Armour v Thyssen
| Jurisdiction | England & Wales |
| Judge | Lord Keith of Kinkel,Lord Griffiths,Lord Oliver of Aylmerton,Lord Goff of Chieveley,Lord Jauncey of Tullichettle |
| Judgment Date | 18 October 1990 |
| Judgment citation (vLex) | [1990] UKHL J1018-2 |
| Date | 18 October 1990 |
| Court | House of Lords |
[1990] UKHL J1018-2
House of Lords
Lord Keith of Kinkel
Lord Griffiths
Lord Oliver of Aylmerton
Lord Goff of Chieveley
Lord Jauncey of Tullichettle
My Lords,
The appellants are a company carrying on business in West Germany as manufacturers and suppliers of steel. The respondents are the joint receivers on the assets of Carron Co. Ltd. ("Carron"), appointed on 3 August 1982 under powers contained in a floating charge in favour of two banks. Carron carried on business at Falkirk as manufacturers of metal, plastic and general engineering products.
For a considerable period prior to 3 August 1982 the appellants and Carron engaged in a course of dealing under which the appellants sold and supplied to Carron steel strip for use in its manufacturing processes. The contracts of sale between them were expressed as being subject to the appellants' General Conditions of Delivery and Payment. At the time of the respondents' appointment as receivers there were lying in Carron's works at Falkirk some 67,423 kilograms of steel strip which had been delivered in pursuance of such contracts. Part of the steel had been cut into sheets and a further part was in course of being so cut, but most of it was in the state in which it had been delivered. The invoice price of the 67,423 kilograms was £71,769, no part of which had been paid.
Clause 1.3.(1) of the appellants' General Conditions of Delivery and Payment provided, according to an agreed translation from the German:
"All goods delivered by us remain our property (goods remaining in our ownership) until all debts owed to us including any balances existing at relevant times — due to us on any legal grounds — are settled. This also holds good if payments are made for the purpose of settlement of specially designated claims. Debts owed to companies, being members of our combine, are deemed to be such debts."
Following the respondents' appointment as receivers, a dispute arose between them and the appellants as to whether the 67,423 kilograms of steel strip remained the property of the latter, by reason of clause 1.3.(1), or whether they formed part of the assets of Carron available to its preferred or other creditors. By telex dated 12 August 1982 the respondents informed the appellants that if they were able to prove retention of title the steel strip would be returned or paid for if used. In February 1983 the respondents raised an action against the appellants in the Court of Session claiming a number of declarators, the only one that remains relevant for purposes of this appeal being a declarator that Carron were the owners of all steel supplied to them by the appellants and delivered to Carron's premises. The appellants lodged a counterclaim concluding for payment by the respondents personally of the invoice price of 67,423 kilograms of steel strip, namely £71,769.
The case went to proof before Lord Mayfield, who on 4 February 1986 decided in favour of the respondents. A considerable amount of the proof was taken up with competing expert evidence about German law, which was claimed by the appellants to govern the contracts of sale. At the end of the day the Lord Ordinary was unable to reach any clear view about the nature and effect of the relevant German law, so he proceeded upon the presumption that it was the same as the applicable law of Scotland. He was further of the opinion that in any event Scots law, as the lex situs, governed the ownership of the goods. According to that law, Clause 1.3.(1) amounted to an ineffective attempt to create a right of security over the steel strip without transfer of possession. The property in the steel strip passed to Carron on delivery. In reaching this conclusion the Lord Ordinary followed two decisions of Lord Ross in the Outer House, namely Deutz Engines Ltd. v. Terex Ltd. 1984 S.L.T. 273, and Emerald Stainless Steel Ltd. v. South Side Distribution Ltd. 1983 S.L.T. 162.
The appellants reclaimed, and the reclaiming action was heard by the Second Division (Lord Justice-Clerk Ross, Lord McDonald and Lord Wylie). No attempt was made to found on the law of West Germany. On 6 July 1988 the Second Division found in favour of the respondents on substantially the same grounds as had the Lord Ordinary, namely that clause 1.3.(1) constituted an attempt, ineffective under the law of Scotland, to create a right of security over corporeal moveables without transfer of possession, and that the property in the steel strip had passed to Carron on delivery. The appellants now appeal to your Lordships' House.
It is well settled in the law of Scotland that a condition in a contract for the sale of corporeal moveables which provides that, notwithstanding delivery, ownership of the goods shall not pass to the buyer until the price has been paid is valid and effective. This was accepted in the opinion of the Lord Justice-Clerk, referring to Stair's Institutions 5th ed., (1832) (More) I. XIV.4; Gloag & Irvine on The Law of Rights in Security p. 241; Macartney v. Macredie's Creditors (1799) Mor. App. s.v. Sale, No.1; Murdoch & Co. Ltd. v. Greig (1889) 16 R. 396; and Cowan v. Spence (1824) 3 S. 42.
Cowan v. Spence was a case where the petitioner had granted to a partnership a sub-lease for a period of years of certain houses and lands and also of a paper mill situated on the lands. The petitioner was the owner of certain moveable machinery in the paper mill and elsewhere on the lands, and this was delivered to the partnership for their free use and benefit during the currency of the sub-lease, subject to a provision that at its expiry "at the term of Whitsunday 1828, and upon all the rents or subtack duties hereby contracted to be paid, and which may then be due, being fully paid up and discharged the said … machinery shall be held to be the absolute and exclusive property" of the partnership. The latter was taken bound to pay, in addition to the rents, the further sum of £450 annually as remuneration for the use of the machinery during the currency of the sub-lease. The partnership was sequestrated under the Bankruptcy Act in 1822 and the respondent, having been appointed trustee, claimed the machinery for behoof of the creditors. The First Division decided that the petitioner was entitled to the machinery, on the ground that it was to belong to the partnership only in the event of the rents and other prestations being duly paid and on the expiration of the sub-lease, which period had not arrived. It is a feature of the case that the contract did not specifically fix any price for the machinery, though the provision for payment of the annual sums of £450 may perhaps warrant the case being regarded as an early instance of a hire purchase agreement. It is to be noted, however, that transfer of the property in the machinery was expressed as being conditional not only on payment of these sums but also on payment of all rents due under the sub-lease of the heritable property.
The Lord Justice-Clerk took the view that the validity of a provision in a contract for the sale of goods that the property in the goods should not pass until the price had been paid constituted a particular exception to the general rule that security over corporeal moveables is incapable of being created without transfer of possession. That rule is thus expressed in Gloag & Irvine on The Law of Rights in Security p. 188:
"It is a cardinal rule of the common law of Scotland that no real right to corporeal moveable subjects can be transmitted by a voluntary conveyance, assignation or other...
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