Sandhu (t/a Isher Fashions UK) v Jet Star Retail Ltd & Ors

A buyer’s authority to dispose of goods supplied under a retention-of-title clause depends on the contract construed as a whole, its commercial purpose and the surrounding circumstances. It is not governed automatically by analogy with a floating charge. Where the contract permits the buyer to continue dealing with the goods after insolvency events unless the seller intervenes, the authority continues during administration until withdrawn, subject to any separate rule of general law. A sale of stock in the ordinary course, or in bulk with the business, is therefore authorised where the seller has not exercised its contractual right to stop such dealings.

A clothing manufacturer supplied garments to a retailer under contracts containing retention-of-title provisions. After the retailer entered administration, it continued selling stock through its shops and later sold its business as a going concern, together with remaining stock, to another company. The manufacturer claimed damages for conversion against the retailer and its administrators.

The High Court decided preliminary issues in favour of the respondents, holding that the retailer had implied authority to dispose of the goods unless the manufacturer exercised its contractual right to withdraw that authority. The appeal concerned whether that authority ended automatically when the retailer became insolvent or entered administration.

Lord Justice Moore-Bick gave the leading judgment. Lady Justice Smith and Lord Justice Maurice Kay agreed. The appeal was dismissed.

1. Floating-charge analogy. The court accepted that, in the context of a floating charge, the company’s authority to dispose of charged assets is confined to transactions in the ordinary course of business. Transactions intended to bring the company’s business to an end, or having that effect, fall outside that description. This did not determine the present case. The authority to dispose of goods subject to retention of title had to be derived from the contract and its commercial object. Re Bond Worth ([1980] Ch. 228) and Four Point Garage v Carter ([1985] 3 All E.R. 12) turned on their particular facts and contractual terms.
2. Construction of the contract. The agreement concerned fashion goods supplied for retail sale through a large chain of shops. The high turnover, generous payment terms, stock clearances and potential wholesale disposals formed part of the commercial context. Clause 7.1.9 proceeded on the basis that the buyer could continue to sell or dispose of the goods after events including administration, unless the seller required it to stop. Unlike a floating charge, the seller’s protection was therefore contingent on its decision to withdraw the authority, rather than on automatic crystallisation on insolvency.
3. Application. The manufacturer took no steps to withdraw the retailer’s authority before the business sale, despite knowing of its financial difficulties and the administrators’ appointment. The retailer therefore did not wrongfully interfere with the goods by selling them during the administration or transferring them to the purchaser of the business. It remained liable for the price, but the authorised disposals created no additional cause of action. The preliminary questions were answered no and judgment for the respondents was upheld.

• Court of Appeal (Civil Division): In [2011] EWCA Civ 459, dismissed the appeal.
• High Court of Justice, Queen’s Bench Division, Birmingham Mercantile Court: His Honour Judge Simon Brown Q.C. answered the preliminary questions no and entered judgment for the respondents.