Michael Gerson (Leasing) Ltd v Wilkinson

Introduction

This is an appeal by the claimant ("Gerson") from an order of His Honour Judge Kershaw QC made on the 17 ^th December 1998 in the Mercantile List of the Liverpool District Registry in which he dismissed Gerson's claim for damages for conversion against both defendants ("Wilkinson" and "State"). The dispute relates to the ownership of various items of heavy plant and machinery. Gerson and State are both finance companies who both purchased the same equipment from a company called Emshelf IX Limited ("Emshelf").

On the 10 ^th March 1995 Emshelf sold equipment to Gerson for about £425,000 under a sale and leaseback agreement under which Emshelf remained in physical possession of it. I shall call that equipment "the goods". Subsequently, without the authority of Gerson, on the 19 ^th August 1996 Emshelf sold part of the same equipment to State, also under a sale and leaseback agreement. I shall call that equipment "the schedule 3 goods" because it is identified in schedule 3 of the statement of claim and has been so described in the course of the argument. All the goods including the schedule 3 goods remained in the physical possession of Emshelf. The judge held that the effect of that transaction was that State became the owner of the schedule 3 goods by reason of section 24 of the Sale of Goods Act 1979. Gerson challenges that conclusion on this appeal. There was no suggestion at the trial that State was aware that Emshelf did or might not own the schedule 3 goods.

Emshelf did not maintain the payments due under the lease from Gerson. As a result, on the 25 ^th February 1997 Gerson terminated the lease. No-one suggests that it was not entitled to do so. The judge held that on the 28 ^th February 1997 Gerson sold the goods for £319,000 to Sagebush (1997) Limited ("Sagebush"), which was represented at that time by Mr Nigel Smith. Gerson challenges that finding, which is essentially a finding of fact. The judge further held that property in the goods passed to Sagebush when the contract was made. Gerson challenges that conclusion too, saying that if (contrary to its case) a contract was made on the 28 ^th February, the property in the goods was only to pass to Sagebush on payment and that, it being common ground that Sagebush did not at any stage pay for the goods, the property in them never passed to Sagebush.

The judge further held that if Sagebush agreed to buy the goods from Gerson but, contrary to that conclusion, property in the goods did not pass to Sagebush under the contract, Sagebush nevertheless obtained possession of the goods under the contract with the consent of Gerson as the seller and subsequently passed a good title to Wilkinson by reason of section 25 of the Sale of Goods Act 1979. Gerson challenges both those conclusions. It submits that Sagebush was at no stage in possession of the goods, whether under a contract of sale with Gerson or at all and that, even if it was, it was not in possession of the goods with Gerson's consent.

On the 4 ^th March 1997 State terminated the lease with Emshelf for non-payment of instalments due under it and at about the same time it sold the schedule 3 goods to Sagebush, which in turn sold all the goods to Wilkinson on various dates between the 3 ^rd and the 12 ^th March. There is no suggestion Wilkinson was other than an entirely innocent buyer.

It is not necessary to spell out in detail the precise arrangements to which Wilkinson was a party for this reason. It is I think agreed that if Sagebush bought all the goods from Gerson and the property in them passed to Sagebush, the sale or sales of the goods to Wilkinson passed the property to him. It is further agreed that if there was a contract between Gerson and Sagebush and, if Sagebush obtained possession of the goods under that contract with the consent of Gerson, the subsequent sales to Wilkinson had the effect of passing the property to him under section 25 of the 1979 Act. On the other hand, if Wilkinson did not obtain a good title by one of those routes, it is, as I understand it, common ground that, if State obtained a good title to the schedule 3 goods, that title was passed to Wilkinson through Sagebush. In that event Wilkinson would be liable to Gerson for conversion in respects of the the goods other than the schedule 3 goods.

The issues in the appeal may be considered under three headings, namely section 24 of the Sale of Goods Act 1979, the contract between Gerson and Sagebush and section 25 of the 1979 Act. I shall consider them in turn.

Section 24 of the Sale of Goods Act 1979

Section 24 of the 1979 Act provides, so far as relevant:

"Where a person having sold goods continues or is in possession of the goods, or of the documents of title to the goods, the delivery or transfer by that person … of the goods or document of title under any sale … to any person receiving the same in good faith and without notice of the previous sale, has the same effect as if the person making the delivery or transfer were expressly authorised by the owner of the goods to make the same.

State's case is that Emshelf was a person who sold goods and continued in possession of goods because it sold goods to Gerson and retained possession of them and that Emshelf later delivered the goods to State under a contract of sale with State, who received them in good faith without notice of the sale to Gerson.

It is not in dispute that Emshelf sold the goods to Gerson and remained in possession of them under the sale and leaseback agreement. Nor is it in dispute that on the evidence available at the trial, if State received the goods, it did so in good faith and without notice of the sale to Gerson. The issue between the parties is whether Emshelf delivered the goods to State under a sale. This is a crucial point because, subject to an application on the part of Gerson to adduce further evidence, to which I shall return in due course, it is common ground that if Emshelf did deliver the schedule 3 goods to State under a sale, State obtained good title to them and subsequently passed it to Wilkinson, with the consequence that neither State nor Wilkinson converted those goods.

Before considering the meaning of delivery in section 24 I should note that State at one time said that it would contend that there was a relevant transfer within the meaning of the section, but Mr Lerego QC abandoned that suggestion on behalf of State in the course of the argument. As to delivery, Sir Roy Goode QC expressly accepted on behalf of Gerson, at least for purpose of this appeal, that delivery in section 24 includes constructive delivery and that it is not confined to physical delivery. In my view (albeit expressed obiter because neither point was argued) both concessions were correctly made. They accord with the decision of the High Court of Australia in Gamer's Motor Centre (Newcastle) Proprietary Limited v Natwest Wholesale Australia Proprietary Limited (1987) 163 CLR 236, which I followed at first instance in Forsythe International (UK) Limited v Silver Shipping Co Limited [1994] 1 WLR 1334.

It is thus common ground for the purposes of this appeal that delivery can be constructive, although delivery under the section requires a voluntary act by the person in possession because by section 61(1) of the 1979 Act, unless the context or subject matter otherwise requires, 'delivery' means 'voluntary transfer from one person to another'. That was an essential part of the decision in Forsythe, which I understood to be accepted by both Sir Roy and Mr Lerego. Whether there was constructive delivery here depends upon what is meant by constructive delivery and whether there was such delivery on the facts.

In the 5 ^th edition of his work entitled Sale of Goods Act 1893, which was published in 1902, Chalmers said this:

"Delivery may be actual or constructive. Delivery is constructive when it is effected without any change in the actual possession of the thing delivered, as in the case of delivery by attornment or symbolic delivery. Delivery by attornment may take place in three classes of cases. First, the seller may be in possession of the goods, but after sale he may attorn to the buyer and continue to hold the goods as his bailee. Secondly, the goods may be in the possession of the buyer before sale, but after sale he may hold them on his own account. Thirdly, the goods may be in the possession of a third person, as bailee for the seller. After sale such third person may attorn to the buyer and continue to hold them as his bailee".

That passage was discussed in both Gamer's case and Forsythe (see eg pages 245 and 1346 respectively). In Gamer's case the question for decision was whether there was a change in the character of the relevant possession which amounted to a constructive delivery to a third party, namely Natwest. In Forsythe one of the questions was essentially the...