Fairfax Gerrard Holdings Ltd.& Ors v Capital Bank Plc

A finance agreement must be construed as a whole and in its commercial context. An express reservation-of-title and trust-receipt structure will not ordinarily support an implied authority for the customer to resell goods where that authority contradicts the agreed machinery.

For the purposes of sections 2 of the Factors Act 1889 and 25 of the Sale of Goods Act 1979, possession must exist at the relevant date. Constructive possession will not arise where the customer’s entitlement to delivery depends on a trust receipt which has not been completed. The buyer must also establish good faith and the absence of relevant notice.

Conversion damages are assessed flexibly. Market value at the date of conversion is the usual measure, but the court may adopt another figure to provide a just remedy.

The claimants financed Dimond Machinery Ltd’s purchase of an industrial machine from a Chinese manufacturer. The machine was intended for onward sale to Carrprint Ltd, which obtained separate finance from Capital Bank Plc.

The claimants asserted that their finance agreement preserved title in their group companies until repayment and that Dimond had no authority to sell the machine to Capital. Capital relied on the agreement’s commercial purpose, the Factors Act 1889, and section 25 of the Sale of Goods Act 1979. It also disputed the proper measure of damages for conversion.

The central issues were the construction of the finance agreement, Dimond’s possession and status as a mercantile agent, Capital’s good faith and notice, and the appropriate damages.

1. Construction. The Finance Agreement was to be read as a whole and in its commercial context. It contemplated that Fairfax Gerrard International Limited would acquire the machine, Assetline Limited would sell it to Dimond subject to reservation of title, and a trust-receipt regime would govern any later authority to sell. The express reservation-of-title provision prevailed over the reference to the standard trust receipt. No immediate authority for Dimond to resell to Capital could be implied.
2. Implied authority. The principles discussed in Aluminium Industrie Vaasen BV v Romalpa Aluminium Ltd and Four Point Garage Ltd v Carter concerned implication of terms needed to make a commercial transaction work. Such a term could not be implied where it contradicted the express structure of this agreement, and there was no need for it to make the transaction effective.
3. Factors Act 1889. Dimond was not in possession of the machine when it purported to sell it to Capital. Its right to delivery depended on the contemplated trust receipt, which had not been completed. Capital also failed to prove good faith and absence of notice. The letter referring to stocking finance should have put Capital on enquiry about Dimond’s authority. The defence under section 2 failed.
4. Sale of Goods Act 1979. The same defect defeated the section 25 defence. Dimond had not obtained the necessary possession at the relevant date, and Capital had notice of the claimants’ rights.
5. Damages. Capital converted the machine by hiring it to Carrprint. Following Kuwait Airways Corporation v Iraqi Airways Co (Nos 4 and 5), the court was not confined mechanically to replacement cost or the sale price. Allowing for the particular machine, its branding and the realities of realisation, damages were assessed at £132,500. The deposit was not deducted because it could have been applied against other indebtedness.
6. Judgment was entered for the claimants for £132,500.