Aluminium Industrie Vaassen BV v Romalpa Aluminium Ltd PDF

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Document (1) 1. Aluminium Industrie Vaassen BV v Romalpa Aluminium Ltd [1976] 2 All ER 552, [1976] 2 All ER 552 Client/Matter: -NoneSearch Terms: romalpa clause Search Type: Natural Language Narrowed by: Content Type MY Cases

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Aluminium Industrie Vaassen BV v Romalpa Aluminium Ltd [1976] 2 All ER 552 QUEEN'S BENCH DIVISIONCOURT OF APPEAL, CIVIL DIVISION MOCATTA J MEGAW, ROSKILL AND GOFF LJJ 3, 4, 5, 6, 7, 11 FEBRUARY 197513, 14, 15, 16 JANUARY 1976 Sale of goods — Passing of property — Vendor retaining property in goods — Duty of purchaser to account for proceeds of sub-sales — Fiduciary duty as agent and bailee of goods — Right of vendor to trace and recover proceeds of sub-sales in priority to other creditors of purchaser — Contract reserving property in goods after delivery until full price paid — Implied power of purchaser to sell goods as agent of vendor — Implied duty to account to vendor for proceeds of sub-sales — Purchaser in financial difficulties — Receiver appointed — Whether vendor entitled to trace and recover proceeds of sub-sales in priority to secured and unsecured creditors. The plaintiffs, a Dutch company which manufactured aluminium foil in Holland, sold quantities of foil to the defendants, an English company carrying on business in England. Clause 13 of the general selling terms and conditions which governed the individual contracts provided: 'The ownership of the material to be delivered by [the plaintiffs] will only be transferred to [the defendants] when [they have] met all that is owing to [the plaintiffs]. Until the date of payment [the defendants could be required] to store this material in such a way that it is clearly the property of [the plaintiffs].' Clause 13 then continued with elaborate provisions to deal with cases in which, after delivery, the foil had been mixed with other material by the defendants for the purpose of creating new 'objects'. The clause provided that in those circumstances the ownership of any such objects was to be transferred to the plaintiffs as 'surety' for 'full payment' and until full payment had been made the defendants were to keep the mixed goods for the plaintiffs as 'fiduciary owner'. The defendants were also given an express power of sale over such 'mixed' goods on condition that, so long as the defendants had not fully discharged their indebtedness to the plaintiffs, they were, on request, to assign to the plaintiffs the benefit of any claim against sub-purchasers. Subsequently the defendants got into serious financial difficulties and a receiver was appointed by the debenture holders. At the date of his appointment the defendants were indebted to the plaintiffs for over £122,000. Following his appointment, the receiver certified that £35,152 was held by him representing the proceeds of sale of unmixed aluminium foil supplied by the plaintiffs to the defendants and sold by the latter to third parties. The plaintiffs claimed that, by virtue of cl 13 of the general conditions, they were entitled to that sum in priority to the secured and unsecured creditors. Held – In order to give effect to the obvious purpose of cl 13, that clause was to be construed as conferring on the defendants a power to sell unmixed foil and also as imposing on them an obligation to account to the plaintiffs for the proceeds of sale unless and until all moneys owing from the defendants to the plaintiffs had been paid. Although, so far as sub-purchasers were concerned, the defendants sold the unmixed foil as principals, so far as the plaintiffs were concerned, the foil was the plaintiffs' property which the defendants were selling as agents for the plaintiffs to whom, by virtue of their fiduciary relationship as agents and bailees, they remained [*553] fully accountable. It followed therefore that the plaintiffs were entitled to trace the proceeds of sale of the unmixed foil and to recover them in priority to the secured and unsecured creditors (see p 563 j to p 564 c, p 565 c d and g to j, p 566 g and h and p 568 b to e, post). Re Hallett's Estate(1880) 13 Ch D 696 applied Note

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For the right to follow and recover assets or the money into which they have been converted, see 16 Halsbury's Laws (4th Edn) para 1460 Cases referred to in judgment Diplock's Estate, Re, Diplock v Wintle[1948] 2 All ER 318, [1948] Ch 465, CA, affd sub nom Ministry of Health v Simpson[1950] 2 All ER 1137, [1951] AC 251, HL, 47 Digest (Repl) 532, 4825. Hallett's Estate, Re, Knatchbull v Hallett(1880) 13 Ch D 696, [1874–80] All ER Rep 793, 49 LJCh 415, 42 LT 421, CA, 1 Digest (Repl) 655, 2278. Henry v Hammond[1913] 2 KB 515, 82 LJKB 575, 108 LT 729, 1 Digest (Repl) 530, 1605. King v Hutton[1900] 2 QB 504, 69 LJQB 786, 83 LT 68, CA, 4 Digest (Repl) 336, 3059. Thornton v Shoe Lane Parking Ltd[1971] 1 All ER 686, [1971] 2 QB 163, [1971] 2 WLR 585, CA. Case also cited Tailby v Official Receiver(1888) 13 App Cas 523, [1886–90] All ER Rep 486, HL. Action By a writ issued on 30 October 1974 the plaintiffs Aluminium Industrie Vaassen BV, brought an action against the defendants, Romalpa Aluminium Ltd, claiming, inter alia, (i) a declaration that they were entitled to a charge on the sum of £35,152·4366 held in an account of the defendants' receiver-manager, Mr J N Prentice, representing the proceeds of sale of aluminium foil supplied by the plaintiffs to the defendants and then sold by the defendants to third parties; (ii) a declaration that aluminium foil to the value of £50,235 held by the receiver originating in deliveries to the defendants by the plaintiffs was the plaintiffs' foil and an order for its delivery up; (iii) alternatively judgment for the price. The facts are set out in the judgment.

Anthony Lincoln QC and David Donaldson for the plaintiffs. Murray Pickering for the defendants. Cur adv vult 11 February 1975. The following judgment was delivered. MOCATTA J read the following judgment. The plaintiffs are a Dutch company making, amongst other things, aluminium foil. The defendants are an English company in respect of which its bankers, Hume Corporation Ltd, on 1 November 1974 appointed a receiver pursuant to powers granted by the defendants under a debenture dated 10 January 1974. On 30 October 1974, just before the appointment of the receiver, a writ had been issued in this action by the plaintiffs, and an interlocutory injunction was obtained on 30 October from Cusack J in relation to goods supplied by the plaintiffs to the defendants and still in the possession of the defendants.

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There is no doubt that on 1 November 1974 the defendants owed the plaintiffs Hfl 757, 886, or £122,239·4374 at the rate of exchange of Hfl 6·4320 to the pound, in respect of a large number of invoices in relation to sales of aluminium foil to the defendants from 1 August 1974. After his appointment, the receiver certified that £35,152·4366 was held in an account in his name as receiver-manager of the defendants with the Hume Corporation, and that that amount represented the proceeds of sale of aluminium foil supplied by the plaintiffs to the defendants and then sold by the latter to [*554] third parties. In this action the plaintiffs now seek to establish by declaration their right to a charge on this sum, basing their claim on a right to trace on the principle established in Re Hallett's Estate. Secondly, the receiver has certified that aluminium foil to a value alleged to be £50,235 is held by him, having originated in deliveries to the defendants by the plaintiffs. The plaintiffs seek a second relief, namely a declaration that this quantity of foil is theirs, and an order for its delivery up. Very much as a third string to their claim and only if they should fail on their first and second claims to relief, the plaintiffs sought judgment for the price. The first major issue in this case turns on whether cl 13, in what the plaintiffs say are their general selling terms and conditions for aluminium foil, applied to the transactions done between the plaintiffs and the defendant company, in respect of which £122,239 is owing. That clause began with this important reservation of title. The first sentence of the clause reads as follows: 'The ownership of the material to be delivered by A.I.V. [i e the plaintiffs] will only be transferred to purchaser when he has met all that is owing to A.I.V., no matter on what grounds.'

I read the remainder of the clause in view of its somewhat elaborate nature and of subsequent issues arising: 'Until the date of payment, purchaser, if A.I.V. so desires, is required to store this material in such a way that it is clearly the property of A.I.V. A.I.V. and purchaser agree that, if purchaser should make (a) new object(s) from the material, mixes this material with (an) other object(s) or if this material in any way whatsoever becomes a constituent of (an) other object(s) A.I.V. will be given the ownership of this (these) new object(s) as surety of the full payment of what purchaser owes A.I.V. To this end A.I.V. and purchaser now agree that the ownership of the article(s) in question, whether finished or not, are to be transferred to A.I.V. and that this transfer of ownership will be considered to have taken place through and at the moment of the single operation or event by which the material is converted into (a) new object(s), or is mixed with or becomes a constituent of (an) other object(s). Until the moment of full payment of what purchaser owes A.I.V. purchaser shall keep the object(s) in question for A.I.V. in his capacity of fiduciary owner and, if required, shall store this (these) object(s) in such a way that it (they) can be recognized as such. Nevertheless, purchaser will be entitled to sell these objects to a third party within the framework of the normal carrying on of his business and to deliver them on condition that—if A.I.V. so requires—purchaser, as long as he has not fully discharged his debt to A.I.V. shall hand over to AIV the claims he has against his buyer emanating from this transaction.'

If the plaintiffs can establish that cl 13 does apply, as between themselves and the defendants, they are admittedly entitled to succeed on their second claim, the goods in question in the possession of the defendants still being their property. But their first claim, namely the right to trace, is disputed. I must therefore deal first with the hotly contested point whether cl 13 did apply between the plaintiffs and defendants. The plaintiffs say it did, expressly, or impliedly. The defendants say that it did apply admittedly to trade that had been carried on between the plaintiffs and a firm called Romalpa Aluminium, prior to the plaintiffs beginning to do business with the defendants on 1 September 1973. They deny, however, that the clause applied to business done between the plaintiffs and the defendants from that date onwards. [His Lordship, having considered the facts, concluded that the general selling terms and [*555]

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conditions as applied to the dealing between the plaintiffs and Romalpa Aluminium also applied to the dealings between the plaintiffs and the defendants and continued:] Having decided that cl 13 did apply to the many transactions between the plaintiffs and defendants after 1 September 1973 when the defendant company took over the aluminium foil business that the partnership had previously conducted with the plaintiffs, I now have to deal with the consequences of that decision as applying to the claims in the action. In the first place, it is admitted that the plaintiffs are the owners of the remaining unsold aluminium foil held by the receiver, and that they are entitled to an order for its delivery up to them. The real contest arose in relation to the plaintiffs' right to a charge on the receiver's account with the Hume Corporation to the extent of £35,152·4366 representing, as certified by the receiver, the sum recovered by him from customers of the defendants as a result of AIV materials supplied to the defendants by the plaintiffs. This right the plaintiffs claim on the basis of the principle established in Re Hallett's Estate, entitling them to trace the proceeds of the sale of their property sold by the defendants into the receiver's bank account. It is common ground that the effect of the clause is that, whilst money was owing by the defendants to the plaintiffs, any aluminium foil delivered by the plaintiffs to the defendants, whilst still in their possession, was held by them as bailees. It is further common ground that the clause must be read subject to the necessary implication that the defendants were entitled to sell the foil to sub-purchasers. It is curious that this is not said about sales of unmixed foil whilst it is said in the last sentence of the clause about foil mixed with other material. In respect of this, it is to be noted that the defendants were, if required, to assign to the plaintiffs their rights against sub-purchasers in respect of the mixed materials sold to them. Notwithstanding the generally far-reaching and somewhat elaborate provisions in cl 13, reserving the plaintiffs' right of ownership in the goods until nothing was owing from the purchasers, and the admission that the clause had the effect of making the defendants bailees of the goods whilst in their possession until all money owing had been paid, the argument for the defendants was that once foil had been sold to bona fide purchasers, the relationship between the plaintiffs and the defendants was purely one of debtor and creditor. As against this, the plaintiffs argued that a fiduciary relationship stemming from the bailment continued after sales to third parties, and that in consequence equitable remedies applied, including the right to trace proceeds of the subsales. It was not necessary, said the plaintiffs, to find as a pre-requisite to the right to trace an express or constructive trust. The equitable proprietary remedy followed as a consequence of the finding that the defendants were bailees. Having indicated the general nature of the competing arguments, I can go straight to the judgment of Jessel MR in Re Hallett's Estate (13 Ch D at 708, 709, [1874–80] All ER Rep at 796). Although in that case there had been breaches of express trust, it is clear from the passages I am about to read that the reasoning was not founded on this, and that the principle stated applied to much wider circumstances. It is necessary to make certain fairly extensive quotations. Jessel MR said (13 Ch D at 708, 709, [1874–80] All ER Rep at 796): 'The modern doctrine of Equity as regards property disposed of by persons in a fiduciary position is a very clear and wellestablished doctrine. You can, if the sale was rightful, take the proceeds of the sale, if you can identify them. If the sale was wrongful, you can still take the proceeds of the sale, in a sense adopting the sale for the purpose of taking the proceeds, if you can identify them. There is no distinction, therefore, between a rightful and a wrongful disposition of the property, so far as regards the right of the beneficial owner to follow the proceeds.'

[*556] Pausing there for a moment, it is not, of course, suggested here that there was a wrongful disposition of the plaintiffs' property when the defendants sold the foil to bona fide sub-purchasers. The latter would get a good title pursuant to s 25 of the Sale of Goods Act 1893. As between the plaintiffs and the defendants, however, the property had never passed to the defendants. I continue with the quotation ((1880) 13 Ch D at 709, [1874–80] All ER Rep at 796):

Page 5 of 14 Aluminium Industrie Vaassen BV v Romalpa Aluminium Ltd [1976] 2 All ER 552 'But it very often happens that you cannot identify the proceeds. The proceeds may have been invested together with money belonging to the person in a fiduciary position, in a purchase. He may have bought land with it, for instance, or he may have bought chattels with it. Now, what is the position of the beneficial owner as regards such purchases?. I will, first of all, take his position when the purchase is clearly made with what I will call, for shortness, the trust money, although it is not confined, as I will shew presently, to express trusts. In that case, according to the now well-established doctrine of Equity, the beneficial owner has a right to elect either to take the property purchased, or to hold it as a security for the amount of the trust money laid out in the purchase; or, as we generally express it, he is entitled at his election either to take the property or to have a charge on the property for the amount of the trust-money. But in the second case, where a trustee has mixed the money with his own, there is this distinction, that the cestui que trust, or beneficial owner, can no longer elect to take the property, because it is no longer bought with the trust money simply and purely, but with a mixed fund. He is, however, still entitled to a charge on the property purchased, for the amount of the trust-money laid out in the purchase; and that charge is quite independent of the fact of the amount laid out by the trustee. The moment you get a substantial portion of it furnished by the trustee, using the word “trustee” in the sense I have mentioned, as including all persons in a fiduciary relation, the right to the charge follows. That is the modern doctrine of Equity.'

There then follows this passage (13 Ch D at 709, 710, [1874–80] All ER Rep at 796) showing the width of the application of the principle. 'Has it ever been suggested, until very recently, that there is any distinction between an express trustee, or an agent, or a bailee, or a collector of rents, or anybody else in a fiduciary position?. I have never heard, until quite recently, such a distinction suggested. It cannot, as far as I am aware (and since this Court sat last to hear this case, I have taken the trouble to look for authority), be found in any reported case even suggested, except in the recent decision of Mr Justice Frya, to which I shall draw attention presently. It can have no foundation in principle, because the beneficial ownership is the same, wherever the legal ownership may be.'

Then there is the following short passage (13 Ch D 696 at 710, [1874–80] All ER Rep 793 at 797): a

Re West of England and South Wales District Bank, ex parte Dale & Co(1879) 11 Ch D 772

'Now that being the established doctrine of Equity on this point, I will take the case of the pure bailee. If the bailee sells the goods bailed, the bailor can in Equity follow the proceeds, and can follow the proceeds wherever they can be distinguished, either being actually kept separate, or being mixed up with other moneys.'

Finally, there follows this sentence: [*557] 'Therefore there is no difficulty in following out the rules of Equity and deciding that in a case of a mere bailee, as Mr Justice Fry has decidedb, you can follow the money.'

These passages are clearly most apposite, since they refer to the position of a mere bailee, and were strongly relied on by counsel for the plaintiff. Counsel for the defendants sought to avoid them by saying they were obiter or had in some way been modified in Re Diplock's Estate and that it was necessary that there should be some express or constructive trust before the equitable doctrine could apply. My attention was not drawn to any passage in Re Diplock's Estate criticising or modifying, in any way, the statements of principle which I have quoted. Although I fully recognise that in considering this problem I find myself in a most unfamiliar field, I feel it my duty to follow and apply those statements. Counsel for the defendants drew my attention to two authorities as illustrating the simple debtor/credit...