Kensington v Liggett [PC]

JurisdictionUK Non-devolved
JudgeLord Templeman,Lord Mustill,Lord Lloyd of Berwick,Sir Thomas Eichelbaum
Judgment Date25 May 1994
CourtPrivy Council
Date25 May 1994

Privy Council

Lord Templeman, Lord Mustill, Lord Lloyd of Berwick and Sir Thomas Eichelbaum

Kensington & Anor (receivers of Goldcorp Finance Ltd) & Anor
Liggett & Ors

Jonathan Sumption QC and Anthony Paterson of the New Zealand Bar for the first appellant (the receivers of the company) and John Moody of the New Zealand Bar for the second appellant (the bank) (instructed by Dibb Lupton Broomhead).

Patrick Finnigan and Julie Maxton, both of the New Zealand Bar, for the first respondents (the non-allocated claimants), David Baragwanath QC, William Akel and Tracy Walker, all of the New Zealand Bar, for the second respondent (Liggett), David Knight of the New Zealand Bar for the third respondent (Heppleston) (instructed by Alan Taylor & Co).

The following cases were referred to in the judgment:

Attorney-General for Hong Kong v ReidELR [1994] AC 324.

Chase Manhattan Bank NA v Israel-British Bank (London) LtdELR [1981] Ch 105.

Commonwealth of Australia v VerwayenUNK (1990) 95 ALR 321.

Diplock, ReELR [1948] Ch 465.

Dublin City Distillery Ltd & Anor v DohertyELR [1914] AC 823.

Eastgate, Re, ex parte WardELR [1905] 1 KB 465.

Federspiel (Carlos) & Co SA v Charles Twigg & Co Ltd [1957] 1 LI L Rep 240.

Holroyd & Ors v Marshall & OrsENR (1862) 10 HLC 191; 11 ER 999.

Indian Oil Corp Ltd v Greenstone Shipping SA (Panama)ELR [1988] QB 345.

Kayford Ltd, ReWLR [1975] 1 WLR 279.

Knights v WiffenELR (1870) LR 5 QB 660.

Laurie & Morewood v Dudin & SonsELR [1926] 1 KB 223.

London Wine Co (Shippers) Ltd, Re [1986] PCC 121.

Mac Jordan Construction Ltd v Brookmount Erostin Ltd [1994] CLC 581.

Napier & Ettrick (Lord) v HunterELR [1993] AC 713.

Neste Oy v Lloyds Bank plc [1983] 2 LI Rep 658.

Quistclose Investments Ltd v Rolls Razor LtdELR [1970] AC 567.

Roscoe (James) (Bolton) Ltd v WinderELR [1915] 1 Ch 62.

Savage v Salem Mills Co (1906) 85 Pacific Rep 69.

SEC v Chenery Corp 318 US 80 (1943).

Sharpe (a Bankrupt), ReWLR [1980] 1 WLR 219.

Simm & Ors v Anglo-American Telegraph CoELR (1879) 5 QBD 188.

Sinclair v Brougham & AnorELR [1914] AC 398.

South Australian Insurance Co v Randell & AnorELR (1869) LR 3 PC 101.

Space Investments Ltd v Canadian Imperial Bank of Commerce Trust Co (Bahamas) Ltd & OrsUNK (1986) 2 BCC 99,302; [1986] 1 WLR 1072; [1986] 3 All ER 75.

Spence v Union Marine Insurance Co LtdELR (1868) LR 3 CP 427.

Wait, ReELR [1927] 1 Ch 606.

Waltons Stores (Interstate) Ltd v Maher & AnorUNK (1988) 164 CLR 387.

Whitehouse & Ors v Frost & OrsENR (1810) 12 East 614; 104 ER 239.

Receivership — Priority — Company dealt in precious metals — Investors purchased bullion for future delivery — No segregation of bullion into specific parcels for individual purchasers — Company became insolvent — Debt secured by bank's floating charge exceeded company's total assets — Whether purchasers of non-allocated bullion had proprietary interest in remaining bullion — Whether purchasers of non-allocated bullion had proprietary interest in general assets of company — Whether proprietary interest would take priority over bank's secured interest.

This was an appeal by the receivers of an insolvent company and the bank which appointed them from a decision of the Court of Appeal of New Zealand. The issue concerned priority between the proprietary interests (if established) of purchasers of bullion from the company and the bank's secured interest.

The company dealt in gold and other precious metals. Purchasers could either buy bullion for physical delivery or “non-allocated” metal in which case the purchaser was given a certificate of ownership entitling him to physical delivery on seven days” notice. The company stored and insured non-allocated metal free of charge. If a purchaser wished to take delivery a small charge was made for ingotting as the bullion was part of a larger bulk from which the purchaser's specific entitlement had to be differentiated.

In July 1988 the bank appointed receivers under a debenture. The company was hopelessly insolvent. The bullion stocks were insufficient and had not been dealt with as promised in the promotional literature. The debt secured by the debenture by way of floating charge exceeded the entire assets of the company, including the bullion. The purchasers made proprietary claims against the company. The receivers applied to the court for directions concerning the disposal of the remaining bullion. The claims of various categories of purchasers were disposed of or settled. Three categories remained in dispute. The first and largest group consisted of “non-allocated claimants” who at the time the floating charge crystallised had not been apportioned specific parcels of bullion. The second category comprised a single claimant, “L”, whose case resembled that of the non-allocated claimants but with certain additional features. The third category had purchased bullion from another company (“Walker & Hall”) before that business was acquired by the company in 1986.

In the High Court all the claims were founded on the proposition that the customers had a proprietary interest which could be traced into the stock of bullion remaining on liquidation. Thorp J rejected the claims of the non-allocated claimants and L, but allowed the Walker & Hall claims since they had originally been allocated sufficiently ascertainable goods for title in them to pass. By mixing their bullion with its own stock the company had wrongfully dealt goods owned by those claimants, but they were only entitled to trace into the lowest balance of metal held by the company between the accrual of their rights and the commencement of the receivership. The Court of Appeal, by a majority, allowed an appeal, holding that the entire amount of the purchase moneys of all purchasers could be traced into the general assets of the company. The receivers and the bank appealed to the Privy Council in relation to all three categories.

The Privy Council considered the following issues: (1) did the property in any bullion pass to the customers immediately upon the making of the purchases (a) by virtue of the contract of purchase itself, or (b) by virtue of the written and oral statements (“the collateral promises”) made in promotional literature and by the company's employees? (2) Did the property in any bullion subsequently acquired by the company pass to the customer upon acquisition? (3) When the customers paid over the purchase moneys under the contract of sale, did they retain a beneficial interest in them by virtue of an express or constructive trust? (4) Should the court now grant a restitutionary remedy of a proprietary character in respect of the purchase moneys? If the answer to any of these questions was in the affirmative, it would be necessary to consider the extent to which the customer's rights in the relevant subject-matter could be applied to the bullion or other assets in the possession of the company.

Held, allowing the receivers' and bank's appeal and restoring the order of Thorp J:

1 The question whether the customer obtained any form of proprietary interest by virtue of the contract of sale, independently of the collateral promises, turned on ascertainment, on which the law was not in doubt: there could be no transfer of title to goods whose identity was not known.

2 The collateral promises did not amount to a declaration of trust by the company in favour of the customer. But the parties could not have intended a trust over the company's stock of bullion at any given time in favour of its then customers. That would be a sale of bullion ex bulk which on the documents and findings of fact it plainly was not.

3 Likewise, the transaction contradicted the argument that the property passed to the customers and then merged in a general equitable title to the pooled stock of bullion. The customer purchased for the physical delivery on demand of the precise quantity of bullion fixed by his contract, not a shifting proportion of a shifting bulk, prior to delivery. Furthermore the contracts were not for sale of the bullion in store but of generic goods without any stipulation as to their source.

4 An argument that the company having represented to its customers that they had title to bullion held in the vaults was estopped from saying that they did not, could not conjure a bulk into existence through the chance that the vendor happened to have some goods of the relevant description in its trading stock at the time of the sale. An estoppel could not avail the customers in a contest with a third party creditor possessing a real proprietary interest in a real subject-matter, when they had no more than a pretence of a title to a subject-matter which did not actually exist. (Knights v WiffenELR(1870) LR 5 QB 660considered.)

5 An argument whereby a trust in respect of bullion came into existence as an aspect of a bailment was rejected because there was never any bailment.

6 The non-allocated claimants failed to establish any proprietary interest when the company purchased bullion and put it into its own stock. Even if the creation of a separate and sufficient stock would have given the non-allocated purchasers some kind of proprietary interest, that separate and sufficient stock did not exist. The same argument applied if it was assumed that the company could properly be described as a fiduciary.

7 The court would not declare in favour of the claimants a remedial constructive trust, or to use another name a restitutionary proprietary interest, over the bullion in the company's vaults. By leaving its stock of bullion in a non-differentiated state the company did not unjustly enrich itself by mixing its own bullion with that of the purchasers: for all the gold belonged to the company. It did not act wrongfully in acquiring, maintaining and using its own stock of bullion, since there was no term of the sale contracts or of the collateral promises, and none could possibly be implied, requiring that...

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