace through bank accounts. There Cass was a partner in the solicitors firm and stole money from the client account to gamble at the defendant’s club. He was bankrupt, and in prison for theft, so the firm sued the club. In the House of Lords the action was at common law, but the firm was able to trace out of the client account, albeit as a result of a concession on behalf of the club, into money physically in the hands of Cass and therefore to its receipt by the club. The firm then claimed the money back under an action for money had and received. Recent Canadian case law also suggests that the common law can trace through mixed bank accounts.28 In BMP Global Distribution Inc v Bank of Nova Scotia,29 the 24 

Agip (Africa) Ltd v Jackson [1992] 4 All ER 451 (CA); Bank Tejarat v HSBC [1995] 1 Lloyds Rep 239. FC Jones v Jones [1997] Ch 159 (CA); Banque Belge pour l’Etranger v Hambrouck [1921] 1 KB 321. 26  FC Jones v Jones [1997] Ch 159 (CA) 167–68. 27  Lipkin Gorman v Karpnale Ltd [1992] 2 AC 548 (HL). 28  D Fox, ‘Identification of Money at Common Law’ (2010) CLJ 28; M McInnes, ‘Forged Cheques, Tracing and Restitution in the Supreme Court of Canada’ (2009) 125 LQR 552. 29  BMP Global Distribution Inc v Bank of Nova Scotia [2009] SCC 15, (2009) 304 DLR (4th) 292; Z Sinel, ‘Causes of Action and Self-Help Remedies’ (2009) RLR 122. 25 

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claimants sold a business franchise paid for by a fraudulent cheque. The cheque proceeds were paid into a bank account with the Bank of Nova Scotia which was subsequently frozen. Part of the money was in fact returned to the Royal Bank of Canada (RBC) on which the fraudulent cheque was drawn, and BMP’s account debited accordingly. BMP to whom the cheque was paid took exception to the Bank of Nova Scotia’s action and bizarrely sued in breach of contract, saying that as an innocent party it should be allowed to keep the proceeds and the bank was in breach of contract by unwinding the transaction. As regards the account the cheque was initially paid into, BNS’ task was straightforward. The bank also had to prove that funds remitted to other companies in BMP’s corporate group were traceably derived from the fraud in order to defend itself from the allegation that it ought not to have returned money to RBC from those accounts. The Supreme Court of Canada argued that there was no bar at common law to tracing funds through bank accounts, so long as the money could be identified.30 Without admitting as much explicitly, Deschamps J in BMP Global Distribution began to fuse Canadian common law and equitable tracing, although it raises the question of the precise nature of the common law proprietary right in play. It is clear that RBC in this case could not be a legal tenant in common of BMP’s bank account. What would be necessary to make the rules work is for the common law to recognise a type of proprietary right allowing a claimant to enforce title to a mixed bank account in the same way that equity does. Fox suggests that the only way to do that is to compel the customer to pay over specific sums drawn from the account, which, he suggests, was the result in FC Jones v Jones.31

B.  Equitable Tracing This section can be divided into three. Equitable tracing allows the court to trace through intangible mixtures. In practice the claimant is usually attempting to trace through a bank account. However, there is no obvious means of deciding whose money is used to pay for what and in what order money paid in is paid out again. Intention, although not decisive, is relevant. In Relfo v Varsani,32 for instance, it was common ground that no specific transactions could be identified to show how a payment by Relfo to Mirren was translated into a separate payment by Intertrade on the same day to the defendant. Nonetheless, the Court of Appeal accepted that the inference could be made that one was the source of the other; although the parties’ intention that they be linked transactions could not per se prove a transactional or substitutional link it was a relevant factor.33 The idea in essence was that Mirren would provide reimbursement to Intertrade.34 It was possible therefore to look to the commercial or economic reality of the case. It is unclear, however, what this focus on commercial reality might entail.

30 

BMP Global Distribution [2009] SCC 15, (2009) 304 DLR (4th) 292, 320–26. Rights in Money (2008) (n 20) para 7.70. [2014] EWCA Civ 360. 33  ibid [56–57]; see the discussion of backwards tracing below B iii and in particular T Cutts, ‘Tracing, Value and Transactions’ (2016) 79 MLR 381. 34  ibid [62]; R Nolan ‘Civil Recovery after Fraud’ (2015) 131 LQR 8; S Watterson ‘Recovering Misapplied Corporate Assets from Remoter Recipients’ [2014] CLJ 496. 31 Fox, Property 32 

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Equity has also developed a set of presumptions to deal with cases where the wrongdoer’s and either the victim’s or victims’ (plural) money is mixed and we will concentrate in this section on explaining how those presumptions operate.

i.  Mixtures—Innocent Victim against Fiduciary Where the claimant is the trust beneficiary and the defendant the fiduciary, the latter will be presumed to have used the trust funds to the trust’s best advantage and it will be up to the wrongdoer to prove that could not have been the case. In Re Oatway35 Oatway was a trustee and paid £3000 of trust money into his own account. He bought shares with money from the account and drew out money for other purposes. It was held that he could not successfully argue that the shares were purchased from his money and the money dissipated and untraceable was trust money. Re Hallett36 was the other way round, and illustrates that the order in which the payments were made does not matter. In that case the dissipated and untraceable money was removed first after the trust money was paid into the account. However, everything is presumed against the wrongdoer, and so the trustee was taken to have dissipated his own money and the money left was subject to the trust. These presumptions only go so far, however. While everything possible, however implausible is presumed against the trustee, the impossible is not so presumed. Where trust money is paid into a bank account and the amount in the bank account drops below the amount of trust money paid in the trust can recover no more than the lowest balance in the account.37 This is the lowest intermediate balance rule, which is simply a rule that you cannot make findings against all the evidence. We return to the implications of this later. Tracing rules are intended to break evidential impasses. There are none here. A simplified example might be as follows. The trustee T removes £100 from the trust and puts the money in his own bank account, which has £100 in it. There is £200 in the account. He takes £150 out and spends it on dinner. There is now £50 in the account. He transfers £50 from another account—not a trust account. It is clearly possible for the trustee to replace the £100 misappropriated. The account has £100 in it. However, the traceable value is £50. That is all the trust beneficiary is able to claim in a proprietary claim. It is factually obvious that £50 of trust money has been untraceably consumed and its product eaten. Re Diplock38 provides a good summary of the rules. The Court of Appeal in discussing the proprietary claim set out a summary of the tracing rules. It refers to both parties as claimants because each claims part of the fund: Where one claimant is a person in a fiduciary relationship to another and has mixed moneys of that other with moneys of his own, that other takes priority. The same result follows where a person taking that other claimant’s money…with notice it is money held in a fiduciary capacity proceeds to mix it with money of his own.39

35 

Re Oatway [1903] 2 Ch 356. Re Hallett (1879) 13 Ch D 686; GJ Virgo ‘Re Hallett’ in C Mitchell and P Mitchell (eds) Landmark Cases in Equity (Oxford, Hart, 2012) 357, 382–384. 37  James Roscoe (Bolton) Ltd v Winder [1915] 1 Ch 62; Bishopsgate Investment Management v Homan [1995] Ch 211 (CA); British Columbia v National Bank of Canada (1994) 119 DLR (4th) 669. 38  Re Diplock [1948] Ch 465 (CA) 533–43. 39  ibid 539. 36 

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The fiduciary is therefore assumed to have used the other party’s money to the latter’s best advantage.

ii.  Mixtures—Two Innocent Contributors The flipside is that as between innocent contributors, the equities are equal, and we prefer neither party to the other. The factual scenario includes cases where trustee A takes money from trusts B and C and uses the money from both to purchase an asset. In Foskett v McKeown Lord Millett said, ‘Where the beneficiary’s claim is in competition with the claims of other innocent contributors, there is no basis upon which any of the claims can be subordinated to any of the others.’40 Whereas A is always taken to spend A’s money first where any money is untraceable, once all of A’s money has been accounted for, any losses are allocated equally between the beneficiaries of the two trusts. There are different ways in which this result can be achieved. Where payments are in and out of bank accounts, as they usually will be, the first in first out rule might apply. This is a rule of attribution of payments to debts, and is not, properly understood, a tracing rule.41 Bank accounts can be seen in a number of different ways. It might be a mixture of different individuals’ money for instance, but the bank does not care about the provenance of the money it borrows from its customer. A bank account is a debt. This is most obvious when we remember that when as students we go into overdraft the bank is lending us money. However, if our account is in credit, the position is reversed. We are lending the bank money. This is obscured by commonplace references to ‘our money in the bank’. As soon as the money is paid in, however, it becomes the bank’s money subject to our right to require repayment of the loan.42 As between banker and customer therefore the account operates as a series of debts and there is only one contributor. Each deposit is a new and separate debt owed by the bank to the customer, or if the account is in overdraft, each withdrawal is a new debt owed by the customer. In such cases where a debtor owes a creditor more than one debt there must be a way of deciding which is paid first. The rule is, apart from express appropriation, which is very frequent, the first debts incurred are the first ones paid. As between banker and customer this is unproblematic. However, where multiple claimants (A and B) are concerned, the main objection to the rule is its arbitrary nature. On 1 January I make a deposit of £100 from trust A in a new bank account, and on 2 January I put £100 of money in from trust B. On 3 January I take out £50. According to Clayton’s Case,43 that £50 is money from trust A. The first withdrawal is used to reduce the amount held on trust for the beneficiaries of the trust of the first deposit. However, it has been suggested that the first in first out rule be extended to show who owns which asset purchased from the account.44 If that is right then if on 4 January I spend the £50 on a night out on the town, trust A loses everything. If I spend it on a new radio, A can claim the radio. That seems arbitrary, and

40 

Foskett v McKeown [2001] 1 AC 102 (HL) 132. Law of Tracing (1997) (n 8) 189–94. 42  Foley v Hill (1848) 2 HLC 28, 9 ER 1002. 43  Clayton’s Case (1816) 1 Mer 564, 35 ER 778. 44  But see DA McConville, ‘Tracing and the Rule in Clayton’s Case’ (1963) 79 LQR 388; Virgo ‘Re Hallett’ (n 36) (2012) 384–385; Pennell v Deffell (1853) 4 De GM &G 372, 43 ER 551; Re Diplock [1948] Ch 465 (CA); Re French Caledonia Travel Service Ltd [2003] NSWSC 1008, (2003) 184 FLR 280 contains a very detailed reappraisal of the rule. 41 Smith, The

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unnecessary as the state of account between the debtor and creditor can be logically separated from this question. It is now clear that the rule in Clayton’s Case will be disapplied on very little evidence of countervailing injustice,45 and in Canada the rule is never applied in tracing cases.46 We might treat the account as a mixture of the varying claimants’ money. The bank’s position is unchanged on this analysis. What matters to the bank is that the account holder can give a good discharge for the debt owed by the bank. The account holder will be able to, but as a trustee will be obliged to pay over the money to the claimants. Barlow Clowes Int’l v Vaughan47 involved the company misapplying money clients had paid into different investment plans. The investment company then went bankrupt. The clients claimed their money back. The Court decided that the first in first out rule applied if it provided a convenient method of determining competing claims where several beneficiaries’ money had been blended in one account. The rule is not invariable. The Court explained that where the rule would be impractical or would result in injustice between the parties it would not be applied. Another would be applied if a preferable one was available. On the facts the investors shared pari passu, because it was thought that was their presumed intention.48 That means they share out the proportion of the money they had put in. In my example the £50 withdrawal is shared £25 each between A and B. It was unjust that earlier investors recover nothing simply because they were earlier investors.49 A first in first out solution would entail that money paid into the plans by earlier investors would have been depleted first by the company. However, the solution actually adopted prejudices later investors as it ignores the fact the lowest intermediate balance ought to apply; on any realistic appraisal of what happened the earlier contributors will have had money withdrawn, but that is not taken into account when the calculation is done. A third option is the rolling charge.50 That was canvassed in Barlow Clowes but has in fact found little favour in England. Let us take an example. On 1 January the trustee puts £10 in the bank account from trust A, and on 2 January puts in a further £30 from trust B. There is now £40 in the account. On 3 January the trustee takes out £10. On a first in first out basis the £10 comes from A. None comes from B. Everything left is derived from trust B. If we stopped there, on a pari passu basis, 25 per cent of the £10 comes from A and 75 per cent from B. Consequently, A has £7.50 and B £22.50. A has 25 per cent of the remaining £30 and B 75 per cent. Let us now assume that on 4 January the trustee puts in a further £10 from trust A and on 5 January takes out £10. On a rolling charge basis of the £30 in the bank account at the start of 4 January, A has £17.50 and B £22.50. The £10 removed is therefore allocated on a ratio of 17.5:22.5 and after the withdrawal A has £13.13 and B has £16.87. At each stage withdrawals are allocated pari passu according to the ratio at that point. On the pari passu basis as actually adopted in Barlow Clowes, we do not take the calculation in

45  Commerzbank v IMB Morgan [2004] EWHC 2771, [2005] 1 Lloyds Rep 298; Re Eastern Capital Futures Ltd [1989] BCLC 371. 46  Re OSC & Greymac [1988] 2 SCR 172, (1988) 52 DLR (4th) 767; see also Re Registered Securities [1991] 1 NZLR 545. 47  Barlow Clowes Int’l v Vaughan [1992] 4 All ER 22 (CA). 48  ibid 31 (Dillon LJ). 49  ibid 32; Russell-Cooke Trust Co v Prentis [2002] EWHC 2227; [2003] 2 All ER 478; M Conaglen, ‘Contests between Rival Trust Beneficiaries’ (2005) CLJ 45. 50  S Lowrie and P Todd, ‘In Defence of the North American Rolling Charge’ (1997) Denning Law Journal 43.

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stages. We do it all at the end. That version of pari passu would tell you A put in £20, and B £30 and £20 was withdrawn from the account. A contributed 40 per cent of the total paid in and so retains 40 per cent of the total at the end of the day. A has £12 (40 per cent of what is left) and B £18 or 60 per cent. In other words, pari passu looks at the ratio between the amount that A put in and B put in across the set of transactions. The rolling charge looks at individual transactions. The rolling charge is obviously much more complex to calculate and this explains why it found little favour in the Court of Appeal,51 although it is undoubtedly true that if we have sufficient information to apply Clayton’s Case, we can apply the rolling charge. The rolling charge is in principle the best option; it takes into account lowest intermediate balances and does not suffer from the problems of the pari passu approach.

iii.  Overdrawn Bank Accounts In Shalson v Russo monies were paid through bank accounts, some of which were in overdraft and some in credit. The claimants asked to consolidate the accounts because the credit balances were higher. Rimer J commented that it was only possible to trace through assets, not net assets.52 This is quite right. The overdrawn account is an asset—but it is the bank’s asset, not the defendant account-holder’s. It is the account-holder’s liability. Net assets, assets minus liabilities, are a useful way of calculating one’s wealth, but do not represent anything real in the hands of the defendant. The claimants in Shalson v Russo had no problem tracing through the credit balances, but they could not trace through the assets of a person other than the defendant. It is impossible therefore to trace through overdrawn bank accounts. This implies that where the account is empty, or is overdrawn, no money can be recovered. There are three cases of importance here. First, let us assume that the trustee misappropriates trust funds and dissipates the assets and the bank account dips into overdraft. If the trustee subsequently pays sufficient funds into the account to bring it back into credit, the trust beneficiary is unable to trace into the subsequent credit balance.53 Although the trustee has an obligation to replace the trust fund, the courts have been unwilling to assume that the trustee already has. We might consider this an aspect of the lowest intermediate balance rule; the lowest intermediate balance is zero. The second possibility is that the account was initially overdrawn. The easy point is that it is possible to trace into the new credit balance. On first principles this must be right, and indeed Rimer J accepted this in Shalson v Russo.54 There is no question of having to prove that the recipient intended to replace trust funds, but the money used to discharge the debt owing to the bank is lost. The bank can in almost all cases be treated as a bona fide purchaser for value without notice. We examine this defence later in the chapter in part II D. The third question is whether the beneficiary is able to trace into assets purchased with money from the overdraft. This is referred to as tracing into the payment of a debt, or sometimes as backwards tracing. This is the situation where the trustee buys a second-hand car with the aid of a £1000 overdraft from the bank. He then misappropriates £2000 from the 51 

Barlow Clowes Int’l v Vaughan [1992] 4 All ER 22 (CA) 27–28 (Dillon LJ). Shalson v Russo [2003] EWHC 1637; [2005] Ch 281, 328. 53  Bishopsgate Investment Management v Homan [1995] Ch 211 (CA). 54  Shalson v Russo [2003] EWHC 1637, [2005] Ch 281, 328; Foskett v McKeown [2001] 1 AC 102 (HL); Re Diplock [1948] Ch 465 (CA). 52 

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trust. It seems that the trust beneficiaries will be able to claim the subsequent £1000 credit balance as trust assets. However, they also seek to claim the car. It is this that is controversial. It is controversial for a simple reason. The aim of tracing is to show that the money misappropriated from the trust was used to purchase other assets; it is clear that in these cases factually this was not so.55 The trust money was not factually used to buy the car. That is impossible. It was stolen after the car was bought. This explains the references to backwards tracing—the tracing is backwards in time. That did not prevent Rimer J in Shalson v Russo suggesting that the answer to this question is yes; trust beneficiaries can on his view in principle trace into the car. However, Rimer J also said that on the facts the claimants were unable to prove the evidential connection.56 What Rimer J demanded was that the claimants demonstrate that the trustee could not have purchased the car without the benefit of the overdraft and that the trustee could not have paid off the overdraft without the trust money. It has been described in the following terms—the trust money provides the means for paying off the debt used to make the purchase. Lionel Smith argues that when a car is bought for cash the car is the traceable proceeds of the money. When bought on credit, the car is the product of the debt; when paid off the money in the hands of the seller is the traceable product of the debt, which is the traceable product of the car. Smith argues that this works the opposite way round.57 The car is the product of the money because the money is the product of debt which is the product of the car. The money can be traced into no other asset. Rimer J reached his conclusion after a significant discussion of Bishopsgate Investment Management v Homan,58 a case which involved the tracing of pension fund assets through overdrawn bank accounts. Leggatt LJ argued that the process of tracing into the payment of a debt was impossible.59 Dillon LJ disagreed, stating that a sufficiently clear evidential connection would enable a claimant to trace into the asset acquired.60 Henry J interestingly agreed with both of his colleagues, and as Rimer J charitably pointed out his agreement could not have extended to this. This left Rimer J free to make his own mind up. In principle, it seems right that backwards tracing be available. Indeed, it is difficult to see how tracing would ever be available if it were not. Certainly, it becomes very hard to see how tracing can occur in cases of purchases via a credit card,61 or even, because of delays in clearing and payments, debit cards. The availability of backwards tracing has now been decisively accepted in Federal Republic of Brazil v Durant International Corporation.62 The 55  B McFarlane, The Structure of Property Law (Oxford, Hart, 2008) 760–61; J Penner, ‘Value, Property and Unjust Enrichment’ in R Chambers, C Mitchell and J Penner (eds), The Philosophical Foundations of the Law of Unjust Enrichment (Oxford, OUP, 2009) 306, 319. 56  Shalson v Russo [2003] EWHC 1637, [2005] Ch 281, 328; Penner has argued that other more celebrated cases also require backwards tracing to work, such as Foskett v McKeown [2001] 1 AC 102 (HL). See Penner, ‘Value, Property and Unjust Enrichment’ (2009) (n 55) 320–22, but see against this interpretation of the case, D Sheehan, ‘Property in a Fund, Tracing and Unjust Enrichment’ (2010) 4 Journal of Equity 225, 235–36. 57 Smith, The Law of Tracing (1997) (n 8) 149–50. M Conaglen ‘Difficulties with Tracing Backwards’ (2011) 127 LQR 432, 447–448 argues this involves an elision between payment of money and the discharge of a debt. 58  Bishopsgate Investment Management v Homan [1995] Ch 211 (CA). 59  ibid 221–22. 60  ibid 217; Jyske Bank v Spjaeldnaes 23 July 1997. 61  On tracing in credit card purchases see Smith, The Law of Tracing (1997) (n 8) 258–60. Conaglen has argued that the policy justifications are not strong enough. Conaglen (n 57) 450–454. Conaglen does not, however, examine the consequences in payment systems for denying backwards tracing. 62  [2015] UKPC 35, [2015] 3 WLR 599, [38–40]; Relfo v Varsani [2014] EWCA Civ 360, [2015] 1 BCLC 14, [63].

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Privy Council said that the claimant must establish coordination between the depletion of the trust fund and the acquisition of the asset, looking at the whole transaction in the round. This means that the court can step back and ignore the fact of the particular order of payments where that is simply an incident of the banking system and does not reflect the substance of the transaction. Yet Cutts argues that all that can be said is that a period of indebtedness may, but need not, cause the claimant to fail to establish a link. It is not clear exactly when that link is established other than it is established by ‘the substance of the transaction’.63 What that might be and how we decide it remains unclear. Cutts goes on to argue that what is really important and implicit in the cases—and this harks back to our discussion of Relfo v Varsani—is the parties’ intentions. The parties should intend that some onward payment be reimbursed from the claimant’s funds or that the overall point of the exercise was to bring about the exchange, despite the credit period. In such a case the interposition of credit is not fatal to a claim.64 This has been implicit in other writing. Chambers, for instance, has argued that there is a distinction between cases where the payment of the contractual debt follows shortly after the contract and where it cannot. He distinguishes therefore between cases where money is paid to the vendor in exchange for the asset where the order of payment does not matter and cases where the money is borrowed from a third party—which may often be the Shalson scenario. Payment of the debt in the latter case is a separate transaction,65 and this is borne out by the subrogation cases which we will see later in part IV.

C. Remedies Once we have identified the asset in the defendant’s hands as being derived from the asset originally within the trust, the remedial question arises. As mentioned at the start of the chapter the claimant seeks a proprietary remedy.

i.  At Law As we have seen there are two possible cases. The first is where the action is at common law and there is no fiduciary relationship. In those cases the remedy is the action for money had and received. This is normally based on the defendant’s personal remedial obligation to pay money. As a personal money remedy it does not give priority in the defendant’s insolvency. In Lipkin Gorman, however, Cass had taken money from the firm’s client account and gambled it away at the defendant’s club. The firm sought to recover the money from the club. Cass had no money. They succeeded. The means they used in the House of Lords was the action for money had and received. Once the claimants had traced the money—at common law—into the hands of the club, the club was ordered to repay the money to the firm, subject to change of position, which we will examine under the next heading. Legal title to the 63 

Cutts (n 33) 391–392. ibid 402–403. 65  R Chambers, ‘Tracing and Unjust Enrichment’ in J Neyers et al (eds), Understanding Unjust Enrichment (Oxford, Hart, 2004) 264, 298–99; but see Agricultural Credit Corporation of Saskatchewan v Pettyjohn (1991) 90 Sask R 206 and Re Diplock [1948] Ch 465, relied on by Smith, The Law of Tracing (1997) (n 8) 147–48 for the opposite conclusion. See also Penner, ‘Value, Property and Unjust Enrichment’ (2009) (n 57) 318–19. 64 

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money had, however, passed. When Cass took the money out of the firm’s account the cash became his money. Had the club retained legal title to the asset it would have been possible to launch an action for conversion as we saw in the previous chapter. Nonetheless, it seems likely that the claimant has some type of proprietary right, despite the use of the action for money had and received. This is likely to be a power to vest title in the traceable substitute— although crucially that does not automatically make the club a wrongdoer. In fact, it was assumed throughout that the club was completely innocent. Although this is extremely controversial,66 some dicta in the decision are impossible to make sense of otherwise. In his last book, Birks acknowledged that the House used a model such that if A takes B’s money without his consent and pays to C, C is indebted to A. That model holds good where there is a power in rem to vest title to the currently traceable substitute; Lord Goff ’s references to the ability of the firm to trace its right to the money in the client account and assert title in the substitute,67 the money in Cass’ hands, is consistent with a power model. Birks in fact rejected the model as an explanation for Lipkin Gorman.68 The power was never exercised and the action of money had and received was a purely personal claim. Yet if so, Lord Goff ’s references to asserting title and Lord Templeman’s to liability for retained assets are difficult to explain,69 and the availability of change of position makes the decision impossible to explain, as both McFarlane and Lionel Smith do, on the basis of the presence of a trust enforced by money had and received.70 FC Jones v Jones and BMP Global Distribution also suggest that there may be a new type of legal proprietary right allowing the claimant to compel payment over of sums from a bank account, despite not being legal tenant in common of the account.

ii.  In Equity In the typical case where equitable tracing is used, trust money is misappropriated and the beneficiary may seek to claim equitable ownership of the proceeds in the hands of the trustee or the third party. Where the value of the asset has reduced, he or she may seek a charge on the proceeds for the value that went into them. This is at the claimant’s option. Both these possibilities are proprietary remedies and therefore give the claimant priority in the defendant’s insolvency. Where the trustee purchases property with his or her own and trust money, the beneficiary may claim equitable co-ownership under a trust71 or a charge or lien. In Foskett v McKeown Lord Millett said, ‘Where a trustee wrongfully uses trust money

66  There has been a plethora of articles and other types of commentary on the decision. See for example McFarlane, The Structure of Property Law (2008) (n 57) 293–98; LD Smith, ‘Simplifying Claims to Traceable Proceeds’ (2009) 125 LQR 338; D Fox, ‘Legal Title as a Ground of Restitutionary Liability’ (2000) RLR 465; C Mitchell, P Mitchell and S Watterson (eds) Goff and Jones: The Law of Unjust Enrichment 8th edn (London, Sweet and Maxwell, 2011) paras 8.22–8.25. 67  [1991] 2 AC 548 (HL) 573; see also D Sheehan, ‘Proprietary Claims for Mistake and Ignorance: An Unseen Equivalence’ [2002] RLR 69. 68  PBH Birks, Unjust Enrichment 2nd edn (Oxford, Clarendon Press, 2005) 198. 69  Lipkin Gorman v Karpnale [1991] 2 AC 548 (HL) 559–60, 563 (Lord Templeman), 573–74 (Lord Goff); LD Smith, ‘Restitution: The Heart of Corrective Justice’ (2001) 79 Texas Law Review 2115, 2166. 70 McFarlane, The Structure of Property Law (2008) (n 57) 293–98; Smith, ‘Simplifying Claims to Traceable Proceeds’ (2009) (n 66). 71  We saw in chapter seven, part III C i that these trusts are probably constructive although functionally identical to purchase money resulting trusts.

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to provide part of the cost of acquiring an asset the beneficiary is entitled at his option either to claim a proportionate share of the asset or to enforce a lien.’72 Where property is purchased by a trustee with a mixture of funds from different trusts, each beneficiary is entitled to a proportionate equitable co-ownership share in the property, even where there is a deficiency. Neither claimant can subordinate the other’s interest to his or her own.73 However, collectively they are entitled to subordinate the trustee’s. Let us assume the trustee takes £100 from trust A and £100 from trust B and adds £100 of his own to buy an asset worth £300, which declines in value to £250, the beneficiaries will take a charge over the asset. This will mean that they are able to sell the asset and take £200. The trustee is left with £50. He suffers the losses. If the asset declines in value to £150, the beneficiaries will still want a charge, but as between themselves they must hold the charge equally and take the losses equally. They obtain £75 each. This suggests that the interest is inchoate in the sense that it is open to the claimant to choose the most advantageous option. It is also inchoate in that the claimant will frequently be able to trace into multiple objects, but can only choose to claim over assets in the hands of one defendant.74 This multiplication of potential targets is possible because at each stage where there is a substitution the original asset still exists in another’s hands. These assets will not always be claimable. Lionel Smith coined the phrase ‘geometric multiplication’ to refer to the fact that the claimant has a potential interest in several assets.75 The claimant must choose. For both Smith and Penner this is a right of election, but we should rather see it as a power to vest title in a currently traceable substitute. It then ties up with and mirrors the power to vest title we find in rescission cases examined in chapter seven, part IV and in claims contingent on legal tracing. Once exercised, the claimant loses rights in other assets.76 The power is therefore a defeasible power in rem to vest title in traceable substitutes.

D. Defences There are a number of possible defences to the claims, which can be found in specialist restitution books; in this section we outline the two most important. The claimant may be deprived of his or her interest by a bona fide purchaser for value. If the claimant had an equitable interest in the property and the defendant purchased the a legal interest in asset in good faith for value, being unaware of the claimant’s interest and having no reason to be so aware the claimant loses his or her equitable interest. The defendant may have such knowledge if he knew facts that would lead the reasonable party in his position ‘serious cause to question the propriety of the transaction’.77 This applies to any legal interest the purchaser might acquire, including a legal security interest such as a mortgage; complications arise if

72 

Foskett v McKeown [2001] 1 AC 102 (HL) 131. ibid 132. 74  D Fox, ‘Overreaching’ in A Pretto and PBH Birks (eds), Breach of Trust (Oxford, Hart, 2002) 95, 102. 75 Smith, The Law of Tracing (1997) (n 8) 358–61. 76 Birks, Unjust Enrichment (2005) (n 68) 198–99. 77  Credit Agricole Corporation and Investment Bank v Papadimitriou [2015] UKPC 13, [2015] 2 All ER 974, [20]; because of the context Lord Clarke puts the test in terms of the reasonable banker. At [33] Lord Sumption suggests it is the flipside mirror image of knowing receipt liability. 73 

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the transaction under which the defendant acquired the legal title has been set aside. There the defendant cannot exercise the defence.78 These equitable interests are, however, if security interests, frequently protected by registration, and we examine the registration of security interests in chapter 11, part IV B. Suffice it to say for the moment that registration provides constructive notice of the security interest and prevents the third party purchaser from being a bona fide purchaser.79 The bona fide purchase defence operates to protect the market. Equitable titles are usually invisible, and the ability to buy and sell assets would be curtailed if we were unable to be sure that there were no binding encrusted third party interests. The defence of bona fide purchase is also a defence to claims at law in those cases where the property is money,80 and there is a statutory defence in cases of bills of exchange where the holder in due course under section 32 of the Bills of Exchange Act 1882 is in effect a bona fide purchaser for value without notice taking free of prior defects in the vendor’s title to the instrument. The reasoning behind this is that money, and bills of exchange, would be useless as a medium of exchange, or currency if this were not so. There is an important difference, however. Bona fide purchase in equity requires that the consideration be executed, whereas at common law any consideration whether executed or executory would suffice. The standard of notice may be different in that cases at law talk of actual notice and those in equity of constructive notice.81 Another possible defence is change of position. This is a generic defence to unjust enrichment claims, which we encountered in chapter seven, part III C v. However, in the case of a trust, the beneficiary has a right to particular assets. The trustee’s actions with different assets cannot affect that.82 This in turn entails that on the imposition of a trust the recipient of the property cannot rely on change of position to protect him or herself from his or her subsequent actions. It is inconsistent with the assumption that the trustee has used his or her own money first. Only when the power to vest title is unexercised can the defendant take advantage. In those circumstances the defence operates via counter-restitution with the claimant having to make the change of position.83 The defence derives from Lipkin Gorman where Lord Goff said, ‘Where an innocent defendant’s position is so changed that he will suffer an injustice if he is called upon to repay, or repay in full, the injustice of making him pay outweighs the injustice of denying the plaintiff restitution.’84 Change of position normally involves disenrichment. That means the defendant must be able to show that he or she spent money in reliance on an assumption that the assets 78  Independent Trustee Services Ltd v GP Noble Trustees Ltd [2012] EWCA Civ 195, [2013] Ch 91; B Häcker ‘The Effect of Rescission on Bona Fide Purchase’ (2012) 127 LQR 493; T Cutts ‘A Compromise of Principle’ [2013] LMCLQ 17; see Hudson Equity and Trusts, 9th edn (Abingdon, Routledge, 2017) 901–902. 79  Wilson v Kelland [1910] 2 Ch 306; but see H Beale, M Bridge, L Gullifer and E Lomnicka (eds), The Law of Security and Title Based Financing 2nd edn (Oxford, OUP, 2012) para 12.10. 80  Miller v Race (1758) 1 Burr 42, 97 ER 398. 81  For an explanation and comparison of the rules at law and in equity see Fox, Property Rights in Money (2008) (n 20) ch 8; for a comparison with the standard of notice required in the context of holders in due course of bills of exchange see chapter six, part III A iv. 82  WJ Swadling, ‘Arguments for Proprietary Restitution’ (2008) 28 LS 508, 514. 83 McFarlane, The Structure of Property Law (2008) (n 57) 334; E Bant, The Change of Position Defence (Oxford, Hart, 2009) 206–09. See 93–114 on the relationship between counter-restitution and change of position on the defendant’s part. 84  Lipkin Gorman [1992] 2 AC 548 (HL) 579; G Virgo, ‘Change of Position: The Importance of being Principled’ (2005) RLR 39.

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received were the defendant’s to do with as he or she pleased. Lord Goff ’s formulation does not demand that this be the case and the possibility of non-disenriching changes of position has been canvassed in the case law.85 However, all successful cases to date have involved the defendant’s spending the money in reliance on the security of receipt. So long as the defendant is honest he or she may take advantage of the defence—it doesn’t seem to matter if the defendant is careless in thinking that the assets received belonged to him or her or that there were reasons to believe that there were problems with the transfer.86 Nor does the defendant have to prove that specific items of expenditure must be provably linked to particular receipts.87

III.  Proprietary Claims Contingent on Tracing The first major controversy is what type of claim this is, whether it is an unjust enrichment claim or not. The second section asks what our claim is—what cause of action do we rely on.

A.  The Basis of the Claim: Property or Unjust Enrichment Birks has forcefully argued that proprietary claims contingent on tracing are always unjust enrichment claims.88 This is a controversial statement. Virgo has denied it,89 as did Lord Millett in Foskett v McKeown, saying, “The transmission of a claimant’s property rights from one asset to its traceable proceeds is part of our law of property, not of the law of unjust enrichment.”90 In Foskett v McKeown therefore the beneficiary’s equitable proprietary right under the express trust transferred automatically to the life insurance policy. Birks disagreed with Virgo. He held that property was a response, not an event. Events are things that happen, and responses are what the law does about the things that happen. There can be no cause of action based on property because it is not something that happens. The defendants, in Foskett the life insurance beneficiaries, were unjustly enriched by the receipt of an asset, which they were never intended to have. The way to reverse the enrichment is the imposition of a proprietary claim. It cannot be said that the reason for the right in the life insurance in Foskett was the same as in the original asset. The reason for the claimants’ interest in the express trust assets was the intention of the settlor. The life insurance policy was never an asset that the settlor had or would have ever considered the claimants being able to have. The reason for the interest in the policy monies could not therefore be that the settlor of the original trust intended the claimants to have an interest in Murphy’s

85  See Birks, Unjust Enrichment (2005) (n 68) 258–61; Commerzbank v Gareth Price-Jones [2003] EWCA Civ 1663; [2003] All ER (D) 303 (Nov). 86  State Bank of NSW v SBC (1995) 39 NSWLR 350. 87  RBC Dominion Securities v Dawson (1994) 111 DLR (4th) 230. 88 Birks, Unjust Enrichment (2005) (n 68) 32. 89  G Virgo, The Principles of the Law of Restitution, 3rd edn (Oxford, OUP, 2015) 11–17; but see Burrows, The Law of Restitution (2011) (n 7) 185–89. 90  Foskett v McKeown [2001] 1 AC 102 (HL) 129.

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(the trustee’s) life insurance. Rather the reason for their interest was that the trustee had without authorisation paid the premiums; the product of those premiums was the eventual payout on the trustee’s death. Birks’ characteristically colourful way of putting this was that the original proprietary interest is not like a fishing line hooking onto assets like fish as they swim past.91 There is more to it than merely the substitution of one asset for another. The interest, the ability to choose which asset to assert property rights in and which rights to assert is both newly created and different in character. That is a power in rem to vest an equitable interest in traceable assets, which is itself a vested proprietary right.92 The power in rem is similar to that we encountered in chapter seven, part IV C, which concerned the claimant’s right to rescind a transaction and recover assets transferred pursuant to it. Once exercised the power defeases, disappears, over other assets. In chapter seven, part IV C we encountered McFarlane’s idea that the power is a factual power;93 the same criticism that Penner levelled at it then applies here as well. The claimant must exercise the power and it is not merely a question of the defendant’s acquisition of knowledge. Penner also draws an example from the law of tracing.94 The trustee misapplies trust property which finds its way into the hands of a third party, who pays it into his or her bank account. On normal principles we would expect the beneficiary to have a claim over the bank account, but if the third party’s right to the money is completely unfettered, Penner argues the rights to the enhanced bank balance are not traceably derived from anything the beneficiary had a right to. Once the need for an actual property right at all times is established, the transformation from a trust interest to a power in rem cannot be explained without unjust enrichment. It must be based on the non-consensual substitution of one asset for another. These seem important and convincing arguments. To deny this, we must deny, as James Penner has, that the beneficiary’s property rights are in individual assets. Penner argues that the beneficiary has property rights in a fund, reified separately from the assets contained within it. Leaving rights against the trustee to one side, the third party to whom assets are mis-transferred, he argues, is liable proprietarily purely because the third party is bound by the beneficiary’s interest in the trust property he or she received and, this being a fund interest, also in any property he or she acquires as traceable proceeds.95 We only become concerned with the proprietary aspects when something goes wrong and the beneficiary is able to elect to enforce against any asset he or she chooses, or elects. There are significant difficulties with such a view. We can only identify a breach of trust obligations if we can identify an asset misused. Indeed, we cannot identify a fund without identifying the assets within it. The individual assets are consequently the critical feature and it seems analytically more straightforward to accept that the beneficiaries have proprietary interests in specifiable assets at all times rather than positing a type of floating proprietary right, which does not attach to any particular asset until breach. Penner’s argument collapses if it can be shown that we never have property rights other than grounded

91 Birks, Unjust

Enrichment (2005) (n 68) 35. Fox, ‘Overreaching’ (2002) (n 74) 101–04. Structure of Property Law (2008) (n 57) 325. 94  J Penner, ‘Book Review’ (2009) RLR 250, 256–57. 95  See, eg Penner, ‘Value, Property and Unjust Enrichment’ (2009) (n 57) and J Penner, ‘Duty and Liability in Respect of Funds’ in J Lowry and L Mistelis (eds), Commercial Law: Perspectives and Practice (London, Sweet and Maxwell, 2006) 207. 92 

93 McFarlane, The

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in specific assets,96 and Penner himself acknowledges that his thesis falls down if this is so.97 In chapter one, part III A i we noted that a property right is a right against an indefinite group of people which concerns a ‘thing’. In chapter three, part III we examined the notion of overreaching. The importance of overreaching in this context, and we see this again in chapter 14, part III C which concerns the proper explanation of the working of the floating charge, is that it provides a mechanism for transferring the trust beneficiary’s rights from one asset to another when the transaction is authorised. If it is unauthorised another mechanism is required. This is the power mechanism just encountered. The debate is not entirely sterile. There are important practical consequences. One of these is the availability of the change of position defence, encountered in the previous ­section. It is available as a defence to all unjust enrichment claims and no others.98 Lord Millett said in Foskett v McKeown that change of position was available in unjust enrichment actions, and bona fide purchase was available in proprietary actions.99 Change of position was not therefore available in Foskett v McKeown itself. A property-based explanation of Foskett must take the view that the interest the beneficiary has in the exchange product of the original asset is the exact same interest he or she had in that original asset, an interest in a fund separable from the assets within it. It is a trust interest, where change of position is unavailable.100 An unjust enrichment view can adopt the power analysis seen earlier and provide the defence. As a matter of legal policy this seems right. The third party defendant must be able to take advantage of the protection that change of position provides in order to give him or her adequate security of receipt and prevent the defendant from feeling the need to impose unnecessary safeguards ‘just in case’ he or she has to repay.101

B.  The Unjust Factor The claimant in an unjust enrichment action must prove the defendant was enriched, that the enrichment was at the claimant’s expense, and that there was an unjust factor, a cause of action.102 Birks in fact moved from this position to a position where the reason for recovery is that there was no basis for the defendant retaining the money or asset. The basis for the claimant’s payment failed. This is different. There would be for instance a presumption of relief unless knowledge was proven by the defendant.103 This is a controversial position, but it is beyond our scope to discuss the question. It is not yet proven, and we assume, as we did in chapter seven, that the traditional approach is correct. There is an argument about 96  In the trust context this is demonstrated by R Nolan, ‘Property in a Fund’ (2004) 120 LQR 132; Sheehan, ‘Property in a Fund, Tracing and Unjust Enrichment’ (2010) (n 58) 227–31. 97  J Penner, The Law of Trusts, 10th edn (Oxford, OUP, 2016) 396–397. 98 Birks, Unjust Enrichment (2005) (n 68) 209–10. 99  Foskett v McKeown [2001] 1 AC 102 (HL) 129; Lord Millett, ‘Proprietary Restitution’ in S Degeling and J Edelman (eds), Equity in Commercial Law (Sydney, Law Book Co, 2006) 309, 315. 100  Swadling, ‘Arguments for Proprietary Restitution’ (2008) (n 82) 514. 101  PBH Birks, ‘Change of Position and Surviving Enrichment’ in WJ Swadling (ed), The Limits of Restitutionary Claims: A Comparative Analysis (London, UKNCCL, 1997) 36, 50–51; Bant, The Change of Position Defence (2009) (n 83) 211–14; Sheehan, ‘Property in a Fund, Tracing and Unjust Enrichment’ (2010) (n 58) 244–45. 102  PBH Birks, An Introduction to the Law of Restitution, revised edn (Oxford, Clarendon Press, 1989) 21. 103 Birks, Unjust Enrichment (2005) (n 68) ch 5; see critiquing this view D Sheehan, ‘Unjust Factors or Restitution of Transfers Sine Causa’ (2008) Oxford University Comparative Law Forum 1, available at http://ouclf.iuscomp. org.

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the unjust factor. It may be ignorance.104 The unjust factor of ignorance applies where the claimant knows nothing of the transfer; this is said to be a fortiori from mistake. There are no arguments but that where I make a mistaken payment I get the money back. If I get the money back where I know of the fact of the transfer but did not really mean it, a fortiori I must win if I do not know of the transfer. Ignorance is, however, a problem not least because not all the cases can be fit within it. It may be that the beneficiary knew the trustee misapplied the asset. This may be a case of powerlessness. Yet there are no cases at all where powerlessness has been relied on explicitly and ignorance has been mentioned (obiter and in passing) in very few.105 A better answer would be one supported in the case law and which covers both these types of case. Jaffey argues the transfer is defective, because the claimant authorised no such transfer.106 The trustee, where there is a trust, may well have the ability or capacity as legal owner to transfer the property, but the transfer is in breach of trust. It is not artificial, according to Jaffey, to say the trustee acts outside of his or her authority, that conferred by the trust instrument. The very fact of the unauthorised exchange confers on trust beneficiaries a title to the substitute asset. Fox claims this is clear from Foskett v McKeown107 itself, although the phrase used throughout in that case is ‘wrongful use’ of the money. Whether Fox is right about Foskett, it is not a new idea. Denning J expressed it in those terms himself in Nelson v Larholt.108 He said: If it is taken from the rightful owner, or, indeed, from the beneficial owner, without his authority, he can recover the amount from any person into whose hands it can be traced, unless and until it reaches one who receives it in good faith and for value and without notice of the want of authority.109

The executor, Potts, withdrew money from the bank account for his own purposes, and paid the money to the defendant. The claimant who was properly entitled to the money sued. Lord Goff described Lipkin Gorman in terms of lack of authority. He said, ‘The only question is whether the solicitors can establish legal title to the money when received by Cass from the bank by drawing cheques on the client account without authority.’110 Neither is a trust case; Nelson v Larholt is nonetheless an equitable case—concerning wills. The difficulty is that the complaint in Nelson and Lipkin Gorman was not so much lack of authority— Potts and Cass were authorised signatories on the accounts—as what Watts has called mismotivation.111 Jaffey is alive to the problem, commenting that ‘lack of authority’ is not objectionable if we remember that it has nothing to do with agency.112 It may be an inapt 104 Burrows, The Law of Restitution (2011) (n 7) ch 16, but see WJ Swadling, ‘Ignorance and Unjust Enrichment: The Problem of Title’ (2008) 28 OJLS 602; R Chambers and J Penner, ‘Ignorance’ in S Degeling and J Edelman (eds), Unjust Enrichment in Commercial Law (Sydney, Law Book Co, 2008) 256. 105  And the unjust factor has been critiqued judicially for that reason, see Farah Constructions Pty Ltd v Say-Dee Pty Ltd [2007] HCA 22, (2007) 230 CLR 89, 158. 106  P Jaffey, The Nature and Scope of Restitution (Oxford, Hart, 2000) 161–62. 107  Fox, ‘Overreaching’ (2002) (n 74) 102. 108  Nelson v Larholt [1948] 1 KB 339, 342–43. 109  ibid 342. 110  Lipkin Gorman [1991] 2 AC 548 (HL) 573. 111  P Watts, ‘Authority and Mismotivation’ (2005) 121 LQR 4; AL Underwood Ltd v Liverpool & Martins [1924] 1 KB 775; Reckitt v Barnett Pembroke & Slater [1928] 2 KB 244. 112 Jaffey, The Nature and Scope of Restitution (2000) (n 106) 162; Criterion Properties v Stratford Properties [2004] UKHL 28, [2004] 1 WLR 1846 attempts to restrict the idea of authority to agency cases, but still extends it to the type of mismotivation problem found in all these cases.

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expression, but as he points out, it does refer to non-voluntary transfers and covers both ignorance and powerlessness cases.113 It refers to non-voluntary transfers because it indicates that the claimant had no control over the third party’s actions. Occam’s razor suggests that one explanation for these cases is preferable to two—ignorance and powerlessness.

IV. Subrogation Subrogation may be available where one party (A) wishes to take over another party’s (B’s) rights against a third party (C), where C is enriched by A’s actions. Subrogation is crucially nothing more than a somewhat esoteric remedy. There are in fact two types of subrogation. Contractual subrogation is used in the insurance context. There the insurer is subrogated to or takes over the insured’s action against the party who caused the loss, frequently a tortfeasor. The insurer’s payment does not extinguish the tortfeasor’s liability, and it is notable that the insurer sues in the insured’s name. It is an example of simple subrogation. Mitchell originally distinguished this from reviving subrogation.114 In reviving subrogation the debt revives; despite being successfully discharged it reappears in a new form with a new creditor. An unjust enrichment analysis can be followed. Is the defendant enriched, and at whose expense? Is there an unjust factor? Let us take an example. Banque Financière de la Cité v Parc (Battersea) Ltd115 is an example in the case law of subrogation in the context of a mistake. The first defendants obtained a bank loan from Royal Trust Bank. That loan was secured by a mortgage. The second defendants, who were a company within the same group, had another mortgage over the first defendant’s property. The decision was expressed in terms of unjust enrichment.116 A refinancing package was agreed between the claimants and first defendants, interposing their general manager as borrower. The claimants believed their loan would be repaid before the second defendant’s loan. This was untrue, as the letter stating the second defendant would not demand repayment was not binding. The claimants claimed to be subrogated to the second defendant’s rights. They succeeded. The defendants were enriched because they stood further up the queue of creditors in terms of entitlement on insolvency than they would otherwise have done. The cause of action was provided by the claimants’ mistake. In Boscawen v Bajwa,117 by contrast, there was no mistake. Money of the Abbey National was held on trust by a solicitor. Abbey had advanced the money to be used to buy a property owned by Bajwa. The property was already subject to a mortgage in favour of the Halifax Building Society. The money was used to discharge the mortgage, but the purchase never happened. Bajwa went bankrupt. Boscawen, the appellant, was a judgment creditor, attempting to show he had priority in recovering money from Bajwa. It was held that 113 Jaffey, The

Nature and Scope of Restitution (2000) (n 106) 159. Mitchell, ‘The Law of Subrogation’ (1992) LMCLQ 483; see more recently C Mitchell and S Watterson, Subrogation: Law and Practice (Oxford, OUP, 2007) paras 1.05–1.10 where new terminology—subrogation to subsisting rights, and to extinguished rights—is introduced. Like Burrows, The Law of Restitution (2011) (n 7) 146–47, this book prefers the older terminology. 115  Banque Financière de la Cité v Parc (Battersea) Ltd [1999] 1 AC 221 (HL). 116  ibid 234. 117  Boscawen v Bajwa [1996] 1 WLR 328 (CA). 114  C

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Abbey National was entitled to be subrogated to the position of the previous mortgagee against Bajwa. The money of its paid out by the solicitors was traced into the payment of the Halifax’s mortgage. The secured debt owed to the original mortgagee, the Halifax, was then transferred from the original mortgagee to Abbey National because it had been paid off in breach of trust, without the authority of the bank. Abbey National therefore took in priority to Boscawen. Millett LJ did not explicitly explain the decision in terms of unjust enrichment,118 although he did accept that the unjust enrichment law defence of change of position might be available. The decision can be accounted for as a lack of authority case. The Halifax was not enriched, but Boscawen was and the secured debt was transferred, or revived in the hands of the Abbey National because of the solicitor’s lack of authority. Subsequently, however, the Court of Appeal has explicitly committed itself to the unjust enrichment explanation for subrogation.119 The latest case is Menelaou v Bank of Cyprus.120 The result is eminently defensible; the view that proprietary subrogation can arise from unjust enrichment equally so. Yet the reasoning leaves much to be desired. The bank agreed to release two charges on the family home (Rush Green Hall) on condition that it would be granted a charge on the claimant’s (Melissa Menelaou) new house (Great Oak Court) when purchased with the proceeds of sale of the hall. Subsequently, the bank conceded the invalidity of the charge over the new property but counterclaimed that, since the lien which had arisen in favour of the vendors when contracts had been exchanged for the sale and purchase of the claimant’s new house had been extinguished at its expense, it was entitled to be subrogated to that lien in order to recover the outstanding indebtedness. The Bank of Cyprus had not directly provided the purchase money, but had, it was argued, provided value by the release of its security interest.121 The Supreme Court applied an analysis which justified the award of proprietary subrogation on the basis of unjust enrichment. This is fairly orthodox now, with most commentators and courts agreeing that unjust enrichment can justify proprietary relief of this sort. Lord Clarke was one of the justices who provided an analysis based on unjust enrichment, but— and this is where the analysis goes awry—suggested that the standard questions in analysing an unjust enrichment, as to whether the defendant was enriched, enriched at the claimant’s expense and whether there was an unjust factor or a cause of action all overlapped.122 The Supreme Court do not—partly due to this rather cavalier attitude to the unjust enrichment analysis—adequately identify the unjust factor in Menelaou and the ‘at the expense of ’ requirement which caused difficulty in the Court of Appeal123 was largely glossed over. In particular, the Court of Appeal discussed the question of direct and indirect enrichment although their final approach was to say the enrichment was caused by the release of the charge. Floyd LJ later said that as a matter of economic reality124 there had been a transfer of funds from the bank, since had the charges not been released funds for the purchase of 118 

ibid 340–41. Filby v Mortgage Express (No 2) Ltd [2004] EWCA Civ 759 [62] (May LJ); Cheltenham & Gloucester BS v Appleyard [2004] EWCA Civ 291 [33] (Neuberger LJ); Australian courts have been less willing to adopt unjust enrichment explanations. See, eg Bofinger v Kingsway Group Ltd [2009] HCA 44, (2009) 239 CLR 269, 302; P Ridge, ‘Equitable Subrogation’ (2010) 126 LQR 189. 120  [2015] UKSC 66, [2016] AC 176. 121  ibid [24] (Lord Clarke). 122  ibid [19]. 123  [2013] EWCA Civ 1960, [2014] 1 WLR 854, [29–42]. 124  ibid [48] (Floyd LJ). 119 

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the other property would not have been available. The issue of whether enrichment should have to be direct or indirect is left undiscussed by the Supreme Court. They seem to take a purely causative approach. Lord Clarke for example argued that what matters is ‘whether there is a sufficient causal connection, in the sense of a sufficient nexus or link, between the loss to the Bank and the benefit received by the defendant’.125 While a causation approach might (or not) be preferable,126 it behoves the Supreme Court to explain why it thinks the direct/indirect enrichment debate is misleading. Further, Lord Carnwath approached the question purely in terms of tracing and avoided unjust enrichment altogether.127 Yet since the proprietary remedy of subrogation was invoked the majority’s apparent acceptance that it could be awarded in the absence of tracing links is surprising. There is also a failure to properly explain the unjust factor; is it mistake or failure of consideration?128 In fact it was probably mistake. The bank thought they had an agreement to obtain a charge on Great Oak and did not, but it needs to be explained better by the Supreme Court.

V.  Personal Claims So far we have been concerned with proprietary claims. In particular, we have been concerned with proprietary remedies against the trustee or third parties to recover trust assets or property derived from or acquired with trust assets. This last substantive section is concerned with personal claims. These are claims that do not carry with them the possibility of protection in the defendant’s insolvency, despite the fact that we sometimes say the dishonest assistant or knowing recipient is liable as a constructive trustee. This does not mean that there is proprietary claim; it merely means that the defendant is treated and made liable as if he were an express trustee—even though we know he is not. Recently this has been criticised as an unhelpful formula, precisely because it relies on a fiction.129 It does have the advantage of being specific about the remedies available, however. We take dishonest assistance first and then knowing receipt.130

A.  Dishonest Assistance Dishonest assistance is the wrong of assisting an equitable wrong. It should not matter what the wrong is; it may be breach of trust or fiduciary duty.131 We treat it very briefly as 125  [2015] UKSC 66, [2016] AC 174, [23]. See on this S Watterson ‘Subrogation as a Remedy for Unjust Enrichment in the Supreme Court’ [2016] CLJ 209; J Leung and S Wong ‘Subrogation and Unjust Enrichment in the Supreme Court’ [2016] LMCLQ 337. 126  As this is not a book on the law of restitution or unjust enrichment, it is beyond our scope to address the question here. 127  [2015] UKSC 66, [2016] AC 174, [107]. 128  ibid [20]. 129  LD Smith ‘Constructive Trusts and Constructive Trustees’ [1999] CLJ 294; Williams v Central Bank of Nigeria [2014] UKSC 10, [2014] AC 1189, [7–11] (Lord Sumption). 130  On these causes of action see D Sheehan, ‘Disentangling Equitable Personal Liability for Receipt and Assistance’ (2008) RLR 41. 131  Novoship (UK) Ltd v Mikhailyuk [2014] EWCA Civ 908, [2015] 2 WLR 526, [93]; however, there may be—at the very least—no merit in running dishonest assistance in some cases, eg breach of confidence. See R Pattenden and D Sheehan (eds) The Law of Professional-Client Confidentiality, 2nd edn (Oxford, OUP, 2016) paras 6.14–6.16.

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it is not peculiarly a ‘property’ wrong. However, breach of trust is an equitable wrong, and the dishonest assistant will be jointly and severally liable for the loss caused, as well as for any gain or profit made personally by the assistant. It is now clear that common law rules apply in deciding questions of causal connection between the breach of fiduciary duty and the third party gain,132 although not when considering the fiduciary’s liability for account of profits. This joint and several liability means that although the assistant may not have actually committed the breach of trust—as not a trustee—the assistant will be liable for the entirety of any losses caused by the breach of trust or fiduciary duty. Campbell suggests this does not take into account the rare case where the accessory causes losses not co-extensive with those caused by the fiduciary, and suggests several liability instead.133 Currently this is not orthodox English law. If sued, the assistant may have to pay the full amount, as well as any gains made. The assistant will not however, have to pay or be liable for any gains made by the trustee.134 Dishonest assistance requires there to have been active assistance given by the defendant.135 For policy reasons we have an attenuated causation requirement.136 The assistance must have made it easier for the original fiduciary to commit the breach. The aim behind the action is to protect principals and trust beneficiaries who are vulnerable to the abuse of the fiduciary relationship,137 and a weak causal requirement helps with this. It protects trust beneficiaries who might lose out on a strict sine qua non or but for test—the law’s standard causation test. Nonetheless, there is a causation requirement and that has consequences. Dishonest assistance cannot occur after the breach is concluded, as no causal connection will be possible.138 Assistance liability also requires dishonesty. Royal Brunei Airlines v Tan139 is the classic authority for the test of dishonesty; the airline had employed a company run by the defendant as agents to collect monies from cargo transportation contracts, and hold it on the airline’s behalf. The company paid the money into its own current account to be used for its own purposes. The company went insolvent and the airline sued the defendant, who was held liable in dishonest assistance. He had actively assisted in the company’s breach of fiduciary duty towards Royal Brunei Airlines by allowing the company to misuse the airline’s money for its own benefit. Dishonesty was said to be conduct the reasonable man would consider dishonest given the defendant’s actual knowledge.140 There is therefore a subjective element to the test, but the defendant is not allowed to set his or her own moral standards; whether the defendant thought he or she was being honest is not at issue. Carelessness is not dishonesty, although reckless disregard of another’s rights may be a sign of dishonesty and there is a fine line between carelessness and recklessness. In Twinsectra Ltd 132  Novoship (UK) Ltd v Mikhailyuk [2014] EWCA Civ 908, [2015] 2 WLR 526, [107–108]; P Davies ‘Gain Based Remedies for Dishonest Assistance’ (2015) 131 LQR 173. 133  M Campbell ‘The Honest Truth about Dishonest Assistance’ [2015] Conv 159, 166. 134  Sheehan (n 121) 55–57; Fyffes Group v Templeman [2000] 2 Lloyds Rep 643, 670 (Toulson J); Ultraframe Ltd v Fielding [2005] EWHC 1638, [2006] FSR 17; P Ridge, ‘Justifying the Remedies for Dishonest Assistance’ (2008) 124 LQR 445. 135  Brink’s Mat v Abu-Saleh [1996] CLC 133. 136  Grupo Torras v Al-Sabah (no 5) [2001] CLC 221. 137  P Loughlan, ‘Liability for Assistance in a Breach of Fiduciary Duty’ (1989) 9 OJLS 260. 138  Brown v Bennett [1998] 2 BCLC 97, 105, affirmed by the Court of Appeal [1999] 1 BCLC 649, 659. 139  Royal Brunei Airlines v Tan [1995] 2 AC 378 (PC). 140  ibid 384–87.

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v Yardley,141 the majority in the House of Lords added a rider that the defendant must appreciate that reasonable people would think him or her dishonest. This is no longer considered good law, and was subsequently reversed in Barlow Clowes v Eurotrust,142 a Privy Council decision from the Isle of Man, which returned to the original Tan test. In Barlow Clowes v Eurotrust the directors of Barlow Clowes had misappropriated £100 million, some of which was funnelled with the help of the defendants to a private company, run by one of the directors by the name of Cramer. Henwood, who had aided this scheme, did not know of the trust relationship between Barlow Clowes and the depositors. Can an assistant be said to be dishonest where he or she is ignorant of this? The Privy Council said yes. Henwood ought to have realised that the money was not Cramer’s own; it did not matter that he had not known the precise form of the fraud.143 Abou-Rahman v Abacha followed Barlow Clowes.144 The court held that dishonesty was present where a person’s state of knowledge of the facts rendered that person’s participation in the scheme contrary to the standards of honest people. However, if there is a suspicion of the relevant breach and a conscious decision not to make follow up enquiries this type of ‘blind eye’ dishonesty will suffice.145 One important question that has been raised is the impact of market practice. In Secretary of State v Topland146 on an application to strike out parts of Topland’s defence the judge said that market practice and the defendant’s beliefs as to what counted as market practice were relevant to whether they were acting dishonestly.147 This is about as much as can be done on a strike-out application, but the judge cogently pointed out that this was because we judge dishonesty objectively, but on the basis of the position or facts as the defendant actually believed them to be. He also argued market practice must be relevant to the court’s determination of whether the defendants’ conduct was objectively dishonest since the court has to determine, amongst other things, whether the conduct was ‘commercially unacceptable conduct’.

B.  Knowing Receipt Like dishonest assistance, knowing receipt is a wrong. It is the wrong of misdealing with someone else’s property.148 This is controversial. In Twinsectra v Yardley Lord Millett said that the difference between dishonest assistance and knowing receipt was that the latter

141  Twinsectra Ltd v Yardley [2002] UKHL 12, [2002] 2 AC 164; C Rickett, ‘Quistclose Trusts and Dishonest Assistance’ (2002) RLR 112. 142  Barlow Clowes v Eurotrust [2005] UKPC 37, [2006] 1 All ER 333; J Palmer, ‘The Privy Council on Being (Dis)honest about Dishonest Assistance’ (2005) 24 University of Queensland Law Journal 539; T Yeo, ‘Dishonest Assistance: A Restatement from the Privy Council’ (2006) 122 LQR 171. See also Otkritie International Investment Management Ltd v Urumov [2014] EWHC 191 (Comm). 143  See also Agip (Africa) Ltd v Jackson [1990] Ch 260, 285 (Millett J). On the continued use of Twinsectra in the context of solicitor’s disciplinary matters see Kiani v SRA [2015] EWHC 1981. 144  Abou-Rahman v Abacha [2005] EWHC 2662, [2007] 1 Lloyds Rep 115; Starglade Properties Ltd v Nash [2010] EWCA Civ 1314. See also Hudson Equity and Trusts (2017) (n 78) 804–813; P Shine ‘Dishonesty in Civil Commercial Claims: A State of Mind or a Course of Conduct?’ [2012] JBL 29. 145  Glen Dimplex Home Appliances v Smith [2011] EWHC 3392 (Comm), [48] (Hirst QC); SPL Private Finance (PFI) IC Ltd v Arch Financial Products LLP [2014] EWHC 4268 (Comm). 146  [2011] EWHC 983 (QB). 147  ibid [94–102] (King J). 148  Sheehan, ‘Disentangling Equitable Personal Liability for Receipt and Assistance’ (2008) (n 130) 43–54.

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is receipt based. It is restitutionary, and there may be no mental element to the action.149 There is powerful academic support for this as well.150 However, there is little case law support for it. Almost invariably a mental element is required, although the nature of that is unclear. Additionally, the proprietary remedy is based on unjust enrichment, and there seems no room for an additional unjust enrichment action. The proprietary remedy, if you like, is based on what the defendant has, knowing receipt on what he or she has done. This section sets out the prerequisites for liability in knowing receipt. In Agip (Africa) Ltd v Jackson, Millett J divided knowing receipt into two cases. The first is where a stranger knowingly receives trust property in breach of trust. The second is where an agent receives property ministerially and then uses it inappropriately.151 It has therefore been called knowing receipt or dealing. In either case, like dishonest assistance there needs to be a prior wrong; this must be a breach of trust. It is usually said, however, that any breach of fiduciary duty will do, thus cases of misappropriation of company property will be covered, and in fact there are large numbers of knowing receipt cases that involve misappropriations and misuse of company property. The other prerequisites are receipt, and knowledge. Traditionally, the requirement has been for beneficial rather than ministerial receipt. This implies first that there was a receipt of assets. The third party defendant must have actually received something, been paid or had the assets put in the defendant’s hands. A simple contractual right to receive them in the future will not suffice.152 In most cases a tracing exercise will be required to identify the assets in the defendant’s hands. That receipt must then be beneficial. To be liable for knowing receipt the defendant must receive the asset for his or her own benefit and not on behalf of any other party.153 That means that the asset must come into the third party’s hands without any specific obligation attaching to it to use it only in ways permitted by another. If a party receives trust assets, knowing that they are given in breach of trust, but hands them over to his or her principal, that party will not be liable. While this may seem unfair, reflect that the principal does receive beneficially, and therefore liability potentially attaches to the principal. This requirement is important. It impacts on the boundary with dishonest assistance; in Twinsectra v Yardley money was loaned to Yardley on condition that it should only be used to purchase certain property. The solicitor, Leach, released the money without any assurance that Yardley would use it appropriately. He did not. That negative condition was said to give rise to a trust (a Quistclose trust in fact although that is not important for present purposes).154 The maximum possible liability of Leach for knowing receipt was said to be £22,000. That was the amount he received in fees, and liability in knowing receipt was based on the fact that he had received the money to use solely on his own behalf and for his own benefit. The rest of the money he handled on behalf of Yardley and so he could only be liable with regard to that sum for dishonest assistance.155 149 

Twinsectra v Yardley [2002] 2 AC 164 (HL) 194. Enrichment (2005) (n 68) 156. Agip (Africa) Ltd v Jackson [1990] Ch 265, 291–92; the decision on knowing receipt was not challenged in the Court of Appeal [1991] Ch 547. See also Air Canada v M&L Travel [1993] 3 SCR 787. 152  Criterion Properties Ltd v Stratford Properties Ltd [2004] UKHL 28, [2004] 1 WLR 1846. On contracts and knowing receipt more generally see M Conaglen and R Nolan ‘Contracts and Knowing Receipt: Principles and Application’ (2013) 128 LQR 359. 153  Westpac Banking Corporation v Savin [1985] 2 NZLR 41; Carl Zeiss v Herbert Smith [1969] 2 Ch 269; M Bryan, ‘When does a Bank Receive Money?’ (1996) JBL 165. 154  Twinsectra v Yardley [2002] 2 AC 164 (HL) 183–85 (Lord Millett). 155  ibid 194. 150 Birks, Unjust 151 

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This boundary question comes up frequently when banks are concerned. The usual answer given is that the bank is liable for knowing receipt where the account is in overdraft because the money is applied to pay off a debt owing to the bank, but not if the account is in credit. This is because where the account is in credit the bank is obliged to hold the money for the benefit of the customer. The banking relationship is, however, one of debtorcreditor, although an agency is super-added or engrafted.156 In other words, when the bank receives money into a bank account property passes. It becomes the bank’s money, subject to an obligation to pay the bank account holder, normally on demand.157 Mitchell argues therefore that where the bank receives money directly from the account holder, it is liable in knowing receipt. In those cases the sole transaction is a loan from the account holder to the bank, or alternatively the application of funds in discharge of a loan by the bank. Millett J’s suggestion in Agip (Africa) v Jackson that the bank can only be liable for receipt if the account is in overdraft is, according to Mitchell, incorrect.158 Where the bank receives from third parties there is no receipt liability. As agents, despite the fact the money itself becomes theirs on the bank’s borrowing it or using it to reduce the account holder’s overdraft the bank is immediately accountable on payment to the account holder, and therefore only liable in assistance.159 Knowledge is the more widely discussed element. It is generally agreed that the law is in confusion at best, complete disarray at worst. The most recent major case, and best opportunity to clear this mess up, was BCCI v Akindele.160 That case involved Chief Akindele paying Bank of Credit and Commerce International $10 million on a share purchase scheme which was guaranteed, so he was promised, to make a huge return. In fact the return was so enormous ($7 million over three years) that it was said he had to have known that there was something fraudulent occurring. Akindele did not, however, have actual knowledge of the fraud. Actual knowledge, which amounts to dishonesty, has always been sufficient, although not necessary.161 There has been controversy over how much less is required. Prior to BCCI v Akindele the courts used to measure knowledge against the Baden Delvaux scale. This was a five point scale: 1. 2. 3. 4. 5.

Actual knowledge. Wilful shutting of eyes to the obvious. Wilfully and recklessly failing to make inquiries which a reasonable person would. Knowledge of facts which would indicate the truth to a reasonable person. Knowledge of facts putting a reasonable person on inquiry.

Controversy had raged over the appropriate point on the scale to draw the line and whether constructive notice or knowledge was the appropriate test,162 and whether commercial 156 M Bryan, ‘Recovering Misdirected Money from Banks’ in FD Rose (ed), Restitution and Banking Law (Oxford, Mansfield Press, 1998) 161, 168; Evans v European Bank [2004] NSWCA 82; (2004) 61 NSWLR 75, 106. 157  Bryan, ‘Recovering Misdirected Money from Banks’ (1998) (n 156) 182; Foley v Hill (1848) 2 HLC 28, 9 ER 1002. 158  Agip (Africa) v Jackson [1990] Ch 265, 291. 159  C Mitchell, ‘Assistance’ in PBH Birks and A Pretto (eds), Breach of Trust (Oxford, Hart, 2002) 139, 184–86; British North American Elevator v Bank of British North America [1919] AC 658; Air Canada v M&L Travel [1993] 3 SCR 787; Portman BS v Taylor Hamlyn Neck [1998] 4 All ER 202. 160  BCCI v Akindele [2001] Ch 437 (CA). 161  Belmont Finance v Williams [1980] 1 All ER 393. 162  Nimmo v Westpac [1993] 3 NZLR 218; Eagle Trust v SBC Securities [1992] 4 All ER 488; Cowan de Groot v Eagle Trust [1992] 4 All ER 700; PPI v Nadir (no 2) [1992] 4 All ER 769; BCCI v Akindele [2001] Ch 437; Houghton

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cases should be treated more leniently.163 Nourse LJ in BCCI v Akindele explicitly said that reference should no longer be made to the scale, and introduced the unconscionability test. The recipient is liable if his or her knowledge was such that it would be unconscionable to let the recipient retain the asset.164 Before Akindele arguments raged over precisely how much knowledge was needed. After Akindele the same sort of arguments are unresolved, but couched in the language of unconscionability and fairness, and in point of fact arguments over the Baden scale still get raised, as in Armstrong v Winnington Networks Ltd.165 That case involved a discussion of knowing receipt and bona fide in the context of an attempt by the ‘true owners’ of carbon credits to recover from the purchasers of the credits after hackers had broken into the electronic registry recording their entitlements to steal them. Morris QC, dubiously, suggested the hackers were trustees and therefore the purchasers might be knowing recipients. He said knowledge on the first three points of the scale would count as showing sufficient knowledge.166 In other words, knowledge sufficient for knowing receipt is a mirror image of bona fide purchase. If you are not a bona fide purchaser you will be a knowing recipient.167 In Arthur v AG of the Turks and Caicos Islands168 Sir Terence Etherton referred to knowledge amounting to equitable fraud,169 which rather begs the question of what equitable fraud means, but it is clearly more than simply not being a bona fide purchaser; ie you can be liable for a proprietary claim, but not be a knowing recipient on this view. More recently still, Lord Neuberger has concluded liability is founded on dishonesty, and Virgo has agreed that a dishonesty standard is appropriate.170 A few things, however, seem clear. The knowledge must relate to the specific transactions impugned. Although Akindele knew of the general difficulties that the bank was having in 1987–88, Nourse LJ decided that this knowledge did not mean that he should be made liable. Actual knowledge of circumstances surrounding the particular transaction seems to be necessary, and the difficulties gave no reason to question a transaction actually entered into in 1985. As with dishonesty we need to ask whether the defendant knew enough; this should be less than would be required for a finding of dishonesty,171 although how much less is unclear. It may be, as we have seen, although it is not universally accepted, that the test for knowledge in knowing receipt cases is the mirror image of that in bona fide purchase and this does not seem unreasonable, and is simpler than the Arthur view. Liability in knowing receipt cases is limited to the amount received by the defendant at the point the recipient has sufficient awareness. It is a liability to restore the trust fund to the v Fayers [2001] Ch 437 (CA) 451–52; International Sales v Marcus [1982] 3 All ER 551; Belmont Finance v Williams [1980] 1 All ER 393; Hillsdown Nominees v Pensions Ombudsman [1997] 1 All ER 862, 900–03 (Knox J); Cigna Life Insurance v Westpac [1996] 1 NZLR 80; Citadel General Assurance v Lloyds Bank Canada [1997] 3 SCR 805. 163 

SBC v Eagle Trust [1993] 1 WLR 484. BCCI v Akindele [2001] Ch 437 (CA) 454. 165  [2012] EWHC 10, [2012] 3 WLR 835. 166  ibid [132]. 167  ibid at [122–123] (Morris QC); Credit Agricole Corporation and Investment Bank v Papadimitriou [2015] UKPC 13, [2015] 2 All ER 974, [33] (Lord Sumption); Otkritie International Investment Management Ltd v Urumov [2014] EWHC 191 (Comm), [83] (Eder J); see generally D Sheehan ‘Bona Fide Purchase, Knowing Receipt and Proprietary Claims to Land and Carbon Credits’ (2013) 24 King’s LJ 424. 168  [2012] UKPC 30. 169  ibid [36]. 170  Williams v Central Bank of Nigeria [2014] UKSC 10, [2014] AC 1189, [69]; Vestergaard Frandsen v Bestnet [2013] UKSC 31, [2013] 1 WLR 1556; Virgo(2015) (n 89) 650–651. 171  BCCI v Akindele [2001] Ch 437 (CA) 448. 164 

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beneficiary. As Peter Jaffey has pointed out, this amounts in the standard case to the surviving value in the hands of the defendant plus any loss subsequent to the defendant’s acquisition of the relevant knowledge.172 If therefore I receive £100 I cannot usually be liable for more than a £100, and if I dissipate £50 before I discover the fact if the breach of trust, I will only be liable—in knowing receipt—for £50. However, any profits that the defendant makes as a result of the receipt of the property are also claimable.173 If therefore I use that £50, after I discover the facts, to make a further £50, I will be liable for £100.

VI. Conclusion Claims contingent on tracing come in different forms—they may be proprietary and therefore necessarily based on assets traceable and still in the hands of the defendant or personal and based on receipt of assets, irrespective of where they now are. There will be scope for other remedies—against the trustee, and dishonest assistants and the chapter has attempted to chart the relationship between the claims. It has concentrated on proprietary claims contingent on tracing, and although tracing is commonly considered difficult, the rules are logical and coherent. There are theoretic difficulties with the relationship between these claims and unjust enrichment, which in particular raises questions of the juridical nature of knowing receipt, but largely the doctrinal shape of the law is clear.

172 

P Jaffey, Private Law and Property Claims (Oxford, Hart, 2007) 190–91. City Index v Charter Plc [2006] EWHC 2508, [2007] 1 WLR 26, appealed [2007] EWCA Civ 1382, [2008] Ch 313; C Mitchell and S Watterson, ‘Remedies for Knowing Receipt’ in C Mitchell (ed), Constructive and Resulting Trusts (Oxford, Hart, 2010) 115, 142–44. 173 

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10 Bailment and Attornment I. Introduction We saw in the first chapter that possession is a very important concept in English personal property law. Possession carries with it a prima facie right to possession and this is protected, as we saw in chapter eight via tort law—the torts of conversion and trespass to goods in particular. It also has some quite odd results. One of these is that even a thief can sue for conversion. The concept of bailment makes use of these features of legal title. The chapter is divided into three further main parts. The first asks what bailment is and the second the same of the related idea of attornment. The third addresses the commercial uses of bailment and the fourth and final part the question raised by Gerard McMeel as to whether the law of bailment is necessary or redundant.1

II.  What is Bailment? A student takes his jacket to the drycleaners, or hands over his coat to the cloakroom attendant in a nightclub, or a business has goods shipped between offices and warehouses. These could all be bailments where possession is handed over to another who voluntarily undertakes to keep and redeliver the goods, or they may simply be cases where the nightclub or shipper has custody of the goods. We came across custody in chapter one;2 this chapter looks at the bailment relationship. The difference is important, however. What matters is the purpose for which the transfer of the asset takes place. The nightclub example is analogous to Lin’s restaurant example where a diner’s coat is put on a coat hook by a waiter, but things might be different if the restaurateur makes arrangement for safe deposit and a postman is not a bailee of the post because he cannot exercise independent control.3 This section is divided into three. The first assesses the prerequisites for a bailment. The second looks at the rights between the bailor and bailee, and the third at termination. The fourth examines rights as against third parties and the fifth at involuntary bailments.

1  G McMeel, ‘The Redundancy of the Concept of Bailment’ in A Hudson (ed), New Perspectives on Property Law, Obligations and Restitution (London, Cavendish, 2004) 247. 2  Chapter one, part III B. 3  TY Lin, Personal Property Law (Academy Publishing Singapore 2014) 192–193.

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A.  Prerequisites of Bailment We say that the bailor retains constructive possession of the asset. What is critical is that both the bailor and the bailee have title to the asset. The bailee has a lesser title, and this is why we cannot say that title has passed from the bailor. If it had there would have been a transfer of ownership by delivery, covered in chapter two, part IV. There are therefore three prerequisites for a bailment: 1. There must be a transfer of possession. 2. The bailor must have a superior right. 3. The bailee must have a lesser legal title. Ashby v Tolhurst4 illustrates the rule that there must be a delivery, or transfer of possession. The owner of a car left it in the defendant’s car park, and on returning found that the car had been delivered to a third party. The Court of Appeal held that the relationship between the owner of the car and of the car park was one of licence. The car owner had a contractual licence to leave his car there. There would only be a relationship of bailment if legal possession of the car passed.5 Intangible property cannot therefore on the face of the matter be bailed,6 although it is possible to have bailments mediated through documents such as bills of lading, which are documents of title entitling the holder to immediate possession of the goods subject to them.7 We saw in chapter two that there is a good argument that software should be counted as goods for the purpose of the Sale of Goods Act 1979. In chapter eight we saw that Green argues software should be convertible.8 If so, there is no reason why it ought not be susceptible to being bailed, although we also saw the difficulties that such an argument entails. The relationship of superior—lesser title is reflected in the requirement of redelivery to the bailor (or at the very least to cover cases of permanent loan, potential liability to redelivery).9 That must be redelivery in specie, although there is an exception for fungible goods. In Mercer v Craven Grain Storage10 it was decided that the bailee of a quantity of grain did not have to deliver the exact grains of wheat back. It was sufficient that he deliver an equivalent quantity. The defendant storage society signed agreements with member farmers to store their grain and handed back certificates showing the weight and grade deposited. The grain was stored as a commingled mass and reduced and replenished from time to time. The storage society sought to defend an action for conversion when they failed to redeliver by saying the farmer had lost title, but the House of Lords took the view that the farmers 4 

Ashby v Tolhurst [1937] 2 KB 242 (CA). ibid 250. 6  Although eg dematerialised securities may be subject to a similar regime. AV Beaves, ‘Global Custody—A Tentative Analysis of Property and Contract’ in E McKendrick and N Palmer (eds), Interests in Goods, 2nd edn (London, LLP, 1998) 117. Trust may be a better solution. Lin (2014) (n 3) 263. 7  M Bridge, Personal Property Law, 4th edn (Oxford, Clarendon Press, 2015) 77–78. 8  Chapter eight, part II A. 9  Gamer’s Motor Centre (Newcastle) Pty Ltd v Natwest Wholesale Australia Pty Ltd (1987) 163 CLR 236 (HCA); Harding v CIR [1977] 1 NZLR 337; H Beale (ed), Chitty’s Law of Contract, 32nd edn (London, Sweet and Maxwell, 2015) vol 2 para 33.010; see also N Palmer, ‘Bailment’ in AS Burrows (ed), English Private Law, 3rd edn (Oxford, OUP, 2013) para 16.13. 10  Mercer v Craven Grain Storage Ltd [1994] CLC 328; LD Smith, ‘Bailment with Authority to Mix and Substitute’ (1995) 111 LQR 10. 5 

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had an interest in the mass in proportion to the amount they had deposited, despite the original wheat having been lost. This is slightly different from the case of South Australian Insurance Co v Randell11 where farmers delivered corn to a miller to be ground and could claim an equal quantity of corn on payment of a small charge, but without any stipulation as to the specific bulk from which the corn was to come. Until then, the miller might sell corn out of the stock for his own profit. The Privy Council held that to be a sale. On one view, bailment is also a consensual relationship, said only to require the consent of the bailee.12 Often it will be contractual, but it need not be so. Involuntary bailments where the bailee does not consent are therefore sometimes said to be sui generis.13 The bailee takes on duties to the bailor and presumably must consent to them. At the same time the bailor must presumably consent to the loss of (on his part) possession and this would justify a requirement of mutual consent.14 In The Pioneer Container, however, the bailee carriers had sub-bailed the shipper’s cargo to a sub-bailee. The vessel sank off the coast of Taiwan. The question arose whether the plantiffs could sue in Hong Kong or whether they were bound by the sub-bailee’s exclusive jurisdiction clause, requiring action to be taken in Taiwan only. Lord Goff, giving the advice of the Privy Council, said that bailment was a consensual relationship, and that the sub-bailee by voluntarily taking the goods into his possession created ipso facto a bailment between himself and the owner. That sub-bailment was an authorised one, however. The flipside of this was that the owner’s rights against the sub-bailee were only subject to the exclusive jurisdiction clause if he consented to them or authorised the bailee to enter into the sub-bailment on those terms.15 The question of what would have happened if the sub-bailment had been explicitly forbidden was never entered into by the Privy Council. However, an unauthorised sub-bailment should count as a conversion unless ratified.16 There are, however, cases where goods find their way into the possession of a party by mistake,17 or where the goods are found. There is controversy as to whether these cases of finding or involuntary bailments are really bailment cases. If the bailee’s consent is essential then they cannot be, because in those cases of involuntary or unconscious bailment the bailee can have given no effective consent. Dempster, by contrast, has described bailment as the exercise of a legal power to convey a legal right to exclusive possession, subject to the bailor’s reversionary rights.18 Again that entails that at the very least a finder cannot be a bailee. Palmer has described the debate as ‘pretty pointless’ and comments that the nomenclature used will hardly ever make a difference.19 That is so, yet the bailee’s assumption of responsibility to the bailor is still important in explaining the legal liability he 11 

South Australian Insurance Co v Randell (1869) LR 3 PC 101. The Pioneer Container [1994] 2 AC 324 (PC); A Bell, ‘The Place of Bailment in the Modern Law of Obligations’ in E McKendrick and N Palmer (eds), Interests in Goods, 2nd edn (London, LLP, 1998) 461, 463; Palmer, ‘Bailment’ (2013) (n 9) para 16.01. M Bridge, L Gullifer, G McMeel and S Worthington (eds) The Law of Personal Property (London, Sweet and Maxwell, 2013) para 2.071. 13  LS Sealy and RJA Hooley, Commercial Law: Text, Cases and Materials, 4th edn (Oxford, OUP, 2008) 79. 14  F Pollock, An Essay on Possession in the Common Law (Oxford, Clarendon Press, 1888) 163. 15  The Pioneer Container [1994] 2 AC 324 (PC) 341. 16  Lin (2014) (n 3) 260–261. 17  See for example AVX Ltd v EGM Solders Ltd The Times (7 July 1982). 18  H Dempster, ‘Clearing the Confusion Surrounding Bailment: Bailment as the Exercise of a Legal Power by the Bailor’ (2004) 33 Common Law World Review 295, 303–05. 19  N Palmer (ed), Palmer on Bailment, 3rd edn (London, Sweet and Maxwell, 2009) para 1.045; R Stevens, Torts and Rights (Oxford, OUP, 2007) 11. 12 

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or she takes on even if that is non-contractual liability. Unconscious or involuntary bailments are constructed as a matter of law and any positive obligations would need to be differently explained. Obscure references are sometimes found to quasi-bailment. It is questionable whether the term is useful. Like all ‘quasi’ terminology, such as the now discredited quasi-contract, it should be treated with suspicion. In Metaal Handel JA v Ardfields20 the claimants were dealers in non-ferrous metals and bought a quantity of tungsten rods and employed Ardfields, the quasi-bailor, to store the goods. Ardfields subcontracted to Jones, the quasi-bailee. They never checked Jones’ security and the tungsten rods disappeared. Because Ardfields had never been in possession they were not bailees, but Gatehouse J held its position the same as if they were bailee for Metaal Handel, and therefore they were quasi-bailor.21 Ardfields was therefore liable to Metaal Handel. Although Palmer suggests that this might justify the label quasi-bailment, Ardfields’ liability seems largely dependent on the terms of the contract between itself and Metaal Handel, and in any case, if the subcontract were authorised, Ardfields creates a good bailment relationship between Metaal Handel and Jones.22 There seem to be some significant differences between these two relationships—the quasi-bailor (Ardfields) may not be estopped (unlike Jones) from denying Metaal Handel’s title for example. The term quasi-bailment, however, simply confuses the issue.

B.  Relationship between the Bailor and Bailee Usually bailments are contractual. They do not have to be. There are therefore two aspects to the relationship between the parties. The bailee has the immediate right to possession and therefore has a possessory title to the asset in question. The bailor, if he or she has a right to terminate the bailment, only on certain conditions does the bailor have a reversionary right. If it is terminable at will, the bailor has a right to immediate possession, but one which is relatively stronger than the bailee’s.23 The personal duties between the parties may differ in different cases. It is those we concentrate on here.

i.  Bailor’s Duties If it is a contractual bailment for reward the obvious duty of the bailor is to pay the bailee’s fees and, where appropriate, not retake the goods when the bailee is still entitled to insist that the condition for that be fulfilled. Where goods are hired, for instance, the bailor is subject to an implied term that he or she has a right to transfer possession to the bailee for the duration of the hire period,24 as well as duties to do with the safety and fitness of the 20  Metaal Handel JA v Ardfields [1988] 1 Lloyds Rep 197; The Pioneer Container [1994] 2 AC 324 (PC) 345 (Lord Goff); Palmer, ‘Bailment’ (2013) (n 9) para 16.85; Palmer, Palmer on Bailment (2009) (n 19) para 23.012. 21  Metaal Handel JA v Ardfields [1988] 1 Lloyds Rep 197, 202–03. 22 Palmer, Palmer on Bailment (2009) (n 19) paras 23.011–23.012, 1.038. 23  ibid para 1.333; for an alternative analysis see E McKendrick (ed), Goode on Commercial Law, 4th edn (London, Penguin, 2010) 46–47. 24  Supply of Goods and Services Act 1982 s 7; other implied terms are contained in ss 8–10, which mirror those in ss 13–15 of the Sale of Goods Act 1979; see WJ Swadling ‘The Proprietary Effect of a Lease of Goods’ in E McKendrick and N Palmer (eds), Interests in Goods, 2nd edn (London, LLP, 1998) 491, who denies the proprietary character of a hire, but see Palmer, Palmer on Bailment (2009) (n 19) ch 21.

What is Bailment? 243

goods and the reimbursement of the bailees’ expenses.25 There is some controversy over whether hire of chattels is a bailment, but the hirer consents to take the goods into his or her possession and it should be seen as a bailment. Most of the bailor’s duties are contractual and discussion of them can be safely left to books on contract law. One further point worth making is that where a contract comes to an end the continued existence of the bailee’s duty to care for the goods—in the next subsection—justifies the owner in a continuing obligation to pay expenses or losses relating to the opportunity cost of being unable to take different cargo (say).26 The bailee is also free to sue for damages if the bailor interferes with his or her right to possess the goods where the bailment is for a period and for reward. The bailee has a right to quiet enjoyment. The bailor may also have a duty to collect the goods at the end of the term of the bailment and the bailee has a wide power to sell goods if he or she does not do so, under section 12 of the Torts (Interference with Goods) Act 1977.

ii.  Bailee’s Duties There are two, although it is unclear what if anything remains of the first.27 First, the bailee is unable to deny his or her bailor’s title. More properly it is said the bailee is estopped from doing so.28 By taking the goods, the bailee represents to the bailor that he or she acknowledges the better title held by the latter party. That estoppel applies to all bailees except those by finding, wrongful taking and some others. There was also the cognate rule of ius tertii at common law, which prevented the bailee from setting up third party rights as against the bailor. This has now been abolished by section 8 of the Torts (Interference with Goods) Act 1977, although it was always possible at common law to set up a defence that the bailee was defending an action by the bailor with the consent of and on behalf of the true owner.29 The bailee’s second typical duty is to take care of the goods. If there is a contract, the standard of care will be included in the contract. If not, there is a tort duty, but the burden of proof is reversed. It is not therefore for the claimant to demonstrate negligence. Once the claimant has shown that the bailee had possession at the time it is for the defendant to show that he or she was not negligent.30 The rationale for this rule is simple and understandable; it is based on the ease of proof. Since the goods are physically in the possession of the bailee it is much easier for him or her to show what has happened to them than it is for the bailor, who may be located some distance away. In Coggs v Barnard31 Lord Holt divided bailments up minutely into categories requiring different types of negligence. That case involved the spilling of several gallons of brandy which had been placed in the defendant’s care. Lord Holt identified six categories of bailment, based on the Roman law. These were 25  China Pacific SA v Food Corporation of India [1982] AC 939 (HL) 960 (Lord Diplock); Palmer, ‘Bailment’ (2013) (n 9) paras 16.39–16.40, 16.54. 26  ENE Kos 1 Ltd v Petroleo Brasileiro SA (no 2) [2012] UKSC 17, [2012] 2 AC 164, [24–30] (Lord Sumption). 27  Palmer, ‘Bailment’ (2013) (n 9) paras 16.36–16.38, 16.49–16.52. 28  G McBain, ‘Codifying the Law of Bailment’ [2008] JBL 1, 50; Palmer, ‘Bailment’ (2013) (n 9) para 16.02, 16.21–16.24; Biddle v Bond (1865) 5 B&S 224, 122 ER 1179. 29  Rogers Sons & Co v Lambert & Co [1891] 1 QB 318. 30  McBain, ‘Codifying the Law of Bailment’ (2008) (n 28) 41–43; Port Swettenham Authority v Wu [1979] AC 580 (PC) 590. Bridge et al (n 12) para 2.093. 31  Coggs v Barnard (1703) 2 Ld Raym 909, 92 ER 107; see also Morris v CW Martin & Sons [1966] 1 QB 716 (CA) 725–27.

244  Bailment and Attornment

depositum or gratuitous bailments for the bailor’s benefit; commodatum or a gratuitous loan for the bailee’s benefit; locatio et conductio or hire of goods; vadium or pledge; delivery to a carrier for reward; delivery for a gratuitous service. The case of the brandy fell into this last category, and Lord Holt awarded £10 damages for the loss. Lord Holt also minutely categorised what type of negligence was needed and in which circumstances, from strict liability through slight, ordinary and gross negligence.32 The modern tendency is to require reasonable care and to interpret that contextually. The minutiae of the categories have been rightly abandoned.33 That said, there remains something of an assumption in some cases that bailments for reward carry a higher duty of care than gratuitous bailments, although perhaps less great an assumption than in the past. This division between bailments for reward need not carry this load though. In Houghland v RR Low Ltd,34 Ormerod LJ said: It seems to me that to try to put a bailment, for instance, into a watertight container—such as gratuitous bailment on the one hand, and bailment for reward on the other—is to overlook the fact that there might be an infinite variety of cases…35

The case involved a dispute over bags left in the care of the coach company while the claimants were passengers. The coach had broken down and a relief coach ordered. The unloading of bags from the first coach and transfer to the second was, however, unsupervised. When the claimants found their bags had disappeared on arrival they sued. The coach company was deemed to be liable. The issue cannot, however, be treated as closed. In Port Swettenham Authority v Wu,36 93 cases of drugs, pharmaceutical goods, were shipped to Hong Kong and passed into the possession of the defendant port authority. 64 cases disappeared. The port authority was held liable, but Lord Salmon held that Malaysian law set a common standard of care for bailees.37 In The Winson,38 the cargo owner chartered a vessel to carry wheat to Mumbai. The shop foundered and a portion of the wheat salved and taken to Manila where the salvors attempted to make arrangements for the wheat to be accepted. The cargo owners refused to accept storage charges prior to being notified that the carrier had abandoned the voyage. The House of Lords held that there had at all times been a relationship of bailment between the salvors and the cargo owners once the wheat was offloaded onto barges. Consequently, reasonable charges could be made. Lord Diplock referred to the salvors as having a duty in bailment to take reasonable care over the goods without distinguishing types of bailment.39 To the extent that the bailee is providing a service, he or she is covered by section 13 of the Supply of Goods and Services Act 1982, which requires the bailee to take reasonable care in carrying out the service. There are cases in which the bailee will be strictly liable; he or she may agree to be bound by a higher standard than at common law, and it seems this is effective even in the absence 32  D Ibbetson, ‘Coggs v Barnard’ in P Mitchell and C Mitchell (eds), Landmark Cases in the Law of Contract (Oxford, Hart, 2008) 1. 33  McBain, ‘Codifying the Law of Bailment’ (2008) (n 28) 16–17; Bridge et al (n 13) para 2.087. 34  Houghland v RR Low Ltd [1962] 1 QB 694 (CA). 35  ibid 698; Sutcliffe v Chief Constable of West Yorkshire [1996] RTR 86. 36  Port Swettenham Authority v Wu [1979] AC 580 (PC). 37  ibid 589. 38  China Pacific SA v Food Corporation of India [1982] AC 939 (HL). 39  ibid 960; ENE Kos 1 Ltd v Petroleo Brasileiro SA (No 2) [2012] UKSC 17, [2012] 2 AC 164; McBain, ‘Codifying the Law of Bailment’ (2008) (n 28) 31.

What is Bailment? 245

of consideration.40 More usually it is because of a deviation41 or a very serious breach in the terms of the bailment. The bailor’s right to immediate possession may revive. More controversially the deviation cases indicate that the bailee might lose the benefit of the exclusion clauses in the bailment contract. In Morison & Co Ltd v Shaw Savill & Albion Co Ltd,42 the fact that the carrier had deviated from the agreed route and docked at Le Havre meant that it was not covered by the normal exclusions when the ship was torpedoed by a German submarine. Only if they could prove that the ship would (not just might) have been torpedoed, no matter what else was true, could they avoid liability. This will be very difficult to prove.43 Similarly in Mitchell v Ealing LBC44 the claimant asked for goods, furniture, to be redelivered to her after being evicted from a flat. The council made an error as to where the furniture was going, and it was never collected. Subsequently it was stolen. Because of the council’s negligence in redelivering the goods, the council was strictly liable for the loss.45 A third case is Edwards v Newland & Co46 where the bailees sub-bailed the assets without authority. On the property being bombed thieves were able to get in and the defendant was unable to produce the property. The fact that they had sub-bailed the property without authority meant that they had no defence to the action based on their lack of negligence; they were strictly liable. Photo Productions Ltd v Securicor47 suggested that exclusion clauses would survive ‘a fundamental breach’ of contract, a concept no longer part of English law. Palmer subsequently suggested that the bailee should not automatically lose the benefit of his or her exclusion clauses, even where liability otherwise becomes strict,48 although he concedes that occasionally that might be the appropriate construction of the contract. In PS Chellaram & Co v China Ocean Shipping Co,49 Gleeson CJ commented that the idea that the exclusion clause was inapplicable because of a deviation from the terms of the bailment under the bill of lading reflected ‘notions of fundamental breach and an outdated construction of exclusion and limitation clauses’.50 An action in conversion may lie where goods are lost or destroyed in the hands of a bailee and in breach of his or her duty. Section 2(2) of the Torts (Interference with Goods) Act 1977 provides for a bailee to be a converter if he or she loses, or allows to be lost, goods held under the bailment. An example of a case under section 2(2) is Schwarzschild v Harrods51 where the defendant refused to hand over jewellery to the claimant-bailor. The goods must be demanded and an unequivocal refusal to deliver made; this clearly denies the claimant’s right to possess and therefore his or her title. Sandeman Coprimar SA v Transitos y Transportes 40 

Palmer, ‘Bailment’ (2013) (n 9) para 16.38. On what might count as a deviation see Palmer, Palmer on Bailment (2009) (n 20) para 38.025. 42  Morison & Co Ltd v Shaw Savill & Albion Co Ltd [1916] 2 KB 783; see also Thomas National Transport ­(Melbourne) Pty Ltd v May & Baker Australia Pty Ltd (1966) 115 CLR 353 (HCA). 43  Morison & Co Ltd v Shaw Savill & Albion Co Ltd [1916] 2 KB 783, 795–96; McBain, ‘Codifying the Law of Bailment’ (2008) (n 28) 32; Fletcher Construction Co Ltd v Webster [1948] NZLR 514. 44  Mitchell v Ealing LBC [1979] 1 QB 1. 45  ibid 6–7. 46  Edwards v Newland & Co [1950] 2 KB 534. 47  Photo Productions Ltd v Securicor [1980] AC 827 (HL). 48 Palmer, Palmer on Bailment (2009) (n 19) paras 38.026–38.027. 49  PS Chellaram & Co v China Ocean Shipping Co [1991] 1 Lloyds Rep 493 (the Zhi Jiang Kou). 50  ibid 500. 51  Schwarzschild v Harrods [2008] EWHC 521; S Douglas, ‘The Abolition of Detinue’ [2008] Conv 30, 46–49; S Green and J Randall, The Tort of Conversion (Oxford, Hart, 2009) 78–79; Palmer, Palmer on Bailment (2009) (n 19) paras 1.089–1.090. 41 

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Integrales52 therefore includes discussion not merely of negligence but also conversion when the goods were lost. If the bailee delivers to the wrong person, the bailee is liable even if totally innocent. In Devereux v Barclay,53 trover lay against a warehouseman who delivered to the wrong person by mistake.

iii. Damages Damages liability is calculated in the normal way and both compensatory and, where appropriate, restitutionary damages are available.54 The bailor’s liability for breach of any of the implied terms under the Supply of Goods and Services Act 1982 will be calculated as normal contract damages and that of the bailee for breach of the duty of care as tort damages. Reference should be made to books on contract and tort for the relevant rules. Where the bailee holds under a contractual bailment, contractual rules will normally apply for breach of the express or implied terms. This is subject to the caveat that where goods are lost damages are prima facie their value. This is explicable, however, on the basis that this is not just a breach of contract, but often also a conversion of the goods. It is clear that where the loss is caused by the bailee’s fault, the highest possible value is presumed against the bailee. In Lilley v Doubleday,55 for example, the defendant contracted to warehouse goods, but placed them in a warehouse other than the one contracted for. They were destroyed but without any negligence on his part. He was nonetheless in breach of contract and, as the party in possession of the goods, liable for their value. There is some authority for the proposition that bailment damages are calculated differently from either tort or contract, which may provide a further argument that bailment is a separate head of obligation. The question of whether this is so, and whether bailment is required as a separate concept is discussed later, but the authority for this proposition is scant to say the least.56 Nonetheless, in Building & Civil Engineering Ltd v Post Office Lord Denning said, the general principle was restitutio in integrum—to put the claimant in as good a position as if the goods had not been lost or damaged. Usually this would be the value of the goods, if lost, or the cost of repair.57 If the loss actually suffered is less than the replacement cost claimed, the court must simply make a fact-specific estimate of the loss.58 The loss must flow directly from the breach and not be too remote. Consequential losses such as loss of business profits are not recoverable in the absence of contract. These comments diverge from the usual tort rules. In Yearworth v North Bristol NHS Trust59 the Court of Appeal decided that damages for gratuitous bailments should be calculated on a basis similar to contract damages, despite there being no consideration and no contract.

52 

Sandeman Coprimar SA v Transitos y Transportes Integrales [2003] EWCA Civ 113, [2003] 1 QB 1270. Devereux v Barclay (1819) 2 B & Ald 702, 106 ER 521. on Bailment (2009) (n 19) para 37.029. 55  Lilley v Doubleday (1881) 7 QBD 510. 56 Palmer, Palmer on Bailment (2009) (n 19) paras 37.002–37.003. 57  Building & Civil Engineering Ltd v Post Office [1966] 1 AC 247 (HL) 261. 58  Robot Arenas Ltd v Waterfield [2010] EWHC 115 (QB), [28]; Voaden v Champion [2002] EWCA Civ 89, [2002] 1 Lloyds Rep 623. 59  Yearworth v North Bristol NHS Trust [2009] EWCA Civ 37, [2010] QB 1; see also Building & Civil Engineering Ltd v Post Office [1966] 1 AC 247 (HL) 261 (Lord Denning MR); J Lee, ‘The Fertile Imagination of the Common Law: Yearworth v North Bristol NHS Trust’ (2009) 17 Torts Law Journal 130. 53 

54 Palmer, Palmer

What is Bailment? 247

The normal assumption, however, is that the normal tort remoteness of damage and causation rules apply. In Sutcliffe v Chief Constable of West Yorkshire,60 therefore, the claimant’s car was seized because the police suspected it contained stolen parts. It was detained in a yard overlooked by the police offices for two months, but a vandal got in a set fire to it. This was held not to be reasonably foreseeable given the ingenuity of the arsonist which would have foiled reasonable precautions by the police. In Sandeman Coprimar SA v Transitos y Transportes Integrales SL the claimants obtained paper seals from the Spanish authorities which indicated that duty had been paid on the cargo of whisky. The whisky was then shipped to Spain, but carried by sub-contractors. The seals and some cartons were lost in transit and the owners were forced to pay for the loss of the seals. They sought to recover from the sub-bailees. Having accepted that the general rule on remoteness for negligence in bailment was the same as in tort—reasonable foreseeability of the kind of loss61—Lord Phillips, giving the judgment of the Court of Appeal, said that no carrier who was unaware of the precise nature of the goods could have known that the loss of the cartons would give rise to such heavy liability to the Spanish authorities which was therefore irrecoverable.62 His Lordship confirmed a similar test for conversion—was the type of loss incurred foreseeable? The normal rules on mitigation of loss apply as well. In Bulkhaul Ltd v Rhodia Organique Fine Ltd63 Rhodia wrongfully repudiated a 10-year lease of tanks to transport corrosive chemicals. Bulkhaul accepted the termination. The question on appeal was whether Bulkhaul should have taken steps to mitigate its loss. The judge thought that the claimants who had no use for the tanks should have sold them. This was upheld on appeal. As bailments are frequently contractual, there may be contractual exemption clauses. This is subject to controls in the Unfair Contract Terms Act 197764 or Unfair Terms in Consumer Contracts Regulations 1999. Details of these can be found in contract or consumer law books. Other exclusions can be found in many of the carriage conventions and the English Acts ratifying them and bringing them into force as English law; details of these exclusions can be found in specialised works on carriage of goods by sea, air or on land.

iv.  Sub-Bailment on Terms The idea of a sub-bailment is straightforward enough. The head bailor bails goods to a bailee. The bailee may then be authorised to bail the goods again in order, for example, to get specialist work done that cannot be done by the bailee. Such sub-bailments are either authorised or they are not. In the absence of a particular provision authorisation depends on whether the bailment is personal or not.65 McBain argues that the sub-bailee accepts the position of bailee as against the head bailor through a collateral bailment. If the bailment is unauthorised, it will be a breach of the head bailment and the sub-bailor will be strictly liable to the head bailor, as it will be a deviation from the terms of the original

60  61 

Sutcliffe v Chief Constable of West Yorkshire [1996] RTR 86. Sandeman Coprimar SA v Transitos y Transportes Integrales SL [2003] EWCA Civ 113, [2003] QB 1270 (CA)

1284. 62  ibid 1285. 63  Bulkhaul Ltd v Rhodia Organique Fine Ltd [2008] EWCA Civ 1452, [2009] 1 Lloyds Rep 353. 64  Applied to a case of bailment in Singer Co (UK) Ltd v Tees and Hartlepool Port Authority [1988] 2 Lloyds Rep 164; see Palmer, Palmer on Bailment (2009) (n 19) ch 38 on exclusion clauses. 65  McBain, ‘Codifying the Law of Bailment’ (2008) (n 28) 57–58.

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bailment.66 The sub-bailee is estopped in the normal way from denying the title of the head bailor.67 Many exclusion clause cases studied in contract law courses are in fact cases of exclusions in sub-bailments. These cases usually involve discussions of whether terms in the bill of lading bind the stevedores or whether the stevedores can take advantage of them. These were frequently, prior to the Contracts (Rights of Third Parties) Act 1999, taken to be exceptions to the privity rule in contract and work in the same way as the exclusive jurisdiction clause in The Pioneer Container. The 1999 Act provides in section 1 that third parties are entitled to enforce a contractual provision in their own name if the contract provides that they may do so or the contract purports to confer a benefit on them. In the carriage of goods by sea context, in which many—although not all—of these cases arise there is a caveat to this. Section 6(5) provides that this does not provide third parties with a positive benefit, but only allows them to take advantage of an exclusion or limitation clause. Where a positive benefit is to be conferred, the sub-bailee will need to rely on the common law. In Morris v CW Martin & Sons,68 the claimants sent a mink stole to a furrier to be cleaned. The furrier sub-bailed to a cleaner, one of whose employees stole it. The defendants as subbailees for reward owed a duty of care to the claimant. The important point for present purposes is that there was no direct contractual link between the claimant and defendant. The furrier contracted for the cleaning as principal and not as the claimant’s agent. That did not matter; the sub-bailee was liable. Lord Denning MR held that in these circumstances the sub-bailee is able to rely on exemption clauses in the contract with the head bailee if the owner has expressly or impliedly consented to a sub-bailment.69 In Gilchrist Watt and Sanderson Pty Ltd v York Products Pty Ltd,70 Lord Pearson held that a sub-bailee was prima facie liable in tort to the head bailee, but without calling that relationship a collateral bailment. That step was taken in Johnson, Matthey & Co Ltd v Constantine Terminals Ltd,71 before being enshrined conclusively in The Pioneer Container, although the former case goes too far in holding the bailor bound by the terms of the sub-bailment regardless of authority consent and was overruled by The Pioneer Container, which held that these were essential.72 Mance LJ explained the position further in Marine Blast Ltd v Targe Towing Ltd.73 He said: It is sufficient for the present to concentrate on the distinction between consent to a sub-bailment (or to a simple non-contractual bailment) on terms and consent to the making of a contract by which the original bailor is bound. The two are conceptually different. Consent to a sub-bailment (or to a non-contractual bailment) is by definition different from consent to the creation of a direct contractual relationship between the bailor and sub-bailee. Furthermore, for a bailor to be bound

66  ibid 58–59; Edwards v Newland & Co [1950] 2 KB 534; The Pioneer Container [1994] 2 AC 324 (PC) 338–342 (Lord Goff); Palmer, ‘Bailment’ (2013) (n 9) para 16.83. 67  The Hamburg Star [1994] 1 Lloyds Rep 399, 405–406 (Clarke J). 68  Morris v CW Martin & Sons [1966] 1 QB 714 (CA). 69  ibid 729–30; Sandeman Coprimar SA v Transitos y Transportes Integrales SL [2003] EWCA Civ 113, [2003] QB 1270 (CA). 70  Gilchrist Watt and Sanderson Pty Ltd v York Products Pty Ltd [1970] 1 WLR 1262 (PC). 71  Johnson, Matthey & Co Ltd v Constantine Terminals Ltd [1976] 2 Lloyds Rep 215; A Phang, ‘Sub-Bailments and Consent’ (1995) 58 MLR 422, 424–25; A Tettenborn, ‘Contract, Bailment and Third Parties—Again’ (1994) CLJ 440. 72  Palmer, ‘Bailment’ (2013) (n 9) para 16.83; Palmer, Palmer on Bailment (2009) (n 19) paras 23.033–23.037. 73  Marine Blast Ltd v Targe Towing Ltd [2004] EWCA Civ 346, [2004] 1 Lloyds Rep 721.

What is Bailment? 249 by terms in a sub-bailment (or in a contract to which he is not party), the bailor must have consented to such terms. That does not mean that he must know of them in detail, but they must be of a nature such that he impliedly consents to them.74

Consent to the terms of the sub-bailment may be inferred if sub-bailments are common within the trade and the terms are not expressly or impliedly prohibited.75 In The Starsin,76 Lord Hobhouse said that the sub-bailee would be bound by duties to the head bailor even in the absence of any attornment to him, or recognition of the bailor’s superior rights.77 However, if the bailor sold his reversionary interest an attornment should be required. It is not yet completely clear that the sub-bailee is estopped from denying the head bailor’s title.78 Sub-bailments can either operate to the advantage of the sub-bailee if he or she is able to take advantage of limitation clauses in the head bailment against the bailor, or somewhat to his or her disadvantage if the bailor attempts to rely on more onerous duties in the subbailment than in the head bailment. As we have seen, these are usually cases where the claim is that the exemption clause applies to third parties. The only limit is that the bailor must consent to the terms or authorise sub-bailment on those terms.79 Sandeman Coprimar SA v Transitos y Transportes Integrales SL is therefore also important for the possibility it raises of being able to increase the sub-bailee’s liability. So long as the bailor consents to and authorises the sub-bailment, he or she will be able to rely on all the terms in the subbailment insofar as they can be made applicable to the relationship between bailor and sub-bailee. This may give rise to a contract between the head bailor and the sub-bailee,80 although there is no need to believe there must always be a contract. Contract does not exhaust voluntarily assumed responsibility or liability. One case where the stevedores were not able to take advantage of the exclusion clause is Lotus Cars Ltd v Southampton Cargo Handling Plc.81 A car belonging to the claimants was delivered to the docks and to the stevedores. A standard shipping note was included and signed, with the stevedores’ standard terms. The trial judge found the docks were bailees and the stevedores sub-bailees of the car.82 The car was stolen and Lotus sued in bailment both the port and the stevedores. There was a Himalaya clause excluding liability of the ship owner in the bill of lading, which was also to apply to the stevedores. However, the defendant stevedores had ‘spoken for themselves’ by issuing the separate shipping note and indicated that they wished to be bound by their own terms. This applied whether or not the stevedores were deemed to be sub-bailees of the car.83 74 

ibid 729. Palmer on Bailment (2009) (n 19) para 23.017; examples where consent is implied may include standard terms for a lien over the goods: Jarl Tra AB v Convoys Ltd [2003] EWHC 1488, [2003] 2 Lloyds Rep 459, 466–67. 76  Hombourg Houtimport BV v Agrosin Private Ltd (The Starsin) [2003] UKHL 12, [2004] 1 AC 715. 77  ibid 776. 78 Palmer, Palmer on Bailment (2009) (n 19) paras 23.021, 23.028. 79  Bell, ‘The Place of Bailment in the Modern Law of Obligations’ (1998) (n 12) 480; Palmer, Palmer on Bailment (2009) (n 19) paras 23.040–23.042. 80  Sandeman Coprimar [2003] QB 1270 (CA) 1294–96 (Lord Phillips). 81  Lotus Cars Ltd v Southampton Cargo Handling Plc [2000] 2 All ER (Comm) 705 (CA); The Makhutai [1996] AC 650 (PC); C MacMillan, ‘Elder, Dempster Sails on: Privity of Contract and Bailment on Terms’ (1997) LMCLQ 1. 82  Lotus Cars Ltd v Southampton Cargo Handling Plc [2000] 2 All ER (Comm) 705 (CA) 724. 83  ibid 718–19. 75 Palmer,

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C.  Termination of Bailment A bailment may be at will. In those cases the bailor can terminate it at any time for any reason. Sometimes it is a bailment on condition. A pledge for instance is only terminable if the pledgor redeems the pledged asset by fulfilling his or her obligations—usually repayment of a loan. Where the bailment is a term bailment and the term expires, the bailee if he or she remains in possession, may be treated as an involuntary bailee, and may find that he or she has the right to sell the goods under section 12(3) of the Torts (Interference with Goods) Act 1977 where a date for redelivery has passed and the bailor has not accepted possession despite notice being given to him or her that the goods are ready. The bailee must account for the proceeds of sale. Section 13 of the Act provides the procedure to be used in making the sale. It is also clear that the dual character of bailments as both possessory and proprietary, and frequently contractual, has an impact here. We saw that a bailor could obtain damages from the bailee for breach of personal obligations. As a contract it is also possible for the bailee to commit a fundamental breach. Such a fundamental breach would allow the bailor to terminate the contract on normal principles.84 However,85 it seems that even if a person breaks a bailment if he or she remains in possession, the person may retain a title to defend. In The Anderson Group Pty Ltd v Tynan Motors Pty Ltd, Young CJ in Eq held that a breach could attract both bailment and contractual remedies but that on the facts in that case the remedies were purely contractual and the bailee retained a right to possession. In that case the bailee under a hire purchase agreement negligently allowed the car to be stolen. The question at issue was whether that terminated the hire purchase agreement. There may therefore be events that allow for termination of the contract but not the bailment, or alternatively the contract may only terminate on acceptance, but the bailment immediately and automatically, a distinction which has been described as rather odd.86 A person’s right to possession could be lost on breach, but only on the clearest terms in the bailment.87 There is a separate rule that at common law any act repugnant to or inconsistent with the bailment brings it to an end.88 It may for instance be that the bailee attempts to sell the asset.

D.  Rights against Third Parties Both bailors and bailees may have the right to immediate possession. If so, both are able to sue third parties to protect that title in either conversion or trespass to goods. It is that right to enter into immediate possession that suffices.89 This will be the case where the bailment 84  For termination for breach, see generally E Peel (ed), Treitel’s Law of Contract, 14th edn (Sweet and Maxwell, London, 2015) ch 18. 85  L Aitken, ‘Recovery of Chattels in the Common and Civil Law: Possession, Bailment and Spoliation Suits’ (2008) 82 Australian Law Journal 379, 390–91; The Anderson Group Pty Ltd v Tynan Motors Pty Ltd [2006] NSWCA 22, (2006) 65 NSWLR 400. 86  The Anderson Group Pty Ltd v Tynan Motors Pty Ltd [2006] NSWCA 22, (2006) 65 NSWLR 400, 411 (Young CJ in Eq). 87  Union Transport Finance Ltd v British Car Auctions Ltd [1978] 2 All ER 385; Chitty (2012) (n 9) para 33.023. 88  Donald v Suckling (1866) LR 1 QB 585. 89  Nicolls v Bastard (1835) 2 Cr M & R 659, 150 ER 279; Transcontainer Express Ltd v Custodian Security Ltd [1988] 1 Lloyds Rep 128; Islamic Republic of Iran v Barakat Galleries Ltd [2007] EWCA Civ 1374, [2009] QB 22,

What is Bailment? 251

is one at will, enabling the bailor to call the goods back from the bailee. Sometimes it is said that the owner of the asset has general property and the bailee special property. These are fairly opaque phrases, however, and will not be used in this book. If the bailor does not have an immediate right to possession, the bailor will not be able to sue in conversion, although he or she may be able to sue for reversionary injury on which see chapter eight, part IV. This will occur where the bailment is for reward and for a period. This will also be true in cases of pledge dealt with in chapter 12, part II or finance leasing or hire purchase which we examine later in parts IV A and B of this chapter. Two contrasting examples should suffice to make the point. In East West Corporation v DKBS90 the defendant carriers carried the claimant shipper’s goods to Chile and cleared them through customs, delivering them without presentment of the bill of lading to one of the buyers. The buyers never paid the price to the claimant shippers, who sued the carriers in contract, tort and bailment. One of the objections raised was that since the bill of lading named a number of banks as consignees, the cause of action was transferred to them. However, the consignee banks were said to be merely the claimant’s agents. The claimants therefore retained the right to immediate possession at all times, despite the transfer of the bill. This entitled them to sue in conversion. In HSBC Rail (UK) Ltd v Network Rail Infrastructure Ltd,91 a train was damaged in a derailment. The relevant train operating company was compensated, but the bailor of the train, the claimant leasing company, also wished for compensation. The Court of Appeal held that a bailor without possession or an immediate right to possession only had a limited interest. This does not prevent the bailor from suing; there is a residual tort to protect the claimant from damage to his or her reversionary interest. This is the tort of reversionary injury. The Court said, however, that there was no need for such a bailor to be compensated if the goods had been repaired. That said, where the bailor has suffered a loss because the bailee is unwilling or unable to repair the goods, he or she will have suffered a real loss and be entitled to compensation, but on the facts HSBC had been indemnified by GNER (the train operating company) for the unrepairable carriages and the repairable ones had been repaired.92 This raises the question as to what happens should both parties sue. In The Winkfield, Collins MR said that actual possession was good against a wrongdoer; the wrongdoer must treat the possessor as owner.93 In addition it is clear from the Jag Shakti94 that a claimant who enjoys merely a right to immediate possession may also recover the full value of the asset in question. Consequently, the bailee can obtain the full value of the asset plus (probably) any consequential damages there may be. However, it appears that lienees and the bailor in a hire purchase agreement can only recover the balance outstanding on their security or the hire purchase agreement. It remains to be settled how far those consequential losses go and whether they cover personal losses from any contractual arrangements the bailee has entered into with the 34–36 (Lord Phillips of Worth Matravers); Palmer, Palmer on Bailment (2009) (n 19) para 4.003; chapter eight, part II and III deal with these torts. 90  East West Corporation v DKBS [2003] EWCA Civ 83, [2003] QB 1509; for a serious critique of the case see Dempster, ‘Clearing the Confusion Surrounding Bailment’ (2004) (n 18) 325–27. 91  HSBC Rail (UK) Ltd v Network Rail Infrastructure Ltd [2005] EWCA Civ 1437, [2006] 1 All ER (Comm) 345. 92  ibid 354–55; see also East West Corporation v DKBS [2003] EWCA Civ 83, [2003] QB 1509, 1532–33. 93  The Winkfield [1902] P 42 (CA) 54–55. 94  The Jag Shakti [1986] AC 337 (PC).

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bailor or third parties.95 In Millar v Candy96 the dispute was over whether $1704 awarded as economic loss damages after early termination charges were incurred on the hire purchase agreement were available. The order made by the Federal Court indicates that they were not and that the claim must relate directly to the cost of replacement or repair. Blackburn J, by contrast, suggested economic loss should in principle be recoverable.97 This position seems preferable in principle and the first instance decision of Sheppard J98 awarding the damages should have been upheld. As between the bailor and the bailee, the bailee must account to the bailor for the latter’s losses, and may hold the surplus over his or her own losses as trustee.99 The defendant then has a defence to a claim brought by the bailor. Likewise, a successful action by the bailor will serve to bar recovery by the bailee. In O’Sullivan v Williams100 the first claimant lent his car to the second claimant, his girlfriend. The car was irreparably damaged by the toppling of a digger onto the car. The first claimant recovered for the value of the car and the Court of Appeal was asked whether the second claimant could claim for loss of the use of the car. She could not. Fox LJ said that once the bailor had settled, the bailee was unable to bring an action.101 This obligation to account is now contained in section 7 of the Torts (Interference with Goods) Act 1977, which appears to assume it is a personal liability to account,102 and largely replicates the common law position. The section provides that where two parties have causes of action based on interference with goods, the relief awarded shall avoid double recovery in cases where both parties are joined to the action. If they are not both parties the claimant shall pay the relevant amount to the other party, or in extremis refund the wrongdoer. Section 8(1) of the Act allows the wrongdoer to set up the rights of a third party which are better than those of the claimant. This is known as setting up an ius tertii and it has been held to apply where a defendant can show that a third party had a superior right to the goods at the time of the conversion.103 At common law this was not usually permitted and was usually seen as an aspect of the bailee’s estoppel unless one of five exceptions applied: 1. The true owner of the goods appeared and demanded the goods. 2. The bailee was defending the action with the knowledge and authority of the true owner. 3. The bailee may also have become in the intervening period the true owner, which terminates the bailment and the bailee’s estoppel. 4. The bailee may have located the true owner, and redelivered the goods to the owner. 5. Hire purchase104—the bailee may invoke the lessor’s lack of title as a defence to actions for payment under the hire purchase agreement. 95 Palmer, Palmer

on Bailment (2009) (n 19) para 4.085. Miller v Candy (1981) 38 ALR 299 (FCA). 97  ibid 306–08; Palmer, Palmer on Bailment (2009) (n 19) para 4.106. 98  Miller v Candy (1980) 39 ACTR 74. 99  Mathew v TM Sutton [1994] 1 WLR 1455; N Palmer, ‘Possessory Title’ in E McKendrick and N Palmer (eds), Interests in Goods, 2nd edn (London, Lloyds, 1998) 63, 67; the claim is restitutionary in character: G McMeel, ‘Complex Entitlements: The Albazero Principle and Restitution’ (1999) RLR 21, 28. 100  O’Sullivan v Williams [1992] 3 All ER 385 (CA). 101  ibid 388. 102 Palmer, Palmer on Bailment (2009) (n 19) paras 4.136–4.140; McMeel, ‘Complex Entitlements: The Albazero Principle and Restitution’ (1999) (n 99) 30–31. See Bridge et al (n 12) para 6.022 on the possibility of an equitable proprietary claim in addition to the accounting obligation. 103 Palmer, Palmer on Bailment (2009) (n 19) para 4.058. 104  ibid paras 4.032–4.043; see Webb & O’Connell v AG [1988] IR 353 (SC) 376 (Finlay CJ). 96 

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Palmer suggests that there is nothing to compel the conclusion that the normal exceptions to ius tertii have been abolished, leaving section 8 as the only such procedure. In any case it is important that the section only applies to the wrongful interference torts and will not be at issue in any other claim.105 The third party may now also under section 8(2)(c) of the Torts (Interference with Goods) Act 1977 be joined as a party to the action. Indeed, as a result of CPR 19.5A this always happens, and leaves the commonsense position in the Winkfield of one single action deciding the issue intact.

E.  Involuntary Bailees and Finders Cases of involuntary bailment arise where a party receives unsolicited goods. Where the Unsolicited Goods and Services Act 1971 applies, the recipient is entitled to treat the goods as an unconditional gift, provided the goods are sent with a view to the recipient acquiring them and the recipient has no reason to believe that they are sent with a view to being acquired in the course of a trade. This protection is broadly only available to consumers. In other cases involuntary bailees may have the right to sell goods under section 12(3) of the Torts (Interference with Goods) Act 1977.106 There appears no right, however, for the bailee to recover the costs of the storage of any unwanted goods.107 The conventional theory is that an involuntary bailee is not liable for negligence unless in the course of misdelivery of the goods. In misdelivery cases where an involuntary bailee, say a person receiving goods in error, delivers to the wrong person in good faith, he or she is only liable for conversion in cases of negligence.108 This is a clear exception to the rule in conversion that the tort is one of strict liability, and Palmer argues on this basis that the defence of contributory negligence should be available,109 despite its unavailability in the standard case of conversion. This is based on a policy that an involuntary bailee should be exonerated if he or she conscientiously acts to return the goods or mitigate his or her responsibility to the owner of the goods. Palmer describes the equation of bailee and finder as imperfect.110 Although a finder does acquire possessory title to the item, a bailment entails freely accepted obligations to the bailor. There is no way for the finder to know initially who his or her bailor is and therefore such obligations are hard to apply. At common law it has been said that the duty of a finder or recipient of mistakenly sent goods is to take reasonable steps to return the goods to their owner.111 Such an obligation, if present, cannot be seen as a bailment obligation. However, the authority for such an obligation, particularly in the context of finding is equivocal,112 and Hickey has said there is no such obligation on finders.113 This should also apply to

105 Palmer, Palmer

on Bailment (2009) (n 19) para 4.061. ibid paras 13.054–13.057 107  ibid para 13.028 108  Elvin and Powell Ltd v Plummer Roddis Ltd (1933) 50 TLR 158; Palmer, Palmer on Bailment (2009) (n 19) para 13.016. 109 Palmer, Palmer on Bailment (2009) (n 19) para 13.020. 110  ibid para 26.001. 111  BAB v Parker [1982] QB 1004 (CA) 1018 (Donaldson LJ). 112  R Hickey, Property and the Law of Finders (Oxford, Hart, 2010) 76. 113  ibid 81. 106 

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mistaken consignees. It is certain, however, that finders are subject to the normal rules protecting property. Merely finding the item is not therefore a conversion, but using it or selling it will be so, as will failure to redeliver the item if there is a demand. There may also be liability in negligence if the goods are damaged. The law of theft will also bite in those cases where the finder dishonestly appropriates the goods. Other than abandonment—and we discussed the question whether abandonment of title to personal goods should be allowed in chapter one—where the finder is not in fact appropriating goods belonging to another and where the finder gains a new, indefeasible legal title to the items, there is a defence to a charge of theft under section 2(1)(c) of the Theft Act 1968 such that if the finder believed the owner could not be found by taking reasonable steps, he or she is not dishonest and so not guilty of the offence.114 Despite his or her lack of dishonesty there will still, however, be a conversion of the items. After six years the limitation period for conversion runs out and the finder gains good title. Between the criminal and tort law, the owner has sufficient protection and despite the long lead time the finder can receive an effective entitlement to the goods, unless there is reason to believe the money was the result of criminal activity, even if the finder were innocent.115 The main criticism might though be the long limitation period. In Scotland, by contrast, the period is much shorter. Once lost, property, when found, is to be handed into the police under section 67 of the Civic Government (Scotland) Act 1982; the chief constable may offer it to the finder if after two months the chief constable has failed to identify the true owner and the finder is entitled to ownership of the item at that point.116 It will be critical to distinguish cases of abandonment from simple forgetfulness or loss, and that question may turn on the value of the asset allegedly abandoned. The more valuable, the less likely it is to be abandoned.

III. Attornment The basic idea of attornment is very simple. Assume that I wish to buy goods from a seller. The seller has agreed that those goods be warehoused with a third party. The warehouseman can attorn to me by acknowledging that he or she holds the goods as bailee for me and not for the seller. This will transfer the bailment and do so on the same terms.117 This counts as delivery for the purposes of sales law, although section 29(4) of the Sale of Goods Act 1979 states that this does not affect the law on transfer of title. As we have seen, although title usually passes on delivery it need not do so. Nonetheless, attornment can pass title to a new bailor where the goods are specific or ascertained as it is sufficient for an unconditional appropriation of those goods.118 In those cases where attornment counts as delivery but title does not pass, the third party holds as bailee for the buyer who holds as bailee for the

114 

ibid 151–153; chapter one, part V A. Fletcher v Chief Constable of Leicestershire [2013] EWHC 3357, [2014] Lloyds Rep FC 60. Civic Government (Scotland) Act 1982 ss 68, 70–71. 117  Mitsui & Co v Novorossiysk Shipping Co. [1993] 1 Lloyds Rep 311 (CA) 324 (The Gudermes); Dublin City Distillery v Doherty [1914] AC 823 (HL); Palmer, ‘Bailment’ (2013) (n 9) para 16.79; Palmer, Palmer on Bailment (2009) (n 19) para 25.004. 118  Palmer, ‘Bailment’ (2013) (n 9) para 16.80. 115  116 

Attornment 255

seller, thus creating a sub-bailment. Attornment is also important because rights of suit in bailment do not always follow the transfer of the possessory interest. An important consequence of attornment is that the bailee/attornor represents to the attornee that it accepts the latter as having title, as opposed to the original bailor. Consequently, the attornor is said to be estopped from denying the attornee’s title.119 This estoppel means that an attornee can sue the bailee/attornor not just for breaches of the bailment that take place after the attornment, but also for breaches that occurred before it. The process can also be illustrated by the slightly different scenario in the decision of Michael Gerson (Leasing) Ltd v Wilkinson.120 Emshelf Ltd sold goods to the finance company on a sale and leaseback basis. The goods never left their premises. However, their acknowledgment that they held the goods on account of the buyer where the buyer was accepted as owner counted as a constructive delivery of the goods with an immediate bailment of the goods back to the seller.121 This counts as an attornment by the leasing company. The problems in the case began when Emshelf purported to sell the goods again. In order to decide whether the second purchasers were converters of the goods, the Court had to decide whether there was a valid transfer of title to them. It held that there was by virtue of section 24 of the Sale of Goods Act 1979, discussed in chapter three,122 which creates an exception to the nemo dat rule where there is a seller in possession. The alleged attornment must indicate an intention to pass constructive possession to the attornee,123 and so the attornor must give his or her consent to the attornee, although quite limited actions seem to suffice, such as entering details of the transfer in the warehouseman’s books.124 As in all such cases, the goods attorned must be identified. Where they are not identified, there may be a quasi-attornment, which gives rise to an estoppel. That estoppel then enables the quasi-attornee to sue the quasi-attornor in conversion if goods are not released, because the latter is now unable to lead evidence that the claimant has no proprietary or possessory interest entitling the him or her to demand possession because of his or her representation that he or she was holding goods to the order of or on behalf of the claimant. It seems the representation need not be accompanied by detrimental reliance.125 Like other estoppels, there are no proprietary effects against third parties.126 As with all ‘quasi’ terminology, it should be avoided as unhelpful and unnecessarily confusing, and discussion should instead centre on the estoppel and whether it is appropriate. It seems odd, however, that if the concept is essentially an estoppel that no detriment is required. Indeed, the obscure label quasi-attornment might itself lead to this oddity by suggesting there is something different going on than merely an estoppel.

119  Sonicare International Ltd v East Anglia Freight Terminal Ltd [1997] 2 Lloyds Rep 48; Bridge et al (n 13) para 6.010 also noting the need to qualify this by reference to ss 6–7 Torts (Interference with Goods) Act 1977. 120  Michael Gerson (Leasing) Ltd v Wilkinson [2001] QB 514 (CA). 121  ibid 526. 122  Chapter three, part II E i. 123  The Future Express [1992] 2 Lloyds Rep 79. 124  Laurie & Morewood v Dudin & Sons [1926] 1 KB 223. 125  Maynegrain Ltd v Compafina Bank [1982] 2 NSWLR 141 (NSWCA); Palmer, ‘Bailment’ (2013) (n 9) para 16.80. 126  Re London Wine Co Ltd [1986] PCC 121.

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IV.  Commercial Uses of Bailment As bailment occurs whenever parties voluntarily take property of another into their possession, it has significant uses in commercial law. Some of these we will return to in future chapters. The pledge, for example, is a type of possessory security, which involves the pledgor bailing goods to the pledgee for the duration of the loan.

A.  Hire Purchase Agreements Hire purchase agreements were developed in England to avoid the complexities of the Bills of Sale Acts 1878 and 1882.127 In the late nineteenth century, there was increasingly a need to allow a form of sale of goods on credit, but without allowing the buyer to sell the goods on to a third party before the goods had been paid for. This would have been possible because of the exception to the nemo dat rule allowing buyers in possession to pass good title.128 A hirer under a hire purchase agreement cannot pass title under this exception, but may now do so under the Hire Purchase Act 1964. At the same time lenders did not want to fall foul of the technicalities of bills of sale. A common type of hire purchase takes the form of a bailment. The finance company purchases the car from the manufacturer. The hirer pays the monthly instalments to the finance company and then, depending on the terms of the deal, exercises an option to purchase and pays a nominal, or sometimes quite substantial, amount to buy the car. This definition is now confirmed by section 7 Consumer Rights Act 2015. During the period of the monthly instalments, the customer is merely a bailee. As it is not a contract of sale, the duty to make good title available to the hirer is not found in the Sale of Goods Act 1979, but in section 8 of the Supply of Goods (Implied Terms) Act 1972, or as regards consumer contracts, section 17 Consumer Rights Act 2015; duties in consumer contracts regarding the quality of the goods can now be found in chapter 2, comprising sections 9–16 of the Consumer Rights Act 2015, which covers all contractual bailments between a trader and consumer.129 The hirer has a duty to take care of the bailed goods.130 The courts have not, however, invariably taken this characterisation of hire purchase as a relationship of bailment to its logical conclusion. Where a third party converts the car, the finance company’s interest is merely the diminishing amount of the unpaid instalments.131 In effect it is treated as a security right and the Law Commission proposed in 2002 that hire purchase be brought under its proposed new registration scheme for security interests.132 We examine secured transactions law reform in chapter 15, but we should 127 

J Adams and H McQueen (eds), Atiyah’s Sale of Goods, 12th edn (London, Pearson, 2010) 14–18. Now contained in Sale of Goods Act 1979 s 25(1); see chapter three, part II E ii. Chitty (2015) (n 9) para 33.045; these are the traditional implied terms, which in non-consumer cases are found in the Supply of Goods (Implied Terms) Act 1972; A Samuels, ‘The Consumer Rights Act 2015’ [2016] JBL 159, 162–165. 130  ibid para 39.316. 131  Wickham Holdings v Brook House Motors [1967] 1 WLR 295, and if the goods are wrongfully repossessed by the bailor the bailee’s damages are limited to his or her interest only: Palmer, Palmer on Bailment (2009) (n 19) para 37.031. 132  Law Commission, ‘Registration of Security Interests: Company Charges and Property other than Land’ (Law Com CP 164, 2002) para 7.22. 128 

129 

Commercial Uses of Bailment 257

note that the commonwealth Personal Property Security Acts all treat hire purchase agreements as registrable security interests for the purpose of the Act. That hire purchase agreements in this form are acceptable was confirmed by two House of Lords decisions in 1895. In McEntire v Crossley133 the House was concerned to emphasise that for the Bills of Sale Acts to apply, property in the goods had to belong to the buyer. Here it did not; property was not expressed to pass until the price had been paid. The owners and lessors had the right to repossess the goods if and when instalments were paid. In Helby v Matthews134 the owner of a piano agreed with a hirer that the latter pay monthly instalments; when the agreed term for payment finished the hirer was on exercise of an option to become owner of the piano. The hirer pledged the piano with a pawnbroker before the term was over. The owner was held entitled to recover from the pawnbroker, because the agreement could not be construed as a sale. Lord Herschell said: I think it very likely that both parties thought it would probably end in a purchase, but this is far from shewing that it was an agreement to buy. The monthly payments were no doubt somewhat higher than they would have been if the agreement had contained no such provision. One can well conceive cases, however, in which a person who had not made up his mind to continue the payments for three years would nevertheless enter into such an agreement.135

There may be cases where the default position is that the option to take title is exercised, but where the recipient may elect not to take title even after all the payments under the contract are made. In these circumstances the agreement has been held to be a conditional sale, which would allow the buyer in possession to pass good title.136

B.  Financial Leases Another possibility is the financial lease where the lessee has no option to buy the asset but is still bailee.137 There is no doubt that as a title retention device it serves a security function. Bridge uses it as an example of a title retention device in his discussion of whether English law should revise its personal property security legislation on the same lines as the Personal Property Security Acts in the Commonwealth or Article 9 of the Uniform Commercial Code. On the whole he thinks it should do so and should include such devices.138 The effects of recharacterisation of this—and for that matter, as mentioned above, hire purchase agreements—are dealt with in chapter 15, part II A ii. The usual risks associated with possession are passed to the lessee who pays rental to the lessor at a rate calculated to enable the latter to amortize the capital costs of the equipment and still make a profit. At the end of the primary leasing period, normally calculated as the

133 

McEntire v Crossley [1895] AC 457 (HL). Helby v Matthews [1895] AC 471 (HL). 135  ibid 477. 136  Forthright Finance Ltd v Carlyle Finance Ltd [1997] 4 All ER 90 (CA); McKendrick (n 23) 755. 137  See generally H Beale, M Bridge, L Gullifer and E Lomnicka (eds), The Law of Security and Title Based Financing, 2nd edn (Oxford, OUP, 2012) paras 7.43–7.52. 138  M Bridge, ‘The Exportability of North American Chattel Security Regimes: The Fate of the English Law Commission’s Proposals’ (2006) 43 Canadian Business Law Journal 170, 191–94. See chapter 11, part V A on retention of title clauses, and chapter 15 for further detail on Article 9 of the Uniform Commercial Code and the Commonwealths Personal Property Security Acts. 134 

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expected working life of the equipment, there will be a secondary period where the lessee can renew at a nominal rate; alternatively the equipment may be sold and often most of the sale price will be paid to, or credited to the account of, the lessee.139 In effect the bailment is a device giving the financier a reversionary interest as security for his or her debts. That bailment has been accepted as generating proprietary rights in the bailee. In On Demand Information v Michael Gerson (Finance) Plc,140 a claimant entered into a set of finance leases over video editing equipment in 1994 and 1995. The claimant went into administrative receivership in 1998 and the receiver wished to sell the business including the rights over the editing equipment. The Court of Appeal held that in principle the finance leases could attract relief against forfeiture, which necessitated recognition that the claimant had a property right in the equipment. On the actual facts they refused to actually grant relief because the equipment had already been sold. The House of Lords reversed this, providing for the claimants to have rights over the sale proceeds which were by then held in an escrow account. They accepted, because it was never contested, that possessory title to the equipment had passed giving a right to relief.141

C.  Carriage of Goods by Sea Carriage by rail, road or air can give rise to bailments142 and in the international context each is subject to one or more international conventions. Reference should be made to specialised books for further details. Only a few observations will be made here about sea carriage. We saw in chapter one, part IV C ii the idea of a document of title. At common law we saw that the only such document, giving an immediate right to possession was the bill of lading. When the bill is issued the carrier holds as bailee for the shipper. Subject to any term in the contract, therefore, the common law of obligations arising from that bailment will apply to the relationship between carrier and shipper.143 The purpose behind a bill of lading is to enable the right to possession to be transferred and we saw in chapter six, part IV how this is done by negotiation of the bill and how rights under the contract of carriage are statutorily transferred under the Carriage of Goods by Sea Act 1992. There seems on the face of the matter little reason to rely on the bailment. However, there may be two cases in which the bailment, and any obligations in tort, remains important. First, we saw that where the bailee sub-bails the goods—as where the carrier bails the goods again to a ship owner under a bareboat charterparty—whether the sub-bailee is bound to the head bailor is a matter of bailment. Should the head bailor wish to take action against the sub-bailee, he or she will have to do so in bailment, relying on the accompanying responsibilities in tort. This is so even though those responsibilities may be excluded or

139 

McKendrick (n 23) 767–68. On Demand Information v Michael Gerson (Finance) Plc [2001] 1 WLR 155 (CA); see Bridge et al (n 12) paras 5.011–5.014. 141  On Demand Information v Michael Gerson (Finance) Plc [2002] UKHL 13, [2003] 1 AC 368. 142  In the carriage of goods by road or haulage context, see Wincanton Ltd v P&O Trans European Ltd [2001] EWCA Civ 227, [2001] CLC 962. 143 Illustrated by Exportadora Valle de Colina SA v AP Moller-Maersk A/S [2010] EWHC 3224 (Comm) [31]–[32] (Flaux J); The Torenia [1983] 2 Lloyds Rep 210. Lin (2014) (n 3) 236–243; a time charterer is not a bailee of goods. R Aikens, R Lord and M Bools Bills of Lading 2nd edn (London, LLP, 2016) para 9.40. 140 

Is Bailment Necessary? 259

limited by contractual clauses. Second, unless the carrier attorns to the new holder of the bill, rights under bailment are not transferred.144 East West Corporation v DKBS raised the precise question whether the Carriage of Goods by Sea Act 1992 transfers rights in bailment as well as contractual rights. It was held that it did not although Palmer has criticised this on the basis that it thwarts the purpose of the Act.145 The difficulty is that title to sue under the 1992 Act is divorced from property in the goods which carries with it the right to sue in the tort of negligence.146 This may mean that the party with the right to suit under the Act is not the party who has suffered loss, and the party with the right to sue may under section 2(4), but cannot be forced to, sue on the other’s behalf. A tort claim based on the bailment may therefore be required to give the party suffering loss any remedy at all.

V.  Is Bailment Necessary? We have already seen the vital role that contract plays in ordering bailments. Where there is a contractual bailment, the terms of that contract govern the parties’ relationship. McMeel raises the charge against commentators that they fail to give primacy to the contractual regime and talk of it as a tack-on to a bailment regime,147 although Chitty treats bailment as an example of a special contract in volume two. What this amounts to is the charge that where there is a contract, it adds nothing to describe the relationship as bailment. However, there are two aspects to a bailment. First, there is a bailor-bailee relationship and second there is the relationship with third parties. One of those proprietary rules—that the bailee cannot raise third party rights—has, however, now been abolished by statute. The bailee nonetheless obtains the right to sue third parties in conversion and trespass to goods. This is derived from the bailee’s possessory title to the assets, as is his or her right to insure the goods. McMeel again denies the importance of these rules. He points to the fact that there are other claimants who are able to recover third party losses in contract and account for those losses.148 Those claimants cannot base their recovery on bailment. Further, there are parties who cannot be described as bailees because they have accepted no responsibility for the goods to their ‘bailors’ but who can still sue third parties; such parties include finders. English law has, of course, generally set its face against recovery of third party loss, although McKendrick has questioned why this should be.149 He has argued that damages in contract should no longer be tied to financial losses, but that we should look to the value of the performance. He was discussing the decision in Alfred McAlpine v Panatown,150 where Panatown sued the construction company but the building alleged

144 Palmer, Palmer on Bailment (2009) (n 19) para 20.012; Y Baatz and S Dromgoole, ‘The Bill of Lading as a Document of Title’ in E McKendrick and N Palmer (eds), Interests in Goods, 2nd edn (London, LLP, 1998) 547, 551–52. 145 Palmer, Palmer on Bailment (2009) (n 19) para 20.020; chapter six, part IV. 146  Margarine Union v Cambay Prince [1969] 1 QB 219; The Aliakmon [1986] AC 785 (HL). 147  McMeel, ‘The Redundancy of the Concept of Bailment’ (2004) (n 1) 257. 148  ibid 258–59. 149  E McKendrick, ‘The Common Law at Work: Alfred McAlpine v Panatown’ (2003) 3 Oxford University Commonwealth Law Journal 145, 164–66. 150  Alfred McAlpine Ltd v Panatown Ltd [2001] 1 AC 518 (HL).

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to be defective actually belonged to a third party—UIPL. The judgments in the House of Lords are ambiguous when taken together, but it seems now clear that third party losses are recoverable if there is a special relationship between the third party and the promisee (claimant) and as a result the loss is suffered by the third party.151 The special relationship rule might be extended to the case of bailment, but the bailor does not suffer loss because of the bailment, so a slightly different principle is in play here. McMeel also points to the fact that the licensee of land cannot base his or her claim to trespass to land on bailment.152 That decision, however, has been heavily and correctly criticised by Swadling, who has argued that by allowing the licensee with a purely personal right against the licensor to sue, a third party raises the right of a licensee to that of a property right.153 The same type of reasoning applies here. The basis for allowing the bailee to sue third parties is his or her proprietary right. He or she has a better title to the asset in question than the third party; he or she is not simply a licensee. Indeed McMeel accepts that many cases where third party losses are recoverable are extensions of bailment-type reasoning. Not all are, however. McMeel has also rejected the idea that the insurable interest is based on bailment. A party has an insurable interest154 in the goods if, at the time of the loss, —— —— —— ——

the party was owner of the goods, or a security over them the party was in possession of them the goods were at risk the party was entitled to exercise a right of stoppage in transit. This is a right of the unpaid seller to call the goods back from the carrier as a result of the intervening insolvency of the buyer.155

Obviously, therefore, title to the goods, or possessory title, is not the sole basis on which an insurable interest rests, but it is a basis156 and permits the bailee to recover the full value of the goods, subject to liability to his or her bailor. McMeel points to the fact that in cases such as On Demand Information v Michael Gerson (Finance) Plc, the word bailment is never mentioned157 as evidence that the concept is not needed to decide that the chattel lessee has a proprietary interest. Further, McMeel suggests that while ownership or constructive possession of some sort is required for a claim in tort, this too does not require any talk of bailment.158 The ability to sue in tort for conversion or trespass to goods is based on title. Title is said to be one of the important aspects of bailment, but even an involuntary bailee, who is not always recognised as a true bailee, has title to sue third parties. Other than questions of title, all the obligations between the parties are based ultimately on either an assumption of responsibility, which is a tort idea, or contractual agreement. There are special rules in the bailment context, but some of the alleged

151 

McKendrick, ‘The Common Law at Work: Alfred McAlpine v Panatown’ (2003) (n 149) 165–66. Manchester Airport v Dutton [2000] 1 QB 133. 153  WJ Swadling, ‘Opening the Numerus Clausus’ (2000) 116 LQR 354. 154  Sealy and Hooley, Commercial Law: Text, Cases and Materials (2008) (n 13) 1191–92. 155  Adams and McQueen, Atiyah’s Sale of Goods (2010) (n 127) 459–65; Sale of Goods Act 1979 s 44. 156  Waters v Monarch Fire & Life Insurance Co (1856) 5 E&B 870, 119 ER 705; Hepburn v A Tomlinson (Hauliers) Ltd [1966] AC 451 (HL) 467–68 (Lord Reid); Ramco (UK) Ltd v International Insurance Co of Hanover [2004] EWCA Civ 675, [2004] 2 All ER (Comm) 866, 870–71 (Waller LJ). 157  McMeel, ‘The Redundancy of the Concept of Bailment’ (2004) (n 1) 273. 158  ibid 274. 152 

Is Bailment Necessary? 261

special bailment rules,159 such as the reversal of the burden of proof in negligence claims, have nothing to do with any special nature of bailment but are simply pragmatic procedural rules. It would be odd to rest an entire different substantive category of law on a procedural innovation to make proof easier. We might also point to the reversal of the burden of proof under section 2(1) of the Misrepresentation Act 1967. This does not take the statute out of tort law. It is also said that the fact the duty is non-delegable takes it out of tort. The duty of care of the bailee is non-delegable, but again there are other non-delegable tort duties and even if, as Bell argues, bailment cannot be fitted into the main category of exception,160 it does not prove that it is outside tort law. There remain, however, cases that talk of ‘actions in bailment’. Interestingly, however, despite these modern dicta, it is impossible to find a form of action for bailment prior to the abolition of forms of action and the old writ system by the Common Law Procedure Act 1854. Most recently, Yearworth v North Bristol NHS Trust161 concerned the question of what was to be done with detached body parts, although the actual facts involved donated sperm. Lord Judge CJ, in a section headed ‘bailment’, argued that obligations arise in bailment because the bailee takes possession in circumstances leading to an assumption of responsibility over the thing bailed. The NHS trust was a gratuitous bailee, but still had a duty of care with respect to the sperm, which they had broken. Relying on Palmer,162 Lord Judge CJ held that there was a sui generis liability in bailment and that was aside from any liability in tort.163 It is certainly more than arguable that the NHS trust had assumed voluntary responsibility for the safekeeping of the sperm, in the same way that voluntary assumptions of responsibility can be taken for the correctness of advice,164 but that is still tort law. It is fair to point out that even those authors like Bell who argue that bailment has an important separate role to play in the law, acknowledge that there is a link with tort and that the relationship is a close one.165 Ultimately, McMeel argues that either bailment is redundant or so vestigial as to be easily removed. All cases where it is discussed are explicable by reference to general contract, tort and restitution principles.166 McMeel seems to be right about one thing. Bailees are said to be able to sue third parties because they have title; if the only distinctive thing about bailees is that they can sue third parties, we can rest that purely on possessory title and the relationship between bailee and bailor simply on the contract or normal (or contextually modified) tort law rules. Bailment is little more than shorthand for transfer of possession short of outright sale or other conveyance. That need not mean that the phrase is of no use. It is used and so long as we do not claim too much for it, it causes no harm.

159 

ibid 260–61; Hobbs v Petersham Transport Co Pty (1971) 124 CLR 220. Bell, ‘The Place of Bailment in the Modern Law of Obligations’ (1998) (n 12) 478. Yearworth v North Bristol NHS Trust [2009] EWCA Civ 37; J Lee ‘Yearworth v North Bristol NHS Trust’ in S Douglas, E Waring and R Hickey (eds) Landmark Cases in Property Law (Oxford, Hart, 2015) 25. 162  N Palmer, Bailment, 2nd edn, (London, Sweet and Maxwell, 1991) 44; see in the current edition Palmer, Palmer on Bailment (2009) (n 19) paras 1.097–1099; for (justified) criticism see G McMeel, ‘Bailment, Fertility and the Forms of Action’ (2010) LMCLQ 22. Bridge et al (n 12) paras 2.085–2.086. 163  Yearworth v North Bristol NHS Trust [2009] EWCA Civ 37, [2010] QB 1, 22–23. 164 See Hedley Byrne v Heller & Co [1965] AC 465 (HL). 165  Bell, ‘The Place of Bailment in the Modern Law of Obligations’ (1998) (n 12) 471. 166  McMeel, ‘The Redundancy of the Concept of Bailment’ (2004) (n 1) 277. 160  161 

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VI. Conclusion Bailment is not much more than a placeholder term for a set of rules that govern the varied relationships in a particular set of circumstances—where possession, but not ownership is transferred to a third party. There are rules as to the bailee’s liability to the bailor for breach of a duty to take care to keep the goods safe, and there are varying duties on the bailor. These rules are a mixture of modified contract and tort rules changed to make more sense in the particular context. There are also rules as to who can sue third parties and requirements of accounting between bailee and bailor. These are aimed at preventing double recovery or, in the language of the Torts (Interference with Goods) Act, the unjust enrichment of one of the parties. It seems now to be clear that despite the differences there is no separate action in bailment. All these questions can be dealt with within the law of contract or tort. One might be thought important—the right of bailees to sue third parties. However, that too can arguably be put down as merely a sine qua non for locus standi to sue in tort.

11 Security Interests and Quasi-Security I. Introduction As we saw in chapter one, there are three ways of holding property in English law— outright, on trust, or as security.1 We therefore come now to one of the main pillars of English personal property law. Enterprises live and sometimes die by credit. In any developed economy an essential feature of commerce is the provision of credit. The running of a business involves staff, utility bills, rent, equipment and consumption of goods and services. When a business starts up, or expands, it finds that in order to earn income money must be spent—on new equipment, hiring staff and renting office or manufacturing space. This comes from capital; unless the proprietors already have sufficient capital that must come from an external source. Moreover, as the business expands the amount of money it requires grows.2 The capital required may come in the form of debt or it may, in the case of companies, be equity capital. Readers are referred to company texts for treatment of the raising of capital through the issue of shares.

II.  Function of Security and Quasi-Security There are essentially two types of credit: 1. Sale credit—deferred payment and instalment payment. Deferred payment takes place when the seller of goods allows the buyer to take possession with payment to take place at an agreed future date, for example 60 days after delivery. Instalment payments involve the buyer making a down payment and agreeing several future payments of the purchase price after delivery. 2. Loan credit—borrowed funds (usually but not always from a bank) to be repaid with interest; this can also be subdivided into fixed sum or revolving credit. A fixed sum credit is granted when a single loan is made on a particular date. An example would be a personal loan from a credit company. Revolving credit provides an on-going facility on which the borrower can draw at will—such as an overdraft.3

1  2  3 

Chapter one, text to nn 1–2; see also WJ Swadling, ‘Explaining Resulting Trusts’ (2008) 124 LQR 72. E McKendrick (ed), Goode on Commercial Law, 4th edn (London, Penguin, 2010) 619. LS Sealy and RJA Hooley, Commercial Law: Text, Cases and Materials, 4th edn (Oxford, OUP, 2008) 1076.

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The question which any lender has to consider is: will it be repaid? This is true whether the ‘lender’ provides sale or loan credit. The proven quality of the debtor’s management over a period of years may be enough, but unforeseen eventualities do happen, and must be provided for. It is for that reason that security is often taken. McFarlane defines security as ‘a property right… that arises as a means to protect B if a duty owed to B is not performed’.4 In Bristol Airport v Powdrill5 the airports were unsecured creditors of the insolvent charter airline. One succeeded in detaining an aircraft to secure payment of its debts. The question was whether the airport’s statutory right to detain an aircraft was a security interest and therefore whether the act of detention required the administrator’s permission as enforcing the security. It was held that it was a security interest. Browne-Wilkinson V-C approved the following definition: Security is created where a person ('the creditor') to whom an obligation is owed by another ('the debtor') by statute or contract, in addition to the personal promise of the debtor to discharge the obligation, obtains rights exercisable against some property in which the debtor has an interest in order to enforce the discharge of the debtor's obligation to the creditor.6

It is a new proprietary right granted by the debtor to have recourse against particular assets to discharge a particular debt. In Re Bond Worth, security was similarly defined as ‘a contract which by way of security for the payment of a debt, confers an interest in property defeasible or destructible upon payment of such debt, or appropriates such property for the discharge of the debt’.7 If a creditor holds security over a particular asset, the creditor is therefore able to withdraw that asset from the pool available to the general body of creditors on insolvency and satisfy the outstanding debt. Nonetheless, it is well known that larger companies issue much less secured debt than smaller ones.8 This is because they will have greater bargaining power with the creditor banks, but also because there is greater assurance of payment. The orthodoxy is therefore that security also benefits the debtor because loans will be made that might not otherwise be made, or would be made at a higher rate of interest to reflect the greater level of perceived risk to the creditor.9 That need not necessarily be the case, however. Taking security also has costs; in particular the creditor must get used to the relevant legal machinery, which may not be worthwhile for small creditors; there may also be high monitoring costs associated with security. This tends to mean that powerful creditors obtain security protection, but smaller ones do not, and tends to reduce the efficiency of security. Finch has therefore persuasively criticised the end-result as both economically inefficient and unfair.10 Different security interests may provide the creditor with different additional 4  B McFarlane, The Structure of Property Law (Oxford, Hart, 2008) 584; McFarlane also refers to persistent rights and powers to acquire persistent rights, terminology rejected by this book. See also L Gullifer (ed), Goode on Legal Problems of Credit and Security, 5th edn (London, Sweet and Maxwell, 2013) para 1.17 suggesting that the obligation secured need not be owed by the party whose property is subject to the security. 5  Bristol Airport v Powdrill [1990] Ch 744. 6  ibid 760. 7  Re Bond Worth [1980] Ch 228, 248 (Slade J); see also The Annangel Glory [1988] 1 Lloyds Rep 45. 8  R Mokal, ‘The Search for Someone to Save: A Defensive Case for the Priority of Secured Credit’ (2002) 22 OJLS 687, 695; see also M Bridge, ‘The Quistclose Trust in a World of Secured Transactions’ (1992) 12 OJLS 333, 334–42. 9  F Oditah, Legal Aspects of Receivables Financing (London, Sweet and Maxwell, 1991) 18; but see Mokal, ‘The Search for Someone to Save’ (2002) (n 8) 713. 10  V Finch, ‘Security Insolvency and Risk: Who Pays the Price?’ (1999) 62 MLR 633, 638; see G McCormack, Secured Credit in English and American Law (Cambridge, CUP, 2004) ch 1 for an assessment of the reasons for

Function of Security and Quasi-Security 265

advantages, and may lead to the creditor choosing one over the other or a particular mix of interests. One typical combination is a floating charge over the general assets of the firm and a fixed charge over fixed assets which are unlikely to be disposed of. Quasi-security is different, although ‘quasi’ terminology is usually unhelpful. A typical example is the retention of title clause. These provide that the seller of goods is to retain legal title to the asset until he or she has been paid for the goods, or until all money owed to the seller is paid. The property right clearly does not arise as a means of protecting the seller. The seller already had good title (or he or she would be in breach of contract). No new property rights arise, but clearly the seller wants to retain title so he or she can retake his or her property, through the process of recaption, should the buyer default on payment.11 Section 17 of the Sale of Goods Act 1979 states that property passes when it is intended to pass. Property is not intended to pass until payment. Section 19(1) provides that the seller may reserve the right of disposal of the goods until certain conditions—here payment—are met. The property in the goods does not pass until the conditions are met, and these sections are used as the doctrinal basis for such clauses. Although this need not be the case, in many cases security is granted when loan credit is involved and a retention of title clause is involved when sale credit is at issue. Retention of title clauses may also typically be taken to secure relatively small amounts on short term credit where a bank would be relatively uninterested in providing the money, except possibly on an overdraft basis. Trade credit is therefore often needed because of a small business’ primary financier’s unwillingness to offer additional credit over and above the initial start-up loan. The fact that security interests and title retention devices perform the same function has led to calls that they be treated in the same way for many purposes. This is important. There are three parties that need protection. The creditor wants a measure of protection should the debtor become bankrupt, or default. The debtor needs protecting against the creditor imposing harsh terms. There are, for instance, statutory rules on consumer credit. The third party also needs protecting. The third party may have dealt with the debtor on the basis that the debtor has substantial assets, or that there is no need for a security interest of his or her own. Registration of security interests provides for the publication of information on those secured finance transactions. At present English law concentrates on the form of the interest rather than its function and, despite the functional similarities with security, takes the view that retention of title clauses need not be registered, which makes their existence harder to detect. The argument therefore goes that had a new third party lender known of other unregistrable security interests or retention of title clauses, it may have taken a different view about lending,12 and that justifies requiring registration of the clauses. We might call this the ‘creditors’ deception argument’. Given the difficulty faced by attempts to extend the reach of retention of title clauses into proceeds and the plethora of different ways to have an interest in another’s assets, the argument may be overblown. Nonetheless, we look at the prospects for law reform in chapter 15.

giving and taking security. For a critique of the orthodox position that secured credit increases lending and an alternative theory, see RE Scott, ‘A Relational Theory of Secured Financing’ (1986) 86 Columbia Law Review 901. 11  Because buyers in possession can give good title—Sale of Goods Act 1979 s 25(1)—this does not prevent the buyer carrying on his or her business. See chapter three, part II E ii. 12  Cork Report, Insolvency Law and Practice (1981) ch 37.

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III.  The Types of Security Interest Millett LJ said in Re Cosslett (Contractors) Ltd13 that there were only four types of consensual security interest in English law. These security interests can be possessory or non-possessory: 1. 2. 3. 4.

Mortgage. Pledge. Contractual lien. Charge. The charge can itself be subdivided into fixed charges and floating charges.

Type of security Examples

Non-possessory security

Possessory security

mortgage

Contractual lien

Fixed charge

Pledge

Floating charge

Some can be legal and some only equitable; a floating charge for example can only be equitable. Type of security Examples

Legal security interest

Equitable security interest

Legal mortgage

Equitable mortgage

Contractual lien

Fixed charge

Pledge

Floating charge

Each of these types of consensual security interest will be examined in a future chapter. This chapter will examine the rules that are common to all. All security interests need to be appropriated to a particular obligation, attached to an asset and perfected, although there is particular controversy as to how or whether floating charge is attached to property. This is because the floating charge operates so as to allow the chargor to use the assets subject to it in the normal course of business. This means in turn that the proceeds of sale or disposition of assets subject to the charge themselves become subject to the charge, and the original asset is not. It is open to the parties in the normal case to agree that a security interest is to carry through to its proceeds. In the normal case this will depend on whether the dealing with the asset is authorised and effected on behalf of the creditor or if it is unauthorised.14

IV.  The General Rules All security interests must be first attached and then perfected. In all cases the party granting the security interest must have the power to do so. We might think this is a 13  14 

Re Cosslett (Contractors) Ltd [1998] Ch 495 (CA) 508. See chapter 14 part III on the nature of the floating charge.

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straightforward requirement. However, it is necessary to remember that it will be possible to create a security interest over assets one does not own if authorised by the owner. Attachment is said to render the security binding between the grantor and grantee and perfection renders it binding as against third parties. This may seem odd as security interests are property rights and we have seen that a property right is a right concerned with a thing enforceable against third parties. It is not entirely accurate to say unperfected security interests have no impact on third parties, as the attached, but unperfected, interest is binding against third party unsecured creditors outside insolvency.15 There are some categories of security which are automatically perfected. Pledges are an example. As a type of possessory security the creditor takes the goods into his or her possession and that automatically perfects the security, and when possession is lost the security is automatically lost. Another example of an automatically perfected interest is an oral mortgage over goods created by an individual in circumstances where the writing requirements of the Consumer Credit Act 1974 do not apply—it may for instance be a high net worth individual.16 If it is in writing it counts as a bill of sale and must be in the prescribed form and registered under that legislation.

A. Attachment Attachment takes effect retrospectively from the date of the security agreement unless otherwise agreed.17 In order for it to take place there must be an agreement to create a security interest, evincing an intention to create a present security interest. In Palmer v Carey18 it was held that where a contract to transfer or charge an asset is given for valuable consideration, and as such attracts specific performance, equity will recognise that a beneficial interest has passed. This is simply an example of a principle we have seen before. Worthington has argued that an unconditional mandatory obligation to transfer specific property will give rise to a constructive trust,19 which is itself an example of the operation of the maxim ‘equity looks at as done that which ought to be done’. Palmer v Carey is an example of that— a specifically enforceable (unconditional and mandatory) obligation to create a security interest will create an equitable security interest. It may be that we are talking of a legal mortgage. We must therefore separate the creation of a legal mortgage from the attachment of security. Where there is a specifically enforceable contract to create a legal mortgage, an immediate equitable mortgage is created over the asset, and security is attached.20 Any additional requirements merely transform the equitable into a legal mortgage. If there are conditions in the agreement for attachment to take place those conditions must therefore be fulfilled. An agreement is treated as a current security interest therefore only where there are no other contingencies bar the acquisition of the asset. An agreement to give security on any other contingency is not itself a security interest.21 15 Gullifer, Goode

on Legal Problems of Credit and Security (2013) (n 4) para 2.02. See Consumer Credit Act 1974 ss 16A–16C for the categories of excepted persons. 17 McKendrick, Goode on Commercial Law (2010) (n 2) 668. 18  ibid 668–70; Palmer v Carey [1926] AC 703 (PC). 19  S Worthington, Proprietary Interests in Commercial Transactions (Oxford, Clarendon Press, 1997) 197. 20  Swiss Bank Corporation v Lloyds Bank Plc [1982] AC 584 (HL). 21 Gullifer, Goode on Legal Problems of Credit and Security (2013) (n 4) para 2.15; McKendrick, Goode on Commercial Law (2010) (n 2) 675; but see Smith v Bridgend County BC [2001] UKHL 58, [2001] 1 AC 336, 357 (Lord Scott of Foscote). 16 

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The assets subject to the security must be sufficiently identifiable as falling into the security agreement. This is in fact no more than the usual rule that where a property right is transferred the asset must be identified. There must be certainty of subject matter, as we saw when we looked at the trust,22 and sale.23 The rules are in fact identical to those of sale where the assets are tangible. In the case of intangible property there is a little more leeway; just as it is possible to create a trust over 50 out of 950 ordinary shares24 in a company, so it is possible to create a charge over them. Indeed it is possible to declare a charge over all your assets. In Re Kelcey25 the charge was created in terms to cover all the debtor’s property. Kekewich J stated that so long as it was ascertainable at the time of enforcement what the debtor owned there could be no problem with this. This requirement of certainty of subject matter does not mean that it is impossible to have an agreement to create future interests, despite the usual rule that interests cannot be created in future property.26 We saw in an earlier chapter27 that a contract to sell future goods—next year’s wheat harvest, for example— is perfectly valid, and indeed that futures contracts of this type are regularly used to smooth business cash flow. A floating charge is taken to be a charge over present and future assets.28 In Tailby v Official Receiver29 the question was whether an assignment by way of security of future book debts became valid when they came into existence. The House of Lords decided yes. When the book debts came into existence the obligation to create the fixed charge also did so; that automatically bit and attached a security right to the debts. Further, the agreement counts as an inchoate security interest waiting to attach to goods and therefore counts for priority purposes as being the first to be created.30 The security must be appropriated to a particular and current debt. This means it must be made clear that enforcement of security A will reduce debt A and not some other debt owed by the debtor. There must be a current obligation of the debtor to secure; the attachment will cease if the debt is paid, although should a new advance be made under the security it may revive. In Rogers v Challis31 it was held that there could be no security until the money was in fact lent. This does not necessarily mean that new value has to be given whenever security is granted. It can be valid for past consideration—where the money has been advanced and later the lender’s position is strengthened through security. The parties in that case had entered an oral agreement whereby one agreed to lend the other a sum of money ‘on good security’; the borrower a couple of days later informed him that he had obtained better terms elsewhere and no longer needed to borrow the money. Specific performance, requiring him to borrow and create the security, was denied.

22 

Knight v Knight (1840) 3 Beav 148, 49 ER 58, 68 (Lord Langdale MR). Sale of Goods Act 1979 s 16. 24  Hunter v Moss [1994] 1 WLR 452. 25  Re Kelcey [1899] 2 Ch 530. 26  Norman v Federal Commissioner of Taxation (1963) 109 CLR 9; see McKendrick, Goode on Commercial Law (2010) (n 2) 673–74. 27  Chapter two, part II C iii. 28  Re Yorkshire Woolcombers Association [1903] 2 Ch 284. 29  Tailby v Official Receiver (1888) 13 App Cas 523; Holroyd v Marshall (1862) 10 HLC 191; 11 ER 999; see also Syrett v Egerton [1957] 3 All ER 331 (CA). 30 Gullifer, Goode on Legal Problems of Credit and Security (2013) (n 4) para 2.14; McKendrick, Goode on Commercial Law (2010) (n 2) 676–77; Re Lind [1915] 2 Ch 345. 31  Rogers v Challis (1859) 27 Beav 175; 54 ER 68; McKendrick, Goode on Commercial Law (2010) (n 2) 674–75. 23 

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For possessory security interests, transfer of actual or constructive possession is needed. The pledgee is a bailee and therefore requires possession, as does the contractual lienholder who retains possession.

B. Perfection Perfection often means registration, although possessory security interests are typically perfected through possession of the goods or possession of the documents of title.32 Possession of a bill of lading therefore perfects possessory security interests in the goods represented by the bill. Possession of a bill of exchange can likewise perfect security interests in the bill and give recourse to the chose in action represented by it. Registration may have other purposes than merely perfection of the security. It may also provide publicity of the security interest and have an impact on the priority rules governing them. Registration provides notice of the existence of the security interest. Possession is also said to provide such notice, which explains why possessory security such as pledges are not required to be registered. In many cases registration will take place under section 859A of the Companies Act 2006. However, there are also, for example, registration requirements under the Bills of Sales Acts 1878–82.

i.  Companies Act 2006 Scheme Charges created before 6 April 2013 are governed by section 860 Companies Act 2006. That section prescribed a list of security interests needing registration within 21 days of creation in order to be valid against third parties and in particular liquidators or other insolvency practitioners, although there was provision for late registration.33 The previous edition of Goode on Legal Problems of Credit and Security described the list as ‘seriously inadequate’.34 The word ‘charge’ was used in the Act to refer to any non-possessory security and therefore included both charges and mortgages, whether legal or equitable. However, the sanction for non-registration was one of only partial nullity. Phillimore LJ said of section 14 Companies Act 1900: It makes void a security; not the debt, not the cause of action, but the security, and not as against everybody, not as against the company grantor, but against the liquidator, and against any creditor, and it leaves the security to stand as against the company while it is a going concern.35

The purchaser of an asset subject to an unregistered charge may therefore be bound by it. The charge remains binding against the chargor and the entire debt becomes due and payable immediately as the nullity provision becomes active. The effect of registration is to provide constructive notice of the security, although the scope of this is uncertain. In 32 McKendrick, Goode 33  The

on Commercial Law (2010) (n 2) 690–91. prescribed particulars were found in the Companies (Particulars of Company Charges) Regulations

2008. 34  L Gullifer (ed), Goode on Legal Problems of Credit and Security, 4th edn (London, Sweet and Maxwell, 2008) para 2.21; there are some definitional issues as well. It is not clear what a book debt is; see Independent Automatic Sales Ltd v Knowles & Foster [1962] 1 WLR 974. 35  Re Monolithic Building Co [1915] 1 Ch 643 (CA) 667–668; McKendrick, Goode on Commercial Law (2010) (n 2) 710.

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Wilson v Kelland36 a floating charge was created and registered under section 14 of the Companies Act 1900. The floating charge was created over after-acquired property, of which the land in question was an example. However, the outstanding purchase price on the land was secured by a legal mortgage. The question arose whether the floating chargees had priority over the vendor-mortgagees. Eve J stated that the land was sold subject to the requirement to create the mortgage, which therefore took priority. However, he also said that registration of the floating charge amounted to constructive notice of the charge but not of any special restrictions under it.37 Equitable security interests are vulnerable—as are all equitable interests—to bona fide purchasers for value of a legal estate without notice. Registration provides notice and therefore knocks out the defence as regards a subsequent buyer. However, Beale et al argue that because Eve J’s comments in Wilson v Kelland were obiter and the decision concerned the priority of a legal mortgage over a floating charge and whether the mortgagee had notice, it is no authority for the proposition that registration of a charge is constructive notice to a subsequent purchaser.38 As Goode on Legal Problems of Credit and Security points out (in the current edition) some buyers, such as those buying from sellers in the ordinary course of business cannot reasonably be expected to search, so why should they be attached with notice? Nonetheless the book accepts that priorities in the case of a buyer of an asset subject to an unregistered charge will remain governed by common law rules.39 In other words, the charge is not a nullity against a buyer. Post-2013 registration of company charges is governed by a new Part 25, inserted by the Companies Act 2006 (Amendment of Part 25) Regulations 2013.40 Section 859A(1) Companies Act 2006 provides that all charges must be registered, bar a number of exceptions contained in subsection (6), which include charges excepted under the financial collateral regime. The section does not change the rule that the charge must be registered within 21 days, nor does it change the rule that priority is dated from time of creation not time of registration. The new Part 25 also does not change the sanction of partial nullity if registration does not take place, although the rarely invoked criminal sanction has been removed. That said, the general rule that all charges must be registered unless in the list of excluded charges is a definite improvement on the old law. Another improvement is that section 859E does provide for a table making it clearer when a charge is to be taken as having been created. The particulars of the charge that require to be delivered to the registrar are now contained in section 859D, and include a requirement to state whether there is a negative pledge, which was not present under the previous law. Under the previous regime the registrar checked the documents and issued a certificate that the particulars were accurate and the Act had been complied with. The certificate was conclusive.41 This is no longer the case. Searchers are able to check the particulars themselves against the registered charge instrument, although this creates the risk that the

36 

Wilson v Kelland [1910] 2 Ch 306. ibid 313; S Mayson, D French and C Ryan, Company Law, 33rd edn (Oxford, OUP, 2016) 333. 38  H Beale, M Bridge, L Gullifer and E Lomnicka (eds), The Law of Security and Title Based Financing, 2nd edn (Oxford, OUP, 2012) para 12.10; but see Palmer’s Company Law (London, Sweet & Maxwell, 2015) paras 13.199.75, 13.364. 39 Gullifer, Goode on Legal Problems of Credit and Security (2013) (n 4) paras 2.30, 5.32; Stroud Architectural Services Ltd v John Laing Construction Ltd [1994] 2 BCLC 276. 40  See generally P Graham ‘Registration of Company Charges’ [2014] JBL 175. 41  Companies Act 2006, s 860(2). 37 

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reported particulars do not match the charge instrument deposited. Can a searcher rely on the reported particulars? Mayson, French and Ryan argue that there is no change in the effect of the legislation. The certificate now issued is conclusive evidence of the delivery and receipt of the documents, which is all that the legislation requires of the company registrant, and so conclusive of proper registration. However, the conclusiveness of the certificate means that the charge is to be treated as properly registered, even though a searcher might be misled.42 Goode on Legal Problems of Credit and Security suggests that, because it is no longer a criminal offence not to register, registration does not affect constructive notice.43 There is no indication in the legislation that there was any intention to change the law on registration and constructive notice, however. Various options for clarifying the law, such as avoiding unregistered charges against buyers, were canvassed and dropped in the drafting process,44 and we can only assume that the intention was to leave the previous law be, however unsatisfactory it might have been, particularly with regard to that treatment of purchasers of the asset from the chargor. Yet it also clear that this is possibly even more inadequate because of the way in which registration now takes place. Of what does a searcher have notice—the accurate charge instrument or any inaccurate particulars listed elsewhere?

ii.  Financial Collateral Special rules apply to this extremely important class of assets deriving from EU law. The result of the UK’s vote to exit the EU is not yet clear, but the current law derives from the UK’s implementation of Directive (EC) 2002/47 on financial collateral arrangements (Financial Collateral Arrangements Directive).45 An amending 2009 Directive has been promulgated,46 implemented in the UK by the Financial Markets and Insolvency (Settlement Finality and Financial Collateral Arrangements) (Amendment) Regulations 2010. Financial collateral includes cash in the bank or ‘similar claims’ and financial instruments such as shares and bonds;47 under the new regulations it will also include credit claims. It covers both directly held and intermediated securities. The directive distinguishes between security and title transfer collateral arrangements. The former arises to secure an obligation owed, and where a security interest arises in the financial collateral and the collateral is in the possession of or under the control of the collateral taker. A title transfer arrangement,

42  Mayson, French and Ryan (n 37) (2016) 334; this might be just as well. Part of the reason the Companies Act 1989 reforms were never brought into force was that the Land Registry was unwilling to make checks as to the validity of the Companies House registration once they no longer had the security of a conclusive certificate. L Gullifer ‘Piecemeal Reform: Is it the Answer?’ in F Dahan (ed) Research Handbook on Secured Financing in Commercial Transactions (London, Edward Elgar, 2015) 421, 431–432. 43 Gullifer, Goode on Legal Problems of Credit and Security (2013) (n 4) para 2.29; M Bridge, L Gullifer, G McMeel and S Worthington (eds) The Law of Personal Property (London, Sweet and Maxwell, 2013) para 14.100. 44  Eg BIS Government Response—Consultation on Registration of Charges created by Companies and Limited Liability Partnerships (2010) proposal F, dropped by BIS, Revised Scheme for Registration of Charges created by Companies and Limited Liability Partnerships: proposed revision to Part 25, Companies Act 2006 (2011) para 37. 45  Council Directive (EC) 2002/47 on financial collateral arrangements [2002] OJ L168/43 implemented by Financial Collateral Arrangements (No 2) Regulations 2003. 46  Arts 2–3 of Directive 2009/44/EC, amending Directive 98/26/EC on settlement finality in payment and securities settlement systems and Directive 2002/47/EC on financial collateral arrangements as regards linked systems and credit claims, [2009] OJ L146/37. 47  Financial Collateral Arrangements (No 2) Regulations 2003 r 3(d).

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such as a repo, arises where the provider transfers assets on the basis that equivalent assets will be returned on discharge.48 In both cases the collateral provider and taker need to be non-natural persons. Under a repo securities are sold to a buyer with provision for repurchase at a higher price, the difference being the repo rate. This is equivalent to a secured loan, and Schroeder argues they should be registered as security interests,49 although the Financial Collateral Directive was concerned to keep them separate. Registration and a number of other formal requirements are disapplied under the regulations.50 The purpose of this is to maintain liquidity although it can be questioned whether that particular policy objective has been adequately met,51 particularly when many law firms will still register charges over financial collateral just in case it is not an excepted arrangement.52 Given the ongoing discussions and lack of clarity on the meaning of control, this is not an unreasonable position. The key is the dispossession of the collateral provider through the control given to the collateral taker. Some of these disapplied provisions are though infrequently met in practice.53 The first edition of The Law of Personal Property Security suggested that control could be legal or practical control, but the authors argue in the second edition that legal control is required,54 although as regards financial instruments the chargee should also take practical steps to preclude the debtor from dealing with the asset. Preventing the debtor from dealing with the assets is negative control of them, as opposed to positive control where the creditor may deal with the collateral on his or her own account without reference to the debtor. Negative control by the chargee, Beale et al argued, is likely to be essential.55 Essentially a floating charge allows the chargor to deal with the assets subject to the charge in the normal course of business. We might conclude that holders of uncrystallised floating charges will not fall within the regulations as they do not have negative control, but once the charge has crystallised, the chargee will have possession or control and a number of insolvency provisions would then be disapplied, such as the ring-fenced fund for unsecured creditors;56 this, however, has pretty bizarre consequences as many of the registration requirements would already have had to be met and this would make a nonsense of many of the disapplication provisions. 48 

ibid r 3(1). J Schroeder ‘Repo Madness: The Characterisation of Repurchase Agreements under the UCC and the Bankruptcy Code’ (1995) 46 Syracuse L Rev 999; Gullifer, Goode on Legal Problems of Credit and Security (2013) (n 4) para 6.29 states that sale and repurchase agreements count as title transfer arrangements even where they fulfil a security function. 50  Financial Collateral Arrangements (no 2) Regulations 2003, r 4. 51  L Gullifer ‘What Should we do about Financial Collateral?’ [2012] CLP 377; for more on the reasons behind the Directive see G Yeowart and R Parsons (eds) Yeowart and Parsons on the Law of Financial Collateral (Edward Elgar, London, 2016) ch 1 52  There is, however, an argument that the current form of the regulations does not permit such prophylactic registration. The position is not therefore entirely clear. 53  Such as section 53(1)(c) Law of Property Act 1925. See M Hughes ‘The Financial Collateral Regulations’ (2006) 21 Journal of International Banking & Financial Law 64. 54  Beale et al The Law of Security (2012) (n 38) para 3.40; Bridge et al (2013) (n 47) para 14.108. 55  Beale et al The Law of Security (2012) (n 38) para 3.37. 56  Financial Collateral Arrangements (No 2) Regulations 2003 rr 8, 10, 13–14; on the application of the regulations to floating charges see HM Treasury, ‘Consultation on the Implementation of EU Directive 2009/44/EC on Settlement Finality and Financial Collateral Arrangements’ (2010) paras 3.1–3.7. For criticism see R Parsons, ‘HM Treasury’s Consultation Paper on Financial Collateral: Extracts from CCLS Financial Law Committee’s Response’ (2011) 26 Journal of International Banking & Financial Law 6. 49 

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Look Chan Ho’s view is that the Regulations apply if the chargee can monitor the chargor’s use of the assets, the chargor must ensure the chargee is sufficiently collateralised and the chargee may in specified cases prevent the chargor’s use of the assets.57 In Gray v G-P-T Group Ltd58 a trust beneficiary provided the trustee with a floating charge over his equitable interest under the trust to secure its obligations to the trustee, but the beneficiary was entitled to oblige the trustee to transfer money to the beneficiary without set-off at any time, and could therefore exhaust the security. Vos J held that this was a floating charge, which seems correct, but also that the security fell outside the Financial Collateral Arrangements (No 2) Regulations 200359 because the cash was not in the possession or control of the chargee. Possession had no meaning in the context of intangible assets so Vos J concentrated on control. The extent to which floating charges (or indeed any charge) are covered will depend on the extent to which the chargor can exercise control over the assets, or to put it another way, whether the collateral taker has legal power to preclude the collateral provider from dealing with the assets.60 Since the chargee in Gray had no legal negative control over the money it was not in its control and so the charge was not covered by the FCAR. Briggs J in Re Lehman Bros61 drew on a common thread of criticism of Gray that Vos J had an unduly narrow view of possession as irrelevant to intangibles.62 Regulation 3(2) now provides that possession means (non-exhaustively) that the assets have been credited to the collateral taker’s account, or a party acting on its behalf, provided that the collateral provider may only substitute equivalent assets or withdraw the excess.63 This may be an unduly narrow definition. Briggs J suggested that this might have been included for the avoidance of doubt, but that the retention by the collateral provider of wider rights need not be fatal.64 Nonetheless, the test still tends to include some element of control within the definition of possession, and it is likely that Briggs J conflates the two despite the Directive’s intention to keep them separate.65 He agreed with Vos J that control meant negative control, subject to a proviso, which he described as a large exception, that negative control was not present if the collateral provider were able to substitute assets for those of equivalent value and withdraw any excess. He argued this effectively meant that the collateral taker’s rights are that the collateral provider maintain an adequate collateral pool.66 On the facts of the case the securities were held by the collateral taker in its account with an intermediary and

57  Look Chan Ho, ‘The Financial Collateral Directive’s Practice in England’ (2011) 26 Journal of International Banking Law and Regulation 151, 163; L Gullifer and J Payne, Corporate Finance Law 2nd edn (Oxford, Hart, 2015) 310–315. 58  [2010] EWHC 1772 (Ch), [2011] 1 BCLC 313. 59  ibid [63]; but see R Parsons and M Dening ‘Financial Collateral: An Opportunity Missed’ (2011) 5 Law & Financial Markets Rev 164. 60 Ibid [59–60], Beale et al The Law of Security (2012) (n 38) para 3.33: Yeowart and Parsons, Financial Collateral (2016) (n 51) para 8.32. 61  [2012] EWHC 2997, [2014] 2 BCLC 295, 333; L Hilliard ‘Financial Collateral Arrangements: A Lighter Shade of Gray’ (2013) 2 Corporate Rescue & Insolvency 53. 62  [2010] EWHC 1772 (Ch), [2011] 1 BCLC 313, [60–62]. 63  K Zander and J Fox ‘A Tentative Step Forward: Amendments to the Financial Collateral Arrangements Regulations’ (2011) 3 CRI 77. 64  [2012] EWHC 2997, [2014] 2 BCLC 295, 336–337; Yeowart and Parsons Financial Collateral (2016) (n 51) paras 8.59–8.62. 65  Yeowart and Parsons Financial Collateral (2016) (n 51) paras 8.73–8.81. 66  [2012] EWHC 2997, [2014] 2 BCLC 295, 336–337; Yeowart and Parsons Financial Collateral (2016) (n 51) para 8.99.

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could have refused the transfer to the collateral provider, although as in Gray that would have been a breach of the parties’ agreement. There was no legal negative control. Briggs J said this meant he was not obliged to decide whether the actual non-use of rights of control negated them, but said in obiter dicta that it was probably insufficient to negate legal rights of negative control if they were not in fact exercised.67 It is clear that not all floating charges will fall within the FCARs, but some—where the only rights of the chargor are of substitution or withdrawal of excess collateral—will be.68 If cash is held in an account held with the collateral taker there will need to be practical control as well. The account will need to be blocked to prevent the account holder withdrawing more than excess collateral.69 This raises the question of legal control without practical control. If the collateral provider had agreed that the collateral taker’s permission was required to dispose of the asset, but the cash or collateral was in an account in the former’s name, would this be sufficient? Under Lehman Bros probably yes, although there is nothing to warn a third party of the charge’s existence.

iii.  Bills of Sales Acts Scheme Unlike the Companies Act scheme, the bills of sales legislation is not directed at transactions but at documents. Consequently, and somewhat perversely, it is possible to avoid the scheme by conducting transactions orally. The two schemes are exclusive in that the Companies Act scheme applies only to companies, and the bills of sale scheme only to individuals or unincorporated businesses.70 Registration has a publicity function and provides notice of the transaction. Providing an incentive therefore to create oral (and harder to detect) securities is counter-productive. The bills of sales legislation has been frequently criticised as being anachronistic and confusing.71 Given the difficulties it might be expected that few bills of sale are issued. However, the use of the device has revived in recent years with so-called logbook loans where subprime lenders lend on the security of the borrower’s car. Lord Esher defined a bill of sale in Mills v Charlesworth.72 The owner in that case of certain seized goods agreed with the defendant that the latter should discharge the debt and the goods would be pledged to the defendant as security for repayment. This was held to be a bill of sale under section 4 of the Bills of Sale Act 1878, which lists the various documents that count as a bill of sale. Bills of sale can cover equitable title or interests in goods and assets. Section 4 of the Bills of Sale Act 1878 includes declarations of trust without transfer and documents by which any right in equity is created to any personal chattel or charge therein is created. This has been confirmed by Bills of Sale Act (1878) Amendment Act 1882 section 3 which repeats the definition of bill of sale in the earlier Act but omits the 67 

[2012] EWHC 2997, [2014] 2 BCLC 295, 341–343. on Legal Problems of Credit and Security (2013) (n 4) para 6.37. 69  ibid para 6.44; Gullifer and Payne, Corporate Finance Law (2015) (n 57) 314–315. 70  Bills of Sale Act (1878) Amendment Act 1882 s 17; Richards v Mayor of Kidderminster [1896] 2 Ch 212; 928 Online Catering Ltd v Acton [2010] EWCA Civ 58, [2011] QB 204. 71  Sealy and Hooley, Commercial Law: Text, Cases and Materials (2008) (n 3) 1139–1141; Beale et al, The Law of Security (2012) (n 38) paras 23.70–23.79; the criticism of the Acts’ technical pitfalls began almost immediately. Thomas v Kelly and Baker (1888) LR 13 App Cas 506, 517 (Lord MacNaughten). Reform is considered in chapters 13 and 15, but see generally G McBain ‘Repealing the Bills of Sale Acts’ [2011] JBL 475. 72  Mills v Charlesworth (1890) 25 QBD 421. 68 Gullifer, Goode

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case where the document is a bill of sale under the 1878 Act and can be given other than as security for the payment of money. That type of bill is called an absolute bill and these are not covered by the 1882 Act. The 1882 Act only applies to security bills, which are given to secure the payment of a money obligation. These bills will fall within the scope of both Acts, which as far as possible are to be read as one. Lord Esher said: A bill of sale, in its ordinary meaning, is the document which is given where the legal property in goods passes to the person who lends money on them, but the possession does not pass. But then come the Bills of Sale Acts, with their interpretation clauses, and by s. 4 of the Act of 1878 a document which is a licence to take possession of personal chattels as security for any debt is to be considered a bill of sale.73

Although Lord Esher was in dissent, the House of Lords on appeal overturned the majority view in the Court of Appeal.74 If the document only deals with what is to be done with the asset after it is pledged it is not a bill of sale, as possession is essential to the security. If the document gives a licence to take possession as security for the payment of money, however, it is a bill. In Holroyd v Marshall75 there was an agreement conferring security over afteracquired chattel property, which entailed a licence to take possession. Lord Chelmsford said that the agreement fell within the definition of a bill of sale in the predecessor to the Bills of Sale Act 1878.76 There must be a schedule of property attached to the bill of sale and that the bill is void as against any other property, and against any property in the schedule of which the grantor was not the true owner at the time of the execution of the bill.77 Consequently, although an assignment of after-acquired property can be a bill of sale it will be void except as against the grantor in respect of any property not specifically described. However, section 6 of the 1882 Act provides for two exceptions—crops growing at the time of the execution of the bill and any plant or machinery used in substitution for any described in the schedule of property. Section 9 and schedule 1 of the 1882 Act provide the form that the bill must take to be valid. If it is not in this form it is void even between the parties to the degree that failure to fulfil the form requirements nullifies the covenant to repay, although a restitution claim may still be available;78 this is designed to protect debtors from signing confusing documentation.79 It is unlikely that this aim has been met.80 Section 8 of the 1882 Act requires that the bill be attested and registered within seven days of its execution.81 For an absolute bill, its execution must be witnessed by a solicitor who must state he has explained the effect of the bill (and therefore three sets of solicitors— one each for both parties to the transaction, and a third as the witness—are needed). For

73 

ibid 424; see also Ramsay v Magrett [1894] 2 QB 19. Mills v Charlesworth [1892] AC 231 (HL). 75  Holroyd v Marshall (1862) 10 HLC 191, 11 ER 999. 76  ibid 1013. 77  Bills of Sale Act (1878) Amendment Act 1882 s 5; Lewis v Thomas [1919] 1 KB 319 (CA); Chapman v Pitts [2010] EWHC 1746, [100] (Vos J). 78  Davies v Rees (1886) 17 QBD 408; some minor deviations are permitted: M Bridge, Personal Property Law, 4th edn (Oxford, Clarendon Press, 2015) 304. 79  The Manchester, Sheffield and Lincolnshire Rly Co v The North Central Wagon Co (1888) 13 App Cas 554 (HL). 80  Department of Business, Innovation and Skills (BIS), ‘A Better Deal for Consumers: Consultation on Proposal to Ban the Use of Bills of Sale for Consumer Lending’ (2009) para 36. 81  See also Bills of Sale Act 1878 ss 10–11. 74 

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a security bill the witness need only be a credible witness. That registration must be periodically renewed. The bill is sent to the registrar, who is one of the masters of the High Court. Except where the bill is executed in London, it must be sent by the High Court to the relevant County Court registrar for local registration,82 although in fact this is rarely done. The consequence of non-registration is nullity,83 either total nullity even between the parties if a security bill, or nullity as against third parties if an absolute bill.84 Unlike under the Companies Act 2006, registration does not itself constitute notice to third parties. In Joseph v Lyons85 a jeweler by bill of sale assigned his after-acquired stock-intrade to the claimant by mortgage. The jeweler subsequently pledged some of the stock-intrade covered by the mortgage to the defendant. Lindley LJ said that to succeed the claimant grantee had to show he had a legal title, or if only an equitable interest, that the defendant had notice of that title.86 The effect is that third party purchasers may be bound by the bill of sale unless only equitable title was transferred to the grantee or the latter is estopped from denying the third party’s title. A security bill of sale does not count as a sale contract allowing the seller in possession rule to apply.87 The Law Commission is now proposing that the same protections as against in the hire purchase context apply so that private purchasers are not bound by the new vehicle or goods mortgage in these cases.88 They also propose to streamline the High Court registration process, by allowing it to be done electronically and to require vehicle mortgages to be registered with an asset registry such as HPI, and that absolute bills not be regulated at all. We examine the details of the Law Commission proposals in chapter 13, but for completeness we should note that the Department of Business, Innovation and Skills (BIS) issued a consultation in 2009 on outlawing the use of bills of sale in consumer credit transactions,89 although in the end they decided not to legislate.

iv. Aircraft This was not included at all in the first edition. However, the International Interests in Aircraft Equipment (Cape Town Convention) Regulations 2015 were approved just before the May 2015 general election, and came into force in November 2015. Those regulations ratify the Cape Town Convention on International Interests in Mobile Equipment. The difficulty that led to the need for the convention can be simply stated. Airplanes (and other mobile equipment like trains) move. The usual conflict of laws rule is that property rights are governed by the lex situs — the law of the place where the goods are. This is normally a sensible rule, but causes difficulty where an aircraft subject to a security interest valid in England takes off and flies to New York; Goode suggests that the uncertainty might put off

82 

Bills of Sale Act 1878 s 13; Bills of Sale Act (1878) Amendment Act 1882 s 11. Bills of Sale Act 1878 s 8; Bills of Sale Act (1878) Amendment Act 1882 s 8. 84  Halberstam v Gladstar Ltd [2015] EWHC 179. 85  Joseph v Lyons (1884) 15 QBD 280. 86  ibid 286. 87  Sale of Goods Act 1979 s 62(4). 88  Law Commission Bills of Sale (Law Comm no 369 2016) para 8.23. 89  D Sheehan, ‘The Abolition of Bills of Sale in Consumer Lending’ (2010) 126 LQR 356; see chapter 13, part II E. A Government response was published in January 2011: BIS, ‘Government Response to Consultation on Proposal to Ban the Use of Bills of Sale for Consumer Lending’ (2011). 83 

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some financiers.90 Although the lex situs rule was confirmed by Blue Sky One Ltd v Mahan Air,91 if there was doubt as to the situs English law was applied, probably as the lex fori, but conceivably as the proper law of the contract and naturally they do not have to be the same. That said, to some extent the problem of assets with no fixed situs is overcome by conventions providing for the applicability of the law of the state of the ship’s or aircraft’s registration,92 the lex registri. Although the court in Blue Sky accepted that the lex situs was unworkable where an aircraft is in international airspace it did not endorse the lex registri rule as a matter of common law. Since some doubt arises as to why English law was applied in respect of the doubtful situs cases, there is still some residual uncertainty. The issue is discussed at some length by Glaister et al.93 They note that there are still cases where Blue Sky applies even though the UK has now (although not when they were writing) ratified the convention. Unless the debtor is located in the UK or the aircraft is registered in the UK, ratification does not help.94 The convention applies where there is a requisite connection with a contracting state. Under article 3 this is the state the debtor is situated in at the date of the agreement and this is the Convention’s usual rule for determining its application. The registration connecting factor is not sufficient. The mortgagor must be in a contracting state or the English law mortgage will not be subject to the convention. These then are the lacunae where Blue Sky might still operate. Regulation 6(2) International Interests in Aircraft (Cape Town Convention) Regulations 2015 provides for the international interest to have effect where the convention and aircraft protocol are satisfied. The convention provides for a new ‘international interest’, which can be registered at the Registry in Dublin. An international interest is one granted by a chargor to a chargee, or retained by a seller under a retention of title clause or retained by a lessor under a lease agreement.95 Charge here includes mortgage. Under article 7 of the Convention it must be in writing, relate to an object of which the chargor has power to dispose; the object must be identified and the secured obligations must be capable of being determined, but without the need to state a sum or maximum sum secured. There is no need to entitle it as providing for an international interest. English law does distinguish between the three devices mentioned above. In chapter 15 we examine the prospects for secured transactions law reform and note that under a Personal Property Security Act retention of title clauses can be recharacterised as security as can some—but not all—leases. To deal with this, the convention provides that we first determine whether a transaction is a lease to which the convention applies. Then domestic law decides if the lease can be recharacterised as a security for domestic purposes.96 If so, there should be no need to amend the regulations should English law choose to reform its law on security interests. One of the requirements under article 7 relates to the identification

90 

R Goode, Official Commentary on the Cape Town Convention, 3rd edn (New York, Unidroit, 2013) para 2.5. [2010] EWHC 631 (Comm). 92  See R Goode, H Kronke and E McKendrick Transnational Commercial Law, 2nd edn (Oxford, OUP, 2015) para 14.02. 93  WJ Glaister at al ‘Lex Situs after Blue Sky: Is the Cape Town Convention the Solution?’ [2012] CTCJ 3. 94  ibid 16. 95  Goode et al (n 90) paras 14.27–14.28; Cape Town Convention on International Interests in Mobile Equipment, article 2. 96  S Saidova ‘The Cape Town Convention: The Constitution of an International Interest’ [2010] LMCLQ 285, 287; on the formality requirements more generally see 286–289. 91 

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of the asset. This raises the issue of the possibility of a floating charge, discussed by Saidova.97 Currently the UK has not ratified the Railway Protocol. Saidova argues that a floating charge is possible over rolling stock because the collateral can be described as ‘present and future railway objects’ and particular objects need not be identified. This is not so of aircraft, although it is hard to see the rationale for the distinction. However, she suggests parties may agree that a loan be secured on existing airframes, but that the borrower may sell such aircraft in the ordinary course of business, which replicates the effect of the charge even though there is no security in future unidentified assets as Re Yorkshire Woolcombers98 would suggest a floating charge usually amounted to. Details on the enforcement of an international interest can be found in chapter 13, part II F. Registration of the interest, like in the domestic context under the Companies Act, is intended to provide public notice of the interest, and enables the creditor to preserve his priority and the effectiveness of the interest in the debtor’s insolvency. The process of registration governed by articles 18–20 of the Convention and that is recognised by regulation 14 International Interests in Aircraft (Cape Town Convention) Regulations 2015 as valid in the UK. One point worth noting is that article 20(1) requires that both parties consent, allowing either party with the consent of the other to register the international interest. The registrar is not able, however, under article 18(2) to inquire as to the validity of that consent and, as a notification system, the fact of registration does not guarantee the validity of the interest.

v.  Intellectual Property We include this not because security rights over IP are not covered by the Companies Act regime. They are, and so any security over a company’s IP or IP licences must be registered on the Companies Register. It is included because of the double registration regime. The context is that historically intellectual property rights have not been used as security for loans. This is partly due to the difficulty in valuing them,99 but partly due to the complexity of the regimes and their interaction and the lack of expertise of IP lawyers in secured finance and vice versa. This has denied companies—particularly today’s IP-rich (tangible asset poor) businesses—a valuable source of finance.100 In chapter one we saw that while some intellectual property rights are not registered— such as copyright for example others, like patents are registered. The double registration causes confusion. Section 30(2) Patents Act 1977 provides that patents may be assigned or mortgaged.101 The position is clearer that trademarks may be both mortgaged and made subject to equitable charges by sections 24-25 Trade Marks Act 1994. There are no peculiar asset-specific requirements, save that because transfer of legal title to a patent or trade mark requires writing signed by the assignor a legal mortgage requires this formality. The Companies Act then applies so if a charge over a trade mark or patent is not registered within 21 97 

ibid 299–302. [1903] 2 Ch 284. On the different valuation methods see M Bezant and R Punt ‘The Use of Intellectual Property as Security for Debt Finance’ [1997] IPQ 279, 296–306. 100  ibid 279–287. 101  For the view that both a mortgage or equitable charge is possible see Beale et al (2012) (n 38) para 14.62; mortgages and charges over trademarks are discussed at para 14.68. 98 

99 

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days of its creation it is void as against a liquidator, just as if it were a charge over any other property. However, because the sanction is only of partial invalidity it may remain binding on subsequent transferees. In chapter one we saw that a patent needs to be registered on the patents register to be fully effective and in chapter four that although a transfer of title to an assignee may be fully effective under section 33 Patents Act 1977, registration provides a number of advantages. Chief among those is that a registered assignment (or mortgage) takes priority over an unregistered interest unless the party claiming priority has actual knowledge of the unregistered interest.102 We return to the priority issue below. A different problem relates to copyright. As there is only one registration regime, a security registered under the Companies Act is perfected and takes priority according to the date created, but the searcher may still have to conduct due diligence to satisfy himself that the borrower has adequate title and no licences affecting the value of the copyright have been granted.103

C. Priorities Priority rules as we have seen refer to competitions not between the security holder and unsecured third parties, but between perfected (and sometimes unperfected) security interest holders.

i.  General Rules The general rules of priorities are as follows,104 and have been described as seriously defective. This is primarily due to the separate evolution of different types of security and the lack of thought about the greater picture in the development of individual priority rules.105 Note that in some cases the effect of the rule is to destroy one of the interests completely so that the later interest holder takes free of the former; these are sometimes referred to as ‘taking free’ rules; as an example, and as we saw in chapter six, security interests in negotiable interests should be trumped by transfer to a holder in due course.106 In some cases payment of the secured debt is simply subordinated to the payment of a debt secured by a higher ranking security interest. In addition, we need to note that the costs of insolvency proceedings (liquidation and administration) will typically have priority over floating charges, but not fixed.107 Those costs may include post-insolvency transactions, payment of employees working during the administration, and debts entered into to carry the business on. 1. Fixed charges have priority over floating charges, unless the fixed chargee has actual notice of a negative pledge;108 registration of the negative pledge under section 859D(2) Companies Act 2006 probably provides only constructive notice. 102 

A Tosato ‘Security Interests over Intellectual Property’ (2011) 6 JIPLP 93, 97–98. ibid 100. 104  See McKendrick, Goode on Commercial Law (2010) (n 2) 697–98. 105 McCormack, Secured Credit in English and American Law (2004) (n 10) 59–61; Beale et al, The Law of Security (2012) (n 38) para 23.55. 106  Chapter six, part III A iv. As taking free rules they can also be seen as exceptions to the nemo dat principle. 107  Insolvency Act 1986 s 176ZA; Bibby Trade Finance Ltd v McKay [2006] EWHC 2836. 108  English and Scottish Mercantile Investments v Brunton [1892] 2 QB 706; Bridge et al (2013) (n 43) para 36.026. 103 

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2. Legal interests have priority over equitable interests; accordingly if the holder of the second interest gets into legal title without notice of the earlier equitable title he or she takes free of the earlier equitable interest. This is an example of the operation of the bona fide purchase rule.109 If the legal interest is granted prior to the equitable interest first in time prevails—so a prior legal mortgage, or pledge, takes priority over a later equitable charge. 3. Equitable interests have priority over mere equities—such as rights to rescind contracts for misrepresentation.110 This again requires that the party acquiring the later equitable interest have no notice of the mere equity. In other words, holders of mere equities are vulnerable not merely to bona fide purchasers for value without notice of legal rights, but also bona fide purchasers of equitable interests.111 4. As against interests of the same class first in time prevails. An earlier fixed charge has priority over a later fixed charge, similarly—although this is unclear—with floating charges. This is a default rule applying only where the facts do not dictate a different conclusion.112 First in time refers to the first to be created, which need not be the first to be registered. Registration, where required, merely acts as a prerequisite for priority. 5. Preferential creditors (primarily employees' wages and salaries up to a statutory cap under schedule 6 of the Insolvency Act 1986, and section 251 of the Enterprise Act 2002) rank between fixed securities and floating charges, as do unsecured creditors to the extent of the prescribed part. 6. Unsecured creditors come last, then members of the company. 7. In Dearle v Hall113 it was held that equitable assignments take priority on the basis of the date notice was given to the obligor, be he or she trustee or debtor. This rule displaces the usual or default first in time rule. A second assignee may therefore obtain priority by giving notice to the fundholder first. A second limb of the rule displaces this where the second assignee has notice of the first assignment. This may also apply in cases of registrable interests where the subject matter of the interest is a chose in action.114 The rule will not apply in those cases where an assignment is competing with an equitable interest created in some other way. 8. Section 10 of the Bills of Sale Act 1878 provides for priority by date order of registration between two holders of bills of sale. 9. If a non-possessory security is registrable but unregistered it is void against secured creditors if created by a company. Such creditors should rank as between themselves under the general law115 but are treated as otherwise unsecured.

109 

S Worthington, Personal Property Law: Text and Materials (Oxford, Hart, 2000) 464. See chapter seven, part IV. 111 Worthington, Personal Property Law: Text and Materials (2000) (n 109) 471; Phillips v Phillips (1862) 4 De G F&J 208, 45 ER 1164; but see D O’Sullivan, ‘The Rule in Phillips v Phillips’ (2002) 118 LQR 296; Bridge et al (2013) (n 43) para 36.008. 112  Rice v Rice (1853) 2 Drew 73, 61 ER 646. 113  Dearle v Hall (1823) 1 Russ 1, 38 ER 475; Gorringe v Irwell India Rubber Works and Gutta Percha Works (1887) 34 Ch D 128. See also chapter four, part IV B. 114  J de Lacy, ‘Reflections on the Ambit of the Rule in Dearle v Hall and the Priority of Personal Property Assignments—Part 1’ (1999) 28 Anglo-American Law Review 87, 127–28. 115  Re Monolithic Building Society [1915] 1 Ch 643 (CA); the position though is not without doubt. Beale et al, The Law of Security (2012) (n 38) para 13.23. 110 

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10. Registered international interests have priority over everything else, and as between themselves by order of registration. Article 29116 Convention on International Interests in Mobile Equipment provides that a registered international interest has priority over any unregistered or non-registrable interest even the registrant had knowledge of the prior unregistered interest. Only if the international interest is unregistered at the International Registry will the general law apply. 11. As noted, security rights over registrable IP rights, such as patents depend for their priority on registration. However, this is registration on the patents or trade marks register not on the companies register. Registered rights in patents for example take priority over unregistered rights unless the claimant had actual knowledge of the earlier transaction under section 33 Patents Act 1977. Where a company creates a charge over a patent therefore two issues arise. First, if it is registered on the patents register, but not the companies register it will be void against a liquidator. Secondly, if it is registered on the companies register but not the patents register the question — to which there is no authoritative decision — is whether registration under section 859A counts as notice to future registrants on the patents register. Probably it does not, as at best registration is constructive notice unlike the actual notice the Patents Act requires.117 Lastly we should note the importance of pre-acquisition agreements to charge in return for the provision of the purchase money. In Abbey National BS v Cann118 the House of Lords decided that where there is a pre-acquisition agreement which creates a charge (there a mortgage over a house) over future assets the charge bites immediately on acquisition and has priority over other interests because it is deemed to relate back to the date of the agreement. This, as Goode on Commercial Law is at pains to explain, is not an example of purchase money security interest (PMSI) super-priority. A purchase money security interest is a security granted in exchange for finance used to purchase the asset over which the security is granted. This is sometimes said to justify super-priority (ie priority over prior registered charges) because it enables new value to be put into the business. The reason for the decision in Cann, the book argues, is not that a conveyance and purchase money charge constitute a single indivisible transaction without the need for any prior agreement for the charge,119 but that there was such a prior agreement for a charge over future assets and the normal rules in Tailby v Official Receiver on the charge biting immediately on acquisition therefore applied. A view that Cann simply concerns a scintilla temporis (or lack of it) means that a second chargee with a non-purchase money security interest ought also to obtain priority, although there is no good policy reason for that outcome. In Re Connelly Bros120 it was held that if a creditor (A) makes an advance to the debtor (C) on the security of future acquired property, which C in fact acquired with a second secured loan from B,

116  International Interests in Aircraft Equipment (Cape Town Convention) Regulations 2015, r 16(1); see on priorities generally R Goode ‘The Priority Rules under the Cape Town Convention’ [2012] CTCJ 95. 117  Tosato (n 102) 99; see Bridge et al (2013) (n 43) paras 36.029–36.033 on priorities in IP rights generally. 118  Abbey National BS v Cann [1991] 1 AC 56 (HL); Tailby v Official Receiver (1888) 13 App Cas 523 (HL), but see Whale v Viasystems Technograph Ltd [2002] EWCA Civ 480. 119 McKendrick, Goode on Commercial Law (2010) (n 2) 713–14. 120  Re Connolly Bros. [1912] 2 Ch 25; Security Trust Co. v Royal Bank of Canada [1976] AC 503 (PC); State Securities v Liquidity [2006] EWHC 2644, [2006] All ER (D) 212; Gullifer, Goode on Legal Problems of Credit and Security (2013) (n 4) paras 5.63–5.67; Beale et al, The Law of Security (2012) (n 38) para 13.14.

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A’s security interest does not have priority as he only ever had security over an asset encumbered by B’s mortgage. In Re North East Buyers Litigation121 it was held that the grant of the legal mortgage and the conveyance was one indivisible transaction, although Lady Hale seemed to cast some doubt on this and suggested that sometimes at least—and it is not clear when—the transaction might be divisible.122 One final point is that the Law Commission has proposed enlarging the category of preferential creditor by including consumer prepayments for goods in certain circumstances where the consumer’s claim was large enough to be worthwhile given costs of distribution and they were not otherwise protected.123 The claim must be at least £250 and be paid within six months of insolvency.124 It is always possible for creditors to agree between themselves to vary the normal rules. In Cheah Theam Swee v Equiticorp,125 for instance, the defendant executed two mortgages over the same assets both of which became vested in the plaintiff. The plaintiff obtained judgment on the debt relating to the first mortgage, but exercised the power of sale under the second and applied the proceeds to the satisfaction of the second mortgage. It was held that ordinarily the mortgagees could vary the order of priority without the mortgagor’s consent, although terms preventing such reordering could be inserted into the security documents.126 The re-ordering in the instant case was consequently valid as there was no such contractual right. This can create some interesting problems. In Re Portbase Clothing Ltd127 a subsequent fixed charge was subordinated to a floating charge. The question came up as to the relative priorities of preferential creditors. On the face of the matter the fixed charge takes priority over the preferential creditors, who take priority over the floating charge. However, the floating charge must take priority over the fixed charge. This is called a circular priority problem as the preferential creditors prima facie had priority over the floating charge. Consequently, Chadwick J argued the fixed chargee was subordinated to the claims of the preferential creditors as well.128 The preferential creditors had priority over both chargees. In other words a principle of transitivity applies. If A has priority over B and B over C, A has priority over C. That principle is disturbed to the minimum extent needed. If A and C agree that C has priority over A then because B has priority over C it must now have priority over A as well. Goode on Commercial Law has criticised this result.129 The subordination of the fixed charge is intended to be for the benefit of the floating chargee alone. The book prefers

121  [2014] UKSC 52, [2015] AC 385; see generally on the decision P Sparkes ‘Reserving a Slice of Cake’ [2015] Conv 301. 122  ibid [115–118]; A Televantos and L Maniscalco, ‘Proprietary Estoppel and Vendor Purchaser Constructive Trusts’ [2015] CLJ 27. 123  Law Commision Consumer Prepayments in Retailer Insolvency (Law Comm no 368 2016) paras 8.46–8.47; recommendations 4a–4b. 124  ibid paras 8.93–8.106. 125  Cheah Theam Swee v Equiticorp [1992] 1 AC 472 (PC). 126  ibid 476–77; Re Maxwell Communications Corp (no 2) [1994] 1 BCLC 1; on priority agreements see Beale et al, The Law of Security (2012) (n 38) paras 14.103–14.125. 127  Re Portbase Clothing Ltd [1993] Ch 388; Waters v Widdows [1984] VR 503, rejecting the solution in Re Woodruffe’s Musical Instruments Ltd [1986] Ch 366. 128  Re Portbase Clothing Ltd [1993] Ch 388, 405–06. 129 McKendrick, Goode on Commercial Law (2010) (n 2) 715–17.

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a solution whereby the floating chargee is partially subrogated to the fixed chargee’s priority position, which entails the floating chargee taking priority over the preferential creditors only to the extent that the fixed chargee would have done, thus making them neither better nor worse off as a result of the subordination agreement. Portbase in fact renders preferential creditors better off as a result of the agreement.

ii.  Two Special Cases: Tacking and Marshalling Section 94 of the Law of Property Act 1925, which also applies to personalty, allows a mortgagee to make further advances secured on the existing mortgage in priority to any subsequent mortgage whether legal or equitable. In colloquial English the mortgagee is allowed to tack a new advance onto the existing security rather than create a new security that would not have priority. As David Richards LJ explains in Re Black Ant Co, tacking is restricted because of the prejudice to second and subsequent charges.130 It is possible in three cases: 1. If an arrangement has been made with the second mortgagee to the effect that the advance is tacked onto the first mortgage. 2. If the first mortgagee has no notice of the second mortgage at the time of the further advance. 3. Irrespective of notice if the mortgagee is obliged to make further advances under the mortgage. Tacking is possible if the mortgage is not expressed to cover further advances, but registration of the subsequent mortgage counts as actual notice to the prior mortgagee and puts an end to the right to tack under the second head.131 This rule does not apply where the first mortgage is expressed to cover further advances. Where the initial advance is made after notice is given to the first mortgagee of the second mortgage, section 94 does not apply. In practice the parties will conclude a priority agreement;132 the City of London Law Society have recommended in paragraph 40 of their 2016 draft Secured Transactions Code that all restrictions on tacking be abolished; this will also be the result of adopting a PPSA system; the options for reform are discussed in chapter 15. It may also happen that the junior secured creditor has security in asset A and the senior in assets A and B. If so, and the senior enforces his or her interest in asset A and thereby adversely affects the junior, the latter will have an interest in asset B to the extent that he or she has been deprived of his or her interest by the former’s recourse to asset A.133 This is called marshalling.

130 

[2016] EWCA Civ 30, [1]. Law of Property Act 1925 s 198. 132  See generally on tacking McKendrick, Goode on Commercial Law (2010) (n 2) 699–701; Beale et al, The Law of Security (2012) (n 38) paras 14.78–14.91; Gullifer Goode on Legal Problems of Credit and Security (2013) (n 4) paras 5.10, 5.17–5.23. 133  Serious Organised Crime Agency v Szepietowski [2013] UKSC 64, [2014] AC 338, [28–38] (Lord Neuberger PSC); Gullifer, Goode on Legal Problems of Credit and Security (2013) (n 4) para 5.34; P Ali, The Law of Secured Finance (Oxford, OUP, 2002) paras 7.95–7.111. 131 

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V.  Quasi-Security Interests This section is divided into two. One important type of quasi-security is the retention of title clause. These are sometimes called Romalpa clauses after the first case that gave them real prominence—Aluminium Vaassen v Romalpa Aluminium,134 in which it was sought to retain title over aluminium foil sold to the defendant until all the money due from the buyer was paid. In the usual case there is a contractual obligation that when the money owing to the title-holder is paid the surplus is handed back to the other party. The first section of this part of the chapter examines different ways in which the retention of title clause can be attacked, its effect in insolvency and reform proposals. The second section looks at other quasi-security interests and in particular set-off which can have some ‘property-like’ (or property-lite) effects.

A.  Retention of Title Clauses There are a number of types of retention of title clauses: 1. All-monies clauses. These state that property is not to pass until all money owing by the buyer, whether on that contract or not, to the seller is paid.135 2. Proceeds clauses. These maintain that the seller owns the proceeds of sale of the goods supplied. 3. Products clauses. These stipulate ownership of any item into which the goods are incorporated, or added in a manufacturing process. The easiest way to attack a retention of title clause is to assert that property in assets transferred has passed and an unregistered charge created. These charges are almost always floating. The orthodox position is that individuals cannot create floating charges, which raises the question of what the effect of such clauses is where the buyer is an individual or a partnership. In these cases, however, the clause may, if they involve the seller purporting to retain a right to seize products of the original asset, still be void as not complying with the formalities of the bills of sale legislation.136 Where the retention of title clause is given by a company and purports to cover proceeds or products it may fail for non-registration. Importantly, however, it may be possible for a seller (A) who sells to a buyer (B) to claim the asset back from a sub-buyer (C) who purchases the asset from B in cases where both contracts of sale are subject to a retention of title clause. In all these cases, however, the crucial question is the true construction of the clause.

i.  Products Clauses In Re Bond Worth137 the contract was a contract for the sale of acrilan fibre. The sellers attempted to retain ‘equitable and beneficial ownership’ over the products made with the 134 

Aluminium Vaassen v Romalpa Aluminium [1976] 2 All ER 552 (CA). Approved by Armour v Thyssen Edelstahlwerke [1990] 2 WLR 810; G MacCormack, ‘Reservation of Title in England and New Zealand’ (1992) 12 LS 195, 198–200. 136  H Beale (ed), Chitty on Contracts, 32nd edn (London, Sweet and Maxwell, 2015) vol 2 para 44.187. 137  Re Bond Worth [1980] Ch 228. 135 

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fibre. The buyers in fact used the fibre in the manufacture of carpets, and once in the carpet the fibre could not be extracted. The sellers succeeded in maintaining ownership of unused fibre over which the contracted asserted they retained absolute ownership. Slade J, however, said that the retention of title clause created a floating charge over the fibre.138 The buyers had the ability to use the carpets in the usual course of business for their own benefit. That being the case, the contract could not give rise to a trust.139 The ability to use an asset in the usual course of business is one of the characteristics of a floating charge. On the true construction of the contract the buyers granted a charge over the carpet to the seller once property had passed to them. There was therefore a scintilla temporis when the buyers had unencumbered ownership of the carpet, prior to a grant-back.140 There is an important argument that this fails, because there is never such a scintilla temporis. On this basis, Gregory has argued that the buyers never acquired anything more than an equity of redemption and the charge in Re Bond Worth was not registrable.141 This has not been followed by the courts. Property in the fibre did pass to them, because it could not be extracted from the carpet, and the manufacturers had therefore created something new—the carpet; the charge was created later after the property in the fibre had passed. That floating charge therefore had to be registered under the then applicable Companies Act 1948. Because it had not been, it was void. In fact in most cases this will happen. Neither the seller nor the buyer ex hypothesi knows that there is a charge, and cannot therefore register it. Model Board Ltd v Outer Box Ltd142 is another example. The cardboard was sold on the basis that the product, cardboard boxes, would belong to the seller and the proceeds of sale held on trust. Hart QC held that the debenture created a defeasible interest in the cardboard and therefore a void floating charge. The contract anticipated the admixture of new assets with the cardboard and therefore a new property right was re-granted by the buyer to the seller after legal title had passed to the seller. The payment of the purchase price would defeat any equitable interest in the boxes.143 Borden (UK) Ltd v Scottish Timber Ltd144 also confirms this result. In that case the sellers supplied resin to the buyers, which was mixed into chipboard. The sellers attempted to argue that they could trace the resin into the chipboard; however, even assuming equitable ownership of the resin was retained this could only be helpful if the use were unauthorised. It almost never will be. The Court stated the resin no longer existed; it could not be extracted from the chipboard and therefore property passed to the buyers who had made a new thing. Bridge LJ said, echoing Re Bond Worth: ‘I do not see how the concept of the beneficial ownership remaining in the sellers after use in manufacture can possibly be reconciled with the liberty…to use the resin in the manufacturing process for the buyer's benefit.’145 The resin

138  ibid 253; see Beale et al, The Law of Security (2012) (n 38) para 4.22; it will also do so where the seller and buyer hold the product jointly pro rata. Kruppstahl AG v Quitmann Products Ltd [1982] ILRM 551. 139  But see Worthington, Proprietary Interests in Commercial Transactions (1997) (n 19) 24. 140  Stroud Architectural Systems Ltd v John Laing Construction Ltd [1994] BCC 18. 141  R Gregory, ‘Romalpa Clauses as Unregistered Charges—a Fundamental Shift?’ (1990) 106 LQR 550, relying on Abbey National BS v Cann [1991] 1 AC 56 (HL); Worthington, Proprietary Interests in Commercial Transactions (1997) (n 19) 22–23 also accepts the implausibility of the grant and re-grant analysis and argues it does not meet commercial expectations. 142  Model Board Ltd v Outer Box Ltd [1993] BCLC 623. 143  ibid 633. 144  Borden (UK) Ltd v Scottish Timber [1981] Ch 25. 145  ibid 41; see also Clough Mill v Martin [1985] 1 WLR 111, Re Peachdart [1984] Ch 131; Specialist Plant Services Ltd v Brathwaite Ltd [1987] BCLC 1 (CA); on accession see Akron Tyre Co Pty Ltd v Kittson (1951) 82 CLR

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had additionally ceased to exist as resin and there was no reason to construe a substitute security. The sellers had not in fact contracted for any such new right; the retention of title clause did not expressly deal with the question of property in the chipboard and the sellers therefore became merely unsecured creditors. The one circumstance in which there appears to be no difficulty in retaining ownership is that circumstance in which the goods originally sold remain identifiable even after the authorised manufacturing process, or where the original goods are the major part so that ownership of the ‘add-on’ accedes to ownership of the original goods. While these might seem difficult sets of circumstances to imagine, in Hendy Lennox (Industrial Engines) Ltd v Grahame Puttick Ltd146 diesel engines were sold to Puttick who bolted them onto electricity generating sets which were themselves to be sold on. Each engine had a serial number, could be identified and easily unbolted. Consequently the property in the engines remained in Hendy Lennox under the retention of title clause until the point of sub-sale. When the generating sets were sold, property in the engines passed to the sub-buyers under the rule in section 25(1) of the Sale of Goods Act 1979 that buyers in possession can pass good title. The test enunciated in Pongakawa Sawmill Ltd v New Zealand Forest Products (NZFP) Ltd147 was whether the asset retained its essential character. In that case NZFP sold the saw mill untreated logs which the mill subsequently put into saleable condition to the construction industry. The logs, once worked on, retained their essential quality, and so NZFP’s retention of title clause allowed it to claim ownership of the sawn logs, bark and sawdust, although it in fact merely claimed ownership to the amount of the debt owing and not the windfall it would have had had it claimed sole ownership of the worked products, which when sold would have given it a tidy profit. This problem of the seller’s windfall might, as we have seen, be dealt with by giving the buyer a contractual right to recover the excess.148 Returning to the Pongakawa case, Richardson J’s point was that the logs started off being bits of wood and when sawn and worked were still just bits of wood. In the unusual case where the manufacture was unauthorised, it may be that the innocent party can claim ownership of the manufactured product.149 A sub-sale may be itself on retention of title terms. In Re Highway Foods Intl Ltd,150 which we examined in chapter 3, goods were sold by Harris to Highway Foods subject to a retention of title clause and then sub-sold to Kingfry, again subject to a retention of title clause. The original seller was entitled to repossess the goods on the basis that it had not been paid by the original buyer and sell directly to the sub-purchaser. That said, Nugee QC accepted that any interest Harris had in the proceeds of sales in the hands of Highway was a void unregistered charge.151

471; S Mills (ed), Goode on Proprietary Rights and Insolvency in Sales Transactions, 3rd edn (London, Sweet and Maxwell, 2010) para 5.18. 146 

Hendy Lennox (Industrial Engines) Ltd v Grahame Puttick Ltd [1984] 1 WLR 485. Pongakawa Sawmill Ltd v New Zealand Forest Products Ltd [1992] 3 NZLR 304. 148 Worthington, Proprietary Interests in Commercial Transactions (1997) (n 19) 41; she also suggests that retention of title in common to the product might be a means of dealing with any unintended windfall, 32–33. 149  Jones v de Marchant (1916) 28 DLR 561; Foskett v McKeown [2001] 1 AC 102 (HL) 133 (Lord Millett). 150  Re Highway Foods Intl Ltd [1995] 1 BCLC 209. 151  ibid 217. See on this S Thomas ‘The Role of Authorisation in Title Conflicts involving Retention of Title Clauses: Some American Lessons’ (2014) 43 CLWR 29. 147 

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ii.  Proceeds Clauses In E Pfeiffer Weinkellerei-Weineinkauf Gmbh v Arbuthnot Factors Ltd152 the contract of sale of a quantity of wine stated that the sellers were to retain title to the proceeds of any subsale of the wine. It was held that where the buyer was permitted to sub-sell, the normal implication would be that it was free to do so for its own benefit. The contract effected an assignment of the debts owed by sub-purchasers up to the amount of the outstanding indebtedness. This counted as a charge, being an assignment by way of security. That charge was void as being unregistered. In Compaq Computer Ltd v Abercorn Group153 Compaq sold computers to Abercorn on a proceeds clause. It was held that any beneficial interest, which Compaq had in the proceeds of the sale, would come to an end when it was paid, and if the proceeds were insufficient it would retain a right to sue for the excess. This was characteristic of a charge, which was therefore void as being unregistered. In Re Andrabell154 the buyers (Andrabell) were dealers in travel bags and bought a quantity of bags from its suppliers (Airborne) on terms including a retention of title (ROT) clause. Unusually this was not on an all-monies clause, but referred to monies due on each consignment. Peter Gibson J held that the case was distinguishable from Romalpa; in particular, and as in Re Peachdart, there was no obligation to keep the proceeds of sale separate from the general assets of Andrabell, and they were able to use the proceeds of sale as they saw fit.155 Consequently, Airborne had at best only an unregistered floating charge in the proceeds of sale. This was the critical distinction between Andrabell and Romalpa, as it was conceded Andrabell were bailees of the bags in the same way that Aluminium Vaassen were bailees of the aluminium foil. Romalpa was also explicitly referred to in Re Bond Worth. Slade J distinguished the case on the basis that legal title had passed in Re Bond Worth, which also sought to take equitable and beneficial interests in the proceeds, but legal title had not done so in Romalpa.156 Romalpa is in point of fact very frequently distinguished, often relying on the fact that the point was never argued that the seller’s only interest was an unregistered charge. Nonetheless we should not forget there need not be a charge. In Aluminium Vaasen v Romalpa Aluminium the clause was held to make the buyer bailee of the aluminium foil. When it was sold on pursuant to a power to do so in the contract, there was an obligation to account for the proceeds, and the claimant was able to trace the proceeds. The buyers were ‘fiduciary owners’, a phrase found in the contract, but not found helpful by the judges, and as such were accountable even for profits on the sub-sales. Roskill LJ said, ‘I see no difficulty in the contractual concept that, as between the defendants and their sub-purchasers the defendants sold as principal, but as between themselves and the plaintiffs they sell as agents and remain fully accountable.’157 That might look at first sight as if it is a case of an undisclosed agency. However, it was not, because the sub-purchasers were unable to sue anyone but the buyers. This is a difficult decision to support,158 as it seems to have been assumed 152 

E Pfeiffer Weinkellerei-Weineinkauf Gmbh v Arbuthnot Factors Ltd [1988] 1 WLR 150. Compaq Computer v Abercorn Group [1993] BCLC 602. 154  Re Andrabell [1984] 3 All ER 407. 155  ibid 416. Re Peachdart [1984] Ch 131; chapter one, part V A. 156  Re Bond Worth [1980] Ch 228, 246–47. 157  Aluminium Vaasen v Romalpa Aluminium [1976] 1 WLR 676 (CA); Caterpillar (NI) Ltd v John Holt & Co (Liverpool) Ltd [2013] EWCA Civ 1232, [2014] 1 All ER (Comm) 393, [67] (Patten LJ). 158  M Bridge, The Sale of Goods, 3rd edn (Oxford, OUP, 2014) para 3.92. 153 

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that a bailee always receives proceeds as a fiduciary and this is at best far from obvious. The unanswered question is where the equitable duty to account comes from.159 It appears that the Court engaged in some ‘pull yourselves up by your bootstraps’ reasoning. McCormack has suggested the following.160 The buyer should be obliged to store the goods in a way manifesting the seller’s ownership. Proceeds should be kept in a separate account, and sub-sales occur as agent of the original seller, and proceeds are held on trust. This seems to have been confirmed by the decision in Caterpillar (NI) Ltd v John Holt & Co (Liverpool) Ltd.161 In that case the clause required the buyer to ‘hold the products as Seller’s fiduciary agent’ and ‘to account for the proceeds of sale’. Patten LJ said that an obligation to account for the entire proceeds of sale was only consistent with the buyer remaining a fiduciary agent throughout the subsale. The clause was not well drafted to convert the retention of title clause into a charge necessary to secure only the remaining outstanding balance.162 A proceeds clause may therefore establish an agency relationship. This creates a significant difficulty in that by allowing an unregistered interest to take priority over receivables financing it upsets the current balance of financing and introduces a priority threat to receivables financiers,163 who today can rely on the companies register. One extra point is that because property does not pass to the buyer, the seller may not be able to sue for the price under section 49 Sale of Goods Act 1979. More recently this has caused contortions in PST Energy 7 Shipping v OW Bunker Malta Ltd.164 That case involved bunker fuel, ‘sold’ subject to a retention of title clause but which had been used up. The final users’ attempt to argue that there was no claim under section 49 could have ended with their obtaining something for nothing. To avoid this, the Court of Appeal resorted to denying it was a sales contract at all. In the Supreme Court, Lord Mance, with whom all the other Justices agreed, held that the contract was not a sale on the facts of PST Energy 7; rather, it was a contract to allow consumption of bunker fuel—without property passing—and on payment of the price for all the bunkers, consumed and unconsumed, property in anything left over would pass.165 However, lessening the risk of distortion in the future, he also held that Caterpillar should be overruled and the price may be recoverable under the terms of the contract outside of the scope of section 49 in circumstances where property has not passed, but the property is at the buyer’s risk.166 A similar Australian case is Associated Alloys Pty Ltd v AN001452106 Pty Ltd,167 where the majority of the court decided that there was a trust and based this conclusion on the fact the trust discharged the obligation rather than securing the obligation. They acknowledged,

159 Gullifer, Goode on Legal Problems of Credit and Security (2013) (n 4) para 1.34; Beale et al, The Law of Security (2012) (n 38) paras 7.19–5.21. 160  G McCormack, ‘Title Retention and the Company Charge Registration Scheme’ in E McKendrick and N Palmer (eds), Interests in Goods, 2nd edn (LLP, London, 1998) 727, 749; see also Worthington, Proprietary Interests in Commercial Transactions (1997) (n 19) 40–41 and Mills, Goode on Proprietary Rights and Insolvency in Sales Transactions (2010) (n 145) paras 5.53, 5.79–5.81. 161  [2013] EWCA Civ 1232, [2014] 1 All ER (Comm) 393. 162  ibid [60]; Floyd LJ noted at [76] that the proceeds payable would include any profits on the subsale. 163  L Gullifer, ‘The Interpretation of Retention of Title Clauses: Some Difficulties’ [2014] LMCLQ 564, 567–573. 164  [2015] EWCA Civ 1058, [2016] 2 WLR 1072; A Tettenborn ‘Of Bunkers and Retention of Title: When is a Sale not a Sale?’ [2016] LMCLQ 24. 165  [2016] UKSC 23, [2016] 2 WLR 1193, [37]. 166  ibid [58]. 167  Associated Alloys Pty Ltd v AN001452106 Pty Ltd [2000] HCA 25, (2000) 74 ALJR 862.

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however, that a charge would be a more common result. The only distinction from Re Bond Worth must be that the buyers in Associated Alloys could not use the proceeds for their own benefit. This is a result which would be difficult to reach in England. It runs directly contrary to Model Board Ltd v Outer Box Ltd where Hart QC, sitting as a judge, said the interest in the proceeds was defeasible on payment of the purchase price, and this was a characteristic of a charge.168 The interest in the proceeds must therefore not be defeasible on payment for there to be a trust. It is difficult to see the commercial sense in such a clause.

iii.  Insolvency and Title Reservation The rights of a seller reserving title in this are limited in insolvency by the Insolvency Act 1986, primarily schedule B1. No steps therefore may be taken to repossess goods subject to such a clause where a company is in administration without either a court order or the permission of the administrator.169 Paragraph 72 of schedule B1 allows an administrator to seek an order allowing him or her to dispose of the goods as if they were not subject to the clause, but this would only be granted if the disposal promoted the purposes of the administration and the proceeds were used to discharge the debt owing the seller.

iv. Criticism Historically there have been some calls for retention of title clauses to be abolished and that they should always be held to create charges.170 This might take the form of some type of recharacterisation; the commonwealth Personal Property Security Acts all recharacterise retention of title clauses as security interests on the basis that they ‘in substance secure an obligation’. We look at secured transactions law reform in chapter 15. The Cork Report also treated such clauses in the same way as charges for some purposes. It suggested that holders of retention of title clauses should be prevented from exercising any remedies within 12 months of a receivership or administration commencing, a version of which can be found in schedule B1 of the Insolvency Act 1986, and that holders of retention of title clauses would only be able to enforce those clauses to the extent of the remaining outstanding debt.171 Nonetheless the Draft Secured Transactions Code published by the City of London Law Society in 2016 eschews the functional recharacterisation of such devices.172 There is, or is perceived to be, a significant commercial need being met by the instruments, not merely in common law jurisdictions but more widely.173 Lenders to small businesses in particular probably envisage that the borrower will enter into this type of arrangement. The nature of retention of title clauses is that they may take very little away from other creditors, who without them would probably see their investment collapse as the company

168  Model Board Ltd v Outer Box Ltd [1993] BCLC 623, 629; see Bridge, The Sale of Goods (2014) (n 158) para 3.90. 169  Insolvency Act 1986 sch B1 para 43; Mills, Goode on Proprietary Rights and Insolvency in Sales Transactions (2010) (n 145) paras 5.82–5.88; Re Atlantic Computer Systems Plc [1992] Ch 505, 542; Fashoff (UK) Ltd v Linton [2008] EWHC 537 (Ch), [2008] 2 BCLC 362. 170  Sealy and Hooley, Commercial Law: Text, Cases and Materials (2008) (n 3) 469. 171  Cork Report, Insolvency Law and Practice (1981) (n 12) paras 1645–50. 172 CLLS Secured Transactions Code (2016) r 6. 173  G Monti, ‘The Future of Reservation of Title Clauses in the European Community’ (1997) 46 ICLQ 866.

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cannot make a return and subsequently goes under.174 The counter-argument is that if the debtor shifts its asset pattern to rely on hire-purchase goods or leased goods, the protection offered to the secured party will reduce as the asset pool against which it can claim is reduced. This creates uncertainty and raises the price of secured credit.175 Retention of title clauses are more likely to be used by larger better-placed parties and further disadvantages smaller creditors, or suppliers of consumables such as fuel, who cannot adjust to the use of such devices by other parties. Vanessa Finch may be justified in saying the retention of title clause produces the worst of all worlds. It aggravates the position of small creditors; it is perceived—albeit probably wrongly—by secured creditors as a threat and thus raises credit prices and in the end fails to deliver real protection, as we have seen, because it so frequently becomes an unregistered floating charge.176 Worthington has made a further set of criticisms. She criticises the case law for focusing on indirect indications of the important factors. It concentrates on whether there is a fiduciary relationship for example, rather than looking at the important question of whether the use or sale of the goods is on the buyer’s account or not.177 This factor is the real important one. It is this that determines whether legal title to the original goods passes to the buyer or not and it is this transfer which determines whether the seller has an original interest in the products or proceeds. If title does not pass so that the original seller retains title to the goods and the use of the goods is not on the buyer’s account, one would expect that the usual rules on specification etc, covered in chapter one, part V, would apply to decide the ownership of the products, and ownership of the proceeds should be automatic.

B.  Other Quasi-Security Interests There are a number of further examples. Some we have seen before; hire purchase and financial leasing will count as quasi-securities as the property right retained gives the lessor or hirer security against repayment. Some methods of receivables financing through factoring were met in brief in chapter four when we dealt with assignment.178 The most complex remaining quasi-securities actually do not involve property rights, although they do affect them, sometimes quite significantly, and are therefore an appropriate topic for this book. The most important—and the one we cover in detail—is set-off.179 We encountered this in chapter four when we looked at the equities subject to which assignment takes place. There are confusingly four main types of set-off, plus the right of banks in some cases to set off debts owing to and by its customers—also known as a right of combination of accounts.180

i.  Contractual Set-Off and Close Out Netting The idea behind a contractual set-off is relatively straightforward. I owe you £500 and you owe me £250. Rather than paying each other, a contractual set-off means that I can pay you 174 

ibid 904–05. Finch, ‘Security Insolvency and Risk: Who Pays the Price?’ (1999) (n 10) 646–49. 176  ibid 649. 177 Worthington, Proprietary Interests in Commercial Transactions (1997) (n 19) 42. 178 McCormack, Secured Credit in English and American Law (2004) (n 10) 51–59. 179  See generally R Derham, Derham on the Law of Set Off, 4th edn (London, Sweet and Maxwell, 2010). 180  Gullifer and Payne, Corporate Finance Law (2015) (n 57) 218–233; Gullifer, Goode on Legal Problems of Credit and Security (2013) (n 4) paras 7.03–7.08 lists five. 175 

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£250 and we agree that all debts are settled. It can, however, fulfil a security function. A bank that wishes to lend against the security of the borrower’s money reserves may require that these be paid into an account with itself. A bank account is merely a debt. If in credit the bank owes the account holder money; if in overdraft the account holder is borrowing from the bank. The bank having lent £10,000 to the borrower will then take a right to set off the amount it owes the borrower. If that comes to £5000 at the point of default, the bank can immediately debit the credit balance of the borrower to zero and sue only for the remainder. This is a substantive defence in that it automatically extinguishes the cross-claim and therefore failure to fulfil the cross-claim does not leave the debtor open to extra-judicial self-help remedies.181 This type of set-off does not create any sort of right in rem, although the relation between personal rights under set-off and rights in rem is blurred by the acceptance of the chargeback.182 In Re BCCI (no 8)183 Lord Hoffmann took the view, albeit obiter, that there was no conceptual reason why a bank should not be able to take a charge over its customer’s credit balance. The difficulty is that, although the bank is taking a charge over its customer’s chose in action, that chose is against it. Sir Roy Goode argued this was conceptually impossible because as between those parties the bank account was an obligation not an asset.184 The point remains open, although it is suggested Lord Hoffmann is correct and the Financial Collateral Arrangements (no 2) Regulations 2003 in fact appear to assume that chargebacks are possible.185 The boundary line remains important because if it is a charge interest will accrue until the debt is paid, but if not insolvency set-off will bite and interest will only run until the date of insolvency. In British Eagle International Airlines v Compagnie Nationale Air France (CNAF)186 the airlines were members of the International Air Transport Association (IATA) which established a clearing house for settlement of debts between the member companies. The operators were not able to claim from each other but only through IATA. Lord Cross described it as a contractual mechanism to settle the debts owed between the members on a monthly basis when each would be paid the net amount payable after all charges due to it, and owing by it to other members, had been taken into account.187 On British Eagle’s liquidation, the liquidator claimed directly from the defendant. CNAF’s contention was rejected that the debt was owed by IATA and that therefore only the balance once sums due to CNAF had been set off was payable. The true position was that CNAF owed British Eagle the full sum and could prove in liquidation for sums due to it. To remove the sum due from CNAF which would otherwise have accrued for the benefit of the airline’s creditors was a breach of the pari passu rule.188

181 Gullifer, Goode

on Legal Problems of Credit and Security (2013) (n 4) para 7.07. (n 2013) (n 4) para 7.14; Electro Magnetic (S) Ltd v Development Bank of Singapore Ltd [1994] 1 SLR 734 (Sing CA). 183  Re BCCI (no 8) [1998] AC 214 (HL) 226–228; Derham, Derham on the Law of Set Off (2010) (n 179) para 16.73. 184 Gullifer, Goode on Legal Problems of Credit and Security (2013) (n 4) para 3.12. 185 Derham, Derham on the Law of Set Off (2010) (n 179) para 16.81. 186  British Eagle International Airlines v Compagnie Nationale Air France [1975] 1 WLR 758 (HL). 187  ibid 780. 188  ibid 781; Derham, Derham on the Law of Set Off (2010) (n 179) para 16.22. 182  Gullifer

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It may, however, be possible to arrange matters differently. The key is that where the contracts between the members are novated and replaced by contracts with the clearing house, the principle in British Eagle is avoided.189 In IATA v Ansett Australia Holdings Ltd190 the only difference with the contract at issue in British Eagle is the addition of regulation 9(a), which provided that no liabilities or rights of action accrued between the members of the clearing house, but that members of the clearing house would in lieu have liabilities to IATA for the balance due by them, or rights of action for the balance due to them against IATA once the claims were netted out. This meant that the airlines, which provided services to or on behalf of Ansett, did not propound any claims. IATA did. IATA’s claim was for the net balance remaining. Ansett argued that this was against public policy. The High Court of Australia denied this, and allowed the netting process to take place. Close out netting takes place when the obligations owed to and by the parties are terminated and replaced by an obligation to pay the net money amount. This would be the novation approach, as opposed to the ‘set off ’ approach where obligations are accelerated and valued and settled by a single payment. Derham suggests that this should not in general be objectionable,191 and a properly drafted close out netting provision was generally considered to work prior to the Financial Collateral Arrangements (No 2) Regulations 2003, but in any case regulation 12 requires that, where the regulations apply, close out netting provisions be respected even once insolvency proceedings are opened.192 The impact of British Eagle has therefore been largely negated in cases where financial collateral is involved.193 Closeout netting works in a similar way to insolvency set off194 and its role in reducing gross exposure to a net sum plays an important role in ensuring financial stability.195 There are some differences in valuation between the two forms of set-off and there may be cases when insolvency set-off applies because regulation 12 does not simply disapply rules 4.90 and 2.85 Insolvency Rules 1986, as Yeowart and Parsons suggest it should.196

ii.  Insolvency Set-Off Rule 4.90(1) of the Insolvency Rules 1986 states: This Rule applies where, before the company goes into liquidation there have been mutual credits, mutual debts or other mutual dealings between the company and any creditor of the company proving or claiming to prove for a debt in the liquidation.197 189 Gullifer, Goode

on Legal Problems of Credit and Security (2013) (n 4) para 7.92. IATA v Ansett Australia Holdings Ltd [2008] HCA 3; (2008) 242 ALR 47; McKendrick, Goode on Commercial Law (2010) (n 2) 651–52; M Bridge, ‘Clearing Houses and Insolvency in Australia’ (2008) 124 LQR 379; Derham, Derham on the Law of Set Off (2010) (n 179) paras 16.25–16.26. 191 Derham, Derham on the Law of Set Off (2010) (n 179) para 16.36. 192  R Goode, ‘Perpetual Trustee and Flip Clauses in Swaps Transactions’ (2011) 127 LQR 1, 11–12. This will remain so under the Financial Markets and Insolvency (Settlement Finality and Financial Collateral)(Amendment) Regulations 2010. 193 Gullifer, Goode on Legal Problems of Credit and Security (2013) (n 4) para 7.94; Derham, Derham on the Law of Set Off (2010) (n 179) paras 16.45–16.52; Ho, ‘The Financial Collateral Directive’s Practice in England’ (2011) (n 57) 166–70. 194  Yeowart and Parsons Financial Collateral (2016) (n 51) para 10.10. 195  ibid para 10.23. 196  ibid paras 10.41–10.45. 197  See also Insolvency Act 1986 s 323 on personal insolvency; rule 2.95 of the Insolvency Rules 1986 deals with the situation in administration. Insolvency set-off does not apply in receiverships. M Bridge, ‘Insolvency’ in AS Burrows (ed), English Private Law, 3rd edn (Oxford, OUP, 2013) para 19.126. 190 

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The set-off is mandatory once the company is in liquidation,198 but should not be anticipated in that it is inappropriate for use when the company is insolvent but not in liquidation.199 An account is taken on liquidation and the sums set off against each other. Lord Hoffmann said in Re BCCI (no 8) that the set-off takes place automatically and is deemed to take place at the date of bankruptcy. The effect is that the creditor is only exposed to insolvency risk for the balance of the debt due to him or her.200 It is therefore a substantive defence. Insolvency set-off is frequently justified in terms of fairness. It is thought unfair, as was indicated in Re Charge Card Services Ltd,201 that the company’s debtor should have to pay the full amount of his or her debt, but prove in insolvency for a limited fraction back. It is also argued that set-off in insolvency will improve the amount of credit provided and offer a stimulus to trade and commerce.202 Nonetheless, the effect is to provide a large preference to one group of creditors, which pulls against the defining characteristics of insolvency to treat, so far as possible, everyone pari passu. Perhaps the best explanation is that insolvency set-off manages exposure risk. This is particularly important in the financial markets and reduces the capital requirements on financial parties, and parallels the reasoning behind allowing close out netting provisions in financial collateral arrangements to take effect.203 In Re Charge Card Services Ltd (CCS), CCS undertook to pay participating garages for fuel supplied to account holders minus a commission. The account holders under a separate contract undertook to pay the balance for fuel to CCS. Commercial Credit entered an agreement with CCS to factor the receivables—debts owed by the account holders;204 CCS maintained an account with Commercial Credit and was debited and credited accordingly. On CCS’ insolvency, Commercial Credit was entitled to set off sums due to it that arose from a transaction prior to liquidation, even contingent debts—that is debts that only become due and payable should a future event or condition occur. Millett J said that all debts arising from mutual dealings were in principle susceptible to set-off.205 The availability of set-off for contingent debts has now been settled by express provision; rules 4.86 and 4.90(5), in the amended rules allow for it. The system relies heavily on mutuality, which is described as existing where the claims are between the same parties in the same right, or same capacity; this is intended to prevent a debt owed by A to B being set off against a debt owing to A by C. Joint debts cannot be set off against separate debts. A debt owed by A and B jointly to C cannot be set off against

198  MS Fashions v BCCI [1993] BCC 70; Re Maxwell Communications Corp Plc [1994] 1 BCLC 1; Derham, Derham on the Law of Set Off (2010) (n 179) paras 6.111–6.112. 199  FG Skerritt Ltd v Caledonian Building Services Ltd [2013] EWHC 718, [31] (Ramsey J). 200  Re BCCI (no 8) [1998] AC 214 (HL) 223; Stein v Blake [1996] 1 AC 243 (HL); Halesowen Presswork and Assemblies v National Westminster Bank [1972] AC 785 (HL). 201  Re Charge Card Services Ltd [1987] Ch 150, 190. 202  For discussion of these justifications, see Derham, Derham on the Law of Set Off (2010) (n 179) paras 6.20–6.21; Isovel Contracts Ltd v ABB Building Technologies Ltd [2002] 1 BCLC 390, 398–99 (Simon Brown J). 203  L Gullifer and P Pichennaz Set-Off in Arbitration and Commercial Transactions (Oxford, OUP, 2014) para 12.17; Financial Collateral Directive Recital 14. 204  On factoring see chapter four, part I. 205  Re Charge Card Services Ltd [1987] Ch 150, 179; Re a Debtor No 66 of 1955 [1956] 1 WLR 1226 (CA) is often cited for the contrary proposition that contingent liabilities could not be set off, but Millett J suggested properly understood it decided no such thing. Beale et al, The Law of Security (2012) (n 39) paras 8.59–8.60; see also D Turing, ‘The New Insolvency Set Off Rules’ (2005) 21 Insolvency Law & Practice 165.

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a debt owed by C to B alone. In other words, it is a requirement of reciprocity.206 However, in insolvency set-off the rights of the parties are determined by reference to their equitable interests. Hence, an equitable assignee of a debt can set off against the debtor’s trustee in bankruptcy or liquidator a separate debt he or she owes the debtor.207 By parity of reasoning the equitable assignor cannot set off the debt and a claim against a company in liquidation cannot for example be set off against a claim held by the company as a trustee. The debts or other dealings must also be capable of being reduced to money; in other words they must be commensurable. The claims may be completely collateral to each other but must have arisen before the insolvency.208 There is no limitation to contractual dealings.209

iii.  Equitable Transaction Set-off Equitable transaction set-off is a substantive defence.210 The English courts, in for instance Muscat v Smith, appear to require that the claims be mutual,211 although this should not be a strict requirement. In Baillie v Edwards212 Innes had a claim and a lien against an estate in which Baillie had a life interest, but it was agreed that he have no personal claim against Baillie. Innes was also indebted to Baillie personally. The House of Lords decided the two debts could be set off against each other and Innes’ claim against the estate could be satisfied by discharging his liability to Baillie. Here there is clearly no strict mutuality, as a debt owed by the estate (but not Baillie personally) was set off against one owing to Baillie personally. We have already seen that in insolvency set-off where A makes a claim as a bare trustee, the debtor may set off a claim owing to the beneficiary. This is also, as might be expected, the case in equitable set-off.213 The ambit of equitable set-off has been described in terms of the claimant being able to impeach the other’s title,214 but this has never been precisely defined.215 Lord Denning, however, said in Federal Commerce and Navigation Ltd v Molena Alpha Inc: It is only cross-claims that arise out of the same transaction or are closely connected with it and it is only cross-claims which go directly to impeach the plaintiff 's demands, that is, so closely connected with his demands that it would be manifestly unjust to allow him to enforce payment without taking into account the cross-claim.216

Lord Denning clearly saw this formulation in terms of manifest injustice as reflecting the idea of impeachment of title,217 but impeachment has largely fallen into disuse as a means 206 

Gye v McIntyre (1997) 161 CLR 609 (HCA). Set Off (2010) (n 179) para 11.13; Gullifer, Goode on Legal Problems of Credit and Security (2013) (n 4) para 7.83; Matthieson’s Trustee v Burrup, Matthieson & Co [1927] 1 Ch 562. 208 Derham, Derham on the Law of Set Off (2010) (n 179) para 7.23. 209  ibid para 7.11; Re DH Curtis Ltd [1978] Ch 162. 210  Federal Commerce & Navigation Co Ltd v Molena Alpha Ltd [1978] 1 QB 927 (CA); Melham Ltd v Burton [2006] UKHL 6, [2006] 1 WLR 2820. 211  Muscat v Smith [2003] EWCA Civ 962, [2003] 1 WLR 2353; see R Derham, ‘Equitable Set-Off: a Critique of Muscat v Smith’ (2006) 122 LQR 469; Gullifer, Goode on Legal Problems of Credit and Security (2013) (n 4) para 7.53. 212  Baillie v Edwards (1848) 2 HLC 74, 9 ER 1020; Hamp v Jones (1840) 9 LJ Ch 258; Derham, ‘Equitable Set-Off: a Critique of Muscat v Smith’ (2006) (n 211) 478–80; in a bankruptcy context see Ex parte Hanson (1811) 16 Ves 232, 34 ER 305; Derham, Derham on the Law of Set Off (2010) (n 179) paras 4.67–4.83. 213  Middleton v Pollock (1875) LR 20 Eq 29. 214  Rawson v Samuel (1841) Cr & Ph 161, 41 ER 451. 215 Derham, Derham on the Law of Set Off (2010) (n 179) para 4.03. 216  Federal Commerce and Navigation Ltd v Molena Alpha Inc [1978] QB 927 (CA) 974. 217 Derham, Derham on the Law of Set Off (2010) (n 179) para 4.10. 207 Derham, Derham on the Law of

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of elucidating the test, and has been described as unhelpful.218 Impeachment of title does, however, sit with a view of the set-off as reducing or extinguishing the main claim at the point it is asserted. Recent cases are more in favour of the view that the claim is reduced at judgment, however.219 One rationalization of this with the view that it is a substantive defence is that it becomes unconscionable for the claimant to assert the monies due. The test for the set-off has now been authoritatively set out in Geldof Metaalconstructie NV v Simon Carves Ltd in terms of a close connection between the claims, rendering enforcement of the claim without reference to the counter-claim manifestly unjust.220 However, and despite judicial insistence to the contrary, the test seems rather impressionistic in its operation and it is not yet clear precisely where the court will draw the line,221 except to say the closer the subject matter the more likely they are to be closely connected, and if the claims arise from the same contract, unless the aspects of the transactions dealt with are very different, they are also likely to be closely connected.

iv.  Independent Set-Off This is a procedural defence, which is designed to avoid circuitry of action. Important consequences flow from the procedural nature of the set-off. It does not for instance extinguish the claim, operates only from the point of judgment and does not prevent separate extrajudicial self-help remedies being exercised.222 There are two types of independent set-off, statutory set-off (now given effect under CPR r16.6) and set-off given by equity by analogy to the statute. The second will be called equitable procedural set-off to avoid the clunky title. As in other forms of set-off the debts must be mutual,223 but the claims can be otherwise entirely unrelated. For statutory set-off there must be identity of ownership of both claim and cross-claim. Joint debts cannot, as we might expect, therefore be set off against separate debts. Equitable procedural set-off, just like insolvency and equitable transaction set-off, looks behind the identity of legal ownership and allows set-off where one debt is owed to or by a trust beneficiary in that capacity. In Cochrane v Green,224 for example, the claimant was owed money by the defendant, who had a claim against him in turn, albeit one via his trustee. So the claimant owed money to the trust. The Court held that it did not matter that a legal set-off was impossible and allowed an equitable set-off. A court may also deny a legal set-off if there is no equitable mutuality.225 Independent set-off is available where the claim and cross-claim are for liquidated sums, which have become due at the date of pleading.226 Current debts cannot be set off against future or contingent debts.227 218  Bim Kemi AB v Blackburn Chemicals Ltd [2001] EWCA Civ 457, [2001] 2 Lloyds Rep 93, 99–102 (Potter LJ); Beale et al, The Law of Security (2012) (n 38) para 8.16. 219  Gullifer and Pichennaz (2014) (n 203) para 5.27. 220  Geldof Metaalconstructie NV v Simon Carves Ltd [2010] EWCA Civ 667, [2010] 4 All ER 847, applied in Bibby Factors Northwest Ltd v HFD Ltd [2015] EWCA Civ 1908, [2016] All ER (D) 08 (Jan). 221 Derham, Derham on the Law of Set Off (2010) (n 179) para 4.12; Gullifer and Pichennaz (2014) (n 203) paras 8.3–8.47. 222 Gullifer, Goode on Legal Problems of Credit and Security (2013) (n 4) para 7.36–7.37. 223 Derham, Derham on the Law of Set Off (2010) (n 179) para 2.34; Gullifer, Goode on Legal Problems of Credit and Security (2013) (n 4) para 7.43. They must be debts and not unliquidated damages claims. 224  Cochrane v Green (1860) 9 CB (NS) 448, 142 ER 176. 225  See on the effect of the trust Derham, Derham on the Law of Set Off (2010) (n 179) para 11.11–11.18. 226 Gullifer, Goode on Legal Problems of Credit and Security (2013) (n 4) para 7.42; Stein v Blake [1996] AC 243 (HL) 251 (Lord Hoffmann). 227 Gulllifer, Goode on Legal Problems of Credit and Security (2013) (n 4) para 7.42.

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Independent set-off has only limited significance. It will often be available as an alternative to a substantive set-off, particularly so now that equitable transaction set-off has expanded in scope. Equitable transaction set-off, however, requires the debts to be inseparably connected. Independent set-off does not. Money due under a bill of exchange may therefore be independently (but not transactionally) set off against a sum due under a transaction unconnected with the bill.228 By contrast there are advantages to equitable transaction set-off over independent set-off. Firstly, because of its substantive nature it may be available even in cases where the cross-claim is time-barred. It can also, as we have seen, be relied upon prior to any proceedings in the main claim, although quite how this works is unclear.229

VI. Conclusion Security interests come in a number of different forms, but what they all have in common is that they are limited rights over assets allowing the security holder recourse over a particular asset or assets to obtain monetary satisfaction on default in priority to other creditors. Retention of title clauses and other similar devices have the same function, but unlike other jurisdictions such as those in the United States where security has a functional definition, they do not meet in English law the formal definition of security interest. Consequently, setoff which does not involve any property rights, retention of title clauses which involve no transfer of property to the debtor or obligee, and hire purchase or finance leases involving the retention of a limited legal reversionary interest, are governed by other regimes despite giving ‘priority’ (in crude and technically inaccurate terms) over fully unsecured debtors in insolvency. Nonetheless, quasi-security interests have a close relation to security. Retention of title clauses are for instance particularly closely related to charges in that proceeds and products clauses are frequently invalidated as unregistered floating charges, or unregistered charges over book debts.

228  229 

ibid para 7.46. Gullifer and Pichennaz Set-Off (2014) (n 203) para 5.27.

12 Pledges and Liens I. Introduction We have seen that security interests come in two main varieties. These are possessory ­security interests and non-possessory security interests. From a commercial perspective, non-possessory interests are by far the most important. In general banks and other lenders will not want a pledge or lien precisely because it involves them taking or keeping possession. While this is acceptable to small scale lenders taking pledges over small items, ie pawnbrokers it is usually, but not invariably, unworkable in large scale transactions; a trust receipt may, however, allow lenders a way round the difficulty and we will see how this device works in this chapter.1 The chapter also discusses equitable liens which are nonpossessory. The inclusion of equitable liens is, however, justified so as to include all liens in the same chapter. The chapter is divided into two substantive parts, the first on pledges and the second on liens.

II. Pledges The pledge is a type of bailment, and was one of the six different types of bailment identified by Lord Holt in the classic case of Coggs v Barnard.2 The pledgee is therefore a bailee of the asset, and the pledgor the bailor. The latter retains general property in the assets and the pledgee obtains special property, terms criticised as opaque in chapter 10. The consequence of this is that all the usual rules of bailment apply unless excluded by the contract. The pledgee must therefore in the usual way take reasonable care of the goods in the circumstances as a result of his or her normal duties as a bailee.3 The pledgor similarly gives an implied undertaking that he or she has authority to pledge. This protects the pledgee against any claims in conversion should the pledge have been unauthorised.4 There are five elements to a pledge:

1 

Part II B. Coggs v Barnard (1703) 2 Ld Raym 909, 92 ER 107; D Ibbetson, ‘Coggs v Barnard’ in P Mitchell and C Mitchell (eds), Landmark Cases in the Law of Contract (Oxford, Hart, 2008) 1. 3  M Bridge, Personal Property Law, 4th edn (Oxford, Clarendon Press, 2015) 63–65; for an account of these duties please refer back to chapter 10, part II B ii. 4  Singer Manfacturing Co v Clark (1880) 61 LT 591; See for the pledgee’s liability Torts (Interference with Goods) Act 1977 s 11(2). 2 

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1. 2. 3. 4. 5.

Transfer of possession. Right in the pledgor to redeem the property on payment. Right in the pledgee to sell. Any surplus over the debt realised on sale goes to the pledgor. Any deficit feeds a personal action against the pledgor.

No formality is usually required although where the agreement is regulated by the Consumer Credit Act 1974, the pawnee of goods commits an offence if he or she does not provide a receipt for the assets in the prescribed form.5 A pledge is automatically perfected. There is said to be little danger of future creditors being deceived. The goods secured are not in the possession of the creditor and will, it is argued, therefore not typically be counted in their assets by the potential creditors. It should be remembered, however, that we saw in the last chapter that the creditors’ deception argument in favour of registration was of limited value. Nonetheless, the Bills of Sale Acts do not apply because the pledgee’s rights derive from his or her physical control and possession of the goods and consequently there is no need to rely on any document.6 For the same reason a pledge is exempt from the registration formalities of the Companies Act 2006.7 One possible exception to this rule is where the pledge is accomplished via an attornment in writing.8

A. Delivery Delivery and by extension delivery back are essential features of a pledge. In Official Assignee of Madras v Mercantile Bank of India Ltd,9 the merchants bought a series of consignment of groundnuts and transported them by rail to Madras. They obtained a railway receipt from the railway company entitling the named consignee to obtain delivery. The receipts were signed and sent to the bank as security for loans. On the firm’s insolvency the question arose as to whether the bank had taken a valid pledge. Lord Wright’s description of the importance of delivery bears quotation in full: At the common law a pledge could not be created except by a delivery of possession of the thing pledged, either actual or constructive. It involved a bailment. If the pledgor had the actual goods in his physical possession, he could effect the pledge by actual delivery; in other cases he could give possession by some symbolic act, such as handing over the key of the store in which they were. If, however, the goods were in the custody of a third person, who held for the bailor so that in law his possession was that of the bailor, the pledge could be effected by a change of the possession of the third party, that is by an order to him from the pledgor to hold for the pledgee, the change being perfected by the third party attorning to the pledgee, that is acknowledging that he thereupon held for him; there was thus a change of possession and a constructive delivery: the goods in the hands of the third party became by this process in the possession constructively of the pledgee. But where goods were represented by documents the transfer of the documents did not change the possession 5  Consumer Credit Act 1974 ss 114–15; section 105 provides for all security in agreements regulated by the Act to be in writing. Section 189 defines a pawn to be a pledge. 6  Re Hardwick (1886) 17 QBD 690. 7  Re David Allester Ltd [1922] 2 Ch 211. 8  H Beale, M Bridge, L Gullifer and E Lomnicka (eds), The Law of Security and Title Based Financing, 2nd edn (Oxford, OUP, 2012) paras 5.25–5.27; Dublin City Distillery Ltd v Doherty [1914] AC 823 (HL) 854 (Lord Parker). 9  Official Assignee of Madras v Mercantile Bank of India Ltd [1935] AC 53 (PC). N Palmer, Palmer on Bailment, 3rd edn (London, Sweet and Maxwell, 2009) para 22.018.

Pledges 299 of the goods, save for one exception, unless the custodier (carrier, warehouseman or such) was notified of the transfer and agreed to hold in future as bailee for the pledgee. The one exception was the case of bills of lading, the transfer of which by the law merchant operated as a transfer of the possession of, as well as the property in, the goods.10

The Privy Council held that under the common law a pledge of the railway receipt was not a valid pledge of the assets, but under the applicable Indian legislation the receipt was a document of title and therefore there was a valid pledge. Should the pledgee lose possession, the usual rule is that the pledgee loses his or her rights over it.11 Delivery must take place within a reasonable time of the money being advanced or the obligation being secured being entered into. Only assets that can be delivered or possessed can therefore be pledged. As there is no such thing as equitable possession, there is no such thing as an equitable pledge. There has been some suggestion that a specifically enforceable contract to create a pledge should give rise to an equitable pledge,12 but there is no binding authority for this and Lionel Smith has suggested it would be a retrograde step.13 It would look dangerously like an unregistered charge. If it cannot be bailed; it cannot be pledged. Intangible property cannot therefore be pledged; in Carter v Wake,14 however, bonds of the Canada Southern Railway Company were deposited as security. The Master of the Rolls, Lord Jessel, accepted that this led to a pledge; this is usually taken to mean that negotiable instruments can be pledged. It seems, though, that shares cannot be pledged, and obviously pure intangibles such as debts cannot be. In Harrold v Plenty,15 Cozens-Hardy J put the distinction as follows. The share certificate is merely evidence of title to the shares; the shares, however, are a collection of rights against the company and other shareholders that exist whether or not there is a share certificate. The bond, or cheque, however, represents the right to be paid. No cheque, no right to be paid. In Harrold v Plenty, therefore, the attempted pledge of the shares was in fact an equitable mortgage by deposit of title deeds. Such a result is potentially advantageous to the creditor in that it enables him or her to foreclose16 (although such a result is made rare by the hurdles that must be jumped) and extinguish the debtor’s rights to surplus on sale. We examine mortgages and mortgagee’s remedies in chapter 13, part III. It need not be actual delivery. Constructive delivery will also suffice. Documents of title may be documents of title at common law or documents of title under section 1(4) of the Factors Act 1889. Bills of lading, which act as documents of title at common law, give the bearer the right to demand possession of the goods. They can be pledged. A pledge of a bill of lading will normally be a pledge of the assets as it will be a transfer of constructive possession to those goods. In The Jag Shakti,17 a Singaporean firm agreed to finance the purchase of a shipment of edible salt. Two bills of lading were issued which were subsequently 10 

ibid 58–59. Described as losing his lien in Cooke v Haddon (1862) 3 F &F 229, 176 ER 103. A Hudson and N Palmer, ‘Pledge’ in E McKendrick and N Palmer (eds), Interests in Goods, 2nd edn (London, LLP, 1998) 621, 644–46. 13  LD Smith, ‘Security’ in AS Burrows (ed), English Private Law, 3rd edn (Oxford, OUP, 2013) para 5.87; Beale et al, The Law of Security (2012) (n 8) para 5.54. 14  Carter v Wake (1877) 4 Ch D 605; Palmer, Palmer on Bailment (2009) (n 9) paras 22.024–22.025. 15  Harrold v Plenty [1901] 2 Ch 314; Beale et al, The Law of Security (2012) (n 8) para 5.53. 16  J McGhee (ed), Snell’s Equity, 33rd edn (London, Sweet and Maxwell, 2015) para 39.055 on foreclosure in equitable mortgages; note that an equitable mortgage by deposit of title deeds is no longer possible. 17  The Jag Shakti [1986] AC 337; see also Meyerstein v Barber (1866) LR 2 CP 38. 11  12 

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endorsed and pledged to the claimants. The buyers of the salt obtained delivery and it was said that the ship owners had converted the salt by delivering to the buyers when the claimant pledgees were in fact entitled. Despite that general rule, however, it is possible for a pledge of the bill not to be a pledge of the goods; the seller of the goods may for example reserve the right to dispose of them despite transferring the bill of lading,18 and where a document of title under section 1(4) of the Factors Act 1889, such as a delivery order, is pledged that is a pledge of the documents alone.19 There is an exception to this rule where the pledgor of the document is a mercantile agent under the Factors Act 1889.20 This exception is explained on the basis of how it advances the financing of trade. Section 1(1) provides that a ‘mercantile agent’ is an agent ‘having in the customary course of his business … authority either to sell goods, or to consign goods for the purpose of sale, or to buy goods, or to raise money on the security of goods’. Section 2(1) of the Factors Act 1889 provides that a mercantile agent in possession of the goods is able to pledge or sell the assets or documents validly. It is possible to create a pledge by a process of attornment. The pledgor has the warehouseman (it need not be a warehouseman, but any third party) attorn to the pledgee, thus providing the pledgee with constructive possession and rendering the warehouseman sub-bailee for the pledgee.21 It is not possible for an attornment of part of a bulk to create a pledge as it cannot pass constructive possession of the goods. Beale, Bridge, Gullifer and Lomnicka take the following example. If an attornment is made of 100 bags of grain from a bulk of 500, it is not clear which 100 bags the attornment relates to.22 Another example of an attornment would be the passing of a document of title, such as a bill of lading, from one party to another. This works because the passing of physical possession to the bill of lading passes constructive possession of the goods.23 It should be remembered that this does not necessarily give the new bailor the ability to sue for damages if the goods are damaged. Where there is a written attornment, the attornee’s rights over the asset are derived from the written document and not from actual possession which the attornor still retains. In those circumstances McFarlane argues the document will be a bill of sale and require registration.24 Symbolic delivery will also suffice. Delivery of the keys to the room in which the assets are placed will therefore count as the delivery of the assets within the room.25 Delivery of the key must, however, pass full control of the premises where the assets are stored in order for this to create a pledge. Another example of symbolic delivery is Askrigg Pty Ltd v Student Guild of Curtin University of Technology26 where the company, Askrigg, offered security over certain bills of exchange. It offered the lenders the option of taking physical possession, 18 Palmer, Palmer

on Bailment (2009) (n 9) para 22.021; The Future Express [1993] 2 Lloyds Rep 542 (CA). LS Sealy and RJA Hooley, Commercial Law: Text, Cases and Materials, 4th edn (Oxford, OUP, 2008) 1095. 20  Factors Act 1889 s 2; Inglis v Robertson [1898] AC 616 (HL); chapter three, part II B. 21  Dublin City Distillery Co v Doherty [1914] AC 823 (HL). 22  Beale et al, The Law of Security (2012) (n 8) para 5.45. 23  The Berge Sisar [2001] UKHL 17, [2002] 2 AC 205 (HL) 219 (Lord Hobhouse). 24  B McFarlane, The Structure of Property Law (Oxford, Hart, 2008) 618; Dublin City Distillery v Doherty [1914] AC 923; Beale et al, The Law of Security (2012) (n 8) para 5.27; Law Commission, ‘Registration of Security Interests: Company Charges and Property other than Land’ (Law Com CP No 164, 2002) [4.15], but see Palmer, Palmer on Bailment (2009) (n 9) para 22.026, and fn 195. It will turn on whether the document is excepted under section 4 of the Bills of Sale Act 1878. 25  Wrightson v McArthur and Hutchinson [1921] 2 KB 807. 26  Askrigg Pty Ltd v Student Guild of Curtin University of Technology [1989] 18 NSWLR 738. 19 

Pledges 301

but a number preferred not to. The company segregated the bills it retained in its possession and placed them in envelopes with the customer’s name on. If it ever substituted bills it informed the customer. At any point the customer could take possession. The Court decided that this sufficed to create pledge, commenting that the right to possess could be transferred by agreement even if actual possession did not pass.27

B.  Re-Delivery or Redemption When the pledgor has discharged the underlying obligation being secured by the pledge, the pledgor will have the right to have the assets delivered back up to him or her. If the pledgee refuses to do so, that is a conversion of the asset. The pledgee only had a limited right to retain the asset which has now been extinguished. Sections 116–17 of the Consumer Credit Act 1974 provide that a pawn is redeemable at any point up to six months after it was taken, by presenting the pawn-receipt28 and payment. Re-delivery of the goods will usually extinguish the pledge but does not have to do so. Just as simply passing custody of items to another does not put the transferee into legal possession if the transferor intends to retain the ability to control access to the items, the pledgor may simply be granted custody, but not legal possession by the pledgee. In Reeves v Capper,29 for example, the master of a ship, Wilson, pledged his chronometer to Capper as security for a loan. He was allowed to take it back for the purposes of a particular voyage, but he then pledged the watch to Reeves. Reeves claimed that Capper’s interest as pledgee was extinguished by the re-delivery to Wilson. Tindal CJ said that the re-delivery merely gave Wilson a licence to use the chronometer during the particular voyage and nothing else and did not destroy the pledge.30 More recently in Bassano v Toft31 it was said that a pledgee did not lose his interest by parting with physical possession unless it indicated a voluntary surrender. In that case the pledged asset (a viola) was placed in the custody, but not possession of the dealer by the lenders. Frequently in an international trade transaction the buyer will pay for goods via a documentary credit. Basically a straight documentary credit is a bank’s guarantee of payment against specified documents.32 Its duty is to pay when the beneficiary, here the seller, presents certain documents to it. The buyer and seller agree that the sale will involve certain documents and the seller presents those documents, which often, but not exclusively, include a bill of lading, to the issuing bank. The issuing bank pays and in the simplest case attempts to recover from the buyer. The bank wishes to have some security as against the buyer for the debt that it is owed. In such a case with a documentary credit the issuing bank will take a pledge over the documents to secure payment of the money owed under

27 

ibid 743; Palmer, Palmer on Bailment (2009) (n 9) para 22.019. Loss of the pawn-receipt is dealt with by Consumer Credit Act 1974 s 118. 29  Reeves v Capper (1836) 5 Bing NC 136, 132 ER 1057. 30  Reeves v Capper (1836) 5 Bing NC 136, 141, 132 ER 1057, 1059; Palmer, Palmer on Bailment (2009) (n 9) para 22.022. 31  [2014] EWHC 377. 32  ICC Guide to Documentary Credit Operations (ICC No 515, 1994) 15 provides a summary of the parties’ objectives in choosing to effect payment by documentary credit. See the UCP 600 for the rules governing documentary credits. See also chapter six, part V A. 28 

302  Pledges and Liens

the credit. However, the buyer will need the documents, in particular the bill of lading, in order to take delivery of the goods. This is problematic as pledge is a possessory security. However, this problem can be avoided by re-delivery of the documents to the pledgor if redelivery is only for some designated purpose. The pledgor effectively holds on behalf of the pledgee. The buyer therefore gives a trust receipt to the bank, by which it undertakes to hold the documents and goods for the bank and sell the goods as the bank’s agent.33 In North Western Bank v John Poynter, Son & McDonald,34 the bank-pledgee handed back the bill of lading ‘In consideration of your undertaking to deal with the merchandise in the manner hereinafter specified, we transfer to you as trustees for us the bill of lading, &c.’ The House of Lords decided that the pledgee’s security was not affected by this. This device of the trust receipt allows the bank to maintain constructive possession of the goods and therefore increases the commercial efficacy of the pledge. Where the buyer is a private individual or a firm, this receipt is not a bill of sale as it will fall within the exception to the normal definition in section 4 of the Bills of Sale Act 1878 that documents used in the normal course of events to prove control of the goods are not bills of sale. Consequently, there is no requirement to register the trust receipt, although where there is no initial pledge when the trust receipt is issued, the transaction is characterised as a charge. This seems a very fine distinction and it has been suggested that a trust receipt should always be treated as a charge and be registrable as such.35

C. Sale The pledgee has a power to sell the asset on default.36 If there is a deficit the pledge is still able to sue for the remaining sum owing.37 In Re Hardwick ep Hubbard,38 Bowen LJ made it clear that the power of sale was inherent in the pledge at common law. However, the pledgee has no common law power to foreclose, which would extinguish the pledgor’s rights to the surplus. A statutory exception to this lies under pawns governed by the Consumer Credit Act 1974, where section 120 allows property to pass to the pawnee where the pawn is not redeemed and where the amount secured is £75 or less. In The Odessa Lord Mersey said: If the pledgee sells he does so by virtue and to the extent of the pledgor’s ownership, and not with a new title of his own. He must appropriate the proceeds of the sale to the payment of the pledgor’s debt, for the money resulting from the sale is the pledgor’s money to be so applied. The pledgee must account to the pledgor for any surplus after paying the debt. He must take care that the sale is a provident sale, and if the goods are in bulk he must not sell more than is reasonably sufficient to pay off the debt, for he only holds possession for the purpose of securing himself the advance which he has made.39

33  Sealy and Hooley, Commercial Law: Text, Cases and Materials (2008) (n 19) 1099; see also on pledge in the context of a documentary credit Beale et al, The Law of Security (2012) (n 8) para 5.28. 34  North Western Bank v John Poynter, Son & McDonald [1895] AC 56 (HL). 35  Beale et al, The Law of Security (2012) (n 8) para 5.29. 36  The Ningchow [1916] P 221; Donald v Suckling (1865) LR 1 QB 585; Deverges v Sandeman Clarke & Co [1902] 1 Ch 579 compares the pledgee’s power of sale with that of the mortgagee. 37  Jones v Marshall (1890) 24 QBD 269. 38  Re Hardwick ep Hubbard (1886) 17 QBD 690. 39  The Odessa [1916] 1 AC 145 (PC) 159; Palmer, Palmer on Bailment (2009) (n 9) para 22.029.

Pledges 303

This requirement that the sale be a provident one tracks the requirement in mortgage law that the mortgagee take reasonable care to get the best price for the asset; it also tracks the statutory requirement under section 121 of the Consumer Credit Act 1974 to take care to obtain market value and keep expenses reasonable. The question of what happens to any surplus in the hands of the pledgee once goods are sold was picked up in Mathew v TM Sutton Ltd40 where a pawnbroker sold pawned goods and retained the surplus, although giving notice of it to the pawnor. The Court held that a pledgee was his or her pledgor's fiduciary in respect of the surplus. If there is a deficit on sale the pledgor remains liable to the pledgee, although the debt is now unsecured. This power of sale also includes other powers of disposition. In Donald v Suckling41 therefore the question was whether a re-pledge was valid, ie a pledge by the pledgee. It was held that it was and further that the re-pledge did not end the contract of pledge between the initial parties. Similarly, a pledgee can transfer title so long as he or she does not attempt to transfer a greater title than he or she has already. In some circumstances the pledgor will be able to validly re-pledge the assets as well, and do so in a manner that binds the original pledgee. In Lloyds Bank v Bank of America National Trust and Savings Ltd,42 the claimants advanced money to Strauss & Co and received a number of bills of lading on pledge as security for the loan. They then re-transferred the bills to Strauss & Co to enable the latter to take delivery of the relevant assets. Strauss subsequently re-pledged the documents to the defendants. On Strauss’ insolvency the claimants sued for detinue and conversion of the documents. The Court, however, decided that Strauss & Co were, by virtue of the trust receipt, mercantile agents for the claimants within the Factors Act 1889. The only rights they had to deal with the assets were derived from the trust receipt and so the re-pledge was valid.43

D.  Pledgee’s Relations with Third Parties Can the pledgor sell the asset? Yes. That sale then binds the pledgee. In Franklin v Neate44 the watch in question was pawned, but then sold by the pawnor. It was held that if the buyer then tendered the amount due, and the pawnee refused to deliver the asset up the buyer might take action in trover. The relevant action today would be to seek an order for delivery up or damages under section 3 of the Torts (Interference with Goods) Act 1977. In the normal case, and despite the security being automatically perfected, a pledge will still almost certainly fall within section 248(b) of the Insolvency Act 1986 and render the pledgee unable to enforce the pledge in an administration without the consent of the administrator.45

40  Mathew v TM Sutton Ltd [1994] 4 All ER 793, see for a similar decision that bailees hold proceeds of sale as fiduciaries Aluminium Vaassen v Romalpa Aluminium [1976] 1 WLR 676; Consumer Credit Act 1874 s 121 has a statutory obligation to account for the surplus to the pawnor (in those cases where section 120 does not apply). 41  Donald v Suckling (1865) LR 1 QB 585; Palmer, Palmer on Bailment (2009) (n 9) para 22.027. 42  Lloyds Bank v Bank of America National Trust and Savings Ltd [1938] 2 KB 147 (CA). 43  ibid 164–65 (Greene MR); chapter three, part II B ii. 44  Franklin v Neate (1844) 13 M&W 481, 152 ER 200; Beale et al, The Law of Security (2012) (n 8) para 5.18. 45  Sealy and Hooley, Commercial Law: Text, Cases and Materials (2008) (n 19) 1105–1106; Insolvency Act 1986 sch B1 para 43(2).

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III. Liens Contractual or statutory liens are possessory security interests, but they differ from pledges in one important respect. Retention of physical possession is essential to the46 common law lien. A common law lien can be defined as a passive right to retain the property until a debt owing by the owner is paid. By contrast, a pledge involves the delivery up of possession to the pledgee. The lienholder already has possession, which he or she was voluntarily given for some other purpose.47 Assets that cannot be possessed cannot be subject to liens. This was confirmed recently by Your Response Ltd v Datastream Business Media Ltd48 where a lien was claimed over an electronic database. The Court of Appeal held that possession had no meaning in the context of intangible property and therefore it was not possible to exercise a common law lien over an electronic database. Such assets will not therefore be pledgeable and it will also have an impact on Saidov and Green’s argument about software as goods for the purposes of sale contracts examined in chapter two, part II, and arguments about their being subject to conversion. It is usually said that if the lienholder loses or gives up possession of the goods, he or she loses the lien. On the face of it this differs from a pledge where the pledgee might give up possession for a limited purpose only. Beale, Bridge, Gullifer and Lomnicka claim that so long as the lienholder retains constructive possession, the lien is preserved.49 If the owner of the asset seizes the goods before the debt secured is discharged, the lienholder may be able to retake the assets and have the lien revive.50 The lien is also and most obviously lost on tender, or waiver of the need to make tender, of the amount due, as is true of all security interests. A lien cannot be transferred, although there are suggestions that it might be assignable alongside an assignment of the underlying debt.51 The normal, but not invariable, rule is that there is no common law power of sale where there is a possessory lien, although this may not be true of bankers’ liens.52 Consequently, any sale or pledge of the goods by the lienholder is prima facie a conversion of the assets.53 Where the goods are perishable, the lienholder may apply to the court for an order for sale.54 The lienholder only has a power of sale where he or she has been expressly given one,55 but these powers are very common. In Re Hamlet International56 Trident carried on

46 

Re Cosslett [1998] Ch 495 (CA) 508 (Millett LJ); Legg v Evans (1840) 6 M&W 36, 151 ER 311. Structure of Property Law (2008) (n 24) 592. 48  [2014] EWCA Civ 281, [2015] QB 41; T Sherliker ‘No Liens over Electronic Data’ (2014) 36 EIPR 465, 470 argues though that the UK may be nonetheless entertaining a modernised approach to intangible assets. 49  Beale et al, The Law of Security (2012) (n 8) para 5.71. 50  Wallace v Woodgate (1824) Ry & Mood 193, 171 ER 991; Euro Commercial Leasing Ltd v Cartwright & Lewis [1995] 2 BCLC 618. Revival of a lien in this way is not usually possible. M Bridge, L Gullifer, G McMeel and S Worthington (eds) The Law of Personal Property (London, Sweet and Maxwell, 2013) para 7.045. 51  Beale et al, The Law of Security (2012) (n 8) para 5.71; Bull v Faulkner (1848) 2 De G & Sm 772, 64 ER 346. 52  ibid para 3.67; Donald v Suckling (1865) LR 1 QB 585. 53  Beale et al, The Law of Security (2012) (n 8) para 5.70; Mulliner v Florence (1878) 3 QBD 485; The Thames Iron Works Company v The Patent Derrick Co. (1860) 1 J&H 93, 70 ER 676. 54  CPR Part 25.1(c)(v); Larner v Fawcett [1950] 2 All ER 727; Beale et al, The Law of Security (2012) (n 8) para 18.16. 55 McFarlane, The Structure of Property Law (2008) (n 24) 592; this may be by statute. See, eg Innkeepers Act 1878 s 1, Torts (Interference with Goods) Act 1977 ss 12–13; Sale of Goods Act 1979 s 48. 56  Re Hamlet International [1999] 2 BCLC 506 (CA). 47 McFarlane, The

Liens 305

a freight-forwarding and warehousing business. It used the British International Freight Association and UK Warehousing Association standard terms which provided for its having a general lien over assets in its possession, coupled with a right to sell and use the proceeds to discharge debts owing to it regarding the storage and transport of those assets. That right of sale and to apply the proceeds in satisfaction of obligations owing to it did not turn the lien into a charge which would then be registrable, according to Mummery LJ.57 What justified this conclusion was that the property was not delivered to Trident as security, but was delivered for the purposes of being stored and forwarded on. A lien cannot be used to detain property with respect to third party debts. A statutory lien has the same effect but exists by virtue of an Act of Parliament.58 There are two types of possessory lien: 1. Special or particular lien, where the lien can only be exercised in relation to goods connected with the services giving rise to the debt. The unpaid vendor’s lien is a classic example of this type of lien. 2. General lien where this connection is unnecessary; these are much less common.59 A final preliminary point is that all liens over company papers or records are unenforceable in insolvency against the office-holder—the liquidator or other insolvency practitioner.60 This section of the chapter will be divided into a number of parts. We will look at lienholders’ rights against third parties; second, we examine contractual liens before looking in detail at common law liens and the unpaid vendor’s lien, which is the most important example of a statutory lien. These possessory liens can be contrasted with equitable liens, which are a species of charge arising by operation of law. The most common such lien arises, as we have seen, in cases of proprietary claims contingent on tracing.61 Others may arise in cases of unpaid purchase price of land, and possibly unpaid purchase price of personal property.

A.  Lienholders’ Rights against Third Parties The first point is that a lien is automatically perfected against third parties. There are no relevant registration provisions. A lien may be enforced against the true owner of the property where the asset was transferred to the lienee by a third party.62 Can a party enforce the lien against the true owner when someone who is not the true owner has entrusted the asset to them for a particular purpose? This seems to depend on the arrangements between the first

57 

ibid 513. Re Bond Worth [1980] Ch 228, 250 (Slade J). 59  Bridge et al (n 50) (2013) para 7.038. 60  Insolvency Act 1986 s 246(2), but an exception lies under s 246(3); see also Bristol Airport v Powdrill [1990] Ch 711 where the statutory right to detain aircraft was said to be dependent on the leave of the administrator. For criticism, see WJ Swadling, ‘The Vendor-Purchaser Constructive Trust’ in S Degeling and J Edelman (eds), Equity and Commercial Law (Sydney, Law Book Co, 2006) 463, 471–72. 61  Foskett v McKeown [2001] 1 AC 102 (HL); see chapter nine, part II C ii, and in this chapter part III E. 62  Robins & Co v Gray [1895] 2 QB 501. 58 

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two parties. In Albermarle Supply Co Ltd v Hind & Co,63 Botfield hired three taxicabs under agreements which required him to keep them in good repair. The defendants undertook maintenance and repairs on the taxis. Botfield fell into arrears on the maintenance bill and the garage asserted a lien. However, Botfield had also fallen into arrears with the hire purchase company. They demanded the taxis back and relied on a clause in the contract with Botfield forbidding him from allowing any liens on the taxis. While in principle such an agreement would void the liens, the Court decided that the contractual limitation on Botfield’s authority was not communicated to the defendant garage and therefore did not affect the validity of the lien. Botfield had implied or apparent authority to allow the creation of the liens. Scrutton LJ said: Where a man is put in a position which holds him out as having a certain authority, people who act on that holding out are not affected by a secret limitation, of which they are ignorant, of the apparent authority. The owners can easily protect themselves by requiring information as to the garage where the cab is kept, and notifying the garage owner that the hirer has no power to create a lien for repairs. They will thus escape the lien, though they may not get their cab repaired.64

In Tappenden v Artus65 the claimant motor dealer allowed Artus to use a second-hand van. The defendant made repairs for which Artus then refused to pay and the defendants exercised a repairer’s lien. Diplock LJ decided that the repairer could only exercise a lien if his possession was lawful. Where possession was granted by a bailee the test was whether the owner authorised the transfer or was estopped from denying that he did.66 In principle it is the same question examined in chapter 10, part II B iv as to whether the head bailor is bound by the terms of a sub-bailment or not.67 The bare fact that there was a bailment is insufficient. The repairer therefore had to rely on agency law, as in Albemarle. Here the repairer could rely on Artus’ actual authority to have repairs done.68 The bailment’s purpose was the use of the van and that included the authority to do all things reasonably incidental to their use including repairs to make the vehicle roadworthy, although the Court suggested different considerations might apply where the work was not needed to keep the vehicle roadworthy.69 Like a pledge, a lien is probably caught by the definition of security in section 248(b) of the Insolvency Act 1986.70 If so, where the company lienor is in administration, the lienholder needs the permission of the administrator to enforce the lien. A lien is enforced by refusing the owner, or in this context the administrator, access to the asset. It is not until the lienholder makes an unqualified refusal to hand over goods that he or she enforces the lien, however. If the lienholder makes it clear that he or she would seek leave from the court to

63 

Albermarle Supply Co Ltd v Hind & Co [1928] 1 KB 307 (CA). ibid 318. Tappenden v Artus [1964] 2 QB 185 (CA). 66  ibid 195–96; see also Green v All Motors Ltd [1917] 1 KB 625. 67  Beale et al, The Law of Security (2012) (n 8) para 16.07; Lukoil-Kaliningradmorneft Plc v Tata Ltd (no 2) [1999] 1 Lloyds Rep 365, 374–75 (Toulson J). 68  Tappenden v Artus [1964] 2 QB 184 (CA) 199–200 (Diplock LJ); it may be only apparent authority on which see also Fisher v Automobile Finance Co of Australia Ltd (1928) 41 CLR 167 (HCA) 177–80 (Isaacs J). 69  Tappenden v Artus [1964] 2 QB 184 (CA) 202 (Diplock LJ). 70  Bristol Airport Plc v Powdrill [1990] Ch 744 (CA); Sealy and Hooley, Commercial Law: Text, Cases and Materials (2008) (n 19) 1118–19. 64  65 

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detain the lienholder is not taking steps to enforce the security. Liens acquired post insolvency or administration will not be enforced and are no liens at all.71

B.  Contractual Liens A common law lien generally arises by operation of law and does not depend on the express or implied agreement of the parties. However, it is possible to create a possessory lien by contract. In Gladstone v Birley72 Grant MR said that the question to ask was whether there was a right to retain the asset on default and that right might be given by either law or contract. There have been attempts to create contractual non-possessory liens. The best example is a lien on sub-freight. The idea is to give the ship owner security for accrued obligations when the ship carrying the goods has been sub-chartered. These liens are, however, controversial and uncertain in their effect,73 and may not even be proprietary rights. Contractual liens can be either special liens or general liens, and there is no rule of construction that a special lien will be preferred over a general. In Waitomo Wools Ltd v Nelsons Ltd,74 for example, the appellant, which was in receivership, owed slightly over NZ$61,000 to the respondent for wool scouring. The respondents relied on a general lien in the contract to enable them to retain the wool pending payment of all their debts owing by the appellant. Richmond J held that the wording of the contract was clear and created a general lien.75 There were no reasons not to give the clear words of the contract their normal effect.

C.  Common Law or Customary Liens These can only be categorised or listed rather than properly explained, although they appear to have arisen on the basis of a general usage in a particular trade.76 As we might expect, all require possession of the assets subject to the lien to be retained. There are a number of such liens, such as improvers’ liens and what are sometimes called mechanics’ or repairers’ liens on vehicles which have been repaired.77 The other large classes of such liens are innkeepers’ liens78 and customary professional liens. All these liens can be modified by contract. Improvers’ liens are normally special liens, while professional liens are general. This makes sense; professionals are not undertaking work on particular assets and therefore there is unlikely, although not impossible, to be any specific debt relating to specific assets, which is normally not the case with the improvers’ liens. That said, historically there has been some antipathy in the courts towards general liens on the basis that they tip the balance in insolvency too far in favour of particular creditors. 71 

London Flight Centre (Stansted) Ltd v Osprey Aviation Ltd [2002] BPIR 1115. Gladstone v Birley (1817) 2 Mer 401, 35 ER 993. 73  See F Oditah, ‘The Juridical Nature of a Lien on Sub-Freight’ [1989] LMCLQ 191; Beale et al, The Law of Security (2012) (n 8) paras 8.156–8.160. 74  Waitomo Wools Ltd v Nelsons Ltd [1974] 1 NZLR 484. 75  ibid 487–89. 76  Plaice v Allcock (1866) 4 F &F 1074, 176 ER 913; TY Lin Personal Property Law (Academy Publishing Singapore 2014) 1080–1082. 77  Bowmaker Ltd v Wycombe Motors Ltd [1946] KB 505. 78  Mulliner v Florence (1878) 3 QBD 485; for a longer treatment of innkeepers’ liens see H Beale (ed) Chitty’s Law of Contract 32nd edn (London, Sweet and Maxwell, 2015) paras 33.101–33.120, G McBain, ‘Abolishing the Strict Liability of Hotelkeepers’ (2006) JBL 705. 72 

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In Re Southern Livestock Products Ltd79 the farmer agreed to house and feed pigs supplied by the company. When he was not paid for this he sought a lien, but failed to make his case out. Pennycuick J said: It has been held as regards animals that there is a lien in favour of a person who trains a horse, a person who provides the service of a mare and a person who cares for an animal through illness. On the other hand, it is equally well established that there is no lien in favour of one who merely keeps a horse in a livery stable. The ground on which it has been so held is that in such a case there is no improvement of the chattel.80

Consequently, simply keeping the animals alive is no improvement, although the judge indicated that were it up to him he would be prepared to include that activity as generating a lien. This seems right; preventing deterioration in the asset can take as much effort as improving it. In Forth v Simpson,81 the general rule was stated to be that a trainer’s input into producing a race horse was sufficient to ground a lien, but that if the owner were able to select races for the horses to run and jockeys to ride it, the trainer had no continuing right of possession and hence no lien. In Rushforth v Hadfield82 Lord Ellenborough said that there was a common law lien in favour of the common carrier. A common carrier is bound to carry the goods of a person seeking his services for reasonable reward. He therefore has a special lien over the goods carried for the price. However, the claimant carrier was seeking to establish a general lien in that case. The general lien would allow the carrier to part with possession of particular goods on the basis that he would be able to retain possession of other goods of the debtor for the complete balance owing to him. There was, however, insufficient evidence that there was a custom allowing for such a lien. In Brandao v Barnett,83 it was held that bankers have a general lien on securities of their customers that are deposited with them for any debts owing to the bank from those customers. This lien carries with it a right of sale of the securities. On the facts the Court decided that the arrangement between the parties excluded this rule and the bank had no general lien. The grant of a right to sell assets subject to a lien does not convert the lien into a charge or pledge.84 A similar case to Brandao arose in Ismail v Richards Butler85 where the solicitors’ firm attempted to assert a lien over papers relating, amongst other things, to litigation which their clients had been engaged in and had sought their advice. Their clients were demanding these papers back because the relationship had broken down and the claimants were seeking to instruct alternative solicitors. Moore-Bick J said that subject to any agreement to the contrary, a solicitor is entitled to exercise a general lien in respect of his or her costs on any property belonging to the solicitor’s client which comes into his

79 

Re Southern Livestock Products Ltd [1964] 1 WLR 24. ibid 27; see also Hatton v Car Maintenance Ltd [1915] 1 Ch 621; it is possible to create such liens by express agreement: Wallace v Woodgate (1824) Ry & Mood 193, 171 ER 991. 81  Forth v Simpson (1849) 13 QB 680, 116 ER 1423; Jacobs v Latour (1828) 5 Bing 130, 130 ER 1010. 82  Rushforth v Hadfield (1805) 6 East 519, 102 ER 1386; Great Eastern Rly Co v Lord’s Trustee [1909] AC 109 (HL). 83  Brandao v Barnett (1846) 3 CB 519, 136 ER 207; stockbrokers have a similar lien: Re London and Globe Finance Corporation [1902] 2 Ch 416. 84  Marcq v Christie, Manson & Woods Ltd (t/a Christies) [2003] EWCA Civ 731, [2003] 3 All ER 561. 85  Ismail v Richards Butler [1996] QB 711; see A Hudson, ‘Solicitors’ Liens’ in E McKendrick and N Palmer (eds), Interests in Goods, 2nd edn (London, LLP, 1998) 649. 80 

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or her possession.86 However, solicitors are officers of the court and therefore subject to the inherent power of the court to regulate them. The result in Ismail reflects a recognition that the solicitors’ lien if unfettered could do harm to the administration of justice. Moore-Bick J discussed A v B87 where Leggatt J indicated that the Court should weigh the right of solicitors to be paid against the right of litigants not to be deprived of material essential to the conduct of their case. While ultimately distinguishing that decision, Moore-Bick J decided that some equitable relief was required.88 The defendants were ordered to deliver the documents up and the claimants to provide alternative security for the claimed unpaid fees and costs. Another and separate limitation on the solicitors’ lien is that solicitors are not permitted to retain a lien over documents and records that are required to be held by the company in a particular place or for inspection.89 These types of professional liens usually entail that where money is due to the security holder or, as in the following case, to an insurance policyholder, the lienee can use that money to offset against his or her debt. In Eide (UK) Ltd v Lowndes Lambert90 the insurance brokers added a ship hired on demise charter by the fleet operator to existing insurance policies. The vessel was damaged and the operators paid for partial repairs before returning it. The operators claimed these costs on the insurance. The insurance payout was collected by the brokers who then claimed to offset the money against money owing to them under an unrelated contract. They claimed a general lien over the policy. The lien was said to exist under section 53(2) of the Marine Insurance Act 1906. The subsection gives brokers a lien on the policy if they had dealt with the policyholder as principal. In fact the subsection did not apply here because the lien could not be created over a composite insurance policy where a party placed insurance on behalf of that party and one or more co-insureds so they could each sue in respect of their own interest. The policyholder must be a principal and therefore sole insured. In this case, the policyholder acted as an agent for the co-insured parties. Philips LJ, however, said that a broker who has a lien over a policy of marine insurance is normally entitled, when the broker collects under the policy, to apply the proceeds collected in discharge of the debt that was protected by the lien.91

D.  Statutory Liens The most important of these is the unpaid vendor’s lien under section 39 of the Sale of Goods Act 1979,92 which permits the vendor to retain a lien over assets in his or her possession where property has passed to the buyers but payment has not been received. This is, as indicated above, a special lien. The lien attaches to property which has not been paid for and does not permit the seller to retain property which has been paid for to secure payment

86 

Ismail v Richards Butler [1996] QB 711, 718. A v B [1984] 1 All ER 265. 88  Ismail v Richards Butler [1996] QB 711, 730–31. 89  Re Capital Fire Insurance Association Ltd (1883) 24 Ch D 408 (CA); DTC (CNC) Ltd v Gary Sergeant & Co [1996] 2 All ER 369 applies this to accountants’ liens. 90  Eide (UK) Ltd v Lowndes Lambert [1999] QB 199 (CA). 91  ibid 211. 92  See also Consumer Credit Act 1974 ss 70, 73; Marine Insurance Act 1906 s 53; Civil Aviation Act 1982 s 88 for other examples of statutory liens. 87 

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of the price of different assets under a separate contract.93 It does not apply to goods sold on credit, unless the term of credit has expired or the buyer is insolvent.94 The whole of the price must be paid or tendered before the lien can be said to be discharged. In Great Eastern Railways v Lord’s Trustees,95 Lord McNaughten commented that the prerequisites for the right of lien under the Sale of Goods Act might be different from the prerequisites for a common law lien.96 Atiyah comments that the degree of control required is different, so an innkeeper retains his or her lien so long as the assets are within the property. A vendor, however, might lose his or her lien by delivering to the buyer as his or her agent.97 However, the statutory lien does extend to cases where the seller has made part delivery but retains possession of the remainder.98 As in all liens where the seller has parted with possession to a bailee or custodier of the goods for the buyer, or directly to the buyer without reserving a right of disposal, or where the seller waives his or her rights, he or she loses the lien.99 The seller does not regain the lien once he or she is out of possession by taking possession again. In Valpy v Gibson100 the buyer had the goods sent to shipping agents in Liverpool for onward transmission to Valparaiso; they were later sent back to the selling commission agents for re-packing. It was held that the sellers did not regain their lien to enforce payment on taking back possession of the items. Wilde CJ held that the goods had been sold on credit and absolute title had vested in the buyers. Re-delivery for the purpose of having the goods re-packaged could not create a lien except by agreement and there was no such agreement.101 It was held in Somes v British Empire Shipping102 that the lienee would not be able to add on an extra charge for keeping the asset, also charged on the lien. The owner of the asset could, if he or she paid such a charge, make a claim to recover it in an action for money had and received. The case involved a charge for £21 per day for a ship occupying a dock, the repairer claiming that he or she was in effect losing business because other ships needed to enter the docks to be repaired. Strictly speaking, the case is only authority for the proposition that storage charges arising from the exercise of the lien cannot be added on; expenses may be chargeable in some cases, but the position is not clear.103 The buyer will sometimes try to sell the goods on before he or she has taken possession. Section 47 of the Sale of Goods Act 1979 provides that the unpaid seller’s rights are not affected by any disposition by the buyer unless the seller has assented to it. If, however, the buyer transfers documents of title to a third party by way of sale, the unpaid vendor’s lien is defeated.104 In Mordaunt Bros v British Oil and Cakes Mills105 the defendants sold oil to 93  Merchant Banking Co v Bessemer Steel Co (1877) 5 Ch D 205; JN Adams and H MacQueen (eds), Atiyah’s Sale of Goods, 12th edn (Basingstoke, Longman, 2010) 451. 94  Sale of Goods Act 1979 s 41; Adams and MacQueen, Atiyah’s Sale of Goods (2010) (hereinafter referred to as ‘Atiyah’) (n 93) 451–53. 95  Great Eastern Railways v Lord’s Trustees [1909] AC 109 (HL). 96  ibid 115. 97  Atiyah (2010) (n 93) 453. 98  Sale of Goods Act 1979 s 42(1). 99  ibid s 43; Atiyah (2010) (n 93) 454–456; Sealy and Hooley, Commercial Law: Text, Cases and Materials (2008) (n 19) 439. 100  Valpy v Gibson (1847) 4 CB 837, 136 ER 737. 101  ibid 749. 102  Somes v British Empire Shipping (1860) 8 HLC 338, 11 ER 459. 103  Atiyah (2010) (n 93) 453–454. 104  Sale of Goods Act 1979 s 47(2). 105  Mordaunt Bros v British Oil and Cakes Mills [1910] 2 KB 502.

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merchants, Crichton Bros, who in turn resold it to the claimants, who presented the delivery orders, which are documents of title under both section 1(4) of the Factors Act 1889 and the Sale of Goods Act, to the defendants. These were received without demur by the defendants and the deliveries made, until Crichton Bros, fell into arrears and the defendants refused to deliver to the claimants. Pickford J upheld the defendants’ right to retain possession, commenting that the contract had been altered so that delivery would be made to the claimants instead of Crichton, but that in all other respects the contract remained the same.106 He said that the assent referred to in section 47 of the Sale of Goods Act 1893, which is in the same terms as section 47 of the 1979 Act, must evince an intention to give up the right of lien and there had been no such assent on the facts of that case. By contrast, in DF Mount v Jay & Jay (Provisions) Ltd,107 the market was falling and the defendants assented to a re-sale and renounced their rights under the lien in order to recoup the price, knowing that the buyers could only pay them if the goods were sold. When the unpaid vendor exercises his or her lien, the vendor has a power of resale,108 which passes good title to the third party. In the event of the buyer’s insolvency, he or she has a right to stop the goods in transit to the buyer so long as they have not yet arrived at the buyer’s or the place where the buyer or the buyer’s agent is to take possession or delivery.109 We saw that the general rule is that where the unpaid vendor loses possession, he or she loses the unpaid vendor’s lien; where, however, the seller exercises a right of stoppage in transit he or she retakes possession and retakes the rights under an unpaid vendor’s lien. This vendor’s lien is, however, subject to the carrier’s own lien if there is one.110 Because of the resale rights, the statutory lien differs from a common law lien where prima facie the lienholder’s sole right is to retain possession until payment is made. Similar to the unpaid vendor’s lien, where an airport detains aircraft under section 88 of the Civil Aviation Act 1982, the sale of the aircraft by the airport operates to vest good title in the purchaser and to divest the original owner-airline of title.111 The vendor’s right of resale needs careful distinguishing from the power of resale after the exercise of the unpaid vendor’s lien. A right to resell, which is covered in more detail in books on the sale of goods, arises first where the buyer repudiates the contract of sale. The seller may accept the repudiation, thus terminating the contract for breach and sell the goods again.112 Second, the seller may have expressly reserved a right of resale. Third, he may have one because the goods are perishable and the buyer fails to pay the purchase price, or fourth in cases other than perishable goods the seller has given notice of an intention to resell the goods if the seller is not paid and the buyer still does not pay.113

106 

ibid 507–08. DF Mount v Jay & Jay (Provisions) Ltd [1960] 1 QB 159. 108  Sale of Goods Act 1979 s 48. 109  ibid ss 44-45; The Tigress (1863) LJPM & A 97; Atiyah (2010) (n 93) 462–463; Sealy and Hooley, Commercial Law: Text, Cases and Materials (2008) (n 19) 443–51. 110  Booth Steamship Co Ltd v Cargo Fleet Iron Co Ltd [1916] 2 KB 570. 111  Bristol Airport Plc v Powdrill [1990] Ch 744; sale must be with the leave of the court, Civil Aviation Act 1982 s 88(3); for exceptions to nemo dat see chapter three, part II, and in particular part II D on statutory powers of sale. 112  RV Ward v Bignall [1967] 1 QB 534; in these cases where there has been a repudiation of the contract the seller may keep the whole sale price. Commission Car Sales (Hastings) Ltd v Saul [1957] NZLR 144. M Bridge (ed), The Sale of Goods, 3rd edn (Oxford, OUP, 2014) para 11.52. 113  Atiyah (2010) (n 93) 463–64. 107 

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E.  Equitable Liens The position with equitable liens is that in their effect, and their priority position, they are largely interchangeable with equitable charges. They are different from their common law counterparts in being non-possessory and different from their equitable counterparts in that they are also non-consensual. Unlike mortgages, they cannot be enforced by foreclosure, but they do carry with them a power to sell the asset. They may also be enforced by injunction to prevent disposal of the property without satisfaction of the secured obligation.114 The equitable lien may bind a third party who takes in knowledge that the buyer of the asset has not paid or paid the entire purchase price. The first element indicating the presence of an equitable lien is that there is an actual indebtedness on the part of the owner arising from the acquisition of the asset. The second is that the asset be appropriated to the contract, and possibly that it would be unconscionable for the owner to dispose of the asset without the creditors’ consent.115 We examine the requirement of unconscionability later after we examine some of the main instances of equitable liens.

i.  Particular Cases of Liens: Purchasers and Unpaid Vendors There is no agreed list of equitable liens. Some manifestations, however, are more entrenched than others. In Re Stucley,116 Edward Stucley was entitled to a reversionary interest in a sum of £5000. He sold that interest to his father. The Court of Appeal held that the doctrine of unpaid vendors’ liens was applicable to personal property117 and extended the equitable lien they found existed in cases of unpaid vendors of land to personal property, in this case the reversionary interest under a trust. Such an equitable lien cannot, as we see later, exist in cases where the Sale of Goods Act 1979 applies, but a reversionary interest does not count as ‘goods’ under the Act. Hardingham suggests that a series of other contracts for the sale of intangible personalty, not counting as goods, will therefore attract equitable liens.118 These unpaid vendor’s equitable liens are said to be dependent on the contract being specifically enforceable;119 they arise therefore in those cases where the contract of sale gives rise to a constructive trust interest in the buyer as soon as the contract is concluded. This has been questioned. Worthington has argued that the vendor has a lien when the contract is specifically enforceable, but that the logic of the maxim ‘Equity looks at as done that which ought to be done’ also supports a lien where specific performance is not available. In particular she argued that once the price is paid the vendor ought either to transfer the asset or return the money, and vice versa, thus suggesting that a purchaser’s lien over the price paid exists once assets are paid for until the goods are delivered, and a vendor’s exists over the

114 

Dornoch Ltd v Westminster International BV [2009] EWHC 889 (Admrlty); [2009] 2 All ER (Comm) 399. J Phillips, ‘Equitable Liens: A Search for a Unifying Principle’ in E McKendrick and N Palmer (eds), Interests in Goods, 2nd edn (London, LLP, 1998) 975. 116  Re Stucley [1906] 1 Ch 67. 117 See Mackreth v Symmons (1808) 15 Ves Jun 329, 33 ER 778. 118  IJ Hardingham, ‘Equitable Liens for the Recovery of Purchase Money’ (1985) 15 Melbourne University Law Review 65, 69–73. 119  Phillips, ‘Equitable Liens’ (1998) (n 115) 983–84. 115 

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goods when they are delivered but remain unpaid for, even if specific performance is not available.120 Although there is still room for controversy, there is support for her argument that there is no link between specific performance and the lien from Australia. In Hewett v Court,121 for instance, a partial payment was made for a partially completed transportable home; the construction company became insolvent before the home was completed and it was moved to the buyer’s property. Risk was to pass on delivery of the house, but ownership only on complete payment. The question arose whether the purchaser had an equitable lien over the part-completed home. On the insolvency of the builders he had arranged to pay the difference between the money already paid and the value of the part-completed house, and take it away. The liquidators claimed this was a preference. The buyer, however, claimed he had a lien and was a secured creditor—hence it was no preference. The High Court of Australia held he was a secured creditor. The house had been appropriated to the contract; the buyer had been shown a house and told it was his. The builders had, on Worthington’s argument, an obligation either to deliver the home or repay the purchase price and the buyer was merely therefore getting what he was entitled to. A potential difficulty was the availability of specific performance. Deane J, speaking for the majority, had a number of reasons for questioning the link made with specific performance. He said the basis for specific performance and equitable liens were quite different, and that the discretionary factors involved in decisions as to specific performance may be inappropriate to decisions on equitable liens and that no connection between the two should be accepted.122 Nonetheless, a connection is sensible. Where we are concerned with the sale of land or cases of personalty other than goods and a constructive trust is generated for the benefit of the purchaser as a result of the operation of specific performance, the lien helps protect the vendor from the non-payment of the purchase price.123 At the same time where the contract is terminated, the purchaser’s lien ensures that the buyer’s interest survives and secures the repayment of the deposit.124 In Transport and General Credit Corporation v Morgan,125 Warners’ Ltd was engaged in the hire purchase of wireless radios and formed a wholly owned subsidiary, Rawire Ltd, to engage in this business. Whenever a customer wanted a radio, Warners would sell the radio to Rawire which would offer the hire purchase terms with Warners acting as Rawire’s collection agent. Various security agreements were made with finance companies and the question came up whether Warners’ had an unpaid vendor’s lien against Rawire, which would take priority over those other security interests. Simonds J held that the only lien applicable to ordinary commercial goods such as these was the lien under the then Sale of Goods Act 1893,126 although the lien might lie in other cases of personalty not amounting

120  S Worthington, ‘Equitable Liens in Commercial Transactions’ (1994) CLJ 263, 266–67; R Chambers, ‘The Importance of Specific Performance’ in S Degeling and J Edelman (eds), Equity in Commercial Law (Sydney, Law Book Co, 2006) 431, 443. 121  Hewett v Court (1983) 149 CLR 639 (HCA). 122  ibid 664–67; Beale et al, The Law of Security (2012) (n 8) para 6.148. 123  R Calnan, Proprietary Rights and Insolvency (Oxford, OUP, 2010) para 4.179. 124  ibid para 9.279. 125  Transport and General Credit Corporation v Morgan [1939] Ch 531; Re Wait [1927] 1 Ch 606. 126  Transport and General Credit Corporation v Morgan [1939] 1 Ch 531, 546; accepted in International Finance Corporation v DSNL Offshore Ltd [2005] EWHC 1844 (Comm); [2007] 2 All ER (Comm) 305, 321 (Colman J).

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to goods. He also suggested that Warners had failed to make out a case that they were owed money as regards individual assets, although there was a large sum outstanding on ‘general account’.127 The High Court of Australia in Hewett v Court, however, suggested that the equitable lien may apply to any contract of sale,128 even of goods. In 1994 Worthington supported the position that the two types of lien (equitable and statutory) are not exclusive in their application,129 while conceding that authority was against her. She argued that the Sale of Goods Act 1979 is a code for the passage of legal title, and does not affect equitable interests. However, it is likely that the drafters of the Act had in mind a solution to a particular problem for unpaid vendors when they drafted section 47. The equitable lien is a solution to the same problem and, as in other areas of the law, this should exclude the equitable lien from the area covered by the statutory lien.130 This makes the position in Re Wait and Morgan preferable. Although Hardingham suggests that the unavailability of a vendor’s lien should not affect the availability of the purchaser’s,131 which was at issue in Hewett, some degree of symmetry is presumably in order.

ii.  Particular Cases of Liens: Trustees’ and Co-Owners’ Liens In X v A132 it was decided the trustees could recoup their expenditure on trust business. In some cases they can even receive remuneration for exceptional services despite that not being explicitly permitted in the trust document.133 They may have a lien over the trust funds for such expenditure. This lien takes priority over the beneficiary’s interests. In Re Pumfrey,134 a trustee borrowed money to purchase certain lands, the price of which exceeded the trust fund. The title deeds to the estate were deposited with the bank. The trustee, it was said, was entitled to be indemnified from the trust estate for the amount he borrowed and to enforce such an indemnity by way of sale. Kay J described this as a lien.135 In Calverley v Green,136 a couple bought a house with a mortgage on which they were jointly and severally liable. It was agreed that as between the two, Calverley would make the payments. Mason and Brennan JJ in a joint judgment argued that if Calverley’s payment of the mortgage instalments were made out of his own funds and on his own account, Green might be entitled to an equitable charge to secure the repayment of her own contribution.137

127 

Transport and General Credit Corporation v Morgan [1939] Ch 531, 545. Hewett v Court (1983) 149 CLR 639 (HCA) 646 (Gibbs CJ). 129  Worthington, ‘Equitable Liens in Commercial Transactions’ (1994) (n 120) 269–70; Hardingham, ‘Equitable Liens for the Recovery of Purchase Money’ (1985) (n 118) 75; see S Worthington, Proprietary Interests in Commercial Transactions (Oxford, Clarendon Press, 1997) 226–38. 130  In for example Monro v HMRC [2008] EWCA Civ 308, [2009] Ch 69, 88 Arden LJ argued that section 33 of the Taxes Management Act 1970, which provided for the Revenue to be able repay sums overpaid on a mistaken assessment to tax, excluded the common law cause of action for mistake of law. 131  Hardingham, ‘Equitable Liens for the Recovery of Purchase Money’ (1985) (n 118) 81; a purchaser’s lien was available in International Finance Corporation v DSNL Offshore Ltd [2005] EWHC 1844 (Comm); [2007] 2 All ER (Comm) 305. 132  X v A [2000] 1 All ER 490. 133  Foster v Spencer [1996] 2 All ER 672. 134  Re Pumfrey (1883) 22 Ch D 255. 135  ibid 260–61. 136  Calverley v Green (1984) 155 CLR 242 (HCA) 263. 137  ibid 263. 128 

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iii.  A General Principle We saw earlier in this section that notions of unconscionability have become tied up with equitable liens. As part of this process, Burns has argued that equitable liens are available to redress either unconscionable conduct or unjust enrichment.138 This argument draws implicitly on the increasing Australian insistence that unjust enrichment is linked to unconscionable conduct. In addition, Degeling has argued that the equitable lien in Lord Napier & Ettrick v Hunter139 is based on unjust enrichment, although Lord Templeman argued that it was in fact based on the insured’s unconscionable conduct in not procuring the payment over of the damages to the insurer.140 The claimant Lloyds names made a claim against Outhwaite, who had negligently failed to acquire adequate reinsurance cover for them, in order to recoup the massive losses in the Lloyds market in the early 1990s. Some names had also taken out separate insurance policies to cover any losses and liabilities to Lloyds of London. Those insurers were known as the Stop Loss Insurers. The names recovered from the stop loss insurers. However, they also recovered as against Outhwaite and were liable to reimburse the insurers. The names’ liability to pay out a share of the fund of damages was, according to Degeling, based on the restitutionary policy against accumulation.141 The names were not permitted to accumulate recoveries from both the insurer and the wrongdoer in respect of the same loss. The stop loss insurers therefore were held to have an equitable lien over the damages received from Outhwaite to recoup the payment they had already made to Outhwaite to cover the losses.142 Degeling discusses the possibility that the rights of the insurer were based on their contractual subrogation rights to take over the right of action in the names.143 Lord Templeman’s suggestion that contractual rights can give rise to equitable ones144 can be criticised as a thin basis for his conclusion that these rights are based on contract. Properly understood, Degeling therefore argues the issue was the right to share in any money obtained, which has to be a right in unjust enrichment. Lord Goff also saw the equitable cases, and therefore the imposition of the lien, as independent of the contract.145 The presence of the lien and the stress apparently placed on whether its imposition was fair is also controversial.146 The separate question arises as to why a lien rather than a constructive trust was imposed. The choice of lien seems to have been based, according to Lord Browne-Wilkinson, on the trust being neither commercially necessary nor desirable,

138  FR Burns, ‘The Equitable Lien Rediscovered: A Remedy for the 21st Century’ (2002) 25 University of New South Wales Law Journal 1, 13. 139  Lord Napier & Ettrick v Hunter [1993] AC 713 (HL). 140  ibid 738, also picked up in Dornoch Ltd v Westminster International BV [2009] EWHC 889 (Admrlty); [2009] 2 All ER (Comm) 399, 424. 141  See, eg S Degeling, ‘A New Reason for Restitution: The Policy against Accumulation’ (2002) 22 OJLS 435, 454–60; AS Burrows, The Law of Restitution, 3rd edn (Oxford, OUP, 2011) 162–164; A Jones, ‘Subrogation of Insurers: The Implications of the Lord Napier Case’ [1993] Conv 391 does not identify an unjust factor or cause of action. 142  Lord Napier & Ettrick v Hunter [1993] AC 713 (HL) 737–40 (Lord Templeman). 143  Degeling, ‘A New Reason for Restitution’ (2002) (n 141) 456. 144  Lord Napier & Ettrick v Hunter [1993] AC 713 (HL) 736 (Lord Templeman). 145  ibid 741. 146  But see M Luey, ‘Proprietary Remedies in Insurance Subrogation’ (1995) 25 Victoria University of Wellington Law Review 449.

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and doubts about the imposition of fiduciary duties.147 The question whether the lien also covered and attached to the right of action itself was left open, although Lord Templeman obviously and correctly leaned to the view that it would.148 McFarlane argues that the names’ obligation was to use the proceeds of their chose in action to pay off the insurers first. In other words, the insurers had what he describes as a right against the names’ right to compensation and the actual compensation is no more than the traceable proceeds of that.149 He describes that as a purely equitable charge, preferring that term to equitable lien and this is no more than an aspect of his proposed general rule that every time unjust enrichment generates rights over particular rights, an equitable proprietary (or in McFarlane’s language persistent) right is found. Degeling, however, has argued that the insurer’s intervention does not affect the value of the claim against Outhwaite and that means there should be no proprietary claim in contrast to other cases where she supports a proprietary claim.150 Burns also bases her conclusion151 that equitable liens respond to unconscionability on an important dictum of Deane J in Hewett v Court. He argued that the conditions for an equitable lien were: (i) that there be an actual or potential indebtedness on the part of the party who is the owner of the property to the other party arising from a payment or promise of payment either of consideration in relation to the acquisition of the property or of an expense incurred in relation to it (ii) that that property… be specifically identified and appropriated to the performance of the contract and (iii) that the relationship between the actual or potential indebtedness and the identified and appropriated property be such that the owner would be acting unconscientiously or unfairly if he were to dispose of the property … to a stranger without the consent of the other party or without the actual or potential liability having been discharged. It may be that the above circumstances or tests, particularly (i), would be unduly restrictive if propounded as a statement of exclusion.152

The references to unconscientiousness are also reflected in references to unconscionability and fairness found in Lord Napier & Ettrick v Hunter. A wider and more discretionary set of criteria will create uncertainty and potentially therefore to increases in perceived risk to creditors. We might criticise the notion of unconscionability on the grounds that the lienee’s conduct has no bearing on the fairness of insolvency protection vis-à-vis the unsecured creditors. In England at any rate there is considerable opposition to the extension of the equitable lien.153 The equitable lien should be kept to the relatively few discrete areas to which it has so far been largely contained.

147 

Lord Napier & Ettrick v Hunter [1993] AC 713 (HL) 752. ibid 737, but see at 752–753 (Lord Browne-Wilkinson). 149 McFarlane, The Structure of Property Law (2008) (n 24) 212. 150  S Degeling, Restitutionary Rights to Share in Damages (Cambridge, CUP, 2004) 257–60. 151  Burns, ‘The Equitable Lien Rediscovered: A Remedy for the 21st Century’ (2002) (n 138) 15; D Wright, ‘The Place of the Equitable Lien as a Remedy’ in E Cooke (ed), Modern Studies in Property Law—Volume 1 (Oxford, Hart, 2001) 41. 152  Hewett v Court (1983) 149 CLR 639 (HCA) 668. 153  Beale et al, The Law of Security (2012) (n 8) para 6.163. 148 

Conclusion 317

IV. Conclusion The problem, if there is one, in this area is that there is little in the way of unifying principle binding the particular instances of common law or customary liens together. Still less is there any agreement on the proper instance of equitable liens, although it seems that in Australia at least the concept has been over-extended to take in too many cases and should be reined back. Much depends on the particular circumstances and whether any additional powers, such as the power of sale, have been agreed. The position is somewhat clearer, or more unified when we turn to pledges where there is little controversy and much agreement. There have been some suggestions that equitable pledges should be recognised, but on the whole academic and judicial opinion is against this and rightly so; the difficulties caused by an unregistrable equitable pledge would be too great.

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13 Mortgages and Bills of Sale I. Introduction This chapter is concerned with mortgages and bills of sale. These are very similar. Although the bills of sale legislation is directed at documents, Lord Esher MR’s description of a bill of sale in Mills v Charlesworth is essentially that of a written mortgage.1 It is important to note that we are concerned in this chapter primarily with security bills of sale, which are bills of sale issued as security for the discharge of a money obligation. Absolute bills are bills of sale for any other purpose. The next chapter will examine the other main type of non-­possessory security, the equitable charge which itself comes in two varieties—fixed and floating. Unlike charges, mortgages can be either legal or equitable. Typically we think of mortgages over land. Most homebuyers will use a mortgage to do so. However, it is possible for mortgages to be made over personalty. Chattel mortgages, however, tend to be uncommon in commercial contexts. This relative unpopularity of mortgages is explicable. Charges, looked at in chapter 14, have a number of advantages and fulfil the same function. A charge, unlike a mortgage, can for instance be taken over non-transferable rights. This can be of particular importance in cross-border transactions where there might be significant choice of law difficulties, particularly with moveable chattels.2 Equally, the doctrine of ‘clogs and fetters’ will cause difficulties in the context of chattel mortgages but not of charges. In the consumer lending context, chattel mortgages will frequently be bills of sale, which have their own problems. Bills of sale over chattels are making something of a comeback, however, in the form of logbook loans. These are loans issued by sub-prime lenders on the security of a bill of sale over the borrower’s car. These are often issued at unusually high interest rates, over 400 per cent annual percentage rate (APR) in some cases. This chapter can be divided into two main sections. The first will examine the creation of a mortgage and what features it needs to have to be a mortgage. At the end of that section we examine in brief aircraft mortgages and the international interest under the Cape Town Convention. The second will examine the enforcement rights a mortgagee or holder of a bill of sale has on default.

1  2 

Mills v Charlesworth (1890) 25 QBD 421 (CA) 425. B McFarlane and R Stevens, ‘The Nature of Equitable Property’ (2010) 4 Journal of Equity 1, 25–27.

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II.  What is a Mortgage? A mortgage can be either legal or equitable. In personalty cases it involves the transfer of legal (or sometimes equitable) title to the asset to the mortgagee as security for a debt or other obligation. This entails the mortgagor taking an equity of redemption, a right to retake title when the obligation is discharged. Land works differently. The mortgagee of land does not obtain title, but a legal charge. Lord Templeman said in Downsview Nominees Ltd v First City Corporation Ltd: A mortgage, whether legal or equitable, is security for repayment of a debt. The security may be constituted by a conveyance, assignment or demise or by a charge on any interest in real or personal property. An equitable mortgage is a contract which creates a charge on property but does not pass a legal estate to the creditor. Its operation is that of an executory assurance, which, as between the parties, and so far as equitable rights and remedies are concerned, is equivalent to an actual assurance, and is enforceable under the equitable jurisdiction of the court.3

A mortgage may also be taken over intangible goods such as choses in action and IP rights, although the requirement that title be passed to the mortgagee may cause difficulties with IP rights as the mortgagor no longer has the prima facie right to enforce and exploit the rights, and the mortgagee does not have the expertise to do so. For patents this difficulty was overcome by Gelder, Apsimmon & Co v Sowerby Bridge Flour Society Ltd,4 but it remains unclear how the copyright mortgagor who has assigned his interest can exploit it and enforce it.5 By contrast, a charge is created when an asset is specially appropriated to the payment of a particular debt or obligation, and confers on the chargee a right of realisation by judicial process.6

A.  Clogs and Fetters It is an essential part of mortgage law that the mortgagee cannot restrict the equity of redemption.7 This is sometimes referred to as a bar on clogs and fetters. Originally, the principle was laid down by the Court of Chancery that the mortgagee could not seek to take absolute ownership of the asset after the mortgagee failed to exercise his contractual right to redeem. The Court compelled him to seek an order of foreclosure instead.8 In so doing, the Court created an equitable right to redeem the mortgage exercisable after the failure to 3 

Downsview Nominees Ltd v First City Corporation Ltd [1993] AC 295 (PC) 311. (1890) 44 Ch D 374; the same rules are extendable to trade marks. A Tosato ‘Security Interests over Intellectual Property’ (2011) 6 JIPLP 93, 96–97. 5  Tosato (n 4) 97. 6  Swiss Bank Corporation v Lloyds Bank [1982] AC 584 (CA) 597 (Buckley LJ); S Worthington, Personal Property Law: Text and Materials (Oxford, Hart, 2000) 117–18; H Beale, M Bridge, L Gullifer and E Lomnicka (eds), The Law of Security and Title Based Financing, 2nd edn (Oxford, OUP, 2012) para 6.17; we have seen, however, that sections 859Aff of the Companies Act 2006 use charge to mean mortgage as well. 7  Santley v Wilde [1899] 2 Ch 474; Kreglinger v New Patagonia Meat & Cold Storage Co Ltd [1914] AC 25 (HL); Beale et al, The Law of Security (2012) (n 6) para 6.02; M Bridge, L Gullifer, G McMeel, S Worthington (eds) The Law of Personal Property (London, Sweet and Maxwell, 2013) para 7.062; this is also discussed in land law texts. See, eg K Gray and S Gray, Elements of Land Law, 5th edn (Oxford, OUP, 2010) 724–31. 8  Vernon v Bethell (1761) 2 Eden 110, 28 ER 838. 4 

What is a Mortgage? 321

take advantage of the contractual right and which could not be made subject to contractual clogs or fetters affecting its own exercise. The mortgagee could not therefore introduce into the mortgage contractual terms that purported to give him a beneficial interest in the property or an option to buy such an interest as that directly clashed with the mortgagor’s equity of redemption.9 That said, by the beginning of the twentieth century, the Earl of Halsbury accepted the nullity of an option to purchase the mortgaged asset in Samuel v Jarrah Timber, but at the same time he argued that it was a perfectly fair bargain between two parties acting at arm’s length and he did not see the sense in the rule striking the option down.10 The rule against clogs and fetters had also by that time come to include collateral advantages, which remained in force after the redemption of the mortgage. An example of such an advantage can be found in Noakes & Co Ltd v Rice.11 The clog on the mortgage in that case was a tie compelling the mortgagor of a public house to the purchase of malt liquors from the mortgagee even after repayment of the loan. Berg has argued that after the House of Lords decision in Kreglinger v New Patagonia Meat & Cold Storage Co Ltd, such collateral clauses are not invalid per se, but only if unconscionable or a penalty clause.12 In that case the alleged clog was a clause that the borrower could not sell sheepskin to other buyers than the lenders for five years, unless the lenders refused to pay the going rate. Despite the loan being redeemed within five years, this was held a valid collateral transaction. This seems right. In modern commercial transactions collateral benefits to the mortgagee are relatively common and a focus on the standard vitiating factors seems appropriate. However, uncertainty over the reach of the doctrine may be inhibiting the use of mortgage and the development of new forms of finance. In Jones v Morgan,13 for example, an agreement was made to transfer a half-share in property to a party who had previously (three and a half years previously) lent money secured by a mortgage over it. Chadwick LJ and Lord Phillips held in the Court of Appeal that that was a clog on the equity and struck it down. Such a result is plainly wrong, and on the facts the dissenting judgment of Pill LJ is much to be preferred. Pill LJ did not in fact dissent on the law or the principles applicable to the case. Rather he argued that the two agreements were wholly separate, unlike the majority who argued that they were in substance the same. It is the uncertainty as to what will count as being ‘in substance’ the same transaction, thus rendering the clause vulnerable, which causes the difficulty. Such a wide-ranging doctrine is also potentially subject to human rights challenge,14 but even aside from that it is not an appropriate tool for reaching the law’s policy objectives. Some unobjectionable transactions, such as that in Jones v Morgan, are struck down, and where the transaction is objectionable, it is a clumsy means of dealing with the alleged unfairness. Extortionate interest rates are a good example of this; Goff J struck down a mortgage in Cityland and Property (Holdings) Ltd v Dabrah15 on the basis that the effective 9 

Samuel v Jarrah Timber [1904] AC 323 (HL). ibid 325. Noakes & Co Ltd v Rice [1902] AC 24 (HL); Bradley v Carritt [1903] AC 253 (HL). 12  Kreglinger v New Patagonia Meat & Cold Storage Co Ltd [1914] AC 25 (HL) 60–61 (Lord Parker); Biggs v Hoddinott [1898] 2 Ch 307 (CA); A Berg, ‘Clogs on the Equity of Redemption—or Chaining an Unruly Dog’ (2002) JBL 335; E Belyea, ‘Unclogging the Equity of Redemption in Commercial Transactions’ (1994) 24 Canadian Business Law Journal 161. 13  Jones v Morgan [2001] EWCA Civ 995, [2001] Lloyds Rep Banking 323. 14  Berg, ‘Clogs on the Equity of Redemption’ (2002) (n 12) 337. 15  Cityland and Property (Holdings) Ltd v Dabrah [1968] Ch 166, see Gray and Gray, Elements of Land Law (2010) (n 7) 731–39. 10  11 

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interest rate was extortionate and therefore a clog on the equity of redemption. The property company had, on the expiry of a lease, sold a house to the tenant. The tenant paid an upfront advance, but the remaining sum of £2900 was raised to £4553 which he covenanted to pay over six years. That additional sum was deemed harsh and unconscionable, as it meant on default the tenant would have no equity left over on enforcement; this was also seen as a collateral advantage although, bearing in mind that financial returns are the main point of loans secured by a mortgage, this is rather surprising. Clearly there should be more appropriate means of attacking this than the clogs and fetters doctrine, such as under the now applicable section 140A of the Consumer Credit Act 1974 concerning unfair relationships between creditors and debtors, although that section will admittedly rarely be invoked purely on price or interest rate grounds.16 Security financial collateral arrangements carry with them a right of use—a right in the collateral taker to use and dispose of the collateral as if it were the owner—under regulation 16 of the Financial Collateral Arrangements (No 2) Regulations. The purpose of the right of use is to increase liquidity in the financial markets. This can be of benefit to both parties if the collateral taker is a prime broker who uses the collateral to funds its own operation and grant credit to the collateral provider at lower cost.17 The risk to the collateral provider is that he loses the benefit of the equity of redemption which would provide a proprietary claim should the collateral taker go into liquidation, leaving the collateral provider with only a personal claim. Yeowart and Parsons discuss the possibility of challenging the right of use (outside the regulations) as a clog on the equity of redemption,18 and conclude it will have to be unconscionable.

B.  Legal Mortgages The creation of a mortgage, like other security interests, can be divided into two stages. It must attach and it must be perfected, usually by registration, examined in chapter 11, part IV B, under the Bills of Sales Acts or section 859A of the Companies Act 2006. Because the bills of sale legislation does not apply to mortgages created by companies,19 this completes the picture. As a mortgage is created by the transfer of title to the mortgagee, the rules as to its creation are tied to those on passage of title.20 A legal mortgage of goods or chattels may be oral in the same way that passage of legal title to goods may be oral and done by delivery alone. However, if the mortgage is given by an individual and is in writing it must be by deed. It is then covered by the Bills of Sales Acts. Sections 9–10 and Schedule 1 of the Bills of Sale Act (1878) Amendment Act 1882 provide for the form that a security bill must take to be valid, and details of how the bill must be witnessed. If it is not in this form it—including the covenant to repay the loan—is void even 16  S Brown, ‘Using the Law as a Usury Law: Definitions of Usury and Recent Developments in the Regulation of Unfair Charges in Consumer Credit Transactions’ (2011) JBL 91, 106–07; Khodari v Al-Tamimi [2009] EWCA Civ 1109, [2010] LLR 42. 17  G Yeowart and R Parsons (eds) Yeowart and Parsons on the Law of Financial Collateral (London, Edward Elgart, 2016) para 11.05. 18  ibid paras 11.33–11.35. 19  Bills of Sale Act (1878) Amendment Act 1882 s 17; Richards v Mayor of Kidderminster [1896] 2 Ch 212; Online Catering Ltd v Acton [2010] EWCA Civ 58, [2011] QB 208. 20  Beale et al, The Law of Security (2012) (n 6) para 6.05.

What is a Mortgage? 323

between the parties,21 although the lender may have a claim in unjust enrichment. Security bills are those taken to secure a monetary obligation due at a fixed and determinate time. All other bills are absolute bills. This is designed to protect debtors from signing confusing documentation.22 To modern eyes the legislation is very anachronistic in the way it goes about its protective aim and given the anachronistic language, is unlikely to achieve its aim of being easy to understand or to achieve the protective aims. Indeed, despite the requirement for a witness to the bill not to be a party, because the party is the corporate lender, this enables the employee signing on behalf of the lender to witness the borrower’s signature as well because he personally is not a party.23 For the sake of completeness, it is worth noting the formalities relevant to an absolute bill. It is worth remembering that a bill taken to secure a non-monetary obligation is an absolute bill.24 McBain calls this simple poor drafting. The formal requirements for an absolute bill are relatively light—a requirement in section 8 Bills of Sale Act 1878 merely that the consideration be set out. The registration requirements were set out in chapter 11 Part IV B iii and are far from light—requiring three sets of solicitors. It is notable that the Law Commission found no registered25 absolute bills at all as part of the research for their bills of sale project. They have recommended that absolute bills be subject to no regulation at all.26 Legal assignments of book debts must be in writing under section 136 of the Law of Property Act 1925, which also requires that written notice of the assignment be given to the debtor, and for other intangibles such as IP rights the required statutory formalities must be met.27 In cases where there is a financial collateral arrangement, however, section 136 is disapplied to the extent that it requires the assignment to be signed, although since financial collateral arrangements are defined to be in, or evidenced by writing, there will still be a need for writing.28 Where it is a documentary intangible, the asset may be mortgaged by negotiation with the relevant indorsements.29 As section 4 of the Bills of Sale Act 1878 excludes intangible assets from the definition of personal chattels, mortgages over book debts cannot normally be a bill of sale. A charge over future debts creates an obligation to charge them so that when obtained they are automatically attached to the security. A legal mortgage can only be made over assets owned by the mortgagor at the time of the mortgage. Otherwise, there is just nothing to transfer. Legal mortgages are therefore necessarily fixed.30

21  Davies v Rees (1886) 17 QBD 408; some minor deviations are permitted M Bridge, Personal Property Law, 4th edn (Oxford, Clarendon Press, 2015) 304. 22  The Manchester, Sheffield and Lincolnshire Rly Co v The North Central Wagon Co (1888) 13 App Cas 554 (HL); The Department for Business Innovation and Skills (BIS), ‘A Better Deal for Consumers: Consultation on Proposals to Ban the Use of Bills of Sale in Consumer Lending’ (2009) paras 35–38; D Sheehan, ‘The Abolition of Bills of Sale in Consumer Lending’ (2010) 126 LQR 356. 23  Logbook Loans Ltd v OFT [2011] UKUT 280. 24  G McBain ‘Repealing the Bills of Sale Acts’ [2011] JBL 475, 480. 25  Halberstam v Gladstar Ltd [2015] EWHC 179 involved an unregistered absolute bill of sale. 26  Law Commission Bills of Sale (Law Comm no 369 2016) para 10.4. 27  Bridge et al (n 7) (2013) paras 14.074–14.076; eg Patents Act 1977, s 30; Trade Marks Act 1994, s 24. 28  Financial Collateral Arrangements (No 2) Regulations 2003 rr 3–4; see chapter 11, part IV B ii for details on the regulations, and the newly implemented 2009 EC directive. 29  On negotiation see chapter six. For more specialist commercial applications of the mortgage see LS Sealy and RJA Hooley, Commercial Law: Text, Cases and Materials, 4th edn (Oxford, OUP, 2008) 1124; L Gullifer (ed), Goode on Legal Problems of Credit and Security, 5th edn (London, Sweet and Maxwell, 2013) para 1.13. 30  Beale et al, The Law of Security (2012) (n 6) para 6.12.

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Where a general assignment of present or future book debts is done by an individual, it requires registration as an absolute bill of sale.31 This is the more onerous version of registration which as we have seen can require three sets of solicitors (one for the assignor, assignee, and one to act as the independent witness). The Law Commission has now proposed simplifying the registration regime for general assignments so that it can be registered by email, sending a short form to the High Court.32

C.  Equitable Mortgages The main difference with a legal mortgage is that being equitable it is prone to being defeated by a bona fide purchaser for value without notice. An equitable mortgage may be created in two ways. First, there may be a present mortgage of an equitable interest where an equitable interest is transferred subject to the mortgagor’s right to recover or redeem it. All second mortgages of goods will therefore be equitable, as the mortgagor has only an equity of redemption; equally mortgages of intermediated securities by the ultimate holder will be equitable, as the holder only has an equitable interest. Legal title is in the hands of the first mortgagee or the intermediary respectively. Second, a specifically enforceable contract to create a legal (or equitable) mortgage will create an equitable mortgage on the basis that equity looks at as done that which ought to be done.33 Alternatively, a defectively executed legal mortgage may give rise to an equitable mortgage, although only where the mortgagor has done everything that he or she needs to do to create the mortgage.34 In Swiss Bank Corporation (SBC) v Lloyds Bank,35 the claimant bank agreed to lend money to IFT to enable it to purchase securities in an Israeli bank, FIBI. Repayment of the loan was to be made from the proceeds of the sale of FIBI securities. IFT then granted Lloyds a charge over the assets which SBC claimed was void. It failed; the House of Lords decided that there was nothing in the documentation to support the claim that it was a condition that the repayment should be made from the sale proceeds of the securities.36 This was necessary if the arrangements were found to be a mortgage. Nothing less will do, as Lord Wrenbury demonstrated when he said in Palmer v Carey that an obligation to use property in a particular way need not give rise to a proprietary right even if injunctive relief is potentially available against other uses. What is required is that an obligation to pay out of the particular fund exists.37 The case also illustrates the second method of creating a mortgage discussed above. Buckley LJ in the Court of Appeal, whose judgment was upheld in the House of Lords, said that the essence of a mortgage was that the debtor conferred upon his or her creditor a proprietary interest in asset, by the realisation of which the creditor can discharge

31 

Insolvency Act 1986 s 344. Law Comm (n 26) para 9.32. 33  Swiss Bank Corporation v Lloyds Bank [1982] AC 584 (HL). Bridge et al (n 7) (2013) paras 7.065–7.067, 14.061–14.067. 34  Beale et al, The Law of Security (2012) (n 6) paras 6.07–6.11; see chapter four, part III B ii on the ‘every efforts’ doctrine. 35  Swiss Bank Corporation v Lloyds Bank [1982] AC 584 (HL). 36  ibid 614 (Lord Wilberforce); Re TXU Europe Group Plc [2003] EWHC 1305, [2004] 1 BCLC 519. 37  Palmer v Carey [1927] AC 703 (PC) 706. 32 

What is a Mortgage? 325

the debtor’s obligation. He confirmed that where there has been no valid transfer of legal title but only a contract to transfer the obligation, if specifically enforceable, would create an equitable interest and give rise to an equitable mortgage.38 This is no more than a standard application of the maxim ‘Equity looks at as done that which ought to be done.’ This means, although controversially, that a specifically enforceable contract of sale of land or personalty other than goods can pass equitable title. This might be put as a rule that an unconditional mandatory obligation to transfer specific assets gives rise to a constructive trust,39 and has impacts in the specifically enforceable contracts over land40 and in the disapplication of formalities for the transfer of equitable interests.41 This variety of equitable mortgages over personalty may be oral. We saw in chapter five that dispositions of subsisting equitable interests must be in writing and signed.42 Equitable mortgages created by a specifically enforceable contract for a legal mortgage do not involve subsisting equitable interests; however, mortgages of equitable interests under a trust, for example, by the beneficiary do. These must therefore be in writing and signed, unless they are equitable mortgages counting as security financial collateral arrangements in which case the paragraph is disapplied;43 mortgages of intermediated securities will frequently fall into this category. The statutory definition of a bill of sale catches written agreements by which a right in equity to any personal chattels or to any charge or security is transferred.44 Where such an equitable mortgage is created by an individual and is intended to secure the performance of a money obligation, it is therefore a security bill of sale. In contrast to a legal mortgage, it is possible to take an equitable mortgage over future assets. The transfer will take place automatically when the assets are acquired by the mortgagor and priority will relate back to the time the security was executed.45 This raises the question of what type of interest the mortgagee has before the asset is acquired by the mortgagor. It appears, anomalously and maybe fictionally, to be an actual present interest in future property. The reason for this slightly odd result is that the attachment of the security to the future property is automatic, so long as the asset can be immediately identified as mortgaged assets.46 At no point does the mortgagor have an unencumbered interest in the property.47 A future equitable charge has the same property in that it attaches immediately to the asset as soon as it falls into the possession of the chargor; the chargor need do nothing at all to bring this result about. Mortgages are usually considered fixed in that they are

38  Swiss Bank Corporation [1982] AC 584 (HL) 596, followed in Thames Guaranty Ltd v Campbell [1985] QB 210. 39  S Worthington, Proprietary Interests in Commercial Transactions (Oxford, Clarendon Press, 1997) 192; chapter one, part V B. 40  Walsh v Lonsdale (1882) LR 21 Ch D 9, but see S Gardner, ‘Equity, Estate Contracts and the Judicature Acts: Walsh v Lonsdale Revisited’ (1987) 7 OJLS 60. 41  Neville v Wilson [1997] Ch 144 (CA). 42  Law of Property Act 1925 s 53(1)(c). 43  Financial Collateral Arrangements (no 2) Regulations 2003 rr 3–4. 44  Sealy and Hooley, Commercial Law: Text, Cases and Materials (2008) (n 29) 1140. 45  Beale et al, The Law of Security (2012) (n 6) para 6.13; Bridge et al (n 7) (2013) paras 7.068–7.071; Holroyd v Marshall (1861) 10 HLC 191, 11 ER 999; Tailby v Official Receiver (1888) 13 App Cas 523; Re Lind [1915] 2 Ch 345. 46  Beale et al, The Law of Security (2012) (n 6) paras 6.14–6.16. 47  Hadlee v CIR [1991] 3 NZLR 517.

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immediately attached to a particular given asset, but it appears possible to create floating mortgages where transfer of ownership takes place on crystallisation. Discussion of floating security is postponed to the next chapter.

D.  Aircraft: International Interests After the ratification by the UK of the Cape Town Convention by the International Interests in Aircraft (Cape Town Convention) Regulations 2015 aircraft mortgages which would have been created as mortgages under the common law may now be international interests. Under domestic English law aircraft mortgages are usually executed as deeds so that the mortgagee has the benefit of the statutory powers under the Law of Property Act 1925. They would have to be registered under section 859A Companies Act 2006 and may be registered in the Aircraft Mortgage Register kept by the Civil Aviation Authority to secure the benefit of first priority.48 Article 9A of the Mortgaging of Aircraft Order 1972, inserted by Schedule 5 para 1(3) International Interests in Aircraft (Cape Town Convention) Regulations 2015, provides for a process to remove registrations from the Aircraft Register on the basis that an application to register an international interest has been made or will be made. To recap an international interest is an interest under article 2(2) of the Convention: (a) granted by the chargor under a security interest (such as a mortgage or charge) (b) vested in a person who is the seller under a retention of title agreement (c) vested in a person who is a lessor under a leasing agreement. It is for national law to determine which category we are dealing with. Although not all international interests will be aircraft mortgages we deal with all three categories here for the sake of completeness. Article 7 lays down relatively simple formality rules. The interest must be in writing, relate to an object of which the chargor has power to dispose; the object must be identified and the secured obligations must be capable of being determined, but without the need to state a sum or maximum sum secured. Once it is created and satisfies the requirements of the convention, it is recognized as an international interest in the UK under reg 6 International Interests in Aircraft (Cape Town Convention) Regulations 2015. The interest must then be registered under reg 14 which itself requires compliance with articles 18–20, and a registered interest has priority by reg 16(1) over any unregistered or non-registrable interest.

III. Enforcement There are a number of enforcement options open to the mortgagee. Two are open to a chargee as well. Chargees may not foreclose or take possession because they have no legal rights, but only equitable rights, in the collateral, but they will have the right to appoint a receiver or to sell. Before we examine individual remedies, beginning with foreclosure, there are a number of preliminary observations to make. First, in all cases the limitation period 48 

See generally Beale et al (2012) (n 6) paras 14.51–14.59.

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applicable is 12 years for the principal and six years for interest.49 Second, there are a number of general restrictions on the right to enforce mortgages where the debtor is an individual. ‘Individual’ is oddly defined to include unincorporated associations and partnerships with fewer than four partners.50 High net worth debtors are excluded,51 presumably on the basis that they are wealthy enough to obtain the advice they need. Previously it was possible to sue to have a credit agreement set aside on the grounds that it was extortionate. The Consumer Credit Act 2006 brought in a new set of provisions to replace that rule—the unfair relationship provisions. Sections 140A–140D of the Consumer Credit Act 1974 now ask the court to assess on the basis of the agreement’s terms, the manner in which the creditor exercises his or her rights, or any other circumstances whether the credit relationship is unfair and if it can be re-opened. It is unfortunate that the Act provides little guidance on whether the relationship is unfair. This was deliberate,52 although some guidance may be found in the Consumer Protection from Unfair Trading Regulations 2008 and, as the allegations relate to specific contract terms with a consumer, sections 62–64 Consumer Rights Act 2015 are also relevant. The leading case is Plevin v Paragon Personal Finance Ltd53 where the Supreme Court decided that the legislation was deliberately framed widely with very little guidance given. The Supreme Court made some general remarks—the relationship must be unfair, which need not imply the terms are unfair per se if the relationship is extremely onesided; this does not simply refer to large differences in financial expertise, which the court referred to as almost inevitable, although ‘beyond a point’ such inequality might make the relationship unfair. Secondly some terms may be harsh, but operate to protect legitimate interests of the creditor.54 It turns out therefore that borrowers have had limited success in having their agreements reopened with courts seeing market practice as the key, although in Plevin the fact that the commission on Payment Protection Insurance amounted to 71% of the premium was deemed to make the relationship an unfair one.55 The test is not merely a procedural one, but the state of the relationship between the parties. In the business context if the agreement was properly negotiated it is unlikely to be affected.56 Many of the rules are now found in the Consumer Credit Sourcebook (CONC). This was designed to augment the Act, but is also being taken as an opportunity to re-visit the Act and the unfair credit relationship test. Brown concludes that there is a tension between the ethos of sections 140A–140C and the objectives of the Financial Conduct Authority in promoting competition and innovation; the two need to be carefully balanced.57 49 

Limitation Act 1980 s 20; Bristol & West Plc v Bartlett [2002] EWCA Civ 1181, [2002] 4 All ER 544. Consumer Credit Act 1974 s 189. 51  ibid s 16A. 52  Sealy and Hooley, Commercial Law: Text, Cases and Materials (2008) (n 29) 1146–48; see L McMurtry, ‘Consumer Credit Act Mortgages: Unfair Terms, Time Orders and Judicial Discretion’ (2010) JBL 107, although her focus is on mortgages of land. 53  [2014] UKSC 61, [2014] 1 WLR 4222. 54  ibid 4227–4228. 55  ibid 4231. 56  E Lomnicka ‘Unfair Credit Relations Five Years on’ [2012] JBL 713, 728; on questions of how small businesses should fit into the regime see generally S Brown ‘Protection of the Small Business as a Credit Consumer: Paying Lip Service to Protection of the Vulnerable or Providing a Real Service to the Struggling Entrepreneur’ (2012) 41 CLWR 39. 57 S Brown’ Consumer Credit Relationships: Protection Self-Interest/Reliance and Dilemmas in the Fight against Unfairness: The Unfair Credit Relationship Test and the Underlying Rationale of Consumer Credit Law’ (2016) 36 LS 230, 256. 50 

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The court is provided with a wide-ranging set of remedies, including altering or varying the contract and discharging any part of the debt owing. The Council Directive (EC) 2008/48 on credit agreements for consumers and repealing Council Directive 87/102/ EEC (‘European Consumer Credit Directive 2008/48’)58 placed additional requirements on lenders when implementing regulations came into force in February 2011, such as a requirement to provide adequate information on the loan59 and make adequate credit checks. Where the charged or mortgaged asset includes a chose in action, the mortgagee is obliged to give notice of an intention to enforce unless he or she also joins the mortgagor. This is because enforcing the mortgage involves enforcing the mortgaged chose.60 These rules—and those on financial collateral to be examined in the next section—will remain in force unless specifically changed after the UK’s vote to leave the European Union.

A.  Foreclosure and Appropriation of Financial Collateral The right of foreclosure arises once the mortgagee’s estate is absolute at law. This will be once the mortgagor’s legal right to redeem comes to an end and this is always explicitly set at a very short time period.61 The important point here is that it enables the mortgagee to sell the asset and retain any surplus over above what he or she is owed by the mortgagor. It is precisely this that leads it to be treated with suspicion, although should there be a deficiency the mortgagee is not entitled to seek to recover from the borrower even on an unsecured basis without re-opening the foreclosure and permitting the mortgagor an opportunity to redeem. The principles are common to all mortgages. Foreclosure requires a court order, in order to protect the mortgagor’s equitable right of redemption. In Palk v Mortgage Services Ltd62 the husband and wife claimants could no longer afford repayments on their house and were seeking an order for sale. Nicholls V-C commented that foreclosure actions are now almost unheard of,63 despite being explicitly recognised as an option in section 106 of the Law of Property Act 1925. One might think though that given the advantages lenders would frequently seek foreclosure orders, but they do not. The courts are keen to give the borrowers every opportunity to redeem, and have an essentially unrestricted discretion to order sale instead under section 91(2) of the Law of Property Act 1925. Foreclosure orders may also be re-opened if there is a good reason to do so.64 The right to seek foreclosure has in fact been

58  Council Directive (EC) 2008/48 on credit agreements for consumers and repealing Council Directive 87/102/ EEC [2008] OJ L133/66, implemented by the Consumer Credit (Amendment) Regulations 2010, amending the Consumer Credit (EU Directive) Regulations 2010, Consumer Credit (Disclosure of Information) Regulations 2010 and Consumer Credit (Agreements) Regulations 2010; see also Consumer Credit (Total Charge for Credit) Regulations 2010, and Consumer Credit (Advertisements) Regulations 2010. 59  Discussed by L Waddington ‘Vulnerable and Confused: The Protection of Vulnerable Consumers under EU Law’ (2013) 38 European L Rev 757, 761–762; Waddington makes some general criticisms of the EU’s approach to providing information to consumers. 60  Beale et al, The Law of Security (2012) (n 6) para 18.34. 61  ibid para 18.23; see J McGhee (ed), Snell’s Equity, 33rd edn (London, Sweet and Maxwell, 2015) para 39.055 on foreclosure in equitable mortgages. 62  Palk v Mortgage Services Ltd [1993] Ch 330. 63  ibid 336. 64  Beale et al, The Law of Security (2012) (n 6) para 18.25.

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abolished in New Zealand,65 although under section 120 Personal Property Securities Act 1999 (NZ) there is a similar right ‘to retain’ the asset. It ought to be abolished in England on grounds of unfairness and in today’s environment redundancy, given that its use is in fact minimal. Where the mortgage is over financial collateral, regulation 17 of the Financial Collateral Arrangements (No 2) Regulations 2003 allows the secured party to appropriate the collateral (if there is a term in the contract to that effect) to satisfy the debt in accordance without application to the court. This has been compared to foreclosure,66 although there is an obligation under regulation 18 Financial Collateral Arrangements (No 2) Regulations to account for surplus value to the collateral provider. The creditor has an unsecured claim for the balance if there is a shortfall.67 Effectively, it is a sale to the creditor collateral taker, which is not usually permitted.68 Regulation 17 has now been amended by the Financial Markets and Insolvency (Settlement Finality and Financial Collateral Arrangements) (Amendment) Regulations 2010 r 4(15) to ensure that any equity of redemption is extinguished and that no court order is required for this to occur (irrespective of the availability of foreclosure); this may reveal a conceptual confusion in the regulations in that not all cases of security financial collateral arrangement need be a mortgage. As far as the collateral taker is concerned, appropriation is a useful remedy in a number of circumstances. One such is where the market is falling and a sale could leave the collateral taker with an unsecured shortfall. It is now common practice to include an express power of appropriation therefore. The main case—or set of cases—on appropriation is the Cukurova litigation, the most recent important decision being Cukurova Finance International v Alfa Telecom Turkey (Nos 3 to 5).69 There a loan for $1.3bn had been secured on shares in Turkcell and an express power included in the contract. The Privy Council agreed that appropriation was not quite the same as foreclosure; the collateral taker will, however, take the property as his own, subject to the requirement to pay any excess to the debtor. The assets must be valued in a commercially reasonable manner. In the context of the Cukurova litigation this is important because it might have provided the claimants with an easier route to success. The claimants argued after the exercise of the power of appropriation by Alfa Telecom that there was no valid exercise of the power because of Alfa’s bad faith. They failed in this argument. The Privy Council commented, ÇH and ÇFI do not dispute that ATT appropriated the charged shares in order to satisfy the debt. Their real complaint is that ATT only wanted to do so … to obtain control over ÇFI and ÇTH and indirectly of Turkcell, instead of (say) selling the shares … if a chargee enforces his security for the proper purpose of satisfying the debt, the mere fact that he may have additional purposes, however significant, which are collateral to that object, cannot vitiate his enforcement of the security.70

That left the claimants in the position of arguing that they should be the beneficiaries of equitable relief from forfeiture. The fact that in principle the remedy was supposed to 65 

Property Law Act 1952 s 89 (NZ); Property Law Act 2007 s 117 (NZ). Beale et al, The Law of Security (2012) (n 6) para 18.27. 67  Cukurova Finance International Ltd v Alfa Telecom Turkey Ltd [2009] UKPC 19, [2009] 3 All ER 849, 855 (Lord Walker); Look Chan Ho, ‘The Financial Collateral Directive’s Practice in England’ (2011) 26 Journal of International Banking Law and Regulation 151, 170–171. 68  L Gullifer and J Payne, Corporate Finance Law, 2nd edn (Oxford, Hart, 2015) 329. 69  [2013] UKPC 25, [2015] 2 WLR 875. 70  Cukurova Finance International v Alfa Telecom Turkey [2013] UKPC 25, [2015] 2 WLR 875, 897. 66 

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provide a speedier and more effective remedy than foreclosure so as to help maintain the liquidity of the markets rather militates against the ability of a court to retrospectively unwind its exercise like this, particularly when no court order is required for its exercise in the first place.71 The Privy Council, however, accepted that relief from forfeiture was available and nothing in the regulations precluded that,72 and proceeded to grant such relief. Relevant factors as to relief from forfeiture73 included that (i)

ATT Ltd’s primary concern with the charged shares had not been as security but so as to obtain control of Turkcell, and from the outset the transaction was structured so as to preserve ÇH and ÇFI’s control over Turkcell, explaining their desire to sell only 49%. This appears to have been the main consideration. (ii) valuation of the appropriated shares had not taken account of the increased value attributable to ATT Ltd by virtue of such control (iii) ATT Ltd had known of ÇFI Ltd’s intention to refinance the loan promptly and had acted to forestall its attempts to do so (iv) ATT Ltd’s financial interests had been protected throughout by the value of the charged shares and (v) A valid payment under the facilities agreement was tendered and rejected. One important point to note therefore is that point (ii) above suggests that the appropriated shares had not been valued in a commercially reasonable manner. If so, a complaint as to a breach of regulation 18 would have been a better route for the claimants while at the same time preserving the ease of application and exercise of the remedy.

B. Sale i.  Incidence of the Power of Sale Powers of sale may be common law, statutory or contractual.74 An equitable mortgagee is able to take advantage of the statutory powers although he or she probably cannot transfer the legal estate. In the context of land Swift 1st Ltd v Colin75 is thought to give equitable mortgagees the inherent power to repossess the property without a court order. Even aside from the fact that there is no such thing as equitable possession and that equitable owners have no right to possess property (let alone repossess), this is flawed particularly when it is accompanied by a right to sell the legal estate, which the equitable mortgagee does not have,76 without a court order. Evans has commented that this simply aids secret and fraudulent dealings and reduces protection given to residential mortgagors.77 The latter point is 71 

Yeowart and Parsons, Financial Collateral (2016) (n 17) para 12.89(a). Cukurova Finance International v Alfa Telecom Turkey [2013] UKPC 25, [2015] 2 WLR 875, 905. 73  ibid 908–909; Yeowart and Parsons, Financial Collateral (2016) (n 17) para 12.64; see also S Worthington, ‘What is left of Equity’s Relief against Forfeiture?’ in E Bant and M Harding (eds), Exploring Private Law (Cambridge, CUP, 2010) 249 for an argument that there is no independent principle of relief from forfeiture. 74  Beale et al, The Law of Security (2012) (n 6) para 18.41. 75  [2011] EWHC 2410, [2012] Ch 206. 76  Re Hodson and Howes’ Contract (1887) 35 Ch D 668. 77  S Evans ‘A Scrutiny of Powers of Sale arising under an Equitable Mortgage: A Case for Reining these in’ [2015] Conv 123. 72 

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land-specific, but the general criticism seems sound that the mortgagee should be able to sell only an equitable interest, although that interest may bind the legal title holder. In the context of financial collateral, however, it is common to introduce a power of attorney into an equitable mortgage empowering the collateral taker to transfer legal title to the asset to itself or a third party.78 Any well drafted mortgage or charge will include an express power of sale.79 Our concern here is with common law and statutory powers. Powers of sale operate differently from foreclosure in that should there be a surplus over the debt owing to the mortgagor, he or she holds that on trust for the mortgagee and the mortgagor can have recourse on an unsecured basis for the deficiency.80 The mortgagor may always apply to the court for an order for sale.81 In Palk the company wished to take possession and let the property with a view to obtaining a better price in due course. However, the rental income was unlikely to cover the extra interest that would accrue. Nicholls V-C said that the effect of the scheme the company proposed was a gamble. However, it was a gamble that only the Palks could lose on. If the value of the house went up at least in line with the increased debt everybody would be better off, but if the value of the house went down then the Palks would be worse off, but Mortgage Services would still have recourse against them for the remaining debt. Nicholls V-C characterised this as manifestly unfair and ordered a sale.82 Where the mortgage is by deed the mortgagee has a statutory power of sale under section 101 of the Law of Property Act 1925, which becomes exercisable after the mortgage money has become due. Section 103 provides that a mortgagee shall not exercise the power of sale under section 101 unless the mortgagees are three months in default and notice demanding payment has been served, or there are two months of interest arrears, or the mortgagors are in default in some other way. This power does not apply to bills of sale, which we cover later in part II E. In all cases the concern is to give the mortgagee a reasonable period of time in which to pay the debt and thereby redeem the asset. There is an obvious danger that if a mortgagee exercises the power of sale improperly that the purchaser of the asset might be saddled with a claim from the mortgagor. Section 104(2) of the Law of Property Act 1925 attempts to protect the purchaser from such circumstances. It provides that the purchaser’s title is not to be impeached on the basis that no case for sale had arisen, or that due notice was not given. A purchaser need not be concerned to make inquiries into whether there is a proper exercise of the power of sale. This means that even if the purchaser has constructive notice of impropriety, he or she can rely on the subsection to claim unimpeachable title. However, ‘shut-eye’ knowledge, sometimes referred to as Nelsonian blindness or wilfully shutting your eyes to the obvious, will disentitle the purchaser from relying on the purchase as giving him or her good title, as will participation in the impropriety.83 In Stubbs v Slater84 the claimant instructed brokers to buy certain mining shares, but ultimately failed to settle the account with the brokers. The brokers sold 390 shares 78 

Yeowart and Parsons (2016) (n 17) para 15.112. Beale et al (2012) (n 6) para 18.47. 80  Law of Property Act 1925 s 105; Cuckmere Brick Co v Mutual Finance Ltd [1971] Ch 949 (CA) 966 (Salmon LJ); this parallels the rule in pledges, Mathew v TM Sutton Ltd [1994] 4 All ER 793. See chapter 12, part II on pledges generally and Beale et al, The Law of Security (2012) (n 4) paras 18.54–18.55. 81  Law of Property Act 1925 s 91. 82  Palk [1993] Ch 330 (CA) 339–40. 83  Meretz Investments Ltd v ACP Ltd [2006] EWHC 74, [2007] Ch 197, 273–274 (Lewison J). 84  Stubbs v Slater [1910] 1 Ch 632 (CA). 79 

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deposited by the claimant as security, having failed on several attempts to get the claimant to pay. The claimant claimed conversion of the shares. The Court of Appeal held that there was an implied common law power of sale of mortgaged intangible property such as shares on giving reasonable notice of the intention to sell.85 In saying this Cozens-Hardy MR relied on the case of Deverges v Sandeman, Clark & Co.86 That was an action for the redemption of shares in Central and Western Boulder Gold Mines Ltd. The Court held that there was an implied power of sale in a mortgage of shares, although the Court split on whether the debtor had in fact been given a reasonable time in which to redeem the property before sale. However, Vaughan Williams LJ seemed in that case to doubt whether an implied power arose in cases of chattels.87 No explanation is given for this apparent doubt and there appears to be little reason in principle for it. Cotton LJ in Re Morritt held that a power of sale did exist and Lindley and Bowen LJJ agreed. However, Fry LJ disagreed.88 His objection was twofold. First, he could find no authority that such a power existed, which is neutral in itself. Second, he suggested it had been impliedly excluded by the legislature. Yet if that is to be a convincing argument it must explain why the implied power of sale over intangibles can co-exist with the statutory power under section 101. Given that it does, there ought to be a common law power of sale over chattels.

ii.  Duties of the Mortgagee in Exercising the Power of Sale The timing of the exercise of the power of sale is completely within the discretion of the mortgagee, who need not take into account the possibility that the price may rise,89 so long as he or she acts in good faith in deciding when to sell. Deliberate sale at the bottom of the market might in some circumstances be deemed in bad faith. There is, however, an absolute rule that the mortgagee may not sell to him or herself.90 The mortgagee has no obligation to sell. The mortgagee has a number of possible remedies open to him or her and need not therefore opt to sell, although it is one of the most appealing options in that it provides a mechanism to directly realise the debt. Once the decision to exercise the power to sell is made, a duty to take reasonable care to obtain a proper price is imposed;91 in some cases like financial collateral where a market price is easily ascertained, it is simple to decide if this duty has been complied with. What the mortgagee cannot therefore do is sell the asset as quickly as possible with the aim of just covering his or her costs if the market price is higher.92 In Cuckmere Brick Co v Mutual Finance Ltd93 the claimants owned land with planning permission attached which they charged for £50,000. No work was ever started and the finance company exercised its 85 

ibid 639 (Cozens-Hardy MR). Deverges v Sandeman, Clark & Co [1902] 1 Ch 579 (CA). 87  ibid 589. 88  Re Morritt (1886) 18 QBD 222, 235. 89  Beale et al, The Law of Security (2012) (n 6) para 18.49–18.50. 90  ibid para 18.52. 91  P Devonshire, ‘The Mortgagee’s Power of Sale: New Perspectives on an Old Theme’ (1995) 16 New Zealand Universities Law Review 251, 267; New Zealand Receiverships Act 1993 s 19 (NZ) imposes a duty to obtain the best price reasonably available on the receiver and the secured party selling personal property collateral has a similar duty under the Personal Property Securities Act 1999 s 110 (NZ). The principle will hold good for whatever duty exists in English law. 92  Downsview Nominees Ltd v First City Corporation [1993] AC 295 (PC) 311 (Lord Templeman). 93  Cuckmere Brick Co v Mutual Finance Ltd [1971] Ch 949. 86 

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power of sale. The public auction failed to mention that along with planning permission for 35 houses, there was permission for 100 flats. The Court of Appeal held that a mortgagee owed a duty to take reasonable care to obtain a proper price. The obligation is not a wider one, however. It is clear that once accrued the power of sale can be exercised whenever the mortgagee desires. It does not matter whether if the mortgagee had waited he or she could have got a better price or the mortgagee accepts a very low bid at an auction if it is the highest there and the low bidding is not attributable to his or her fault.94 The Court decided that there had indeed been negligence but remitted the point back to the judge for an assessment of the damages. In Downsview Nominees v First City Corporation95 the mortgagor, Glen Eden, issued two debentures to WestPac and First City Corporation (debentures being essentially an acknowledgement of indebtedness)96 securing two sums owed by Glen Eden. The first plaintiff, First City, appointed receivers on 10 March 1987, who decided that the assets should be sold. Subsequently, the first defendants to whom the first debenture had been assigned appointed a receiver who displaced those appointed by the second debenture holder, First City. That second receiver proposed to trade out of difficulty. The dispute arose because First City did not believe this to be an appropriate course of action. The Privy Council held that the mortgagee owed no general duty in negligence to subsequent encumbrancers.97 In addressing the question whether there was a general duty of care on receivers, Lord Templeman went so far as to suggest that a receiver potentially liable in negligence will always sell rather than attempt to manage because of the risk of being sued should things go wrong.98 He also suggested that the imposition of a general duty of care was in any case inconsistent with the primary objective of the mortgagee which is to ensure that he or she gets paid back. In other words, the selfish nature of the duty holder’s motive is inconsistent with the duty, although he acknowledged that Cuckmere was authority for the proposition that if the mortgagee (or receiver) decided to sell he or she must take care to get a proper price.99 That was an equitable rather than a common law duty and only in that specific context, but the jurisdictional origin of the duty seems to make no difference at all to its content.100 In fact the reason for the equitable duty to obtain a proper price derives from an analogy with the position of a trustee. Neither the mortgagee nor the trustee has full and outright title to the asset. The mortgagee on exercising the power therefore overreaches the mortgagor’s interest in the property and becomes trustee of any surplus after the sale is completed. Kelry Loi therefore suggests that just as equity imposes a duty of care on trustees to get the best price for trust assets, it should not surprise that it imposes the same duty on mortgagees.101 However, since the mortgagee is not trustee of the power to sell, equity imposes no general duty of care in choosing when or if to sell. Loi

94 

ibid 965–66 (Salmon LJ). Downsview Nominees v First City Corporation [1993] AC 295 (PC). 96  S Mayson, D French and C Ryan, Company Law, 33rd edn (Oxford, OUP, 2016) 314; see also IF Fletcher, The Law of Insolvency, 4th edn (London, Sweet and Maxwell, 2009) paras 14.089–14.100. 97  Downsview [1993] AC 295 (PC) 312. 98  ibid 316. 99  ibid 315. 100  Medforth v Blake [2000] Ch 86 (CA): KCF Loi, ‘Mortgagees Exercising Power of Sale: Nonfeasance, Privilege, Trusteeship and Duty of Care’ (2010) JBL 576, 580. 101  Loi, ‘Mortgagees Exercising Power of Sale’ (2010) (n 100) 584. 95 

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also buttresses this by noting that such liability would be liability for nonfeasance which the law generally avoids.102 Lord Templeman also stated the equitable duties imposed on the mortgagee would be quite unnecessary if there was a general common law duty to take care in the exercise of the mortgagee’s powers. The receiver or mortgagee does, however, have a general duty to exercise his or her powers in good faith and for proper purposes even though this may cause incidental damage to the mortgagor.103 The duty of good faith is one involving an examination of his or her actual state of mind, but proper purposes are objectively determined. Lord Templeman held in the end that the receivership under the first debenture was being exercised in bad faith and for improper purposes, namely the frustration of First City’s own exercise of its powers, and that the first mortgagee was therefore liable for the losses caused to the second.104 Downsview was followed in Worwood v Leisure Merchandising Services (LMS) Ltd.105 The two claimants controlled a company known as Concession Contracts Ltd (CCL). They charged their shares to Nice Man Merchandising Inc (NMMI) and in 1993 NMMI enforced its security. The concession business was transferred to LMS, and the claimants claimed that this was part of a dishonest plot to destroy CCL’s business and take it over without paying for the goodwill. Park J held that although there was a duty of good faith to the mortgagors, NMMI did not have a duty to preserve the underlying business of CCL. The charged property was the shares, not the underlying business.106 In Meretz Investments v ACP107 the first claimant leased the top floor flat in an apartment building, the freehold of which was owned by the second claimant (Britel Corporation) and charged it to NUBBH. Planning permission to develop the roof space was acquired and the second defendant (the leaseholder) was formed as a single purpose company by the first defendant mortgagee to do so. The second defendants and second claimant then entered into a development lease and the mortgagee provided some of the finance secured by a first charge. Construction ultimately fell behind and into financial difficulty and the mortgagee exercised its power of sale. Lewison J held that so long as it was part of the mortgagee’s purpose to recover the debt owing to it that sufficed to make it a legal exercise of the power, even if the mortgagee also had other collateral purposes in mind. He argued correctly that a fine dissection of the mortgagee’s motives is likely to be difficult in practice.108 The duty to the mortgagor does not go so far as to affect third parties, except insofar as the duty to obtain a proper price will be owed also to any subsequent mortgagee or chargee, or any guarantor or surety109 of the debt; this exception makes sense as the surety is obliged to pay the difference between the debt and the price obtained for the asset on sale. In Den 102 

ibid 586–87. Downsview [1993] AC 295 (HL) 312. 104  ibid 314; Kennedy v de Trafford [1896] 1 Ch 762 (CA); P Devonshire, ‘The Mortgagee’s Power of Sale: The Case for the Equitable Standard of Good Faith’ (1995) 46 NILQ 182, 196–201; D Armstrong, ‘The Mortgagee Remedies of Entry into Possession and Receivership: Ancient Equity meets Modern Statute’ (2000) 31 Victoria University of Wellington Law Review 667, 687–88. 105  Worwood v Leisure Merchandising Services Ltd [2002] 1 BCLC 249. 106  ibid 258. 107  Meretz Investments v ACP [2006] EWHC 74, [2007] Ch 197. 108  ibid 271–72. 109  Tomlin v Luce (1889) LR 43 Ch D 191 (CA); American Express International Banking Corporation Ltd v Hurley [1986] BCLC 52, 61 (Mann J); Beale et al, The Law of Personal Property Security (2012) (n 6) para 18.50. 103 

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Norske Bank v Acemex Management Ltd110 the mortgagee arrested the mortgaged ship and threw its perishable cargo overboard to sell the ship. A claim for the outstanding balance was made against the guarantor, who argued the mortgagee should have waited until it had reached its destination and discharged the cargo. The Court of Appeal held that the general proposition that a mortgagee was entitled to decide for him or herself when to sell111 without regard for the mortgagor’s interests applied. That extended to the guarantor, so the mortgagee was entitled to disregard the guarantor’s interest in deciding whether to sell the asset. However, once the decision to sell is made, the mortgagee must get a proper price. There is one possible exception to the rule that the mortgagee has an absolute discretion as to when to sell. That is where there is no true market for the asset at the place it is proposed to sell.112 Additionally, it was no breach of the loan contract to destroy the cargo even if the cargo owner would thereby have rights to damages against the mortgagee.113

C. Receivership There are several types of receivers. Administrative receivership will be dealt with in chapter 14, part IV A; the type of receiver we are concerned with in this section is often known as an ‘LPA receiver’. The receiver may be appointable under the statutory power, which is also open to equitable mortgagees if that mortgage is under seal, or he or she may be appointed under the terms of the debenture. The statutory power to appoint a receiver does not include a power of sale in the receiver114 which explains the prevalence of express powers to appoint a receiver with the ability to sell in both mortgage and charge instruments. It arises and becomes exercisable in the same way and the receiver has the same duties as the mortgagor in exercising the power of sale.115 In the same way that it is open to a mortgagee to exercise his or her power of sale without reference to the mortgagor’s interests, it is open to him or her to appoint a receiver without reference to the mortgagor’s interests.116 The powers of a receiver who is not an administrative receiver will be defined by the agreement of the parties and will be much wider than the powers in section 109 of the Law of Property Act 1925.117 Section 109(8) provides for how the moneys received are to be applied. The duties of the receiver are largely equivalent to those of the mortgagee,118 and owed in the same way to the mortgagor, guarantors and subsequent incumbrancers. The scope of their duties was considered in the case of Yorkshire Bank Plc v Hall.119 Robert Walker LJ said in the context of mortgagees, but where the same duties apply to receivers: The mortgagee’s duty is not a duty imposed under the tort of negligence, nor are contractual duties to be implied. The general duty (owed both to subsequent incumbrancers and to the mortgagor)

110 

Den Norske Bank v Acemex Management Ltd [2003] EWCA Civ 1559, [2005] 1 BCLC 274. ibid 282; Beale et al, The Law of Security (2012) (n 6) para 18.49. 112  ibid 282–83. 113  ibid 283–84. 114  Law of Property Act 1925 s 109. 115  ibid s 109(1). 116  Shamji v Johnson Matthey Bankers Ltd [1991] BCLC 36. 117  Beale et al, The Law of Security (2012) (n 6) para 18.62. 118  ibid para 18.63. 119  Yorkshire Bank Plc v Hall [1999] 1 All ER 879 (CA). 111 

336  Mortgages and Bills of Sale is for the mortgagee to use his powers only for proper purposes, and to act in good faith … The specific duties arise if the mortgagee exercises his express or statutory powers … If he exercises his power to take possession, he becomes liable to account on a strict basis (which is why mortgagees and debenture holders operate by appointing receivers whenever they can). If he exercises his power of sale, he must take reasonable care to obtain a proper price.120

In Silven Properties Ltd v Royal Bank of Scotland Plc121 receivers were appointed by the bank over 35 properties owned by the mortgagor. The Court of Appeal held that the primary duty of the receiver was to see that the debt was repaid. Like the mortgagee therefore the receiver was entitled to sell the assets immediately. However, unlike a mortgagee the receiver has an obligation to actively preserve and protect the charged property, although unless the goods are perishable this will not carry an obligation to sell immediately.122 Receivers need not incur expense to improve an asset so it fetches a higher price. In exercising his or her powers, the receiver is deemed to act as the agent of the mortgagor,123 not of the mortgagee. This is an odd agency, however. The principal has no say in the agency at all; the duties owed by the receiver to the mortgagor and mortgagee are equitable—indeed the tripartite nature of the relationship is unusual, and primarily the management of the asset in these cases is for the benefit of someone other than the principal. General agency principles are therefore of little help but the receiver does have fiduciary duties to the mortgagee and anyone interested in the equity of redemption.124 These do not mean that the chargor has any right to information held by the receiver, who may be bound by confidentiality obligations to the charge.125 Another possibility, however, is that the receiver will choose to operate the assets; if therefore there is a mortgage over a productive asset such as a piece of plant, the receiver may choose to make items with the plant, and sell them to pay off the debt. In Medforth v Blake126 it was decided that although there is no obligation on a receiver to carry on a business, if the receiver chooses to do so he or she must do so with reasonable competence,127 and must account to the mortgagor for his or her profits or those profits he or she negligently failed to make. Any expenses may be set of against this in running the business. This is an equitable duty of care, which appears to have the exact same content as the tortious duty of care rejected in Downsview. The basis of this seems to have been that although the tort duty was rejected in that case, Lord Templeman never said that the receiver’s only duty (outside the context of the receiver selling the assets) was to act in good faith. Judd has suggested that a receiver ought not to be subject to such a duty. He argues that the long term interests of the mortgagee should trump those of the company and has the situation in mind where a receiver can make a profit for the mortgagee, but at the long term detriment of the mortgagor.128 This is based on the view that the duty of care upsets the balance between the 120 

ibid 893. Silven Properties Ltd v Royal Bank of Scotland Plc [2003] EWCA Civ 1409, [2004] 1 WLR 997. ibid 1006–07. 123  Law of Property Act 1925 s 109(2); Insolvency Act 1986 s 44; Beale et al, The Law of Security (2012) (n 6) para 18.61. 124  Silven Properties Ltd v RBS [2003] EWCA Civ 1407, [2004] 1 WLR 997, 1007–09. 125  Gomba Holdings (UK) Ltd v Homan [1986] 1 WLR 1301. 126  Medforth v Blake [2000] Ch 86 (CA). 127  ibid 93; White v City of London BS (1889) 42 Ch D 237 (CA) 243 (Lord Esher MR); N Skead, ‘Mortgagor’s Remedies against a Mortgagee’ (2008) 15 Australian Property Law Journal 130. 128  S Judd, ‘Downsview Nominees v First City Corporation’ (1993) 7 Auckland University Law Review 440, 443. 121  122 

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mortgagor and mortgagee. Judd would therefore prefer the position in Downsview, because it seems clear that Medforth changed the law. However, the requirement of an equitable duty of care does not require that the receiver prefer one person’s interests over another, but merely that the decisions are taken competently. That the receiver’s actions cause loss does not per se mean that they should be actionable.129 A decision might be made to sell the asset by the receiver which causes loss and may ultimately force the company to liquidate but not be taken incompetently. Whether this is an equitable duty is controversial,130 which raises the second issue, also relevant to the question of the duty of care in sales. Berg has argued that it matters quite significantly to both the content of the duty and remedies for breach.131 In particular, if it is a common law tort duty the Unfair Contract Terms Act 1977 will apply to clauses excluding liability for negligence. If it is a purely equitable duty this is unlikely, although Berg puts it no higher than that there are respectable arguments that the Act does not apply.132 In terms of the remedies available, it is unlikely that the difference alters the quantum of recovery available against the mortgagee or receiver. In Bristol & West BS v Mothew, Millett LJ said that equitable compensation for breach of the equitable duty of skill and care should attract the common law rules of causation, remoteness of damage and measure of damage.133 However, there may also be differences as against third parties. If the duty is purely tortious, the third party purchaser cannot be liable to the mortgagor where the purchase is, say, at an undervalue unless there is a conspiracy. In equity Berg argues that there is a respectable argument that the sale can be rescinded unless the third party is a bona fide purchaser.134 Nonetheless, there does appear to be increasing convergence in some aspects of these two (equitable and common law) duties135 and in principle the arguments raised by Kelry Loi suggest the view that these are equitable duties which should be preferred, despite the possible differences.

D. Possession Possession is rarely sought for its own benefit, but as a prelude to sale. A legal mortgagee has a right at common law to peaceably enter into possession at any time, although this is regulated by statute.136 Subsequent mortgagees have rights to possess, but not against prior mortgagees. An equitable mortgagee has no such automatic right to possession. This is explicable when it is remembered that a holder of equitable title has only a right that the legal owner use his or her rights in a particular way. Only coincidentally will a trust beneficiary, for example, be able to sue for conversion or take possession.

129  S Frisby, ‘Making a Silk Purse out of a Pig’s Ear’ (2000) 63 MLR 413; PJ Omar, ‘A Delicate Balance of Interests: The Power of Sale and the Duty to Maximise Asset Values’ (2005) Conv 380, 387–90. 130  LS Sealy, ‘Mortgagees and Receivers: A Duty of Care Resurrected and Extended’ (2000) CLJ 31. 131  A Berg, ‘Duties of a Mortgagee and Receiver’ (1993) JBL 213, 217; by contrast Judd, Downsview Nominees v First City Corporation’ (1993) (n 128) 442 argues the content of the duties will be the same. 132  Berg, ‘Duties of a Mortgagee and Receiver’ (1993) (n 131) 233–34. 133  Bristol & West BS v Mothew [1996] 4 All ER 698 (CA) 711. 134  Berg, ‘Duties of a Mortgagee and Receiver’ (1993) (n 131) 238–39. 135  Omar, ‘A Delicate Balance of Interests’ (2005) (n 129) 399–400. 136  Beale et al, The Law of Security (2012) (n 6) para 6.06.

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A mortgagee in possession comes under a duty to preserve the security and will be liable for wilful default of duty in doing so. In AIB Finance Ltd v Debtors,137 the appellants were owners of a newsagents and off-licence; they had purchased the business with a loan and registered charge from the respondent bank. The bank repossessed the property and sold it, and issued a claim for the outstanding balance. The appellants claimed that they had failed to ensure the business was a going concern; had they done so the property would have been sold for a greater sum. Mummery LJ dismissed this view, saying that the business was no longer a going concern when repossessed.138 The bank had no duty to preserve the business prior to taking possession. As a manager of the property if he takes possession himself, this obligation is usually why the mortgagee will appoint a receiver, who is the agent of the mortgagor precisely to protect the mortgagee from such liability. A mortgagee in possession is strictly liable to account. Receivership is generally therefore a superior remedy to possession where the mortgagee is not planning an immediate sale.

E.  Enforcement of Bills of Sale i.  Current Law The enforcement mechanisms open to a lender under a bill of sale are severe and it is notable that the borrower has much less protection than under other forms of consumer credit. The Consumer Credit Act 1974 will apply to the commonest form of lending on bills of sale, the logbook loan, allowing the borrower to challenge the contract as unfair, but the Act provides less protection than in other similar contracts and there may be circumstances in which a bill of sale is issued by a borrower who is not covered by the Act, eg a firm with more than four partners. Further, the courts are, as we have seen, unlikely to step in to strike down a loan as unfair purely on the basis of the interest rate. A lender may enter the borrower’s premises at any time to inspect the secured assets,139 and some modern logbook loan contracts specifically provide for limited force to be used to exercise this right. The lender may take possession of the asset under section 7 of the Bills of Sale Act (1878) Amendment Act 1882 which allows seizure of the assets on default. Normally, a lender must go to court for an order for possession, but the bills of sale legislation allows for immediate possession of the chattel after any missed payment. The asset will then be auctioned. Rather than granting the power to take possession, the legislation assumes it and provides for where it can or cannot be exercised. In Re Morritt the question came up whether there was a power of sale. The bill explicitly gave a power to seize goods, and Cotton LJ said that section 7 of the Act gave a power to sell after a reasonable time had been left to the debtor to pay.140 Once property is seized, it cannot be sold for five days under the legislation and 14 days under the 2015 Consumer Credit Trade Association code of practice.141 This allows the borrower to apply to court to restrain sale if a payment can be made. It is unlikely that consumers will be aware of this, meaning the protection given is in practice worthless. Where the contract is a regulated agreement under the Consumer 137 

AIB Finance Ltd v Debtors [1998] 2 All ER 929. ibid 936. 139  Paxton ep Pope (1889) 60 LT 428. 140  Re Morritt (1886) 18 QBD 222, 233 141  ibid 241 (Lopes LJ); Bills of Sale Act (1878) Amendment Act 1882 s 13. 138 

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Credit Act 1974, no security can be enforced without first serving a default notice under section 87 of the Act 14 days before seizing the asset. That notice must contain information on the nature of the breach and the action needed to remedy it or, if it is un-remediable, the compensation required by the lender.142 This requirement is reinforced by section 7A of the Bills of Sale Act (1878) Amendment Act 1882 which provides that seizure under section 7 on default of an obligation secured by a bill of sale is not permitted if the period of grace in the default notice has not expired or the debtor takes the required action. This provides significantly less protection than is available under, say, a hire purchase agreement or other similar facilities.

ii.  Reform of Bills of Sale The Department for Business Innovation and Skills (BIS) consulted at the end of 2009 on reform to the regime.143 Their initial recommendation was to abolish ‘bills of sale as an instrument of securitisation’. This could, however, have had unforeseen effects in terms of leaving the door open to floating charges in the consumer context. It certainly would not have the effect BIS suggested of abolishing non-possessory security in the consumer context. Indeed, there seems little reason to do so. The preferred option should be to reform the law to give consumers wishing to give such security the same consumer protection found elsewhere. BIS later indicated that it would not legislate and suggested a voluntary code of conduct. The Consumer Credit Trade Association introduced a code of conduct for logbook lenders, and the Office of Fair Trading (OFT) produced its Irresponsible Lending Guidance.144 Regulations implementing the European Consumer Credit Directive 2008/48 were also introduced.145 The Law Commission published a consultation paper specifically on bills of sale in 2015146 and the full report was published in September 2016. They argued that the regime needs to be reformed for three main reasons. The current rules impose disproportionate sanctions for failing to meet technical document requirements and maintaining an unnecessarily cumbersome registration regime.147 Registration at the High Court is costly, paperbased rather than electronic and described by the Consumer Credit Trade Association as providing no benefit. As we have seen, borrowers have inadequate protection on default, and third party consumer purchasers of the asset might find themselves bound by the bill. The Commission suggest that the law be overhauled comprehensively through new legislation, repealing and replacing the 1878 and 1882 Acts. Security bills of sale would be replaced with the goods mortgage,148 or, where the asset over which security was taken was a vehicle, a vehicle mortgage and regulation of absolute bills would be completely abandoned. 142 

Consumer Credit Act 1974 s 88; see Beale et al, The Law of Security (2012) (n 6) paras 18.35–18.36. See BIS, ‘A Better Deal for Consumers’ (2009) (n 22) paras 39–49 on the lack of consumer protection measures; see also Sheehan, ‘The Abolition of Bills of Sale in Consumer Lending’ (2010) (n 18) for comment on the proposals. 144  Office of Fair Trading (OFT), ‘Irresponsible Lending—OFT Guidance for Creditors’ (2011). 145  BIS, ‘Government Response to the Consultation on Proposals to Ban the Use of Bills of Sale for Consumer Lending’ (2011) paras 43–52. The code of practice and accompanying customer information sheet can be found at annexes C and D. 146  Law Commission Bills of Sale (Law Comm CP no 225 2015). 147  Law Comm (n 26) paras 3.5–3.9. 148  ibid paras 4.16–4.17. 143 

340  Mortgages and Bills of Sale

In broad terms the legislation would apply where an individual creates non-possessory security over goods he owns. Companies would continue to be covered by the Companies Act 2006 regime. The Commission propose to exclude intangible goods including book debts from the definition of goods and initially defined the mortgage as to include security over any monetary or non-monetary obligation,149 broadening the current statutory rules where security bills must secure a monetary obligation. This latter proposal has been dropped and the security must relate to a monetary obligation.150 The security would operate like a mortgage—including the transfer of title to the mortgagee—unless the parties agreed that it would operate as a charge. The mortgage would need to be in writing, signed and witnessed; if the formality requirements were not met only the security interest would be void,151 not the covenant to repay. The mortgages would be registrable. Goods mortgages would continue to be registrable at the High Court, albeit with a much streamlined process, and in due course an electronic online register might be created, but the Law Commission argued in 2015 that the volume of transactions at the moment does not justify this.152 Vehicle mortgages would need to be registered in an asset finance registry, such as HPI. Registration would be a perfection requirement so the security would not bind third parties if not registered. If it were registered private purchasers would still take good title free of the bill if they were in good faith and had no notice of the bill153—tracking the nemo dat provision in section 27 Hire Purchase Act 1964. In terms of enforcement, the lender would lose the right to seize the asset without a court order once one third of the loan had been repaid, and the borrower would have the right to voluntarily hand the goods over in full settlement had been paid. This also reflects the rule in hire purchase (and in the case of voluntary return of the goods is an improvement on the hire purchase rule that requires for instance half the purchase price to be paid before the right arises) and provides considerably greater protection than under the current law,154 although the voluntary termination right proposed tracks rights in the Consumer Credit Trade Association Code of Practice as regards logbook loans.155

F.  Enforcement of an International Interest Chapter III of the Cape Town Convention sets out the remedies available on default. The creditor may also invoke other remedies as made available under national law or as agreed— such as those above—to extent they are not inconsistent with the convention remedies. As we saw in chapter 11, part IV B iv, it is for national law to characterize the retention of title clause, lease or security. This will make a difference to the remedies available. Consequently, as we see in chapter 15, the introduction into English law of a Personal Property Securities Act might well change the remedies available to holders of an international interest.

149 

Law Comm (n 146) paras 8.18–8.32. Law Comm (n 26) paras 4.24–4.27. 151  ibid para 5.60. 152  Law Comm (n 146) para 10.35; in the full report the Commission recommended regulation-making powers to allow for a more general electronic register to be included in the legislation; Law Comm (n 26) paras 6.53–6.56. 153  Law Comm (n 26) para 8.23. 154  ibid paras 7.71–7.79, 7.100. 155  ibid paras 7.123–124. 150 

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Reg 21(2) International Interests in Aircraft (Cape Town Convention) Regulations 2015 provides: The conditional seller or the lessor, as the case may be, may— (a) … terminate the agreement and take possession or control of any aircraft object to which the agreement relates; or (b) apply to the court for an order authorising or directing either of these acts.

Reg 19(2) International Interests in Aircraft (Cape Town Convention) Regulations 2015 provides that a chargee may exercise one of the following remedies: (a) it may take possession or control of any aircraft object charged to it; (b) it may sell or grant a lease of any such aircraft object; (c) it may collect or receive any income or profits arising from the management or use of any such aircraft object.

The chargee may also apply to court for an order exercising the remedy. To ensure that the debtor’s interests are protected the regulations require under reg 24 that remedies be exercised in a commercially reasonable manner; otherwise the manner of the exercise of the remedy is open to challenge by the debtor. A notice must be sent to the debtor and other interested parties before the asset is sold or leased. The idea is that the debtor does not lose out in a fire-sale. As Saidova has noted, the scope of the commercial reasonableness requirement in the convention is not well drawn;156 indeed, by reg 24(2) if the creditor acts in accordance with a provision of the agreement that is assumed to be commercially reasonable unless shown to be manifestly unreasonable, which turns it into a fairly lax requirement. Saidova compares the situation to that in the USA under article 9 Uniform Commercial Code where the chargee must also behave in a commercially reasonable manner. Such factors as how and where the sale is advertised, how the aircraft is prepared for sale, what opportunities buyers had to inspect it and the price may all be decisive.157 The position therefore differs from an English mortgage where there is no such requirement; as we saw earlier, all a mortgagee is required to do is act in good faith, albeit that once he has decided to sell there is an equitable duty to take care to obtain the best price. That said, Saidova does argue that commercial reasonableness ought not to apply to the choice of remedy by the creditor.158 By regulation 19(6) any sum recovered must (as you would expect) be used to discharge the indebtedness. Regulation 20 provides for the more draconian remedy of article 9. The ownership of the aircraft may be vested in the chargee in or towards satisfaction of the debt where all interested parties agree,159 but regulation 20(4) states a court may only make an order to this effect if the value of the aircraft is commensurate with the debt owing. Where the agreement is a title reservation or leasing agreement remedies are provided for by regulation 21, which allows the agreement to be terminated and possession taken. The aircraft protocol provides for two additional remedies—given force in England by regulation 22. These are deregistration of the aircraft and its export to another

156  S Saidova ‘The Cape Town Convention: Repossession and Sale of Aircraft Objects in a Commercially Reasonable Manner’ [2013] LMCLQ 180, 182. 157  ibid 188–192. 158  ibid 198. 159  ibid 197–198.

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jurisdiction.160 Possession of the aircraft by itself is insufficient to allow the plane to be deployed elsewhere;161 in essence an aircraft cannot be remarketed effectively without deregistration and export although the specific type of registration regime whether it is owner or operator based will also make a different to the control a financier can exercise. There are two routes to deregistration. The first involves an application to court and the second known as the IDERA route. IDERA stands for Irrevocable De-Registration and Export Request Authorisation, and is issued by the debtor and recorded at the national aircraft registry—not the international registry where the international interest is recorded.162 Article 13, and reg 25 provide for what is referred to as advance relief. Article 13 is set out below and looks on its face like provision for interim relief in English law. In particular paragraphs (a)–(c) can be seen as provision for interim injunctions to preclude the aircraft being flown out of the country. However, it is a controversial article as shown by the debate surrounding it.163 Article 13(1) provides: A creditor who adduces evidence of default by the debtor may, pending final determination of its claim and to the extent that the debtor has at any time so agreed, obtain from the court relief in the form of such one or more of the following orders as the creditor requests— (a) (b) (c) (d)

preservation of the aircraft object and its value; possession, control or custody of the aircraft object; immobilisation of the aircraft object; lease or, except where covered by paragraphs (a) to (c), management of the aircraft object and the income from it; and (e) if at any time the debtor and the creditor specifically agree, sale and application of proceeds.

In fact, seeing article 13 as interim relief does not fit well with the wording of the convention article itself, and requirements for the debtor and creditor to agree. Paragraph (e) looks more like a substantive remedy therefore. The article is therefore probably meant to be a sui generis remedy designed to obtain the speedy satisfaction of the creditors’ claims.164

IV. Conclusion Mortgages are relatively straightforward security interests. Many of the rules are the same as with mortgages over land, and readers are referred to land law texts for a more detailed

160  R Goode, H Kronke and E McKendrick Transnational Commercial Law, 2nd edn (Oxford, OUP, 2015) paras 14.35–14.36. 161  DN Gerber and D Walton ‘De-Registration and Export Remedies under the Cape Town Convention’ [2014] CTCJ 49, 51. 162  ibid 55–59. 163  See, for example, G Cutiberti ‘Advance Relief under the Cape Town Convention’ [2012] CTCJ 79; A Veneziano ‘Advance Relief under the Cape Town Convention and its Aircraft Protocol: A Comment on Gilles Cutiberti’s Interpretative Proposal’ [2013] CTCJ 185. 164  On the relationship with EU law and the EU’s accession to the Convention see A McCarthy and M O’Brien ‘Article 13 of the Cape Town Convention and Article 31 of Regulation No. 44/2001—An EU Law Perspective’ [2014] CTCJ 33.

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treatment of the clogs and fetters rules. The major remedy is sale, but the power of sale still contains within it the seeds of a tension between the interests of the mortgagor and the mortgagee. The mortgagee or his or her receiver is clearly entitled to seek the best way to enforce the security and obtain payment of the secured obligation, but at the same time the mortgagor’s equity of redemption should be respected. We also saw how the UK has ratified the Cape Town Convention and the enforcement provisions under the International Interests in Aircraft (Cape Town Convention) Regulations 2015, and current proposed reforms to the archaic bills of sale legislation.

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14 Equitable Charges I. Introduction The typical feature of a charge is that it is a proprietary interest in the charged asset such that the chargee can sell the asset and take an amount equal to, but no greater than the debtor’s indebtedness. Any surplus must be repaid. These are equitable charges. They are not legal interests. Millett LJ said in Re Cosslett (Contractors) Ltd: It is of the essence of charge that a particular asset or class of assets is appropriated to the satisfaction of a debt or other obligation, so that the chargee is entitled to look to the asset. The right creates a transmissible interest. A mere right to take possession and make use of the asset does not create such an interest.1

This chapter is divided into three main sections. The first section examines the distinction between fixed and floating charges and why it matters. The second section examines the plethora of theories on the nature of the floating charge. The third section examines the remedies available on default, including administrative receivership.

II.  Floating and Fixed Charges There are two varieties of charge. A charge may be fixed or it may be floating, and this also extends to mortgages. The transfer of (equitable) ownership in a floating mortgage does not have full effect until crystallisation of the mortgage. Importantly, it is said that only a company may create a floating charge. The basis for this is the bills of sale legislation.2 Section 5 of the Bills of Sale Act (1878) Amendment Act 1882 provides that a bill is not valid if the grantor was not the true owner of the assets set out in the schedule to the bill at the time of execution, albeit with some exceptions in section 6. At one level the protection offered is similar, both types of charge may be enforced on default by the debtor by selling assets or appointing a receiver. However, there are important differences. Perhaps surprisingly, the floating charge is nowhere defined in statute—at least in English law, although

1  Re Cosslett (Contractors) Ltd [1998] Ch 495 (CA) 508, approved by Lord Hoffmann in the House of Lords [2001] UKHL 58; [2002] 1 AC 336 (HL) 352. 2  However, see P Giddens, ‘Floating Mortgages by Individuals: Are They Conceptually Possible?’ (2011) 26 Journal of International Banking & Financial Law 125.

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it was introduced into Scots law by statute.3 Recourse is usually had to three cases. In Illingworth v Houldsworth,4 assets, including present and future book debts, were assigned by deed to a ‘trustee’ who could appoint a receiver or sell the assets but who would be unable to question the company’s use of those debts. It was decided that where the company can carry on its business in the ordinary way, the charge is floating. That decision was the appeal from Re Yorkshire Woolcombers Association Ltd.5 If a charge has the following characteristics, it is a floating charge: 1. If it is a charge on assets both present and future. 2. It is a charge on assets that would be expected to change in the normal course of business. 3. Such change of assets in the normal course of business is contemplated and allowed for. Although a floating charge is over future assets, there is nothing to prevent a fixed charge being taken over future goods or debts. If a company agrees a security over future or afteracquired property when the property is acquired, the security bites automatically without the chargor needing to do anything.6 In Evans v British Granite Quarries7 it was said that the floating charge does not specifically affect any particular assets until some event occurs to crystallise the security. Because the charge does not specifically attach to particular assets, if an asset subject to a floating charge is sold in the normal course of business, the buyer takes free of the charge. One important question arises. What is to happen if assets are dealt with other than in the normal course of business? The question is in fact unlikely to arise much; indeed the question of what the ordinary course of business might be is not itself free from difficulty.8 However, Fire Nymph Products Ltd v The Heating Centre Property Ltd9 decided that the floating charge crystallises—ie become fixed—on that eventuality. It is this ability, however, to turn the assets over in the course of business that explains the popularity of the floating charge. Much of the property of a company is in the form of stock-in-trade which continually changes; fixed charges over such assets would make it impossible to trade. At the same time there are considerable advantages to a fixed charge, including heightened priority in insolvency. The floating charge allows the goods’ owner to sell them to generate cash to pay the loan. The charge only confers a right to enforce itself against the property on a crystallisation event, which need not be default per se,10 unless otherwise provided in the debenture.

3  By the Companies (Floating Charges) (Scotland) Act 1961, since repealed by Companies (Floating Charges and Receivers) (Scotland) Act 1972, but the concept remains. See, eg Bankruptcy and Diligence etc (Scotland) Act 2007 asp. 4  Illingworth v Houldsworth [1904] AC 355 (HL). 5  Re Yorkshire Woolcombers Association Ltd [1903] 2 Ch 284 (CA). 6  Tailby v Official Receiver (1888) 13 App Cas 523; Holroyd v Marshall (1861) 10 HLC 699, 11 ER 999. 7  Evans v British Granite Quarries [1910] 2 KB 979 (CA). 8  Ashborder BV v Green Gas Power Ltd [2004] EWHC 1517, [2005] BCC 634. 9  Fire Nymph Products Ltd v The Heating Centre Property Ltd (1992) 7 ACSR 365; Tricontinental Corporation v FCT (1987) 73 ALR 433 makes it clear that the chargee can seek an injunction against such use. 10  Evans v Rival Granite Quarries Ltd [1910] 2 KB 979 (CA) 994 (Fletcher Moulton LJ).

Floating and Fixed Charges 347

Crystallisation over only part of the secured assets is not permitted in the absence of express provision in the debenture. Normally a floating charge crystallises when11 1. the company goes into liquidation 2. a receiver or administrative receiver is appointed, although if an administrator is appointed the company may continue trading as a going concern and so in the absence of an express term to that effect, the appointment of an administrator—other than by the chargee—does not crystallise the charge. 3. there is execution on the company’s assets 4. the company becomes unable to pay its debts under section 123 of the Insolvency Act 1986 5. a notice of conversion to a fixed charge is given to the chargor 6. the company ceases trading. A lender may have the right to give notice to the company that he or she is converting the floating into a fixed charge, or there may be clauses triggering automatic crystallisation on particular events without the need for the debenture holder’s intervention.12 There is a significant risk of overkill in the drafting of automatic crystallisation clauses. If the trigger is not one that leads to the cessation of the business of the chargor, it could lead to significant difficulties in that the chargor will be unable to make use of the charged assets except with the permission of the chargee. If, to avoid this problem, the chargee allows the business to carry on after the triggering event, he or she may be said to have waived crystallisation.13 The effect of crystallisation is that after crystallisation the assets acquired are subject to a fixed charge and any book debts are subject to an equitable assignment to the chargee.14 The chargor no longer has actual, although he or she may have apparent, authority to deal with the assets. It may therefore be that those with no notice of the crystallisation can still take free of the charge.15 An important question arises whether and how crystallisation affects priority between floating charges. We examined priority rules in chapter 11, part IV C, but it is worth making a few remarks here. If the floating charge becomes fixed one might conclude the crystallised charge takes priority. In Griffiths v Yorkshire Bank Plc,16 Morritt J therefore decided that if a second floating charge crystallises before the first the second takes priority. This tends to ignore the rule that priority is by order of creation and the statutory proviso that a floating charge is a charge that as created was floating.17 This statutory proviso implies that a floating charge once crystallised is still treated as floating for other purposes, including priority.

11  H Beale, M Bridge, L Gullifer and E Lomnicka (eds), The Law of Security and Title Based Financing, 2nd edn (Oxford, OUP, 2012) paras 6.78–6.86; L Gullifer (ed), Goode on Legal Problems of Credit and Security, 5th edn (London, Sweet and Maxwell, 2013) paras 4.31–4.61. 12  Re Brightlife Ltd [1987] Ch 200, 214–215 (Hoffmann J); Re Manurewa Transport Ltd [1971] NZLR 909, 917 (Speight J); Davey & Co v Williamson & Sons [1898] 2 QB 194; Re Horne and Hellard (1885) 29 Ch D 736. 13  Beale et al, The Law of Security (2012) (n 11) para 6.87; Campbell v Mount (1995) 16 ACSR 296. 14  NW Robbie & Co v Whitney Warehouse [1963] 1 WLR 1324; on equitable assignment see chapter four, part III. 15 Gullifer, Goode on Legal Problems of Credit and Security (2013) (n 11) para 4.56. 16  Griffiths v Yorkshire Bank Plc [1994] 1 WLR 1427; see generally E McKendrick (ed), Goode on Commercial Law, 4th edn (London, Penguin, 2010) 733–35. 17  Insolvency Act 1986 s 29(2).

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It is also contrary to the Canadian decision of Re Household Products Ltd and Federal Business Development Bank.18 It is possible to decrystallise the charge, although the courts have yet to decide whether that involves the creation of a new charge or not.19 This may well depend on the theoretical nature of the charge. If it is a different type of equitable interest to a fixed charge, it is more likely to count as a new charge. This is important as a new charge might be, for example, vulnerable to claw-back provisions under insolvency legislation, and be required to be registered separately.

A.  Determining whether a Charge is Fixed or Floating The main question then is to distinguish fixed and floating charges from each other. In distinguishing them it is first necessary to look to the construction of the charge to see what rights are created, but the courts will not necessarily accept the parties’ chosen label. In Re ASRS Establishment20 a debenture was executed and included a charge, which was described as being fixed. However, Park J held that it was in fact floating, saying: However, the fact that the courts will recognise whatever rights and obligations the parties choose to create in their agreement does not mean that the courts will automatically accept a label which the parties put on the legal relationship which their agreement creates.21

There are constant references in the case law to Street v Mountford22 where Lord Templeman made much the same comment in relation to the distinction between leases and licences and the fact that the courts would find a lease, if the characteristics of the agreement were of lease even if the landlord had in fact attempted to put a licence label on it. Much of the battle has been fought over the question of book debts, and there have been four phases to the litigation, where it was established that fixed charges over book debts were possible, then that control over proceeds was needed to fix the charge. The third phase lessened the degree of control needed and the fourth has tightened it again. Book debts represent the sums owed to a debtor but which have not yet been paid. There is no proper definition of a book debt, but they can be worth a considerable sum of money. The best definition or description appears in Independent Automatic Sales Ltd v Knowles & Foster23 where Buckley J described them as debts, which would in the ordinary course of business be entered in well-kept books relating to that business.24 Difficulties appear to have arisen because of differences of opinion as to whether the debt can be separated from its proceeds.

18  Re Household Products Ltd and Federal Business Development Bank (1981) 124 DLR (3d) 325; see also Re JD Brian Ltd [2011] IEHC 113, [2011] 3 IR 244. 19  L Gullifer and J Payne, ‘The Characterisation of Fixed and Floating Charges’ in J Getzler and J Payne (eds), Company Charges (Oxford, OUP, 2006) 51, 62; Beale et al, The Law of Security (2012) (n 11) para 6.89. 20  Re ASRS Establishment [2000] 1 BCLC 727. 21  ibid 736; Re Armagh Shoes Ltd [1984] BCLC 405; Re GE Tunbridge Ltd [1995] 1 BCLC 34. 22  Street v Mountford [1985] AC 809 (HL). 23  Independent Automatic Sales Ltd v Knowles & Foster [1962] 1 WLR 974. 24  ibid 983.

Floating and Fixed Charges 349

The position prior to Re New Bullas25 was that a fixed charge could be created over book debts as long as the debtor was subject to the following controls: 1. It was prohibited from disposing uncollected debts. 2. It was obliged to collect the debts and use the proceeds as directed. In Re Brightlife26 a charge was created over book debts. Hoffmann J said that a balance normally designated as cash at bank was not as a matter of commercial practice counted as a book debt, and so was not covered by the charge.27 More importantly, the charge was a floating charge as it related to a fluctuating asset and the company was allowed to collect its debts and pay the proceeds into the bank account where they would be free of the charge. This was inconsistent with characterisation as a fixed charge.28 This decision can be contrasted with Re CCG International Enterprises.29 There an insurance policy was charged to Hill Samuel & Co. All monies received from a payment under the policy were either to go to make good the loss incurred or to pay off the secured debts. Only with written consent was the company entitled to do anything else. Lindsay J held that because the money was not at the free use of the company, the charge was a fixed one.30 Similarly in the Irish decision of Re Keenan Bros,31 Keenan Bros executed two fixed charges over present and future book debts. The important difference highlighted in that case was the extent to which the assets could be used. In a fixed charge they could only be used to the extent permitted—in a floating they were usable in the normal course of business. In other words, a charge need not be completely fixed to be fixed, as made clear in Siebe Gorman v Barclays Bank,32 which has now been overruled. This overruling was on the facts, and it appears that there is nothing to prevent a fixed charge being taken over book debts in principle. To fix a charge on book debts, prohibition on collection is unnecessary; all that is needed is that the company is not free to collect and use the debts on its own account. Recent cases have been fought over a very particular set of facts. In Re New Bullas the creditor attempted to create a fixed charge on the book debts. The creditor could give instructions on how to deal with them. The proceeds were to be paid into a separate bank account; if the chargee did not give any instructions regarding the proceeds they were held on a floating charge. The Court of Appeal decided that this created a fixed charge over the uncollected debts and a floating charge over the proceeds. Worthington suggested that the two can be treated as distinct. Uncollected receivables (or debts) and their collected proceeds need not be inevitably treated as distinct, except where the charge over the receivables themselves is fixed.33 Re New Bullas was immediately criticised by Sir Roy Goode, however. He argued that the fallacy of the Court of Appeal was in thinking that the characterisation

25 

Re New Bullas [1994] 1 BCLC 485 (CA). Re Brightlife [1987] Ch 200. ibid 208–09. 28  ibid 209. 29  Re CCG International Enterprises [1993] BCLC 1428. 30  ibid 1434–35. 31  Re Keenan Bros [1986] BCLC 242 (ISC). 32  Siebe Gorman v Barclays Bank [1979] 2 Lloyds Rep 142; see also D Capper, ‘Spectrum Plus in the House of Lords: The Victory of Substance over Form in Personal Property Security Law?’ (2006) 6 Journal of Corporate Law Studies 447. 33  S Worthington, ‘Fixed Charges over Book Debts and other Receivables’ (1997) 113 LQR 563, 566. 26  27 

350  Equitable Charges

of the security over debts can be separated from the provisions to do with the proceeds of the debt. Because once collected the debts simply cease to exist and only have value in their ability to be collected it is by provisions establishing that the money is collected for the chargee’s account that he or she establishes it is a fixed charge.34 It is therefore one continuous security interest.35 This seems right and has in any case been confirmed by the following two cases. In Re Brumark36 a charge was created expressed to be fixed over book debts and their proceeds. The question was whether a charge, which left the debtor able to use the proceeds in the normal course of business, was fixed. The decision overturned New Bullas in New Zealand. Lord Millett said: If the company is free to collect the debts, the nature of the charge on the uncollected debts cannot differ according to whether the proceeds are subject to a floating charge or no charge at all … but it does not follow that the nature of the charge on the book debts may not differ according to whether the proceeds are subject to a fixed charge or a floating charge … the question is not whether the company is free to collect the … debts, but whether it is free to do so for its own benefit … any attempt to separate the ownership of the debts from … the proceeds (even if conceptually possible) makes no commercial sense.37

The important point is that it is impossible to have a fixed charge over book debts and a floating over proceeds. The question of what counts as proceeds is startlingly fraught, however.38 For our purposes the critical point in deciding whether the charge is fixed is whether the chargee retains control over the assets, although as Berg points out the Privy Council never went into detail as to what would count as control.39 However, it was always clear that where there was a fluctuating set of assets it would be a floating charge.40 Previous cases had not made that completely clear. Prior to Brumark for example the decision in Re Atlantic Computers Plc41 had come in for significant criticism, yet the Privy Council did not deal with it, despite the relevance to the issues at hand. The company had acquired computer equipment on hire purchase for subletting to end users and charged the benefit of the subleases to some of the hire purchase funders as security for its debts. The company got into financial difficulties and an administrator was appointed. The question arose of the characterisation of the security taken by the assignees. Nicholls LJ held that the important point was that the security was not ambulatory;42 it did not shift from contract to contract. Rather it was confined to rights under specific, identified and existing contracts, despite the fact that the company was able to use the proceeds of those charged debts in the normal course of their business. This is contrary to what the Privy Council decided in Brumark. Berg initially took the view that the Privy Council’s failure to consider this case was deliberate, but suggests it is now necessary to construct a framework that accommodates both cases.43 34 

R Goode, ‘Charges over Book Debts: A Missed Opportunity’ (1994) 110 LQR 592, 601–02. ibid 603–04. 36  Commissioner of Inland Revenue v Agnew (Re Brumark) [2001] UKPC 28, [2001] 2 AC 710 (PC). 37  ibid 729. 38 Gullifer, Goode on Legal Problems of Credit and Security (2013) (n 11) para 1.65. 39  A Berg, ‘The Cuckoo in the Nest of Corporate Insolvency Law: Some Aspects of the Spectrum Case’ (2006) JBL 22, 25. 40  Re Cosslett (Contractors) Ltd [2001] UKHL 58, [2002] 1 AC 336, 352 (Lord Hoffmann). 41  Re Atlantic Computers Plc [1992] Ch 505. 42  ibid 534. 43  A Berg, ‘Brumark Investments and the “Innominate” Charge’ (2001) JBL 532, 539; G McCormack, Secured Credit in English and American Law (Cambridge, CUP, 2004) 211–221. 35 

Floating and Fixed Charges 351

Initially there was some doubt as to the English position. Precedentially the Court of Appeal decision was the law, but there was little doubt that the House of Lords would confirm the decision of the Privy Council. National Westminster Bank v Spectrum Plus44 has now confirmed Re Brumark as English law. Further it seems clear that Lord Scott thought the decision in Re Atlantic Computers wrong, although the case was not explicitly mentioned.45 This would appear to be the preferable position. There are two aspects to the House of Lords’ decision in this case. Not only was there significant discussion of the substance and the distinction between the two types of equitable charge, but Lord Nicholls in particular discusses the concept of prospective overruling, which we cannot treat in detail here.46 The overruling of Siebe Gorman, although only on its facts and fully traditional in its retrospective effect, was well overdue. Alan Berg had comprehensively critiqued the decision a decade earlier,47 arguing it required the implausible conclusion that Siebe Gorman intended not to have free use of its book debts, which represented its main source cash flow. Sargant J said in Re Benjamin Cope Ltd that the floating charge was developed so as not to paralyse the business of the chargor when all or substantially all the business was charged.48 This was precisely the effect of Slade J’s decision in Siebe Gorman. The facts of Spectrum Plus (and essentially also of Siebe Gorman) were that paragraph 5 of the charging instrument required Spectrum Plus to pay the proceeds of the collected debts into its bank account at NatWest. Provided the overdraft was not exceeded Spectrum could draw on that account at will. The charge was, however, over present and future book debts, and Spectrum could not sell or dispose of, or charge uncollected debts. That did not prevent the characterisation of the charge in Spectrum Plus as being a floating charge at all times. Lord Scott said: In my opinion, the essential characteristic of a floating charge, the characteristic that distinguishes it from a fixed charge, is that the asset subject to the charge is not finally appropriated as a security for the payment of the debt until the occurrence of some future event. In the meantime the chargor is left free to use the charged asset and to remove it from the security.49

The ability to remove an asset from the scope of the charge will now render it automatically floating. It may be an overstatement to say that any control of the chargor is inconsistent with the charge’s being fixed, but the test is clearly more restrictive than the previous position.50 The important point therefore is that it is a question of construction and characterisation whether a charge is fixed or floating in English law. This means, according to Berg, that we can look at post-contractual conduct in the same way that we do in deciding between a lease and a licence.51 This becomes important if the proceeds of book debts are to be paid into a blocked account; the question becomes whether the blocked account is ‘really’

44 

National Westminster Bank Plc v Spectrum Plus Ltd [2005] UKHL 41, [2005] 2 AC 680. Berg, ‘The Cuckoo in the Nest of Corporate Insolvency Law’ (2006) (n 39) 30–32. But on which see TT Arvind and D Sheehan, ‘Prospective Overruling and the Fixed/Floating Charge Debate’ (2006) 122 LQR 20. 47  A Berg, ‘Charges over Book Debts: A Reply’ (1995) JBL 433, 445. 48  Re Benjamin Cope Ltd [1914] 1 Ch 800, 805–06. 49  National Westminster Bank Plc v Spectrum Plus Ltd [2005] UKHL 41, [2005] 2 AC 680, 722, described as a welcome reassertion of orthodoxy by Nolan: R Nolan, ‘A Spectrum of Opinion’ (2005) CLJ 554; C Hare, ‘Charges over Book Debts: The End of an Era’ (2005) LMCLQ 440. 50 McKendrick, Goode on Commercial Law (2010) (n 16) 723–24. 51  Berg, ‘The Cuckoo in the Nest of Corporate Insolvency Law’ (2006) (n 39) 46. 45  46 

352  Equitable Charges

blocked, or if it is a pretence designed to get fixed charge priority whilst allowing it in point of fact to be operated unrestricted. If that is the case the charge should properly be seen as floating. Lord Millett in Re Brumark asked explicitly whether the account was actually operated as a blocked account.52 This provides an important distinction from Re Keenan where evidence of post-contractual conduct was barred. Gullifer and Payne have criticised the concentration on post-contractual conduct as inconsistent with normal principles of contractual construction, and provide examples of cases where an account may be operated reasonably liberally but where the charge is either only temporarily waiving his or her rights or still exercising his or her rights of control.53 Just like in Re Brumark, the House of Lords provide little in the way of elaboration about what counts as control, although Lord Hope set out four methods of creating a fixed charge: 1. Prevention of all dealings with the book debts including collection (but this would sterilise them and render them effectively worthless to the debtor). 2. Prevention of all dealings except collection and requiring proceeds to be paid to the chargee; this would effectively reduce the book debts to a means of paying off the loan. 3. Requiring the proceeds to be paid into a blocked account with the creditor 4. Requiring proceeds to be paid into an account with a third party over which a fixed charge is taken.54 The critical question then becomes whether the chargee must give consent to every disposal. In particular this is required where the proceeds are paid into a blocked account with the chargee. If the chargor is able to exhaust the ‘blocked account’ at his or her own will the charge will be floating.55 It will also be floating where consent by the chargee seems to have been given in advance in the instrument itself. Given the possibility raised above of a mere temporary waiver of the chargee’s rights, the important factor is whether the consent of the chargee is independent and whether there are no prior restraints on that consent, allowing in effect for the waiver to be revoked at any time. If this is impossible, it is likely to be a variation in the agreement, allowing the chargor use of the assets and creating a floating charge.56 The House of Lords’ decision was applied in Re Beam Tube Products Ltd.57 There a loan of £600,000 had been made to the company. The debenture provided for a floating charge and for monies from book debts to be paid into a collection account; the monies in the account would be at the free disposal of the company until and unless permission to deal with the funds was withdrawn. The collection account was never set up. In fact money was paid into a blocked account, set up some months afterwards although it was made available to the company on request. Shortly before administrative receivers were appointed, the money was transferred to a suspense account. The charge was characterised by Blackburne

52 

Re Brumark [2001] UKPC 28, [2001] 2 AC 710, 730. Gullifer and Payne, ‘The Characterisation of Fixed and Floating Charges’ (2006) (n 19)71–72; J McGhee (ed), Snell’s Equity, 33rd edn (London, Sweet and Maxwell 2015) para 40.016. 54  Spectrum Plus Ltd [2005] UKHL 41, [2005] 2 AC 680, 703; see also S Worthington, ‘An Unsatisfactory Area of the Law—Fixed and Floating Charges Yet Again’ (2004) 1 International Corporate Rescue 175. 55  Gray v G-P-T Group [2010] EWHC 1772 (Ch) [36] (Vos J); it seems it will also be a case where there is insufficient control to trigger the disapplication provisions of the Financial Collateral Directive. 56  Beale et al, The Law of Security (2007) (n 11) paras 6.109-6.112. 57  Re Beam Tube Products Ltd [2006] EWHC 486 (Ch); [2007] 2 BCLC 732. 53 

Floating and Fixed Charges 353

J as being a floating charge because the fact the monies were originally envisaged as being at the free use of the company was inconsistent with the degree of control required for a fixed charge.58 The question at hand was one of priority. Did the preferential creditors have priority over the chargee? As it was a floating charge, the answer was yes. The fact of the setting up of a blocked account some months after the execution of the charge into which the proceeds of the book debts were in point of fact paid could not affect the characterisation of the charge as floating. The fact that the originally envisaged collection procedures were not used was irrelevant, as the respondent lenders could be in no better position than if the terms had been observed to the letter.59 Blocked accounts, as we have seen, were one of the problem areas which were identified as remaining post-Spectrum.60 It may be, however, that for a charge to be characterised as fixed there needs to be a total restriction, actually enforced other than truly discretionary waivers, on disposal of the charged asset by the chargor.61 Nonetheless, it appears that it is possible under the Bills of Sale Acts for assets to be substituted within the fixed security in order to maintain the security,62 which suggests some power of substitution is consistent with a fixed charge. It may be, however, that a general power to substitute is inconsistent with the level of control required for a fixed charge. The precise scope of security rights in proceeds and products remains unclear as a matter of domestic English law, although the United Nations Commission on International Trade Law (UNCITRAL) recommends that security rights extend to all identifiable proceeds of the asset over which the security has been taken.63 It is reasonably clear that the proceeds of the debt are seen as part of the charged assets; however, there are other types of income generating assets. The question arises to what extent the charge extends to the income. This may depend on a number of factors. In particular how closely connected is the income to the asset. There are a considerable number of steps to be gone through before a piece of equipment used to manufacture widgets produces income. Control over the widgets is not required for control over the machine. The second is how close the generation of the income is to being the sole value of the asset, and third whether the asset is destroyed by the generation of income.64 The following case demonstrates how fraught the question has become. In Arthur D Little Ltd v Ableco Finance LLC,65 the company (Arthur D Little) owned shares over which it had granted a charge. The company was free to use the dividends in the normal course of business, but was unable to deal with the shares themselves without the chargee’s consent. The judge said this did not render the charge floating.66 The right to dividends was merely ancillary, and the proper analogy was with income from a mortgaged property. That land is mortgaged does not prevent the mortgagor enjoying rental income. The logic of this 58 

ibid 742–43. ibid 743, 745; Russell-Cooke Trust Co Ltd v Elliott [2007] EWHC 1443 (Ch); [2007] 2 BCLC 637 accepts the possibility of a floating charge with restrictions on alienation at 647–48 (Mann J). 60  See also S Atherton and R Mokal, ‘Charges over Chattels: Issues in the Fixed/Floating Jurisprudence’ (2005) 26 Company Lawyer 10, 16–18. 61  Beale et al, The Law of Security (2012) (n 11) para 6.107; Gullifer, Goode on Legal Problems of Credit and Security (2013) (n 11) para 4.23. 62  Bills of Sale Act (1878) Amendment Act 1882 s 6(2); Coates v Moore [1903] 2 KB 140. 63  UNCITRAL ‘Legislative Guide on Secured Transactions’ (2009) recommendation 2. 64  Beale et al, The Law of Security (2012) (n 11) para 6.130. 65  Arthur D Little Ltd v Ableco Finance LLC [2002] EWHC 701 (Ch), [2003] Ch 217. 66  ibid 237. 59 

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was that the shares were subject to a fixed charge, and the dividends could be subject to a floating charge.67 The major value of shares, unlike money derived from book debts, is not contained in the rights to redemption money and dividends.68 Despite the uncertainty as to how closely connected proceeds need to be to the charged assets, proposed reforms along the lines of commonwealth personal property security legislation would allow for clearer sets of rules as to security interests in proceeds to be enacted.69

B.  The Importance of the Distinction There are a number of important distinctions between the two types of charge, some of which render one more attractive and others not. It remains therefore important to know what type of charge we have in any particular circumstance. Nonetheless as we see later, there is a significant and important argument that the floating charge no longer serves any purpose. At worst the distinction is fundamentally unstable.70 1. Fixed charges rank above floating in terms of their priority in insolvency, although a floating chargee can use a negative pledge to effectively raise his or herself up the priority ladder. Floating chargees also rank below preferential creditors, even if they have crystallised.71 A floating charge is also subordinated to the costs of liquidation and administration, although a fixed charge is not. 2. We saw that debts may be set off—contractually or otherwise—against each other in chapter 11 part V B. It is clear that debts secured by a floating charge are vulnerable to set-off, but those subject to a fixed charge are not.72 3. Floating chargees may also appoint administrative receivers, if the charge was created before 15 September 2003.73 No fixed chargee may do so, although the charge is able to appoint a receiver and manager of the property subject to the charge, and these ‘LPA’ receivers were covered in chapter 13, part III C; floating chargees were also able to block the making of an administration order, which they are now no longer able to do. The flipside of this is, however, that a floating charge is now entitled to seek the appointment of an administrator. A set proportion of the funds realised from assets subject to the floating charge must be set aside for unsecured creditors.74 The reason for this is that it was found that a floating charge almost always removed all the remaining assets from the company’s pool of assets available for distribution. This is not the case for fixed charges. 4. In insolvency procedures there are a number of claw-back provisions which allow the insolvency officer to recover money paid out immediately before the insolvency or to 67 

ibid 237–38. McKendrick, Goode on Commercial Law (2010) (n 16) 727–28; Beale et al, The Law of Security (2012) (n 11) para 6.136. 69  UNCITRAL, ‘Legislative Guide on Secured Transactions’ (2007) 83–87; on Commonwealth legislation see, eg Personal Property Securities Act 1999 (NZ) ss 45–47. 70  Gullifer and Payne, ‘The Characterisation of Fixed and Floating Charges’ (2006) (n 19) 87. 71  Insolvency Act 1986 s 251. 72  Biggerstaff v Rowan’s Wharf Ltd [1896] Ch 366. 73  Insolvency Act 1986 s 72A. 74  ibid s 176A; for the proportion that needs to be set aside see Insolvency Act 1986 (Prescribed Part) Order 2003; this applies in both an administrative receivership and an administration. 68  See

The Nature of the Floating Charge 355

avoid certain transactions. Section 245 of the Insolvency Act 1986 is intended to prevent an unsecured creditor of the company obtaining a floating charge to secure existing debt. The liquidator may avoid floating charges created within a certain period of liquidation—12 months for ‘unconnected persons’ and two years for ‘connected’. Section 249 defines a connected person as: (a) a director or shadow director (b) an associate of the company, or a directors or shadow director of an associate company. Associates are defined in section 435. They include spouses, relatives, business partners, their spouses and relatives, and companies under the control of those persons. A liquidator cannot avoid a floating charge given to a person unconnected to the company unless the company was unable to pay its debts at the time the charge was executed, or became so as a result of the execution of the charge. However, the financial position of the company is irrelevant to the avoidance of charges to connected persons. Only consideration paid at the time of execution or afterwards can be recovered by the chargee under an avoided charge. A fixed charge is unaffected by section 245 although it may fall foul of other insolvency claw-backs, such as preferences. 5. Section 860 of the Companies Act 2006 required that all floating charges created before 6 April 2013 be registered. Just like mortgages, if they were not registered they were void as against a liquidator, or an administrator. They had to be registered within 21 days of execution.75 By contrast, not all fixed charges created before then needed to be registered. Under section 859A Companies Act 2006 this will no longer be an issue as all charges created after 6 April 2013 need to be registered in order to be valid against liquidators on insolvency, unless they fall into a defined exception. We have seen that security financial collateral arrangements are exempt and while some floating charges may therefore be exempt the majority of such charges are likely to be fixed.76 6. On administration the administrator needs court approval to dispose of assets subject to a fixed charge, but so long as the chargee’s priority is transferred to proceeds, may sell or dispose of assets subject to a floating charge.77 7. In liquidation or another insolvency fixed chargees are paid in preference to the expenses of the liquidation, but not floating chargees.78

III.  The Nature of the Floating Charge The theoretical nature of the floating charge has been a subject of some contention. There are at least five different views of its proprietary status. The first is easily dismissed. That is the view that floating charges are not proprietary rights at all,79 but at best mortgages of

75 

Companies Act 2006 s 870. on Legal Problems of Credit and Security (2013) (n 11) para 4.10. 77  LS Sealy and RJ Hooley: Text Cases and Materials (4th edn, OUP, Oxford, 2008) 1135–1136; Insolvency Act 1986 sch B1 paras 70–71. 78  Companies Act 2006 s 1282. 79  Tricontinental Corporation v FCT (1987) 73 ALR 433. 76 Gullifer, Goode

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future assets. They are current property rights and this is the more widely accepted view. There are cases that clearly state the chargee has an interest in land covered by the charge,80 and allows the chargee in some cases to retain property subject to the charge and apply it to reduce the debt even if the charge has not crystallised. In Re Margart Pty Ltd81 the company went into liquidation and after that point money from the sale of assets subject to the floating charge was paid into the company’s bank account with the chargee bank. The liquidator sought to recover that money on the basis of its being a disposition after the commencement of winding up and void. The New South Wales Supreme Court rejected this on the basis that the floating chargee had a proprietary interest even before crystallisation and that therefore there was no disposition of the company’s money. This leaves four main views to canvass: 1. 2. 3. 4.

The licence theory. The defeasible charge theory. The overreaching theory.82 The power to acquire a persistent right theory.

The answer is not merely of esoteric theoretical interest. Nonetheless, the answer is of less importance than might be thought. It matters only in those circumstances where the priority question is not answered by the Insolvency Act 1986; in practice therefore it is relevant to whether a chargee should have priority or immunity against garnishment, execution or set-off, or as to whether de-crystallisation involves the creation of a new charge. On the first three bases discussed, the floating charge is not fundamentally dissimilar to the fixed charge and no new charge is created, requiring fresh registration. On the fourth view, however, a floating charge is very different and fresh registration would presumably be required.

A.  The Licence Theory The licence theory suggests that the floating charge is just a fixed charge coupled with a licence to deal with the assets. Pennington describes it as follows,83 that every item became subject to the charge on acquisition and ceased to be so on disposal in accordance with the licence to deal with the assets in the usual course granted by the debenture holder. In Cretanor Maritime Co Ltd v Irish Marine Management Ltd84 Buckley LJ described it as an immediate charge with a power in the chargor to deal with the assets. Ultimately Pennington rejects the theory,85 holding that the debenture holder has a proprietary right in the assets held from time to time, and the chargor a right, not merely a licence to deal with them.

80 

Driver v Broad [1893] 1 QB 744; Wallace v Evershed [1899] 1 Ch 891; Re Dawson [1915] 1 Ch 626. Re Margart Pty Ltd [1985] BCLC 314; Foamcrete Ltd v Thrust Engineering Ltd [2000] EWCA Civ 351, [2000] All ER (D) 2439. 82  These three are discussed at Beale et al, The Law of Security (2012) (n 11) paras 6.74–6.78. 83  R Pennington, ‘The Genesis of the Floating Charge’ (1960) 23 MLR 630, 645. 84  Cretanor Maritime Co Ltd v Irish Marine Management Ltd [1978] 1 WLR 966 (CA) 978. 85  Pennington, ‘The Genesis of the Floating Charge’ (1960) (n 83) 646; Evans v Rival Granite Quarries Ltd [1910] 2 KB 979 (CA) 997 (Fletcher Moulton LJ). 81 

The Nature of the Floating Charge 357

B.  The Defeasible Charge Theory Worthington is an advocate of this view. Prior to crystallisation, the floating chargee has exactly the same quality of proprietary interest as a fixed chargee, but one more precarious because it is liable to disappear or defease if the chargor engages in permitted dealings with the assets.86 Worthington acknowledges that none of the theories has unequivocal support in the case law; she supports the theory primarily on policy grounds and reasons of principle therefore. The theory is, she argues, derived from parallel analyses in other areas of personal property law and is aimed directly at the similarities and differences between the two charges. She focuses on the fact that in both fixed and floating charge cases there is an element of potentiality in that the security cannot be enforced until there has been default; in both types of charge new assets may be added. They may therefore cover future assets. The defeasible charge theory merely postulates the simplest explanation for the difference.87 Worthington has recently defended this view against the competing view that overreaching explains the floating charge. She argues that there is in fact no difference between the two views.88 This is implausible. On overreaching the interest does not move or is not created anew, whereas Worthington is forced to posit a new charge arising when the old defeases. This ought to have an impact in deciding the priority position.

C. Overreaching Nolan does not accept that defeasance is needed. He argues that the holder of a floating charge has an equitable interest in the assets from the moment of the charge’s execution, but that it may be overreached.89 The chargee’s right is not therefore inchoate and does not in any meaningful way float. He reaches this conclusion via a comparison with the trust and the ability of the trustee to deal with assets without being automatically in breach of trust. The view he takes is that the trustee and chargee both have property in a fund, although he does not mean by that the chargee does not have property in any particular asset. By contrast, Goode consistently argued, in a position maintained by both McKendrick and Gullifer in their editions of Goode on Commercial Law and Goode on Legal Problems of Credit and Security respectively, that the floating chargee had property in a circulating fund of assets,90 and that the fund has a separate existence in English law apart from the assets it contains. It is impossible on this view to see a floating charge as overreachable or defeasible. Seeing it in this way would, according to Goode on Legal Problems of Credit and Security, equate the charge to a fixed charge with a licence to deal which the courts have rejected and she argues that there would be no need for a notion of crystallisation.91 This last suggestion is certainly false. Crystallisation is the removal of actual authority to deal with the assets 86 

S Worthington, Proprietary Interests in Commercial Transactions (Oxford, Clarendon Press, 1997) 81. ibid 85. 88  S Worthington, ‘Floating Charges: The Use and Abuse of Doctrinal Analysis’ in J Getzler and J Payne (eds), Company Charges (Oxford, OUP, 2006) 25, 39. 89  R Nolan, ‘Property in a Fund’ (2004) 120 LQR 108. 90 McKendrick, Goode on Commercial Law (2010) (n 16) 724; Gullifer, Goode on Legal Problems of Credit and Security (2013) (n 11) paras 4.03–4.04. 91 Gullifer, Goode on Legal Problems of Credit and Security (2013) (n 11) para 4.06. 87 

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(although apparent authority may yet remain). Nolan argues correctly that there can only be property in specific assets,92 but that where the party has property in a fund those rights are inherently limited by the owner’s superior rights to deal with the assets. Those superior rights need not be unlimited. They are bounded in the context of trustees by the limitations of the trust instrument and in the case of the floating charge by the limitation to ‘normal course of business’. Overreaching, which we examined in chapter three, part III, takes place in the trust context whenever a purchaser of property takes it free from any interests or powers in the hands of a third party, which instead attach to the proceeds of sale. The trust beneficiaries’ interest is, crudely speaking, moved from one asset to another. Generally, trustees overreach an interest when they have the right as against their beneficiaries to make the disposition. What is vital is that the trustees have power to do so as far as the purchaser is concerned. A trust deed may for instance provide that a purchaser is not to be affected by any breach of trust. Overreaching will still occur, despite the fact that the beneficiaries still have the right to sue the trustee for breach of trust. The same basic principle applies here. If the company sells an asset subject to the charge the purchaser acquires title free of the charge. The purchaser simply derives title in the usual way, but if there is no immunity or no authority in the company to deal with the assets in that way the third party will be bound as if it were a fixed charge.93 By contrast, where the transaction is authorised, the chargor overreaches the chargee’s interest, which is transferred to any substitute asset. Nolan argues that this explains a number of the different features of the floating charge, including the right to set off debts against those secured under a floating charge. The company is entitled and authorised to deal with its assets in the normal way and carry on its business in the normal way which includes making contractual set-off arrangements.94 One problem with this view and the defeasible charge theory might be that the floating charge is said not to attach to particular assets until it crystallises. This, as we have seen, was confirmed by National Westminster Bank v Spectrum Plus. However, Nolan sees this case as orthodox. He argued in 2004 that everything depended on what we mean by attachment. The charge attaches to any assets that are within its ambit as soon as they are acquired in the sense that the chargee is able to exclude third parties from the assets; we saw that the charge crystallises into a fixed charge if the assets are misapplied. To do this they must attach sufficiently for it to be identified over which assets they crystallise. However, they do not attach in the sense of being immediately appropriated to the debt so that the asset may be sold and the debt discharged until it crystallises.95 This seems to garner support from the cases mentioned above that show that the floating chargee has some sort of interest in the assets subject to the charge. Nolan criticises the defeasible charge theory as unnecessary and incomplete. Defeasance means that the interest comes to an end. It cannot therefore explain how new assets are attached to the charge or become subject to it,96 nor does it explain the fact the charge does 92  Nolan, ‘Property in a Fund’ (2004) (n 89); see also D Sheehan, ‘Property in a Fund, Tracing and Unjust Enrichment’ (2010) 4 Journal of Equity 225. The argument has significant impact on the conceptual basis for proprietary claims contingent on tracing. See chapter nine, part III A. 93  Nolan, ‘Property in a Fund’ (2004) (n 89) 126. 94  ibid 126–27. 95  ibid 129. 96  ibid 129–30; see also M Bridge, ‘The English Law of Real Security’ (2002) 10 European Review of Private Law 483, 491–92.

The Nature of the Floating Charge 359

not have full effect on the charged assets at all times. Nolan’s theory explains both aspects. It is therefore preferable to Worthington’s. Nonetheless, while both theories are described by Gullifer and Payne as having theoretical appeal, they still suggest that they are both inconsistent with the case law that the chargee has no proprietary interest in specific assets.97 Of course, much depends on what the courts mean by the language that they use. Nolan’s analysis demonstrates that it is possible to see the courts’ language as consistent with the view he puts forward. It is also consistent with analyses elsewhere in the law and has the merit that it successfully explains a concept—the fund—that has caused confusion elsewhere. The case law that appears inconsistent with Nolan’s views is in fact not inconsistent with a floating charge being a present security right, but only with its enabling immediate recourse to the assets.98

D.  Power to Acquire a Persistent Right McFarlane, as we saw in chapter one, part IV, divides rights into property, personal and persistent rights. Property rights are rights that relate to a thing and impose a prima facie duty on the rest of the world.99 Personal rights are rights that a particular person or persons act in a given way. He argues that equitable proprietary rights are part way between property and personal rights and do not behave in the same way as either category. He argues that these cases are fundamentally different. They are not rights against people. They are not rights directly against assets or property. Rather they are rights that others use their rights in a particular way. They arise where A is under a duty to B and that duty relates to a specific right held by A.100 The most important example of such rights are those of a trust beneficiary. His or her rights, for example, are that the trustee use his or her legal ownership rights in a particular way. The trustee does not have a right against the actual physical objects to which the trust relates. Second, and as a direct consequence if a third party steals the asset the trust beneficiary has no cause of action against the third party.101 The fixed charge provides such a right against a right. It provides a right to the chargee to compel the chargor to use his or her rights to satisfy a debt.102 The floating charge provides no such ability until crystallisation. On crystallisation the charge becomes fixed, and until then the chargee has only a power to acquire a persistent right. McFarlane argues that this is based on the House of Lords’ analysis in NatWest v Spectrum Plus. He argues that that case can be analysed as follows. Where there is a floating charge, the bank can point to specific rights to which the charge relates, but because there is as yet no duty to hold the right purely as security for the debt on the part of the borrower no persistent right arises.103 The power to acquire a persistent right is, however, suspect. It is conceptually, according to McFarlane

97  Gullifer and Payne, ‘The Characterisation of Fixed and Floating Charges’ (2006) (n 19) 58–59; these include Evans v Rival Granite Quarries Ltd [1910] 2 KB 979 (CA) 999 (Buckley LJ). 98  Worthington, ‘Floating Charges’ (2006) (n 88) 43. 99  B McFarlane, The Structure of Property Law (Oxford, Hart, 2008) 22. 100  ibid 23–25. 101  ibid 26–30; MCC v Lehman Bros [1998] 4 All ER 675 (CA). 102 McFarlane, The Structure of Property Law (2008) (n 99) 595. 103  ibid 600–01.

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and Stevens, identical to the case of a party with the equitable power, examined in chapter seven, part IV to rescind a transaction and vest title in the traceable substitute of the asset transferred.104 It is a purely factual power to inform the chargor of his or her duty to hold the property either on trust or as security. It is therefore not a vested property right. As we saw in chapter seven, part IV C the best way to understand the power to rescind is that it is a vested proprietary right, albeit one very much more vulnerable than equitable rights under a trust and, as we saw in chapter nine, part III A, Penner has critiqued this concept of the factual power as incoherent.105 Further evidence that McFarlane’s argument is suspect can be seen in the fact that it is possible to analyse the House of Lords’ decision consistently with there being an immediate proprietary interest in the assets subject to the charge. McFarlane does, however, get some, albeit oblique, support from Lyford v Commonwealth Bank of Australia106 where Nicholson J said that although a floating charge was a present security, it gave no immediate equitable proprietary rights to the chargee.107 However, this was doubted in obiter dicta in Wily v St George Partnership Banking Ltd, and also in Re Margart Pty Ltd.108 McFarlane distinguishes his power to acquire a persistent right from overreaching, which he characterises as being based on ‘A having a power to give C a right free from a preexisting right of B’. This is usually a property or persistent right.109 McFarlane’s explanation of overreaching is in the context of security interests, but it is reversed in the sense that it relates to the chargee’s ability to sell the asset to a third party free of the chargor’s interest rather than the chargor’s ability to sell free of the chargee’s interest.110 Yet in principle, as Nolan argues, the device seems able to cover both scenarios. If it does so, Occam’s razor might suggest applying it to both. The important distinction with the rescissory power to vest title, and the power in tracing claims, is that that power is remedial. The ability of the floating chargor to transfer (crudely) the chargee’s interest between assets is not remedial at all. The chargee only has need for a remedy where the dealings with the assets subject to the charge are unauthorised and overreaching cannot take place.

IV.  Remedies of the Chargee on Default The remedies of a chargee are not as extensive as those of a mortgagee. As the equitable chargee does not have the legal title transferred to him or her, the remedies of foreclosure and possession are not available. A fixed chargee may sell the asset and appropriate the proceeds of sale to the payment of the outstanding debt, and can appoint a receiver over the particular asset charged to sell or use the asset to make good the debt.111 The chargee, just like a mortgagee, must take reasonable care to obtain the best price for the asset, but need not wait until the market improves if prices are at the time of default depressed. 104 

ibid 308–14; B McFarlane and R Stevens, ‘The Nature of Equitable Property’ (2010) 4 Journal of Equity 1, 26. J Penner, ‘Book Review’ (2009) RLR 250, 256–57. 106  Lyford v Commonwealth Bank of Australia (1995) 130 ALR 267. 107  ibid 273. 108  Wily v St George Partnership Banking Ltd (1999) 161 ALR 1; Re Margart Pty Ltd [1985] BCLC 314. 109 McFarlane, The Structure of Property Law (2008) (n 99) 394. 110  The question of receivers’ rights and ability to sell the business was discussed in those terms in Re Real Meat Co [1996] BCC 254. 111  Sealy and Hooley, Commercial Law (2008) (n 77) 1131. 105 

Remedies of the Chargee on Default 361

Floating chargees have a number of other powers. The two most important of these become important when the company becomes insolvent, which usually means it is unable to pay its debts as they fall due.112 There are a number of different insolvency procedures in English law, ranging from company voluntary arrangements to wholesale liquidation and dissolution of the company. The person in charge of all these procedures needs to be a qualified insolvency practitioner. Some are intended to end the company’s existence, whereas others have the aim of rescuing the company and putting it back on its feet as a going concern. The details of insolvency law are beyond the scope of this book, but something needs to be said about administrative receivership and administration which can both be triggered by a floating chargee.

A.  Administrative Receivership113 Where the charge was executed prior to September 2003, the floating chargee is able to appoint an administrative receiver, as defined in section 29 of the Insolvency Act 1986. An administrative receiver is a receiver who is appointed to take control over all or substantially all the assets of the company, or who would have done so were it not for the appointment of another receiver of different property of the company. It does not therefore matter that the company’s property at the time the floating charge was executed was entirely, or almost entirely, covered by a fixed charge.114 This means that a floating chargee whose charge does not cover the whole or substantially the whole of the company’s assets is unable to appoint an administrative receiver or an administrator, although the chargee retains the right to appoint a receiver. Where by contrast the floating charge was executed after 15 September 2003, the chargee is unable to appoint an administrative receiver, but may, if the charge would have been able to appoint such a receiver pre-2003, appoint an administrator; we return to this in the next section. An administrative receiver can in general only be appointed by a floating chargee although there is some evidence that receivers appointed by the court can be treated as administrative receivers.115 The administrative receiver has control of the assets for the purpose of paying off one particular creditor (the floating chargee), and his or her management powers are ancillary to that aim. The administrative receiver has only limited duties towards the company and the other creditors, in particular a duty of good faith and to take care to obtain the best price for the assets sold. The administrative receiver has no wider duty of care to the company or to creditors with charges ranking after the one under which he or her was appointed,116 or, although this is less certain, to guarantors of the obligation secured by the charge.117 In the same way as other receivers, the administrative receiver is not obliged to carry on the business, but if he or she does so it must be done with due diligence. As a receiver the administrative receiver is subject to the equitable duty of care laid down in 112 

On the meaning of ‘inability to pay debts’, see Insolvency Act 1986 s 123. S Mayson, D French and C Ryan, Company Law, 33rd edn (Oxford, OUP, 2016) 668–671; IF Fletcher, The Law of Insolvency, 4th edn (London, Sweet and Maxwell, 2009) ch 14. 114  Re Croftbell [1990] BCLC 844; these are sometimes called lightweight floating charges. 115 Fletcher, The Law of Insolvency (2009) (n 113) para 14.026. 116  Downsview Nominees v First City Corporation [1993] AC 295 (PC). 117  But see Standard Chartered Bank Ltd v Walker [1982] 1 WLR 1410 (CA) 1415–16 (Lord Denning). 113 

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Medforth v Blake118 and clarification of the extent of this duty may take some time. The administrative receiver is, by section 44 of the Insolvency Act 1986, an agent of the company, which shields the floating chargee from liability for his or her actions. However, there is no question that the company can sue the receiver for breach of his or her limited duties.119 It is an odd type of agency, which provides only the beginning of the analysis of any duties that the receiver may have to the company. The receiver is effectively under the control of neither principal—the company and the chargee.120 The only exception from this immunity on the chargee’s part is where the chargee intermeddles in the receivership, in which case he or she becomes liable for the results of that intermeddling. In Standard Chartered Bank Ltd v Walker121 the company had borrowed money from the bank on the strength of the security of a floating charge, and personal guarantees from the directors. The bank ultimately appointed a receiver and instructed him to hold the sale as quickly as possible. It was alleged that because of this the sale was held at the wrong time of the year and was made at an under-value. The Court of Appeal held that the bank might indeed be liable for the conduct of the receivership, although that case was only in interlocutory proceedings and concerned an appeal against a refusal to allow the guarantors to take part in the claim. The administrative receiver must take note of and pay the preferential debts ranking in priority to the floating charge.122 If the administrative receiver wishes to sell or dispose of property subject to another charge ranking ahead of the one under which he or she was appointed, the administrative receiver must apply to the court for an order and the proceeds must first go to discharge the other chargee’s debt.123 Where the company goes into liquidation, the expenses of the liquidation also come out of the assets subject to the floating charge in priority to all else.124 The administrative receiver takes over the directors’ powers, although the directors themselves remain in office and must still make, for example, periodic returns to Companies House. Consequently, the administrative receiver has a duty to supply to the company the information needed to allow the directors to make these returns and all other information that the directors can show they need to know. The administrative receiver may, however, withhold information where its disclosure is contrary to the interests of the debenture holder.125 The administrative receiver must prepare a report under section 48 of the Insolvency Act 1986, indicating the events leading to his or her appointment, the amounts payable to the floating chargee and amounts likely to be paid to other creditors. The administrative receiver must summon a meeting of creditors, who may establish a committee with the power to summon him or her to provide information.126 The administrative receiver is also obliged to provide periodic receivership accounts.127 The administrative receiver has a standard list of powers in section 42(1) and schedule 1 of the Insolvency Act 1986, if there are no explicit powers in the charge instrument. 118 

Medforth v Blake [2000] Ch 86 (CA); Fletcher, The Law of Insolvency (2009) (n 113) paras 14.092–14.100. Watts v Midland Bank Plc [1986] BCLC 15. 120  V Finch, Corporate Insolvency Law, 2nd edn (Cambridge, CUP, 2009) 334; Fletcher, The Law of Insolvency (2009) (n 113) para 14.085. 121  Standard Chartered Bank Ltd v Walker [1982] 3 All ER 938. 122  Insolvency Act 1986 s 40; Fletcher, The Law of Insolvency (2009) (n 113) para 14.031. 123  Insolvency Act 1986 s 43; Fletcher, The Law of Insolvency (2009) (n 113) para 14.062. 124  Companies Act 2006 s 1282, reversing Buchler v Talbot [2004] UKHL 9, [2004] 2 AC 298. 125  Gomba Holdings (UK) Ltd v Homan [1986] 1 WLR 1301, this also applies to receivers under a mortgage or fixed charge. 126  Insolvency Act 1986 s 49. 127 Fletcher, The Law of Insolvency (2009) (n 113) para 14.037. 119 

Remedies of the Chargee on Default 363

There always are and anyone dealing with an administrative receiver in good faith and for value is entitled to assume he or she is acting within his or her powers.128 The Enterprise Act 2002 made a series of important reforms. Over the 1990s, there was a growth in the number of parties able to appoint administrative receivers. Although banks tended to see appointment as a last resort, other lenders were less reticent and statistics backed up the general feeling that administrative receivership resulted in fewer rescues than other insolvency procedures.129 The thinking behind the reform was therefore to help promote the rescue culture. It was thought that administrative receivers and their appointors held too much power and were able to look after their own interests to the detriment of the other corporate stakeholders.130 Section 176A of the Insolvency Act 1986 (inserted by section 252 of the Enterprise Act 2002) provides therefore for the liquidator of an insolvent company to use a prescribed portion of the assets subject to the floating charge to satisfy unsecured debts. That proportion is set out in the Insolvency Act 1986 (Prescribed Part) Order 2003, as 50 per cent of the first £10,000 and 20 per cent of the rest up to a maximum of £600,000. Floating and fixed chargees cannot participate in the distribution of these assets should there be a shortfall in money owing to them,131 unless all the unsecured creditors have already been paid in full. However, the prescribed part still makes little difference in practice to unsecured creditors’ recovery.132 Section 72A of the Insolvency Act 1986 makes it impossible for a floating chargee to appoint an administrative receiver except where the charge was created before that date, or where the charge was created after that date in the following circumstances. Finch has commented that these are far from trivial exceptions.133 1. The debt is £50 million+ and financed by a marketable loan. 2. Where the company is a registered social landlord, railway, water or air traffic control company. 3. To enforce charges securing payments of debts for purchases on recognised investment exchanges. 4. Where a party has the right to step in and take control of a project, which is a PublicPrivate Partnership, an urban regeneration project or involves more than £50 million. A marketable loan constitutes another means of raising finance. A large sum of money is borrowed from a set of investors, entitled to receive interest at set periods. These are saleable; ie the original investors can sell their rights to interest payments and capital.134

128 

ibid paras 14.059–14.061; Insolvency Act 1986 s 42(3). Law of Insolvency (2009) (n 113) paras 14.006–14.007. 130  See, eg Cork Report, ‘Insolvency Law and Practice: Report of the Review Committee’ (1981) para 233. This has been questioned by J Armour and S Frisby, ‘Rethinking Receivership’ (2001) 21 OJLS 75, but see Finch, Corporate Insolvency Law (2009) (n 120) 347–53. 131  Re Permacell Finesse Ltd [2007] EWHC 3327, [2008] BCC 208; Re Airbase (UK) Ltd [2008] EWHC 124, [2008] 1 WLR 16; see also Re PAL SC Realisations Ltd [2010] EWHC 2850; C Sharf, ‘Secured Creditors can Participate in the Prescribed Part’ (2011) 26 Journal of International Banking & Financial Law 41. 132  L Gullifer, ‘The Reform of the Enterprise Act and the Floating Charge’ (2008) 46 Canadian Business Law Journal 399, 411. 133 Finch, Corporate Insolvency Law (2009) (n 120) 360; Fletcher, The Law of Insolvency (2009) (n 117) paras 14.042–14.043. 134  Mayson, French and Ryan, Company Law (2016) (n 113) ch 12. 129 Fletcher, The

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An administrative receivership ends when either the floating chargee’s debt is discharged or there are no more assets that can be used or sold to discharge that debt.

B. Administration135 The current law on administration is found in schedule B1 of the Insolvency Act 1986 which was inserted by schedule 16 of the Enterprise Act 2002. There are three methods by which an administrator may be appointed. As with all insolvency procedures it is a prerequisite that the company is unable to pay its debts as they fall due. The methods are that administration is initiated: —— by the court on the application of a creditor or the company136 —— on the application of a floating chargee with such power137 —— out of court by the company or its directors138 A floating chargee can now appoint an administrator, who is an officer of the court performing, if possible, a rescue function in the interests of the creditors as a whole. The chargee has a fast-track process unavailable to other creditors or the company and can veto an appointment by the company, although a floating chargee who would have been unable prior to 2003 to appoint an administrative receiver cannot appoint an administrator.139 Previously a floating chargee could prevent an administration order, appointing an administrator, being made. Section 250 of the Enterprise Act 2002 removes this power, but is, like the provisions on administrative receivership, not retrospective. Paragraph 39 of schedule B1 therefore states that, apart from some limited exceptions where there is an administrative receiver, an administrator cannot be appointed, but paragraph 41 provides that an administrator may require any receiver to vacate his or her office and where the administration commences despite an administrative receivership, the latter must do so. A floating chargee may not appoint an administrator until the charge becomes enforceable,140 just as in the case of an administrative receiver. To make the appointment the chargee files a notice of appointment and the charge must be enforceable on that date.141 An administrator is an officer of the court and must perform his or her function with the objective of: —— rescuing the company as a going concern —— achieving a better result for the creditors than would be the case if the company was wound-up or liquidated —— realising property to distribute to one or more secured or preferential creditors.142

135 

ibid 673–681; Fletcher, The Law of Insolvency (2009) (n 113) ch 16. Insolvency Act 1986 sch B1 paras 10–13. 137  ibid paras 14–21. 138  ibid paras 22–34. 139  Mayson, French and Ryan, Company Law (2016) (n 113) 322; Fletcher, The Law of Insolvency (2009) (n 113) paras 16.016–16.018. 140  Insolvency Act 1986 sch B1 paras 14, 16, 18, 20. 141  Fliptex Ltd v Hogg [2004] EWHC 1280, [2004] BCC 870. 142  Insolvency Act 1986 sch B1 para 3. 136 

Remedies of the Chargee on Default 365

These are hierarchical so the last two objectives can only be followed if the first objective is seen as inappropriate.143 The administrator must formulate a plan for dealing with the company’s assets and must put that plan forward to a meeting of creditors within eight weeks of the appointment,144 to which the creditors must assent. The creditors may, as in an administrative receivership, appoint a creditors’ committee to oversee the administration.145 In the meantime the administrator may exercise any of the powers he or she has, including power to sell the assets. Those powers are extensive, allowing the administrator to do anything necessary or expedient for the management of the company.146 There is also a long list of specific powers in schedule 1 of the Insolvency Act 1986, which parallel those of an administrative receiver. In circumstances where a sale may have to be made quickly, the administrative receiver may sell the undertaking if he or she considers this to be in the best interests of the creditors.147 However, in order to allow an orderly administration there is a moratorium on the enforcement of all debts, secured or otherwise, and including hire purchase, title retention and conditional sales.148 As with administrative receivership, the appointment of an administrator largely displaces the directors, who must, however, still provide relevant information to Companies House. The administrator of a company may dispose of assets subject to a charge which, as created, was a floating charge as if it were not a floating charge, but preserving the chargee’s priority over the proceeds of the disposal,149 and can apply to the court to dispose of assets subject to a fixed charge or mortgage as if it were free of the charge. The proceeds of the disposal must first go to satisfy creditors’ debt.150 The idea is that if the administrator wishes to sell the business as a going concern he or she will need to convey the premises, plant or machinery free of any fixed charge or mortgage to do so. In cases of pre-pack administrations the sale is agreed before the administrator is appointed; these are particularly attractive to floating chargees as they benefit quickly and costs are lower. Paragraphs 72–73 of the Insolvency Act 1986 schedule B1 provide for powers with respect to the disposal of goods under hire purchase and the protection of preferential creditors. Paragraphs 65–66 allow for distributions to be made to creditors, although usually an administrator may only make a distribution to unsecured creditors with the permission of the court. An administration comes to an end after one year, but can be extended either by the consent of the creditors or by a court order. The administrator may also terminate the administration when the purposes of that administration have been achieved. Administrators are

143  PL Davies and S Worthington (eds), Gower and Davies: The Principles of Modern Company Law, 9th edn (London, Sweet and Maxwell, 2012) 1262; Fletcher, The Law of Insolvency (2009) (n 113) paras 16.021–16.022. 144  Insolvency Act 1986 sch B1, paras 49–55; para 47 provides for a statement of the company’s affairs to be prepared. 145 Fletcher, The Law of Insolvency (2009) (n 113) paras 16.071–16.073. 146  ibid paras 59–63; Finch, Corporate Insolvency Law (2009) (n 120) 384. 147  Re Transbus International Ltd [2004] EWHC 932, [2004] 2 All ER 911. 148  Insolvency Act 1986 sch B1 para 43; with the exception of debts and security covered by the Financial Collateral Arrangements (no 2) Regulations 2003. On the moratorium generally see Fletcher, The Law of Insolvency (2009) (n 113) paras 16.039–16.047. 149  Insolvency Act 1986 sch B1 para 70. 150  ibid para 71.

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also able, and in some cases such as where they believe they have nothing to distribute to the creditors, to apply to liquidate the company.151 Sometimes, as when the object of the administration is a more advantageous realisation of assets, a company will move to dissolution or liquidation.

V. Conclusion The law in this area is complex. The distinction between fixed and floating charges has become central to most discussion in the personal property context. This debate seems now to have been largely settled by the House of Lords decision in National Westminster Bank v Spectrum Plus. The remedies of administrative receivership and administration open to the floating chargee have largely been left to company and insolvency texts.

151 

ibid paras 76–81; Fletcher, The Law of Insolvency (2009) (n 113) paras 16.126–16.130.

15 Secured Transactions Law Reform I. Introduction There have been successive reports recommending reform to the system of secured transactions, from the Jenkins Report in 1962 to the Company Law review launched in 1998. Moves began again in the early part of the century with the Law Commission being asked by the Department of Trade and Industry (DTI) to examine the question, at least in part as a result of the 1998 Steering Group’s report published in 2001. In 2002 the Commission published a consultation paper. Subsequently they published a consultative report in 2004 and a full report in 2005. In that report the Law Commission brought forward proposals for reform of the registration and priorities system. Originally they suggested reforms that included a range of quasi-security interests, bills of sale and, although this was not entirely clear, probably the abolition of the floating charge. These proposals were ultimately dropped in the final report. The DTI independently, and in parallel, conducted a more general review of company law, publishing a number of papers of its own, including proposals specifically on registration of charges in 2000, 2001 and 2005. The DTI proposals have now taken the form of the Companies Act 2006. The DTI then consulted again on the contents of the Law Commission report, and their own 2005 assessment of its economic impact. The Government has never, however, sought to introduce the type of major reform suggested in the Law Commission report. They did, however, as we saw in chapter 11, introduce a less extensive set of reforms in 2013 to the Companies Act 2006 by means of regulations. This followed the issue of a consultation paper in March 2010,1 which focused on the narrow question of using the Secretary of State’s statutory power under the Companies Act 2006 to reform the mechanisms of registration. BIS took the view, correctly, that the statutory power under which the regulations were made did not permit the Secretary of State to introduce more wide-ranging reforms. We have already seen the improvements made by those regulations. Two in particular should be mentioned again. 1. Not all charges or security interests were compulsorily registrable under the section 860 regime. One device which was not registrable, but now is, is the negative pledge. Some entries on the list overlap with others. It is possible, for instance, to have a floating

1  UK Department for Business Innovation and Skills (BIS), ‘Registration of Charges by Companies and Limited Liability Partnerships’ (2010); the Government’s response to the consultation was published in December 2010. BIS, ‘Government Response to Consultation on Registration of Charges by Companies and Limited Liability Partnerships’ (2010). See chapter 11, part IV B.

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2.

3.

4.

5.

6.

charge over book debts. Charges over book debts comprised one category of registrable charge and floating charges were another. If registration is supposed to inform potential creditors of incumbrances over, and the extent of the assets of the company, the more devices with security effects that are registered the better.2 Under section 859A all non-possessory security interests are registrable except for a small number listed in section 859A(6). This improves the transparency of the system, although pledges and liens remain excluded. The administrative burden on Companies House was quite extensive. The documentation that had to be sent in and checked by the registrar’s staff was considered excessive.3 This is no longer the case. Searchers are able to check the particulars themselves against the registered charge instrument; all the registrar is bound to certify is that the documents were received. Despite this some of the problems were not touched. The 21-day invisibility problem:4 A creates a charge over B’s assets on 1 January, and registers on 20 January. C creates a charge on 5 January, and registers on 7 January. C believes he is protected; however, A’s later registered charge (of which he could know nothing) has priority. In addition, there is always a delay between submission and appearance on the register. This does not, however, appear in practice to be a serious difficulty as chargees delay advancing funds for 21 days and then re-check the register. However, this double check of the register is at best wasteful. Any charges over land must be registered twice, because there will also be a requirement to register them under the Land Registration Act 2002.5 Indeed any charges over an asset with its own register will need to be registered twice. This will include charges over some intellectual property rights. The combination of the intellectual property regime and the Companies Act has created a confusing patchwork of priority and registration rules.6 This—and the practical difficulty of valuing such assets—explains why fast-growing companies rich in intangible intellectual property assets have real difficulty in raising finance and capital.7 Despite the welcome widening of the category of registrable charges, some transactions that have the function of securing debts or serve as financing mechanisms remain unregistrable. Two examples will serve. First, retention of title clauses are not registrable. Formally this is because the buyer is not granting an interest to the seller, but no seller insists on a retention of title clause for any other reason than to secure repayment of the debt owing for the purchase of the asset. Secondly, we saw in chapter four that assignments of book debts or receivables form an important financing mechanism. However, and despite the fact that it can be difficult to tell the difference between a mortgage and outright sale of receivables, such assignments are not registrable.

2  H Beale, M Bridge, L Gullifer, E Lomnicka (eds) The Law of Security and Title Based Financing, 2nd edn (Oxford, OUP, 2012) paras 23.26–23.39. 3  ibid para 23.40. 4  ibid paras 23.46–23.50; M Bridge, ‘The Law Commission’s Proposals for the Reform of Corporate Security Interests’ in J Getzler and J Payne (eds), Company Charges (Oxford, OUP, 2006) 267, 283. 5  Typically under Land Registration Act 2002 s 27; this frequently catches creditors out. E McKendrick (ed) Goode on Commercial Law, 4th edn (Oxford, OUP, 2010) 693–94. 6  On which see eg A Tosato ‘Security Interests over Intellectual Property’ (2011) 6 JIPLP 93. 7  See Treasury Select Committee, Conduct and Competition in SME Lending (HC 204 2015) paras 16–17; NB para 18 suggesting equity finance is a better source of funding for start-ups because many are already overleveraged. This sits uneasily with the admission that new businesses struggle the most to access credit.

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At least, they are not registrable by a company. General assignments of receivables by an individual must be registered on the bills of sale register under section 344 Insolvency Act 1986. It makes little sense for assignments by individuals to be registrable, but not by companies, and in fact we find that invoice factors often—on a voluntary basis— register general assignments by companies of their book debts. 7. As we saw in chapter 11 the priority rules are confusing and a product of historical development rather than joined up thinking. 8. The charges system is still contained within the Companies Act 2006; this means that security interests created by unincorporated businesses and sole traders are governed by the Bills of Sale Acts 1878–1882. The Acts are confusing and anachronistic8 and they prevent the creation of a floating charge by unincorporated businesses. This creates an unnecessary incentive to incorporate and—amongst other factors—hampers the ability of small business start-ups to acquire credit. 9. The law relating to the distinction between fixed and floating charges is in an unsatisfactory state, and indeed the circumstances in which it makes a difference are being reduced. This makes it difficult to give clear advice when structuring transactions and the cost of credit may be raised because steps have to be taken to avoid potential problems. This would be unnecessary were the law to use a simpler criterion with much the same practical effects. Rendering the law more coherent and accessible has the capacity to render credit more accessible to the SME and IP-rich sectors of the economy, although it is plainly not a panacea. In 2016 the Law Commission published a final report on the reform of bills of sale, which we discussed in detail in chapter 13. We will not reprise that discussion here except to say that the Commission did not seek to link their proposals on the reform of security bills of sale to any wider reform. Indeed, in their consultation paper they rejected a central, state-run registry precisely because it was not worth it just for vehicle mortgages when the Australian and New Zealand registries held records of all security interests in personal p ­ roperty.9 That said, they did acknowledge in the context of reforming registration of assignments of book debts that ABFA had suggested assignments of receivables by both corporate and unincorporated businesses would be better registered on the same online register and that they looked forward to seeing proposals on this.10 At roughly the same time the City of London Law Society issued a discussion draft of a Secured Transactions Code, which they updated in 2016.11 The Secured Transactions Law Reform Project began its work in 2011.12 The ­project’s director was initially Sir Roy Goode and is now Professor Louise Gullifer. It looks at all areas of reform from what interests should be brought within the regime and how they should be perfected, to priorities, enforcement and the ever-difficult relationship with the rules on financial collateral.

8  D Sheehan ‘Abolishing Bills of Sale in Consumer Lending’ (2010) 126 LQR 356; D Sheehan ‘The Bills of Sale and Company Charges Consultations: An Opportunity Missed?’ (2011) 26 Journal of International Banking & Financial Law 342. 9  Law Commission Bills of Sale (Law Comm CP 225, 2015) para 10.48. 10  ibid paras 13.20–13.21. 11 CLLS Secured Transactions Code (2016); See also R Calnan ‘A Secured Transactions Code’ (2015) 30 JIBFL 473, discussing the previous 2015 draft. 12 securedtransactionslawreformproject.org.

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The Personal Property Security Act scheme on which we concentrate on this chapter is precisely that. It concentrates on personal property. The CLLS by contrast include land in their scheme.13 There are several initial high level questions therefore that require an answer if there is to be reform in the area. The first is which borrowers or chargors are included. The current Companies Act system includes only companies and the Bills of Sale Acts system covers individuals and unincorporated entities. To maintain that type of split might well make implementation easier as it already exists rather than—and the Law Commission allude to this also14—creating an entirely new registration system. The CLLS by article 1.2(a) include all potential borrowers in their scheme, but registration of the charges—even created by unincorporated entities or sole traders—is always by the Companies Registrar. The second high-level question is what types of asset to include. The inclusion of land may cause difficulties. It has an important advantage that a searcher will be able to see all the security interests created by a company or other chargor in one place. It has a disadvantage in that real property-related rules are significantly different in many ways from personal property rules. This in turn raises the question how the different regimes mesh together. One solution is simply to link the registers so that a registration on the securities register is automatically put on the land register and not to attempt any importation of land priority or other rules into the code. Indeed, the CLLS scheme does not attempt to import such rules, expressly providing, for example, in article 7 that while formalities should not usually be required, any other formal requirements, eg in land law, need to be complied with. From a government perspective land law is not a BEIS responsibility and so coordination between departments adds to the policy-making complexity. If land is left out it means that a searcher is required to make a double search—on the personal property security register and the land register. Alongside the moves elsewhere in the Commonwealth to reform and the hugely positive response to that reform in the common law world, there are moves at European level towards harmonisation, which may suggest that it is an appropriate time for a reform process to start. Many Member States have different laws and policy objectives that make it hard to take cross-border security. There is good reason to believe, for example, that an English floating charge purporting to cover assets in Germany would be void—to that extent—as against German public policy.15 The Draft Common Frame of Reference suggests that a PPSA-type regime could form the basis of a European model,16 although after the UK’s vote to leave the European Union in June 2016, European developments may be less influential politically. UNCITRAL has now (as 1 July 2016) adopted a Model Law on Secured Transactions to complement its current Legislative Guide; the guide also has an intellectual property supplement and a separate Registry Guide,17 the last of which was published in 2013. All that said, it is worth pointing out that Louise Gullifer herself has commented that although moves towards an article 9-type system would harmonise our law more with US 13 

Justified by Calnan on the grounds that it matches with commercial practice: Calnan (n 11) 473. Law Comm (n 9) paras 10.46–10.49. 15 M Bütter ‘Cross-Border Insolvency in English and German Law’ (2002) OUCLF 3 (ouclf.iuscomp.org/­ articles/buetter.shtml) chapter 3 part D (visited 10 February 2015); it is true of course that in cross-border insolvency cases when insolvency processes are opened in one jurisdiction this does not affect assets in another. 16  DCFR Book IX; Study Group on a European Civil Code and Research Group on EC Private Law (Acquis Group) Principles, Definitions and Model Rules of European Private Law, Outline Edition (2009). 17 UNCITRAL Security Rights Registry Guide (2013). 14 

Reform in other Jurisdictions 371

and commonwealth jurisdictions, retaining ownership-based financing techniques would keep us closer to continental systems.18 The civil law systems of eastern and central Europe are reforming as well, however.19 The international direction of travel seems clear, although we see a cautionary note later in the chapter.

II.  Reform in other Jurisdictions This section examines the PPSA system on which most of the calls for reform of security law in England are based.20 Such systems are in operation in other common law jurisdictions. All Canadian provinces, bar Quebec, have enacted personal property security legislation, as has New Zealand and, most recently, Australia. Those systems are themselves ultimately based on the Article 9 system in the US Uniform Commercial Code. In none of these systems does the floating charge have a role to play.21 That provides a strong justification for an argument that the floating charge should be abolished if those proposals are enacted, although we see there is a strong argument that it be abolished now. It may be that less extensive reform will suffice. McCormack has suggested that many of the reforms needed could in fact be accomplished within a transaction-filing system such as that which we have at the moment.22 Indeed, in the Republic of Ireland the Companies Act 2014 reforms the law on company charges without introducing a notice filing system, but still providing for priority to date from the date of registration, and providing for a priority notice system so that a lender may give notice of the charge and its particulars in advance of its creation.23 If the second notice is received within 21 days of the first, the charge is deemed registered at the time of the first notice. We see what the difference between a transaction filing and a notice filing system is as we explain the PPSA system. The first part will seek to outline the rules of a PPSA. The second section of this part will trace the influence of UCC Article 9 on the reform developments across the world, and the third will look at whether the floating charge will need to be abolished in any event.

18  L Gullifer, ‘Quasi-Security Interests, Functionalism and the Incidents of Security’ in I Davies (ed), Issues in International Commercial Law (London, Ashgate, 2005) 11, 18–23; see also Law Commission, ‘Company Security Interests’ (Law Com No 296, 2005) [1.60]–[166]. 19  UNCITRAL, ‘Legislative Guide on Secured Transactions’ (2007) 56. 20  For general comment see JS Ziegel, ‘Canadian Perspectives on Chattel Security Law Reform in the United Kingdom’ (1995) CLJ 430; I Davies, ‘The Reform of Personal Property Security Law: Can Article 9 of the US Uniform Commercial Code be a Precedent?’ (1988) 37 ICLQ 465. 21  For Canada see Royal Bank of Canada v Sparrow Electric Co (1997) 143 DLR (4th) 385; for New Zealand see Agnew v Commissioner of Inland Revenue [2001] UKPC 28, [2001] 2 AC 710, 716 (Lord Millett); for a review of the New Zealand experience see T Gibbons, ‘The First Four Years: New Zealand’s Personal Property Securities Act in Practice’ (2006) 14 Waikato Law Review 34; D Brown, ‘The New Zealand Personal Property Securities Act 1999’ in J de Lacy (ed), The Reform of UK Personal Property Security Law (London, Routledge, 2010) 328. 22  G MacCormack, ‘Pressured by the Paradigm’ in J de Lacy (ed), The Reform of UK Personal Property Security Law (London, Routledge, 2010) 83, 111–13. 23  Companies Act 2014 (RoI) ss 409, 412; N McGrath ‘The Company Charges Register in Ireland: Some Reflections on the Reform Proposals in the Companies Consolidation and Reform Bill 2012’ [2013] JBL 303; N McGrath ‘Reforming the Companies Charge Register in Ireland’ in L Gullifer and O Akseli (eds) Secured Transactions Law Reform (Oxford, Hart, 2016) 233.

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A.  An Outline of the Article 9/PPSA System24 The great virtue of article 9 and similar systems is said to be that it produces a unified law of security and sweeps away the old formalist distinctions. The fundamental features of the scheme are a bias to functionalism.25 The first question that needs to be asked is what the reach of the reform should be. What property should be included in the reform, which interests over that property and who the chargor should be, companies or anybody at all.

i.  Should Land be Included? A Personal Property Security Act is precisely that. It will not cover land, but should cover all other types of property including intellectual property and security rights over it. There are significant difficulties with the inclusion of land, particularly if there is a unitary security interest. The promotion of equitable fixed or floating charges over to legal status has the potential to trigger registration under section 27 Land Registration Act, which will alter the priority position vis-à-vis other interests in land with at best unpredictable results. The problem arose because the July 2015 discussion draft of the CLLS Secured Transactions Code suggested that a security interest would be legal when over land registered at the Land Registry. The only legal charge in registered land is the charge by way of legal mortgage, registrable under section 27. Equitable charges are protected by way of a notice. However, it is not impossible to talk of the entry of a notice as being registration of the charge. If so, it becomes a legal charge under para 2.2(b) of the code, and if legal must be registered under section 27. Removing the problem by redrafting the paragraph is possible, and ensures that nothing changes regarding the land law position. The CLLS have in their July 2016 redraft made it clear in para 3.1(b) that only a registered legal charge on the Land Register counts, and in the Commentary that registration of a notice will not. However, that begs the question of whether it is worth including land at all, as substantively the law does not change and the land law legislation remains the primary source.

ii.  In Substance and Deemed Security Interests Currently English law recognises four distinct types of consensual security interest: mortgages, which can be legal or equitable; equitable charges, which can be fixed or floating; contractual liens and pledges, both of which can only exist at common law. Under the PPSA regime there is only one. Or maybe two. The PPSAs distinguish between what are called ‘in substance’ security rights and ‘deemed’ security rights. The Australian Personal Property Securities Act 2009, for example, defines a security interest in section 12(1). That subsection provides that a security interest is an interest in personal property that in substance secures payment or performance of an obligation. These are referred to therefore as ‘in substance’ security interests and they depend on the existence of an underlying obligation. The definition includes (expressly under section 12(2)) such things as retention of title agreements,

24  See H Beale ‘An Outline of a Typical PPSA Scheme’ in L Gullifer and O Akseli (eds) Secured Transactions Law Reform (Oxford, Hart, 2016) 7. 25  Beale et al, The Law of Security (2012) (n 2) para 23.101; P Ali, The Law of Secured Finance (Oxford, OUP, 2002) paras 5.35–5.41.

Reform in other Jurisdictions 373

referred to in section 12 as conditional sales, and hire purchase. This means that the distinction between fixed and floating charges is formally abolished. Naturally this does not mean that the chargor is unable to deal with any assets subject to a security. Under the PPSA regime there is a licence to deal26 with assets subject to the PPSA security, which allows for the same result as under a floating charge. What it does mean is that priority, registration, set-off, enforcement and other matters are dealt with in the same way, subject of course to statutory modification. The system is thereby simplified, although inevitably there will be difficult cases where arguments rage as to whether the prerequisites for a security interest are present or not. JS Brooksbank & Co (Australasia) Ltd v EXTFX Ltd27 was one where the New Zealand Court of Appeal decided that the arrangement was not intended as a security, overturning a High Court decision that there was an ‘in substance’ security. For present purposes we do not need to go into details, but Gedye has argued that the real lesson is that in boundary cases registration out of an abundance of caution is desirable.28 This overregistration happened under the old Part 25 of the Companies Act 2006 and under section 395 Companies Act 1985 as well, and so we should be careful of hailing the new system as a panacea clarifying everything. Retention of title clauses are brought within the system. Functionally they are identical to charges in they in substance secure the obligation to pay for the asset sold. Often there is a contractual obligation on the seller to return a surplus over the amount owing to the buyer if that clause is invoked and the asset sold. There are three parties that need protection. The creditor wants a measure of protection should the debtor become bankrupt, or default. The debtor needs protecting against the creditor imposing harsh terms on him. There are, for instance, statutory rules on consumer credit.29 The third party also needs protecting. He may have dealt with the debtor on the basis that the debtor has substantial assets, or that there is no need for a security interest of his own. Registration of security interests provides for the publication of information on those secured finance transactions. At present ­English law concentrates on the form of the interest rather than its function and, despite the functional similarities with security, takes the view that retention of title clauses need not be registered, which makes their existence harder to detect. The CLLS maintain this distinction, stating at article 6.2 that whether a proprietary interest secures an obligation does not depend on the economic or functional effect of the transaction. The argument therefore goes that had a new third-party lender known of other unregistrable security interests or retention of title clauses he may have taken a different view about lending,30 and that justifies requiring registration of the clauses. We might call this the ‘creditors’ deception or ostensible ownership argument’. Given the plethora of ways in which a party can obtain an interest in another’s assets this might prove too much; what is certainly true, however, is that at present a potential lender must check multiple records and make inquiries of the debtor. Concentrating information in one place reduces search costs and therefore the cost and price of financing. 26  See eg Personal Property Securities Act 1999 (NZ) s 52; Personal Property Securities Act 2009 (Cth) s 46 referring to the ability of the chargor to sell assets free of the charge if the sale is in the ‘ordinary course of business’. 27  [2009] NZCA 122. 28 M Gedye ‘The Development of New Zealand Secured Transactions Jurisprudence’ (2011) 34 UNSWLJ 696, 723. 29  Consumer Credit Act 2006. 30  Cork Report, Insolvency Law and Practice (1981) ch 37.

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Deemed security interests are different to ‘in substance’ interests. Essentially they are recharacterised for perfection and priority purposes, but left alone for enforcement purposes. They are not therefore devices that would be understood as having a security function even if in some cases they can be used a financing tool. There are two main arguments deployed to justify inclusion of such interests in the scheme; the first is the ostensible ownership argument, and the second the ‘too hard to tell the difference’ argument. Assignments of receivables are typically included31 on the grounds of ostensible ownership. If the assignment is registered it becomes clear to those searching and looking to see what collateral is available that the book debts or other receivables will not be available to a later creditor. It is worth noting that section 344 Insolvency Act 1986 requires a general assignment of book debts by unincorporated businesses to be registered as an absolute bill of sale. Although nobody favours continuing with the bills of sale regime in its current form, it is also notable that invoice financiers voluntarily register general assignments by companies,32 and the CLLS Code raises the possibility in article 38 of voluntary registration of receivables financing arrangements, although it will trigger the application of the code’s priority rules. Retention of title clauses could be included in a similar way, triggering the priority rules, but leaving enforcement and other rules unaffected. Another example of a deemed security interest is a consignment.33 These involve the ultimate seller providing a retailer with goods (often under what is called a ‘floor plan’ arrangement) which the ultimate seller retains ownership of the goods, but permits sale. In some consignment arrangements, as Duggan and Brown explain, the purpose behind the retention of title is not to secure payment of a debt, but to facilitate return of unsold items.34 The justification for including consignments as a deemed security interest is one of ostensible ownership. There is also a too difficult to tell the difference argument, because sometimes the consignee has an obligation to pay for such stock, and it becomes an ‘in substance’ security.35 Another example of this is that the difference between finance leases and operating leases can be difficult to discern in practice, despite the theoretical differences. In a finance lease the lessor’s continued title acts as security,36 but the lessor does not want the asset back at the end of the term; most often the lessor is a financier who sees the asset as an income stream and times the lease so that the asset has ended its useful life at the end of the primary term. The lessee can renew at a nominal rate, or the equipment may be sold and after the lessor has recouped his investment and charges residual value goes to the lessee.37 In effect the bailment is a device giving the financier a reversionary interest as security for his debts. In an operating lease the lessor does want the asset returned, but it is not always obvious which class a lease falls into, and so Australian law requires registration of both types of lease.38 31 

Eg Personal Property Securities Act 2009 (Cth) s 12(3)(a), where it is referred to as a ‘transfer of accounts’. Law Commission Bills of Sale (Law Comm CP no 225 2015) paras 13.5–13.6. Personal Property Securities Act 2009 (Cth) s 12(3)(b). 34  A Duggan and D Brown, Australian Personal Property Securities Law (Sydney, Butterworths, 2012) paras 3.9–10. 35  ibid para 3.29. 36  M Bridge, ‘The Exportability of North American Chattel Security Regimes: The Fate of the English Law Commission’s Proposals’ (2006) 43 Canadian Business Law Journal 170. 37  McKendrick (n 5) 767–769. 38  Personal Property Securities Act 2009 (Cth) s 12(3)(c); Duggan and Brown (2012) (n 34) paras 3.31–3.32 have a different interpretation. 32  33 

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The fact of the registration of retention of title clauses and consignments, for example as security rights, raises another issue. This is recharacterisation of ownership as a security right. One of the objections raised to inclusion of conditional sales and retention of title clauses in a PPSA has been the potential loss of rights due to recharacterisation; an example of such from New Zealand is New Zealand Bloodstock v Waller39 where the lessor of a stallion, who had failed to register his interest, was subordinated in priority terms to the debenture holder, Lock, who had registered a financing statement. Had the lease been registered, it would have taken priority. In other words, the lessor, who owns the horse, loses his ownership if he does not register. For some this is an unacceptable vulnerability of ownership, and certainly some businesses may be taken by surprise by this result. The lack of knowledge of the Act was highlighted by Whittaker’s review of the Australian Personal Property Securities Act 2009. This is an education matter, however,40 and not a sufficient reason not to include retention of title clauses. One possibility might be inclusion in the priority and registration scheme, but without recharacterisation. Retention of title clauses (and leases) can give rise to a registrable international interest in the hands of the seller or lessor under the Cape Town Convention, now ratified by the UK through the International Interests in Aircraft Equipment (Cape Town Convention) Regulations 2015. However, it is for national law to characterise the retention of title clause as a security or not. Under current law, it is not and so the remedies available to the holder of the international interest are found in regulation 20, not regulation 19. Should retention of title clauses be recharacterised under a new Act that might change.

iii.  Attachment and Perfection The central concepts of attachment and perfection are already understood in English law where the law is already described in these terms in this book and in others. Attachment then refers to the process whereby the security becomes effective between the two parties— grantor and creditor. Perfection refers to the process by which it becomes binding on third parties, although there are circumstances in which a third party—for example, a donee—is affected by an unperfected interest. Nonetheless, the definition slightly differs. Under the UCC, article 9-203 lays down that a security agreement attaches if value is given, the debtor has rights in the collateral and one of a set of alternative conditions is fulfilled.41 The term ‘collateral’ refers to the asset over which security is taken. Collateral may include future property. We saw that a fixed charge may be taken over future property, but only bites on acquisition42 and article 9-204 provides for the same result in American law. Article 9-205 specifically allows for a security interest to be valid where the debtor can deal in various ways with the collateral. In New Zealand in order for attachment to take place there must be an agreement to create a security interest, evincing an intention to create a present security interest in existing property

39 

[2005] NZCA 254. B Whittaker A Review of the Personal Property Securities Act 2009: Final Report (2015) 27–30. 41  See also Personal Property Security Act 1980 (Ont) s 12; CIBC v Otto Timm Enterprises Ltd (1995) 130 DLR (4th) 91; Personal Property Securities Act 1999 (NZ) s 40. See generally Beale et al, The Law of Security (2012) (n 2) paras 23.104–23.105. 42  Holroyd v Marshall (1861) 10 HLC 191, 11 ER 999. 40 

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of the debtor.43 The agreement must be in writing, unless it is perfected by possession, in which case an oral agreement is acceptable. The assets subject to the security must be identifiable, or described under section 36 Personal Property Securities Act 1999 (NZ), as falling into the security agreement. The security must be appropriated to a current debt so enforcement of security A will reduce debt A and not some other debt. Perfection typically occurs by registration, possession or control. Australian law allows for all three,44 as does the UCC;45 in New Zealand only perfection by possession and filing are allowed.46 The Law Commission in their consultative report argued that possession of collateral by the secured party should perfect the security interest47 as there is no false wealth issue. What this means is that lenders to the collateral provider will not be deceived as they will not see the asset in question. Weise argues that perfection serves a publicity function and that possession provides such publicity. The secured party’s possession should, however, place a reasonable third party on notice that someone other than the owner has an interest in the collateral.48 On any reform in English law it would remain the case that perfection of rights in financial collateral would be taken through control of the collateral as a result of the Financial Collateral Arrangements (No 2) Regulations 2003.49 We saw in chapter 11 how the rules on control work—such control needs to be legal and negative control so that the creditor-grantee has the legal right to preclude the grantor from using the asset or disposing of it. In Australia the scope of interests that can be perfected by control is wider than under the FCARs and includes interests taken over letters of credit and their proceeds.50 The Law Commission proposed that this be replicated in the UK. Registration takes place by notice filing and this is a major difference with English law.51 Notice filing requires far less information to be registered and is the basis for the Law Commission’s proposals on registration. Notice filing does require interested parties to make inquiries, which shifts some of the costs of a positive search onto the searcher, but if the purpose is simply to raise potential priority issues this seems unobjectionable.52 After all, a potential lender will be in any case engaged in due diligence; a negative result is easier to spot as the searcher does not have to read all the filed documentation. Arguably the minimal information registered also protects parties’ privacy or confidentiality concerns. Castellano argues that overall transaction costs are reduced, although this relies on the easy

43  Personal Property Securities Act 1999 (NZ) s 40; Personal Property Securities Act 2009 (Cth) s 19 requires the grantor to have rights (including bare possession) in the asset, or to have the ability to transfer rights in the collateral. 44  Personal Property Securities Act 2009 (Cth), s 21. 45  UCC art 9-305. 46  Personal Property Securities Act 1999 (NZ), s 41. 47  Law Commission, ‘Registration of Security Interests: Company Charges and Property other than Land’ (Law Com CP 164, 2002) [3.100]. 48  S Weise ‘Perfection by Possession: The Need for an Objective Test’ (1993) 29 Idaho L Rev 704, 707. 49  On other means to perfect than registration see Beale et al, The Law of Security (2012) (n 2) para 23.94–23.97; on the meaning of control see chapter 11, part IV B ii. 50  Personal Property Securities Act 2009 (Cth) s 21. 51  G McCormack, Secured Credit in English and American Law (Cambridge, CUP, 2004) 76–79; §§9.302–9.305 UCC; see Personal Property Securities Act 1999 (NZ) ss 41–42 for the general rules. 52  GG Castellano, ‘Reforming Non-Possessory Secured Transactions Laws: A New Strategy?’ (2015) 78 MLR 611, 635.

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retrieval of stored information, and on the argument that the savings on negative results outweigh the increased search and discovery costs of a positive result.53 The current English system is what is referred to as a transaction filing system. This is because the charge is registered once created, so the party is registering the actual transaction and proves that there has been a transaction by delivering the charge documents. There is no requirement to deliver the actual charge documents under a notice filing system, where the financing statement once filed aims only to put searchers of the register on notice that there might be an incumbrance so they may make further inquiries. We need to note, however, the importance of notice filing in transactions involving the use of stock-intrade. There is no need to re-file when the collateral turns over, even on a day-to-day basis. This is because perfection of the security in the original collateral will, if agreed, also count as perfection of the security in the proceeds of dealings with the collateral by the chargor. Nor is there a need to make repeated filings when there are repeated transactions. Some of the advantages of a notice filing system include. 1. Filing would be electronic.54 The registrar would no longer have to check all the documents, and issue a conclusive certificate that the Act had been complied with.55 The parties would electronically send (in line with wider moves to electronic registration under Land Registration Act 2002) only very brief particulars. Many of these advantages can be—and are under the 2013 reforms—obtained through a transaction filing system. 2. Formal responsibility for registration will be removed from the company.56 In fact, under section 859A (and section 860) of the Companies Act 2006 it is already possible for the lender to register the charge, albeit at the company’s expense. The lender would under a new system be responsible for filing if it wishes to protect itself. 3. The formal time limit for registration will be removed.57 This will remove the several thousand applications for leave to register late that courts receive every year. Companies House currently reject 3,000 late applications a year. The electronic format should ensure that there is no period of invisibility after registration, but that the charge appears online almost immediately. 4. Lenders may file in advance of the transaction. This rule allows parties to protect their position during negotiations. A single filing may cover several transactions, and the tacking rules described in chapter 11 become redundant. This reduces the administrative burden on the parties further. Some tacking rules are essential under a transactionfiling system. Some systems require that the borrower consent to advance filing. This prevents malicious or vexatious filings, which have been an issue in Australia.58

53  ibid 636; Duggan and Brown (2012) (n 34) para 6.15. Generally on the utility of registries and their effect on property rights see A Bell and G Parchomovsky ‘Of Property and Information’ (2016) 116 Columbia L Rev 237. 54  Law Commission, ‘Company Security Interests’ (Law Com No 296, 2005) [3.70]; see Beale et al, The Law of Security (2012) (n 2) paras 23.80–23.90 on the registration system generally. 55  Law Commission, ‘Company Security Interests’ (Law Com No 296, 2005) [3.74]. 56  ibid [3.72], [3.77]. 57  ibid [3.82]. 58  Sandhurst Golf Estates Pty Ltd & Ors v Coppersmith Pty Ltd & Ors [2014] VSC 217; Macquarie Leasing Pty Ltd v DEQMO Pty Ltd [2014] NSWSC 1466, where an injunction was issued to prevent further attempts to file.

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Typically notice filing requires the filer to file:59 1. Details of the secured party (creditor or chargee) 2. The grantor’s details (the debtor or chargor) 3. Description of the collateral. Typically under a PPSA-style system the chargee is required to tick a box on the electronic registration form, indicating what type of collateral the security interest is taken over. There may also be a free-form box enabling the registrant to describe in their own words what type of collateral is being taken. The Australian regime, for example, requires the registrant to identify one of a number of collateral classes that the property falls into, but uniquely requires separate registrations for each class of collateral.60 In most Canadian provinces the registrant is free to tick several boxes to indicate that the security is taken over several classes of collateral. Often there is also a requirement to describe the collateral in a free text box. In Australia the free text box exists on the electronic database, but is not mandated by the legislation. The use of such free text can add to the complexity of reviewing the results of a search. The question is in essence one of the balance of convenience between registrant and searcher. 4. Some systems allow for the registration of a subordination agreement, whereby party A, who would otherwise take priority over party B, agrees not to.61 Whittaker recommended abolishing the option,62 as it is, in Australia, almost never exercised. We might argue, however, that third parties taking an assignment of the subordinated obligation should be bound if the subordination is registered as is the case under reg 16(7) International Interests in Aircraft Equipment (Cape Town Convention) Regulations 2015, bringing the Convention on International Interests in Mobile Equipment into force. In a completely comprehensive system covering security granted by individuals there are still questions to be asked regarding the details of the parties and the collateral. For example, companies have numbers and therefore are uniquely identified by that number. People do not have numbers. Therefore issues arise where a security interest is registered against the debtor’s name. For example, should a security granted by myself be registered against Duncan Sheehan or Duncan Kenneth Sheehan? What if it is registered against the latter, but a searcher searches against the former?63 To solve this issue some Canadian provinces have rules about what version of the debtor’s name should be used—generally according first priority to the birth certificate name,64 and a choice between exact match 59 

Duggan and Brown (2012) (n 34) 6.42. Property Securities Act 2009 (Cth) s 153(1); under Personal Property Securities Act 1999 (NZ) s 147 security interests can be registered against multiple classes of collateral in one filing. See A Duggan ‘A PPSA Registration Primer’ (2011) 35 Melbourne UL Rev 865, 889–891; Whittaker (2015) (n 40) 173 recommends a single filing should be able to cover multiple collateral classes. 61  Subordinations ‘may be registered’ under Personal Property Securities Act 1999 (NZ) s 159; Personal Property Security Act 1993 (Sask) s 45(6), suggesting registration is optional. See RJ Wood ‘Subordination Agreements, Bankruptcy and the PPSA’ (2010) 49 CBLJ 66, 86–87. 62  Whittaker (n 40) 166. 63  See on the correct name for registration, the effect of registration against the wrong name and on searches against the wrong name, A Duggan ‘Dropped HS and the PPSA: Lessons from the Fairbanx Case’ (2011) 34 UNSWLJ 734. 64  Eg Personal Property Security Regulations 2001 (Alt) r 20(7). This might slow down registration as individuals tend not to carry their birth certificate around, but helps the integrity of the register as the name on the birth certificate is highly unlikely to change. Other possibilities, increasing speed of registration, but decreasing reliability because the name may change include the name on a driving licence. 60  Personal

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searches—where a search against Duncan Sheehan will not bring up entries against Duncan Kenneth Sheehan—and close match searches, which will bring such entries up, will need to be made. Largely, we find the bigger the jurisdiction (Australia, Ontario), the more appropriate exact match becomes to prevent noisy searches where search results are returned that have little or nothing to do with the intended party searched against. Where an asset has a serial number (eg a car) registration may take place against the serial number and this may provide an alternative search method. Sometimes we may find that a mistake is made in the registration. A seriously misleading registration is void under section 164 Personal Property Securities Act 2009 (Cth) and corresponding Canadian and New Zealand legislation. The legislation leaves the concept of ‘seriously misleading’ undefined, although section 165 provides for some specific defects—such as incorrect serial number—that will render the registration ineffective. The important point,65 as Australian case law has indicated is that a registration is seriously misleading if it is such that it will not come up on a search. Exact match systems are therefore correspondingly more likely to void registrations as misleading. Once the interest is perfected, third parties are bound. However, customers of the debtor who buy the debtor’s goods in the normal course of business take free of the security interest even if they know of it.66 However, it is central to the PPSA system that, unless provided otherwise, the security interest extends into the proceeds. This tracks the current English position with floating charges. By contrast, if the debtor (A) disposes of collateral without authorisation and outside the normal course of business the security interest remains perfected in the collateral in the hands of a transferee (B) and the creditor (C) can enforce it against B; his largely tracks the outcome under a fixed charge. Different policy choices can be made as regards perfection of the interest in B’s hands. Under Ontarian law C is obliged to substitute B’s details for the old debtor’s (A’s) within a given number of days after learning the facts, but is automatically protected until that point with the security being continuously perfected in the hands of the transferee.67 Australia takes a different approach under section 34 Personal Property Securities Act 2009 (Cth); it gives C much less protection by merely temporarily perfecting his interest for two years.68 Temporary perfection gives only partial protection because a buyer from B will usually take free of C’s security right, because ex hypothesi it is not in fact registered against B. A buyer, will if he searches for security binding on B, not find C’s interest. He will only do so if he searches against A, but he knows nothing of A and so cannot undertake the search (at least not against A—he may be able to run a search against a serial number if it is serial numbered property).

iv.  Priorities and ‘Taking Free’ Priority questions arise when multiple valid security interests compete over collateral. They can be contrasted with ‘taking free’ rules, which apply where a security holder’s interest is cleared from title for the benefit of a buyer or lessee. We have seen the main ‘taking free’ rule

65 

Future Revelation Ltd v Medical Radiology and Nuclear Medicine Ltd [2013] NSWSC 1742, [6] (Brereton J). §9.320 UCC; Personal Property Securities Act 2009 (Cth) s 46. 67  Personal Property Security Act 1990 (Ont) s 30. 68  Whittaker (2015) (n 40) 147–148, 277–278; UNCITRAL Draft Model Law on Secured Transactions Art 37 Alt A (1)–(2) allows for a 30-day grace period to register an amendment, but a competing interest created by debtor 2 and registered before the amendment takes priority. 66 

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already. It refers to purchases in the ‘ordinary course of business’. Section 46(1) Personal Property Securities Act 2009 (Cth),69 for instance, allows for a buyer or lessee of an asset to take free of a perfected security interest created by the buyer’s seller, where the property was transferred in the ordinary course of the seller’s or lessor’s business. Section 46(2) provides that the buyer or lessee will not obtain good title if he had actual knowledge that the sale or lease is in breach of the terms of the security interest. Currently no value need be provided under the Australian rules. Whittaker recommends that the buyer or lessee should provide new value to take advantage of the rules.70 This seems right. The purpose of this exception is to improve the marketability of assets, and not to require value be given at all seems inappropriate. One final point on ‘taking free’ is that the recharacterisation process mentioned above whereby retention of title clauses are turned into security interests means that there are significant modifications to the nemo dat rules examined in chapter 3. In particular, the position where a wholesaler has purchased assets from a manufacturer who retains title, but wishes to sell them is currently governed by the Sale of Goods Act 1979 and Factors Act 1889 provisions. Under a PPSA it would be governed by the ‘taking free’ provisions of that statute. The question arises how that co-exists with the Sale of Goods Act provisions.71 We find in jurisdictions which have PPSAs that the Sale of Goods Act is amended accordingly,72 so that the PPSA takes priority where it applies. The standard rule is that priority runs from the point of perfection so that priority of competing interests where both are perfected by filing is decided by the order of filing or taking of possession, and a perfected interest should have priority over an unperfected security. There is some dispute, but those interests perfected by control may have super-­ priority—priority over interests registered already.73 Outside the insolvency context an unperfected security holder would have priority over unsecured creditors. As between themselves priority might be by order of attachment, or if that is the same date, the date of the relevant security agreements. With that said, the new rules under a PPSA would be a break from the old rules in two very important general respects. First, notice, whether actual or constructive, is irrelevant, except to the extent expressly provided for by the l­ egislation.74 Secondly, the availability of advance registration means it is possible to ‘tack’ in all cases. The current rules on tacking are complex, but so long as the advance of money relates to a prior registration it will benefit from the priority of that registration. A more specialised point is this. In the context of intellectual property another question arises as to the relationship with other registers. Some IP rights are registered, patents, for instance, and some, like copyright, are not. UNCITRAL recommends that registration of a security interest in the relevant IP register should take priority over registration in the 69 

Mirrored (or mirroring) by Personal Property Securities Act 1999 (NZ) s 56. Whittaker (2015) (n 40) 283. 71  See generally B Collier, P von Nessen and A Collier, ‘The PPSA: Continuing the Reconceptualisation of Retention of Title (Romalpa) Security’ (2011) 34 UNSWLJ 567. 72  In New Zealand, for example, Sale of Goods Act 1908 s 27A provides for the primacy of the Personal Property Securities Act 1999 where it applies. 73  Personal Property Securities Act 2009 (Cth) s 57(1); N Mirzai ‘The Personal Property Securities Act 2009—A Torrens System for Personal Property? An Analysis of the Priority Afforded to Interests Perfected by Registration’ (2012) 20 APLJ 102, 106–107; Whittaker (2015) (n 40) 310–311 questions the justification for super-priority. 74  Personal Property Securities Act 1999 (NZ) s 20; Personal Property Securities Act 2009 (Cth) s 300; Personal Property Security Act 1993 (Sask) s 47; see GMAC Leaseco Ltd v Monckton Motor Home & Sale Inc (2003) 227 DLR (4th) 154, [22–23]. 70 

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general security register. This enables searchers of the IP register to be sure that no other search is needed to gain priority.75 Double registration may therefore be required if a security interest is taken over IP and non-IP rights. Purchase money security interests (PMSIs) typically have super-priority. The justification for this is that the party providing the finance is bringing new value into the business that would not otherwise be present. This makes it easier for the debtor to obtain additional secured financing and break the monopoly power of the first to file secured creditor, who refuses to provide further finance.76 Originally the Law Commission proposed a type of super-priority for PMSIs. They argued that current English law fails adequately to distinguish two very different types of cases.77 The first is the case where a PMSI arises. These arise where a secured loan is taken out to purchase a particular asset over which a charge is taken and where the net position of the company is no worse after the purchase and the security are taken. This is because the assets of the company and the liabilities have both increased by identical amounts. The second type of case arises where a charge is imposed to secure a loan which is already in existence. The Law Commission argued that the former PMSIs should have super-priority. At the time it was proposing bringing retention of title clauses into the scheme and they would almost always be PMSIs. These proposals were subsequently dropped. Article 9 and the corresponding commonwealth legislation require special perfection mechanisms for super-priority in PMSIs. In the case of inventory the Law Commission provide for super-priority where the secured creditor gives notice in writing to anybody who has filed a prior financing statement over the collateral to say that he will have a PMSI in the collateral. He must register his interest and send the notice before the debtor takes possession of the asset. The notice should describe the inventory over which the PMSI will be held by item or kind.78 Much the same rule exists in Canada.79 The purpose of the notice is to notify a prior creditor, who may expect to be able to advance further funds on the basis of the original priority position that the priorities will change,80 allowing an informed decision as to whether to extend further credit. Not all systems require this. Section 62 Personal Property Securities Act 2009 (Cth) does not do so, although it does require that the registration of the PMSI state that it is a PMSI, and this enables the register itself to automatically notify parties who have requested this. The requirements for capital asset PMSIs are less stringent but require registration within ten days of taking possession of the goods, under the Law Commission’s scheme, to obtain super-priority.81 No notice to prior registered security holders is needed. Times vary depending on the jurisdiction and asset in question. PMSIs in intellectual property must be registered after a 15-day grace 75 UNCITRAL

IP Supplement to the Legislative Guide on Secured Transactions (2011) para 183. K Meyer ‘A Primer on Purchase Money Security Interests under Revised Article 9 of the Uniform Commercial Code’ (2001) 50 University of Kansas Law Review 143, 165–166. 77  Law Commission, ‘Registration of Security Interests: Company Charges and Property other than Land’ (Law Com CP 164, 2002) [7.5]; note also that interests perfected by control have prima facie priority under article 9: Beale et al, The Law of Security (2012) (n 2) para 23.109; art 9-328 of the UCC. 78  Law Comm Report (no 295) para 3.124. 79  Personal Property Security Act 1993 (Ont), s. 33(1); Personal Property Security Act 1990 (Sask), s 34(3). 80  Duggan Romalpa, 666. 81  Law Comm Report (no 295) para 3.219; §9-324 UCC, requiring filing in 20 days; Personal Property Securities Act 1999 (NZ), s 73 also requires filing within ten days of the debtor’s possession of the asset. Personal Property Securities Act 2009 (Cth) s 62 provides for 15 days for goods that are not inventory. 76 

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period under both the Saskatchewan and Ontario Acts.82 The exact period chosen should take into account industry practice in particular cases. In the USA PMSIs are not available over intangible assets, but it seems plausible in today’s world that a company might raise finance to purchase a patent licence and secure the finance on that licence.83 That should be treated as a PMSI in just the same way as if the asset purchased was a widget-making machine. While in English law the category of securities which are automatically perfected depends on form—so a pledge is automatically perfected—that category in article 9 depends on function.84 PMSIs in consumer goods, for example, will be perfected immediately under article 9.85 There is one important exception to super-priority, which relates to the relationship between invoice financing and PMSIs. At the moment under current English law an invoice financier who takes a block discount of the customer’s receivables can be sure that he will not be affected by a retention of title (RoT) clause. Attempts to extend RoT clauses into proceeds have generally foundered with the RoT clause being characterised as an unregistered and therefore void floating charge.86 This has enabled a well-developed factoring industry to grow without fear of inventory financiers with retention of title clauses being able to claim the proceeds. Super-priority of PMSIs, it is thought, should not therefore reach into the proceeds of sale and any consequent receivables so as to affect the priority of prior assignees of the receivables. Essentially the justification for restricting the PMSI holder’s priority is that there is no method by which the receivables financier can protect himself against a subsequent PMSI holder;87 the consequences can be severe for the receivables financier, and for the industry more broadly. All PPSA systems therefore provide for a non-PMSI holder in accounts to have priority over a subsequent PMSI holder in inventory. This can only be a sketch of the priority rules under a PPSA system. There are many others. However, one thing is clear; the introduction of a Personal Property Security Act would allow English (or UK) law to create an adequate and coherent law of priorities and to remove outdated and inappropriate rules. The rule in Dearle v Hall,88 for example, is that priority between successive assignments of the same chose in action depends on notice to the debtor, provided the assignee giving notice was at the time unaware of any competing assignment. That rule does not therefore apply under a PPSA.89 We saw that assignments of receivables—even if not done for a security function—are registrable as deemed security interests and so priority is simply by date of registration under a PPSA. By contrast Dearle 82  Personal Property Security Act 1990 (Ont) s 33(2) simply refers to any property other than inventory and the Personal Property Securities Act 1993 (Sask) s 34 refers to intangibles, which are defined in section 2 to implicitly include intellectual property and explicitly to include licences; under Personal Property Securities Act 2009 (Cth) a 15-day grace period applies under s 62. 83  R Boadle, ‘A Purchase Money Security Interest for the UK?’ [2014] LMCLQ 75. 84  §9-309 of the UCC. 85  ibid §9-313 of the UCC. 86  See chapter 11, part V A for further discussion, including of two recent disruptive cases. Caterpillar (NI) Ltd v John Holt & Co (Liverpool) Ltd [2013] EWCA Civ 1232, [2014] 1 All ER (Comm) 393; PST Energy 7 Shipping v OW Bunker Malta Ltd [2016] UKSC 23, [2016] 2 WLR 1193. 87  Duggan (n 46) 677; D Sheehan ‘A UK Personal Property Security Act: How would the Priority Scheme work?’ (2015) 30 JIBFL 332. 88  (1828) 3 Russ 1, 38 ER 475. 89  J Stumbles ‘The Impact of the Personal Property Securities Act on Assignments of Accounts’ (2013) 38 Melbourne UL Rev 415, 427.

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v Hall is a rule that causes huge problems as assignments under non-notification factoring arrangements are therefore permanently vulnerable, and under block discounting it is impractical for factors to find and notify creditors to protect their position. Under a PPSA they merely have to register.90

v.  Enforcement and the Relationship with Insolvency The UCC and the commonwealth PPSAs have detailed provisions on enforcement. This was not treated in any depth by the Law Commission. One of the major complications of the introduction of a PPSA and the consequent abolition (for example) of the floating charge/fixed charge distinction is that the enforcement provisions will need to be looked at. The basic scheme under the Australian and New Zealand legislation is at present that the remedies a creditor has on default, which is defined in section 16 of the New Zealand legislation but not defined in the Australian statute, are taken from the scheme of remedies available to a mortgagee.91 These remedies do not apply to ‘deemed security interests’ as they do not assume the existence of an underlying debt obligation, but apply to all ‘in substance’ security interests. They apply only in the commercial context; many of the provisions’ application are excluded in consumer credit cases. The PPSAs, however, in line with their basic tenet that the different consequences of a security interest do not depend on the nature of the security interest, provide a uniform enforcement mechanism. Old forms may yet (at least in New Zealand) retain some relevance such as the mortgage enforcement provisions in the Property Law Act 2007. Some of the PPSA provisions can be contracted out. This is different to the position under the Canadian provincial statutes where the remedies are typically mandatory. Importantly, the provisions whereby even after default the debtor or grantor may redeem the security through payment of the debt (and the creditor’s expenses in preparing for a sale)92 cannot be contracted out. The creditor has recourse to the collateral to pay his debt through a sale,93 seizure and possession,94 or receivership, although the New Zealand Act does not apply to receivers appointed under the Receiverships Act 1993 (NZ). Under section 108 Personal Property Securities Act 1999 (NZ) some collateral, such as accounts receivable and negotiable instruments, may be applied directly in satisfaction of the obligation secured where there is default. Where the collateral is financial collateral, accounts or receivables, under English law there will have to be provision for the creditor to take control or appropriate the collateral as provided for in the Financial Collateral Arrangements (No 2) Regulations 2003. Section 109 Personal Property Securities Act 1999 (NZ) permits a secured party to take and sell collateral where there is default or the collateral is ‘at risk’. The latter may be the case if the secured party has reason to believe that the collateral might be damaged or destroyed. A party exercising a power of sale has a duty, under section 110, to obtain the best price reasonably obtainable. This tracks the duty at common law, which we saw in chapter 13.

90  This raises a privacy issue as many businesses prefer to factor their receivables on a non-notification basis so that their creditors are not aware of the assignment having taken place. 91  Duggan and Brown (n 34) (2012) para 12.6. 92  Personal Property Securities Act 1999 (NZ) s 132; Personal Property Securities Act 2009 (Cth) s 142. 93  Personal Property Securities Act 1999 (NZ) s 109; Personal Property Securities Act 2009 (Cth) s 128. 94  Personal Property Securities Act 1999 (NZ) s 109; Personal Property Securities Act 2009 (Cth) ss, 123, 126.

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There is—at least in Australia—a difference. Section 111 Personal Property Securities Act 2009 (Cth) provides that all rights and duties under chapter 4 of the Act (the enforcement section) are to be exercised in a commercially reasonable and honest manner, which is in addition to the obligation to obtain market price or the best price reasonably available under section 131. Duggan and Brown have argued95 on the basis of this that while under pre-PPSA law the timing of a sale was entirely at the discretion of the creditor, who had no duties as to timing to the debtor and any lower ranking creditors, section 111 holds the creditor to standards of commercial reasonableness in this context also. Two sets of notice must be given out under the New Zealand legislation in cases of sale.96 No fewer than ten days before sale, the enforcing creditor must give notice under section 114(1) to the debtor and any other creditors who have registered an effective financing statement, and anyone else who has given the secured party notice that they claim an interest in the asset. Some exceptions to this rule are found in section 114(2). Within 15 working days after the sale a post-sale statement of account must also be provided. Lower ranking securities are extinguished upon sale so the buyer from the creditor enforcing his security takes free, although those lower ranked security holders can demand the distribution of any surplus; any higher ranking secured parties must be paid first97 and on payment their security should be discharged. In Australia under section 133 Personal Property Securities Act 2009 (Cth), buyers take subject to higher ranking securities, but Whittaker comments in his review of the Act that this sits uneasily with the requirement that the higher ranked securities be paid off first. He does, though, suggest that in some cases disposal may not result in sufficient funds to pay the senior creditors.98 It is hard to see why the junior creditor would take enforcement action in such cases. A secured party may also under section 111 Personal Property Securities Act 1999 (NZ) take possession of the collateral. The Act also contains a procedure whereby the secured party may foreclose upon the collateral by section 120, although the remedy is not given that name; rather it is a right to ‘retain’ the collateral.99 The secured party must have priority over all others and give notice to the parties listed in section 114(1) of the intention to foreclose. Those parties then have a right to object if their position would be (and can be proven to be) adversely affected. This tends to mean that the right to retain has a limited scope, because it is precisely when there is a surplus over the debt due that the secured party might wish to retain, and precisely then that the objection will arise. The relationship with insolvency proceedings causes an issue. Despite the disappointment of the Law Commission’s suggestion that the distinction between fixed and floating charges be retained until a full review of insolvency law has taken place,100 their position is understandable in the context of their remit, which did not include insolvency. We have 95 

Duggan and Brown (n 34) (2012) para 12.39. Slightly different notice and statement of account rules are found in Personal Property Securities Act 2009 (Cth) ss 130, 132. 97  Personal Property Securities Act 1999 (NZ), ss 115–117; Personal Property Securities Act 2009 (Cth) s 140. 98  Whittaker (2015) (n 40) 396. 99  In land cases—and cases where a mortgage covers land and personal property and the creditor opts to use the land mortgage remedies—foreclosure against the equity of redemption was abolished by Property Law Act 2007 (NZ), s 117. In Australia the right to retain and rules on its operation are contained in Personal Property Securities Act 2009 (Cth) ss 136–138; Whittaker (2015) (n 40) 397 refers to it as a statutory foreclosure procedure. In New Zealand the corresponding provision is Personal Property Securities Act 1999 (NZ) ss 120–123. 100  Law Commission, ‘Company Security Interests’ (Law Com No 296, 2005) [3.147]. 96 

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seen that the floating charge remains enshrined in insolvency legislation (such as the avoidance of floating charges granted within a year of insolvency).101 There will therefore have to be some consequential amendments here and a decision taken as to whether to try to replicate the current position using the new concepts. New Zealand law attempts to do so with preferential creditors, for example. Companies Act 1993 (NZ) schedule 7 clause 2(1) provides that preferential creditors have priority over holders of a security interest over all the company’s account receivable and inventory unless the competing security is a PMSI or arises from the transfer of an account receivable for which new value is provided. A similar provision could be contemplated at least for claw-back purposes. A final issue is the question of who funds insolvency. At the moment the costs of the liquidation or administration are paid in preference to floating charge holders, but not fixed chargees. In the context of administration as a rescue of the company there is some logic in the floating chargee carrying the burden as he is most likely to gain from the rescue.102 This does not work in the context of liquidation, although a bank as a repeat player might just get a benefit from a stable funding rule. Richard Calnan has suggested that all security holders should bear the costs with a percentage being taken from the proceeds or value of all assets subject to a security.103 Gullifer and Payne104 argue that there is difficulty in setting the percentage figure and the cap, so that the costs of the insolvency are not permitted to balloon. True, but far from insuperable. Their second point is that creditors might seek to provide more title-based financing outside the scope of the rule. The advantage of a PPSA system here is that title-based financing is within the scheme, and the rule will be that a percentage of the value of ‘in substance security interests’ is taken. Currently receivables financing, which would be a deemed security interest under a PPSA, has grown more extensive and with an SME, for example, a floating charge will usually cover few assets. Gullifer and Payne argue that this means much of the funding by a bank chargee is voluntary and this gives the bank greater power over the insolvency. Receivables financiers would be exempt from contributing to insolvency under the scheme tentatively proposed here, but in practice it may be that the practical control of banks over insolvency will not be loosened. Some further work would be needed to see if this is correct and its implications, however.

vi.  Cautionary Notes One argument we should be wary of making is that English law is currently too complex. McCormack points out that article 9 is by no means obviously less complex, although it clearly has a greater conceptual unity.105 Gullifer comments that the conceptual basis for the security interest under a PPSA or article 9 regime is always the same, but sometimes the chargor has a licence to deal with the assets.106 Davies, however, criticises the unitary 101 

Insolvency Act 1986 s 245. L Gullifer and J Payne Corporate Finance Law, 2nd edn (Oxford, Hart, 2015) 305–306. 103  R Calnan ‘Floating Charges: A Proposal for Reform’ (2004) 19 Journal of International Banking and Financial Law 341. 104  Gullifer and Payne Corporate Finance Law (2015) (n 102) 306–307. 105 McCormack, Secured Credit in English and American Law (2004) (n 51) 97; Beale et al, The Law of Security (2012) (n 2) para 23.103. 106  L Gullifer, ‘Will the Law Commission Sink the Floating Charge?’ (2003) LMCLQ 125, 146–47; this parallels the licence to deal theory discussed above, although it is also consistent with Nolan’s overreaching theory. See R Nolan ‘Property in a Fund’ (2004) 120 LQR 108. 102 

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concept of security interest as over-inclusive. It blurs the differences between ownership and security and to the extent that retention of title clauses are included in security interests this might on its face seem right107—except that they are only treated as security interests for the purposes of the statute. For all other purposes the creditor is treated as the owner. The complexity of the article in American law is partly due to the need to adapt the usual rules to particular contextual scenarios; that said, the Canadian and New Zealand statutes are not overly long or complex in their drafting and could be adapted. A further related critique is that the article 9 treatment of receivables financing through factoring does not set out a clear method for distinguishing between straightforward sales of receivables and security transfers, where sales of receivables are registrable and treated the same as security interests for priority purposes.108 This distinction will be critical in bankruptcy where it determines the destination of any surplus—to the buyer in the case of a sale, and the seller in the case of a security assignment. Making this distinction between non-notification factoring with recourse and charges has posed difficulty in English law as well. It is not impossible to make lesser reforms. It is possible under a transaction-filing regime to make priority date from the time of registration. Notice-filing is not required for such an outcome. Nor is notice-filing required to provide for advance filing. Registration under a transaction-filing regime could lapse if no confirmation—with perhaps the transactional documents—is received in a given time frame, as occurs in the Republic of Ireland.109

B.  The International Influence of UCC Article 9 McCormack argues that an important driver for reform is the article 9 agenda;110 the influence of article 9 can be seen in the Canadian provincial legislation and then in successive generations of legislation in New Zealand and Australia. The World Bank also seems to have bought into the model with the Credit section of its ‘Doing Business’ ratings, for better or worse, based on how well a given national system tracks article 9. The article 9 model is based on a neoliberal economic foundation, which endorses widening the availability of credit and security. McCormack discusses different studies which show that gaps and weaknesses in collateral-based finance schemes tend to inhibit economic growth, and enhanced security rights tend to lead to greater access to and cheaper credit.111 There is therefore an important economic driver here, which might explain, or at least help to explain, the success of article 9. We need to sound a note of caution here also in that there is clearly more to secured transactions law than whether the written law tracks article 9; another

107  I Davies, ‘The Reform of English Personal Property Security Law: Functionalism and Article 9 of the Uniform Commercial Code’ (2004) 24 LS 295, 303–04; this is also Calnan’s position. See R Calnan ‘What does a Good Law of Security Look Like?’ in F Dahan (ed) Research Handbook on Secured Finance in Commercial Transactions (London, Edward Elgar, 2015) 453; for discussion see L Gullifer, ‘The Law Commission’s Proposals: A Critique’ (2004) 15 European Business Law Review 811, 831–33. 108 McCormack, Secured Credit in English and American Law (2004) (n 51) 237–47; Law Commission, ‘Registration of Security Interests: Company Charges and Property other than Land’ (Law Com CP 164, 2002) [7.45] recommends the registration of sales of receivables under a factoring agreement. 109  Companies Act 2014, s 412 (RoI); see generally G McCormack ‘American Private Law Writ Large: The UNCITRAL Secured Transactions Guide’ (2011) 60 ICLQ 597, 615. 110  McCormack (2004) (n 51) 64–68. 111  ibid 489.

Reform in other Jurisdictions 387

important factor is simply the robustness of the legal system. English law therefore scores well in international comparisons because of the way in which it is largely facilitative and allows the parties to do most things that they want to, but because the written law does not track article 9 it loses out in the World Bank ratings to countries like Colombia and Rwanda. It would be difficult to argue that creditors in Colombia with its weaker legal system are better off than in the UK.112 Nonetheless many countries, including the UK, are committed to improving their position in those rankings and reforming the law along ­article 9 lines is an easy win. Another explanation for the success of article 9 might be that it is a code. Codes are easier to export than the messy casuistic system of English law. UNCITRAL produced a Legislative Guide in 2009 on secured transactions law, with a supplement in 2011 on security interests in intellectual property law, which follows the broad contours on the article 9 system.113 The idea of the UNCITRAL Legislative Guide is to help harmonise secured transactions law across the globe. UNCITRAL has now adopted a Model Law on Secured Transactions and this will join other model laws based to differing degrees on article 9, such as the EBRD Model Law, which also tries to accommodate features of a more civilian kind, and the Inter-American Model Law. It is a legitimate question whether this is a worthwhile endeavour. The Legislative Guide provides a very detailed discussion of the policy issues involved in secured transactions law. There is arguably an over-supply of model laws and although the legislative expertise to translate the guide into a statute may not exist in all jurisdictions, no model law can be enacted entirely without change. The guide is broad and sweeping in respect of the types of property that it encompasses. Almost any type of asset may be used as collateral, and the security extends into proceeds. It is perfectly possible to create a super-generic universal charge if you will over the entirety of a company’s business operation.114 The validation of such security interests is, McCormack suggests one of the most significant features of the Guide,115 and one of the most neoliberal in nature. Just as under article 9, registration of security interests and notice-filing in particular is given pride of place.116 Just as under article 9 the Guide takes a functional track, recharacterising quasi-security interests such as retention of title clauses as security interests properly so-called. The priority rules also track very closely the provisions of article 9. US law has had a strong influence on the way in which international financial institutions operate,117 and certainly the Legislative Guide appears to have swallowed the article 9 approach completely. A final cautionary note needs to be sounded. The law of secured finance is seen as embodying differing cultural attitudes and policy choices, which might be different in different states.118 In particular we find that although the US single security interest model has found favour in many countries, including post-communist states, other jurisdictions

112  McCormack discusses the deficiency of the methodology in G McCormack ‘World Bank Doing Business Project: Should Insolvency Lawyers take it Seriously?’ (2015) 28 Insolvency Intelligence 118. 113  G McCormack ‘UNCITRAL, Security Rights, and the Globalisation of the US Article 9’ (2011) 62 NILQ 485; S Bazinas ‘The Influence of the UNCITRAL Legislative Guide on Secured Transactions’ in F Dahan (ed) Research Handbook on Secured Financing in Commercial Transactions (London, Edward Elgar, 2015) 26. 114  UNCITRAL ‘Legislative Guide’ (2009) Recommendation 17. 115  McCormack (n 109) 609. 116  ibid 614. 117  McCormack (n 113) 499–502. 118  ibid 487; McCormack (n 109) 600–602.

388  Secured Transactions Law Reform

make different choices. In some traditional Napoleonic jurisdictions, particularly in South America, we find that it is not possible to create security over all present and future debts,119 although the OAS model law is making some inroads.120 McCormack, however, comments that the relative lack of success the OAS Model Law has had is explicable by reference to suspicions that it is primarily for the benefit of large multinational corporations (who will in many cases be US in origin).121 That said, the neoliberal, free market culture that generated article 9 is one that is very highly compatible with the general legal and commercial culture in the UK. The suspicion to which the OAS Model Law is subject should not be an issue in England.

C. Prospects for the Abolition of the Floating Charge apart from a PPSA System The Enterprise Act reforms along with Spectrum Plus have made a significant impact on lenders by making the floating charge less attractive. The Law Commission has made no proposals for the abolition of the floating charge,122 but did propose, as we have seen, that the main remaining difference—priority—be abolished. Security would rank by time of registration irrespective of the type of charge.123 Michael Bridge has commented that there would under the Law Commission proposals be no need for a negative pledge agreement, and further that the question whether a floating charge has crystallised would no longer come up, although the Law Commission do appear to anticipate the continued importance of the concept not least because of its importance in insolvency, which was beyond their remit. Even leaving the Law Commission’s proposals to one side, Riz Mokal has argued that there is already no reason to retain the floating charge.124 His argument begins with the suggestion that if a lender is seeking priority it is not a rational strategy for it to seek a floating charge because of its lowly position in the pecking order, and this is borne out by the arguments that have broken out over whether charges are floating or fixed. For Mokal the point of the floating charge is to displace the management. The point of the administrative receivership is therefore control over the assets and the defaulting firm. It can only do this, if it is part of a package of security interests. The fixed charges in the package ensure that the chargee has a steady flow of information about the business, as the chargor will need to keep him or her abreast of developments to secure permission to use charged assets. They also provide the priority desired.125 What the floating charge brings is the ability to displace the management of the company and replace it wholesale with an appointee with the chargee’s

119 

P Wood Law and Practice of International Finance (London, Sweet and Maxwell, 2007) 248–249. B Kozolchyk ‘Implementation of the OAS Model Law on Secured Transactions: Current Status’ (2011) 28 Arizona J Intl & Comparative Law 1. 121  McCormack (n 86) 603–604. 122  Law Commission, ‘Registration of Security Interests: Company Charges and Property other than Land’ (Law Com CP 164, 2002) [3.171]–[3.173]. 123  ibid [3.149]–[3.155]. 124  R Mokal, ‘The Floating Charge: An Elegy’ in S Worthington (ed), Commercial Law and Commercial Practice (Oxford, OUP, 2003) 479. 125  ibid 495. 120 

Conclusion 389

interests at hand. Armour and Frisby make a similar point that the administrative receivership is a vehicle for the efficient disposal of the debtor’s assets by a concentrated creditor. By this they mean a single creditor who owns most of the firm’s debts and has a large incentive to invest in monitoring the debtor’s position and provides a less costly enforcement strategy for the creditor.126 The Enterprise Act 2002 removes the floating chargee’s ability to displace management (in Mokal’s terms) or take control of the assets (in Armour and Frisby’s) and replaces it with an ability to appoint an administrator who has the interests of all creditors to consider. Mokal argues that the mutually beneficial functions of the floating charge have been rendered redundant,127 and thus that the time has come to abolish the floating charge. The City of London Law Society also suggest abolishing the floating charge, and maintain only the distinction between legal and equitable charges.128 In fact their proposals abolish the mortgage and pledge as well and consolidate the law so that there is only one form of security interest: the charge. They maintain the distinction between legal and equitable charges, although the distinction makes almost no difference. Within their priorities system it makes no difference, for example (except as regards financial collateral)129 whether the charge is legal or equitable. Naturally the abolition of the floating charge does not mean that questions of being able to sell and buy assets subject to the charge go away. The City of London Law Society therefore propose not only that where the chargor is authorised to transfer an ‘outright interest’ in the collateral that the transferee take free of the charge, but also propose different taking free rules depending on whether the asset in question is a current asset, as defined under accounting standards, or a fixed asset.130 The CLLS proposals seem far from comprehensive, however; under the PPSA rules there are far greater and more detailed rules on taking free than the CLLS code provides.

III. Conclusion This chapter has explored the alternative article 9/PPSA model of secured transactions. That model is increasingly popular in the common law world, although less so in the civil law traditions. It reflects a highly neoliberal, market-focused approach which is far from alien to English law. We have seen that there remain some serious problems with the current English law. Business is entitled to expect that the law provides for the facilitation of secured lending to businesses whether incorporated or not, effective enforcement of those security interests and publicity to third parties with an interest in knowing of their existence. It is far from obvious to say the least that English law achieves that. Nonetheless it cannot be denied that a move to a fully-fledged Personal Property Security Act would be a considerable law reform undertaking. It would require consideration of relationships between the new Act and other areas of law. One in particular would be the relationship between the ‘taking free’ rules in a PPSA and the exceptions to nemo dat already in existence under the Sales

126 

J Armour and S Frisby, ‘Rethinking Receivership’ (2001) 21 OJLS 75, 85–88. Mokal, ‘The Floating Charge: An Elegy’ (2003) (n 124) 505. 128  CLLS (n 11) (2016) art 3. 129  ibid art 37.5 (rule 4). 130  ibid arts 41–43. 127 

390  Secured Transactions Law Reform

of Goods Act 1979 and the Factors Act 1889. In terms of implementation it would require the development of a new registration system and electronic register, the phasing out of the Companies Charges Register and the move of existing charges from one register to the other. The Secured Transactions Law Reform Project comment,131 In weighing the costs and benefits of the new scheme we should take into account the fact that it has now been adopted in many jurisdictions, most of which have had it in place for many decades and all but two of which are common law jurisdictions whose rules were previously much the same as those of English law. It will therefore be a matter for consideration as to whether English security law and practice are so distinctive as to make it unnecessary to follow the same approach.

If we agree, the only question is one of political will, which has historically been lacking, and after the Brexit vote may remain lacking. There is a note of caution to add. If England is to adopt an article 9-type system, it must do so properly. The New Zealand Personal Property Securities Act 1999 was amended twice before it came into force and then again in 2004. Australian draft legislation also came in for criticism,132 but was enacted into law in December 2009, and will after Whittaker’s review probably be amended again.

131  Secured Transactions Law Reform Project, ‘Secured Transactions Law: The Case for Reform’ securedtransactionslawreformproject.org/the-case-for-reform (visited 6 July 2015) para 23. 132  eg L Thai, ‘Personal Property Securities (Draft) Bill 2008’ (2009) 17 Australian Property Law Journal 119, but see S Fisher, ‘Personal Property Security Law Reform in Australia’ in J de Lacy (ed), The Reform of UK Personal Property Security Law (London, Routledge, 2010) 366.

16 Concluding Observations The law of personal property covers a very wide spectrum of scenarios and has had little detailed scrutiny of its overarching structure over the years. This is a shame. It is a system and can best be understood as a system. Indeed, without understanding it as a system, it becomes much more difficult to understand. Birks once observed every area needs its academic community, that personal property law hardly had one and that therefore even simple matters had started to appear obscure.1 Both Andew Tettenborn and Sarah Worthington have commented on an apocryphal commercial lawyer, au fait with initial public offerings and directors’ disqualification, but with no clue what claim he or she would have if his or her bicycle were stolen,2 and yet these most basic of questions provide the building blocks on which the complexity of modern commercial law is built. There is therefore an important link between personal property law and both commercial law and commercial practice. This is reflected in the examples of the use of personal property law I have given and in the importance given to the discussion of the views contained in commercial law books. The point of this commercial focus must be understood as expository of underlying features to the laws which apply whatever the context in which they are found. If not, we fall into the trap of those students who clamour for commercial law courses on finance, insolvency and sales without grasping that they are based on personal property law—a subject which, if asked, they might describe as difficult and irrelevant.3 McKendrick, in his edition of Goode on Commercial Law, maintained the ‘Final Reflections’ chapter from older editions, which contains a discussion of the principles and philosophy of commercial law.4 I wish to try to make some similar observations here and make some comparisons between the philosophy and principles of commercial law and those of personal property, comparisons obscured by the belief that they are somehow separate and different. Goode on Commercial Law observes that the essence of commercial law is the accommodation of rules, usages and practices to the needs of commercial practitioners. Commercial law facilitates rather than hinders legitimate commerce. It is this that gave rise to negotiability of bills of exchange, the idea of a document of title to goods, and the range and conceptual subtlety of the floating charge.5 These are all concepts of personal property law and all are discussed in this book. However, some have contrasted this commercial law

1 

PBH Birks, ‘Personal Property Law: Proprietary Rights and Remedies’ (2000) 11 King’s College Law Journal 1. A Tettenborn, ‘Book Review’ (1999) LMCLQ 586; S Worthington, ‘Rehabilitating Personal Property Law as a Serious Topic for Research and Teaching’ (2002) 36 Canadian Business Law Journal 238. 3  Worthington, ‘Rehabilitating Personal Property Law as a Serious Topic for Research and Teaching’ (2002) (n 2) 239. 4  E McKendrick (ed), Goode on Commercial Law, 4th edn (London, Penguin, 2010) ch 40. 5  ibid 1347–48. 2 

392  Concluding Observations

interest in facilitating business transactions with an opposing view of property law. Rather than facilitating parties’ actions, the latter may be seen as hindering them. The courts have for example been very keen to keep constructive notice—a typical property law concept— out of commercial practice. In Eagle Trust v SBC,6 Vinelott J said, in the context of a knowing receipt claim, discussed in chapter nine, part V B, that the defendants should not be held to the strict standards of constructive notice because of the commercial context in which the dispute had arisen. He seems to have had in mind a worry that constructive notice in land law imported a requirement for a buyer to make detailed inquiries of who had interests in the property; if such detailed inquiries were not made the defendant could be bound by any such interest. This raises an important point about the adaptability of property law and its supposed incompatibility with commercial objectives. Fox has made the argument quite correctly that the requirements laid on a party to avoid being treated as having constructive notice vary. In the fast-moving commercial world of banking (say) where the slow-moving inquiries of buying a house are inappropriate, constructive notice will not be imposed on a party unless they have fallen below standards requiring much less in the way of inquiry into the provenance of funds.7 Constructive notice for one purpose is not constructive notice for all. This shows that the contrast drawn between commercial law and property law is a false one. Personal property law has always adapted quickly to commercial practice. Some commentators have also discussed the role of equity in commercial law.8 Equity of course is a vital component of property law and yet it is occasionally discussed as if it were somehow different. It really is not. In a system now substantively fused where equitable doctrines and remedies are inseparable from the rest of the law and where trusts are regularly used in the international financial markets,9 this cannot be so. Trusts over personal property have immense modern significance. Anyone who has a pension or unit trust investment will find that their assets are hidden behind a trust. All this is possible because the trust is a facilitative institution allowing the separation of management and enjoyment of property.10 It is that aspect of the law of trusts as a facilitative institution that makes it so important in the commercial context where facilitating the aims of the parties can become of prime importance. The correct characterisation of beneficiaries’ rights under a trust and in particular a discretionary trust become vitally important,11 yet that is a question looked at towards the beginning of trusts courses and the dots with commercial law never connected up.12 Yet there remains this residual fear in some areas that equity, as apparently based on ‘fairness’, will mess up our commercial law. Lord Browne-Wilkinson gave voice to these fears in Westdeutsche Landesbank Girozentrale v Islington LBC.13 That was a case,

6 

Eagle Trust v SBC [1993] 1 WLR 484; Manchester Trust Ltd v Furness [1895] 2 QB 539 (CA) 545 (Lindley LJ). D Fox, ‘Constructive Notice and Knowing Receipt: An Economic Analysis’ (1998) CLJ 391, 395. 8  LS Sealy and RJA Hooley, Commercial Law: Text, Cases and Materials, 4th edn (Oxford, OUP, 2008) 29–35. 9  See, eg D Hayton, H Pigott and J Benjamin, ‘The Use of Trusts in International Financial Transactions’ (2002) 17 Journal of International Banking & Financial Law 23. 10  R Pearce and W Barr, The Law of Trusts and Equitable Obligations, 6th edn (Oxford, OUP, 2015) 60–64 on the division of enjoyment and management and ch 22 on collective investments. 11  CPT Custodian Pty Ltd v Commissioner of State Revenue (Vic) (2005) 224 CLR 98; PG Turner, ‘Revolution?’ (2006) 1 Journal of Equity 41, 65–69. 12  But see Tang Hang Wu, ‘Teaching Trust Law in the Twenty First Century’ in E Bant and M Harding (eds), Exploring Private Law (Cambridge, CUP, 2010) 125. 13  Westdeutsche Landesbank Girozentrale v Islington LBC [1996] AC 669 (HL). 7 

Concluding Observations 393

discussed in chapter seven, concerned with the availability of proprietary remedies in a commercial context—void swaps agreements between banks and local authorities. Lord Browne-Wilkinson said: My Lords, wise judges have often warned against the wholesale importation into commercial law of equitable principles inconsistent with the certainty and speed which are essential requirements for the orderly conduct of business affairs … If the bank’s arguments are correct, a businessman who has entered into transactions relating to or dependent upon property rights could find that assets which apparently belong to one person in fact belong to another; that there are ‘off balance sheet’ liabilities of which he cannot be aware; that these property rights and liabilities arise from circumstances unknown not only to himself but also to anyone else who has been involved in the transactions. A new area of unmanageable risk will be introduced into commercial dealings.14

This is a legitimate concern, although not on the facts of that case where on no view should a proprietary remedy have been available to the payor. Yet it is a view which, read in a particular way, contrasts ‘commercial law’ with ‘equity’. This is a contrast we cannot make. It is a concern of commercial law, equity and personal property law, which are overlapping taxonomic categories, to ensure that a balance is struck between the needs of the holders of equitable property rights, and the third party creditors of the undertaking. Lord Millett has been quite right to point out that attitudes that try to keep equity out can be positively harmful.15 At the same time there is no licence to extend equitable concepts outside their proper range. In Hospital Products Ltd v United States Surgical Corporation,16 the High Court of Australia commented in the context of a commercial distributorship agreement that arms-length commercial agreements should not give rise to fiduciary relationships. Other property concepts, not usually thought of as being commercial have an important role. Questions of the impact on property ownership of mixing of assets, and joining assets together become vital in working through the effect of retention of title clauses, and yet these questions of accession, specification and commingling will be seen by many as an obscure and irrelevant corner of the law only really encountered, if at all, in introductions to Roman law. Other vital commercial law ideas impact strongly on the conceptual nature of basic personal property concepts. We saw how substantive defences such as equitable transaction set-off tell us important things about the very nature of a chose in action. The protection of property rights at common law had been marred, until recent work done by Sarah Green and John Randall,17 and Simon Douglas,18 by a desert of analysis of the various property torts. Some of these torts, as suggested in chapter eight, are very obscure indeed. Take for example reversionary injury, a tort many will never have heard of. Yet the protection of very many bailors’ interests is dependent on that tort, particularly in the commercial context where assets are hired out to the users. One case we discussed in chapter eight involved a train leasing company suing to protect its interest in the train,19 despite the train operator having exclusive control over it.

14 

ibid 704–05. Lord Millett, ‘Equity’s Place in the Law of Commerce’ (1998) 114 LQR 214. 16  Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 (HCA). 17  S Green and J Randall, The Tort of Conversion (Oxford, Hart, 2009). 18  S Douglas, Liability for Wrongful Interference with Chattels (Oxford, Hart, 2011). 19  HSBC Rail (UK) Ltd v Network Rail Infrastructure Ltd [2005] EWCA Civ 1437, [2006] 1 WLR 643. 15 

394  Concluding Observations

Having praised the links between commercial law and personal property law, and the way in which both aim to facilitate the parties’ wishes, we need to note that Sir Roy Goode has on more than one occasion suggested that the quality of our domestic commercial legislation is now appalling.20 The Sale of Goods Act 1979, Bills of Sales Act 1878, Bills of Sale Act (1878) Amendment 1882, and Bills of Exchange Act 1882 are all nineteenth century statutes—the Sale of Goods Act essentially being a re-enactment of that of 1893. These are all (at least in part) personal property statutes as well, discussed at various stages in the book. All badly need updating. Additionally, it is still uncertain whether personal property security law and the law on company charges will receive the thorough overhaul it needs, despite the work of the Secured Transactions Law Reform Project and the reform in 2013 to Part 25 of the Companies Act 2006. However, as we reform the more commercial parts of our personal property law, we must not forget that concepts matter and that what we put in place is consistent and congruent with what we find in other areas of our property law. As Gullifer has pointed out, reforming charges law to render it more responsive to commercial needs and to render it more easily compatible with other reforming measures elsewhere in the world impacts on the law of nemo dat.21 The importance of international developments is not merely reflected in the normal habit of common lawyers in England to look overseas to see what developments happen in the highest courts and legislatures of the major common law jurisdictions in the Commonwealth. It is also reflected in the way that English commercial law is affected by new international conventions, such as the Cape Town Convention on Security Interests in Mobile Equipment brought into force by International Interests in Aircraft Equipment (Cape Town Convention) Regulations 2015, along with model laws and soft international law, such as the UNCITRAL Legislative Guide on Secured Transactions, and its Model Law on the same subject. A volume of the Trento project series on the common core of European private law was published on security interests, for example,22 and Book IX of the Draft Common Frame of Reference also concerns secured transactions law. Van Erp has suggested a European Security Interests Register, including security interests in land.23 This has been largely a book about the English domestic law—but less so than the first edition; however, there can be no doubt that the time will eventually come when that is both parochial and inappropriate. In particular, Veneziano has argued since the first edition of this book was published that the current European approach of piecemeal reform and harmonisation of secured transactions is not a good approach, and that a better approach would be the devising of a European security interest which parties could choose if they wished.24 Matters therefore are moving on apace. Although timing has not allowed for much consideration of the effects of the UK’s vote to leave the EU, European developments will inevitably be of

20  eg R Goode, Commercial Law in the Next Millennium (London, Sweet and Maxwell, 1998) 96–104; see also McKendrick, Goode on Commercial Law (2010) (n 4) 1351 on the woefully inadequate state of secured finance legislation. 21  L Gullifer, ‘Exceptions to the Nemo Dat Rule in Relation to Goods and The Law Commission’s Proposals’ in J de Lacy (ed), The Reform of UK Personal Property Security Law (London, Routledge, 2010) 188. 22  E Kieninger (ed), Security Rights in Moveable Property in European Private Law (Cambridge, CUP, 2004). 23  S Van Erp ‘The Cape Town Convention: A Model for a European System of Security Interests Registration?’ (2004) 12 ERPL 91, 109. 24  A Veneziano ‘European Secured Transactions Law at a Crossroad’ in L Gullifer and S Vogenauer (eds), English and European Perspectives on Contract and Commercial Law (Oxford, Hart, 2014) 405, 409–410.

Concluding Observations 395

less political importance today given the vote; they will not—or need not—directly bind us. Leaving the EU will not, however, stop the march of globalisation. There are also important non-commercial questions in personal property law which we have not touched upon in detail. What should count as property? Should information for example count as property?25 Should we be considered to own our body parts? One point that came up tangentially in chapter ten, part V involved property rights in our stored semen; can semen be bailed to the NHS? Where is the philosophical boundary line between personal rights and property rights?26 What types of property regime should there be—we have said virtually nothing in this book about the regimes of public or common property for instance. Conceptual questions about the relationship between the modes of conveyance and contract have resurfaced that might have been expected to have been answered long ago. Questions about the very nature of equitable proprietary rights, or persistent rights in McFarlane’s terminology, have gained added impetus and excitement precisely because of the work that he, and amongst others, Richard Nolan, have done in the area.27 These questions have vital conceptual consequences in how we understand tracing claims, floating charges and other equitable concepts throughout the area and beyond including in real property law.

25  On which see P Kohler and N Palmer, ‘Information as Property’ in E McKendrick and N Palmer (eds), Interests in Goods, 2nd edn (London, LLP, 1998) 3. 26  See, eg S Worthington, Personal Property Law: Text and Materials (Oxford, Hart, 2000) 665–72. 27  eg B McFarlane, The Structure of Property Law (Oxford, Hart, 2008) 21–25; R Nolan, ‘Equitable Property’ (2006) 122 LQR 256.

396 

INDEX

abandonment  25–6, 254 account, liability to  252 accumulations  20–1 actual/de facto possession  11–13, 207 administrative receivers, appointment of definition  361 duty of care  361–2 expenses  362 fixed charges  361 floating charges  354, 361–4, 366 good faith  361, 363 powers  361–2 priority  361–2 reform  363 sale of assets  361–2 termination  364 administrators, appointment of administration orders  364 administrative receivers, appointment of  364 creditors’ committees  365 directors  365 distributions  365–6 floating charges  354, 364–6 notice  364 objectives  364–6 Personal Property Security Act/Article 9-type schemes  385 priority  365 sale of assets  365 termination  365–6 advancement, presumption of  156–60, 166 Equality Act 2010  159–60 father to child  159 husband and wife, between  158–9 mother to child  159 adverse possession  10 affirmation  178, 179 agency factoring  63 knowing receipt  234 mercantile agents  60–4, 66–8, 71–2, 300, 303 nemo dat rule  56 receivership  336 retention of title clauses  288 aircraft, international interests in  276–8 advance relief  342 Aircraft Mortgage Register  326 Cape Town Convention  276–8, 281, 394 mortgages  326, 340–2, 343

Personal Property Security Act/Article 9-type schemes  378 Railway Protocol  278 remedies  375 charges  277 commercial reasonableness  341 common law  326 conflict of laws  276–7 consent to registration  278 deregistration and export  341–2 enforcement  340–2 floating charges  278 identification of assets  277–8, 326 interim injunctions  342 leasing  277, 326, 340 lex registri  277 lex situs rule 276–7 mortgages  277, 326, 340–2, 343 notice  341 ownership in chargee, vesting of  341 perfection  276–8 Personal Property Security Act/Article 9-type schemes  277, 340–1, 378 priority  326 registration  277–8, 281, 326, 341–2 remedies  340–2, 375 retention of title  277, 326, 340 writing  326 appropriation  49–50, 53, 54 Armour, J  389 Article 9 UCC see Personal Property Security Act/Article 9-type schemes asportation  188–9, 203 assignment see also equitable assignment absolute assignments  82–4, 91–2 anti-assignment clauses  110–16 bills of exchange  127, 131–2 bills of lading  146–7 bills of sale  374 block discounting  383 book debts  83, 323, 368–9, 374 choses in action  7, 81–116 commercial background  81–2 common law  19, 81, 82 companies  374 Dearle v Hall, rule in  19, 280, 382–3 debts  34, 81–2, 116 deferred payment credits  149–50 documentary credits  149–50 equitable title  19

398  Index factoring  81–2, 116, 383, 386 intellectual property rights  81, 278–9 Law of Property Act 1925 section 136  19, 82–7, 105–6 legal assignment  82–7, 106, 112, 323 legal choses in action  81–116 liens  304 multiple assignments  19 negotiation, assignment distinguished from  81, 127 non-assignable choses in action  106–16 non-assignment clauses  116 novation, assignment distinguished from  81 oral assignment  96–7 ownership  7–8 patents  278–9 Personal Property Security Act/Article 9-type schemes  374, 378, 382–3, 386 priority  82, 86, 99, 103–6 procedural assignment  105–6 receivables  82, 290, 374, 382 registration  82, 280 security interests  280 set-off  290 statutory assignment  19, 82–7, 105–6 subject to equities  86, 99, 100–3, 105, 116, 149–50 subordination agreements  378 trusts  22 Atiyah, Patrick  310 attachment  26–7, 266–9, 276, 322, 325–6, 358, 375–80 attornment bailment  239, 249, 254–5 bills of lading  19, 146–7 definition  254 delivery  52, 254–5 pledges 399 quasi-attornment  255 reversionary interests  249 unconditional appropriation  43 Australia advance filing  377 advancement, presumption of  159 amendment of legislation  390 assignment  84–5 constructive trusts  121 every efforts doctrine  96–7 fiduciaries  393 finance leases and operating leases, difference between  374 financial collateral arrangements  378 liens  313–14, 315, 317 maintenance and champerty  107 malicious and vexatious filing  377 mortgages  383 perfection  379 Personal Property Security Act/Article 9-type schemes  371–8, 380, 383–4, 390 priority  384 receivables  110 registration  369, 379

remedies  383 retention of title clauses  288–9, 375 sale by a seller or buyer in possession  71–2, 77 security interest, definition of  372–3 set-off  291 subordination agreements  378 taking free rules  380 unconscionability  315 unjust enrichment  315 bailment  239–62 abandonment  254 account, liability to  252 assumption of responsibility  241–2, 249, 260–1 attornment  239, 249, 254–5 bailee’s duties  243–6 bailor’s duties  242–3 bills of lading  16–17, 19, 146–7, 240, 248–9, 251, 258–9 breach  245–6, 262 burden of proof  243, 261 carriage of goods by sea  258–60 causation  247 causes of action  251–2 collateral bailment  247–8 commercial law  74, 256–9, 393 common law  243, 244–5, 250, 252–4, 258 condition, bailment on  250 consent  241, 248–9 consequential loss  246, 250–1 consideration  244–6 constructive possession  10, 13–14 contributory negligence  253 contract  241–2, 245–9, 259, 262 conversion  188, 192–7, 202, 205, 240–1, 245–7, 250–4, 259–60 damages  243–4, 246–7, 251–2 definition  239–54 delivery  240–1, 244–6, 250, 252, 254–5 detinue sur bailment  197 deviation  245, 247–8 double recovery  252, 262 duration  242–3 estoppel  243, 248–9, 252, 255 exceptions  252 exclusion and limitation clauses  245, 247–9 expenses  243, 253 factoring  62–3 fees  242–3 financial leases  257–8, 374 finders  253–4 foreseeability  247 general property  251, 297 gratuitous bailment or depositum  243–4, 246 gratuitous loans or commodatum  244 hire  242–3 hire purchase  73–4, 252, 256–7 immediate possession/constructive possession, right to  10, 13–14, 206, 240, 242, 245, 250–1, 255, 260 implied terms  246

Index 399 insurable interests  260 involuntary/unconscious bailment  241–2, 250, 253–4 ius tertii  243, 252–3 licences  240, 260 liens  310 misdelivery cases  253 mistake  241, 246, 253–4 mitigation  247 necessity for bailment  259–61 negligence  243–4, 246, 253–4, 259, 261 options to purchase, bailees with  73–4 passing of title  257 pledges  250–1, 256, 297, 299–300 possession  10–11, 13–14, 242–6, 250–5, 260–1 power of sale  66 prerequisites  240–2 privity of contract  248 proceeds of sale  250 proprietary rights to sue  260 purpose of transfer  239 quasi-bailment  242 quiet enjoyment, right to  243 redelivery  240–1, 245–6, 250, 252, 254 refusal to deliver  245–6 relationship between bailor and bailee  242–9 retention of title  257 reversionary interests  14, 205–6, 242, 249, 251, 258, 374, 393 reward, bailment for  242–4 Roman law  243–4 safety and fitness of goods  242–6 sale by a seller or buyer in possession  69 sale of goods  41, 243, 250, 253 software  240 special property  251, 297 standard of care  243 stoppage in transit  260 storage costs  253 strict liability  244–5, 247–8, 253 sub-bailment  241, 245, 247–9, 255, 300 superior-lesser title  240–1 term bailment  14, 242–3, 250–1 termination  242, 250 terms, sub-bailment on  247–9 theft  245, 247, 249–50, 254 third parties rights against third parties  250–2, 259, 262 setting up rights  243 time limits  254 Torts (Interference with Goods) Act 1977  243, 245, 252, 262 transfer of possession  240, 242–3 trespass to goods  250–1, 259–60 unascertained goods  45 unconditional appropriation  43 unfair contract terms  247 unsolicited goods  253 will, bailment at  250–1 banking accounts  213–15, 217, 235, 291

knowing receipt  235 liens  304 mixtures  213–15, 217 overdrafts  217, 219–21, 235 tracing  213–15, 217, 219–22 basic concepts  1–31 Beale, H  270, 272, 300, 304 Bell, A  261 Berg, Alan  321, 337 bills of exchange see also cheques; holders in due course (bills of exchange) acceptance  129 acceptor, definition of  129 advance funds  127 assignment  127, 131–2 bearer bills  129, 132–3 bills of lading  129–30, 145, 151–2 bona fide purchasers for value  16, 19, 56, 80, 130, 224 chattel, bill of exchange as being a  131 commercial use  127, 128, 148–52 consideration  131–6 conversion  131, 186–7 defences  141–3 definition  129 delivery  131, 132 demand bills  129 discharge of bills  144–5 discounts after acceptance  127 discounts by negotiation  149 documentary credits  127, 128, 148–52 documentary intangibles  3 documents of title  15–16, 128–30 drawee, definition of  129 drawer, definition of  129 electronic bills  146, 151–2 enforcement  143–4 estoppel  138, 140–2 fictitious payees  133 first holder, transfers to  131 forfaiting  127 fraud  131, 136–8, 140 free marketability of financial instruments  128 holders definition  133 value, holders for  133–6 indorsement  132–3 liability on promise to pay  133, 139–41 mere holders  133 modes of transfer  132–3 money  129–30, 152 multilateralism  152 negotiability  131, 391–2 negotiable instrument, definition of  128–31, 152 negotiation bills  151–2 negotiation, concept of  127–45, 148–52 negotiation credits  150–1 nemo dat rule  56 non-transferable bills  130 order bills  133 payee, definition of  129

400  Index perfection  269 prior titles, overriding  132 promissory notes distinguished  129 protesting the bill  144 recourse, right of  132 sight bills  149 signatures  133, 139–40, 151–2 statute, negotiability by  130–1 subject to equities  130 subsequent transfers between holders  131 term bills  129 terminology  129 theft  15–16, 131–2 third parties  134–5 time for payment  129 title to sue  133 tracing  224 transfer and operation  132–9 transferability and negotiability, difference between  130 validity of title  139 value, holders for  133–6, 138–9 writing  151–2 bills of lading  16–19 apparent condition  147–8 assignment  146–7 attornment  19, 146 bailment  16–17, 19, 146–7, 240, 248–9, 251, 258–9 bearer bills  16–18, 145 bills of exchange  129–30, 145 Bolero system  18–19, 145, 151–2 bona fide purchasers for value  16 Brandt v Liverpool contracts  146 Carriage of Goods by Sea Act 1992  146 commingling  28–9 common law  16–18, 246 conversion  193 delivery  16–19, 49–50, 129–30, 145–7 delivery up  129–30 documents of title  16–19, 64, 67, 78, 128–30, 145, 152, 240, 299 electronic bills  17–19, 151–2 exclusion clauses  248–9 factoring  62, 64 good faith  146–7 goods, documents of title to  129–30, 152 Hague-Visby Rules  16 immediate possession/constructive possession, right to  16–17, 145–6, 240 indemnities  148 indorsement  50, 145 lawful holders  146–7 legal title  49–50 mere delivery  146 negotiable bills  16–19 negotiable instrument, definition of  129–30, 152 negotiation  128, 130, 145–8, 152 nemo dat rule  145 non-negotiable bills  152 novation  19

order bills  145 passing of property  17 pledges  16, 64, 299–300 possession  129–30 receipt, as  17, 18, 147–8 reservation of right of disposal  49–50 reservation of title clauses  50 rights of suit  147 sea waybills  17, 147–8 stevedores  248–9 straight bills  16–17, 152 substitutes  301 title to sue  259 to order  16, 18 transfers  19, 152–7 types  16 bills of sale absolute bills  275–6, 319, 323–4, 339 assignment  374 attestation  275–6 Bills of Sales Acts Scheme  274–6 book debts  323, 340 chattels  319 companies  322–3, 340 consideration  323 consumer credit  276, 338–40 declarations of trust  274 definition  274–5 Department for Business Innovation and Skills (BIS)  339 electronic registration  276 enforcement  338–40 estoppel  276 floating charges  339, 345 goods, definition of  340 goods mortgages, proposal for  339–40 hire purchase  340 immediate possession/constructive possession, right to  338 intangibles  340 interest rates  319 Law Commission  276, 323, 339, 369 licences  275 logbook loans  274, 319, 338–40 money obligations, discharge of  319 mortgages  319, 322–5 nemo dat rule  340 non-possessory security  340 perfection  274–6, 340 pledges  302 prescribed form  267 priority  280 reform  339–40, 343, 369–70 registration  269, 274–6, 339–40, 369 retention of title clauses  284 schedule of property  275 security bills  275, 319, 323, 325, 339–40 substitutes  353 technical documentation requirements, sanctions for breach  339 unincorporated businesses  369, 374

Index 401 vehicle mortgages, proposal for  339–40, 369 writing  267, 319 Birks, Peter  29, 97, 156, 163–70, 173, 210–11, 222, 225–7, 391 block discounting  383 body parts, ownership of  2, 261, 395 Bolero system  18–19, 145, 151–2 bona fide purchasers for value bills of exchange  16, 19, 80, 130, 136, 224 bills of lading  16 burden of proof  20, 178 common law  224 confidential information  4–5 consideration  79–80 constructive notice of defects in title  79–80, 224 delivery  179–80 equity  19–20, 79–80, 224 fraud or duress  19–20 good faith  19–20, 223 hire purchase  74 knowing receipt  236 market overt, abolition of  75 mere equities  280 money  80, 188 mortgages  324 negotiation  81, 127 nemo dat rule  127 overreaching  79–80 priority  106 rescission  80, 177–81 sale by a seller or buyer in possession  71 security interests  269 software  35 subject to equities  100 tracing  19, 223–4, 227 trusts  21, 79–80 voidable transfers  64–5 bona vacantia  25 book debts assignment  83, 323, 368–9, 374 bills of sale  323, 340, 374 blocked accounts, payments into  351–3 definition  348 documentary intangibles  323 financial collateral arrangements  323 fixed charges  268, 348–54 floating charges  348–51, 367–8 future book debts  268, 323–4, 346, 349 mortgages  323 notice  323 proceeds  348, 350 registration  83 security interests  268, 296 writing  323 Brandt v Liverpool contracts  146 Brexit  328, 370, 390, 394–5 Bridge, Michael  44, 58, 112, 201, 257, 300, 304, 388 Brown, D  374 Brown, S  327 bulk goods see unascertained goods

Burns, FR  315–16 Burrows, Andrew  210–11 but for test  232 Byles, JB  137 Byrne, JE  151 Calnan, Richard  385 Campbell, M  232 Canada abandonment  25 Ontario  379, 382 financial collateral arrangements  378 floating charges  348 intellectual property rights  381–2 names, rules on  378 Personal Property Security Act/Article 9-type schemes  371, 377–9, 381–3, 386 Quebec  25 registration  379 Saskatchewan  381–2 substitutes  379 tracing  214–15 capacity to contract  139–41 Cape Town Convention on International Interests in Mobile Equipment   394 capital, right to  6 carriage of goods by sea  258–60 see also bills of lading Carter, J  111 Castellano, GG  376–7 causation  154, 175–7, 199, 231–2, 247 Central and Eastern Europe  371 Chalmers, Mackenzie  130 Chambers, Robert  31, 155, 157–8, 164–72, 221 change of position defence bills of exchange  138 conversion  200–1 damages  201 estoppel  138 resulting trusts  165, 171, 173–4 subrogation  229 tracing  222, 224–5, 227 trusts  224 unjust enrichment  171, 173–4, 201, 224–5, 229–30 charges see also fixed charges; floating charges aircraft, international interests in  277 assignment  82–5 choice of law  319 clogs and fetters doctrine  319 companies  370, 394 enforcement  326–7 equity  326, 345–66 foreclosure  326 future debts  323 land  320, 368 mortgages  319–20, 323, 326–7 non-transferable rights  319 realisation by judicial process, right of  320 receiver, right to appoint a  326 register  106, 368

402  Index security interests  266 unregistered charges  269–70, 284, 368–9 chattels  2, 131, 310, 319, 332 cheques disuse  127 documentary intangibles  2–3 electronic bills of exchange  151–2 imaging  152 negotiation  127 tracing  214–15 truncation  151–2 Chitty on Contracts  259 choice of law  319 choses in action assignment  7, 81–116 confidential information  5 conversion  185–7 joint tenancies  9 legal choses  81–116 mortgages  320 nemo dat rule  55 non-assignable choses in action  106–16 set-off  114–15 choses in possession  2, 22, 33–55, 184 CIF terms  36, 45 civil law systems  371, 388, 389 Clayton’s Case, rule in  217–19 Clerk, JF  205 clogs and fetters doctrine  319, 320–2, 343 close out netting  292–3 cognitive possession   11 collateral see financial collateral arrangements commercial law  391–2 assignment  81–2 bailment  256–9, 393 bills of exchange  127, 128, 148–52 choses in action  107–8, 111 constructive notice  392 contracts  24–5 documents of title  391 equity  392–3 floating charges  391 hire purchase  74 passing of property  33–4 quality of legislation  394 trusts  392 unfairness  392–3 commingling  28–9, 213, 393 common law aircraft, international interests in  326 assignment  19, 81, 82 bailment  243, 244–5, 250, 252–4, 258 bills of lading  16–18, 246 bona fide purchasers for value  224 choses in action  106–9 common law systems  371, 379, 383–4 conversion  183–4, 195, 205 delivery up  201 legal title  14 liens  304–5, 307–12, 317 mortgages  337

nemo dat rule  55–6, 80 Personal Property Security Act/Article 9-type schemes  370, 390 personal rights  106 pledges  299, 302 power of sale  66, 330, 332–4 receivership  337 replevin  206–7 rescission  174 retention of title clauses  29, 289 sale by a seller or buyer in possession  67 security interests  270 tort law  393 tracing  28–9, 210–15, 221–3 voidable transfers  64 companies see also Companies Act 2006 assignment  374 bills of sale  340 charges  370, 394 Companies Charges Register, phasing out of  370 Companies House, burden of registration on  368 Company Law Review (CLR)  367 floating charges  345 insolvency  269 mortgages  322–3 Companies Act 2006 certificates of compliance  270–1 Companies Act 2006 Scheme  269–71, 279, 355, 367–9, 370 copyright  279 nullity provisions  269–70 reform  367–9, 370, 394 registration  269–71, 279, 377 security interests  269–71, 279 unregistered charges  269–70 computer programs see software condictio claims  169 conditional sales  373, 375 confidential information  3, 4–5, 336, 376 conflict of laws  276–7, 319 consent anti-assignment clauses  116 appropriation of goods to the contract  44 bailment  241, 248–9 bills of exchange  139 factoring  61–2 fixed charges  352 liens  312 nemo dat rule  56, 57–9 registration  278 security interests  266, 278 surrender versus disclaimer  125 consequential loss  198–9, 246, 250–2 consideration assignment  83, 84–5, 99 attachment  267 bailment  244–6 bills of exchange  131–6 bills of sale  323 bona fide purchasers for value  79–80 defences  142–3

Index 403 every efforts doctrine  96–7 floating charges  99 future interests  84–5, 99 joinder  99 mortgages  99 past consideration  131–2, 268 priority  99 restitution  169 resulting trusts  165, 169, 171–3 sale of assets  119–21 specific performance  99 unjust enrichment  231 valuable consideration  119–21 void contracts  172–3 writing  119–21 consignments  374–5 constructive notice   63, 79–80, 224, 269–71, 380, 392 constructive possession see immediate possession/ constructive possession, right to constructive trusts assignment  88, 325 authority, lack of  172 consideration  99, 267 discretionary remedial trusts  172 dishonest assistance  231 every efforts doctrine  95 intention  22 mistake  169, 176 resulting trusts  165, 168–9, 172 sales of equitable interests  119–21 specific performance  30–1 subsisting equitable interests, disposition of  126 tracing  172 writing  126 consumer contracts   34, 39, 256 consumer credit bills of sale  276, 338–40 Consumer Credit Directive  328, 339 Consumer Credit Trade Association code  338–40 Consumer Rights Act 2015  327 extortionate credit agreements  327 logbook loans  338–40 pawns under Consumer Credit Act 1974  302–3 writing  267 Consumer Rights Act 2015  34, 256 contract see also consideration; retention of title clauses anti-assignment clauses  112 appropriation of goods to the contract  41–6 bailment  241–2, 245–9, 259, 262 Brandt v Liverpool contracts  146 capacity to contract  139–41 choses in action  106–16 commercial contracts  24–5 conditional contracts  38–9 consumers  34, 39, 256 employment contracts  106 exclusion and limitation clauses  245, 247–9 illegality  153–4 innominate terms  37

liens  266, 304–5, 307, 310–11 mortgages  320–1, 328 negotiable instrument, definition of  128 non-possessory interests  307 possession  10 post-contractual conduct  352 power of sale  330 privity of contract  91, 248 rescission  174–5 retention of title clauses  284 set-off  100–1, 290–2 standard terms  305 subordination agreements  378 subrogation  229 tracing  221 unconditional contracts  37–9 unfair contract terms  247 void transfers  153–4 voidable transfers  174 warranties  37 control abandonment  26 administrative receivers, appointment of  361 financial collateral arrangements  272–4 fixed charges  348–9, 353 liens  310 possession  6, 11–13 conversion  183–202, 207 acts counting as conversion  188–91 actual possession  207 asportation  188–9 bailment  188, 192–7, 202, 205, 240–1, 245–7, 250–4, 259–60 bills of exchange  131, 186–7 bills of lading  193 causation  199 change of position defence  200–1 choses in action  185–7 common law  183–4, 195, 205 co-owners  194–5, 205 copyright  190 criminal offences  186 damages  195–201 defences  200–1 degree of interference  207 delivery of stolen goods, taking  189–90 delivery up  201 domain names  187–8 double liability/double recovery  195 duress  190 entitlement to sue in conversion  192–5 equity  193–4 estoppel  57–8 exclusive control  184, 188–9, 191, 203 finders  190, 192 fraud  187, 190 immediate possession/constructive possession, right to  192–3, 206–7 improvements  199, 200–1 injunctions  201–2 intangibles  185–8

404  Index intention  202–3, 207 Judicature Acts  193–4 Law Reform Committee  207 legal title  15, 27–8 liens  193, 304 manufacturing  27–8 money  188 mortgages  337 negligence  188, 192, 194 nemo dat rule  189–90 passing of title  194–5 pledges  184, 190–2, 297, 301, 303 possession  11, 183–5, 188, 190, 192–3, 207 power, which type of interest is a  179 property that can be converted  184–8 remedies  195–202 rescission  179 reversionary interests  192–3, 205 right to sue  193 security interests  184 self-help remedies  202 single tort of wrongful interference, proposal for  207 software  184–5, 204 strict liability  183–4, 187, 203, 207 sufficiency, test of  188 tangible assets  184 third parties  194–5 Torts (Interference with Goods) Act 1977  185–6, 188, 191, 195–9, 200–1, 207 tracing  222 trespass to goods  184, 188, 192, 194, 200–4, 207 unconditional appropriation  46 unjust enrichment  156, 186, 199, 201 co-ownership   8–9, 23, 92, 194–5, 203, 205, 314 copyright artistic, dramatic and literary works  3 assignment  87 breach of confidence  3 Companies Act 2006 scheme  279 conversion  190 mortgages  320 originality  3 registration  3 security interests  278–9 term of protection  3 writing  87 Cork Report  289 creditors’ committees  365 CREST  5 criminal offences see also fraud conversion  186 insider trading 162–3 possession  10 resulting trusts  162–3 custom  36, 307–9, 317 Cutts, T  221 cyber-trespass  204 damages aggravated damages  195, 205

bailment  243–4, 246–7, 251–2 calculation  195–8 causation  247 change of position  201 choses in action  108 compensatory  246 consequential loss  198–9, 246, 250–2 conversion  195–301 detinue  197 economic loss  252 exemplary damages  195, 199–200, 205 foreseeability  198 hire purchase  195–6 joinder  89–90 judicial sale  196 misrepresentation  175 mitigation  199, 247 nominal damages  198–9 pledges  303 remoteness  198, 200, 247 restitutionary damages  200, 204–5, 246 subject to equities  102–3 Torts (Interference with Goods) Act 1977  196–7, 200 trespass to goods  204–5 wayleaves  205 databases  304 Davies, I  385–6 Davies, PS  162 De Lacy, J  105 Deakin, Simon  207 de facto possession  11–13 Dearle v Hall, rule in  15, 19, 98, 103–5, 125–6, 382–3 debts see also book debts assignment  34, 81–5, 91–4, 116 choses in action  108–9 debt securities  5, 81, 87 definition  84–5 fiduciary duties  93 intangibles  2, 5 intention  93 Judicature Acts  92–3 legal title  34 notice  98 novation  94 pre-Judicature Acts  91–4 resulting trusts  169 declarations of trust  165–8 anti-assignment clauses  112–14 bills of sale  274 choses in action  112–14 equitable title  30 oral declarations  168 presumed trusts  165, 167, 171–3, 181–2 resulting trusts  165–8, 170, 171–3, 181–2 sub-trusts  121 deeds mistake  176–7 mortgages  322 nominee share accounts  25 overreaching  79

Index 405 rescission  174 tangibles, transfer of legal title to  33, 50–1, 53–4 void transfers  153 deemed security interests  372–5, 382–3, 385 defeasible charge theory  356, 357 defective transfers and payments  153–82 equitable title  30 nemo dat rule  56 resulting trusts  22, 156–74 trusts  153, 156–74 vesting of title  153 void transfers  153–6 voidable transfers  174–81 defences  200–1, 204, 223–5 see also change of position defence Degeling, S  315–16 delivery actual delivery  299–300 appropriation  54 attornment  52, 254–5 bailment  240–1, 244–6, 250, 252, 254–5 bills of exchange  131, 132 bills of lading  16–19, 49–50, 145–6 bona fide purchasers for value  179–80 bulk goods  52 constructive delivery  52, 68–9, 73, 132, 145–7, 299–300 conversion  189–90 corporeal money, definition of  51 deliverable state of goods  37–9 delivery orders  304 gifts  51–3 intention  51–3, 54 mere delivery  146 misdelivery  253 mortgages  322 negotiable instrument, definition of  128, 131 pledges  298–301, 303 possession, transfer of  51–2 redelivery  240–1, 245–6, 250, 252, 254, 301–2 refusal to deliver  245–6 sale by a seller or buyer in possession  67, 70–3 security interests  271 stolen goods  189–90 symbolic delivery  52, 300–1 transfer of legal title to tangibles  33, 51–4 unascertained goods  45 void transfers  153–4 voidable transfers  174 delivery up  129–30, 201, 204 dematerialisation  5 Dempster, H  241 deon-telos of property  8 deontology  8 Derham, R  292 design rights  87 destruction of goods  33–4 detinue  197, 201, 303 directors  365 disclaimer versus surrender  124–5, 126 discretionary trusts  392

dishonest assistance  209, 231–7 blind eye dishonesty  233 breach of trust  231–3 but for test  232 causation  232 constructive trusts  231 dishonesty requirement  232–3 fiduciary relationships  232 joint and several liability  232 knowing receipt  233–4 market practice  233 recklessness  232 documentary credits acceptance credits  149 assignment  149–50 bills of exchange  127, 128, 148–52 eUCP  149 examination of documents  149 fraud defence  148 good faith  149 negotiation, definition of  150–1 pledges  301–2 rejection for non-conformity  148–9 sight bills of exchange  149 straight documentary credits  148 subject to equities  149–5 UCP 600  149–51 documentary intangibles   2–3, 5, 127–8, 203, 207, 323 documents of title bills of exchange  15–16, 128–30 bills of lading  16–19, 64, 67, 78, 128–30, 145, 152, 240, 299 commercial law  391 definition  67 due negotiation  78 factoring  62, 64 legal title  14, 15–19 liens  311 money  128–30, 152 nemo dat rule  56, 78 pledges  299 security interests  269 theft  78 domain names  187–8 Douglas, Simon  13, 14, 184, 203, 207, 393 Draft Common Frame of Reference (DCFR)  370, 394 due diligence  361–2, 376 Duggan, A  374 duress bona fide purchasers for value  19–20 conversion  190 economic duress  175 goods, to  175 person, to the  175 rescission  174–5, 177, 179, 182 resulting trusts  169–70 tracing  169 duty of care  336–7, 361–2 Dworkin, Ronald  7

406  Index easements  117 economic loss  252 Edelman, J  114 election, right of  223 electronic communications bills of exchange  146, 151–2 bills of lading  17–19, 151–2 bills of sale  276 Bolero system  18–19, 145, 151–2 cheques  151–2 CMI Rules  18 databases  304 email  85, 117 ESS-Databridge system  18 eUCP  149 Personal Property Security Act/Article 9-type schemes  370, 377–8 registration  276, 370, 377–8 signatures  151–2 tracing  210–11, 214 writing  85, 117, 151–2 Elliott, S  114 enforcement aircraft, international interests in  340–2 bills of exchange  143–4 bills of sale  338–40 insolvency  383–5 liens  306–7, 312 mortgages  320, 325, 326–38, 383 patents  320 Personal Property Security Act/Article 9-type schemes  373–4, 383–5 reform  369 security interests  268 trusts  21–2 entry, right of  338 equitable assignment  81–99 absolute assignment  91–2 choses in action  81–2, 88–99, 111–14 consideration  99 constructive trusts  88, 99 co-owners  92 debts  91–4, 98 every efforts doctrine  94–8 floating charges  347 future property  88 joinder  88–91, 99 legal choses in action  81–2, 88–99 non-assignment clauses  89 notice  86, 89, 98 partial assignments  85, 88 pre-Judicature Act rules  91–4 requirements  91–9 set-off  294 statutory assignment  83–6 trusts  89 Walsh v Lonsdale, rule in  92 writing  89, 91–2 equitable title  30–1 absolute title  19 assignment of debts  19

bona fide purchasers for value  19–20 competing claims  19 defective transfers  30 future or after-acquired assets, transfer of  30 passing of property  34 priority  19 private express trusts  30 relative title  19 specific performance  30–1 tracing  19 trusts  19–25 writing  117 equity see also estoppel; floating charges bona fide purchasers for value  79–80, 224 charges  326, 345–66, 395 choses in action  111–14 commercial law  392–3 conversion  193–4 equitable compensation  91 equity looks as done that which ought to be done  30, 92, 325 fixed charges  265–6, 372 floating charges  266, 345–57, 372 liens  297, 312–16 mere equities  178 mortgages  266, 319, 320, 324–6, 330–1, 335, 337, 372 nemo dat rule  55 overreaching  55, 79–80 ownership  20–2, 24–5 pledges  299, 317 priority  103–6 redemption, equity of  335 rescission  174, 177–8, 180–2 resulting trusts  164–5, 174 security interests  266, 269 set-off  100–2, 294–6, 393 shares and securities  5, 87 subsisting equitable interests, disposition of  117–26 title  19–20, 30–1, 209–37 tracing  210–12, 215–213, 222–4, 395 transfer  111–14 unfairness  392–3 unjust enrichment  174 voidable transfers  64 writing  117, 118–24 estoppel apparent authority  57–8 appropriation of goods  56–7 attachment  276 bailment  243, 248–9, 252, 255 bills of exchange  138, 140–2 bills of sale  276 change of position  138 conversion  57–8 detrimental reliance  98 every efforts doctrine  95–6, 98 floating charges  57 forgeries  141–2 Law Commission  276

Index 407 negligence  57, 58–9 nemo dat rule  56–60 per rem judicatam  60 proprietary estoppel  60 representation, by  42, 57–8, 98 EU law Brexit  328, 370, 390, 394–5 Consumer Credit Directive  328, 339 Financial Collateral Arrangements Directive  270, 273 harmonisation  370, 394–5 reform  370 European Security Interests Register, proposal for  394 Evans, S  330 every efforts doctrine  24, 94–8 exclusion and limitation clauses  245, 247–9 exclude, right to bailment  241 conversion  184, 188–9, 191 joint tenancies  8 ownership  7–8 possession  10, 12–13, 241 trusts  21 expenses administrative receivers, appointment of  362 bailment  243, 253 floating charges  354–5 insolvency  354–5, 362, 385 liens  310 receivership  336 extortionate credit agreements  327 factoring agency  63 assignment  81–2, 116 bailment  62–3 bills of lading  62, 64 consent  61–2 constructive notice  62, 64 Dearle v Hall, rule in  98 fraud  61–2, 106 good faith  62–4 mercantile agents  60–4 nemo dat rule  60–4, 76–7, 80, 369–70 non-notification (invoice) factoring  98, 109, 383, 386 notification factoring  98, 109 Personal Property Security Act/Article 9-type schemes  383, 386 pledges  63–4 possession  62 quasi-security interests  290 receivables  386 repairs  62 sale by a seller or buyer in possession  66–71, 77 taking free rules  380 voidable transfers  62 fiduciaries debts  93 dishonest assistance  232

knowing receipt  234 liens  316 mixtures  216–17 pledges  393 receivership  336 retention of title clauses  287–8, 290 tracing  210–12, 216–17, 221–2 finance leases  374 financial collateral arrangements appropriation  328–30 book debts, assignment of  323 control  272–4 equity securities  5 Financial Collateral Arrangements Directive  270, 273 floating charges  272–4, 355 insolvency  272 intermediated securities  117 mortgages  321–2, 328–31 perfection  271–4 Personal Property Security Act/Article 9-type schemes  375–80, 383–4 price  332 reform  369 registration  272 repos  270–1 security interests  270–4 substitutes  273–4 financial leases  257–8, 290, 374 Finch, Vanessa  264, 290, 363 finders  25–6, 190, 192, 253–4 fixed charges  265, 266 administrative receivers, appointment of  361 blocked accounts, payments into  351–3 book debts  268, 348–54 consent to disposals  352 control over proceeds  348–9, 353 creation, methods of  352 debentures  348 determination whether charge is fixed or floating  348–55, 366 dividends  353–4 equity  345–55, 372 expenses of liquidation and administration  354–5 financial collateral arrangements  355 floating charges  279, 282–3, 345–58, 366, 369, 383, 384–5 foreclosure  360 future assets  30–1, 346, 357, 375 insolvency  346, 348, 354–5, 361, 384–5 labels  348 mortgages  345 persistent right theory, power to acquire a  359 Personal Property Security Act/Article 9-type schemes  384–5 possession  260 post-contractual conduct  352 priority  352–5 proceeds and products, security rights in  353 reform  369

408  Index registration  355, 372 remedies of chargees on default  360–6 removal of assets from scope of charges  351–2 sale of assets  355, 360 security interests  265, 266 set-off  354 substitution, power of  353 floating charges  265, 266, 268, 270, 395 abolition  371, 388–9 administration orders  354, 364–6 administrative receivers, appointment of  354, 361–4, 366 aircraft, international interests in  278 assignment  116, 347 associates, definition of  355 attachment to property  266, 268, 358 avoidance  354–5 bills of sale  339, 345 book debts  348–51, 367–9 change of assets  346 choses in action  116 commercial law  391 companies  270, 345, 355 connected persons, definition of  355 consideration  99 consumer context  339 crystallisation  272, 326, 345–8, 354, 356–9 decrystallisation  348, 356 notice  347 priority  347–8, 354 reform  388 waiver  347 debentures  346–7, 348, 356 defeasible charge theory  356, 357 determination whether charge is fixed or floating  348–55, 366 Enterprise Act 2002  280, 389 equity  345–57, 372, 389 estoppel  57 expenses  354–5, 385 financial collateral arrangements  272–4, 355 fixed charges  279, 282–3, 345–58, 366, 369, 383, 384–5 foreclosure  360 future assets  346, 349, 355–7 general assets  265 identification of assets  278 inchoate rights  357 insolvency  354–6, 360–6, 384–5 labels  348 Law Commission  388 legal and equitable charges, retention of difference between  389 licence theory  356 LPA receivers, appointment of  355 management, displacement of  388–9 mortgages  269–70, 326, 345, 355–6 nature of floating charges  355–60 negative pledges  354, 388 nemo dat rule  77 overreaching  79, 227, 356, 357–9, 360

persistent right theory, power to acquire a  356, 359–60 Personal Property Security Act/Article 9-type schemes  371–3, 379, 383, 385 possession  360 post-contractual conduct  352 priority  269–70, 279–83, 296, 347–8, 354–5, 357, 388–9 proprietary status  355–60 receiver, appointment of  345–7, 354, 360 reform  369 registration  355–6, 372 remedies of chargees on default  360–6 removal of assets from scope of charges  351–2 rescission  181, 360 retention of title clauses  284–5, 287, 290 sale of assets  79, 345–7, 355, 360 Secured Transactions Code (CLLS) (draft)  389 set-off  354, 356 subrogation  282–3 substitutes  360 trusts  346, 359 unincorporated associations  369 foreclosure   320–1, 326, 328–31, 369 forfaiting  127 forfeiture, relief from  330 forgeries  141–2 Fox, D  176, 215, 228, 392 fraud bills of exchange  131, 136–8, 140 bona fide purchasers for value  19–20 contract  154 conversion  187, 190 documentary credits  148 estoppel by representation  58 factoring  61–2, 106 knowing receipt  236 misrepresentation  174–5, 177 mortgages  330 priority  104, 106 rescission  169–70, 174, 177–8, 180 resulting trusts  162 set-off  101 subject to equities  101 tracing  211, 215 voidable transfers  65, 174–5, 180 French, D  271 Frisby, S  389 functionalism  372 fungibles  23, 28, 47, 213, 240 future property assignment  84–5, 88 attachment  268 book debts  268, 323–4, 346, 349 civil law systems  389 consideration  84–5, 99 equitable title  30 fixed charges  30–1, 346, 357, 375 floating charges  346, 349, 355–7 identification of property  48–9 mortgages  323–4, 325

Index 409 OAS Model Law  388 Personal Property Security Act/Article 9-type schemes  375, 388 prices  48 set-off  296 unascertained goods  48–9 unconditional appropriation  48–9 Germany  154, 370 Gedye, M  373 gifts bailment  253 consideration  99 delivery  51–3 intention  156, 158–60, 167–9 rescission  175 restitution  169 resulting trusts  156, 158–60, 167–9 transfer of legal title to tangibles  33, 51–3 Glaister, WJ  277 Glister, J  159 good faith administrative receivers, appointment of  361, 363 bailment  253 bills of exchange  136, 139 bills of lading  146–7 bona fide purchasers for value  19–20, 223 burden of proof  64 documentary credits  149 factoring  62–4 nemo dat rule  76 power of sale  332, 334 receivership  336 sale by a seller or buyer in possession  70–1 voidable transfers  64 Goode on Commercial Law  33, 59, 69, 77, 128, 134, 139, 142, 281–3, 357, 391 Goode on Legal Problems of Credit and Security  269–71, 357 Goode, Roy  36, 111–12, 115, 277–8, 291, 349–50, 369, 394 goods, definition of  34–5, 53 Goymour, A  186–7 Green, B  121, 125 Green, Sarah  34, 184–8, 197, 205, 304, 393 Gregory, R  285 Guest, AG  105, 130 Gullifer, Louise  76, 300, 304, 352, 357, 359, 369–71, 385, 394 Häcker, B  176–7, 179–80 Hardingham, IJ  312, 314 harmonisation of law  370–1, 394–5 Harris, DR  10 Hickey, R  25–6, 253–4 hire  242–3 hire purchase administrators, appointment of  365 bailment  73–4, 252, 256–7 bills of sale  340 bona fide purchasers for value  74

Consumer Rights Act 2015  256 damages  195–6 immediate possession/constructive possession, right to  191 Law Commission  256–7 logbook loans  339 nemo dat rule  73–4, 256 Personal Property Security Act/Article 9-type schemes  257, 373 security interests  256–7, 290 Hitchens, LK  139 Hohfeld, Wesley  6 holders in due course (bills of exchange)  132–3, 136–41 bona fide purchasers for value  130, 136 change of position  138 defences  141–3 delivery  136 estoppel  138 fraud  136–8 future or subsequent owners  137 good faith  136, 139 indorsement  138 irregularities  138 negotiation credits  150 nemo dat principle  137 notice of defects  136, 138 overdue bills  138 value, holders for  138–9 Honoré, Tony  6 Hooley, RJA  127, 151 Horowitz, D  149–50 human bodies, ownership of  2, 261, 395 human rights  8, 321 identity checks  77–8 ignorance   168–70, 228–9 illegality  154, 156, 160–4 immediate possession/constructive possession, right to 10–11, 269 bailment  10, 13–14, 206, 240, 242, 245, 250–1, 255, 260 bills of lading  14, 16–17, 145–6, 240 bills of sale  338 conversion  192–3, 206–7 hire purchase  191 interest and title, difference between  15 pledges  300, 302 possessory title  10, 14 qualified possession  14 remedies  207 reversionary interests  205–6, 242 sale by a seller or buyer in possession  68–9, 72 trespass to goods  202 immobilisation  5 improvements  199, 200–1, 307–8 in rem rights  7, 291 inchoate rights  223, 268, 357 injunctions  89–90, 201–2, 204, 312, 324, 342 innkeeper’s liens  307 insider trading  162–3

410  Index insolvency/liquidation administrative receivership  361–4 administrators, appointment of  364–6 clawback  348, 354–5, 385 close out netting  292–3 Companies Act 2006 Scheme  269 enforcement  383–5 expenses  385 financial collateral arrangements  272 fixed charges  346, 348, 354–5, 384–5 floating charges  354–6, 360–6, 384–5 insolvency practitioners  361 joint tenancies  9 liens  305, 307, 311, 313, 316 nominee share accounts  24 personal claims  231 Personal Property Security Act/Article 9-type schemes  383–5 pledges  298–9, 303 priority  209, 222, 346, 354 retention of title clauses  284, 289 security interests  264, 269, 282 set-off  100, 291–4 specific goods  38 insurance assignment  84 insurable interests  260 liens  309, 315 life insurance  225–6 passing of property  33 tracing  225–6 intangibles   2–5 absolute title  15 bailment  240 bills of sale  340 book debts, assignment of  323 conversion  195–6 debts  2, 5 division  2–5 documentary intangibles  2–3, 5, 127–8, 203, 207, 323 equity securities  5 intellectual property  2, 3–5 liens  304 mixtures  215 mortgages  320, 323 ownership  7 pledges  299 shares and securities  2 intellectual property rights (IPR)  2, 3–5 see also copyright; patents assignment  87 confidential information  4–5 double registration  278 intangibles  2, 3–5 licensing  278 mortgages  320 perfection  278–9 Personal Property Security Act/Article 9-type schemes  372, 380, 381–2 purchase money security interests (PMSIs)  381–2

reform  369 registration  278–9, 281, 380, 381–2 security interests  278–9 software  34–5 sources of goods  87 statutory rights  3–4 trade marks  3, 4, 87, 278–9 intention abandonment  25–6 assignment  82 attachment  267 choses in action  106 constructive trusts  22 conversion  202–3, 207 debts  93 every efforts doctrine  97 gifts  156, 158–60, 167–9 liens  311 mortgages  128 passing of property  36–7, 51–4 personal rights  106 possession  11 resulting trusts  156, 158–60, 167–8 tracing  215, 221 trespass to goods  203–4, 207 trusts  22, 23 voidable transfers  174–5 interest rates  319, 321–2 time limits  326–7 intermeddling  362 invoice discounting  116 invoice financiers  374 Ireland Companies Act 2014  371 priority from date of registration  371 priority notice system  371 transaction filing systems  386 Jaffey, Peter  228–9, 237 Jenkins Report  367 joinder  88–91, 99, 203 joint and several liability  232 joint ownership  8–9, 92, 194–5, 203, 205, 314 joint tenancies   8–9 Judd, S  336–7 Judicature Acts  85, 92–3, 193–4 judicial sale  196 knowing receipt  209, 233–7 actual knowledge  235 agents, dealing by  234 beneficial receipt  234 bona fide purchasers for value  236 breach of trust  234, 237 constructive knowledge  235–6, 392 dealing  234 dishonest assistance  233–4 dishonesty requirement  235–6 fiduciary duties  234 fraud  236

Index 411 inquiry, putting reasonable person on  235 ministerial receipt  234 overdrafts  235 tracing  234 unconscionability  236 unjust enrichment  234, 237 wilfulness blindness  235 knowledge see also knowing receipt dishonest assistance  233 possession  12–13 shut eye knowledge  331 laches  178 Lametti, D   8 land charges  320, 368 chattels real  2 double registration  368 European Security Interests Register, proposal for  394 mortgages  319–20, 330–1 Personal Property Security Act/Article 9-type schemes  372 power of sale  330–1 registration  368, 394 resulting trusts  167–8 severance  25 trespass  202 trusts of land as evidenced in writing  167–8 writing  96–7, 167–8 Law Commission bills of lading  18 bills of sale  276, 323, 339, 369 deeds  50–1 electronic bills of exchange  151–2 estoppel  276 floating charges  388 hire purchase  256–7 nemo dat rule  76 passing of property  34 Personal Property Security Act/Article 9-type schemes  376, 383–5 receivables  106 reform  367, 370 resulting trusts  161–2 specific goods  38 unconditional appropriation  46 Law of Property Act 1925 assignment under section 136  19, 81, 82–7 LPA receivers, appointment of  335–7, 355 law reform see Law Commission; reform leasing aircraft, international interests in  277, 326, 340 financial leases  257–8, 290, 374 land  2 operating leases  374 security interests  277 legal assignment  82–7, 106, 112, 323 legal title  14–19, 25–9 see also negligence abandonment  25–6 absolute title  15

assignment  81–116 attachment  26–7 bills of lading  49–50 choses in action  81–116 commingling  28–9 common law  14 conversion  15, 27–8 Dearle v Hall, rule in  15 derivative acquisition  25 documentary title  14, 15–19 finders  25–6 interest distinguished  15 mixtures  27–9 original acquisition  25–7 ownerless things, possession of  25–6 ownership  14–15, 25–7 passing of property  34 possessory title  14–15, 25–6 proprietary rights  14, 210 relativity of title  15 self-help  14 severance from land  25 specification  27 tort law  183–207 transfer of legal title to tangibles  33–54 vindicatio actions  14–15 Leslie, N  82, 97, 104, 114 lex registri  277 lex situs rule  276–7 letters of credit see documentary credits licensing bailment  240, 260 bills of sale  275 floating charges  356 intellectual property rights  4, 87, 278, 382 patents  4, 382 security interests  278 software  34 liens  304–17 assignment  304 bailment  310 bankers’ liens  304 bills of exchange  136 common carriers  308 common law  304–5, 307–12, 317 consent  312 contractual liens  266, 304–5, 307, 310–11 control  310 conversion  193, 304 co-owners’ liens  314 customary liens  307–9, 317 definition  304 delivery orders  311 delivery up  304 documents of title  311 electronic databases  304 enforcement  306–7, 312 equitable liens  297, 312–16 expenses  310 fiduciaries  316 general liens  305, 308–9

412  Index improvers’ liens  307–8 injunctions  312 innkeepers’ liens  307 insolvency  305, 307, 311, 313, 316 insurance  309, 315 intangibles  304 intention  311 mechanics or repairers’ liens  307 non-possessory interests  297, 304, 307 physical possession, retention of  304 pledges  304, 308 possessory interests  136, 304–5, 307, 310 power of sale  304–5, 312 priority  312, 314 professional liens  307–8 purchasers  312–14 registration  305 resale, right of  311 reversionary interests  312 security, definition of  306–7 security interests  266 software as goods  304 solicitors  308–9 special or particular liens  305, 308, 309–10 specific performance  313 standard terms  305 statutory liens  304–5, 309–11 stoppage in transit  311 sub-freight  307 subrogation  230 third parties  305–7 tracing  222–3, 305 trustees  314 unconscionability  312, 315–16 unjust enrichment  315 unpaid vendor’s liens  305, 309–14 Liew, YK  105 limitation clauses  245, 247–9 Lin, TY  239 Lindsell, WHB  205 liquidation see insolvency/liquidation loan credits  263–4 locus poenitentiae, rule in  97, 161, 164 logbook loans bills of sale  274, 319, 338–40 Consumer Credit Act 1974  338–9 Consumer Credit Trade Association code  338, 340 contract  338 entry, right of  338 hire purchase  339 interest rates  319 power of sale  338–9 regulated agreements  338–9 seizure of assets  338–9 subprime lenders  274, 319 use of force to secure entry  338 Loi, Kelry  333–4, 337 Lomnicka, E  304 Look Chan Ho  273 loss of profits  204–5

McBain, G  247, 323 McCormack, G   288, 371, 385–8 McFarlane, B  9, 21–2, 88, 91, 97–8, 114, 123–4, 177, 181, 222, 226, 264, 300, 316, 359–60, 395 McGregor, H  197 McKendrick, Ewan  33, 259, 357 McMeel, Gerard  108, 239, 259–61 maintenance and champerty  107–9 management administration  365 administrative receivers, appointment of  361–2 agency  336 assignment  112 change of position  173 floating charges  388–9 ownership  6 quality  264 receiver, appointment of  338, 354 trusts  20–1, 23, 392 Mann, F  151 manufacture   27–9, 213 Markesinis, Basil  207 market overt, abolition of  74–5 Mayson, S  271 mechanics or repairers’ liens  307 Mee, J  171 mercantile agents  60–4, 66–8, 71–2, 300, 303 mercantile usage  128, 130–1 mere equities  178, 180, 280 misdirected property, remedies for  209–37 dishonest assistance  209, 231–4, 237 equitable title  209–37 knowing receipt  209, 233–7 passing of title  209 personal claims  209–10, 231–7 proprietary claims  209–10, 225–9 subrogation  229–31 tracing  209–25 trusts  209–10 misrepresentation bills of exchange  142–3 burden of proof  261 damages in lieu of rescission  175 fraud  174–5, 177 innocent misrepresentation  174–5, 177, 178 laches  178 Misrepresentation Act 1967, damages under  175 negligence  174–5 rescission  64–5, 174–5, 177, 178 subject to equities  101 tracing  169 voidable transfers  174–5 mistake bailment  241, 246, 253–4 causal mistakes  175–7 constructive trusts  169, 176 deeds  176–7 fundamental mistake  176–7 identity, of  154–5 nemo dat rule  55 possession  13

Index 413 registration  379 rescission  174–7, 180, 182 restitution  106 resulting trusts  169–70 subject matter  154–5 subrogation  229–31 unjust enrichment  153, 228, 231 void transfer  55 voidable transfers  55, 174–7, 180, 182 Mitchell, C  229, 235 mixtures accession  393 bank accounts  213–15, 217 commingling  28–9, 213, 393 converters  27–8 innocent contributors  217–19 innocent victims against fiduciary  216–17 intangibles  215 legal title  27–9 manufacturing  27–9 overdrafts  217, 219–21 presumptions  216 retention of title clauses  393 Roman law  27, 393 specification  393 substitutes  209–10, 212–13 tenancies in common  28 tracing  28, 209–15 trusts  223 Mokal, R  388–9 money bills of sale  319 bona fide purchasers for value  80, 188 conversion  188 corporeal money, definition of  51 documents of title  128–30, 152 money had and received, actions for  214–15, 222 tracing  215–16, 221–2 mortgages  320–38 abolition  389 aircraft, international interests in  277, 326, 340–2, 343 attachment  267, 322, 325–6 bills of sale  319, 322–5, 339–40 bona fide purchasers for value  324 book debts, legal assignment of  323–4 charges  319, 323, 326–7 fixed charges  345 floating charges  269, 270, 326, 345, 355–6 realisation by judicial process, right of  320 receiver, right to appoint a  326 chattels  319, 332 checks on credit  328 choice of law  319 choses in action  320 clogs and fetters doctrine  319, 320–2, 343 collateral advantages  321–2 collateral transactions  321 common law  337 companies  269, 322–3 consideration  99

constructive trusts  325 Consumer Credit Directive  328 Consumer Rights Act 2015  327 contract  320–1, 328 conversion  337 copyright  320 creation of mortgages  322–4 deeds  322 definition  320–2 delivery  322 enforcement  320, 325, 326–38, 383 equitable mortgages  30, 266, 319, 320, 324–6, 330–1, 335, 337, 372 equity looks as done that which ought to be done  325 equity of redemption  320–2, 324, 328–9, 331, 343 extortionate credit agreements  327 extortionate interest rates  321–2 financial collateral arrangements  321–2, 328–32 fixed charges  345 floating charges  269, 270, 326, 345, 355–6 foreclosure  320–1, 326, 328–31 forfeiture, relief from  330 fraud  330 future assets  323–4, 325 goods mortgages, proposal for  339–40 high net worth debtors  327 human rights  321 individuals  327 indorsements  323 inequality of bargaining power  327 injunctions  324 intangibles  320, 323 intellectual property rights  278–9, 320 interest  326–7 intermediated securities  324 land  319–20, 330–1 legal mortgages  83, 266–8, 320, 322–5, 337, 372 LPA receivers  335–7 moveables  319 notice  269 oral mortgages  267, 322–3, 325 orders for sale  328, 331 partnerships  327 patents  320 perfection  322–3 Personal Property Security Act/Article 9-type schemes  372, 383 pledges  303 possession  337–8 power of sale  330–5 priority  269, 282, 283 realisation by judicial process, right of  320 receivership  335–7, 338, 343 registration  322, 324, 372 remedies  328 reversionary interests  206 sale of assets  303, 328, 330–5 Secured Transactions Code (draft)  283 signatures  325

414  Index specific performance  30, 325 subrogation  229–30 tacking  283 time limits  326–7 transfer of title  320, 322–3 trusts  337 unconscionability  322 unfairness  321–2, 327, 329 unincorporated associations  327 unjust enrichment  323 writing  322, 325 moveables  319 names, rules on  378–9 negative pledges   270, 279, 354, 367–8, 388 negligence bailment  243–4, 246, 253–4, 259, 261 conversion  188, 192, 194 estoppel  57, 58–9 misrepresentation  174–5 power of sale  333 proximity  59 receivership  336 reversionary interests  206 sale of goods  41 negotiability bills of exchange  131, 141, 391–2 bills of lading  16–19, 130 negotiable instrument, definition of  128 nemo dat rule  127, 152 transferability distinguished  130 negotiable instrument, definition of  128–31 bills of exchange  128–30, 152 bills of lading  129–30, 152 contractual liabilities  128 delivery  128, 131 examples  128–30 goods, documents embodying title to  129–30, 152 indorsement  128 intention  128 mercantile usage  128, 130–1 negotiability  130–1 non-negotiable instruments  128 promissory notes  128–9, 131 statute, transfer by  128 third parties, transgerable to  128–9 transferability  128, 130 negotiable instruments see bills of exchange; negotiable instrument, definition of; negotiation and negotiable instruments negotiation and negotiable instruments  127–52 see also bills of exchange assignment  81–2 becoming a negotiable instrument  130–1 bearer securities  87 bills of lading  128, 145–8, 152 bona fide purchasers for value  127 documentary credits  150–1 documentary intangibles  127–8 negotiability  127, 152

negotiable instrument, definition of  128–31, 152 negotiation, definition of  150–1 nemo dat rule  56 pledges  299 negotiation credits   150–1 nemo dat quod habet doctrine  55–80 agency  56 anti-assignment clauses  111 authority or consent of owners  56, 57–9 bills of exchange  56, 75, 78, 137 bills of lading  145 bills of sale  340 bona fide purchasers for value  56, 127 burden of proof  178 choses in action  55 choses in possession  55 common law  55–6, 80 conversion  189–90 defects in title  56 deon-telos of property  8 documents of title  56, 78 equitable interests  55 estoppel  56–60 exceptions  56–78 factoring  60–4, 76–7, 80, 369–70 floating charges  77 good faith  76 hire purchase  73–4 identity checks  77–8 market overt, abolition of  74–5 mistake  55 negotiability  141 negotiations  56, 81 overreaching  55, 78–80 passing of title  256 Personal Property Security Act/Article 9-type schemes  77, 369–70, 380 possession  56, 66–73 power of sale, sale under a  66 priority  104 reform  74–8, 80, 394 rescission  178 sale by a seller or buyer in possession  66–73, 75–7, 80 Sale of Goods Act 1979  369–70 secured transactions, law of  75–6 set-off  100–2 subject to equities  100–2 taking free rules  380 voidable title  55, 64–6, 70, 72 neoliberalism  388, 389 New Zealand amendment of legislation  390 attachment  375–6 every efforts doctrine  94 financial collateral arrangements  384 fixed charges  350 foreclosure  328–9 mortgages  383 nemo dat rule  71–2, 75–6 notice  86

Index 415 Personal Property Security Act/Article 9-type schemes  371, 373, 375–6, 383–6, 390 preferential creditors  385 priority  385 receivers, appointment of  383 registration  369, 379 remedies  383 sale by a seller or buyer in possession  71–2, 75–6 Nolan, Richard  123, 358–60, 395 non-assignable choses in action  106–16 anti-assignment clauses  110–16 causes of action  107–9 commercial interests  107–8, 111 contract  106–16 damages  108 debts  108–9 declarations of trust  112–14 employment contracts  106 equity  111–14 exceptions  107 floating charges  116 intention  106 law (statute), in  106–9 legal assignment  112 maintenance and champerty  107–9 personal rights  106 receivables  109–10 set-off  109 tortious rights  108 unjust enrichment  108–9 non est factum  141 non-possessory interests bills of sale  340 Companies Act 2006 Scheme  269 contract  307 fixed charges  266 floating charges  266 liens  297, 304, 307 mortgages  266 pledges  297 registration  280, 368 security interests  266, 280 notice actual notice  380 administrators, appointment of  364 aircraft, international interests in  341 assignment  84, 85–6, 89, 98 book debts, assignment of  323 constructive notice  63, 79–80, 224, 269–71, 380, 392 Dearle v Hall, rule in  98 dishonour, of  144 effects of notice  86, 98 mortgages  269 negative pledges  279 non-notification factoring  98 Personal Property Security Act/Article 9-type schemes  380 priority  98, 103–4, 106, 125–6, 371, 386 registration  376–8

subject to equities  98, 102 writing  85–6 novation  19, 81, 87, 94, 292 OAS Model Law on Secured Transactions   388 occupatio  25 Oditah, F  105–6 Office of Fair Trading. Irresponsible Lending Guidance  339 operating leases  374 oral transactions assignment  96–7 declarations of trust  168 mortgages  267, 322–3, 325 subsisting equitable interests, disposition of  117 orders for sale  328, 331 Organisation of American States (OAS) Model Law on Secured Transactions  388 original modes of acquisition  25–31 equitable title  30–1 legal title  25–9 O’Sullivan, D  181 overdrafts  217, 219–21, 235 overreaching  55, 78–80 bona fide purchasers for value  79–80 equitable interests  55, 79–80 floating charges  79, 227, 356, 357–9, 360 nemo dat rule  55, 78–80 powers of sale under mortgages  79 set-off  358 substitutes  358 tracing  79, 227 trusts  79–80, 123, 358 writing  126 ownership  6–9 abandonment  25–6 absence of term  6 absolute ownership  15, 126 aircraft, international interests in  341 alienability  7 assignment  7–8 bundles of rights  6–7 capital, right to  6 civil law systems  371 confidential information  4 consignments  374 co-ownership  8–9, 23, 92, 194–5, 203, 205, 314 duty-based arguments  8 equity  20–2, 24–5 exclude, right to  7–8 financing techniques  371 goal-based arguments  8 in rem rights  7 income, right to the  6 intangibles  7 joint ownership  8–9 just distribution of resources  8 justification  8 legal title  14–15, 25–7 list of rights and incidents  6

416  Index manage and deal, right to  6 mediation of rights through a thing  7 ostensible ownership argument  374 ownerless things, possession of  25–6 Personal Property Security Act/Article 9-type schemes  374, 386 possession  6, 7–8, 10, 14 quiritary ownership  15 reform  371 rights-based arguments  8 security, right to  6 teleology  8 transmissibility, right to  6, 7–8 type of right, as what  6–8 use, right to  6, 7 Palmer, Norman  147, 241, 253, 259, 261 pari passu rule  218–19, 291, 293 Parsons, R  292, 322 passing of property appropriation  53, 54 ascertainment  53, 54 bona fide purchasers for value  179–80 classification  34–5 commercial context  33–4 consumer contracts  34 debts, legal title to  34 destruction of goods  33–4 equitable title  34 goods, definition of  34–5, 53 identified goods  36, 53 insurance  33 intention  36–7, 51–4 Law Commission  34 legal title  34 reservation of right of disposal  49–50 retention of title clauses  264 risk, passing of  33–4 Sale of Goods Act 1979  33–50, 53 shares and securities  34 software  34–5 specific goods  35–41 specific performance  34 third parties, right to sue  33–4 unascertained goods  35–6, 41–9 patents assignment  87, 278–9 enforcement  320 industrial application  4 inventive step  4 licensing  4, 382 mortgages  278–9, 320 novelty  4 obviousness  4 priority  87, 279, 281 public policy or morality  4 registration  3–4, 278–9, 291, 380 security rights  3 term of protection  4 UK IPO  3–4 unregistered rights  87

pawns under Consumer Credit Act 1974  302–3 payments, defective transfers and  153–82 Payne, J  352, 359, 385 Penner, James  7, 157–8, 223, 226, 360 Pennington, R  356 pension funds  220 perfection aircraft, international interests in  276–8 automatic perfection  267 bills of exchange  269 bills of sale  274–6, 340 Companies Act 2006 Scheme  269–71 definition  375–6 financial collateral  271–4 intellectual property  278–9 mortgages  322–3 Personal Property Security Act/Article 9-type schemes  374, 375–81 possession  376 priority  269–70, 279–83, 296 publicity  269 registration  269, 340 security interests  266–7, 269–79 third parties  375, 379 persistent right theory  22, 356, 359–60, 395 personal claims  231–7 choses in action  106 dishonest assistance  231–3 insolvency  231 knowing receipt  231, 233–7 pledges  298 trusts  22 Personal Property Security Act/Article 9-type schemes  370–89 administration  385 aircraft, international interests in  277, 340–1, 378 assignment  374, 378, 382–3, 386 attachment  375–80 bailment  257 bills of exchange  132 book debts  374 civil law systems  388, 389 common law systems  370–1, 379, 383–4, 389 Companies Charges Register, phasing out of  370 conditional sales  373, 375 consignments  374–5 contracting out  383 deemed security interests  372–5, 382–3, 385 Draft Common Frame of Reference  370 electronic filing  370, 377–8 enforcement  373–4, 383–5 EU law  390 factoring arrangements  383, 386 financial collateral arrangements  375–80, 383–4 financial leases  257, 374 fixed charges  354, 372, 383–5 floating charges  371–3, 379, 383–5 foreclosure  330 functionalism  372 future property  375, 388 hire purchase  257, 373

Index 417 identification of individuals  378 insolvency  383–5 intellectual property rights  372, 380, 381–2 international influence of UCC Article 9  386–8 land  372 Law Commission  376, 383–5 mortgages  372, 383 moving of charges from one register to another  390 names, rules on  378–9 nemo dat rule  77, 369–70, 380 neoliberalism  388, 389 New Zealand  371, 373, 375–6, 383–6 notice  380 ostensible ownership argument  374 outline of system  372–86 ownership  374, 386 perfection  374, 375–81 possession  376, 383 priority  371, 373–4, 376, 379–83, 385–6 proceeds  379 purchase money security interests (PMSIs)  381–5 receivables financing  374, 382, 385–6 receivers, appointment of  383 recharacterization  374–5, 380 reform  370–89 registration  371–81, 386, 390 retention of title clauses  277, 289, 372–5, 380, 386 sale of assets  383 searches  378–9 Secured Transactions Code (CLLS) (draft)  372–4 Secured Transactions Law Reform Project  390 seizure  383 set-off  373 subordination agreements  378 substance, security rights in  372–5, 383, 385 taking free rules  379–80 too hard to tell the difference argument  374 transaction filing systems  371, 377, 386 unitary concept of security interests  385–6 writing  376 personal services  106 pledges  266, 270, 297–303 abolition  389 attornment 399 bailment  250–1, 256, 297, 299–300 bills of lading  16, 64, 299–300 bills of sale  302 common law  299, 302 conversion  184, 190–2, 297, 301, 303 damages  303 delivery  298–301, 303 detinue  303 documentary credits  301–2 documents of title  299 elements  297–8 equitable pledges  299, 317 factoring  63–4 fiduciaries  393 immediate possession/constructive possession, right to  300, 302

implied undertakings of authority  297 insolvency  298–9, 303 intangibles  299 liens  304–5, 307, 310 mercantile agents  300, 303 mortgages  303 negative pledges  270, 279, 354, 367–8, 388 negotiable instruments  299 non-possessory interests  297 pawns under Consumer Credit Act 1974  302–3 personal actions  298 possession  10–11, 14 redemption  298, 301–2 re-pledges  303 reversionary interests  206 sale by a seller or buyer in possession  67 sale, power of  298, 302–3 specific performance  299 surpluses on sale  298, 299 third parties  303 Torts (Interference with Goods) Act 1977  303 transfer of possession  298 trust receipts  297, 302, 303 possession see also immediate possession/ constructive possession, right to abandonment  25–6 actual/de facto possession  11–13, 14, 207, 269 adverse possession  10 bailment  10–11, 13–14, 242–6, 250–5, 260–1 bills of lading  129–30, 269 choses in possession  2, 22, 33–55, 184 cognitive possession  11 constructive possession  10, 13–14, 207, 269 contract  10 control  6, 11–13 conversion  11, 183–5, 188, 190, 192–3, 207 criminal law  10 custody  11, 13 documents of title  269 exclude, right to  10, 241 factoring  62 finders  253 fixed charges  260 floating charges  360 indicia of possession  11–13 indivisible, as  10 intention  11–12 joint possession  8 knowledge  12–13 legal possession  11, 13, 14 legal title  7–8, 14–15, 25–6 liens  136, 266 manual possession  11 mistake  13 mortgages  337–8 nemo dat rule  56, 66–73 ownership  6, 7–8, 10, 14 perfection  269, 376 Personal Property Security Act/Article 9-type schemes  376, 383 physical possession  10–11, 304

418  Index pledges  10–11, 14, 266 sale by a seller or buyer in possession  66–73, 75–7, 80 security interests  266–9 transfer  7–8 trusts  21 types  11 unity of possession  9 power see also power of sale interest, type of  179–81 model  222–8 power of sale bailment  66 chattels  332 common law  66, 330, 332–4 contract  330 equitable duties of mortgagees  333–4 express power  331 foreclosure  331 good faith  332, 334 implied power  332 incidence  330–2 land  330–1 liens  304–5, 312 logbook loans  338–9 mortgages  79, 330–5 negligence  333 nemo dat rule  66 orders for sale  328, 331 overreaching  79 pledges  66, 298, 302–3 price  332–5 receivership  335 remedies  332 shut eye knowledge  331 statutory power  330, 332 surpluses  331 third parties  334–5 powers of attorney  82 PPSA see Personal Property Security Act/Article 9-type schemes preferential creditors  280–3, 353–4, 362, 364–5, 385 Pretto-Sakmann, A  22 priority rules  103–6 administrative receivers, appointment of  361–2 administrators, appointment of  365 aircraft, international interests in  326 assignment  82, 86, 87, 99, 103–6 attachment  268, 380 bills of exchange  132 bills of sale  280 bona fide purchasers for value  106 consideration  99 date of registration  371 Dearle v Hall, rule in  103–5, 125–6, 280 equity  19, 103–6, 280 expenses  279 fixed charges  279–80, 283, 352–5 floating charges  269–70, 279–83, 296, 347–8, 354–5, 357, 388–9 fraud  104, 106

general rules  279–83 insolvency  209, 222, 279, 282, 346, 354 intellectual property rights  87, 279, 281 Law Commission  282 legal assignment  106, 280 liens  312, 314 marshalling  283 mere equities  280 mortgages  269, 282, 283 nemo dat rule  104 non-possessory securities  280 notice  98, 103–4, 106, 125–6, 371, 386 pari passu rule  218–19, 291, 293 perfected interests and non-perfected interests, between  269–70, 279–83, 296 perfection  278–9 Personal Property Security Act/Article 9-type schemes  371, 373–4, 376, 379–83, 385–6 pre-acquisition agreements  281 preferential creditors  280 procedural assignment  105–6 purchase money security interests (PMSIs)  281, 381 receivables  106, 288 reform  369 registered security interests  105 registration  280–1, 371, 376, 380–1, 386 restitution based on mistake of fact  106 retention of title  296, 374, 381 reversionary interests  296 Secured Transactions Code (CLLS) (draft)  389 statutory assignment  105–6 subject to equities  105 subsisting equitable interests, disposition of  125–6 super-priority  381 tacking  283 taking free rules  279, 380 trusts  103 privity of contract  91, 248 proceeds of sale  250, 284, 287–9, 348, 353, 379 products retention of title clauses  284–6 security interests  353 promissory notes   128–9, 131 proprietary claims accretions  209 authority, lack of  228–9 bailment  260 bona fide purchasers for value  227 causes of action  225 change of position defence  227 equity  7 floating charges  355–60 legal title  14, 210 life insurance  225–6 misdirected property, remedies for  209–10 non-voluntary transfers  228–9 overreaching  227 power  222–8 priority in insolvency claims  209 qualities of proprietary rights  174

Index 419 rescission  226 right to sue  260 third parties  226 tracing  222–3, 225–9 trusts  21–2, 209–10, 226 unjust enrichment  225–9 purchase money security interests (PMSIs)  281, 381–5 quasi-security interests  284–96 bailment  242 factoring  290 financial leasing  290 function  264–5 hire purchase  290 receivables financing  290 retention of title clauses  264, 284–90 set-off  290–6 quiet enjoyment, right to  243 Randall, John  184–6, 188, 197, 393 real chattels  2 recaption  264 receivables assignment  82, 110, 290, 374, 382 charges register  106 choses in action  109–10 deemed security interests  385 definition  110 factoring  82, 109, 386 Law Commission  106 quasi-security interests  290 Personal Property Security Act/Article 9-type schemes  374, 382, 385–6 priority  106, 288, 386 registration  106, 369, 386 UN Convention on the Assignment of Receivables in International trade  110 receivership  335–7 administrative receivers, appointment of  361–4 agency  336 appointment  326, 345–7, 354–5, 360–4, 383 common law  337 confidentiality  336 duty of care  336–7 equity of redemption  336 expenses  336 fiduciary duties  336 good faith  336 LPA receivers  335–7, 355 mortgages  335–7, 338, 343 negligence  336 Personal Property Security Act/Article 9-type schemes  383 power of sale  335 recaption  202 reform  367–90 see also Law Commission administrative receivers, appointment of  363 bills of sale  339–40, 343, 369–70 Companies Act 2006  367–9, 370, 394

Department for Business Innovation and Skills (BIS)  368 DTI proposals  367 enforcement  369 EU law  370 financial collateral arrangements  369 fixed and floating charges, distinction between  369 floating charges  370, 388–9 harmonisation of law  370–1 intellectual property  369 Law Commission  367, 370 Law Reform Committee (LRC)  207 nemo dat rule  74–8, 80, 394 ownership-based financing techniques  371 Personal Property Security Act/Article 9-type schemes  370–89 priority  369 registration  367–70 sale by a seller or buyer in possession  75–7 Secured Transactions Code (CLLS) (draft)  369–70, 389 Secured Transactions Law Reform Project  369 small and medium-sized enterprises (SMEs)  369 UNCITRAL  370 registration see also registration under Personal Property Security Act/Article 9-type schemes 21-day invisibility problem  368 aircraft, international interests in  277–8, 281, 326, 341–2 assignment  82, 280, 374 bills of sale  269, 274–6, 339–40, 369 book debts, assignment of  368–9 charges register  106 Companies Act 2006 Scheme  269–71, 279 Companies Charges Register, phasing out of  370 Companies House, burden on  368 consent  278 constructive notice  269–71 copyright  3 date of registration  371 double registration  278 electronic registration  276 equity securities  87 European Security Interests Register, proposal for  394 financial collateral arrangements  272 fixed charges  355, 372 floating charges  355–6, 367–8, 372 intellectual property rights  87, 278–9, 281 land, double registration of  368 liens  305 mortgages  322, 324 negative pledges  367–8 non-possessory security interests  280, 368 patents  3–4, 278–9, 281, 380 perfection  269, 340 priority  105, 269–70, 280–1, 371, 376, 380–1, 386 publicity  269, 274

420  Index receivables  106, 369, 386 reform  367–70 searches  368 Secured Transactions Code (draft)  369 security interests  82, 269–72, 274, 277–81 shares and securities  5 trade marks  3, 4, 278–9 transparency  368 unregistrable charges  368–9 registration under Personal Property Security Act/Article 9-type schemes  371–8, 390 advance filing 377, 380, 386 Companies Act 2006  377 confidentiality  376 date of registration, priority from  371 double registration  381 due diligence  376 electronic filing  370, 377–8 formal responsibility  377 intellectual property rights  380 mistakes  379 mortgages  372 notice filing  376–8 over-registration  373 priority  371, 376, 380–1, 386 receivables financing  386 retention of title clauses  375 searches  378–9 subordination agreements  378 tacking rules  377 time limits  377 voluntary registration  374 Reichel, D  107 remedies see also damages; rescission; specific performance account, liability to  252 aircraft, international interests in  340–2, 375 conversion  195–202 delivery up  129–30, 201, 204 equitable compensation  91 fixed charges  360–6 floating charges  360–6 immediate possession/constructive possession, right to  207 injunctions  89–90, 201–2, 204, 312, 324, 342 misdirected property, remedies for  209–37 mortgages  328 power of sale  332 self-help  15, 202, 291 tracing  210–12, 221–3, 237 trespass to goods  204–5 remoteness  198, 200, 247 replevin  206–7 resale, right of  311 rescission  174–81 affirmation  178, 179 bars  174, 177–9 bona fide purchasers for value  80, 177–81 contracts  174–5 conversion  179 deeds  174

defective transfers and payments  153 duress  174–5, 177, 179, 182 equity  174, 177–8, 180–2 floating charges  360 fraud  169–70, 174, 177–8 gifts  175 laches  178 law, at  174 mere equities  178, 180 misrepresentation  64–5, 174–5, 177, 178 mistake  174–7, 180, 182 nemo dat rule  178 power, which type of interest is a  179–81 qualities of proprietary rights  174 restitutio in integrum  177 resulting trusts  170 sale by a seller or buyer in possession  70–1 third party rights  177–8 tracing  226 undue influence  175, 182 voidable transfers  64–5, 70, 174–81 reservation of right of disposal  49–50 reservation of title clauses see retention of title clauses restitution bars to restitution  169 consideration  169 damages  200, 204–5, 246 gifts  169 mistake  106 priority  106 restitutio in integrum  177 resulting trusts  163, 169–71, 173 tracing  224 unjust enrichment  163, 169–71, 173 resulting trusts  156–74 absence of basis approach  156, 169–70 advancement, presumption of  156–60, 166 authority, lack of  171–2 automatic resulting trusts  22, 157, 164–5, 170–1 basis for the resulting trust  165–74 change of position, defence of  165, 171, 173–4 civil standard of proof  158 condictio claims  169 consideration, failure of  165, 169, 171–3 constructive trusts  165, 168–9, 172 criminal offences  162–3 debts, discharge of  169 declaration of trusts  165–8, 170, 171–3, 181–2 defective transfers and payments  22, 156–74 duress  169–70 equitable interests  164–5, 174 evidence  158, 166–7 extinguishment  126 failing trusts  22, 156 fraud  162 gifts  156, 158–60, 167–9 ignorance cases  168–70 illegality  156, 160–4 insider trading  162–3 intention  156, 158–60, 167–8

Index 421 land as evidenced in writing, trusts of  167–8 Law Commission  161–2 locus poenitentiae, rule in  161, 164 mistake  169–70 payments, defects in  156–74 presumed resulting trusts  22, 156, 157–70, 172, 181–2 public policy  160 purchase money resulting trusts  156–64, 172 range of factors approach  163–4 reliance on presumptions, disallowing  160–4 rescission  170 restitution  163, 169–71, 173 sales of equitable interests  120 three certainties  164 tracing  165, 168–72 transactional illegality  156 transfers, defects in  156–74 unjust enrichment  163, 166, 169–71, 173–4, 182 void contracts  156, 165, 169–71, 172–3 voidable contracts  169–70 voluntary conveyances  156, 157–64 writing  126 retention of title clauses  284–90 agency  288 aircraft, international interests in  277, 326, 340 all-monies clauses  284 assignment  287 bailment  257 bills of lading  50 bills of sale  284 common law  289 consignments  374 criticism  289–90 fiduciaries  287–8, 290 floating charges  284–5, 287, 290 function  264 insolvency  284, 289 interpretation  284–5 mixtures  393 passing of property  264 Personal Property Security Act/Article 9-type schemes  277, 289, 372–5, 380, 386 price, suing for the  288 priority  296, 374, 381 proceeds clauses  284, 287–9 products clauses  284–6 quasi-security interests  264, 284–90 recaption  264 recharacterisation  289, 375, 380 registration  375 sale by a seller or buyer in possession  69, 72–3, 75, 77 Secured Transactions Code (draft)  289 security interests  277, 296 set-off  284 sub-sales  286, 287–8 tracing  29, 287 unregistered charges  284 reversionary interests  183, 205–6, 207, 303 attornment  249

bailment  14, 205–6, 242, 249, 251, 258, 374, 393 conversion  192–3, 205 immediate possession/constructive possession, right to  205–6, 242 liens  312 mortgages  206 priority  296 Rogers, JS  151 Roman law  15, 26–7, 29, 33, 201, 243–4, 393 Romalpa clauses see retention of title clauses Ryan, C  271 Sachs, Eric  142 Saidov, D  34–5, 304 Saidova, S  278, 341 sale see bills of sale sale of assets see also power of sale administrative receivers, appointment of  361–2 administrators, appointment of  365 autonomy  7 bailment  69, 243, 250, 253 bills of lading  67 bona fide purchasers for value  71 charges  345, 355, 360 common law  67 conditional sales  373, 375 consideration  119–21 constructive delivery  68–9, 73 contract  7 credits  263–4 delivery  67–73 documents of title  68, 70–1 fixed charges  355, 360 floating charges  345–7, 355, 360 good faith  70–1 immediate possession/constructive possession, right to  68–9, 72 intermediate buyers  72–3 judicial sale  196 mercantile agents  66–8, 71–2 mortgages  303 nemo dat rule  66–73, 75–7, 80, 369–70 ownership  7 passing of property under Sale of Goods Act 1979  33–50, 53 Personal Property Security Act/Article 9-type schemes  383 pledges  67 possession, by sellers or buyers in  66–73, 75–7, 80 reform  75–7 rescission  70–1 retention of title clauses  69, 72–3, 75, 77 sale and leaseback  75, 255 Sale of Goods Act 1979  33–50, 53, 369–70, 380, 394 sale or return basis  39–41 seizure  338 specific goods  39–41 surpluses  298, 299 taking free rules  380 time limits  338

422  Index title  66–7 transfer of legal title to tangibles  53 salvage  244 Saunders v Vautier, rule in  20–1, 113 Scotland  25, 346 sea waybills   17, 147–8 Sealy, LS  127, 151 searches  368, 378–9 Secured Transactions Code (CLLS) (draft) legal and equitable charges, retention of difference between  389 mortgages  283, 389 Personal Property Security Act/Article 9-type schemes  372–4 priority  389 quasi-security interests  289 reform  369–70, 389 registration  369 retention of title clauses  289 tacking  283 taking free rules  389 Secured Transactions Law Reform Project  369, 390, 394 securities see shares and securities security, definition of  264, 306–7 security interests  263–83 see also aircraft, international interests in; bills of sale; charges; liens; mortgages; quasi-security interests actual possession  269 assignment  280 attachment  266–9 bills of lading  145 bona fide purchasers for value  269 book debts  268, 296 charges  266 common law  270 Companies Act 2006 Scheme  269–71, 279 consent  266, 278 constructive notice  224, 269–70 consumer credit  267 contractual liens  266 conversion  184 deemed security interests  372–5, 382–3, 385 delivery  271 documents of title  269 enforcement  268 equity  224, 266, 269 estoppel  276 European Security Interests Register, proposal for  394 financial collateral  270–4 fixed charges  265, 266, 268, 279, 282–3 floating charges  265, 266, 268, 270, 272–4, 282–3, 296 function  263–4 future interests  268 general rules  266–83 hire purchase  256–7 immediate possession/constructive possession, right to  269 insolvency  264, 269, 282

intellectual property rights  278–9, 281 intermediated securities  117 lease agreements  277 legal security interests  266 licensing  278 liens  266 loan credits  263–4 mortgages  266–7, 269, 277, 282, 283 non-possessory interests  266, 269, 280 past consideration  268 patents  3 perfection of security interests  266–7, 269–79 possessory interests  266–9 priority between perfected interests and nonperfected interests  269–70, 279–83, 296 proceeds, in  353 products, in  353 publicity  269 purchase money security interests (PMSIs)  281, 381–5 reform  82 registration  82, 224, 256–7, 269–72, 274–81 retention of title clauses  277, 296 sale credits  263–4 security, definition of  264 specific performance  268 substance, security rights in  372–5, 383, 385 third parties  267 tracing  223–4 trade marks  3 types  266 writing  267 seizure  338–9, 383 self-help remedies  14, 202, 291 semen/sperm  261, 395 set-off abatement  101–2 Australia  291 bank accounts  291 bills of exchange  142–3 choses in action  109, 114–15 close connection  101 close out netting  292–3 contract  100–1, 284, 290–2 definition  100 equitable assignment  294 equitable procedural set-off  295–6 equitable transaction set-off  294–5, 296, 393 fixed charges  354 floating charges  354, 356 fraud  101 function  264 future debts  296 impeachment of title  101, 294–5 in rem rights  291 independent set-off  100, 295–6 insolvency  100, 284, 291–4 mutuality  100, 102, 293–5 nemo dat rule  100–2 novation  292 overreaching  358

Index 423 pari passu rule  291, 293 passing of property  264 Personal Property Security Act/Article 9-type schemes  373 procedural set-off  101–2 quasi-security interests  264, 284–96 reception  264 reciprocity  294 retention of title clauses  284 self-help remedies  291 subject to equities  100–2, 290 unconscionability  295 shares and securities assignment  81 financial collateral arrangements  5 intangibles  2 intermediated securities  5 nominee share accounts  24–5 ordinary shares  5 passing of property  34 preference shares  5 share certificates  5 specific performance  34 tax  122–3 transfers  5, 30–1, 87, 95–6 uncertificated and dematerialised securities  5 signatures  50, 85, 133, 139–40, 151–2, 325 Smith, Henry  7–8 Smith, Lionel  211, 220, 222–3, 299 Smith, M  82, 88, 97, 104, 114 software bailment  240 bona fide purchasers for value  35 conversion  184–5, 202–3 goods, as  34–5, 304 intellectual property rights  34–5 licences  34 liens  304 passing of property  34–5 tangibles  35 sole traders  368 South America, civil law systems in  389 specific goods  35–41 specific performance consideration  99 constructive trusts  30–1 equitable compensation  91 equitable title  30–1 fixed charges over future assets  30–1 liens  313 mortgages  30, 325 passing of property  34 pledges  299 quasi-specific goods  48 sales of equitable interests  119–21 security interests  268 share sales  30–1, 34 specification  27, 213, 290, 393 stamp duty  118, 119–20 standard terms  305

statutory (legal) assignment (LPA 1925 section 136) of choses in action  82–7, 106 absolute assignments  82–4 book debts, registration of general assignment of  83 charges  82–5 consideration  83, 84–5 copyright  87 Crown  82 debt, definition of  84–5 debt securities  87 design rights  87 electronic writing  85 equitable assignment  83–6 equity securities  87 future or uncertain rights  84–5 identity of assignees  82 intellectual property rights  87 intention  82 Judicature Acts  85 legal mortgages  83 negotiable instruments  82 non-existent rights  84 notice  84, 85–6 patents  87 powers of attorney  82 present choses, requirement for  82 priority rules  86, 87 registration  87 subject to equities rule  86 trade marks  87 what can be assigned  84–5 writing  84, 85–6, 87 stevedores  248–9 Stevens, Robert  156, 360 stoppage in transit  260, 311 strict liability bailment  244–5, 247–8, 253 conversion  183–4, 187, 203, 207 trespass to goods  203 subdivision of personal property  2–5 intangible assets  2–5 tangible assets  2 subject to equities assignment  86, 99, 100–3, 105, 116, 149–50, 290 bills of exchange  130 bona fide purchasers for value  100 damages  102–3 documentary credits  149–50 fraud  101 misrepresentation  101 nemo dat rule  100–2 non-negotiable bills  130 notice  98, 102 set-off  100–2, 290 substantive equities  101 subordination agreements  378 subrogation  229–31 subsisting equitable interests, disposition of  117–26

424  Index substitutes see also novation  209–11, 379 bills of lading  301 bills of sale  353 financial collateral arrangements  273–4 fixed charges  353 floating charges  360 mixtures  209–10, 212–13 overreaching  358 tracing  169–70, 174, 209–11, 222–3, 226, 360 surrender versus disclaimer  124–5, 126 survivorship, right of  9 Swadling, William  15, 30–1, 154, 156, 158, 165–7, 170, 172, 179, 260 tacking  283, 377 taking free rules  75, 80, 279, 379–80, 389 tangible assets (choses in possession)   2, 22, 33–55, 184 teleology  8 tenancies in common  9, 23, 28, 36, 42–3, 47, 213 Tettenborn, Andrew  100, 114–15, 183, 205–6, 391 Tham, CH  98 theft abandonment  25–6, 254 bailment  245, 247, 249–50, 254 bills of exchange  15–16, 131–2 bona fide purchasers for value  130 conversion  186, 189, 191 dishonesty  26 documents of title  78 nemo dat rule  65, 77–8 tracing  220 trusts  21–2 void transfers  154–5 third parties bailment  243, 250–2, 259, 262 bills of exchange  134–5 conversion  194–5 liens  305–7 negotiable instrument, definition of  128–9 perfection  375, 379 power of sale  334–5 rescission  177–8 right to sue  33–4 security interests  267 tracing  221, 224 trespass to goods  204 Thomas, Sean  35 time limits  89, 254, 326–7, 338, 377 title see also retention of title clauses absolute title  15 documents of title  14, 15–19, 391 equity  19–20, 30–1, 209–37 impeachment of title  101 interests, difference from  15 joint tenancies  8 legal title  14–19 sale by a seller or buyer in possession  66–7 Tolhurst, G  91, 111, 113 tort   183–207 see also conversion; trespass to goods choses in action  108

common law  393 legal title, protection of  183–207 replevin  206–7 reversionary interests  183, 205–6, 207, 303 single tort of wrongful interference, proposal for  207 title, protection of legal  183–207 Torts (Interference with Goods) Act 1977 bailment  243, 245, 252, 262 conversion  185–6, 188, 191, 195–9, 200–1, 207 damages  196–7, 200 detinue  201 legal title  183, 207 pledges  303 replevin  207 single tort of wrongful interference, proposal for  207 trespass to goods  203–4, 207 unjust enrichment  262 tracing  209–29 authority, lack of  228–9 bank accounts  213–15, 217, 219–22 bills of exchange  224 bona fide purchasers for value  19, 223–4, 227 causes of action  210, 212, 225 change of position defence  222, 224–5, 227 cheques  214–15 claiming, distinguished from  210 Clayton’s Case, rule in  217–19 commingling  213 common law  28–9, 210–15, 221–3 constructive trusts  172 contractual debts, time of payment of  221 conversion  222 defences  223–5 duress  169 election, right of  223 electronic transfers  210–11, 214 equity  19, 210–12, 215–213, 222–4, 395 evidence  209–12 fiduciary duties  210–12, 216–17, 221–2 fraud  169–70, 211, 215 fungibles  212–13 inchoate interests  223 innocent contributors  217–19 innocent victims against fiduciary  216–17 insolvency, priority in  222 intention  215, 221 knowing receipt  234 legal interests  223–4 liens  222–3, 305 life insurance  225–6 manufacture (specificatio)  213 misapplication of assets  169 misrepresentation  169 mixed substitutions  209–10, 212–13 mixtures  209–21, 223 money  215–16, 221–2 money had and received, actions for  214–15, 222 non-voluntary transfers  228–9 order of payment  221

Index 425 overdrawn bank accounts  217, 219–21 overreaching  79, 227 pari passu rules  218–19 pension funds  220 physical substitutions  212–13 power  222–8 proprietary claims  222–3, 225–9, 237 remedy, as a  210–12, 221–3, 237 rescission  169–70, 223, 226 restitution  224 resulting trusts  165, 168–72 retention of title clauses  29, 287 separate transaction, payment as a  221 subrogation  231 substitutes  169–70, 174, 209–11, 222–3, 226, 230 tenancies in common  213 third parties  221, 224, 226 trusts  79, 216–19, 222–4 undue influence  169 unjust enrichment  174, 225–9 vesting title  222–3 trade marks assignment  87 confusion  4 exclusive use  4 identical goods  4 marks, signs or logos  4 registration  3, 4, 278–9 reputation  4 similar marks  4 term of protection  4 UK IPO  4 writing  87 trade secrets  4 transaction filing systems  371, 377, 386 transfer see also delivery; void transfers; voidable transfers credits and debits  5 defective transfers and payments  153–82 documentary intangibles  3 equity  5, 111–14 joint tenancies  9 mortgages  320, 322–3 negotiability and transferability distinguished  130 negotiable instrument, definition of  128–30 non-voluntary transfers  228–9 pledges  298 possession  7–8 shares and securities  5, 30–1, 87, 95–6 title  320, 322–3 transmissibility, right to  6, 7–8 trusts  20–3 transfer of legal title to tangibles  33–54 automatically, where property transfers  33 deeds  33, 50–1, 53–4 delivery  33, 51–4 exchange  33 gifts  33, 51–3 loans  33 passing of property under Sale of Goods Act 1979  33–50, 53

Treitel, GH   93 Trento project  384 trespass see trespass to goods; trespass to land trespass to goods  183, 202–5, 207 asportation  203 bailment  250–1, 259–60 conversion  184, 188, 192, 194, 200–4, 207 co-ownership  203 cyber-trespass  204 damages  204–5 defences  204 degree of interference  207 delivery up  204 double liability  203 elements of trespass  203–4 extinction of title  203 immediate possession/constructive possession, right to  202 injunctions  204 intention  203–4, 207 joinder  203 Law Reform Committee  207 loss of profits  204–5 necessity  203 remedies  204–5 single tort of wrongful interference, proposal for  207 strict liability  203 third parties  204 Torts (Interference with Goods) Act 1977  203–4, 207 trespass to land  202 trusts and trustees see also constructive trusts; declarations of trust; resulting trusts assets  20 assignment  22, 89 bare trusts  20 beneficiaries  20–3 bona fide purchasers for value  21, 79–80 bond trustees  25 breach of trust  231–3, 234, 237 categorisation of beneficiaries’ rights  392 change of position  224 charitable trusts  22 commercial contracts  24–5 choses in action  22 commercial law  392 creation  22–4 deeds  79 defective transfers and payments  153, 156–74 delegation  20 discretionary trusts  392 dishonest assistance  231–3 enforcement  21–2 equitable ownership  20–2, 24–5 equitable title  19–25 every efforts doctrine  24 evidence  117–18 exclude, right to  21 facilitative institution, as  392 floating charges  346, 359

426  Index formalities  24 implied trusts  120 intention  22, 23 investment powers  79 joinder  91 joint owners  23 knowing receipt  234, 237 land  167–8 liens  314 management  20–1, 23, 392 misdirected property, remedies for  209–10 mixtures  223 mortgages  337 nominee share accounts  24–5 object, certainty of  23–4 obligation, trust as an  21 overreaching  79–80, 358 persistent rights  22 personal rights  22 possession  21 priority  103 private express trusts  20, 22, 30 property rights  21–2 proprietary rights  7, 21–2, 209–10 receipts  297, 302, 303 right against a right  21 Saunders v Vautier, rule in  20–1 settlors  22–4 subsisting equitable interests, disposition of  117–18 sub-trusts  20, 24–5, 116, 121–2 theft  21–2 tracing  79, 216–19, 222–6 transfer of ownership  20–3 trusts  20–1, 23–5, 392–3 trover  42, 57 ultra vires  172–3 unascertained goods  35–6, 41–9 appropriation of goods to the contract  41–6 ascertainment  41–2 bailment  45 bills of lading  16 commingling  28 delay  46 delivery  45, 52 estoppel by representation  42 future goods  48–9 identification/ascertainment of goods  41–3, 46 joint tenancies  9 passing of property  35–67, 41–9 quasi-specific goods  46–8 tenants in common  36, 42–3, 47 unconditional appropriation  43–6, 48–9 UNCITRAL bills of exchange  132 Legislative Guide on Secured Transactions  370, 394 Model Law  370, 394 priority  380

proceeds and products, security rights in  353 Registry Guide  370 unconscionability  95, 236, 295, 312, 315–16, 322 undue influence  169, 175, 182 unfairness bailment  247 equity  392–3 foreclosure  329 mortgages  321–2, 327, 329 unfair contract terms  247, 337 Uniform Commercial Code (UCC) see also Personal Property Security Act/Article 9-type schemes aircraft, international interests in  341 bailment  257 documents of title  78 electronic bills of exchange  151 nemo dat rule  76–7, 78 vaut titre approach  78 Uniform Customs and Practice for Documentary Credits (UCP)  149–51 unincorporated associations  327, 369, 374 unitary concept of security interests  372, 385–6 United States see also Uniform Commercial Code (UCC) bailment  257 conversion  187 cyber-trespass  204 nemo dat rule  76–7, 78 purchase money security interests (PMSIs)  382 security interests  296 unjust enrichment basis approach  169–70 causes of action  155, 169 change of position defence  171, 173–4, 201, 224–5, 229–30 choses in action  108–9 consideration  231 conversion  156, 186, 199, 201 direct/indirect  231 equitable interests  174 expense of claimant, at  155–6, 169, 171 ignorance  228–9 knowing receipt  234, 237 legal title, retention of  156 liens  315 mistake  228, 231 mortgages  323 personal unjust enrichment  153 presumed resulting trusts  166, 168–70 proof of enrichment  169 restitution  163, 169–71, 173 resulting trusts  163, 166, 168–71, 173–4, 182 subrogation  229–31 Torts (Interference with Goods) Act 1977  262 tracing  174, 225–9 unconscionability  315 unjust factors  155, 169, 170–1, 227–9 void transfers  155–6 writing  124 unpaid vendor’s liens  49–50, 66, 305, 309–14

Index 427 unsolicited goods   253 use, right to  6, 7 value, holders for (bills of exchange)  133–6, 138–9 consideration  133–6 defects in title 136 defences  134, 141, 142 holders in due course  138–9 immediate parties  134–5 indorsees  134 indorsers  134 liability, discharge of a  134 liens over bills, holders with  136 past consideration  131–2 remote parties  134 signatures  133 third parties  134–5 value, definition of  133 Van Erp, S  394 vehicle mortgages, proposal for  339–40, 369 Veneziano, A  394 vindicatio actions  14–15, 201 Virgo, Graham   225 void transfers  153–6 consideration, failure of  172–3 contract  153–4, 172–3 deed  153 defective transfers and payments  153–6 delivery  153–4 mistake  55, 154–5 passing of title  154–5 resulting trusts  156, 165, 169–71, 172–3 swaps  172–3 theft  154–5 ultra vires  172–3 unjust enrichment  155–6 voidable transfers  174–81 bona fide purchasers for value  64–5 common law  64 contract  174 deeds  174 defective transfers and payments  174–81 delivery  174 duress  174–5, 182 equity  64 factoring  62 fraud  65, 174–5, 180 good faith  64 instances of voidability  174–7

intention, induced flaws in  174–5 misrepresentation  174–5 mistake  55, 174–7, 180, 182 nemo dat rule  55, 64–6, 70, 72 rescission  64–5, 70, 174–82 resulting trusts  169–70 Walsh v Lonsdale, rule in  92 water rights  7 Watterson, S  186–7 Watts, P  228 wayleaves  205 Weise, S   376 Whittaker, Bruce  110, 375, 378, 380, 384, 390 wills  50–1 winding up see insolvency/liquidation Worthington, Sarah  30, 47, 175–6, 213, 267, 290, 312–13, 349, 357, 359, 391 writing absolute ownership  126 aircraft, international interests in  326 assignment  84, 85–6, 87, 89, 91–2 bills of sale  267, 319 book debts, assignment of  323 consideration, contracts for valuable  119–21 constructive trusts  126 electronic communications  85, 117, 151–2 emails  85, 117 equitable interests, disposition of subsisting  117, 118–24 every efforts doctrine  96–7 express sub-trusts  116, 121–2 five scenarios  118–24 land  96–7 mortgages  322, 325 notice  85–6 overreaching  126 Personal Property Security Act/Article 9-type schemes  376 Plain Vanilla case  118 resulting trusts  126 security interests  267 signatures  85 subsisting equitable interests, disposition of  117, 118–24, 126 surrender versus disclaimer  124–5, 126 trust, directions to trustee to hold on  126 Vandervell saga  122–4 Yeowart, G  292, 322

428