LMC Caravan GmbH and Co KG v GE Commercial Corporation (Australia) Pty Ltd

The appeal concerned a dispute between LMC Caravan GmbH and Co KG (LMC), a German manufacturer of caravans, and GE Commercial Corporation (Australia) Pty Ltd (GE), a floor plan financier. The central issue was the ownership of certain caravans located at the premises of a now insolvent Australian dealer, which had purchased them from LMC and financed their purchase through GE. LMC contended that it retained title to the caravans under a retention of title clause in its contract with the dealer, while GE argued that its security interest, arising from the floor plan financing agreement, took priority.

The Court of Appeal was required to determine whether LMC's retention of title clause was effective to preserve its ownership of the caravans, or if the terms of the agreement, particularly the dealer's authority to sell the caravans, meant that title had passed to the dealer, thereby allowing GE's security interest to attach. The court had to construe the contract between LMC and the dealer, giving the words their ordinary business meaning, in the context of a tripartite commercial arrangement involving a manufacturer, a dealer, and a financier.

The Court of Appeal reasoned that the retention of title clause in the contract between LMC and the dealer was qualified by the express authority granted to the dealer to sell the caravans in the ordinary course of its business. This authority to on-sell was inconsistent with LMC retaining title to the goods. The court applied the principle that where a retention of title clause permits the buyer to sell the goods, the seller generally loses title to those goods, and the clause is treated as creating a charge or security interest rather than a reservation of ownership. Consequently, the court found that title to the caravans had passed to the dealer, and GE's security interest therefore attached to them.

The appeal was dismissed with costs.