Trade Electronix Ltd v Best Buy Today (Wholesale) Ltd (In Administration) & Anor [2009] EWCA Civ 828

[2009] EWCA Civ 828Case No A3/2008/2895
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
His Honour Judge Behrens
Claim No. 6C00122
Venue Royal Courts of Justice, Strand, London, WC2A 2LLDate 29 July 2009
Before
THE CHANCELLOR OF THE HIGH COURTLORD JUSTICE MOORE-BICKLORD JUSTICE SULLIVAN
Between
TRADE ELECTRONIX LIMITEDClaimant/(1) BEST BUY TODAY (WHOLESALE) LIMITEDDefendants/(2) DAVENHAM TRADE FINANCE LIMITEDRespondents
(Transcript of the Handed Down Judgment ofWordWave International LimitedA Merrill Communications Company165 Fleet Street, London EC4A 2DYTel No: 020 7404 1400, Fax No: 020 7404 1424Official Shorthand Writers to the Court)
Miss Linden Ife (instructed by Calthorpe Solicitors) for appellantMiss Katherine Dunn (instructed by DWF LLP) for second respondent for The first respondent did not appear and was not representedHearing Hearing dates : 30 th June 2009
JudgmentLord Justice Moore-Bick :
[1]This matter comes before the court by way of an appeal and cross-appeal against the order of His Honour Judge Behrens dismissing the appellant’s claim for damages for the conversion of a number of pallets or boxes of electronic goods held in a warehouse operated by the first respondent.[2]The appellant, Trade Electronix Ltd (“TE”), is a dealer in domestic electrical goods. At the time of the events with which this appeal is concerned the first respondent, Best Buy Today (Wholesale) Ltd (“BBT”), carried on business as a wholesale supplier of various household goods, mainly electrical appliances of one kind or another. It specialised in buying bulk quantities of returned stock from large retailers such as Argos, Safeway and Woolworths which it would sell on, usually in smaller quantities, to other wholesalers, such as TE. In order to finance the purchase of stock BBT entered into arrangements with the second respondent, Davenham Trade Finance Ltd (“DTF”), under which DTF agreed to purchase goods from suppliers at the request of BBT, invoice them to BBT and transfer title to BBT against payment of the amount due. DTF was secured by, among other things, a debenture over BBT’s assets.[3]BBT went into administration on 9th September 2005 as a result of the exercise by DTF of its powers under the debenture. The company continued trading for about a month under the control of the administrators, during which time it disposed of some of the goods held in its warehouse at Unit 2, Pontefract Lane, Leeds. TE claimed to be the owner of some of the goods disposed of by BBT during that period, having bought them from it earlier in the year, and brought proceedings against both BBT and DTF seeking an order for delivery up of the goods or damages for wrongful interference. The claim against DTF appears to have been made on the basis that it was liable for the action of the administrators, although that does not appear clearly from the particulars of claim. DTF maintained that it had bought the goods from BBT immediately prior to the appointment of administrators and was therefore the owner of the goods at the time of their disposal.[4]Since the goods in question had on any view remained in the possession of BBT throughout, the case raised a number of interesting points in relation to the transfer of title. The judge held that TE had entered into a contract with BBT in April 2005 with the consent of DTF to purchase £150,000 worth of Argos return stock and that at the date of the administration 400 boxes of Argos return stock in the warehouse had been marked “TE” to show that they were destined for TE. That was sufficient to amount to an unequivocal appropriation of the goods to the contract for the purposes of passing title. He also held, however, that on 5th September 2005 BBT had sold the goods to DTF and that as a seller in possession of the goods with the consent of the buyer it was able to pass a good title under section 24 of the Sale of Goods Act 1979. As a result the judge held that the goods belonged to DTF at the time of their disposal and that TE’s claim failed.[5]By its appeal TE challenged the judge’s decision on the grounds that the agreement between BBT and DTF in early September 2005 was not effective to transfer title in the goods because there had been no physical delivery of the goods to DTF and that, even if there had been sufficient to constitute constructive delivery, DTF had not received them in good faith and without notice of the previous sale to TE. By its respondent’s notice DTF sought to uphold the decision in its favour on the grounds that the judge was wrong to hold that title in the goods had passed to TE in the first place.[6]It was common ground that TE’s claim could not succeed unless it was able show that immediately prior to the transaction between BBT and DTF in early September it held title to the goods that were later disposed of without its consent. That in turn made it necessary for it to show that it had entered into a contract with BBT under which property in the goods had passed to it. In those circumstances we decided to hear argument on the respondent’s notice first and, having done so, we found it unnecessary to hear argument on the issues raised by the appeal itself. What follows, therefore, are my reasons for dismissing the appeal.[7]The judge found that in early 2005 Argos disposed of return stock through a subsidiary called Return Logistics Ltd. At that time customers of Argos had the right to return goods for any reason or none within 16 days of purchase. Such goods were known as “16-day returned stock”. Customers also had the right to return goods that proved to be faulty, whether within 16 days of purchase or longer. Such goods were known simply as “returned stock”. Some types of goods, notably televisions, video recorders, DVD players and audio equipment, were known as “High Value stock”.[8]In the spring of 2005 Mr. Smith was negotiating with Argos on behalf of BBT to purchase about 15,000 pallets of 16-day returned stock as well as an additional quantity of High Value stock. He succeeded in obtaining an offer from Return Logistics for the sale of three separate consignments of goods to be invoiced over a period of twelve weeks. DTF agreed to finance the purchase on the understanding that the first consignment would be re-sold by BBT and the funds used to clear its account before the second invoice fell due for payment. In the event, however, BBT was unable to dispose of the first consignment of goods before the second invoice became due for payment and as a result Mr. Smith was forced to provide additional security in the form of an increase in his personal guarantee and an immediate cash payment on account in order to persuade DTF to finance the second consignment.[9]It was TE’s case at trial that on 1st April 2005 it had entered into an agreement with BBT to buy 2,000 pallets of Argos returned stock for £150,000 and that property in the goods had passed to it when they were unequivocally appropriated to the contract by BBT by being marked for delivery to TE. Mr. Singh had been doing business with Mr. Smith for some time and it appears that the two of them got on well and trusted each other. On Friday, 1st April they met at BBT’s warehouse for a discussion. The next day Mr. Smith wrote on behalf of BBT to Mr. Singh in the following terms “Dear Jaz , It was good to meet up yesterday to discuss the Argos deal. I have outlined the terms we discussed below: 1. You have the exclusive opportunity to purchase 7500 pallets of Argos 16 Day Returns with a total retail value of £7,100,000.00. 2. In addition to this there is a further £3,000,000.00 of High Value Argos stock to be included in this deal. 3. The overall cost to yourself will be 11% of the retail value with an additional discount of £250,000.00. 4. Transport to be paid for by you – this will be cost of fuel and time only. 5. You will have a period of 3 months in which to remove the purchased stock from our warehouse. Also, as we discussed, it is a matter of urgency that you deposit £150,000.00 in cleared funds into our bank account first thing Monday morning. This deal represents 50% of the total Argos job which has been negotiated over the last couple of months. I hope this meets with your approval, should you require any further clarification or assistance please don’t hesitate in contacting me.” It was good to meet up yesterday to discuss the Argos deal. I have outlined the terms we discussed below:[10]The judge records that Mr. Singh said that a number of different deals relating to Argos stock had been discussed at the meeting and that no agreement had been reached because he had to check on his financial position before he could decide what to do. Mr. Smith agreed that various possible deals had been discussed, but he said that by the time he wrote the letter there was already an agreement between them for the sale of 2,000 pallets of goods to which the payment of £150,000 related. At all events, it was common ground that on Monday 4th April TE paid £150,000 in cleared funds into BBT’s bank account. On the form giving instructions for the payment Mr. Singh wrote “Argos Return Stock”. That might have been taken as a reference to the 16-day returned stock mentioned in paragraph 1 of the letter of 2nd April, but when he gave evidence Mr. Singh told the judge that it had nothing to do with the Argos deal referred to in that letter. It was payment, he said, for the sale of 2,000 pallets of ordinary returned stock. Mr. Smith gave conflicting evidence about when and how the contract for the sale of 2,000 pallets was made, but he also said that it was not for 16-day returned stock. BBT transferred £75,000 out of the funds received from TE to DTF to persuade it to finance the payment of the second invoice from Return Logistics.[11]On 8th April Mr. Smith wrote to Mr. Singh as follows:
“Dear Jas, As discussed, we have now completed the Argos job and have taken delivery of all the stock within our building, so this is now secure. However, we have also got a unique opportunity to take advantage of the bonus part of the Argos job, which is £4.1 million of brand new stock. I am prepared to let you take this new stock in its entirety as a way of thanking you for helping me secure the Argos deal. . . . ”
[12]On 11th April Mr. Smith wrote again to Mr. Singh thanking him for transferring £250,000 to BBT on 4th April (which he had not) and telling him that the Argos deal had been completed, with the exception of the brand new stock. The letter concluded:
“Your 7500 pallets of stock are secure and are ready for delivery at your request.”
[13]Some time later there came into existence a memorandum bearing the date 14th April 2005 which provided as follows:
“I, Peter Smith, MD of Best Buy Today (Wholesale) Ltd, confirm that we have received from Mr Jas Singh, MD, Trade Electronix Ltd, Birmingham, the amount of £150,000 (Sterling Pounds One hundred fifty thousand) in our account through T/T transfer 4th April 2005 to purchase Argos Return stock amounting £150,000 (Sterling Pounds One hundred fifty thousand) for 2000 pallets (Two thousand). These will be stored in the rear of our warehouse encompassing the first seven rows and marked “TE”
. These pallets can be collected by Trade Electronix as and when required. There will be no storage cost associated.”[14]The document was signed by Mr. Smith and Mr. Singh for BBT and TE respectively and was witnessed by Sarah Hall, one of Mr. Smith’s employees.[15]On 25th April Mr. Smith sent an e-mail to Mr. Singh in which he spoke about an agreement he was seeking to put in place under which all Argos returns would be channelled through BBT and sought to encourage Mr. Singh to support him. Towards the end of that message he suggested that BBT deliver or hold to TE’s order 3,000 pallets of Argos returns which would “secure the funding you have already paid and the future funding”.[16]The judge described the nature of the arrangement between BBT and TE as the most difficult area of the case. He did not regard either Mr. Smith or Mr. Singh as a reliable witness; he described their accounts of the arrangements between BBT and TE as “vague, inconsistent and inconsistent with many contemporaneous documents”. He did not believe that their arrangements related to ordinary returned stock as opposed to the 16-day returned stock financed by DTF and was not satisfied that the memorandum of 14th April was a genuine document made on the date it bears. He continued as follows:
“219. On the other hand, I do not think that the arrangement was a loan by Jas Singh to Peter Smith or to BBT. As Jas Singh pointed out, he was not a money lender. All his previous transactions have been purchases or sales. The reference in TE’s books to “Payment in advance” is consistent with an agreement for sale, as is the delivery or collection of goods. None of the contemporaneous file notes of either Adam Hart or John McCoubrey [two employees of DTF] suggest that it was a loan. 220. In my view the £150,000 was a payment in connection with the sale of a number of pallets of the Argos 16-day return stock which was the subject of the contract being financed by DTF. It may be that the contract was initially thought to be a deposit in connection with a larger order such as the order mentioned in the file notes of Adam Hart and John McCoubrey. However, even when that larger order did not materialise there remained a contract to supply a number of pallets (not necessarily 2,000) to the value of the £150,000 paid. It was a term of the contract that the goods to be supplied were to be predominantly high value consumer electrical goods.”
[17]I have some sympathy with the judge who was faced with a difficult task. Clearly some agreement had been reached between Mr. Smith and Mr. Singh on 1st April which had led to the transfer of £150,000 by TE to BBT on the next business day, 4th April, but there was almost no reliable evidence of its nature and terms. Both Mr. Smith and Mr. Singh denied that it related to Argos 16-day returned stock, so in making a finding to the contrary the judge must have rejected that part of their evidence altogether. He was, of course, entitled to do so, having formed an unfavourable view of them as witnesses after seeing them give evidence, and there is no basis on which this court could properly take a different view.[18]However, that leaves only the evidence provided by the contemporaneous documents, principally the letter of 2nd April 2005 written the day after the arrangements were made. It is described as an outline of the terms discussed and refers to an “exclusive opportunity” to purchase a large quantity of Argos 16-day returned stock and a further £3 million worth of High Value stock at a given price. No reference is made to a sale as such or to a specific quantity of goods that TE had agreed to take. The sum of £150,000 is not related to the purchase of stock but is mentioned as a separate matter, not quite as an afterthought, perhaps, but almost as a matter unrelated to the discussion about the availability of stock.[19]It is not clear how much, if any, weight the judge attached to the letter of 2nd April, but he appears to have accepted it as genuine and in those circumstances it contains the best evidence of the discussions that had taken place only the day before. In my view it is impossible to read it as confirming an existing agreement for the sale of goods; indeed, it is impossible to see how Mr. Smith could have written in those terms if he and Mr. Singh had reached a firm agreement for the purchase of any specific quantity of goods. The numbered paragraphs, which were plainly intended to record the details of their discussions about future sales, simply describe an opportunity being offered to Mr. Singh to do business on favourable terms. It could have led to a contract, but there is no evidence that it did so. The rather cryptic reference to the need to deposit £150,000 as a matter of urgency first thing on Monday morning was no doubt linked to the offer, but quite how is unclear. Of course, Mr. Singh was not a money lender in the ordinary sense, but he had been doing business with Mr. Smith for some time and probably expected to continue doing so. He may well have been willing to advance funds to BBT in order to accommodate a friend and in the expectation of future purchases. No doubt as and when TE purchased goods from BBT the price would be set against the advance payment, but I do not think that this letter reflects a present agreement to buy £150,000 worth of stock for delivery in the future. Apart from anything else, it does not describe with sufficient certainty what goods were to be sold.[20]Miss Ife submitted that there were other documents which reflected a sale of the kind found by the judge, including references in TE’s books to “payments on account” and notes and e-mails generated by DTF which are said to reflect conversations with Mr. Singh. She also relied on the fact that goods were delivered by BBT to TE from time to time during the period prior to the commencement of the administration. However, none of that evidence carries the matter very far. The entries in TE’s books are as consistent with an advance against future contracts as with payments under an existing contract for goods to be delivered in the future and it is relevant to note that the statement of affairs produced for BBT in the administration showed TE as an unsecured creditor for a sum equal to the difference between £150,000 and the amount due in respect of goods invoiced up to the date of the administration. An internal e-mail sent by Mr. Madden of DTF to his colleague, Mr. Tovey, referring to a conversation with Mr. Singh in which Mr. Singh had referred to a “gentleman’s agreement” with Mr. Smith is in my view more damaging to TE’s case than supportive of it. Moreover, none of the regular trading reports prepared on BBT for DTF reflect a contract of the kind which TE says it had entered into.[21]In these circumstances it is difficult to see on what basis the judge found that the discussions between Mr. Smith and Mr. Singh resulted in a contract, other than the fact that Mr. Singh was not a money lender and TE had not previously made payments to BBT otherwise than in respect of goods which it had agreed to buy. In the face of the other evidence, however, in particular the letter of 2nd April, I do not think that conclusion was open to him. In my view there was no evidence capable of supporting the conclusion that TE had entered into a binding contract to buy £150,000 worth of goods from BBT and its claim was therefore bound to fail. Having reached that conclusion it is unnecessary to consider either the issues raised by DTF in relation to appropriation or the issues relating to the subsequent dealings with the goods that are raised by TE’s appeal.[22]For those reasons the appeal must be dismissed.

Lord Justice Sullivan:

[24]I agree.[25]The Chancellor:[26]I also agree.