T Comedy (UK) Ltd v Easy Managed Transport Ltd [2007] EWHC 611 (Comm)

Case No 2006 Folio 839[2007] EWHC 611 (Comm)
IN THE HIGH COURT OF JUSTICE
QUEENS BENCH DIVISION
COMMERCIAL COURT
Venue Royal Courts of Justice, Strand, London WC2A 2LLDate 28 March 2007
Before
JONATHAN HIRST QC
Between
T. COMEDY (U.K.) LIMITEDClaimantEASY MANAGED TRANSPORT LIMITEDDefendant
CAMERON MAXWELL LEWIS (instructed by Hugh-Jones & Co) for ClaimantDOMENIC HAPPÉ (instructed by Clyde & Co) for DefendantHearing Hearing dates: 5-8 March 2007APPROVED JUDGMENTI direct that, pursuant to CPR PD 39A para 6.1, no official shorthand note shall be taken of the Judgment and that copies of this version as handed down may be treated as authentic.Jonathan Hirst QC

Mr Hirst QC:

[1]On 4 August 2006, the Defendant hauliers sought to exercise a general lien over consignments of garments in order to extract payment of outstanding invoices for these and other consignments of garments. On 16 August, HH Judge Mackie QC ordered, ultimately by consent, the release of the goods to the Claimant on terms that a cross-undertaking in damages was given, fortified as to £25,000. In consequence, the garments were released and delivered to Next Retail Limited, for which the garments had been manufactured, and large losses were averted. The issue at this trial has been essentially whether a lien, general or specific, was properly exercised by the Defendant, and if so, whether the cross-undertaking should be enforced.

Theparties

[2]The Claimant (“TCL”) was established in 1968 by Frank Erkaslan and Mehmet Gulseren. It designs and supplies ladies garments and accessories, especially trousers, skirts, dresses, coats and jackets, to a number of top fashion retailers and mail order companies including Next, Jane Norman, Bay Trading, C&A and Dunnes Stores. TCL does not manufacture the garments itself but sub-contracts the work which is done in a number of countries, particularly Turkey where labour costs are low. One company it has used is Whisper London Limited (“Whisper”), an English company with close links to a Turkish factory called Bates Istanbul Tekstil Sanayi Ticaret ve Pazarlama Limited Sirketi (“Bates”).[3]The Defendant (“EMT”) is a haulier with its depot and warehouse at EMT House in Beckton, East London. It operates a fleet of about 15 vehicles. Michael Mehmet is the managing director. The principal facts.[4]My findings of fact are derived from the contemporary documents and the evidence of the witnesses who testified before me. They were: Frank Erkaslan, Mehmet Gulseran, Yalcin Kaya (a director of Bates) Erdal Boyraz (a director and company secretary of Whisper) and Laurence Lewisman (a manager at TCL) called by TCL and Michael Mehmet called by EMT. TCL also sought to call Mehmet Oksuzoglu but he did not appear when called and I have ignored his statement. Mr Lewisman was called late with my permission, granted because I was satisfied that no unfairness would be caused to EMT if he was called.[5]Although there was a good deal of antipathy apparent between the witnesses on either side brought about, in part, by a failure on each side to recognise the predicament of the other, I considered that the witnesses were honest and doing their best to assist the Court. As a whole I found them reliable, but less so as to the immediate events in August 2006 (on which nothing really turned), when tempers were stretched beyond breaking point by competing demands. In resolving any disputes (and I have not considered it necessary to resolve all), I have paid particular attention to the contemporary documents.[6]Between 29 March and 12 May 2006, TCL received a series of orders from Next for the supply of jackets, skirts, trousers and dresses. All had been designed by TCL and were to be made up in red dogstooth or grey herringbone cloth that had been approved by Next, as had all aspects of the design including accessories. Each order was set out in a contract which listed the sizes and quantities required. On the reverse of each contract appeared the Next Terms and Conditions of Purchase.[7]TCL contracted with Whisper for the manufacture of the garments. Whisper in turn sub-contracted with its related company, Bates. Bates could not manufacture all the garments itself and it sub-contracted for some items to be manufactured in other Turkish factories – the factories concerned were Düsteks Konfeksiyon Tekstil (“Düsteks”), Carlo Tekstil Konfeksiyon (“Carlo”) and Güral Tekstil (“Güral”). These sub-contracts to other Turkish factories could only be made with the agreement of TCL which took a close interest in all stages of the manufacturing process and had quality control inspectors present in the factories.[8]The precise design of each garment was set out in a docket consisting of (at least) three pages. The first page set out the style number and customer order number (which cross-referenced to the relevant Next contract), the fabric, the fabric supplier and sizings. It also set out a make-up price. The second page was a material trim list which listed down to the last little tag each component part of the garment and its supplier. The last page was a sketch of the garment. TCL sent the factory a computerised cutting marker separately by electronic means.[9]TCL purchased the fabric and the vast majority (by number, size and cost) of the components that would go to make up the garments. The dogstooth and herringbone cloth was supplied by Ipekis, a weaving company based in Bursa in Turkey. The terms (as recorded in Ipekis’ invoices addressed to TCL) were “cash against documents 60 days after the date of invoice” and the cloth was to be delivered direct to Bates “CIF A.H.L. Serbest Bolge-Instanbul Bursa”, that is in one of the free zones where the Turkish cut and make industry is based. TCL purchased many of the other components in the United Kingdom – the lining, interlining, external buttons, bindings and labels were all sourced in this way. Some other components, such as the zips, were sourced in Turkey and delivered direct to Bates. A few items of nominal value – the kimball bullets and polybags – and some standard clear buttons of slightly greater but still trivial value were to be supplied by Bates. In addition, the factory would supply the thread used to stitch the garments together. It is unnecessary for me set out in this judgment the detailed make-up of each garment. They are set out in a schedule prepared by TCL at my request, which I am satisfied is accurate.[10]The linings and accessories sourced in the United Kingdom were delivered to Whisper which had (until August 2006) an office within EMT’s warehouse in Beckton. The office was run by an employee called Sophie – the parties were unable to provide me with her surname.[11]Whisper and Bates had long standing arrangements with EMT to transport material and accessories from London out to Bates in Turkey, and to carry the finished garments back from Turkey to the United Kingdom. These were not just in connection with contracts with TCL; Bates and Whisper had other customers with which they operated on a similar basis. Shortly before the trial, EMT disclosed a tripartite contract between EMT, Bates and Whisper. It was in the form of a letter addressed by EMT to Mr Kaya of Bates and Mr Boyraz of Whisper dated 8 September 2005 countersigned by them and in the following terms: “This document represents an official agreement between [EMT, Whisper and Bates] To which the representatives of the relevant companies are [Mr Mehmet for EMT, Mr Boyraz for Whisper and Mr Kaya for Bates] In an event that either of the above companies stated [Whisper and Bates] should for any reason seize [sic] trading then the agreement will be passed over to the remaining company for as long as that company is trading. I [Mr Boyraz and Mr Kaya] hereby agree to the terms of the following contract set out by EMT: A) To provide 13.6 metre garment trailer loading weight 20 tonnes inclusive of driver as and when required with a required amount of notice. B) To load London location for raw materials to Turkey at a rate of £2400.00. C) To deliver Corlu Turkey. D) The total amount of days for the trip Outwards 6 days and Inwards 6 days, unless there are any unforeseen circumstances. E) Extra driver charges when required will be £400.00. F) The rate for the inward bound journey from Corlu is £3100.00. G) The above agreement is based on [EMT] being the sole agent for [Whisper/Bates] for the London Turkey and return trip. H) [EMT] will be given the first refusal for any works which are required from and too [sic] Turkey. I) To clarify that Inward bound (Turkey – London) and Outward bound (London – Turkey) will be invoiced to Bates. In agreement [Whisper] will remain guarantor for [Bates] and [Bates] will remain guarantor for [Whisper]. The operation will commence on 27th June 2005, and will continue for a period of 1 year. On signature of all parties this contract will be in affect [sic]. [signed 8 September 1005] According to the oral evidence, this contract had been preceded by earlier contracts, but these were not produced in Court.

[signed 8 September 1005]

[12]EMT’s delivery notes and invoices all referred on their reverse to the fact that “all goods are carried under RHA 1998 Conditions of Carriage and stored under RHA 1998 Conditions of Storage 1998 copies of which are available on application to EMT”. Below that entry appeared a series of other conditions of carriage which supplemented and, in some respects, varied the RHA Conditions. EMT’s brochure also referred to the RHA Conditions. The Road Haulage Association’s Conditions of Carriage provide as follows:
“Clause 14 Lien (1) The Carrier shall have a general lien against the Customer, where the Customer is the owner of the Consignment, for any monies whatever due from the Customer to the Carrier. If such lien is not satisfied within a reasonable time, the Carrier may, at its absolute discretion, sell the consignment or part thereof, as agent for the Customer and apply the proceeds towards the monies due and the expenses of the retention, insurance and sale of the Consignment and shall, upon accounting to the Customer for any balance remaining, be discharged from all liability whatever in respect of the Consignment. (2) Where the Customer is not the owner of the Consignment, the Carrier shall have a particular lien against the said owner, allowing the Carrier to retain possession, but not to dispose of, the Consignment against monies due from the Customer in respect of the Consignment.”
Clause 14 of the RHA Conditions of Storage is in identical terms, save that warehouseman is called the Contractor.[13]However, the official agreement made no reference to the RHA Conditions. No further official agreement was executed after 26 June 2006. For each consignment, EMT issued a CMR international consignment note. For goods carried from Turkey to London, the consignment note named Bates as sender in Box 1 and Whisper as consignee in Box 2.[14]The arrangement by which Whisper had an office in EMT’s warehouse was informal and not recorded in writing, and there appeared to be some dispute as to the terms of the agreement. But by the end of the trial, it was agreed that the rent – originally £705 per week but later reduced to £352.50 per week – included not just the provision of the office with telephone and fax facilities, but also free storage of imported garments for up to a week, pending delivery to the retailer.[15]By summer 2006, Bates and Whisper were in severe financial difficulty. EMT was owed something of the order of £90,000 by Bates and £5,000 by Whisper. The precise balances, of course, went up and down. The indebtedness was long standing, but had diminished somewhat over the previous months. At Bates/Whisper’s request some debt owed to EMT was discharged by TCL and deducted from invoices due to Whisper – £27,150 was paid in this way in June 2006.[16]Bates had also incurred large debts to factories in Turkey. By late July, Düsteks and Carlo were refusing to release finished garments without payment. EMT’s lorries, which had been sent to collect the garments, were kept waiting for some 10 days. Eventually a payment agreement dated 26 July 2006 was made between TCL, Bates, Whisper, Düsteks and Carlo whereby TCL agreed to pay £32,939.08 to Düsteks and £50,000 to Carlo, to be deducted from monies owed to Whisper – this agreement was disclosed in the course of the trial by TCL, but it is fair to add that the terms of the agreement accorded with evidence previously given by Mr Erkaslan.[17]Following this agreement and payment of £20,000 to Düsteks, the garments were released and loaded onto two of EMT’s trucks. The invoices issued by Bates to Whisper in respect of the make-up charges all stated that the garments were sent CIF and that payment was cash against goods. All, apart from 350 cotton/polyester jackets, had been manufactured for TCL in connection with the Next contacts. EMT, as carrier, issued two CMR international consignment notes on 29 July 2006, one for each vehicle, covering 12,800 jackets, skirts, dresses and trousers in all. Bates was named as sender and Whisper as consignee. The boxes in the Consignment Notes for entry of carriage charges were both left blank, as were many others.[18]The two trucks arrived at EMT’s warehouse in Beckton on 3 August 2006. It had been intended that the TCL garments would be despatched out of EMT’s warehouse the next day for carriage to Next’s distribution centre in West Yorkshire. However, EMT refused to do so and exercised a lien for all outstanding charges owed by Bates and Whisper, which were put at £92,781.84.[19]Another part of the TCL contracts had been sub-contracted by Bates to Güral. Because of delay in completion of the manufacture, 3,000 pairs of trousers were air-freighted in three air containers from Turkey to Whisper, instead of being carried by road. Two air waybills were issued on 2 August. One named the consignee as Whisper with an address at EMT’s warehouse in Beckton; the other named MAP Cargo International c/o Whisper at EMT House. EMT was not involved in the transport of these goods which was arranged through MAP Cargo. The goods arrived at Beckton on 4 August and EMT immediately sought to exercise the lien over these garments as well. But for the lien, they would have been sent out to Next almost immediately, although it would have been necessary first to take them off the hanging strings used in the air containers and re-assemble them.[20]TCL was notified of the exercise of the lien by e-mail on 4 August. It protested and argued that EMT only had the right under the RHA conditions to exercise a lien for the carriage charges on these particular consignments. There were a number of rather ill-tempered discussions – feelings were running high on both sides – which did not resolve the dispute.[21]On 8 August, Sophie was denied access to Whisper’s office on her arrival in the morning. Ever since, Whisper has been prevented from gaining access to the office and its books and records.[22]In the meantime, on 7 August, Hugh-Jones & Co, solicitors acting for TCL, gave notice that the garments belonged to TCL, and offered to pay the outstanding carriage charges for these garments by bankers’ draft, but declined to pay the rest. This was unacceptable to EMT. On 16 August, TCL applied to HH Judge Mackie QC for an order for delivery up of the garments. The Judge ordered that the garments be delivered up forthwith at EMT’s warehouse on TCL giving the following undertakings to the Court:
“1. If the Court later finds that this Order has caused loss to [EMT] or any other party served with or notified of this Order and decides that [EMT] … or other party should be compensated for that loss, the Claimant will comply with any Order that the Court may make. 2. The Claimant shall forthwith fortify its undertaking by payment of £25,000 into Court or into Clyde & Co’s client account.”
The payment of £25,000 was effected later that day and the goods released late in the evening of 16 August. They were delivered to Next and accepted. So, large potential losses were averted.[23]EMT later sought to persuade the Judge to increase the amount of the deposit to secure performance of the cross-undertaking, but the Judge refused to do so.

The issues

[24]Against the background of these facts, Mr Cameron Maxwell Lewis, for TCL, submitted that the RHA conditions were not incorporated into any agreement with Bates or Whisper. Even if they were, TCL were the owners of the garments and at best EMT had a particular lien for the carriage charges on the consignments carried by road. TCL had offered payment of those charges but the offer had been refused. Moreover, a general lien was contrary to the CMR Convention. So TCL should not be required to make any payment to EMT. Further, TCL had a good claim for damages for wrongful interference with the goods.[25]Mr Dominic Happé for EMT submitted to the contrary that the RHA conditions of carriage were incorporated in the contracts. At the time the lien was exercised, title in the goods transported by road was vested in Bates and title in the air-freighted goods was vested in Whisper. Alternatively title was vested in Next. It followed that EMT had a general lien over the road-freighted goods for all sums owing by Bates and over the air-freighted goods for all sums owing by Whisper. Further, TCL had no title to sue in respect of the garments. So the Court should enforce the cross-undertaking and require TCL to pay the outstanding sums due from Bates and Whisper which he put at £86,526.09 and £7,698.82 respectively.[26]The critical issues are therefore: i) Were the RHA Conditions incorporated into any contracts between EMT on the one hand and Bates and/or Whisper on the other? ii) Whose property were the garments at the time the lien was invoked? – the candidates being Bates and Whisper, TCL, or Next. iii) Are the RHA conditions creating contractual rights of general and particular lien consistent with the CMR Convention? iv) If EMT did not have a general lien, did it have a particular lien, and if so for what? Incorporation of RHA Conditions[27]But for the terms of the official agreement between EMT, Bates and Whisper, it could not really be in doubt that the RHA Conditions were incorporated into the carriage contracts. At the outset of the relationship, Mr Mehmet probably did produce a brochure which referred to the RHA conditions applying, although I doubt that this point was drawn to the attention of Mr Kaya and Mr Boyraz at the time or that they appreciated it. More significantly EMT’s delivery notes and invoices all stated in clear terms that the RHA conditions applied. That would be generally be sufficient notice of the conditions for them to be incorporated in the contracts of carriage and storage (if any), whether or not Mr Kaya and Mr Boyraz ever took the trouble to read them, as I am sure they did not.[28]However, in this case the parties made an “official” written agreement setting out the terms they had agreed. The agreement recorded that it was EMT that had put forward the terms. It could easily have referred to the RHA Conditions, but it did not. That is not really surprising. The reality was, as the parties were well aware, that each carriage by road was international and would be subject to the CMR Convention – both the United Kingdom and Turkey are signatories to the Convention, although it would be enough under Article 1.1 that one country was. CMR leaves little room for the application of the RHA rules. I find it impossible to construe the official agreement as incorporating the RHA conditions, nor can they be incorporated by necessary implication.[29]A possibility is that, although the official agreement did not incorporate the conditions, the parties are to be treated as having varied the agreement to incorporate them. The witnesses agreed that there were some variations in the course of the agreement relating to the level of the carriage charges, but these were expressly agreed on a case by case basis. For a variation to be effected there needs to be a mutual agreement between the parties. In my judgment, it cannot be inferred from standard form statements made by one party on invoices and delivery notes, that the other party was agreeing to vary an existing agreement. The position is substantially different from that where there is no existing agreement. A mere unilateral notification by one party to the other, in the absence of agreement, cannot constitute a variation of the contract: Chitty on Contracts (29th ed.) Vol. 1 §22-032 and Cowey v. Liberian Operations Ltd [1966] 2 Lloyd’s Reps 45.[30]Mr Happé argued that, even if the RHA conditions did not apply during the term of the official agreement, once it expired on 26 June 2006, the RHA conditions did apply. Whilst I think he is strictly right that the term of the agreement expired on 26 June, even though it had not actually been in existence for a year, it is a matter of inference as to what the parties intended the position to be thereafter. I doubt that either party actually realised that it had expired and, strikingly, neither asserted at the time that the terms of the agreement no longer applied. In my judgment it is highly improbable that the parties intended there to be a radically different contractual regime. The inference I draw is that, pending a new agreement or express abandonment of the old, the parties intended the terms of the old agreement to continue in effect.[31]So in my judgment, the RHA conditions of carriage did not apply to the carriage of goods between London and Turkey. However, the official agreement was concerned with the carriage of goods, not the storage of goods once they reached EMT’s warehouse. Once they were discharged into the warehouse to be stored by EMT, the official agreement ceased to have any application. The storage arrangements were made between EMT and Whisper. In my judgment, EMT had given sufficient notice that the RHA Conditions of Storage applied to the storage of goods in the warehouse and those conditions applied in the case of goods accepted into storage, but not before that point was reached.

Property in the garments

[32]Mr Maxwell Lewis argued that TCL had supplied all the materials and accessories for the garments and that it was never intended by TCL, Bates, Whisper or the other factories that title should be transferred to the factory. On the contrary the whole scheme for the make up of garments in Turkey proceeded on the basis that title in the materials and accessories and then the finished product remained vested in TCL. This was strongly disputed by Mr Happé who argued that once the materials and accessories were used in the manufacturing process, they lost their individual identity and became the property of the factory. He also relied heavily of the terms of the invoices issued by Bates to Whisper.[33]One possibility is that title in the materials and accessories sent out from England was transferred to Whisper when they were delivered to the EMT warehouse for export to Turkey. But the goods were not being sold to Whisper, which made no payment for them. I can see no basis for inferring that there was an intention to transfer title to Whisper. It would have been contrary to the well established practice of the rag-trade in this country, which is clearly evidenced by Control Notes for the Clothing and Fashion Industry V1-37, part of which has been published by HM Customs & Excise: “3.1 Manufacturers The use of the title manufacturer In this case, TCL. in the Rag Trade can be misleading, as more often than not, they do not actually manufacture the garments. Instead they act as middle men responsible for the design, production of samples, costing and commissioning of the garment to order. … They buy the cloth and trimmings, stipulate a making price governed by the margin allowed by their customer, or potential customers, and raise a work docket, containing all the instructions for the factory to make the garment. The manufacturer then sells the completed garments to retail chains, or other manufacturers or wholesalers. 3.2 Cut, Make and Trim (CMTs) Factories generally work to a main manufacturer (principal). They provide the services of cutting cloth, sewing material together and producing a finished garment. Specific tasks in this process are also sub-contracted to home workers (depending on the type of garment) who work on piece rates from home. Cloth and dockets, detailing numbers of garments, styles, sizes and specific requirements are normally supplied by the manufacturer, who retains ownership. Increasingly, this work is sub-contracted overseas, where unit costs are lower. [my emphasis] So I am satisfied that title in the materials and accessories sourced in the United Kingdom was not transferred to Whisper.

The use of the title manufacturer

[34]The transfer of possession of the materials and accessories and the manufacture of the garments to Bates and its sub-contractors all took place in Turkey. The issue as to whether the result was to transfer title in the moveables to Bates or (where there was a sub-contract) to the factory is obviously a matter for the law of Turkey as the lex situs under ordinary principles of conflicts of law: Dicey, Morris & Collins on The Conflict of Laws (14th ed.) Vol. 2 Rule 124. As Maugham J. said in Re Anziani [1930] 1 Ch 407, 420:
“I do not think that anyone can doubt that, with regard to the transfer of goods, the law applicable must be the lex situs. Business could not be carried on if that were not so”
Moore-Bick J. made the same point in Glencore International AG v. Metro Trading International Inc [2001] 1 Lloyd’s Reps 284 at §32.[35]Judge Mackie gave both parties permission to file written evidence of Turkish law but not to call the witnesses to give oral evidence. TCL filed a joint report from Professor Dr Oguz Atalay and Advocate Serhat Kaypakoglu. EMT filed a report from Izzet J. Hatem OBE. From their CV’s it is apparent that both sets of experts were well qualified to assist the Court.[36]In order to understand the Turkish law evidence, it is necessary to say more about the “cut and make” industry in Turkey. This is a major industry based in two free zones, of which Bursa, where Bates is based, is one. Under Turkish customs regulations, materials and accessories can be imported into one of the free zones to be manufactured into garments without payment of import duty, taxes and other import charges as long as they are re-exported once made up. This fiscal advantage is obviously critical to the economics of the business. In order to obtain what is called outward processing relief (“OPR”), the importer (in these cases Bates) must make an OPR declaration to the Turkish Customs. The goods are then treated as being imported only temporarily into Turkey. The importer must itself re-export the goods – no-one else can do so – and failure to do so is treated as criminal tax evasion.[37]Both experts referred to a report from Devrim Haciibrahimoglu of Dinamik who explained the regulatory background in Turkey. The author referred to the terms of the invoices issued by Whisper to Bates in connection with the fabric and accessories which stated “Above goods are to be processed and returned to the UK. No commercial value, for customs purposes only.” He explained that Article 2 of the Domestic Processing Regime Communiqué no 2005/1 As published in the Official Gazette attached to a resolution by the Council of Ministers adopted on 17 January 2005 under no. 2005/8391 allows for customs-exempted import of goods for processing, and the goods when imported are treated as being of no commercial value – hence the declaration in the invoices. Under the domestic processing permission the goods are temporarily imported and held to be processed. They would have to be re-exported by Bates to Whisper within the time permitted by the permission. The report expressed the opinion, adopted by Prof. Atalay and Adv. Kaypakoglu, that “it is out of the question that the owner of the items covered by the … invoices which are processed and exported … is Bates which performed the processing.”[38]On the basis of the facts they fairly summarise, Prof. Atalay and Adv. Kaypakoglu express the opinion that the arrangement between TCL and Whisper and Whisper and Bates, and the ordering, manufacturing and delivery procedures, rule out the application of the Turkish law on purchases of goods. This was not an arrangement by which a seller agreed to transfer title to a buyer. Instead the relation between TCL and Whisper/Bates was a locatio conductio operis or a manufacturing contract, as defined in article 355 of the Turkish Law on Obligations:
“The “Manufacturing Contract” is a contract where one of the parties (the Contractor) undertakes the production of goods in exchange for the price that the other side (the Employer) undertakes to pay.”
Article 357 provides, inter alia, as follows:
“The Contractor guarantees the quality of the materials used in the production and is answerable to the Employer in case they are of poor quality, in the same way as a seller would be answerable (to a buyer). If the material is provided by the Employer, the Contractor is obliged to use this material with due care and is accountable for its use. He is also obliged to return the unused material back to the Employer … ”
Article 368 also provides that if the product is accidentally destroyed before delivery, “the owner of the materials used in the construction bears the damage”.[39]Prof. Atalay and Adv. Kaypakoglu quote from a text book, the Law of Obligations, Special Contractual Relationships – Borclor Hukuku, Ozel Borc Illiskileri by Professor Dr Haluk Tandogan, Vol II (3rd ed.) published in Ankara in 1987:
“If the goods, delivery of which is undertaken, do exist at the time the contract is made, the characteristic of the contract is obviously a sale (or purchase). If the thing that is to be delivered is not ready at that time and would be produced by using the material the person that placed the order would give, then the [arrangement] can easily qualify as a manufacturing contract”
. They express the clear view on the basis of the facts they summarise that, in Turkish law, TCL has always been the owner of the goods – the components parts and the finished product – even when in the possession of the other parties.[40]Mr Hatem takes a radically different approach. He relies on the invoices issued by Bates to Whisper which bear the annotations CIF and “Cash against goods”. He concludes that these show that sales have been performed on a CIF basis. He treats the CMR consignment notes and the air waybills as equivalent to a bill of lading and, relying on article 1140 of the Turkish Code of Commerce No. 6762, which provides that transfer of property takes place with endorsement and surrender of the bill of lading which represents the goods, concludes title in the goods remained vested in Bates. As to the report by Dinamik, he states:
“Likewise, the system of temporary import of the material to Turkey in order to be manufactured and returned to England, … and consequently the commercial relations between TCL, Bates, Whisper and Next, in relation to the ownership of the fabrics/finishings/trimmings do not affect the carrier EMT’s rights as they do not concern the goods [viz as I understand him the finished garments] under the invoices issued by Bates to Whisper… ”
. This point was emphasised in his supplementary report, where he observed that the raw materials had lost their identity when used to manufacture the garments, and no ownership (title) can have passed to the manufactured goods.[41]I did not find Mr Hatem’s reliance on the invoices issued by Bates to Whisper at all persuasive. The invoices were for make-up charges only; there were no charges for the supply of materials. They do not evidence a sale of goods and I do not think that the draftsman of the invoices was intending to give any indication of where title lay. Further, the invoices, which were between Bates and Whisper, are of no assistance whatever as to whether Bates ever obtained title in the first place. In my judgment, Mr Hatem’s report fails to grapple with the underlying facts and the regulatory background in Turkey or the Turkish Code on Manufacturing Contracts. Article 357 of the Code strongly points to title in the finished product being vested in the Employer where he has supplied the materials, as was the case here, with de minimis exceptions. Overall, I found the reasoning advanced by Prof. Atalay and Adv. Kaypakoglu convincing.[42]There was also considerable oral evidence of TCL, Whisper and Bates, given by Mr Erkaslan, Mr Kaya and Mr Boyraz, as to their contemporary understanding. They were unanimous that it was always their understanding that title in the garments was vested in TCL and that Bates and Whisper at no time obtained title. That evidence was criticised by Mr Happé on the basis that it was a sort of “mantra”, by which I understood him to mean that they had put their heads together to produce false testimony. That was not, however, my impression of the evidence. In my judgment, it accurately reflected the custom and practice of the rag trade, here and in Turkey. It also makes good commercial sense. It would be surprising if TCL (or any other so called manufacturer) was willing to surrender title in the goods to a factory, where it had supplied all the materials and accessories, with trivial exceptions, and was receiving no payment for them from the factory.[43]I should add that there was some debate as to whether Roman Law – especially Book II (Of Things) Title II of Justinian’s Institutes – was of assistance. I was referred particularly to the following paragraphs Translated by Peter Birks and Grant McLeod. :25. Suppose one man makes something out of another’s materials. Who is it reasonable to see as owner, the maker or the owner of the materials? Suppose, for example, that one man makes wine, oil, or grain from another’s grapes, olives, or corn; or a pot of some kind from another’s gold, silver or bronze; or mead from another’s wine and honey; or a plaster or ointment from another’s medicines; or clothes from another’s wool; or a ship, a chest, or a chair from another’s timber. Debates between Sabinians and Proculians left this unresolved. A middle view has been upheld: If the thing can be turned back into its materials, its owner is the one who owned the materials; if not, the maker. The completed pot can be turned back into a raw ingot of bronze, or silver, or gold; wine, or oil, or grain cannot be made back into grapes, olives, or corn, and even mead cannot be turned back into wine and honey. If someone makes something partly out of his own material and partly out of another’s – mead from his wine and another’s honey, or a plaster or ointment from some medicines belonging to himself and others belonging to someone else, or clothes out of his own and someone else’s wool – ownership vests, without a doubt, in the maker. He contributes not only his work but also even part of the material.26. Suppose someone weaves another’s purple thread into his own garment. It merges with the garment by succession, even if the thread is more valuable than all the rest. The former owner of the thread then has the action for theft and the action of debt against the taker, whether he was the one who made the clothes or not. When something has ceased to exist it is no longer possible to bring a vindication, but the action of debt can still be used against thieves and certain other types of possessor. It is not easy to reconcile paragraphs 25 and 26 and ultimately I am not persuaded that whatever Roman law might be provides much help in resolving the issues of Turkish law in this case. I shall leave the resolution of the point in Roman law to the scholars.[44]I was also shown a number of English cases, including Bordern (U.K.) Ltd v. Scottish Timber Products Limited [1981] 1 Ch 25, In Re Peachdart [1984] 1 WLR 131 and Clough Mill Limited v. Martin [1985] 1 WLR 111. Whilst I consider that English law would reach the same conclusion on these facts, that is irrelevant because England is not the lex situs.[45]Mr Happé advanced an alternative that title to the garments had become vested in Next. This was based on clause 10 of a set of Next’s Terms and Conditions of Purchase which provides:
“10.1 Risk in the Products shall pass to Next at the time when the Products are received by Next. The Seller will not exercise any lien over the Products. 10.2 … title and ownership in the Products shall pass to Next as soon as the Products have been separately identified and set aside for Next”
Mr Happé argued that the garments had been separately identified and set aside for Next when they were manufactured in Turkey with Next labels sewn in and placed on Next hangers It should be made clear that the labels and hangers were purchased and supplied by TCL, not Next. .[46]This argument collapsed when it emerged on the last day of trial that both counsel had been provided with the wrong set of Next conditions. This set was not introduced until the summer of 2006. All the contracts with Next were on a previous set of conditions which did not contain clause 10, or anything equivalent. I should add that I am very doubtful that the garments had really been set aside for Next when they were in Turkey. I do not consider that happened until (at the earliest) the goods were assembled in England, checked and put in the correct order for delivery to Next, as and when Next called for delivery.[47]Without clause 10, it could not be plausibly suggested that title passed to Next prior to actual delivery to the carriers instructed to deliver the garments to Next – see section 18, rule 5(2) of the Sale of Goods Act 1979. There had been no prior unconditional appropriation to the contract of the garments in a deliverable state with the assent (express or implied) of Next.[48]So, in my judgment, at the time EMT received the garments for carriage by road to London and at the time it sought to exercise a lien, title was vested in TCL. The air-freighted goods were the property of TCL when they arrived at EMT’s warehouse.

Are the RHA conditions creating general and particular liens consistent with the CMR Convention?

[49]The CMR Convention, as set out in the Schedule to the Carriage of Goods by Road Act 1965, provides as follows: “Chapter III. CONCLUSION AND PERFORMANCE OF THE CONTRACT OF CARRIAGE Article 6 CONCLUSION AND PERFORMANCE OF THE CONTRACT OF CARRIAGE Article 6 1. The consignment note shall contain the following particulars: … (i) charges relating to the carriage (carriage charges, supplementary charges, customs duties, and other charges incurred from making of the contract to the time of delivery); Article 13 1. After arrival of the goods at the place designated for delivery, the consignee shall be entitled to require the carrier to deliver to him, against a receipt, the second copy of the consignment note and the goods. … 2. The consignee who avails himself of the rights granted to him under paragraph 1 of this article shall pay the charges shown to be due on the consignment note, but in the event of dispute on this matter the carrier shall not be required to deliver the goods unless security has been furnished by the consignee. Chapter VII. NULLITY OF STIPULATIONS CONTRARY TO THE CONVENTION Article 41 Subject to the provisions of Article 40 Which deals with carriers’ freedom to agree on the sharing of compensation amongst themselves. , any stipulation which would directly or indirectly derogate from the Provisions of this Convention shall be null and void. The nullity of such a stipulation shall not involve the nullity of the other provisions of the contract”.

Article 6

[50]Article 13.2 gives the consignee, in this case Whisper, the right to delivery of the goods on payment of the charges shown to be due on the consignment note. Mr Maxwell Lewis submitted that clause 14 of the RHA conditions of carriage which enabled the carrier to exercise a general lien for all outstanding charges, not just the charges due on the consignment, was inconsistent with the consignee’s right to immediate delivery of the goods on payment of the charges shown to be due on the consignment note, and therefore null and void under Article 41.[51]Mr Happé drew my attention to §106 of Professor Malcolm Clarke’s book on International Carriage of Goods by Road: CMR (4th ed.), where the author states:
“The Carrier’s Lien Article 13.2 provides that, if the consignee requires delivery of the goods “he shall pay the charges shown to be due on the consignment note, but in the event of dispute on this matter the carrier shall not be required to deliver the goods unless security has been furnished by the carrier”
. Subject to this, the CMR is silent on rights of retention available to the carrier and any such rights under national law will remain effective.”[52]I did not find this reasoning in the last sentence easy to understand. It does not take into account Article 41 of CMR. In my judgment, Article 13.2 of the CMR Convention creates a self-contained Code whereby the consignee has the right to require delivery of the goods on payment of the charges shown to be due on the consignment note – coupled with the 1965 Act it creates a statutory lien for the carriage charges. A general lien would derogate from the consignees’ right of delivery on payment of the charges, because the consignee could only obtain delivery on payment of additional sums due in respect of other carriages. So, in my judgment, a general lien is null and void under Article 41 of CMR.[53]By parity of reasoning, to the extent that the particular lien granted by the RHA conditions of carriage is wider than that granted by Art. 13.1 of CMR, it is null and void. The carrier’s rights are confined to those granted by the Convention. If EMT did not have a general lien, did it have a particular lien, and if so for what?[54]The consequences of my findings so far are that EMT did not have a general lien for carriage charges because the RHA conditions of carriage were not incorporated and, even if they had been(1) the garments were not owned by Bates or Whisper and(2) a general lien is void under CMR.[55]That leaves open the issue whether EMT had a particular lien under CMR for the carriage charges, and a particular lien under the RHA conditions of storage for anything else.[56]Article 13.2 of CMR gives the carrier a particular lien, enforceable against the consignee, for the charges shown to be due on the consignment note. The difficulty that arises is that, contrary to Art. 6(1)(i), the consignment notes in this case left the box for entry of the carriage charges blank. Was it still open to EMT to exercise a particular lien, or put the other way, is it fatal to a particular lien that the consignment note contained no particulars of the charges relating to the carriage?[57]Mr Maxwell Lewis submitted that it was on the clear wording of the Convention. Mr Happé submitted that the consignment note was only evidence of the contract. Under Art. 4 of CMR, any irregularity would not affect the existence or validity of the contract of carriage. Both Bates and Whisper were well aware of the carriage charges due. The consignment note was not determinative of either party’s rights. I agree with Mr Happé’s submission as far as it goes. He is right that the failure to state the amount of carriage charges in the consignment note will not affect the carrier’s underlying contractual right to recover the charges, in this case from Bates and Whisper under the terms of their official agreement. But, that leaves open the separate question whether it affects the right of lien over the goods.[58]There is some assistance in international Carriage of Goods by Road (CMR) edited by Jan Theunis, published under the auspices of the International Road Transport Union in 1987. In his contribution, M.H. Claringbould states (at p.212):
“It should be stressed that the right to retain the goods at the moment of delivery is only available to the carrier when the consignment note clearly indicates that there is still freight due to the carrier (Helm, JG, Frachtrecht, Walter de Gruyter, Berlin, 1979. p. D 461, anm. 4) In practice it is only seldom that the consignment note mentions anything at all about freight and costs, even though according to Article 6(1)(i) of the CMR the charges relating to the carriage have to be mentioned in this note. The learned writers, if they comment at all on Article 13.2 of the CMR, agree that this Article does not in general entitle the carrier to retain goods, but only gives a restricted right against the consignee. The writers all turn to their national law to decide whether a carrier has a right to retain the goods … ”
[59]Clarke does not deal with the point expressly, but he cites at §24 on p.54 conflicting decisions of the German Courts (BGH 10.2.82 (1983 18 ETL 32, 39), OLG Stuttgart 24.1.67 (1968 NJW 1054) and OLG Hamm. 12.11.73 (1974 ULR II 212)).[60]In my judgment the scheme of the Convention is clear:(1) Under Art. 6(1)(i) the consignment note must contain particulars of the charges relating to the carriage. The note is to be signed by the sender and the carrier. It may be that it is rare for consignment notes to comply with this requirement – certainly they did not do so here – but that cannot alter the principle laid down by the Convention. Obviously the exact figure for some charges, for instance customs duties and some supplementary charges such as waiting time, may not be known at the time but the consignment note can easily make a general reference to these. It is not difficult for the carrier to ensure that the consignment note complies with the Convention.(2) Article 13.2 only allows the carrier to retain the goods against payment of the carriage charges shown to be due on the consignment note. This ties in with Article 6(1)(i). The reference to the charges shown to be due on the consignment note cannot be ignored. The commercial purpose is to give certainty as to what must be paid to secure release of the goods, at a time when decisions may have to be made urgently and on the basis of limited information. In the early 1960’s, when the Convention was negotiated, difficulties of communication would have been greater than today. If the carrier chooses not to record the carriage charges in the consignment note, then he will lose the right to exercise a lien. It cannot be relevant that, in this case, the consignee was well aware of the correct position. That will often not be so, and the proper interpretation of the Convention cannot depend on the facts of a particular case. Here nothing was recorded in the consignment note about the carriage charges, and it follows that EMT had no lien under Article 13.2 for any outstanding carriage charges.[61]That leaves the particular lien under the RHA conditions for storage. In the case of the goods transported by road and the air-freighted goods, EMT sought to exercise a lien on arrival of the goods at their depot/warehouse. Mr Maxwell Lewis argued that EMT had gained possession of the air-freighted garments by stealth, and even deceit. I reject that argument. The address given for delivery to Whisper’s was at EMT’s warehouse. In reality, Whisper only had a small office within the warehouse and it had no means of receiving and holding the garments. It was inevitable that EMT would have to receive the garments, and that is what Whisper intended and expected. Whisper may not have anticipated that EMT would seek to exercise a lien over these garments, but Mr Mehmet never promised not to do so, whether expressly or impliedly.[62]A lienee has no right to recover expenses incurred by him in maintaining his security: Somes v. Directors of British Empire Shipping Co. (1860) 8 HL Cas. 338, China Pacific S.A. v. Food Corporation of India [1982] AC 939, 962-3 and Morris v. Beaconsfield Motors (CA) [2001] EWCA Civ 1322. So there could be no right to recover storage charges. But I do consider that EMT would have had a right to exercise a lien for its charges for preparing the goods for delivery to Next – for instance taking the air-freighted garments off the hanging strings and putting them on hangers and sorting and checking both sets of garments. In their invoices 21182, 21223 and 21265, EMT charged a total of £2,979.52 (incl. VAT) for the services rendered in relation to the air-freighted goods. For the goods carried by road, there was a charge of £626.09. TCL, with the support of Mr Kaya and Mr Boyraz, challenged these invoices, but I consider that they were in principle justified for work actually done, but the charges for the air-freighted cargo are over-stated. They would have been less if there had been a single movement from vehicle to vehicle, as would have been the case if no lien had been asserted, and I think there has been an (understandable) desire to maximise what is payable to EMT. Doing the best I can, I think EMT was entitled to £2,000 (incl. VAT) for the work done in respect of the air-freighted garments. I find the figure of £626.09 reasonable for the garments carried by road.[63]I should add that, if I had upheld the claim to a general lien, I would have found that EMT was owed £86,526.09 by Bates (guaranteed by Whisper) and additionally £6,719.30 by Whisper and could exercise a general lien for these sums. If I had upheld a particular lien for the road carriage charges in respect of this consignment, I would have held that £9,100 was due for waiting time, an extra driver and carriage, as recorded in invoice 21161.

The cross-undertaking

[64]TCL was not party to the contracts of carriage or the storage contracts. However, it consigned the materials and accessories to Whisper for carriage out to Turkey and knew and intended that Bates would bail the goods to EMT for carriage of the finished product back to London. TCL must be treated as having consented to the goods being bailed to EMT for carriage both ways, and on the usual CMR terms which include a right of lien against the consignee for the carriage charges. It also consented to the goods being handled at EMT’s warehouse on usual terms, which would include the RHA conditions of storage. It follows from general principles established in Morris v. C.W. Martin & Sons [1966] 1 QB 716, The Pioneer Container (PC)[1994] 2 AC 324 and East West Corporation v. DKBS A/S (CA) [2003] EWCA Civ 83[2003] QB 1509 that, insofar as EMT was entitled as against Bates or Whisper to exercise a particular lien on the garments, it was also entitled to do so as against TCL. So in my judgment, in accordance with its cross-undertaking in damages, TCL ought to pay £2,626.09 to EMT – it is fair to observe that this is a considerably lower sum than it offered on 7 August 2006.

Damages

[65]TCL pleaded a claim for damages against EMT for wrongful interference with the goods, on the basis that they had been wrongfully detained. No particulars were given of this claim until the first day of the trial when TCL sought to plead two heads of loss:(1) Increased transport charges: £600(2) Loss of repeat orders from Next in respect of garments manufactured from the red dogstooth cloth, which meant that TCL was left with a liability to pay £14,250 to Ipekis for pre-ordered cloth not used in repeat orders.[66]I allowed the first head to be pleaded. I declined to allow the second head to be pleaded because it was too late for EMT to be able to investigate the claim properly, and because (having heard Mr Erkaslan’s evidence on this topic de bene esse) there was no evidence that Next had decided not to place a repeat order for garments made from this cloth due to late delivery of the original order, as opposed (for instance) to general lack of customer demand for the product. I would add that it would not follow anyway that the cloth did not retain a substantial value.[67]As to the claim for £600, this was the additional charge for demurrage and waiting paid to OK Transport Limited who were the hauliers used by TCL to transport the garments from Beckton to Next’s distribution centre in West Yorkshire on 16 August 2006. Mr Erkaslan explained that, because of the urgency, TCL had kept the carrier on standby so that, when EMT finally released the goods, they could be collected and taken to Next without any further delay. Mr Mehmet challenged this evidence on the basis that the trucks were not actually waiting in his yard but were on call. That may be so, but it does not affect the overall reasonableness of the claim. I accept Mr Erlaslan’s evidence. EMT had been wrongfully detaining the garments for some time. It was becoming very urgent indeed that they were delivered to Next; there was an ever increasing risk that Next would reject them, and if that had occurred the losses would have been very considerable. I accept that these charges were reasonably incurred as a result of EMT’s continuing wrongful interference and I uphold the claim for £600 damages.[68]So the net figure payable by TCL is £2,026.09. I will hear counsel on what consequential orders need to be made, including releasing the security of £25,000.

Cited in 1 later judgment