Hardy Wine Company Limited v Tasman Liquor Traders Pty Ltd (in Liq)
[2005] SASC 398
•14 October 2005
SUPREME COURT OF SOUTH AUSTRALIA
(Civil: Civil)
HARDY WINE COMPANY LIMITED v TASMAN LIQUOR TRADERS PTY LTD (IN LIQ)
Judgment of The Honourable Justice Layton
14 October 2005
SALE OF GOODS - PASSING OF PROPERTY AND RISK - PASSING OF RISK
SALE OF GOODS - TRANSFER OF TITLE BY NON-OWNERS
CONTRACTS - GENERAL CONTRACTUAL PRINCIPLES - CONSTRUCTION AND INTERPRETATION OF CONTRACTS
Declarations sought by plaintiff regarding transactions in the sale and supply of goods - consideration of title to goods - effect of Romalpa clauses - consideration of terms and conditions of supply contained in credit application and invoices - whether plaintiff as seller retained title to goods delivered by it at the request of the defendant purchaser to a third party sub-purchaser - ascertaining intention of the parties from the conduct, documentation and admission of facts - whether actual or constructive possession required - whether agency situation such as storage bailment by agency or a delivery bailment by agency arose - Held: Application for declarations refused.
Corporations Act 2001 (Cth) s 439C, 446A, 471B; Sale of Goods Act 1895 s 1, s 17, s 25; Sale of Goods Act 1987 (Vic) s 22, s 24, s 25; Sale of Goods Act 1923 (NSW) s 28, referred to.
Aluminium Industrie Vaassen BV v Romalpa Aluminium Ltd (Romalpa Case) [1976] 2 All ER 552, applied.
W Hanson (Harrop) Ltd v Rapid Civil Engineering Ltd & Usborne Developments (1987) 38 BLR 109; Re Highway Foods International Limited (in administrative receivership) Mills and Another v C Harris (Wholesale Meat) [1995] 1 BCLC 209; Four Point Garage Ltd v Carter [1985] 3 All ER 12, distinguished.
Associated Alloys Pty Ltd v ACN 001 452 106 Pty Ltd (2000) 202 CLR 588; Hendy Lennox (Industrial Engines) Ltd v Grahame Puttick Ltd [1984] 2 All ER 152; Clough Mill Ltd v Martin [1984] 3 All ER 982; Ralph McKay Ltd v International Harvester Australia Ltd [1999] 3 VR 675; York International v Heller Financial Resources Pty Ltd [2001] VSCA 45; Gamer's Motor Centre (Newcastle) Pty Ltd v Natwest Wholesale Australia Pty Ltd (1987) 163 CLR 236; Pfeiffer v Weinkellerei-Wineinkauf GmbH & Co v Arbuthnot Factors Ltd [1988] 1 WLR 150; Puma Australia Pty Ltd v Sportsmans Australia Ltd (No 2) [1994] 2 Qd R 159; BHP Steel Ltd v Robertson (Aust) Pty Ltd (administrator appointed) [2002] NSWSC 336, considered.
HARDY WINE COMPANY LIMITED v TASMAN LIQUOR TRADERS PTY LTD (IN LIQ)
[2005] SASC 398Civil
LAYTON J: The plaintiff Hardy Wine Company Limited (“Hardy”) seeks declarations from the Court regarding transactions in relation to the sale and supply of goods to the defendant, Tasman Liquor Traders Pty Ltd (“Tasman”) whose place of business was Clayton in Victoria. Whilst the dispute between the parties involves a fairly succinct fact scenario, these facts give rise to a number of complicated issues regarding retention of title to goods, Romalpa clauses and oral agreements. The essential issue in dispute is whether Hardy retained title to certain goods (“the Eaglehawk Goods”) supplied to Eaglehawk Inn at the request of Tasman.
Declarations Sought
The declarations sought by Hardy are, first, that immediately prior to a Payment Agreement with Tasman, Hardy retained title to the Eaglehawk Goods. Second, that pursuant to the Payment Agreement, Hardy was entitled to a sum of $282,276.87 standing to the credit of the Joint Account and interest earned thereon. Before turning to the declarations sought by the plaintiff in this application it is necessary to set out the background facts to the dispute.
Background
The matter proceeded before me on the basis of an agreed Tender Book of Documents (Exhibit P1); a Schedule of Facts and Admissions (Exhibit P2) and an Addendum to Schedule of Facts and Admissions (Exhibit P3). In relation to the Schedule of Facts and Admissions (Exhibit P2), this was amended as a consequence of the “Amended Notice to Admit” filed herein on 5 July 2005, so that the reference in that document to the “Notice to Admit” is to be treated as a reference to the “Amended Notice to Admit”. There was no oral evidence and each of the parties made submissions on the common evidence. The common evidence derived from that documentation is as follows.
The Parties
The plaintiff Hardy is a Corporation which carries on the business of the production and sale of wine, brandy and other sundry products.
The defendant is a Corporation which carried on business as a liquor wholesaler and distributor in Victoria until 27 January 2004 when it was placed into voluntary administration. On 23 February 2004, Tasman was wound up on a resolution of its creditors pursuant to s 439C of the Corporations Act 2001 (Cth) (“the Act”). Gregory John Keith was appointed administrator and then became the liquidator pursuant to s 446A of the Act.
Leave was granted to Hardy on 2 July 2004 by Judge Bowen Pain to proceed against Tasman pursuant to s 471B of the Act. Hardy instituted proceedings against Tasman by Summons and Statement of Claim dated 7 July 2004.
Prior to Voluntary Administration on 27 January 2004
Prior to 27 January 2004, when Tasman was placed into voluntary administration, Hardy had supplied goods to Tasman on terms and conditions contained in a Credit Application (“Credit Application”) entered into between the parties some six years earlier, in February 1997. (Defence [4], Tab 2 Tender Book of Documents, Exhibit P1, 21 March 2005)
The terms and conditions of supply were printed on a Credit Application and on invoices issued by Hardy.
Credit Application between Hardy and Tasman
The Credit Application completed by Tasman for a credit limit of $50,000 with Hardy, contained a number of conditions which included that the delivery instructions were to the rear of its address in Clayton and also contained a Romalpa clause in the following terms:
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 they are clearly identifiable as the property of BRL Hardy Limited.
Invoices between Hardy and Tasman
The invoices supplied by Hardy were in triplicate with a copy rendered to Tasman, an office copy and a copy supplied on delivery of goods (Tab 3 Tender Book of Documents).
On the front of each of the invoices there was 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
The reverse side of the plaintiff's invoice included, inter alia, the following terms:
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.
The terms and conditions of supply will be discussed in more detail when addressing the particular issues in dispute.
Trading occurred on these terms and goods were delivered to the Tasman premises in Clayton.
The Eaglehawk Agreement
In or about 1999 or 2000, Greg Skelton a servant or agent of Tasman discussed with Peter Douglas, a servant or agent of Hardy, a change to the delivery of certain goods agreed to be sold by Hardy to Tasman. The change required Hardy to deliver goods directly to the premises of Eaglehawk Inn, at Elizabeth Street, North Hobart, in the State of Tasmania (“Eaglehawk”). The content of the discussions is not in dispute and the limited facts agreed to by the parties are that:[1]
1Eaglehawk Inn (by its servant or agents) would provide orders for goods direct to the plaintiff’s sale representatives in Tasmania;
2 The plaintiff would dispatch the goods direct to Eaglehawk Inn in Tasmania;
3 The plaintiff would invoice the defendant for the goods sent to Eaglehawk Inn; and
4 The defendant would then invoice Eaglehawk for those goods.
[1] Reply to Notice to Admit 18 March 2005 [1] [2] [4].
This agreement reached will be referred to as the “Eaglehawk Agreement”.
Delivery Copy Invoices between Hardy and Eaglehawk
In accordance with the Eaglehawk Agreement, as from 1999/2000 goods were sold by Hardy to Tasman and delivered directly by Hardy to Eaglehawk.
Each delivery of goods to Eaglehawk was accompanied by a “DELIVERY COPY” Invoice from Hardy containing terms and conditions identical to those printed on Hardy’s invoices to Tasman. Hardy would then invoice Tasman in respect of such goods. Tasman would subsequently invoice Eaglehawk for the goods which Hardy had delivered.
Invoices between Tasman and Eaglehawk
The invoices sent by Tasman to Eaglehawk also included a retention of title clause as between Tasman and Eaglehawk, namely;
The front of the invoice states:
ALL GOODS REMAIN THE PROPERTY OF TASMAN LIQUOR TRADERS UNTIL PAID FOR IN FULL
On the reverse side of the invoice the following conditions appear:
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.
7.This agreement is entered into in the State of Victoria, or shall be deemed to have been entered into in the State of Victoria, and shall be governed and construed in accordance with the laws for the time being in place in the said State.
It is agreed between the parties that the Eaglehawk Agreement and arrangement as to delivery and supply of goods operated from 1999/2000 to November 2003 (see Addendum to Schedule of Facts and Admissions and the letter from Hunt & Hunt to Griffin Hilditch dated 1 July 2005).
Eaglehawk Goods
At the time of the administration date, 27 January 2004, there were eight unpaid invoices for goods delivered by Hardy to Eaglehawk.
1. Invoice No. 105834 dated 10 November 2003 $ 6,102.76
2. Invoice No. 105893 dated 10 November 2003 $ 3,904.38
3. Invoice No. 105894 dated 10 November 2003 $101,567.75
4. Invoice No. 105895 dated 10 November 2003 $ 46,654.06
5. Invoice No. 106406 dated 11 November 2003 $ 2,097.10
6. Invoice No. 106498 dated 11 November 2003 $ 63,694.40
7. Invoice No. 108102 dated 13 November 2003 $ 2,318.23
8. Invoice No. 112158 dated 21 November 2003 $ 5,558.78
At the time of administration, Eaglehawk remained in possession of goods supplied by Hardy pursuant to the Eaglehawk Agreement (“the Eaglehawk Goods”). The value of these goods amounts to $282,269.75 (excluding WET tax) (see Statement of Claim [17] and Defence [17]) Tasman claims that as at 27 January 2004 Eaglehawk had not paid the defendant for the Eaglehawk Goods.
In written correspondence from the solicitors for Hardy to Eaglehawk dated 2 February 2004, Hardy asserted that by virtue of the terms and conditions in the Credit Application and those contained in Hardy’s invoices and delivery dockets, that it retained title to the Eaglehawk Goods. In a letter dated 15 March 2004, Tasman through its liquidator rejected Hardy’s assertion that it retained title to the Eaglehawk Goods.
Shortly after this letter of the 15 March 2004, Hardy and Tasman, (through Tasman’s liquidator), entered into an agreement to pay the outstanding debts to Hardy (the “Payment Agreement”). The Payment Agreement read as follows:
1Eaglehawk would be required by the Plaintiff and Tasman to pay the value of the Hardy’s stock in its possession as at the Administration Date, into a joint account (“the Joint Account”) in the names of the plaintiff and the liquidator of Tasman.
2The parties would submit the issue of who had title to the Eaglehawk Goods for determination to this Honourable Court.
3 If this Honourable Court found that immediately prior to the Payment Agreement the plaintiff retained title to the Eaglehawk Goods the money in the Joint Account would be paid to the plaintiff. If the plaintiff is found not to have retained title to the Eaglehawk Goods as at the date immediately prior to the Payment Agreement, the money in the Joint Account would be paid to Tasman.
4 The fact of the payment pleaded in paragraph [1] was not to be taken into account by the Court in its determination as to who had title to the goods.
5 The successful party would be entitled to interest accrued in the Joint Account.
(Statement of Claim [23])
On 19 May 2004, $300,000 was paid into the Joint Account (Account No. 50080914) titled “Hardy Wines and Tasman re: Eaglehawk Dispute” in the names of Hardy and Tasman. By agreement between the parties ([24] Defence) an amount of $17,751.13 was withdrawn from the Joint Account by Tasman on 18 August 2004. This left a balance of $285,984.48 (including interest accrued to 18 August 2004). This above scenario led to the formulation of the declarations sought by the plaintiff.
Hardy contentions
The essential argument of Hardy was that there were two transactions. The first transaction being between Hardy and Tasman. The second transaction being between Tasman and Eaglehawk. Each of these transactions was the subject of a Romalpa clause.
In relation to the first transaction, counsel for Hardy submitted that initially Hardy had the property in the goods and at all times retained the property of those goods, even upon delivery of the goods to Eaglehawk, until such time as they were paid for by Tasman. The delivery of the goods to Eaglehawk was simply a different delivery arrangement made at the request of Tasman as part of the first transaction, for convenience of Tasman and to avoid double handling. It was submitted that the effectiveness of the Romalpa clauses was not conditional upon Tasman retaining physical possession of the goods.
It was contended that as the second transaction between Tasman and Eaglehawk also contained a Romalpa clause preventing property in the goods being passed to Eaglehawk until such time as Tasman received payment from Eaglehawk, the property in the goods did not pass from Hardy as there was no payment made by either party prior to the Payment Agreement. It was further submitted that there was in relation to the Eaglehawk Goods, only an agreement to sell as the preconditions for sale, namely payment of monies and transfer of property of the goods, had not occurred.
In the alternative, it was submitted that Tasman had constructive possession of the goods so that the prerequisite for the application of the Romalpa clause between Hardy and Eaglehawk for possession by Tasman, had been fulfilled when delivery of the goods was made by Hardy to Eaglehawk at the request of Tasman.
Other alternative arguments were that Hardy retained title to the goods as a consequence of either delivery bailment by agency or storage bailment by agency.
Tasman contentions
Counsel for Tasman contended that the Romalpa clause in the first transaction between Hardy and Tasman was not effective in enabling Hardy to retain title to the goods as at no time was Tasman in actual possession. As soon as the goods were delivered by Hardy to Eaglehawk, then upon receipt by Eaglehawk the Romalpa clause between Hardy and Tasman no longer applied because the Romalpa clause required actual possession by Tasman. It was noted that the Romalpa clause in the first transaction did not specifically contain a clause to take account of either a resale of goods generally, or for delivery of the goods to Eaglehawk.
An alternative argument was if there was constructive possession of goods by Tasman as contended by Hardy, this resulted in there being a bailment of the goods during the time of delivery between Hardy and Eaglehawk; but once delivery occurred, the bailment ceased and the Romalpa clause in the first transaction ceased to operate. The result was the same, namely Hardy ceased to retain possession.
Tasman also contended that no agency arrangements existed.
In order to consider these competing claims it is necessary to consider the legal principles which are relevant to Romalpa clauses and their effect in the context of the fact situation in this case.
Sale of Goods Act
Although not set out in the pleadings, counsel for the plaintiff submitted that the transactions were governed by relevant sections of the Sale of Goods Act 1895 (SA) in relation to the first transaction, and by the Sale of Goods Act 1987 (Vic) in relation to the second transaction. There is little difference between the relevant sections of the two Acts. However, these provisions do not determine the issues to be decided in relation to the declarations sought. The sections themselves rely for their application on determination of the effect of the clauses in the documentation and the intention of the parties in the overall circumstances of the case.
I further note at this point that counsel for the defendant specifically indicated that it did not seek to rely on s 25(2) of the Sale of Goods Act (SA) in its contention that title to the goods was transferred from the plaintiff.
Legal issues
The history of Romalpa clauses began following the case in 1976 of Aluminium Industrie Vaassen BV v Romalpa Aluminium Ltd.[2] The clause was effectively a device whereby a seller who parted with possession of goods to a buyer with a retention of title clause, (a Romalpa clause), could without registration of its interest, defeat the priorities of creditors which the law enacted to control corporate insolvency. It effectively gave preference to the seller over unsecured creditors of an insolvent company. As Kirby J noted in his dissenting judgment (but not in dissent on this observation) in Associated Alloys Pty Ltd v ACN 001 452 106 Pty Ltd (In Liquidation) and Another.[3]
When the Romalpa case was decided, much of the legal commentary upon it was overcome by admiration for the perceived ingenuity of the device…However, as more cases were decided about retention of title clauses, and more analysis came to be written about the decisions, the "fundamental flaw" of such clauses in the context of statutory priorities governing insolvency came to be recognised.
[2] [1976] 2 All ER 552.
[3] (2000) 202 CLR 588, 615 [62].
It was also observed by Kirby J[4]
Judicial refusal to give effect to the clauses may be nothing more than a recognition by judges of the apparent inconsistency (at least in certain circumstances) of permitting such clauses to disturb the priorities among the creditors of the buyer when they become insolvent and where the clause appears to defy carefully enacted legislation about such priorities.
[4] (2000) 202 CLR 588, 617 [66].
Everett article
A number of articles have been written about the effect of Romalpa clauses, one of the most recent being that of Professor Everett (“Everett”) published in 1994 entitled ‘Romalpa Clauses: The Fundamental Flaw’.[5] The essence of that article is well summarised in the preamble at 404 in the following terms:
The ability of sellers of goods to retain title despite delivery to the buyer depends upon the intention of the parties. Intention is, however, dependent not merely on the words used by the parties but on “the terms of the contract, the conduct of the parties, and the circumstances of the case”: for example, Sale of Goods Act (Qld), s 20(2). Once the buyer is entitled to destroy the goods or resell them independently of the seller and for its own purposes and profit, the whole of the circumstances militate against a finding that the real intention of the parties is retention of title by the seller. When carefully analysed the decided cases confirm that once dominium to this extent is given, title passes to the buyer and even a simple title retention clause will fail.
[5] D Everett, ‘Romalpa Clauses: The Fundamental Flaw’, (1994) 68 The Australian Law Journal 404 (“Everett”).
This is an article referred to by Kirby J when he made the observations in Associated Alloys referred to above.
Apart from emphasising that the ability of sellers to retain title despite delivery to the buyer depends on the intention of the parties (as indicated in the terms of contract, and the conduct of the parties), the article contains a useful discussion about “Resale as Agent for the Seller.” Professor Everett discusses the judgment of Roskill LJ in Romalpa in which His Lordship articulated the concept that the seller and buyer between themselves were principal and agent and that if property was retained by the seller and the buyer disposes of the goods to a third party, the buyer who is lacking title itself instead sells to the third party as agent for the seller. It is noted by Professor Everett that "invariably this analysis is simply inconsistent with the any substantive intention of the parties."[6]
[6] Everett, 407.
On the topic of re-sale, Hardy contends that the dilemma does not arise because there was no sale to anyone because no monies were paid. Tasman however argues that the analysis of Everett in the article is apposite. It contends that as it entered into a re-sale agreement with Eaglehawk with the knowledge and assistance of Hardy who then delivered goods to Eaglehawk, the retention of title clause with Hardy ceased to apply to the Eaglehawk goods. To therefore argue that Hardy retained property as this resale to Eaglehawk occurred with Tasman as agent for Hardy, (being the Roskill LJ analysis) was inconsistent with the intention of the parties as indicated by the documentation and their conduct.
In relation to the conclusions drawn in the Everett article, counsel for Hardy raised a more fundamental argument, namely, that the substance of the article was contrary to the later decision of the High Court in 2000 of Associated Alloys. I will discuss this particular argument in more detail later in these reasons.
Case Law
As indicated by Kirby J in Associated Alloys, courts have taken different approaches to the effect of Romalpa clauses. Justice Staughton in Hendy Lennox (Industrial Engines) Ltd v Grahame Puttick Ltd[7] held that the interpretation of Romalpa clauses has created a legal "maze if not a minefield.” This is in part because of the recognition that each case turns on the particular wording of the clause involved, the intention and conduct of the parties and the circumstances of the case.[8]
[7][1984] 2 All ER 152, 159.
[8] Clough Mill Ltd v Martin [1984] 3 All ER 982, 987 per Robert Goff LJ.
Further, as the majority in Associated Alloys indicated in their reasoning, in deciding on the intention of the parties one looks at the explicit wording of the clause in the documentation in the absence of there being any ambiguity, sham or subjective contrary intention.[9] This must be so even in circumstances where the consequence in a particular case may give rise to difficulties.[10] Therefore, it is problematic to derive any immutable legal principles from the case law and at best the cases simply demonstrate approaches which may provide a level of general guidance or support in reaching a decision in a particular case.
[9] (2000) 202 CLR 588, 604-605.
[10] Ralph McKay Ltd v International Harvester Australia Ltd [1999] 3 VR 675.
In support of the contention that the plaintiff retained property in the Eaglehawk goods, the plaintiff relies on two cases of W Hanson (Harrop) Ltd v Rapid Civil Engineering Ltd & Usborne Developments Ltd[11] and Re Highway Foods International Limited (in administrative receivership) Mills & Another v C Harris (Wholesale Meat).[12]
[11] (1987) 38 BLR 109.
[12] [1995] 1 BCLC 209.
In the first of the cases, Hanson was the supplier of timber to Rapid, a building contractor, pursuant to a contract containing a simply expressed Romalpa clause that property not pass until payment was made in full. Usborne was a development company engaged to develop the site and was not a party to the contract. A dispute arose when Rapid went into receivership and goods delivered by Hanson onto the building site remained unpaid but had been used by Usborne which was then sued by Hanson for conversion. Judge Davies in awarding damages for conversion found that because of a retention of title clause in the agreement between Hanson and Rapid, there was no sale but an agreement to sell, and although there had been delivery, there had been no transfer of property by Hanson because no payment was made.
Hanson was followed in Re Highway Foods International Limited (in administrative receivership) Mills & Another v C Harris (Wholesale Meat).[13] Harris was a supplier of meat to Highway, who in turn “sub-sold” and delivered the meat to Kingfry. As between Highway and Harris, there were standard terms and conditions on the invoices containing a Romalpa clause and the sub-sale between Highway and Kingfry, contained Highway’s terms and conditions of sale and included another version of the Romalpa clause. A dispute arose when Harris claimed possession of the meat or to the proceeds of the sub-sale to Kingfry. By its receivers, Highway argued that title to the meat passed to Kingfry on delivery of the meat and therefore Harris was not entitled to claim a proprietary interest in the proceeds of the sub-sale of the meat. Further it was argued that even if Harris had an interest in the proceeds, it was a security interest and such an interest was void against the receivers for want of registration under s 395 of the Companies Act 1985.[14] The Court held that the contract between Highway and Kingfry was not a sale but an agreement for sale under which title was not to pass until Highway had been paid in full.[15] Further the Court concluded that if goods are sold subject to retention of title clause and the purchaser then sells the goods onto a sub-purchaser, also subject to a retention of title clause, and delivers the goods to the sub-purchaser, then,
unless and until the sub-purchaser has paid the price of the goods or satisfies such other conditions as may have been stipulated by the buyer for the passing of property to the sub-purchaser, the seller would be entitled to claim title to the goods as his property in the hands of the sub-purchaser.[16]
[13] [1995] 1 BCLC 209.
[14] [1995] 1 BCLC 209, 213.
[15] [1995] 1 BCLC 209, 214.
[16] [1995] 1 BCLC 209, 214 citing Benjamin’s Sale of Goods [5] – [128].
Counsel for the plaintiff, submitted that the decisions of Hanson and Re Highway were sufficient to dispose of the defendant’s argument altogether. He also referred to the commentary in Benjamin’s Sale of Goods (5th ed. [5] - [151]), Atiyah’s Sale of Goods (10th ed. 470 – 471), and Hanbury and Martin, Modern Equity (15th ed. 1997 632) to assert that Re Highway is good authority for the proposition that
until the sub-purchaser has paid the price of the goods or is satisfied such other conditions as may have been stipulated by the buyer for the passing of the property to the sub-purchaser, the seller is entitled to claim the goods as his property in the hands of the sub-purchaser.[17]
[17] Benjamin’s Sale of Goods 151, [5].
However the Hanson and Re Highway cases are significantly distinguishable from this case by the fact that Hardy delivered the Eaglehawk goods directly to Eaglehawk whereas in Hanson and Re Highway the seller delivered the goods to the buyer not to the sub-buyer. One of the prime issues in this case is whether the Romalpa clause between Hardy and Tasman applied when the goods were not delivered to Tasman but instead straight to the sub-purchaser, Eaglehawk.
In addition there was no issue in Re Highway about the construction of the Romalpa clauses on the major point. I note however that both of the Romalpa clauses in that case specifically provided for the situation of resale and the specific entitlement of the seller to the proceeds of the on-sale were discussed by the Court.[18] By contrast, in this case, the Romalpa clause between Hardy and Tasman did not specifically advert to a situation of either resale or delivery to Eaglehawk and the question is whether either of these situations were contemplated by the clause.
[18] [1995] 1 BCLC 209, 216.
In summary, the cases of Hanson and Re Highway do not by themselves indicate that the plaintiff is entitled to the declarations sought.
Intention of the Parties
In this case there was no oral evidence and no admissions of fact which specifically articulated the intention of the parties and in particular their understanding of the Eaglehawk Agreement. I am left with the bare admissions in combination with the limited documentation provided to me in the course of the hearing.
In essence the case relies heavily on the documentation, as the admission of facts adds little to the scenario.
The documentation
The starting point is the Credit Application which was entered into in 1997 between Hardy and Tasman. The full text of the retention of title provision is set out earlier in paragraph 9. At this point I highlight some of the wording which is particularly important to the determination in this case.
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 they are clearly identifiable as the property of BRL Hardy Limited.
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 agreed facts set out in paragraph 15 hereof indicate that the plaintiff was clearly well aware of the purported resale arrangement between Tasman and Eaglehawk when the Eaglehawk Agreement took place. Notwithstanding the changed situation, there was no change to the contents of the invoice sent by the plaintiff to Tasman and the same contents were in the delivery invoice provided by the plaintiff to Eaglehawk. This invoice did not contain any resale provisions and was not amended to provide for the change of delivery address.
The content of the invoice is to be contrasted with the invoice which was sent by Tasman to Eaglehawk which specifically included the following provisions:
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.
If similar provisions had existed in the Hardy invoices, these would have provided for resale by Tasman as fiduciary agent for Hardy and further that any proceeds would be held in trust for Hardy until Tasman had discharged its liability to Hardy. Those provisions however were not in the Hardy invoices.
Further, the content of the “DELIVERY COPY” of the invoice provided by Hardy to Eaglehawk did not contain any provision relevant to any relationship between Hardy and Eaglehawk. All it did, at best, was to alert Eaglehawk to the agreement between Hardy and Tasman containing the retention of title clause. It did not for example contain any conditional delivery clause which required Eaglehawk to retain the goods as bailee for Hardy until payment is made by Tasman to Hardy.
It is also to be noted that after the Eaglehawk Agreement was entered into, the invoice between Hardy and Tasman still remained relevant as there were still deliveries being made to Tasman in accordance with the earlier arrangements. After the Eaglehawk Agreement, Hardy recovered some $211,000 worth of goods in Tasman’s actual physical possession.[19]
[19] Transcript 4 July 2005, 54.
In short, in the absence of any other evidence, the intention of the parties is to be gleaned from the wording in the documentation and the conduct of the parties. The wording of the invoice did not explicitly provide for the retention of title clause to apply to any resale and in particular after resale and delivery of goods to Eaglehawk. This conclusion alone would lead to a refusal of the declarations sought by the plaintiff, but there are other arguments still to be addressed.
Actual Possession
The defendant relies on the case of York International v Heller Financial Resources Pty Ltd[20] in support of its submission that the retention of title clause between Hardy and Tasman was not enlivened in relation to the Eaglehawk goods as the clause was based on Tasman taking delivery of the goods, obtaining actual possession and storing them for a time as identifiable goods until payment.
[20] [2001] VSCA 45.
In York, the seller, York International, sold a chiller to KF Air Conditioning (“KF Air”), the buyer. The sub-buyer, Simon Builders Pty Ltd (“Simon”) entered into a sub-contract with KF Air for, amongst other things, the installation of the chiller. Simon drew a cheque payable to KF Air in order for KF Air to pay York for the chiller. York delivered the chiller to the premises of Simon. York took an action against KF Air in conversion on the contention that KF Air was obliged to account in specie for the money received from Simon.
York’s standard conditions of sale included a retention of title clause which read as follows:
All goods remain the property of YORK until the goods are paid for, and the Buyer’s cheque has been cleared by YORK’s bank. The goods are to be clearly identified by the Buyer as remaining the Property of YORK until they are paid for. Property in the Goods does not pass to the Purchaser until: (a) the Purchaser has paid the Purchase price in full and there is no Purchaser’s debt outstanding to the Seller; or (b),
the goods are supplied and delivered to a sub-purchaser. Until such time as the goods have been paid for in full, the Purchaser is at liberty to sell the goods in the ordinary course of its business as agent for the Seller and shall account to the Seller for any such proceeds.[21]
…
[21] [2001] VSCA 45 [8].
On appeal, Callaway JA found that the clause regulated a bailment which did not take place because the chiller was delivered to Simon which thereafter drew a cheque payable to KF Air. In dismissing the appeal, the Victorian Court of Appeal found that:
the clause does no more than regulate a bailment that the draftsman assumed would take place from the Seller to the Buyer. And, it was common ground that no such bailment had occurred prior to the alleged conversion of the cheque.[22]
[22] [2001] VSCA 45 [1] per Charles JA.
Counsel for the plaintiff attempted to distinguish the facts of York from the case at bar on the basis that the Court in York did not decide as to whether or not the clause applied in the circumstances, but instead it was a question of conversion. However I agree with the approach taken by counsel for the defendant that York assists in demonstrating the importance of construing the intention of the parties strictly in accordance with the Romalpa clause.
In this case the Romalpa clause required possession and bailment by Tasman and if there was no bailment by Tasman, the clause was not enlivened. There was no actual possession of the Eaglehawk goods by Tasman and on this basis too the plaintiff would not succeed.
Constructive or Actual Possession
The plaintiff’s alternative argument is that Tasman had constructive possession of the Eaglehawk goods and this was enough to enliven the retention of title clause for the purposes of the Eaglehawk agreement. Hardy relies on the case of Gamer’s Motor Centre (Newcastle) Pty Ltd v Natwest Wholesale Australia Pty Ltd[23] to establish that there can be constructive possession and delivery. In Gamer’s, the invoices for delivery of cars by the wholesaler to the dealer contained a condition that all property rights were retained by the wholesaler until full payment. The dealer also had a floor plan agreement with a financier which would purchase used vehicles acquired by the dealer on the basis that the dealer would retain the vehicles as bailee for the financier pending sale to a purchaser. At no time did the financier have actual possession of the vehicles which were delivered direct by the wholesaler to the dealer. As the wholesaler had not been paid for some of the vehicles delivered to the dealer it seized the vehicles whereupon the financier sued the wholesaler in detinue and conversion.
[23] (1987) 163 CLR 236.
The judge at first instance held that the wholesaler authorised the dealer to sell vehicles and pass title of the vehicles to the financier before the wholesaler was paid and that this arrangement varied the condition on the invoices.
On appeal the majority of the court held that there was no variation to the conditions of the invoice. The majority also concluded that the word “delivery” for the purposes of s 28 (2) of the Sale of Goods Act 1923 (NSW) covered a change of possession which may be effected by constructive delivery as well as actual delivery.
On further appeal to the High Court, the argument was confined to the interpretation of the New South Wales Sale of Goods Act and in particular the meaning of the words “possession” and “delivery” within the meaning of that Act. The majority in the High Court consisting of Chief Justice Mason, and Justices Brennan and Dawson, upheld the Court of Appeal decision, concluding that as there was a constructive delivery by the dealer to the financier of the vehicles, that title to the vehicles passed to the financier. The Court concluded that the word “delivery” was not interpreted in its “popular sense as actual custody”[24] but the word for the purposes of the Sale of Goods Act involved a change of possession that may be effected by constructive delivery not amounting to an actual delivery. In reaching this conclusion Mason CJ had regard to the fact that the dealer in whose custody the vehicles remained at all material times, agreed to keep the vehicles as bailee for the financier.[25] Justice Dawson traced the history of possession in common law as discussed in Pollock & Wright and in each of the examples cited therein, where the party in possession assented to retaining the goods as bailee for another.[26]
[24] (1987) 163 CLR 236, 244 per Mason CJ.
[25] (1987) 163 CLR 236, 255 per Mason CJ.
[26] (1987) 163 CLR 236, 260-62 per Dawson J.
Hardy seeks to use Gamer’s to conclude, by analogy, that when the goods were delivered to Eaglehawk by Hardy Tasman had constructive possession of the goods as required by the retention of title clause and title remained with Hardy until the Eaglehawk goods were paid for in full by Tasman.
In my opinion, Gamer’s does not support the position contended for by Hardy. First, the interpretation of the word “delivery” within the Sale of Goods Act was interpreted in a manner which differed from the popular meaning because of its statutory context. In this case I am concerned with the interpretation of specific invoices. The context of the invoices includes the provision that Tasman hold the goods as bailee and store goods so that they are separately identifiable. These matters strongly suggest that there must be actual possession by Tasman and not constructive possession. Second, Gamer’s relied on the fact that the dealer, being the party actually in possession, agreed to hold the goods as bailee for the financier which purported to retain property in the goods. In this case there is no agreement by Eaglehawk, being the party in possession upon delivery, to hold the goods and store them separately as bailee for Hardy.
A further case relied upon by the plaintiff as authority for the proposition that there can be constructive possession was Four Point Garage v Carter.[27] As in the case of Gamer’s, Four Point Garage also involved an interpretation of the Sale of Goods Act and whether there was effective delivery of goods to a sub-purchaser for the purpose of passing title to the sub-purchaser when the delivery had been made by the seller directly to the sub-purchaser. An additional complication in Four Point Garage was the fact that the plaintiff seller when he delivered the car to the sub-purchaser at the request of the purchaser, thought that the sub-purchaser was a lessee of the car. The defendant sub-purchaser was unaware of the existence of the plaintiff seller and thought the car was delivered by the purchaser. In finding for the sub-purchaser, the Court held that the buyer was deemed to have taken constructive delivery of the goods and the seller was deemed to act as the agent of the buyer when delivering the goods direct to the sub-purchaser. In confirming this conclusion it was noted by the Judge that an unusual commercial circumstance had arisen in the case as the contest was between the plaintiff seller and the defendant sub-purchaser as to the property in the goods when the plaintiff seller was the very party who effected the delivery to the defendant sub-purchaser and now sought to contest the bona fide sub-purchaser’s entitlement to the goods.
[27] [1985] 3 All ER 12.
On this basis Four Point Garage can be distinguished from the case at bar as the Court in that case was dealing with the construction of s 25 of the Sale of Goods Act 1979. However the case was not only decided on the basis of that Act. Justice Simon Brown also considered the situation at common law and in the light of simple Romalpa clauses which existed in the respective agreements between the plaintiff seller and the purchaser, as well as a clause between the purchaser and the defendant sub-purchaser. His Honour referred to the Romalpa case to support the proposition that the simple clause between the plaintiff and the purchaser did not prevent the implied authorisation of the purchaser to sub-sell to the defendant sub-purchaser as the agent of the purchaser.
However, the Romalpa clause in Four Point Garage simply stated that:
The buyer is advised that title to the goods contained in this invoice remains with the seller until such goods are fully paid.[28]
[28] [1985] 3 All ER 12, 14.
There was no additional requirement for the buyer to hold the goods as bailee nor require the goods to be separately stored. Therefore there is a significant difference between the clause which was before the Judge in Four Point Garage and the clause in the case at bar. In my view these additional requirements are an impediment to the implication of constructive possession by Tasman. Also, the result in Four Point Garage was that the defendant sub-purchaser was successful in establishing that the plaintiff seller relinquished legal right to the property by virtue of the plaintiff’s delivery to him, an outcome which does not assist the plaintiff’s argument in this case.
A further submission was put by counsel for the defendant, namely that an alternative characterisation of the situation was that a bailment and constructive possession of the goods by Tasman occurred for a limited period. Namely, it arose in the course of the delivery of the goods to Eaglehawk, being a delivery made at the request of Tasman. If this characterisation was correct then it was submitted that this bailment ceased once the bailment ended and the goods were received by Eaglehawk whereupon the clause ceased to operate.
Interesting though this further argument is, I consider that the preferable interpretation is that the Romalpa clause was never enlivened in relation to the Eaglehawk goods as there was no actual possession and bailment of the goods by Tasman as required by the clause. The clause did not provide for constructive possession by Tasman and none should be implied for reasons discussed above. There was no understanding by Eaglehawk that it would be a bailee of the goods for the plaintiff, there was no contractual arrangement with the plaintiff and no provision to that effect was included in it’s agreement with Tasman.
Agency
A further argument arose as to whether the delivery of the goods to Eaglehawk by Hardy gave rise to a situation of agency such as storage bailment by agency or a delivery bailment by agency.
This argument raises the approach taken by Roskill LJ in Romalpa and the discussion in the Everett article.
Delivery bailment by agency
As an alternative to his main argument, counsel for the plaintiff contended that when Hardy delivered the goods to Eaglehawk it delivered them as agent for Tasman and hence there was a bailment by Tasman for the purposes of the Romalpa clause.
In my opinion, the notion of a delivery bailment by agency is not something which is specified in the written agreement between Hardy and Tasman. The Credit Application simply states “DELIVERY COPY” and indicates the address in Clayton and the Retention of Title clause assumes delivery of the goods. The invoice does not provide for the delivery at all, but in the Romalpa clause there is an assumption of delivery as “the risk in the goods passes to the buyer on delivery”. These provisions and the conduct of the parties prior to the Eaglehawk Agreement indicate that Hardy delivered the goods in accordance with its obligation as the seller of goods. It did not deliver as an agent of Tasman. I do not consider that the Eaglehawk Agreement altered this position save that Hardy agreed as the seller of the goods to deliver them to Eaglehawk instead of delivering the goods to Tasman in Clayton. In doing so I consider that Hardy was not acting either expressly or impliedly as an agent of Tasman, it was acting as a seller.
Counsel for Tasman put forward an alternative argument, namely that if there was a delivery bailment by agency by Hardy in delivering the goods to Eaglehawk, it was a different sort of bailment than the one contemplated by this clause. In either case it was argued by Tasman, that this did not assist Hardy to claim that it retained property in the goods on delivery. I agree, but I consider the preferable analysis is that the delivery was undertaken by Hardy as a seller.
Storage bailment by agency
As an alternative to his main argument, counsel for the plaintiff contended that Tasman acted as agent for Hardy on the resale to Eaglehawk and that Eaglehawk stored the goods as agent for Hardy therefore Hardy retained title to the Eaglehawk goods.
Turning now to whether there was a storage bailment by agency. Such an agency requires consideration of two components. First is that Tasman was acting as the agent for Hardy on resale to Eaglehawk, second is that once Eaglehawk took delivery of the goods, it stored them as agent for Hardy.
As to the first of these arguments, this is reliant on the application of the approach taken by Roskill LJ in Romalpa. It is important to note that there is a significantly different clause between Hardy and Tasman in this case, than in Romalpa. In the latter case the retention of title clause specifically provided that the,
… 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-[the]purchaser, as long as he has not fully discharged his debt to A.I.V shall hand over to A.I.V the claims he has against his buyer emanating from this transaction.[29]
[29] [1976] 2 All ER 552, 554.
By contrast in this case there was no explicit provision in the documentation for resale between Hardy and Tasman. However, the Eaglehawk agreement accepted that resale agreements between Tasman and Eaglehawk would occur and hence the changed delivery arrangements. There is no suggestion on the evidence before me that this resale was to be undertaken by Tasman as agent for Hardy, or that any proceeds received by Tasman from Eaglehawk was to be held for and on behalf of Hardy. On the contrary is appears as though Tasman was reselling on it’s own account and the invoices which it sent to Eaglehawk are indicative of that situation.
This interpretation is reinforced by the cases of Pfeiffer v Weinkellerei-Weineinkauf GmbH & Co v Arbuthnot Factors Ltd[30] and Puma Australia Pty Ltd v Sportsman’s Australia Limited (No 2).[31]
[30] [1988] 1 WLR 150.
[31] [1990] 2 Qd R 159.
In Pfeiffer’s case Phillips J held that in a situation of sub-sale, where,
… the contract expressly or impliedly authorises the buyer to effect sub-sales, I do not consider that any prima facie implication arises that sub-sales are to be effected by the buyer as agent for and for the account of the seller. On the contrary, I consider that the normal implication that arises from the relationship of buyer and seller is that if the buyer is permitted to sub-sell in the normal course of business, he will do so on his own account.[32]
[32] [1994] 2 Qd R 159.
Justice Phillips also distinguished the Romalpa clause in the case before him from that in Romalpa and concluded that no agency arose.
In the later case of Puma Williams J and Sheperdson J considered the effect of a retention of title clause which had been superseded by an undertaking and concluded that it was unlikely that the clause alone gave rise to
any agency or fiduciary obligation. Importantly, Williams J also stated:
In my view the terms of the agreement are of critical importance, and little assistance is gained by using technical terms such as trustee, bailment and conversion in defining the rights and obligations of the parties. The court can, and will, give effect to an agreement governing commercial relationships and providing that legal and equitable rights and remedies should co-exist.[33]
[33] [1994] 2 Qd R 159, 175.
The case relied on by the plaintiff, BHP Steel v Robertson (Aust) Pty Ltd (administrator appointed)[34] was a case involving a very specific clause which anticipated resale and does not assist the interpretation sought by the plaintiff in this case.
[34] [2002] NSWSC 336.
In summary in relation to the first aspect of the argument I consider that there was no express or implied agency by Tasman in reselling the Eaglehawk goods. Tasman entered into its agreement with Eaglehawk on its own account.
In relation to the second argument that once Eaglehawk took delivery of the goods, it stored them as an agent, it is to be noted that according to the written documentation with Tasman, Eaglehawk agreed to hold the goods as “the fiduciary agent and bailee of Tasman” and acknowledged that it may resell the goods “only as a fiduciary agent of Tasman.” This written documentation does not assist Hardy to claim that Eaglehawk is acting as it’s agent either expressly or impliedly in storing the goods and that therefore Hardy retained the property in the goods. I therefore reject this interpretation.
In relation to these contentions as to agency, I also add that my interpretation of these cases as discussed above also accords with the approach favoured in the Everett article.[35] As referred to previously, counsel for the plaintiff sought to challenge the Everett article on grounds that the conclusion reached was contrary to the High Court decision in Associated Alloys. In the Everett article at 411 it is stated,
Accordingly a title retention arrangement, where the power to repossess extends to a period after payment or covers other debts owed to the seller or to third parties, is internally inconsistent. Such a transaction is therefore open to the interpretation that from the outset the real intention of the parties was that property would pass to the buyer, at the latest, on payment and that the seller thereafter would hold security over the goods.
[35] Everett, 407-408.
This statement is simply one aspect of the article and even if it was not correct, does not adversely affect the overall analyses. In addition it is to be noted that the Associated Alloys case was dealing with a very particular clause and a particular issue as to whether the contractual term constituted a “charge” over book debts pursuant to s 9 of the Corporations Law which was registrable under Part 3.5. I reject the plaintiff’s argument on this point.
Conclusions
In summary, I consider this case turns on the admission of facts, documentation and conduct of the parties. For reasons which I have discussed above I find as follows:
1.The retention of title clause in the Hardy and Tasman invoices was not enlivened in relation to the Eaglehawk goods as Tasman did not take actual possession of the goods.
2.The retention of title clause in the Hardy and Tasman invoices did not provide for constructive possession by Tasman and there was no constructive possession by Tasman upon the goods being delivered to Eaglehawk.
3.Hardy did not deliver the Eaglehawk goods as agent for Tasman and there was no delivery bailment by agency.
4.Tasman did not act as agent for Hardy in its agreement to re-sell to Eaglehawk and there was no storage bailment by agency.
5. Upon Hardy delivering the Eaglehawk goods to Eaglehawk, the sale between Hardy and Tasman had been effected both at common law and in accordance with ss 1 and 17 of the Sale of Goods Act 1895 (SA).
For these reasons I refuse the application for declarations as sought by the plaintiff.
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