Caterpillar (NI) Ltd v John Holt & Company (Liverpool) Ltd

A seller may recover the price of goods only within section 49 of the Sale of Goods Act 1979. Where payment is not due on a day certain irrespective of delivery, property must have passed to the buyer.

A retention-of-title clause permitting resale before title passes, while requiring the buyer as fiduciary agent to account for the entire proceeds, preserves the seller’s title during the resale. The buyer therefore cannot be sued for the price under section 49(1).

A clause prohibiting “any set-off” against the price ordinarily includes transactional and equitable set-offs. Its commercial purpose is to secure payment without deduction for related disputes, but it cannot assist where no statutory action for the price exists.

The claimant supplied generators, parts and related services to the defendant distributor. It obtained summary judgment for approximately US$12 million in unpaid invoices. The defendant asserted substantial cross-claims arising from alleged breaches of exclusivity obligations and a repayment agreement.

Popplewell J, in the Commercial Court, held that property passed to the defendant immediately before its onward sales and that a contractual no-set-off clause excluded reliance on the cross-claims. His decision was reported as [2012] EWHC 2477 (Comm).

The appeal concerned whether the no-set-off clause covered equitable set-off, whether an action for the price had to satisfy section 49 of the Sale of Goods Act 1979, and whether the retention-of-title clause prevented property from passing to the defendant.

1. By a majority, allowing the appeal: the summary judgment for the price was set aside. Patten and Floyd LJJ held that property had not passed to the defendant. Longmore LJ dissented on that issue and would have dismissed the appeal.

2. All three members of the court agreed that the no-set-off clause covered the asserted transactional or equitable set-offs. The words prohibiting “any set-off” were clear. The clause’s commercial purpose was to ensure that the price was paid without deductions arising from disputes about the goods or related matters.

3. All three members also agreed that an action for the price had to fall within section 49 of the Sale of Goods Act 1979. Sections 49(1) and 49(2) specify the circumstances in which that action is available. A seller cannot recover the price independently of those provisions merely because the contractual time for payment has arrived. The court followed Otis Vehicle Rentals Ltd v Cicely Commercials Ltd [2002] EWCA Civ 1064.

4. Patten LJ held that the retention-of-title clause preserved the claimant’s ownership until payment in full. It expressly permitted resale “prior to title passing”, described the buyer as the seller’s fiduciary agent during that period, and required an account of the entire proceeds rather than only the amount of the contractual debt. Those provisions showed that the resale occurred as fiduciary agent and did not cause title to pass momentarily to the buyer.

5. Floyd LJ agreed. The general clause denying an agency or fiduciary relationship had to be read subject to the specific retention-of-title terms which expressly created such a relationship. Because property never passed, section 49(1) was not satisfied and the claimant could not maintain its pleaded action for the price.

6. Longmore LJ considered that the retention-of-title provision operated as security over the proceeds and that the buyer resold as principal. On his construction, property passed at or immediately before resale. That view did not command a majority.

1. Court of Appeal (Civil Division): By a majority, allowed the defendant’s appeal and set aside the order for payment of the price: [2013] EWCA Civ 1232.
2. High Court, Queen’s Bench Division, Commercial Court: Popplewell J granted the claimant summary judgment and held that the contractual no-set-off clause prevented reliance on the defendant’s cross-claims: [2012] EWHC 2477 (Comm).