Absolute Bill of Sale
Cases
Online Catering Ltd v Acton & Anor
[2010] EWCA Civ 58 [2010] 3 WLR 928, [2010] 3 All ER 869, [2010] EWCA Civ 58, [2011] 1 QB 204, [2011] QB 204, [2010] Bus LR 1257 Ward LJ
Was this a bill of sale?
Section 4 of the Bills of Sale Act 1878 defines a bill of sale as follows:
“The expression “bill of sale” shall include bills of sale, assignments, transfers, declarations of trusts without transfer, inventories of goods with receipt thereto attached, or receipts for purchase moneys of goods, and other assurances of personal chattels, and also powers of attorney, authorities, or licenses(sic)to take possession of personal chattels as security for any debt, and also any agreement, whether intended or not to be followed by the execution of any other instrument, by which a right in equity to any personal chattels, or to any charge or security thereon, shall be conferred …” emphasis added by me.
Inasmuch as clause 27 of the agreement gives the garage permission to take possession of personal chattels, which will include motor vehicles, the question arises as to whether they were seized “as security for any debt”. The Recorder was satisfied about the indebtedness and there is no challenge to that finding. The correspondence made plain what can in any event be inferred from the terms of the agreement, namely, that if the debt were to be repaid, the goods would be released. The seizure was unquestionably as security for the debt. So the agreement falls within the ambit of section 4 of the 1878 Act but the much more interesting question is whether the Acts apply at all to companies, this being an agreement made by the claimant, Online Catering Ltd.
There are a number of valuable dicta on the topic going back over a hundred years. In Read v Joannon (1890) 25 Q.B.D. 300 Lord Coleridge C.J. said at p. 303:
“The question is, whether a debenture of an incorporated company requires registration as a bill of sale. I am of the opinion – and I think it right to say that my opinion does not stand alone, but is supported by that of a judge of much greater authority than myself, whom I have had the opportunity of consulting – that such debentures are not bills of sale, and are not struck at by either of these Acts of Parliament – that they were never within the Act of 1878 and are expressly exempted from the operation of the Act of 1882.”
Wills J. said at p. 304:
“I am of the same opinion; and I agree with my Lord, on consideration, that debentures of an incorporated company are not, and were never intended to be within the operation of the Act of 1878.”
A similar question came before the Court of Appeal in In Re: Standard Manufacturing Company [1891] 1 Ch. 627. The court held that the debentures were expressly excepted from the operation of the Bills of Sales Act (1878) Amendment Act 1882 by section 17 of that Act because they were debentures “issued by any mortgage, loan, or other incorporated company”. The court then went on to consider whether the debentures were bills of sale to which the Act of 1878 applied and held that company debentures were not within that Act either. Three reasons were given. First, it was observed that the avowed design of the legislature had been to strike at frauds perpetrated upon creditors by secret bills of sale as the preamble to the Bills of Sale Act 1854 made plain:
“Whereas frauds are frequently committed upon creditors by secret bills of sale of personal chattels, whereby persons are enabled to keep up the appearance of being in good circumstances and possessed of property, and the grantees or holders of such bills of sale have the power of taking possession of the property of such persons, to the exclusion of the rest of their creditors …”
Such corporate bodies as were at that time in existence were not bodies in the habit of committing frauds of that sort. By the time the 1878 Act was passed, the Companies Act of 1862 provided for the registration by companies of the mortgages and charges specifically affecting their property. Accordingly company debentures could hardly be described as “secret documents”. The second reason was that the language employed was “certainly not felicitous language to be applied in the case of corporations” and thus warranted the observation that “debentures of companies were not actively present in the mind of the draughtsmen of the Act.” Thirdly, the court accepted the correctness of the judgments in earlier cases including Read v Jaonnon. So the conclusion was that:
“… mortgages or charges of any incorporated company for the registration of which a statutory provision had already been made by the Companies Clauses Act 1845 or the Companies Act 1862 are not bills of sale within the Bills of Sale Act 1878.”
That case was distinguished by Vaughan Williams J. in Great Northern Railway Company v Cole Co-operative Society [1896] 1 Ch. 187 on the basis that the Court of Appeal was not excluding companies generally from these Acts of Parliament, but excluding only companies for whom provision had been made for the registration of the mortgages. It seemed to him, therefore, that the question whether the Bills of Sale Acts applied to other companies, that is, companies in the case of which no provision has been made for registration, was deliberately left open. He was dealing with a society registered under the Industrial and Provident Societies Acts and he held it was not caught by the Bills of Sale Acts.
In Clark v Balm, Hill & Co [1908] 1 K.B. 667 the case concerned a series of debentures issued by a company incorporated in Guernsey which created a charge on floating real and personal property in England. The question was whether the debentures ought to be deemed to be within the Bills of Sales Acts and so ought to have been registered as bills of sale in circumstances where the company was not obliged by the law of Guernsey to keep a register of charges. Phillimore J. held that Read v Joannon and Standard Manufacturing had decided that all debentures of incorporated bodies were exempt from the Act of 1878. He expressed the view that “there was a little error in the judgment of Vaughan Williams J.” in Great Northern Ry. Co. and he added, “I must say that the reasoning of Wills J. in [Read v Joannon] commends itself to my mind.”
These cases were considered by Lloyd J. in N.V. Slavenburg’s Bank v Intercontinental Natural Resources Ltd [1980] 1 W.L.R. 1076. This case concerned an assignment of stocks as security by a Bermudan company which was not registered since it was not the practice of the Registrar of Companies to accept particulars of charges for registration from an overseas company with a place of business in England. He said of Clark v Balm, Hill & Co that it was for all practical purposes the latest decision in the field:
“It has stood now for 70 years. Even if I thought it wrong (which I do not) I would be most reluctant not to follow it. So far as I know it has never been criticised in any of the standard text books. … I would prefer to put my decision on the broad ground indicated by Phillimore J. namely, that bills of exchange Acts apply to individuals only and not to corporations at all.”
These authorities, as Mr Sinai fully recognised, are powerful support for the conclusion that the Bills of Sale Acts do not apply to companies. Nonetheless he sought to escape that conclusion by this well-presented, ingenious, argument. But for the fact the claimant company, the agreement would be a bill of sale. Registration is necessary to cure the evil of secret bills. The Companies Act provides its own answer by registration of charges. The agreement does not, however, constitute a charge. Therefore there is no need for registration. That creates a lacuna which the legislature could not have intended and so in a case like this, registration under the Bills of Sale Acts is required. That led to interesting arguments about whether or not this agreement did constitute a charge. Mr Mendoza, who now appears for the respondents, submits that it is a floating charge not far from removed from the one considered by the House of Lords in Smith (Administrator of Coslett Contractors) Ltd v Bridgend County Borough Council [2002] 1 AC 336 which concerned a standard condition in an engineering contract which allowed the employer in various situations in default by the contractor to sell his plant and equipment and apply the proceeds in discharge of his obligation. That was held to be a floating charge. On the other hand, a contractual possessory lien, coupled with a right to sell and use the proceeds to discharge the customer’s outstanding indebtedness was not a floating charge because the company did not purport to have any right to exercise any right to take possession as distinct from the right to detain possession: see Trident International Ltd v Barlow [2000] B.C.C. 602. Clause 28(a) did not reserve a right to sell which may be said to be a hallmark of a true charge.
I do not feel inclined to resolve this dispute because, if the contract did create a charge which ought to have been registered, the failure to register may be void under section 395 of the Companies Act 1985 but it is void only against the liquidator or administrator or any creditor of the company. It is not void as between the parties to the contract so the argument gets the appellant nowhere. Even if the agreement does not create a charge and there is a lacuna, I am nonetheless satisfied that the lacuna cannot be filled by treating the agreement as one which is covered by the Bills of Sale Acts because I am satisfied those Acts do not apply to companies.
The three reasons which most impress me and incline me to that conclusion are these. First, the mischief argument: set in Victorian times, the aim is to protect the creditors of individuals and separate provisions were made for companies as they increasingly became a feature of society. Secondly, the language of the Act: although there is a reference in section 7 of the 1878 Act both to “bankruptcy” and “liquidation”, “liquidation” being, at least as the word is today understood, more appropriate to companies than individuals for whom “bankruptcy” is more usual, all other references in the Act suggest that the Act is concerned with individuals. Thus personal chattels are deemed to be in the apparent possession of the person making the bill of sale so long as they remain in premises occupied by him or are used and enjoyed by him. In section 10(2) the mode of registering bills of sales requires a description “of the residence and occupation of the person making or giving the bill of sale”. The form of register specified in section 12 is to like effect. In the 1882 Act an affidavit is required when presenting the bill for registration and that must describe “the residence of the person making” the bill. The schedule to the Act describes the form of a bill of sale under which “he” the grantor of the bill assigns the chattels to the grantee. Thirdly this construction seems to have been acknowledged by the legislature elsewhere. Section 396(1) of the Companies Act 1985 prescribes the charges which have to be registered and include:
“(c) a charge created or evidenced by an instrument which, if executed by an individual, would require registration as a bill of sale.”
That seems to me to be an acknowledgement that bills of sale are confined to individuals and companies are bound by the regime of the Companies Act.
In the court below the possible application of the Bills of Sale Acts took Mr Sinai somewhat by surprise and I can readily understand that he had not the time to research the matter as he has been able to do in presenting his arguments to this Court. His written skeleton was prepared in the belief that the respondent would still be in person and, in the best traditions of the Bar, he set out the law with conspicuous fairness even though that was against the interests of his client. Although he made an attempt to repeat and rely on the arguments that had failed in Slavenburg’s Bank, to which he drew the court’s attention, it was an understandably half-hearted attempt to salvage his client’s case. Upon examination, it is clear to me that the recorder was in error in raising this question. This was not a bill of sale to which the Acts applied and it is therefore, strictly speaking, unnecessary to consider the second question raised in this ground of appeal, that is to say, if this is a bill of sale, does the want of registration make it void as against the appellant? On this hypothetical question, I would agree with the recorder that section 8 of the 1878 Act renders an unregistered bill “fraudulent and void”, but only against the limited category of persons there identified, namely, trustees or assignees of the estate, and sheriffs in their offices. An unregistered bill would not be void as against the grantee. The more difficult question is, however, whether the bill is void pursuant to section 8 of the 1882 Act which provides that:
“Every bill of sale shall be duly attested, and shall be registered under the principal Act … otherwise such bill of sale shall be void in respect of the personal chattels comprised therein.”
That would appear to mean that such a bill would be void as against the whole world, including the grantor. So the question is, does the 1882 Act apply? The answer is probably given by the Court of Appeal in Ex parte Parsons, In re: Townsend (1886) 16 QBD 532. There Parsons was to advance money to Townsend and as security for his advance he was to have the right to take immediate possession of the goods and sell them. That was held to be a licence to take possession of goods as between two private individuals and it therefore fell within sections 3 and 4 of the 1878 Act. In answer to the question whether it was a bill of sale within the 1882 Act Lord Esher, M.R., held at p. 544:
“Section 3 [of the 1882 Act] says that the two Acts are to be construed as one, and that the expression “bill of sale” is to have the same meaning in the Act of 1882 as in the Act of 1878, except as to bills of sale given otherwise and by way of security for the payment of money, to which the Act is not to apply. This document, therefore, is a bill of sale within the Act of 1882 because it is a bill of sale within the Act of 1878.”
It was not made in the form required and it was, therefore, void.
Both counsel seem to agree that this would be a security bill within the 1882 Act, if the agreement falls within the purview of the Acts and that the defendants could not rely upon it because it would void. Interesting as these speculations are, they simply do not apply in this case because the Bills of Sale Acts do not apply to companies. That is an end of it.
Since those questions were the only ones for which permission to appeal has been given, that should be the end of the appeal. I would therefore dismiss it. I cannot, however, end without commenting as I began that in a case where so many points have been taken, good, bad or indifferent, with the result that the arguments have ranged so widely in arcane fields outside the expected ken of a County Court judge, no point was ever taken on the merits, or lack of them, that the removal and retention of these vehicles was wrongful because possession was obtained by a trick. The deceit was admitted and although the defendants had a right to take possession, it might be said that they had no right to take the vehicles in the way in which they did. That would have given rise to another interesting argument but I am not going there.
Lady Justice Smith:
I agree with both judgments.
Lord Justice Rimer:
I too would refuse permission to appeal on the additional grounds to which Ward LJ has referred in paragraphs [11] to [13] of his judgment and have nothing to add to his reasons for assessing them to be without substance. I would also dismiss the appeal on the one ground for which the Recorder gave permission. I add short reasons of my own for that conclusion.
The right conferred on Drakeglen Ltd by clause 28(b) of the terms of business is to take possession of goods to the value of sums unpaid by Online Catering Ltd and, I infer, to retain them until payment but no longer. Neither clause 28(b) nor anything else in the terms of business entitles it to sell any goods so taken and counsel did not identify any right under the general law under which it could sell them, or seek an order for sale, so as to enable the proceeds to be applied to the discharge of Online’s debt.
The right is therefore in the nature of a contractual possessory lien. Despite its limited nature, I consider that it can properly be regarded as conferring a right in the nature of a ‘security’. It would, in the language of section 4 of the Bills of Sale Act 1878, have amounted to a licence ‘to take possession of personal chattels as security for any debt’, and would fall within the definition of a bill of sale (cf Ex parte Parsons, in re Townsend (1886) 16 QBD 532). I shall assume, without deciding, that if Online had been an individual, the right would have been void against him for want of compliance with the formalities and registration requirements of the Bills of Sales 1878 and 1882 (see sections 8 and 9 of the 1882 Act).
Online is not, however, an individual but a limited company formed and registered under the Companies Act 1985. Part XII of that Act (the legislation in force at the material time) provided for the registration of ‘charges’ created by companies. If the registration requirements were not complied with, section 395 provided that any security conferred by the charge on the company’s property or undertaking would be void against the liquidator, administrator or any creditor of the company. If the effect of clause 28(b) was to create a ‘charge’ of the sort listed in section 396(1)(a) to (j), then it had to be registered but was not. It is, however, agreed that nothing has happened to render such charge void against Online and so it avails Online nothing to point to the lack of registration under Part XII.
The requirements of Part XII apply, however, only to ‘charges’ created by the company of the types so listed. Since clause 28(b) gives Drakeglen no right to sell, or seek a judicial sale of, the seized goods so as to enable it to apply the proceeds in or towards satisfaction of the unpaid debt, I doubt whether it created a ‘charge’: it is a usual feature of a charge that it appropriates specific property to the discharge of a debt or other obligation (cf Carreras Rothmans v. Freeman Matthews Treasure [1985] Ch 207, at 227C, per Peter Gibson J, as he then was), whereas clause 28(b) did not do that: the retained goods cannot be realised so as to enable the discharge of the debt. Mr Mendoza, for the respondents, submitted that the decision of the House of Lords in Smith (Administrator of Cosslett (Contractors)Ltd) v. Bridgen County Borough Council [2002] 1 AC 336 provided conclusive authority that a ‘charge’ was here created, but I disagree. In that case the relevant provision expressly empowered the council to sell the relevant plant, goods and material and apply the proceeds in or towards satisfaction of the contractor’s debt (see paragraph [10]). Clause 28(b) includes no like right.
Assuming, without deciding, that clause 28(b) did not create a charge, I have said that I consider that it at least created a ‘security’ interest that – if created by an individual – required compliance with the formalities of the Bills of Sales Acts. Whilst Mr Sinai, for Online, did not submit that anything that a company must register under Part XII must also be registered as a bill of sale under the Bills of Sale Acts, he did submit that a company must register as a bill of sale under those Acts those security interests created by it that are not required to be registered under Part XII.
My intuitive response to that submission is unsympathetic, since it would seem to me improbable that Part XII would go to the express lengths it did in relation to the registration by companies of particular types of security whilst leaving the registration requirements of other security interests to be covered by the Bills of Sales Acts. But the submission raised the more general question as to whether the Bills of Sales Acts apply to companies at all. That question has been considered in authorities decided over 100 years ago, but also more recently by Lloyd J (as he then was) in N.V. Slavenburg’s Bank v. Intercontinental Natural Resources Ltd and Others [1980] 1076, at 1093H to 1098H. After a full review of the authorities, he concluded that the Bills of Sales Acts do not apply to companies, thus following the decision of Phillimore J in Clark v. Balm, Hill & Co [1908] 1 KB 667.
The arguments before us did not include an in-depth revisiting of the issues argued before Lloyd J, Mr Sinai’s argument amounting to little more than a re-assertion of the submissions that failed before him. I propose to say no more than that I find Lloyd J’s reasoning and conclusion in Slavensburg wholly convincing and respectfully agree with it. In my judgment the answer to this appeal is that the Bills of Sale Acts apply only to individuals, not to companies.
It follows that I agree that the appeal fails and should be dismissed. I add only that the respondents’ success is not something I view with satisfaction. Drakeglen achieved the recovery of the two vehicles by making a false representation to Online that it was taking them away for repair works. I regard it as unsatisfactory that it should then be entitled to assert its clause 28(b) rights in respect of the vehicles. No point on that was taken before the judge, and I know not whether a good point was there to be taken. But the facts paint Drakeglen in a poor light. Nor, however, does Online emerge from the litigation covered in merit, its managing director having given evidence that in part the Recorder found to be ‘clearly untrue’. Perhaps the parties deserved each other.
Great Eastern Railway Co. v. Lord’s Trustee
[1908] UKHL 1024
Lord Chancellor (Loreburn)—There has been an even division of opinion among the Judges who have heard this case. In my view the judgment of Phillimore, J., ought to be restored. I think that the Railway Company were in possession of this coal. The whole object of the arrangement made between them and Lord was that they should retain a lien and a physical control, secured by retaining the coal within their yard, of which they could lock the gates if Lord was in arrear. It is perfectly consistent with this that Lord also should have the right to remove the coal when the Railway Company opened their gates for him, as they were bound to do when he was not in arrear. I have heard no answer to the observations of Moulton, L.J., when he points out how an innkeeper has an effective lien over the luggage of his guest though the guest is allowed to take out of it or put into it his articles of clothing while in the inn. True, there was a demise to Lord of an allotment in the yard whereon this coal was stacked. That entitled him to occupy the allotment. But did that occupation confer upon him the exclusive possession of everything which he placed on the allotment? I cannot see why it should. An officer may be in possession of goods whether the debtor has a lease or even the freehold of the house in which the goods are placed. I cannot perceive any necessary dependency between the occupation of a piece of land and the exclusive possession of chattels which lie on it. Nor, in my opinion, can it signify for this purpose whether the occupation of the land is under a demise or merely by licence. How can the quality of the tenure of the land determine the possession of the chattels? If this be so, the Bills of Sale Act does not apply. There is here no right in equity, nor charge, nor any licence to take possession of goods. There is already possession and at law. The agreement merely gives a right to retain it. I should have been very sorry had I felt obliged to hold that an arrangement so convenient and so harmless was frustrated by an Act designed to defeat very different transactions.
Lord Macnaghten—Before his bankruptcy Frederick Lord carried on business at Norwich as a coal merchant under the style or firm of Lord Brothers. The supplies of coal required for the purposes of his business came by the Great Eastern Railway under consignment to Lord at Norwich. Everybody knows what the rights of carriers are in the absence of special agreement. On payment of what may be due for freight the carrier is bound to deliver to the consignee. The presumption is that payment and delivery are meant to be concurrent. Unless payment is forthcoming the carrier has a right to withhold delivery and to detain the goods. At the same time, in the case of railway companies and their regular customers, it would be most inconvenient if the carrying company were to stand on its strict rights and insist upon ready money on the delivery of each consignment. It would be inconvenient to the customer and even more so to the company. What was done in this case is, I believe, in accordance with common practice. At Lord’s request the appellants agreed to open a monthly credit account in their ledgers for the carriage of his coal. Among the conditions on which the account was opened were these—The appellants were to have a general lien for the balance of the account, and they were to be at liberty from time to time, and in such manner as they should think fit, to sell the goods subjected to their lien. It was further provided that they might close the account on one day’s notice, and, as part of the same arrangement, but by separate contracts, the appellants agreed to let to Lord certain spaces or allotments within their own yard which were to be used for the purpose only of stacking and dealing with coal and coke passing over their railway. Lord fell into arrear. Over and over again he promised to discharge his liability. He failed to perform his promises. Ultimately the appellants closed the account. They then shut the gates of their yards, and so prevented Lord from removing the coal which happened to be lying on his allotments at the time. Were the appellants within their rights in taking this step? That must depend upon the answer to another question. Was there an absolute and unconditional delivery of the coal, or was it intended that the company should keep a hold over the coal so long as their account remained open, and if so, were sufficient precautions taken to give effect to that purpose if the company chose to exercise the right of stoppage for which they bargained? There is a question of intention and a question of fact. That seems a short and simple point. Now, in the first place, it appears to me absurd to suppose that the parties had in view any equitable right such as a charge on future property to be enforced by proceedings in Chancery. The company, I suppose, wanted some rough-and-ready means of enforcing an undisputed claim, not the protracted pleasure of a Chancery suit. It is, I think, equally absurd to suppose that they would have been content with an agreement plainly illusory. They were business people. They must have known what the effect of unconditional delivery would be. But then it is said, be that as it may, Lord had possession of the coal. So he had in a sense—in the sense in which the owner of dutiable goods has possession of them while they are stored in a bonded warehouse belonging to him as owner or tenant. It is said that Lord not only had possession of the coal, but also an estate in the land on which the coal was deposited. I cannot see what the tenure of the land has to do with the question. If the delivery was absolute and unconditional, it cannot matter where the goods were deposited or what Lord did with them. If the delivery was not unconditional, the question must be, Had the goods passed out of reach, or were they still in the grasp of the company? What was the real meaning of the arrangement between the company and Lord? It seems to me that the thing speaks for itself. The proper inference from the facts and circumstances of the case is, I think, that it was the intention of both parties that the company’s right of detainer should be preserved and, if need be, enforced against the coal subjected to their lien so long as it remained in their yard. It is hardly conceivable that the company would have allowed this ledger account to be opened if Lord’s depot for coal had been outside their precincts. I cannot help thinking that there has been some little confusion between the right of retainer in the case of a person’s own goods sold, but not paid for, and the right of detainer in the case of work and labour bestowed on the goods of another person. The two rights are not perhaps quite the same. At any rate, they arise under different circumstances, and it is not, I think, every observation which you find applied to the one that is applicable to the other. It was argued that the ledger agreement was really a bill of sale, and void because it is not in the form prescribed by the Bills of Sale Act 1882. It can hardly be contended that the agreement is within the mischief at which the Act was aimed; nor is it, I think, within the definition of a bill of sale contained in the Act of 1878 and adopted in the later Act. It did not confer, or purport to confer, a right in equity to any personal chattels or to any charge or security thereon or any equitable interest of any sort. The right which was in the contemplation of the parties was a right to detain goods so long as the power of detention remained. The appellants were, I think, in a position to exercise that right, and they certainly did exercise it effectively. The trustee can have no higher right than Lord himself would have had if he had not become bankrupt. In the face of his agreement, how could he have said to the appellants, “You shall open your gates and let me take my goods away, though I promised that some agreement sanctioning a retaking of possession. It seems to me that that is exactly what happened in this case. As soon as the goods were delivered to Lord on his own allotment, held by him as tenant under a demise, they ceased to be actually or constructively in the possession of the company, and mere juxtaposition, though it might give facilities, could give them no right to resume possession, though they might have, and in fact had, a contractual right to do so under what has been called the ledger agreement. If so, it is not, I think, disputed that they would come within the Bills of Sale Acts. It was, indeed, contended by Mr Scrutton that the document here in discussion was not in fact a bill of sale, and that it stood outside the mischief aimed at by the Legislature in those enactments. But this argument has been frequently adduced and as often overruled before. See the observations of Lord Halsbury, L. C., in Charles-worth v. Mills ( ubi sup.), and of Lord Esher, M.R., in ex parte Hubbard ( ubi sup.), and of Lindley, L. J., in ex parte Parsons ( ubi sup.), where it is pointed out that the different Bills of Sale Acts were passed from quite different standpoints, and that honest transactions are hit by them as well as dishonest. The analogy of the innkeeper’s lien does not seem to me to carry the case any further. It is not suggested that it extends to goods which have ceased to be in possession of the innkeeper, or that the latter by virtue of his lien could retake them when he had caused or suffered them to be passed off his premises on to those of his late guest. His defence to an action for doing so would have to be something outside the innkeeper’s lien amounting at least to leave and licence.
Judgment appealed from reversed.
Ratten & Anor v Ultra Motorhomes International Ltd & Anor
[2006] EWHC 3415 (Ch) Patten J
Title
The Security Agreement is on its face an agreement between UVDL and Behike. Mr Behike’s evidence is that he never appreciated the distinction between IJMIL and UVDL or that they were separate companies. He said that he regarded the business or company run by Dr Helmer simply as “Ultra”. But for the security agreement to have any effect at all it has to have been entered into with either 1.HvIIL or UVDL because they (or rather one or other of them) were the only legal entities able at the time to create any interest in Vehicle 48. No one suggests that the vehicle belonged to Dr Helmers himself.
Behlke’s pleaded case (see para 12 of its Defence) is that at the time of the Security Agreement Vehicle 48 was the property of UMIL and that UVDL andlor Dr Helmers had the actual or ostensible authority of UMIL to act on its behalf in procuring the funds necessary for it to finish Vehicle 47 and to grant security over Vehicle 48 for that purpose.
I shall come shortly to the question of who was the contracting party and the related question of authority, but the first issue to determine has to be which company had title to Vehicle 48 as at the date of the Security Agreement. Although some reservations were originally expressed about this it is now common ground that Vehicle 48 was the property of UMIL in December 2001 and became an asset of that company subject to the trust in favour of the creditors pursuant to ci 6.3 of the CVA proposal. It is also common ground that this trust has survived the liquidation of the company.
The real issues about title stem from the Sale Agreement, The Supervisors take two points: (1) that Vehicle 48 fell within the reference to “any motor vehicles” in ci 2.2.9 of the Sale Agreement and was therefore excluded from the sale of assets to UVDL; and (2) that if included in the sale Vehicle 48 was subject to the retention of title provisions contained in ci 5.1 with the result that title never passed to I.J\TDL. Behlke disputes the first proposition but accepts that ci 5.1 does apply. It differs, however, from the Supervisors in its construction of that clause and contends that the reference to payment in full is a reference to the instalments due under ci 8 of the CVA as amended being up to date as at the relevant date of transfer. I will deal with these two issues in turn,
The Supervisors’ stance on the first issue has changed during the course of these proceedings. As Ms Muth pointed out, Mr Oakley in his second witness statement (made in connection with the preliminary issue on the applicability of German law to the Security Agreement) expressly contended that Vehicle 48 passed to UVDL as “stock” having been completed during 2002. He went on to reject its inclusion as a “motor vehicle” under cl 2.2.9 saying that this was in his experience a standard form provision designed to protect vehicles used by employees of the vendor company from being transferred inadvertently to the purchaser. His contention was that Vehicle 48 was indeed part of the stock of UMIL in December 2002 and was one of the only tangible and valuable assets of the company. The intention must have been to pass it to UVDL so that it could be sold as part of an ongoing business for the benefit of creditors subject of course to the protection afforded by the retention of title cause.
Clearly, Vehicle 48 is a motor vehicle. It was also part of UMIL’s stock in trade. The evidence is that the vehicle was created as a demonstration vehicle but was always available for sale. The real issue therefore is whether the reference to “any motor vehicles” in ci 2.2.9 is wide enough to include any and all motor vehicles or must be given some narrower construction and meaning.
The provisions of cl 2 of the Sale Agreement are on one view ambiguous and must in my judgment be given construction which facilitates rather than impedes the purpose of the revisions to the CVA. This approach to construction was adopted by Blackburne J in the reported case of Re Brelec Installations [2000] – where he said this:
“An arrangement is usually put together in some haste. Mod~flcations to it are frequently made at the statutory meeting of creditors with little time to reflect on how they relate to the other terms of the debtor’s proposal. Quite often, as this case demonstrates, the resulting terms are clumsily worded. The arrangement ought therefore to be construed in a practical fashion. Otherwise there is a risk that careless drafting coupled with a too-literal approach to its construction will serve to frustrate rather than achieve the purpose of the arrangement.”
It is clear that the transfer of assets to UVDL was intended to allow the business formally carried on by T.JMIL to continue in the hands of its new subsidiary which was to obtain the benefit of LTMIL’s existing contracts and the equipment, stock and goodwill of that business. Motor vehicles are also excluded from the definition of “equipment” but that adds nothing to nor does it alter the relevant background to construing the agreement. It seems to me that it would be odd for the draftsman to have included the benefit of contracts for the manufacture and sale of the motor homes (e.g Vehicle 47) but to have excluded title to a similar motor home already completed and available for sale. I am much more impressed by Mr Oakley’s evidence that the exclusion of motor vehicles is a standard type of provision designed to exclude from the sale vehicles supplied for the use of the vendor’s own employees. That construction preserves the apparent commercial thinking behind the sale agreement whilst retaining assets which do not have to pass in order for that to be achieved. In my judgment Vehicle 48 did pass to UVDL as stock subject only to the retention of title clause.
The next issue is how that clause should be construed. It is common ground for the reasons already outlined that there was not payment in full for the respective assets pursuant to ci 4 of the Sale Agreement if that means if all of the instalments of the consideration have to be paid before title can pass. The £54,165 paid by 19 May 2003 meant that each of the monthly instalments of £10,833 up to the end of March 2003 were met but only late. The total amount paid by way of instalments since the commencement of the CVA (f 173,829) was also insufficient to cover the value placed on Vehicle 48 as of March 2003 in these proceedings.
Ms Muth contended that for the revised arrangement to work it could not have been the parties’ intention that title to one of the vehicles manufactured and sold by UVDL should only pass to the purchaser if all of the instalments of consideration came eventually to be paid. This would have the consequence that a purchaser would have to wait for up to two years before his title was confirmed. This lack of certainty would make trade difficult if not impossible.
The scheme of the original CVA clearly envisaged that UMIL would be able to continue to trade and that existing creditors would be provided for and paid off through the monthly instalments of profit paid to the Supervisor by the company out of its receipts. This is confirmed by cis 4.1 and 14.1 of the proposal. The company is required by ci 12.1.6 to conduct trading in accordance with the terms of the arrangement and by ci 8 to remit to the Supervisor the monthly payments of £10,833 and any further share of profits payable under ci 8.3. His functions during the continuation of the arrangement are limited to banking and distributing the funds payable to creditors and supervising the company’s compliance with the terms of the arrangement: see ci 10. Both ci 10.1 and 11.2 give to the Supervisor power to realise the Assets as defined but this power of realisation is directed to the position following a breakdown in the payment schedule when the Supervisor is empowered under ci 4.5 to sell the business as a going concern or to realise the assets.
UMIL therefore remained free to dispose of the vehicles in the ordinary course of its business. The proceeds of sale would be used to meet the costs of the business (see ci 4.1) and the payments due under ci 8. The trust in favour of creditors which attaches to the assets that are subject to the arrangement does not prevent sales of the vehicles in the ordinary course of business but attaches to the proceeds of sale: see ci 6.1.
Under these arrangements there are no provisions for retention of title pending payment. The proceeds of sale of a vehicle once credited to the company are subjected to the trust and the provisions of the CVA which bind and regulate the relationship between UMIL, its Supervisor and its creditors. But the variation to these arrangements was effected by a sale of assets between UMIL and UVDL to which the Supervisor was not a party and which was intended to vest the trading assets in a company that was unaffected by the CVA.
The sale agreement was completed on 20 December 2002 and the consideration was payable on deferred terms to T.JMIL. The obligations of UVDL under the sale agreement were secured not by it entering into any direct contractual relationship with the Supervisor, but by the grant of a debenture over its assets in favour of UMIL. UVDL was therefore never a party to this CVA and was not bound by the terms of the original arrangement. Its title to and right to deal with the assets transferred to it depend exclusively on the terms of the sale agreement and this therefore is the only means of legal control over its use and disposition of the assets which provided the sole means of paying off the pre-arrangement creditors of UMIL.
In these circumstances it is hardly surprising that those responsible for drafting the sale agreement thought it necessary to include the retention of title provisions contained in cl 5.1. They were clearly intended to reinforce payment provisions contained in ci 4. UVDL was given possession of the movable assets on completion of the sale agreement (see ci 4.4) but no right to pass title before “payment in full” for the respective assets was made pursuant to ci 4.
It seems to me that this must mean payment in full of all sums due under ci 4. The sale agreement is drafted as a single sale of au the Assets listed in ci 2.1. The consideration for that sale is a single sum of~E303,324 together with the Earn-Out (as defined) if applicable. Separate values are not attributed to individual assets and the consideration is stated to be payable in accordance with ci 4 which sets out the regime of monthly payments corresponding to those contained in ci 8 of the original arrangement. The reference in ci 5.1 to payment being made in full pursuant to cl 4 must have been intended to mean payment of all sums due under that clause.
I therefore reject Ms Muth’s submission that I should construe the condition in ci 5.1 as satisfied by the payment of the monthly instalments up to the end of March 2003. The effect of ci 5.1 was that UVDL could not pass title to the purchaser of a vehicle prior to all instalments of consideration being paid unless it obtained a consent or release from UMIL which of course remained subject to the Supervisor under the CVA. In this way, UMIL (and through it the Supervisor) could decide whether to grant a release and so exercise a degree of control and supervision over the disposal of UVDL’s assets. This seems to me to be a perfectly reasonable and intelligible system of control and not one which in any way flouts business commonsense or is inconsistent with the overall scheme and purpose of the hive-down arrangements.
The Security Agreement
The consequence of all this is that ci 5.1 applied as of 21 March 2003 so as to prevent TJVDL from passing a good title to Vehicle 48 otherwise than with the consent of UMIL. The Supervisors therefore contend that the Security Agreement was ineffective to pass to Behlke title to Vehicle 48 whether by way of security or otherwise,
This argument has to be broken down into a number of sub-issues:
i) Was the security agreement made with UVDL or UMIL?;
ii) If made with UVDL (which was subject to the reservation of title in favour of UMIL) did it involve some kind of implied waiver or release by T.JMIL of its rights under ci 5.1; and
iii) If there was no release what was the effect (if any) of the security agreement?
The identification of the parties to a written agreement is normally contained in the agreement itself. In this case, the agreement was negotiated between Dr Helmers and Mr Behlke and then committed to writing in the form of a letter in the name of UVDL. The letter contains statements that “we are transferring the ownership of this vehicle to you” and “we expressly confirm that this motor vehicle is our sole property”. In the context of the letter the “we” is obviously a reference to UVDL. Mr Behlke says that he did not pay any real attention to the UVDL name but concentrated on the word Ultra. But that seems to me to be irrelevant. Subject to the cl.5. 1 rights of UMIL, LTVDL was the purchaser of the assets and the company which was to continue to run UMIL’s business. It had acquired under the sale agreement the benefit of the contract for the purchase of Vehicle 47 and the security agreement was designed to provide security for the advance payment of the final instalment due under that contract. There is nothing in the relevant background circumstances to displace the language used in the letter and the identification of UVDL as the contracting party.
The matter is however complicated by the fact that the agreement was signed on behalf of UVDL by Dr Helmers. Dr Heimers was not a director of either UMIL or UVDL but the manager of its business. It is not in dispute that he was responsible for acquiring and negotiating the terms of the orders for vehicles and dealt personally with Mr Behlke in relation to his order for Vehicle 47. He had the technical expertise to deal with the production of the vehicles. Ms Whitter, by contrast, was an accountant and auditor whose principal responsibility was to manage the finances of the two companies and to liaise with the Supervisor in relation to the CVA.
The Supervisors’ position is that in the light of cl 5.1 of the sale agreement they do not need to challenge Dr Heimers’ authority to enter into the security agreement on behalf of UVDL. Even if binding on the company, it is of no effect. Behlke, by contrast, contends not only that Dr Helmers was authorised to enter into the security agreement by UVDL but that he did so with the actual or implied authority of UMIL and that by implication UMIL must be taken to have waived or released their rights over Vehicle 48 under ci 5.1 of the sale agreement.
Mr Behlke accepted that he had never met or had any dealings with Ms Whitter before 24 April 2003. There is therefore no question of Dr Helmers having been held out expressly to Mr Behlke as having the necessary authority to bind either UMIL or UVDL to the security agreement by some representation made to him by Ms Whitter prior to the making of the security agreement. Behlke’s case therefore is that Dr Helmers either had actual authority from Ms Whitter to enter into the agreement or had apparent authority as a result of being allowed by Ms Whitter to act in the conduct of the company’s business so as to appear to have the authority necessary to bind the principal.
In his witness statement Dr Helmers describes himself as the de facto managing director of UMIL and UVDL. He started the business in 1994 and says that following the CVA he continued to be in charge of the business and to be regarded by customers as the person who was running it. Ms Whitter allowed him to do this and to negotiate and finalise contracts with customers which he would sign on the company’s behalf.
Dr Helmers accepts in his witness statement that the contract for Vehicle 47 and the security agreement were entered into by different companies but describes it as a paper exercise. UMIL and UVDL were regarded, he says, as the same entity and the security agreement was intended to be an extension of the sale contract in respect of Vehicle 47. He says that he did not differentiate in his mind between UMIL and UVDL when entering into the security agreement and that he regarded himself as having the full authority of UMIL and UDVL to do so. In terms of actual authority from Ms Whitter he says (in paragraph 26 of his witness statement) that he acted with her full knowledge and authority at all times. He says that prior to entering into the agreement he consulted her and that she confirmed that “bearing in mind the intent of the company (I.JVDL) to provide Behlke with a valid and enforceable security, that UVDL should issue it”.
In his oral evidence he said that she had no objection to the security agreement and told him to go ahead and do it. He was given the keys and log book to Vehicle 48 and therefore had physical control of it.
The Supervisors challenged this evidence but Ms Whitter was not called as a witness and I have no evidence from her to contradict what Dr Helmers has said. I should however make it clear that I have considerable doubts about parts of his evidence in reiation (eg) to whether Mr Behike was aware of the CVA. He was forced to concede that he had written letters at the time which contained statements he knew to be inaccurate or untrue and which contradict the evidence he has given in these proceedings. I therefore approach his evidence with considerable caution, particularly bearing in mind that the Supervisors are not in the position to challenge much of it.
It seems to me that Ms Whitter obviously did allow Dr Heimers to run the technical side of the business and to continue to do so even after the change to UVDL. This appears to have included the making of contracts for the production and sale of vehicles. There is no evidence to suggest that he did not have actual authority to do this or that Ms Whitter was as a matter of practice required to countersign any contract he entered into. His custody of the keys to Vehicle 48 is consistent with this. Everything points to his having actual authority to take the orders and to fulfil them on behalf of the company.
I am however much less convinced that Dr Heimers had actual authority to enter into the security agreement. This was very much a one-off arrangement designed to boost the cash flow position of UVDL in relation to the completion of the contract for Vehicle 47. It is not in any sense a usual type of contract and would not in my judgment fall within the scope of a general authority to enter into contracts for the production and sale of vehicles. Nor would it have been within the scope of his apparent authority based on his role in the management of the business. An agreement to give security for a contract is something which in the context of this business required board approval. I therefore take the view that the security agreement is only binding on UVDL if Dr Helmers was given express authority by Ms Whitter to enter into it on the company’s behalf.
I have considerable misgivings about accepting this evidence. It is unsupported by any evidence from Ms Whitter and is also inconsistent with the way in which one would expect her to act in the circumstances, The giving of security over a valuable asset of the company is something which one would have expected her to refer to the Supervisor. ci 14.3 of the original CVA prohibits the giving of security without the prior written approval of the Supervisor. This was not, of course, a term of the sale agreement and is not contractually binding on UVDL but the grant of security preventing the sale of Vehicle 48 is something which stood outside the normal trading arrangements contemplated by the sale agreement and the absence of any reference to the Supervisor casts considerable doubt in my view on the evidence which Dr Heimers has given about this. On balance I am not persuaded that any such express consent was given.
, But even if I am wrong on the question of whether UVDL authorised Dr Helmers to enter into the agreement and there was either actual or apparent authority for him to do so, I do not accept that this extended to a waiver or release by UMIL of its rights under ci 5.1 of the sale agreement. The security agreement was no different from any sale agreement made foiiowing the hive-down. Both required in my analysis an approach to be made to UMIL for its consent to a release of the reservation of title in its favour. There is nothing in Dr Helmers’ witness statement or his oral evidence to suggest that any request for such a release was ever made to Ms Whitter and paragraph 26 of his witness statement suggests that Ms Whitter dealt only with the position of UVDL.
Ms Muth contends that a release by UMIL should be implied in order to give effect to the terms of the security agreement. But that is the same argument which underlies her approach to the construction of ci 5.1 which I have rejected. The release of the cl 5.1 rights is something which goes to the heart of the CVA and requires a judgment to be made by UMIL in consultation with the Supervisor as to whether the return justifies the release in the interests of the creditors. Quite apart from ci 14.3 itself, I doubt whether UMIL’s power to continue trading enabled it to give security for its obligations. But even if it had power to do so, it was required under cl 12.1.6 to conduct its business in accordance with the terms of the CVA and in a manner likely to enhance its own solvency and to produce the maximum dividend for creditors. These were matters which Ms Whitter would have been required to give specific consideration to before consenting to the security arrangements. There is no evidence that she did so and no consent can in the circumstances be implied. It follows in my judgment that there was no waiver or release of UMIL’s cl 5.1 rights as part of the security agreement entered into by UVDL. In these circumstances it is unnecessary for me to determine the precise scope of ci 14.3 of the CVA or whether Mr Behike had notice of the CVA at the time of the security agreement. The potentially interesting question of whether it would have been in some way ultra vires for UMIL to have entered into the security agreement, or to have authorised Dr Helmers to do so on its behalf do not arise.
That leaves the question of the effectiveness and enforceability of the security agreement itself. These questions are governed by German law. In his report Professor Dr Koch notes that the security agreement describes itself as a Sicherheitsubereignung des Fahrzeugs. A Sicherheitsubereignung des Fahrzeugs is recognised by German law as a special form of transfer of ownership for security purposes which has developed outside the provisions of the Civil Code. It constitutes a full transfer of title without an actual transfer of possession and has wideiy replaced pledges as a form of security for movable property. As a matter of law, it therefore requires the debtor to own or to have a power of disposal over the object at the time of the security transfer. This is dealt with in detail in paragraph 1.3.3 of the expert’s opinion. Lack of ownership or a power of disposal by the grantor of the security renders the transfer ineffective and this can only be overcome by what is described as a bona fide acquisition of title in accordance with paragraphs 932 and 933 BGB. Professor Koch goes on to conclude that this is not relevant to the present case because there was no voluntary handing over of Vehicle 48 in the sense prescribed by 933 BGB and Behike has abandoned its defence based on these provisions of the Civil Code.
Conclusions
In the light of my conclusion that I.JVDL had no title to Vehicle 48 by reason of cl 5.1 of the sale agreement it follows from Professor Koch’s report that the security agreement was ineffective and the Supervisors are therefore entitled to an order for the delivery up of the vehicle and to an assessment of any damages suffered by its removal and retention by Behike. In these circumstances it is unnecessary and I prefer not to express any view about the scope of the security agreement which the expert has expressed no very clear conclusions. I do wish, however, to deal very shortly with the further argument of the Supervisors that the security agreement (even if otherwise valid and enforceable) is void against the liquidators and creditors of UVDL for non-registration under sections 395 and 396 of the Companies Act 1985.
Section 395 makes any charge void against the liquidator and any creditor of the grantor company so far as any security on the company’s property is confirmed by the charge unless it is registered within 21 days of its creation. The charges to which s.395 applies are set out in s.396(1) and include:
“(c) a charge created or evidenced by an instrument which, if executed by an individual, would require registration as a bill of sale,”
‘Charge’ includes mortgage: see s.396 (4).
The Supervisors’ contention is that the Security Agreement falls within s.396 (1) (c) because it would (if made by an individual) have constituted a bill of sale of personal chattels registrabie under the Bills of Sale Act 1878. Section 4 of that Act defines a bill of sale as including assignments or transfers of chattels as security for a debt or any instrument by which any charge or security on the chattel is conferred. Ms Muth, I think, accepts that the first part of this is wide enough to include the security agreement in this case but she contends that the agreement did not create a charge over Vehicle 48 and that it was not therefore registrabie under s.396(1)(c): see Stoneleigh Finance Ltd v Philips [1965] 2QB 537.
It is not intended that the form of security created by the Security Agreement does not fall within the definition of a charge in s.396(1) simply because the proper law of the instrument was German law. In Re Weldtech Equipment [1991] BCLC 393 Hoffmann J held that s.395 applies to all charges created by companies registered in England whatever may be the proper law of the instrument creating the charge. The oniy issue therefore is whether the Sicherheitsubereignung des Fahrzeugs created by the security agreement would be recognised as having the essential characteristics of a charge as defined in s.396. The argument that the security agreement did not create a charge within the meaning of s.396 seems to turn on whether it confirmed a right to possession of Vehicle 48. Professor Koch describes the Sicherheitsubereignung des Fahrzeugs as a form of security which transfers title but not possession although the security agreement itself contemplates that possession of Vehicle 48 would be handed over. It is therefore said to differ from a charge which confers neither any property in nor a right to possession of the goods that are charged: see Fisher and Lightwood’s Law of Mortgage (11th edition) paragraph 1.5.
But even if the security agreement did not create a charge properly so called, it did create a security interest equivalent to a mortgage. It purported to confer on B an interest in Vehicle 48 as security and the grant of a right to possession is consistent with that and a feature of many mortgages unless excluded. A mortgage of a chattel such as Vehicle 48 would be registrable as a bill of sale because it confers a right of security in the goods. It is also registrable under s.395 because it fails within the wider definition of a charge as including a mortgage. It is therefore void and unenforceable against the liquidator and creditors of UVDL (or for that matter UMIL) for non-registration even if otherwise a valid and enforceable security.