Fairfax Gerrard Holdings Ltd & Ors v Capital Bank Plc

A retention of title clause does not, without more, prevent the buyer from having authority to resell goods. The finance agreement must be construed in its commercial context. Requirements for customer invoices and arrangements for assigned sale proceeds may implicitly authorise the buyer to pass title on resale. A trust receipt may confirm that authority without making its signature a precondition to the buyer’s power to sell. Breach of an obligation to give notice of an assignment does not necessarily remove that authority.

Dimond International Limited obtained finance from Fairfax Gerrard Holdings Limited and related companies to acquire machinery from Shenzhen for resale, including to Carrprint Limited. The finance agreement reserved title until repayment and required customer invoices to state that the debt had been assigned to Assetline Limited. Capital Bank plc later purchased the machine from Dimond and leased it to Carrprint.

After Dimond’s liquidation, the Fairfax companies alleged that the retention of title prevented Dimond from passing title and that Capital had converted the machine. His Honour Judge Mackie QC held that Dimond lacked actual authority and rejected reliance on the statutory exceptions. His decision was reported at [2007] 1 Lloyds LR 171. Capital appealed the authority finding and, alternatively, the assessment of damages. The central issue was whether Dimond had express or implied authority, or whether Assetline otherwise consented, to pass title on resale.

1. Appeal allowed on liability. Lord Justice Waller held, with Lord Justice Dyson and Lord Justice Hughes agreeing, that paragraph 6 of the finance agreement naturally and by implication authorised Dimond to sell the machines to the identified customers and to pass title to them or their financier.
2. The requirement that customer invoices carry an assignment notice would have no sensible purpose unless Dimond could deliver the machines and pass title, with the sale proceeds taking the place of the machinery. The agreed credit period was consistent with that construction.
3. The trust receipt provisions were to be read consistently with paragraph 6. They contemplated authority to sell while requiring the proceeds to be held for the financier. The receipt’s terms therefore confirmed the authority; they did not make execution of a trust receipt a precondition to selling.
4. The retention of title clause did not conflict with an express or implied right of resale. While the machinery remained with Dimond, title could be enforced against it. After resale, the assignment and proceeds provisions were intended to preserve the financier’s protection.
5. The failure to place the assignment notice on the invoice was a breach between Dimond and Assetline, but paragraph 6 did not make the notice a condition of authority. The word supplier in the trust receipt meant Shenzhen, the original supplier, so the price argument failed.
6. It was unnecessary to decide the alternative arguments or damages. Waller LJ added, obiter, that the signed trust receipt and subsequent conduct would in any event have evidenced later consent to the transfer.

• Court of Appeal (Civil Division): [2007] EWCA Civ 1226. The appeal was allowed on the authority issue.
• High Court of Justice, Commercial Court: HHJ Mackie QC held that Dimond lacked actual authority to pass title and that Capital could not rely on the statutory exceptions. The decision was reported at [2007] 1 Lloyds LR 171.