Hardy Wine Co Ltd v Tasman Liquor Traders Pty Ltd (in liq)
[2006] SASC 168
•9 June 2006
SUPREME COURT OF SOUTH AUSTRALIA
(Full Court)
HARDY WINE COMPANY LIMITED v TASMAN LIQUOR TRADERS PTY LTD (IN LIQ)
[2006] SASC 168
Judgment of The Full Court
(The Honourable Justice Bleby, The Honourable Justice Gray and The Honourable Justice Anderson)
9 June 2006
SALE OF GOODS - CONDITIONS AND WARRANTIES
SALE OF GOODS - SUBJECT MATTER - INTERPRETATION OF PARTICULAR EXPRESSIONS
CONTRACTS - GENERAL CONTRACTUAL PRINCIPLES - CONSTRUCTION AND INTERPRETATION OF CONTRACTS
Appellant sought declarations that it retained title to goods that were delivered to the premises of a sub purchaser at the request of the respondent - consideration of retention of title clauses - effect of Romalpa clauses - interpretation of terms and conditions of supply contained in credit application and invoices - ascertaining the intention of the parties by examining their conduct, documentation and the commercial context and purpose of the transaction - whether there was an implied term that the change of delivery arrangements did not affect the retention of title clause - whether actual or constructive delivery required - appeal allowed.
Sale of Goods Act 1895 (SA) s 17, s 18, s 19, s 25, s 28; Sale of Goods Act 1895 (Vic), referred to.
Lake v Simmons [1927] AC 487; McCann v Switzerland Insurance (2000) 203 CLR 579; Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451; Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 614; Aluminium Industries B.V. v Romalpa Ltd [1976] 1 WLR 676; McEntire v Crossley Brothers Ltd [1895] AC 457 ; Associated Alloys Pty Ltd v ACN 001 452 106 Pty Ltd (2000) 202 CLR 588 ; Liverpool City Council v Irwin [1977] AC 239 ; Reigate v Union Manufacturing Co [1918] 1 KB 592 ; Codelfa Construction Pty Ltd v State Rail Authority of NSW (1981-1982) 149 CLR 337 ; Four Point Garage Ltd v Carter [1985] 3 All ER 12; E & S Ruben Ltd v Faire Bros & Co Ltd [1947] 1 All ER 215, considered.
HARDY WINE COMPANY LIMITED v TASMAN LIQUOR TRADERS PTY LTD (IN LIQ)
[2006] SASC 168Full Court Bleby, Gray and Anderson JJ
BLEBY J: In my opinion the appeal should be allowed for the reasons given by Gray J. I have nothing to add to those reasons.
GRAY J:
Introduction
Following trial, claims for declarations concerning the retention of title of goods were rejected. This is an appeal from that decision.
Hardy Wine Company Limited (Hardy), the plaintiff and appellant, was at relevant times a supplier of wines and other liquor. Tasman Liquor Traders Pty Ltd (Tasman), until placed into voluntary administration and subsequent liquidation, was a Victorian based wholesaler of Hardy goods. Eaglehawk Inn (Eaglehawk), which carried on business in Tasmania, was a sub-purchaser from Tasman of Hardy goods.
The terms of trade between Hardy and Tasman were governed by a 1997 credit agreement (credit agreement). This agreement included a retention of title clause in favour of Hardy.
When goods were despatched to Tasman pursuant to the credit agreement, Hardy rendered invoices to Tasman. Each invoice included a retention of title clause in substantially the same terms as the retention of title clause forming part of the credit agreement.
From time to time, Tasman wholesaled Hardy goods to Eaglehawk. Hardy would despatch the goods to Tasman who would then deliver to Eaglehawk in Tasmania. Hardy would invoice Tasman for these goods. Tasman would invoice Eaglehawk. Both invoices included a retention of title clause.
On an occasion, sometime between 1999 and 2000, arrangements between Hardy and Tasman concerning Eaglehawk changed. It was agreed, apparently for reasons of commercial convenience, that Hardy would deliver goods wholesaled by Tasman to Eaglehawk, direct to Eaglehawk in Tasmania rather than deliver to Tasman in Victoria (the Eaglehawk agreement). Hardy included a delivery docket with each despatch of goods to Eaglehawk. Each delivery docket included a retention of title clause in favour of Hardy.
Hardy invoiced Tasman, as the party agreeing to purchase from Hardy, with respect to deliveries to Eaglehawk following the Eaglehawk agreement. The same form of invoice, as used earlier, continued to be used. Each invoice included a retention of title clause. Tasman continued to invoice Eaglehawk as sub-purchaser. The Tasman invoices also included a retention of title clause.
The Hardy claim related to goods delivered to Eaglehawk in accordance with the Eaglehawk agreement. At issue on this appeal is whether the altered arrangements affected the Hardy claim to retention of title.
The deliveries to Eaglehawk, the subject of these proceedings, gave rise to eight invoices from Hardy to Tasman. The invoices all bore dates in November 2003. Together the invoices related to goods with a total value of $282,269.75. At the time Tasman went into voluntary administration, the eight invoices for goods delivered by Hardy to Eaglehawk remained unpaid by Tasman. The Tasman invoices to Eaglehawk remained unpaid by Eaglehawk. Eaglehawk remained in possession of the goods the subject of the eight invoices (the Eaglehawk goods).
Hardy asserted that by virtue of the retention of title clauses included in the credit agreement and in the Hardy invoices and delivery dockets, it retained title to the Eaglehawk goods. Tasman, through its liquidator, rejected the Hardy assertion.
Hardy and Tasman entered into an agreement with respect to the Eaglehawk goods. This agreement provided that:
-Eaglehawk would be required to pay the value of Hardy stock in its possession as at the Administration Date into an account in the joint names of Hardy and Tasman.
-Hardy and Tasman would submit the issue of who had title to the Eaglehawk goods for determination to this Court.
-If the Court found that immediately prior to this agreement Hardy retained title to the Eaglehawk goods the money in the joint account would be paid to Hardy. If Hardy was found not to have retained title to the Eaglehawk goods as at the date immediately prior to this agreement, the money in the joint account would be paid to Tasman.
-The fact of the payment into the joint account was not to be taken into account by the Court in its determination as to who had title to the goods.
It was Hardy’s case that, as payment in respect of the Eaglehawk goods had not been made, it retained title to the goods. In the event, and having regard to the agreement between the parties, declarations were sought as to Hardy’s entitlement to the moneys standing to credit of the joint account.
Sale of Goods Act
The transactions between Hardy and Tasman were transactions within the reach of the Sale of Goods Act 1895 (SA). The transactions between Tasman and Eaglehawk were within the Victorian Sale of Goods Act 1958. The provisions of the two Acts are relevantly identical.
It is relevant to record the pertinent terms of the Sale of Goods Act 1895 (SA) as those terms provide the statutory context of the commercial arrangements between the parties.
The Sale of Goods Act 1895 (SA) includes the following definitions:
In this Act, unless the context or subject-matter otherwise requires—
"buyer" means a person who buys or agrees to buy goods;
"contract of sale" includes an agreement to sell as well as a sale;
"specific goods" mean goods identified and agreed upon at the time a contract of sale is made;
The substantive provisions of the Act include the following:
17.(1) Where there is a contract for the sale of specific or ascertained goods the property in them is transferred to the buyer at such time as the parties to the contract intend it to be transferred.
(2) For the purpose of ascertaining the intention of the parties, regard shall be had to the terms of the contract, the conduct of the parties, and the circumstances of the case.
This section makes it clear that parties are at liberty to reach agreement as to the time at which property in goods is to be transferred.
Section 18 of the Act provides rules to ascertain the intention of the parties as to the time at which property in goods is to pass from seller to buyer:
Unless a different intention appears, the following are rules for ascertaining the intention of the parties as to the time at which the property in the goods is to pass to the buyer:
Rule 1. Where there is an unconditional contract for the sale of specific goods, in a deliverable state, the property in the goods passes to the buyer when the contract is made, and it is immaterial whether the time of payment or the time of delivery, or both be postponed.
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 such thing be done, and the buyer has notice thereof.
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 such act or thing be done, and the buyer has notice thereof.
Rule 4. When goods are delivered to the buyer on approval, or on "sale or return", or other similar terms, the property therein 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 such time, and, if no time has been fixed, on the expiration of a reasonable time. What is a reasonable time is a question of fact.
Rule 5.
(1) Where there is a contract for the sale of unascertained or future goods by description, and goods of that description and in a deliverable state are unconditionally appropriated to the contract, either by the seller with the assent of the buyer, or by the buyer with the assent of the seller, the property in the goods thereupon passes to the buyer. Such assent may be express or implied, and may be given either before or after the appropriation is made.
(2) Where, in pursuance of the contract, the seller delivers the goods to the buyer or to a carrier or other bailee or custodier (whether named by the buyer or not) for the purpose of transmission to the buyer, and does not reserve the right of disposal, he is deemed to have unconditionally appropriated the goods to the contract.
Rule 5(2) contemplates an arrangement whereby the seller delivers goods to a carrier or other bailee or custodier of the buyer. The sub-rule allows for the possibility of a reservation of title so that property does not pass on delivery.
Section 19(1) specifically envisages a seller retaining title to goods until certain conditions are fulfilled:
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 the disposal of the goods until certain conditions are fulfilled. In such 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.
Hardy submitted that there had been a reservation of title in the present case as contemplated by this section.
Counsel for Tasman abandoned any reliance on sub-section 25(2) in the present proceedings. That subsection provides:
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, shall have 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.
Finally, section 28 provides:
Unless otherwise agreed, delivery of the goods and payment of the price are concurrent conditions, that is to say, the seller must be ready and willing to give possession of the goods to the buyer in exchange for the price, and the buyer must be ready and willing to pay the price in exchange for possession of the goods.
Retention of Title Clauses
As earlier observed, retention of title clauses were included in the credit agreement, the invoices sent by Hardy to Tasman, the delivery dockets sent from Hardy to Eaglehawk and the invoices sent by Tasman to Eaglehawk. The credit agreement relevantly provided:
Retention of Title
The buyer agrees that the property in the goods does not pass to the buyer until the price of such goods, and for all other goods supplied by the seller to the buyer, is paid in full to the seller. The buyer acknowledges that he holds the goods as bailee of the seller until payment is made for the goods and for all other goods supplied by the seller to the buyer. The buyer is obliged to store the goods so that they are clearly identifiable as the property of BRL Hardy Limited.
All invoices from Hardy to Tasman included the following:
These goods are subject to Retention of Title and Right of Entry. See reverse of invoice and terms and conditions contained in your Credit Application.
On the reverse of all invoices sent by Hardy to Tasman the following terms appeared:
Retention of Title
Goods supplied on this invoice are subject to Retention of Title
The buyer agrees:
1. that ownership of the goods does not pass to the buyer until the full price of the goods, and all other goods supplied by the seller to the buyer, is paid in full to the seller;
2. that risk in the goods passes to the buyer on delivery of the goods to the buyer;
3.to store the goods relating to this invoice so that they are clearly identifiable as the property of Hardy Wine Company.
All delivery dockets sent by Hardy to Eaglehawk following the Eaglehawk agreement contained a retention of title clause in the same terms as those appearing on the invoices sent by Hardy to Tasman. The invoices sent by Tasman to Eaglehawk included the following term:
All goods remain the property of Tasman Liquor Traders until paid for in full.
On the reverse side of each Tasman invoice, the following terms appeared:
1.It is expressly agreed and declared that the title of the subject goods/products described and sold herein shall not pass to the Buyer until payment in full of the purchase price. The Buyer shall in the meantime take custody of the goods/products and retain them as the fiduciary agent and bailee of Tasman Liquor Traders Pty Ltd. The reserved title clause is subject to the following conditions:-
(i) “The customer/purchaser, for the purposes of preserving the seller’s interests, will on receipt of the seller’s stock ensure that such stock is kept separate from that stock fully paid (“the other stock”) where the purchaser has clear property or title in the goods.
(ii) Such demarcation of stocks shall continue until the seller’s stock has been fully paid for by the customer/purchaser.
(iii) Subsequently the customer/purchaser can transfer goods separately held to the “other stock” when the goods are fully paid for.
(iv) All “unpaid” stock will not be kept separate by the customer/purchaser from the “other stock”, but also sufficiently identified to enable the seller to readily repossess such should the customer/purchaser not fulfill the terms for full payment within the required time.
(v) In the event the seller’s goods are ordered and delivered to the customer’s/purchaser’s premises and then subsequently mixed in with the “other stock”, the customer/purchaser will forfeit ownership in the “other stock” and title will revert back to the seller for such stock until full payment is received by seller.”
2.The Buyer may resell the goods/products but only as a fiduciary agent of Tasman Liquor Traders Pty Ltd. Any right to bind Tasman Liquor Traders Pty Ltd to any liability to any third party by contract or otherwise is however expressly negatived. Any such resale is to be at arms length and on market terms.
3.The Buyer will receive all proceeds whether tangible or intangible, direct or indirect of any dealing with such goods/products in trust for Tasman Liquor Traders Pty Ltd and will keep such proceeds in a separate account until the liability to Tasman Liquor Traders Pty Ltd shall have been discharged. The Buyer must account to Tasman Liquor Traders Pty Ltd for such proceeds.
Preliminary Observations
Hardy gave notice through its documentation that it retained title to the Eaglehawk goods until payment in full had been made. It did so as a term of the credit agreement with Tasman, in its invoices to Tasman, and in the delivery dockets accompanying the goods delivered to Eaglehawk.
Eaglehawk was on notice that Hardy claimed that it retained property in the goods until payment was received by Hardy.
The invoices sent by Tasman to Eaglehawk also contained a retention of title clause in favour of Tasman. As against Tasman, property in the goods did not pass to Eaglehawk until payment was made. In these circumstances, if the claims to retention of title were operative, Eaglehawk could not take property in the goods until both Tasman and Hardy had been paid.
The agreement between Hardy and Tasman was an agreement for sale and purchase. Pending Tasman paying for the goods, it was said that Tasman was a bailee of the goods and was obliged to store Hardy goods, identified as Hardy goods, and separately located from other goods.
The agreement between Tasman and Eaglehawk was an agreement for sale and purchase. Pending Eaglehawk paying for the goods in full, Eaglehawk was constituted the fiduciary agent of Tasman with an obligation to account to Tasman for all moneys received.
The Hardy documentation placed an obligation on both Tasman and Eaglehawk to separately store and identify the goods of Hardy. Counsel for Hardy contended that Tasman met its obligation with respect to the Eaglehawk goods by requiring Eaglehawk to separately store and identify the goods.
The Approach of the Trial Judge
The learned trial Judge, when considering the issue of whether property in the goods remained with Hardy, placed particular emphasis on words in the credit agreement. Attention was drawn to Tasman’s acknowledgment that it held the goods as bailee of Hardy until payment was made for the goods or for all other goods supplied by Hardy to Tasman. The Judge also placed emphasis on the obligation of Tasman to store the goods so that they were clearly identified as the property of Hardy.
The trial Judge reasoned:
It is to be noted that these words predicate that Tasman will receive possession of the goods and store goods as bailee of Hardy with the necessity for the goods to be separately identified until payment is made and property is then transferred to Tasman.
Unlike the Credit Application, the invoices which accompanied the goods did not state that Tasman was to hold the goods received as “bailee” of Hardy, but the invoice specifically referred to the terms and conditions in the Credit Application. Further there is a reference under the heading “Retention to Title” to “storing the goods … so that they are clearly identifiable as the Property of Hardy Wine Company.”
Thus the intention of the parties as expressed in the documentation indicates that the goods are to be delivered to Tasman at Clayton and be separately held by Tasman as a bailment until payment to Hardy. The conduct of the parties is also consistent with this interpretation as there was delivery of goods to Tasman at Clayton up until the Eaglehawk Agreement came into existence in 1999 or 2000.
The Judge concluded that, as delivery of the Eaglehawk goods was not made to Tasman’s Victorian premises, Tasman did not obtain possession and was not a bailee. The Judge then reasoned that, as the retention of title clause was conditioned on a bailment, the clause did not operate with respect to the Eaglehawk goods. The Judge rejected the Hardy claims based on constructive possession.
Construction of Commercial Contracts
The principles that govern the construction of commercial contracts are settled. In Lake v Simmons,[1] Viscount Sumner observed:[2]
Every one must agree that commercial contracts are to be interpreted with regard to the circumstances of commerce with which they deal, the language used by those who are parties to them, and the objects which they are intended to secure.
These words were drawn on by Gleeson CJ in McCann v Switzerland Insurance, [3] where it was observed:[4]
A policy of insurance, even one required by statute, is a commercial contract and should be given a businesslike interpretation. Interpreting a commercial document requires attention to the language used by the parties, the commercial circumstances which the document addresses, and the objects which it is intended to secure.
[1] Lake v Simmons [1927] AC 487.
[2] Lake v Simmons [1927] AC 487 at 509.
[3] McCann v Switzerland Insurance (2000) 203 CLR 579.
[4] McCann v Switzerland Insurance (2000) 203 CLR 579 at 589. (footnotes omitted)
Most recently, the High Court has restated the general principles in regard to the construction of commercial contracts in Pacific Carriers Ltd v BNP Paribas:[5]
The case provides a good example of the reason why the meaning of commercial documents is determined objectively: it was only the documents that spoke to Pacific. The construction of the letters of indemnity is to be determined by what a reasonable person in the position of Pacific would have understood them to mean. That requires consideration, not only of the text of the documents, but also the surrounding circumstances known to Pacific and BNP, and the purpose and object of the transaction. In Codelfa Constructions Pty Ltd v State Rail Authority of NSW, Mason J set out with evident approval the statement by Lord Wilberforce in Reardon Smith Line Ltd v Hansen-Tangen:
“In a commercial contract it is certainly right that the court should know the commercial purpose of the contract and this in turn presupposes knowledge of the genesis of the transaction, the background, the context, the market in which the parties are operating.”
[5] Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451 at 461-462. (footnotes omitted)
In Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd,[6] the High Court further commented:[7]
This Court, in Pacific Carriers Ltd v BNP Paribas, has recently reaffirmed the principle of objectivity by which the rights and liabilities of the parties to a contract are determined. It is not the subjective beliefs or understandings of the parties about their rights and liabilities that govern their contractual relations. What matters is what each party by words and conduct would have led a reasonable person in the position of the other party to believe. References to the common intention of the parties to a contract are to be understood as referring to what a reasonable person would understand by the language in which the parties have expressed their agreement. The meaning of the terms of a contractual document is to be determined by what a reasonable person would have understood them to mean. That, normally, requires consideration not only of the text, but also of the surrounding circumstances known to the parties, and the purpose and object of the transaction.
These authorities reaffirm that a court is to consider the commercial context when interpreting commercial contracts.
[6] Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 614.
[7] Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 614 at 179.
In Aluminium Industries B.V. v Romalpa Ltd,[8] Roskill LJ adopted a similar approach to the construction of a retention of title clause:[9]
But this matter has to be regarded in the light of the contractual provisions agreed upon by both parties, and the question of business efficacy, in relation to which there are here obvious competing business considerations, must be answered in the light of what both parties expressly agreed upon and therefore must be taken also impliedly to have agreed upon, and not unilaterally from the point of view of one party only.
[8] Aluminium Industries B.V. v Romalpa Ltd [1976] 1 WLR 676. (footnotes omitted)
[9] Aluminium Industries B.V. v Romalpa Ltd [1976] 1 WLR 676 at 689.
Roskill LJ then made two points apposite to the contractual provisions to be interpreted in the present proceedings:[10]
Now, the crucial facts to my mind are two: first, that the defendants were selling goods which the plaintiffs owned at all material times; and secondly, that [the retention of title clause] as a whole is obviously designed to protect the plaintiffs, in the event of later insolvency, against the consequences of having parted with possession of, though not with legal title to, these goods before payment was received, 75 days’ credit being allowed. When, therefore, one is considering what, if any, additional implication has to be made to the undoubted implied power of sale in the first part of [the retention of title clause], one must ask what, if any, additional implication is necessary to make effective the obvious purpose of giving the requisite security to the plaintiffs? One is, I think, entitled to look at the second part of [the retention of title clause] to answer this: for it would be strange if the first part were to afford no relevant security when the second part is (as I think) elaborately drawn to give such security in relation to manufactured or mixed goods.
[10] Aluminium Industries B.V. v Romalpa Ltd [1976] 1 WLR 676 at 689-690.
The Commercial Context and Purpose –The Present Case
Hardy was a major producer of wines and other liquors. Tasman wholesaled Hardy goods. The intent of Hardy and Tasman was that Tasman would wholesale Hardy goods to third parties. Tasman was not prepared to pay for the goods immediately. An agreement extending credit to Tasman by Hardy was entered into. The credit agreement included a retention of title clause. The goods, the subject of proposed agreements for sale, were to remain the property of Hardy following delivery. Tasman remained accountable to Hardy for the goods or for the proceeds of sale so long as any indebtedness remained outstanding from Tasman. There is nothing surprising about these arrangements. Business commonsense dictated that Hardy would wish to protect itself by retention of title until payment. Tasman would, in the commercial context, expect Hardy to seek to protect itself in this way.
The retention of title clauses in the credit agreement and the invoices were designed to protect Hardy, in the event of a Tasman insolvency, against the consequences of Hardy having parted with possession of the goods before payment was received.
At the time of the credit agreement, it was intended that delivery of the Hardy goods would be made to the premises of Tasman. However, that was no more than a delivery instruction. It was not a condition of the agreement.
Tasman, as wholesaler, entered into an agreement with Eaglehawk, a sub-purchaser and retailer in Tasmania. During the period between 1997 and 2000, deliveries of Hardy goods were made to Tasman. Tasman then delivered sub-purchased Hardy goods to Eaglehawk in Tasmania.
In around 1999 to 2000, as earlier observed, the Eaglehawk agreement was entered into by Hardy and Tasman for reasons of commercial convenience. The Eaglehawk agreement could be viewed as no more than a change in delivery instruction. Alternatively, if the place of delivery was a condition of the credit agreement, the Eaglehawk agreement could be viewed as a variation to the Hardy Tasman credit agreement. Whichever the case, the change of arrangement did not lead to a change to the terms of the retention of title clause in the credit agreement and the invoices passing between Hardy and Tasman.
Commercial efficacy to the arrangement, whereby Hardy parted with goods without receiving payment pursuant to the Eaglehawk agreement, required that Hardy receive protection as to title. It would be odd in the commercial context for Hardy, having required security provision with respect to the earlier dealings between itself and Tasman, not to have effected the same protection when making delivery to Eaglehawk, a sub-purchaser from Tasman. Why, it may be asked, would not the parties intend and understand that the retention of title clause covered the goods subject to the new delivery arrangement?
Counsel for Tasman referred to the reasoning of the trial Judge and submitted that the sub-clauses of the retention of title clause were inextricably linked and limited to Hardy goods delivered into the physical possession of Tasman. Consequently, since the Eaglehawk goods had not been in the physical possession of Tasman, the retention of title clauses in the credit agreement and in the invoices and delivery dockets did not operate to protect Hardy.
This submission contemplates that retention of title was to be determined by a fortuity, namely the place of delivery. The genesis of the arrangement, the commercial context and commercial efficacy strongly suggest the contrary.
The retention of title clause in the credit agreement provided that the property or ownership in the goods did not pass to Tasman until the price of the goods and all other goods supplied by Hardy to Tasman had been paid in full. The effect of the credit agreement was that all trading was to be subject to the retention of title clause.
The invoices sent by Hardy to Tasman, with respect to the goods delivered pursuant to the Eaglehawk agreement, expressly provided that the goods were subject to a retention of title clause and specified that ownership of the goods did not pass until all outstanding moneys were paid in full. Tasman accepted these invoices. There was no protest as to the terms and conditions specified in the invoices.
There is no reason, commercial or otherwise, to suppose that the change of place of delivery from Tasman’s premises to Eaglehawk’s premises meant that the parties changed their express agreement as set out in the credit agreement and the invoices passing between Hardy and Tasman. The conduct of Hardy and Tasman with respect to the invoices for goods delivered pursuant to the Eaglehawk agreement, and their delivery and acceptance, confirm that Hardy intended and Tasman accepted that Hardy retained title as against Tasman to the Eaglehawk goods.
As earlier noted, the learned trial Judge treated the three sub-clauses of the retention of title clause in the credit agreement as interdependent. Those sub-clauses provided:
-property and ownership did not pass until all moneys owing were paid;
-an obligation was created that Tasman hold as bailee and to mark the goods as the property of Hardy;
-risk passed with delivery to Tasman.
As earlier observed, the trial Judge’s analysis commenced with particular emphasis being placed on the bailment sub-clause, treating that provision as central. Another central condition was said to be the obligation to store. It was reasoned that both bailment and the obligation to store were dependent upon the goods being in the physical possession of Tasman. Each of these sub-clauses, it was said, were interdependent. They could not be severed. This analysis does not explain how the suggested construction accorded with the genesis of the arrangements. It does not accord with the evident commercial purpose of the parties – Hardy retaining title notwithstanding the delivery of the goods without payment.
Critically, none of the retention of title clauses provided that the retention of title was subject to a bailment. The retention of title clauses did not provide that the retention of title were conditioned on Tasman physically receiving and storing the goods at Tasman’s premises.
The analysis of the trial Judge either overlooked or placed insufficient weight on the conduct of Hardy in the provision of invoices to Tasman and delivery dockets to Eaglehawk with respect to transactions under the Eaglehawk agreement. Those invoices and dockets expressly provide for Hardy retaining title to the goods. On the trial Judge’s analysis, these assertions of retention of title were of no effect. They were simply empty words of no consequence. The analysis is, with respect, unsound.
The conduct of the parties was telling as to the terms of the arrangement. The retention of title formed an express term of the agreements in respect of the Eaglehawk transactions. They were terms agreed to by both Tasman and Eaglehawk: - by Tasman, when they invoiced Eaglehawk for the goods; - by Eaglehawk when they received the goods on those terms pursuant to the delivery dockets.
The agreement as to the retention of title was not conditioned on an obligation on the part of Tasman to hold as a bailee. As earlier observed, the consequence of such an interpretation would be to produce an agreement lacking commercial efficacy and to create a circumstance where the Hardy security of title could be affected in a capricious or arbitrary manner. In the circumstances that occurred, the change of delivery arrangements did not negate the retention of title by Hardy.
Having regard to the foregoing observations, Hardy retained title to the goods delivered pursuant to the Eaglehawk agreement, notwithstanding that delivery was made direct to Eaglehawk and a bailment may not have arisen between Hardy and Tasman.
In Associated Alloys Pty Ltd[11] the High Court approved the following observation of Lord Herschell LC in McEntire:[12]
Here the parties have in terms expressed their intention, and said that the property shall not pass till the full purchase-money is paid. I know of no reason to prevent that being a perfectly lawful agreement. If that was really the intention of the parties, I know of no rule or principle of law which prevents its being given effect to. I quite agree that if, although the parties have inserted a provision to that effect, they have shewn in other parts of the agreement, by the language they have used or the provision they have made, that they intended the property to pass, you must look at the transaction as a whole; and it might be necessary to hold that the property has passed, although the parties have said that their intention was that it should not, because they have provided that it shall.
These words are apposite to the present proceedings. Hardy and Tasman in these commercial transactions asserted and accepted that property did not pass. Both should be taken to have said and accepted these matters as their intendment. They meant what they said. They acted accordingly. The express terms of the retention of title clause as set out in the credit agreement, the invoices and the delivery dockets should be given full effect.
[11] Associated Alloys Pty Ltd v ACN 001 452 106 Pty Ltd (2000) 202 CLR 588 at [37].
[12] McEntire v Crossley Brothers Ltd [1895] AC 457 at 463.
Implied Term
In the alternative, I would, if necessary, conclude that there were implied terms to the credit agreement and to the Eaglehawk agreement that the change of delivery arrangement did not adversely affect the Hardy retention of title clause. In other words, it was agreed that Hardy retained title to all goods delivered pursuant to the Eaglehawk agreement until paid.
The approach to be taken to implying terms into an agreement was outlined by Lord Cross in Liverpool City Council:[13]
Here it is not enough for the court to say that the suggested term is a reasonable one the presence of which would make the contract a better or fairer one; it must be able to say that the insertion of the term is necessary to give - as it is put – “business efficacy” to the contract and that if its absence had been pointed out at the time both parties - assuming them to have been reasonable men - would have agreed without hesitation to its insertion.
[13] Liverpool City Council v Irwin [1977] AC 239 at 258.
The observations of Scrutton LJ in Reigate v Union Manufacturing Co are also pertinent:[14]
A term can only be implied if it is necessary in the business sense to give efficacy to the contract; that is, if it is such a term that it can confidently be said that if at the time the contract was being negotiated some one had said to the parties, “What will happen in such a case,” they would have both replied, “Of course, so and so will happen; we did not trouble to say that; it is too clear.” Unless the Court comes to some such conclusion as that, it ought not to imply a term which the parties themselves have not expressed.
[14] Reigate v Union Manufacturing Co [1918] 1 KB 592 at 605.
In Codelfa Construction Pty Ltd v State Rail Authority of NSW, Mason J observed:[15]
The conditions necessary to ground the implication of a term were summarized by the majority in B.P. Refinery (Westernport) Pty. Ltd. v. Hastings Shire Council: "(1) it must be reasonable and equitable; (2) it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it; (3) it must be so obvious that `it goes without saying'; (4) it must be capable of clear expression; (5) it must not contradict any express term of the contract."
[15] Codelfa Construction Pty Ltd v State Rail Authority of NSW (1981-1982) 149 CLR 337 at 347. (footnotes omitted)
The commercial arrangement between the parties involved Hardy parting with possession of its goods without receiving payment. Hardy wished to protect itself against the consequences of possible insolvencies of those with whom it dealt. It did so by documentation giving notice that the deliveries were made with a retention of title. This was evident in all dealings between Hardy, Tasman and Eaglehawk. Any other construction would fail to provide a business-like interpretation to the dealings that were taking place. The commercial object of the arrangements was to allow Tasman to wholesale goods but to defer payment in circumstances where Hardy had retained security.
The implication of such a term was reasonable and equitable. Business efficacy would require the implication. It was obvious and went without saying. The implication was capable of clear expression and did not contradict any express term of either agreement. Each of the conditions identified in B.P. Refinery (Westernport) and adopted in Codelfa were met.
Constructive Possession
An alternative submission was advanced by Hardy. It was said that in the circumstances the deliveries of the Eaglehawk goods were made at the request of Tasman in circumstances where Tasman obtained constructive possession. It was submitted that even if Tasman were correct in regard to the construction of the retention of title clause, the goods had been placed in the constructive possession of Tasman sufficient to enliven the retention of title claims.
Reliance was placed on the English decision of Four Point Garage Ltd v Carter[16] and the observations of Simon Brown J:[17]
The defendant contends essentially that on the agreed facts of this case Freeway obtained constructive possession of the motor car and made constructive delivery of it to the defendant; alternatively in this latter regard that the plaintiffs should properly be regarded as Freeway’s agents for the purposes of effecting delivery within the subsection.
In support of these propositions counsel for the defendant cites E & S Ruben Ltd v Faire Bros & Co Ltd [1949] 1 All ER 215, [1949] 1 KB 254. There the plaintiff sellers sold to the defendant buyers a quantity of rubber material for sale on by the buyers to footwear manufacturers. By agreement on all sides the plaintiffs delivered the goods direct to the manufacturers. The manufacturers thereafter rejected the goods and the buyers in their turn then sought to do likewise. It was held, however, that they had lost the right to reject because they had acted inconsistently with the sellers’ ownership within the meaning of s 35 of the Sale of Goods Act 1893, namely by constructively taking delivery of the goods at the sellers’ premises. Hilbery J put it thus ([1949] 1 KB 254 at 259; cf [1949] 1 All ER 215 at 217-218):
“When the buyers’ representative intimated to the sellers that he would take ten tons of the rubber offered, five tons to be delivered at once and five tons later, and asked them to act for him and send the goods direct to the Skelmersdale company and they agreed, the buyers were taking delivery constructively at the sellers’ premises when the sellers set aside goods against the contract. Thereafter the sellers were acting for the buyers as agents in putting the goods on the lorry and dispatching them on their journey to Lancashire.”
Counsel for the plaintiffs says that that principle is only available to defeat a buyer in circumstances such as obtained there and not to assist the buyer’s customer in the markedly different circumstances arising here. He adds that the authority is properly ignored by Professor Guest (the editor of Benjamin’s Sale of Goods) in this context albeit it is cited in other parts of the work.
I cannot agree. It seems to me a perfectly sound principle of general application. There appears no possible good reason to differentiate under the statute between a case where, as here, the plaintiff sellers themselves deliver direct to the sub-purchaser and a case where, as could so easily have occurred instead, the seller delivers to his buyer, who then forthwith delivers on to the sub-purchaser. Often no doubt the precise arrangement would depend on no more than the geographical interrelationship of the three parties.
[16] Four Point Garage Ltd v Carter [1985] 3 All ER 12.
[17] Four Point Garage Ltd v Carter [1985] 3 All ER 12 at 15.
The substance of the Eaglehawk agreement was that Hardy would make delivery to Eaglehawk on behalf of Tasman. Tasman was the purchaser from Hardy and was wholesaling the goods to Eaglehawk. Eaglehawk was agreeing to buy the goods from Tasman. When the Hardy representative in Tasmania accepted an order from Eaglehawk it did so as agent for Tasman.
As in the case of E & S Ruben,[18] Hardy was acting for Tasman as agents in despatching the goods on their journey to Tasmania. Hardy was delivering direct to the sub-purchaser. As was pointed out in Four Point Garage, the precise arrangement between the parties depended on no more than their geographical inter-relationship. Tasman obtained constructive possession of the Eaglehawk goods and made constructive delivery to Eaglehawk. Tasman was the bailee of the Eaglehawk goods and liable to account as bailee. The delivery into the physical possession of Tasman was not necessary - constructive possession was sufficient. Alternatively, Hardy acted as the agent of Tasman in effecting delivery to Tasman’s sub-purchaser. In the circumstances the retention of title clause was operative.
[18] E & S Ruben Ltd v Faire Bros & Co Ltd [1947] 1 All ER 215.
Conclusion
For these reasons, this appeal should be allowed. Judgment in the action should be entered in favour of Hardy. The Court should declare that:
-Hardy Wine Company Limited retained title to the Eaglehawk goods;
-Hardy Wine Company Limited is entitled to all monies standing to the credit of account number 50080914 titled “Hardy Wines and Tasman re: Eaglehawk dispute” at the Commonwealth Bank of Australia.
ANDERSON J I agree that this appeal should be allowed for the reasons given by Gray J.
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