Borden (U.K.) Ltd v Scottish Timber Products Ltd

JurisdictionEngland & Wales
Judgment Date10 July 1979
Judgment citation (vLex)[1979] EWCA Civ J0710-1
Docket Number1977 B No. 5545
CourtCourt of Appeal (Civil Division)
Date10 July 1979
Borden (Uk) Limited
1. Scottish Timber Products Limited
2. William McNicol Brownlie

[1979] EWCA Civ J0710-1


Lord Justice Buckley

Lord Justice Bridge and

Lord Justice Templeman

1977 B No. 5545

In The Supreme Court of Judicature

Court of Appeal

On Appeal from The High Court of Justice

Chancery Division

Group A

(His Honour Judge Rubin Q.C., Sitting as a Deputy High Court Judge of the Chancery Division)

MR. R.C. SOUTHWELL Q.C. and MR. MARK POTTER (instructed by Messrs. Coward Chance, Solicitors, London EC2V 7LD) appeared on behalf of the Defendants (Appellants).

MR. W.J. MOWBRAY Q.C. and MR. C.L. PURLE (instructed by Messrs. Lovell, White & King, Solicitors, London EC1A 2BY) appeared on behalf of the Plaintiffs (Respondents) and on behalf of the Official Receiver.


I have asked Lord Justice Bridge to deliver the first judgment in this case.


This is an appeal from a Judgment of His Honour Judge Rubin sitting as a judge of the Chancery Division, given on 15th November of last year on the trial of certain preliminary issues of law pursuant to an order of Master Cholmondeley-Clarke made on 6th July 1978. We have heard arguments on the essential points of the appeal at some length; there is no criticism whatever of counsel, as the arguments have been extremely helpful; but in my judgment the points that we have to decide are, in the end, really rather short ones and I hope it will not be thought that I am in any way being discourteous to counsel if I endeavour to deal with them shortly in this judgment.


For the purpose of the preliminary issues of law which were ordered to be tried, certain facts were agreed between the parties; so far as material to the only points remaining for decision by this court, the agreed facts can be very shortly stated.


The plaintiff company, Borden (UK) Ltd., are the manufacturers of a product called urea-formaldehyde chipboard resin. Over a period of some four years up to September 1977, they were the main, but not the exclusive, suppliers of that product to the 1st defendants, Scottish Timber Products Ltd., whom I shall call STP, for use by STP in the manufacture of chipboard. STP had a storage capacity for the resin which they needed, which was only sufficient at most to keep them supplied for two days' production in their factory. Accordingly, when their factory was working in the ordinary way it was inevitable that the resin supply would be used in the manufacture within two days of delivery. This circumstance was well known to Borden, and it is really essentialto the main issue arising in this appeal that one should infer from those circumstances that the contract clearly permitted the use of the resin in the manufacturing process before it had been paid for, the resin being sold on credit terms.


In the course of the manufacturing process the resin was mixed with certain hardeners and was emulsion, to form something which is referred to as a "glue mix"; this process of mixture was essentially irreversible in the sense that, once mixed, the resin as such could no longer be recovered. The glue mix was then blended with various grades of wood chippings and finally pressed together to form the end product, the chipboard.


On 16th September 1977 a receiver and manager of STP's undertaking was appointed by debenture holders; the Receiver is the 2nd defendant in the proceedings. STP has subsequently gone into compulsory liquidation pursuant to an order made on 25th June 1979, and is now continuing to defend this action by leave of the Official Receiver as provisional liquidator.


Borden claim that as at 16th September 1977, when the Receiver was appointed, the sum of £318,321.27 net was due to them from STP for resin supplied since 1st June 1977. They further claim that since 14th February 1977 all sales of resin to STP have been made pursuant to an express contractual condition in the following terms "(2) RISK AND PROPERTY. Goods supplied by the company shall be at the purchaser's risk immediately on delivery to the purchaser or into custody on the purchaser's behalf (whichever is the sooner) and the purchaser should therefore be insured accordingly. Property in goods supplied hereunder will pass to the customer when: (a) the goods the subject of this contract; and (b) all other goods the subject of any other contract between the company and the customerwhich, at the time of payment of the full price of the goods sold under this contract, have been delivered to the customer but not paid for in full, have been paid for in full". There is an issue on the pleadings as to whether that was indeed an effective term of the contract between the parties.


It is further pleaded by Borden in their statement of claim, reading only so much as is relevant to the issues which we now have to decide, that "In the premises.. any chipboard.. manufactured or fabricated with any of the said resin" - that is, Borden's resin - "… is charged to the" extent that it consists of any of the said resin "with payment to the plaintiff of £318,321.27". "Further or alternatively.. all monies and other property.. representing any of the.. chipboard… or any of the proceeds of sale or other disposal thereof are charged to the extent that they represent the said resin with the payment to the plaintiff of £318,321.27". In the relief claimed in the statement of claim appropriate declarations are claimed, pursuant to those pleaded rights.


Master Cholmondeley-Clarke's order required, the decision of the following points of law, namely: "(a) Whether upon the facts pleaded in the amended statement of claim the condition pleaded in paragraph 5 thereof" - that is the alleged condition 2 of the contract - "has the result in law" - and here again I read only so much as is material to the points we have to decide: "(ii) that any chipboard" is charged "to the extent that it consists of any of the said resin.. with the payment to the plaintiff of £318,321.27; and/or (iii) that all monies and other property representing any of the said.. chipboard.. or any of the proceeds of sale or other disposal thereof are charged to theextent that they represent the said resin with the payment to the plaintiff of" the same sum. "(b) Whether any charge resulting from such condition was and is void by reason of section 95 of the Companies Act 1948…".


I should say that there was a further plea included in Borden's statement of claim to be entitled to the ownership in part, of the chipboard. That also was the subject of one of the questions of law raised as a preliminary issue; that was decided by the learned judge against Borden and no cross-appeal was raised with regard to that, so we may take it that it is not in dispute that the title to the manufactured chipboard is the title of STP.


The judge answered questions (a) (ii) and (iii) affirmatively in favour of Borden, and question (b) negatively in favour of Borden. The precise form of his order appears at page 13 of our bundle, the material part being that "This court doth declare that the plaintiffs are entitled to trace any of their resin supplied after 14th February 1977 the title to which had not passed to the defendants Scottish Timber Products Limited under clause 2 of the plaintiffs' standard conditions in the pleadings mentioned into any chipboard manufactured from such resin or into the proceeds of sale of such chipboard but so that the plaintiffs cannot recover a sum in excess of the contract price of such resin And this court doth declare that the exercise of such a tracing remedy is not a charge created by the company to which section 95 of the Companies Act 1948 has any application".


It is common ground, I think, that that form of order, which purports to declare finally the rights of the parties, would in any event require some modification, since what the judge was called upon to do was to decide preliminary issues of law uponcertain assumptions of fact which had not yet been proved; but nothing turns upon that.


The essence of the judge's reasoning in arriving at the conclusion that Borden were entitled to a tracing remedy, which was the first issue for consideration, is stated at page 6 of the transcript of the judgment in two sentences. The learned judge said: "It seemed to me clear from an early stage in the argument that STP received resin which remained the property of Borden as a bailee for Borden and accordingly a fiduciary relationship was created". He goes on, later on the same page: "The defendants argued that the tracing remedy does not extend where there is a use in manufacture to the manufactured product and its proceeds of sale. In my judgment unless the fiduciary relationship was brought to an end by the use in manufacture, or it is possible to imply a further term into the contract that STP would be entitled to deal with the chipboard on its own account, there is no reason why the tracing remedy should not extend both to the chipboard and its proceeds of sale".


In my judgment the first question which arises for our decision is whether there was a fiduciary relationship here between STP and Borden in the nature of the relationship of bailee and bailor. As I have already said, it is common ground that STP were at liberty to use the resin which had not been paid for in the manufacture of chipboard, so that before the resin was paid for, the result was that it ceased to exist as such. Is that consistent with the relationship of the parties being that of bailor and bailee?


The learned judge, in deciding that question, did not, I thinks have the advantage, as we have had, of being referred tothe decision of the Privy Council in the case of the South Australian Insurance Company v. William Beavis Randell and Samuel Randell, reported in Volume III of Privy Council Appeal...

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