THE INFILTRATION OF EQUITABLE DOCTRINE INTO ENGLISH COMMERCIAL LAW*
| DOI | http://doi.org/10.1111/j.1468-2230.1980.tb01605.x |
| Author | Gareth Jones,William Goodhart |
| Date | 01 September 1980 |
| Published date | 01 September 1980 |
THE
MODERN
LAW
REVIEW
Volume
43
September
1980
No.
5
THE INFILTRATION
OF
EQUITABLE
DOCTRINE
INTO
ENGLISH
COMMERCIAL LAW
*
FROM
time to time equitable doctrine has infiltrated English com-
mercial law. For example, judges have occasionally flirted with the
concept of a “trust of a promise,” in an attempt to enable C to
sue on a contract which A has made with B for his benefit. But
that flirtation was relatively short-lived. There was no easy answer
to the artificial question, when does B hold his right to sue A on
trust for C?’ Moreover, to imply such a trust would normally be
quite inconsistent with the commercial expectations
of
A and B;
they could never vary or rescind the contract even though sub-
sequently they might wish to do
s~.~
The doctrine of constructive notice also made its bow. But the
initial reception was very chilly indeed.
In
Manchester Trust
v.
Furness,S
the Court of Appeal had no hesitation in dismissing the
argument that holders of bills of lading had constructive notice of
the special stipulations in a charterparty. As Lindley
L.J.
said
‘:
“.
.
.
As regards the extension of the equitable doctrines
of
constructive notice
to
commercial transactions, the Courts have
always set their faces resolutely against it. The equitable doc-
trines of constructive notice are common enough in dealing
with land and estates, with which the Court is familiar; but
there have been repeated protests against the introduction into
*
The first article
in
a
series initiated jointly by
the
Modern Law Review
and
Professor Rosalyn Higgins and Geoffrey Lewis. They write: “The distance which
divides practising lawyers from teachers and writers of law
in
this country
is
notorious. Almost everywhere else
in
the world it
is
dwerent: there the advan-
tages to
be
derived from interchange are well recognised and many distinguished
practitioners also teach. The reasons for this remarkable but depressing feature
of
English legal life are complex. However, diagnosis
is
less important than cure. For
this
reason we decided to take the step of inviting pairs of authors,
one
practitioner
and one academic,
to
write about subjects
of
contemporary interest. The subjects
are
those which lend themselves to both practical and academic treatment. We
thank the General Editor
of
the
Modern Law Review
for his sympathetic co-opera-
tion, and the distinguished pairs
of
writers who have given
of
their time and
originality.” We all hope that others may
be
so
flred by their example
as
to
wish to contribute themselves:
General
Ed.
a
Cf.
the observations
of
Lord Denning
M.R.
in
Beswick
v.
Beswick [1966]
a.
530.
555.
At
p.
545.
See Glanville Williams
(1943-44)
7
M.L.R.
123.
[I8951
2
Q.B.
539.
489
VOL.
43
(5)
1
490
THE
MODERN
LAW REVIEW
[Vol.
43
commercial transactions of anything like an extension of those
doctrines, and the protest
is
founded on perfect good sense. In
dealing with estates and land title is everything, and it can be
investigated; in commercial transactions possession is every-
thing, and there is no time to investigate title; and
if
we were
to extend the doctrine of constructive notice to commercial
transactions we should be doing infinite mischief and paralyzing
the trade of the country.”
More recently these wise words have been ignored. In
a
number
of
cases at first instance
a
bank has been said to be under
a
duty to
inquire whether its customer,
a
fiduciary, was acting properly in
drawing a cheque on
a
fiduciary account.s However there are dicta
of the Court of Appeal which implicitly reject this conclusion and
suggest that a stranger who participates in
a
fraudulent breach of
trust without receiving trust property will be liable as a constructive
trustee only
if
he consciously facilitates
a
breach of trust or wil-
fully refrains from inquiry.6
Attempts to introduce equitable doctrine in the law of sale of
goods were initially also unsuccessful. Sub-purchasers of an
unappropriated part
of
a
larger cargo or consignment of goods
argued that the sub-sale conferred on them a
pro
rafa
equitable
interest in the entire cargo or consignment, in order to circumvent
the problem that the goods which were the subject-matter of the
sub-sale were not asccrtained and the property in them had not
passed at law to the sub-purchasers.‘ This argument was firmly
rejected.8
It
was said by Atkin
L.J.
that to extend equitable
principles to those facts would fundamentally affect the security
of
business transactions;
“
disastrous innovations
”
would be intro-
duced into well-settled commercial relations.’
Despite this hostile background, vigorous and partially success-
ful attempts have been made in recent years by those who have
supplied goods or paid money to a company which has subse-
quently become insolvent to make use of the trust or the equitable
charge to establish proprietary cIaims enforceable against assets in
the possession or under the control of the company. The last
decade has seen inflation and economic uncertainty; high interest
rates and tight money have triggered
off
severe cash-flow problems
and have resulted in the insolvency of many United Kingdom
companies. Sellers on credit have learnt the hard way that they
6
Selangor United Rubber Estates Ltd.
v.
Cradock (No.
3) 119681 1
W.L.R.
1555;
Karak Rubber
Co.
Ltd.
v.
Burden (No.
2) [1972] 1
W.L.R.
602;
Rowlandson
v.
National Westminster Bank Ltd.
[1978] 1
W.L.R.
798.
6
Belmonl Ffnance
Corp.
Ltd.
v.
Williams Furniture
Ltd.
[I9791
Ch.
250,
275,
per
Goff,
L.J.
See
also
Carl-Zeiss
Sfiflung
V.
Herbert Smith
&
Co.
(No.
2)
[1969] 2
Ch.
276, 298,
per
Sachs
L.J.,
301,
per
Edmund-Davies
L.J.
7
Laurie
&
Morewood
v.
Dudin
&
Sons
[1926]
1
K.B.
223;
Re Walt
[1927]
I
Ch.
606;
see the Sale
of
Goods
Act
1979,
s.
16.
8
Re Wair
119271
1
Ch.
606
(see
In particular
per
Atkh
L.J.
at
pp.
634
el
seq.).
Re London Wine Co. (Shippers) Ltd.
briefly reported at
(1976) 126
New
L.J.
977.
9
[
19271 1
Ch.
606, 640-641.
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