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GAZETTE
MARCH 1978
quality. (See per Roskill L. J. p. 53 paragraph j).
The principle that operated between No. 1 and No. 2
vis a vis No. 3 was that of Bilment. The Court found no
difficulty in splitting the transaction in this way but I think
that such a solution must be without precedent and the
judgment must have adversely affected the Law of
Bailment and Agency by trying to fit a square peg into a
round hole.
SOLUTION
It is time we approached these clauses with fresh eyes.
We should not feel bound to follow the conclusions of
either the Romalpa or Interview cases in determining the
rights and duties of the parties under these clauses for at
least two reasons:—
(i) We should draw up a standard clause universally
acceptable (given a desire for the same objectives)
using different wording making it free from
ambiguities.
(ii) Even if it is a clause creating a fiduciary
relationship we are not bound to admit that such
relationship arises from the relationship between
Bailor and Bailee.
One does not have to resort to this complex construction
of bailment and agency in order to achieve the desired
results from the Sellers' point of view. If we use the
already familiar concept of trust the same results may be
achieved at nothing like the sacrifice of legal principle
otherwise involved. As it appears to me the simple
solution is to constitute the Buyer (No. 1) as trustee with
power of sale of the goods (with the right to make a profit)
in favour of the Seller (No. 1). The way to do this is to
retain the beneficial interest only.
This may be done quite simply. Prima facie this is a
sale and so unless the contrary intention appears both
legal and equitable ownership vest in the buyer. Thus no
mention need be made of legal title. Indeed, it is probably
the case that the trust as such need not be spelt out as
such will be inferred as flowing naturally and
consequentially from the retention of equitable ownership.
It would seem superfluous to spell out the rights of the
beneficiary in the second limb of the clause as we are all
familiar with such rights, but perhaps it would serve to
alert the unwary.
Thus the question becomes purely one of Trust. The
second part of the clause then merely spells out the rights
that any beneficiary under a trust for sale has after sale in
the proceeds of the trust property, namely, the right to
have them paid over by the Trustee. Such right is also
good as against 3rd parties with or without notice of the
Trust who may make a claim to the proceeds under a
debenture or in a liquidationn because the proceeds do
not form part of the assets of the company. So,, once
payment has been received by No. 2 No. 1 has good
security. Now, let us examine the situation where
payment has not been received. Here we must ask
ourselves what are the rights of No. 1 (the bene-ciary)
against the original trust property when such has been
sold in accordance with the trust with power of sale. One
of the duties of a Trustee for sale is to receive payment for
the property sold so that he may hand it on to the
Beneficiary, thus, if payment is not received there has
been a breach of trust. Where there has been a breach of
trust the beneficiary has not only his personal rights
against the trustee which in this case may prove
worthless, the No. 2 company probably being insolvent,
but he has also the right to follow or trace the trust
property into the hands of persons other than bona fide
purchasers for value without notice. Thus if the sub-
purchasers do not pay No. 2 the property may be traced
into their hands. If they then subsequently deal with the
goods to yet further parties who are bona fide and give
value then the right to trace into their hands is lost
provided they have no notice of the trust. While in the
short term Sellers may be frustrated by this, in the long
term, as the commercial world becomes more and more
familiar with such clauses it is only a matter of time
before the Courts hold that constructive notice of the
rights of beneficiaries under such trusts appertain to all
dealing with companies in receipt of goods and materials
and not just associated companies as in the Interview
case.
THE RETENTION OF TITLE CLAUSE AND VAT
Under section 2 of the 1972 VAT Act (insofar as is
relevant) tax is charged on the delivery of goods by an
accountable person in the course of business. In the Act
"delivery" in relation to the goods includes the transfer of
ownership of the goods by agreement. "Ownership" is
not defined, but a trustee for sale of goods who sells to a
third party is transferring both legal and equitable title
and so muct be a transfer of "ownership" within the
meaning of the section. Section 3 (4) seems to place
beyond doubt that a trustee for sale who makes a delivery
in the course of business is an accountable person. All
accountable persons must issue VAT invoices. Those that
issue the invoices are liable to account to the Revenue for
VAT. Thus there appears to be no danger of sellers
incurring liability for VAT on the subsale as the Buyers
are seperate accountable persons.
It is arguable that sellers, far from being liable for the
VAT on sub-sales, are not even themselves liable for VAT
on "sales" made by them to Buyers under their
conditions of sale. We have seen that under the conditions
of sale the Buyers do not get beneficial ownership, and so
it is arguable that there has been no "delivery" to them by
the Seller and they are mere trustees.
On the other hand, it could be argued that section 3(4)
equates the position of the Trustee with that of an agent of
an undisclosed Principal and he is thereby
deemed
to have
made a delivery to the Buyer. However, there has
certainly been a transfer of possession between trustee
and beneficiary and as such there has been a delivery
within the meaning of the Sale of Goods Act 1893. Thus,
one may conclude by saying that the transaction made by
the sub-sale operatively fixes both the Seller and the Buyer
with VAT liability, each dor their respective deliveries. In
theory then, the sellers do not become liable for VAT uhtil
a sub-sale is made by the Buyer but in practice they will
invoice the Buyer with BAT at the time of transfer of
possession to the Buyer and the Buyer will invoice his
VAT on his sub-sale.
In this way I hope some of the problems now
associated with such clauses will disappear; the threat of
being bound by warranties recedes with agency,
accounting is rendered much more certain as the
distinction does not now have to be made between
accounts done on the basis, of a going concern and those
done on a strict legal basis, and the Revenue may look for
the V.A.T. on the "sale" at least when sub-sales have
been made.
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