LMC Caravan GmbH & Co KG v GE Commercial Corporation

CASES CITED: Kuru v State of New South Wales [2008] HCA 26; 236 CLR 1 Lumbers v W Cook Builders Pty Ltd (in liq) [2008] HCA 27; 232 CLR 635

PARTIES: LMC Caravan GmbH & Co KG (Appellant) GE Commercial Corporation (Australia) Pty Ltd (Respondent)

COUNSEL: Mr R J Weber SC, Mr A M Maroya (Appellant) Mr G Burton SC, Mr A Bulley (Respondent)

SOLICITORS: Holman Webb Lawyers (Appellant) Dibbs Barker Lawyers (Respondent)

LOWER COURT JURISDICTION: Supreme Court - Equity Division

LOWER COURT DATE OF DECISION: 13 August 2009

LOWER COURT MEDIUM NEUTRAL CITATION: GE Commercial Corporation (Aust) Pty Ltd v Mell Associates Pty Ltd & Ors [2009] NSWSC 787

IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL 2009/298473

ALLSOP P HODGSON JA MACFARLAN JA

Thursday 20 May 2010 LMC CARAVANS GMBH & CO KG v G E COMMERCIAL CORPORATION (AUSTRALIA) PTY LIMITED

Judgment 1 ALLSOP P: All members of the Court have reached a clear view about this matter. We are all of the view that the commercial parties will not be assisted by any delay in delivery of reasons. Speaking for myself only, my ability to deliver an extempore judgment today should not be taken as a view that the point in issue is obvious, or not in any way contestable. There are two views open and I have reached a view with sufficient confidence to be in a position to deliver my reasons. May I say, at the outset that, speaking for myself, I have been able to do so in no small measure due to the clear judgment of the primary judge and the helpful submissions of counsel, based no doubt on the careful preparation of all those concerned. I express my gratitude to counsel and solicitors for their assistance. 2 The dispute is between two innocent parties about the operation of a tripartite commercial arrangement. The appellant, LMC Caravans GmbH & Co KG ("LMC") is a German company which sold caravans and associated parts to a company by the name of Oakhurst International Caravans Pty Ltd ("Oakhurst"). Oakhurst is not a party to the proceeding. 3 Oakhurst obtained finance from the respondent, GE Commercial Corporation (Australia) Pty Limited ("GE"). The essential facts are not in dispute. The relevant contractual terms, to which I will come shortly, were incorporated into a contract between LMC and Oakhurst. Goods were consigned by LMC to Oakhurst under invoices and subject to terms. Pursuant to the financing arrangements between GE and Oakhurst, Oakhurst sold caravans to GE under invoices which included the primary invoices from LMC. The goods remained at all times "on the floor" of Oakhurst's business; they were paid for by GE by the dispatch of Euros to LMC in Europe. In effect, the arrangement was a sale and bailment by way of provision of finance under what is usually termed a "floor plan agreement". Upon receipt of funds by LMC from GE, communication took place between officers of LMC and Oakhurst which involved Oakhurst identifying, by reference to documents, which numbered caravans were being paid for by Oakhurst. Thus, as between LMC and Oakhurst, there was a contractual and legal appropriation of moneys under their relationship as to what had been paid for. As between Oakhurst and GE, what was being paid for between the two parties were the caravans identified in the invoices that were delivered by Oakhurst to GE. Oakhurst is in insolvent administration. There are apparently many caravans missing from its assets. 4 Under the purported authority of the documents, to which I will come shortly, LMC seized a number of caravans on the basis of ownership of those caravans. The dispute crystallised as to 58 caravans with a wholesale value, that is, an invoice value as between LMC and Oakhurst, of over $2 million. 5 The question between the parties was who was entitled to these 58 caravans, in fact now the proceeds of their sale, the caravans having been by agreement sold, and the dispute of settling over the sums of money from those sales. LMC says that it is entitled to the funds because of the retention of title clause or clauses in their respective documents. It is said that this is the case on the basis that it has not been paid for these particular caravans. 6 As between LMC and Oakhurst, as I have said, it is clear that the mutual accounts of those parties and the books of LMC support the proposition from LMC's position that it has not been paid for those caravans. GE says that it has paid for these caravans by reference to its relationship with Oakhurst because it has paid on invoices which dealt with these caravans. GE says Oakhurst had authority to sell these caravans to it, GE, under the documents to which I will come. 7 The initial apparent difficulty in the facts as I have described them is brought about because, as between Oakhurst and GE, GE's books of account show that the 58 caravans had been paid for by GE. That is, GE sent value to LMC by reference to the 58 caravans in question satisfying its obligation to Oakhurst under the relevant sales from Oakhurst to it under the floor plan arrangements. 8 The sums sent by GE were not, however, identified by GE in the monetary transfers through the payment system as referable to any particular sale. Rather, when funds were received the process of communication between LMC and Oakhurst to which I have referred was then undertaken. In that communication the officer of Oakhurst identified to LMC that caravans other than the 58 were the subject of these funds. Hence the importance of the missing caravans. The caravans had a consistent price for models and this enabled or made possible this discrepancy. 9 Whether this conduct by the officer of Oakhurst was careless or was attributable to some more sinister explanation does not matter for present purposes and I draw no conclusion about it. It was not suggested that the motivation of the officer of Oakhurst was relevant to the resolution of this commercial dispute. 10 The result is that as between LMC and Oakhurst, the appropriation of receipts means that Oakhurst has not paid for these caravans bilaterally between the two contracting parties. This is so notwithstanding that GE has paid on the invoices issued by Oakhurst to it referable to these caravans. 11 It is now necessary to turn to the documents in question. The goods were sold under commercial invoices, an example of which is contained in translation at page 310 of the blue book. Under the name and address of the purchaser there is an invoice number and customer number. There is immediately thereunder the statement in clear terms to the reader, "We supplied you on the basis of our general Conditions of Sale and Delivery". The goods are then identified by reference to chassis number, description and price in Euros. About two thirds of the way down the page is the important statement, "The vendor remains, until completed payment, the unrestricted owner of the supplied goods". 12 Slightly below that, after the directors of LMC are identified, there are a number of columns of information, one of which translated into English is to the following effect:

"Our supplies, services and offers are made on the basis of our General Conditions of Trade. The goods remain our property until the complete payment of the aggregate liabilities which arose from the business relationship. 13 The standard conditions of sale and delivery were on the reverse of the invoice and were in German. They have been translated into English. It is not suggested by any party that the fact that these standard terms were in German in any way lessens their contractual force and was not submitted before us that these terms were not part of the contractual arrangement between the parties. 14 I should add that it appears that, although GE did not have actual knowledge of the terms and conditions, that was only because it failed to translate the German into English. It had the LMC invoices including the reverse side in the bundle of sale papers given to it by Oakhurst. 15 In the conditions of sale and delivery there are a number of clauses which it is unnecessary to refer to. However, it is necessary to consider, importantly, clause 3 under the heading, "Title Retention" and under that heading the following relevantly appears: "3. Title Retention " We retain the right of title in the purchased product until all payments originating from the business relationship with the dealer are received. Title retention remains in place, even if individual receivables by the reseller are included in the running account, or if the accounting balance is being drawn and accepted. To the extent that an agreement exists about payment of the receivable purchase price by way of a cheque/bill of exchange process [footnote], the retention of title is maintained even in the case where the bill of exchange accepted by us is redeemed and is not extinguished by the received cheque in our favour being presented to the bank. If the dealer displays conduct in breach of contract, specifically delays in payment, we shall be entitled to claiming the goods back after setting an appropriate time limit. We shall be entitled to reclaim the purchase product for the purpose of disposing of it; any proceeds of the disposal shall be offset against the dealer's liabilities after appropriate disposal charges have been deduced. The dealer is obligated to treat the purchased product with care; specifically, he is obligated to insure the product sufficiently at its replacement value and at his/her own expense against fire, water and theft. If any maintenance or inspection work falls due, the dealer shall carry such work out in a timely manner and at his/her own expense. In the case of garnishment or any other enforcement being imposed, the dealer shall inform us immediately in writing, so that we can commence proceedings under S. 771 German Civil Proceedings Regulation. If the third party is unable to reimburse the legal and other costs resulting from a suit under S. 771 German Civil Proceedings Regulation, the dealer shall be liable for any loss incurred by us. The dealer may on-sell the goods in the course of his/her normal business activities; however, he/she shall cede immediately all receivables up to the total of our invoice (including VAT) which are due to him/her from his/her customers or from third parties, which are due to his/her on-selling of the product, irrespective of it being sold with or without further work being carried out on it. The dealer shall be authorised to collect the receivables concerned, even after the cession. Our own right to collect the receivables remains unaffected. However, we make the commitment of not collecting the receivables as long as the dealer continues to fulfil his/her payment obligations from moneys received, avoids going into default and/or specifically does not apply for insolvency proceedings to be instigated and/or stops making payments altogether. Should such a situation occur we shall be in a position to demand that the ceded receivables and debtor concerned are disclosed to us by the dealer, that all details needed for collection are revealed, that all relevant documentation is handed over and that the debtor (third party) is informed of the cession. Any processing or rebuilding of the product by the dealer is always carried out on our behalf. If the purchased product is further processed using materials that we do not own, we acquire part ownership in the new products, i.e. at the proportion of the purchased product value (final invoiced amount including VAT) in relation to the new materials used in processing at the time of processing. For goods created by further processing, the same applies as for the purchased product, i.e. retention of title. If the purchased product is inseparably intermingled with other materials that we do not own, we acquire part ownership in the new products, i.e. at the proportion of the purchased product value (final invoiced amount including VAT) in relation to the new intermingling. If the intermingling comes about in such a way that the dealer's goods are considered the main component, it is assumed that the dealer provides a part ownership in the goods to us. The dealer shall safe-keep our sole or partial ownership that has come about in this way. We make the commitment to release any securities we are entitled to, to the extent that the achievable value of our securities exceed the receivables they are received for by more than 10%, provided the dealer asks for such a release. The selection of securities that are to be released shall be our prerogative."

[emphasis added] 16 The learned primary judge and the parties used a shorthand, which I will use in the balance of these reasons, referring to the first clause on the face of the invoice commencing, "The vendor remains …" as ROT 1, (that is Retention of Title 1) and ROT 2, being that which appears at the bottom left hand corner of the face of the invoice, ROT 3, being the first part of the clause, "Title Retention" from "We retain …" down to "… being drawn and accepted", and ROT 4, being that part of Title Retention clause number 3 commencing, "The dealer may on-sell …", down to the word "cession". 17 The point was fairly made in argument that the contractual provisions should be read as a whole. I agree. There is a risk of falling into error in ignoring the balance of the documents and not examining the relevant parts of the documents in the structure of the document as a whole. However, I do not think I need to say any more about that. 18 The principal issue is the extent of the authority to on-sell in ROT 4. The appellant says that ROT 4 did not give authority to sell in accordance with the terms of that clause unless the specific goods covered by the invoice had been paid for by Oakhurst. The importance of that is that this construction viewed ROT 1 on the face of the invoice, being the words "The vendor remains, until completed payment, the unrestricted owner of the supplied goods", as unqualified by any aspect of ROT 4 or clause 3, "Title Retention". The argument was that ROT 1 was a narrow and adamant statement of legal position irrespective of anything else in the sale agreement. 19 Thus if, as here, on the facts that I have identified, as between LMC and Oakhurst the 58 caravans had not been paid for, there was no authority, so it was argued, under clause 3, "Title Retention" and specifically ROT 4 to sell the goods to GE. Therefore, notwithstanding what is contained in ROT 4, in these circumstances it did not apply because it only applied if the specific goods had been paid for. 20 On the other hand, the respondent submitted that the authority to on-sell in clause 3, "Title Retention" was general in its terms on its face and applied in all circumstances to enable Oakhurst to carry on its business. On this argument, ROT 1 is to be read as qualified by the terms and conditions, including ROT 4. 21 The primary judge said that ROT 1 and, indeed, ROT 2 did not have contractual force. I respectfully disagree with that conclusion. The terms of ROT 1 and ROT 2 are clearly intended in my view to be understood by reference to the legal relationship of the parties and the rights it created between the parties. They are expressed in words of right and obligation and in my view were intended on a sensible business reading to be part of the legal construct between the parties. 22 The document is to be construed as it would be read and understood by reasonable business people in this context involving the background and context and market of the parties. That is uncontroversial and needs no particular recitation of authorities. It is important to give a business interpretation of clarity and sense, eschewing over-refinement and technicality beyond that introduced by the language of the parties. 23 I agree with the argument of LMC that ROT 1 is directed to complete a payment of the invoice for the supply of goods. The same German expression is used in ROT 1 and ROT 2, "bis zur vollständigen Bezahlung". This was translated differentially "until the complete payment" or "until the full payment". The meaning of the words "full" and "complete" is relevantly identical and the same expression was used in both ROT 1 and ROT 2. 24 The respondent latched upon that in argument to say that ROT 1 was simply a restatement of the wider retention of title clause exhibited by ROT 2 and ROT 3. I do not agree. I think when it is properly understood ROT 1 is referring to the payment for particular goods. 25 Notwithstanding my agreement thus far with the argument of LMC, I cannot agree, with respect, that the contract should be read as ROT 1 being entirely unconstrained and uninfluenced by the balance of the contractual terms. Why I think this is the essential part of my reasons. 26 First, the face of the business invoice tells the business reader two importantly relevant things. One, the general conditions of sale and delivery cover this relationship. That is the basis of the supply. Second, until you pay for the goods the vendor remains unrestricted owner. 27 These two important things are, however, in my view, reading the document, to be understood together. Neither on its face is said to be superior to the other. The general terms and conditions are said to be the basis of the supply. Thus, in my view, the two important pieces of information to the business reader must be understood together as a whole and in the context of the general conditions of sale and delivery. 28 ROT 2 and ROT 3 operated to extend the retention of title clause to circumstances where the particular goods may have been paid for, nevertheless there was an outstanding balance of account due by Oakhurst to LMC. In those circumstances, the retention of title clause continues to operate. 29 Within clause 3 there is also the generally unqualified statement that I referred to as ROT 4. Critical to business people in this context is the ability of someone in Oakhurst's position to be able to deal with the goods in the ordinary course of business. Of course, critical to LMC is its protection, in particular in circumstances of insolvency, by reference to the operation of the retention of title clause or clauses. These two things have to be balanced in the sensible conduct of trade and commerce in the ordinary course of business and in the stringencies of insolvency. 30 The ability to deal with the goods is set out in ROT 4. It is part of clause 3 of the retention of title, but it is also part of the general conditions of sale and delivery which is the basis of the supply. The reasonable business reader looking to his or her rights to deal with the goods in the ordinary course of business, having been alerted by the face of the document to the importance of the general terms and conditions and to the existence of the obligation or entitlement of retention of title, would read clause 3 and within it, ROT 4. In my view, that would be read generally and in a business-like way to give a general authority to on-sell the goods. 31 I disagree with the submission of the appellant that "on-sell" means sell only if the sale from LMC has been paid for. It was submitted that one could only on-sell if there had been a sale and there could only be a sale if title had passed and the vendor ceased to be the unrestricted owner. 32 Whilst I accept the logical and legal force of the argument, which is by no means untenable, in my view, that it is not how business people would read this document and interpret an invoice subject to the conditions of sale and delivery. Even if the specific goods had not been paid for and even if it be the case that because of that LMC is prima facie the unrestricted owner, there has been a transaction between commercial parties. Goods have been shipped from Germany to Australia. An invoice has been issued, an invoice describing, as the basis of the supply, certain conditions of sale and delivery. One of those conditions and one of the terms of the contractual arrangement is ROT 1, but also one of the contractual terms is ROT 4. 33 In those circumstances, in my view, it is an acceptable, sensible and straightforward use of language to say that the dealer may on-sell the goods in circumstances where that antecedent transaction has occurred, albeit without payment for the precise goods in the invoice. That, in my view, in a business sense, is an on-sale. 34 To construe ROT 4 as restricted to authority only when the goods in the invoice have been paid for would only give LMC limited rights under the clause. It would lead to LMC having to rely upon common law and equitable rights of tracing as to proceeds if the goods had been sold without authority and the legal complexity involved in that. It would give those rights at general law, not only over the invoice value, but prima facie the whole retail price of the goods in contradistinction to ROT 4 which was restricted to "up to the total value of our invoice". It would lead to two different regimes of remedy for LMC; one under the general law if the goods were sold before payment and one under ROT 4 if the goods had been paid for, but there was a balance of account owing. It would also place third parties in an arbitrary position of risk of lack of title by reference to the timing of the on-sale, as I have understood the term, and the payment under the invoice. 35 If the right to on-sell was so limited as the argument of the appellant would have it, this would restrict the commercial ability of Oakhurst to give title either to third parties or to financiers in the position of GE. Alternatively, a straightforward reading of ROT 4 as part of the terms and conditions binding the parties as the basis of supply appears to give parties such as GE as a financier and such as Oakhurst as a dealer the confidence to sell the goods in the ordinary course of business activities. In my view, that is how the whole contract read together would be understood. 36 Thus, in my view, it is insufficiently clear on the face of the invoice to read the general conditions of the sale and delivery as not qualifying in any way the statement that is ROT 1. In my view, the authority to on-sell was generally expressed and would not be construed so as not to apply to circumstances where the goods had not been paid for. In my view, clearer language was required for the more narrow construction and operation of ROT 4. This means that ROT 4 gave authority to sell to Oakhurst. 37 The question then was of the rights to receive the receivables from that sale. This means that it would be important for LMC to understand what was the state of record and account between GE and Oakhurst and whether GE has in fact already paid for the goods. As my earlier recounting of the facts reveals, as between those parties, GE has paid for the goods and so there are no receivables to cede to LMC by reason of the operation of ROT 4. 38 It was faintly put in argument, and was contained in the written submissions, that the sale by Oakhurst to GE was not a sale in the course of Oakhurst's normal business activities for the purposes of ROT 4. I do not agree. The submissions of the respondent are correct in this regard. There was evidence, which was uncontradicted, that this was a usual method of financing by Oakhurst and it is a well known, well understood method of financing. In my view, there is no substance in this argument. 39 The High Court in Kuru v State of New South Wales [2008] HCA 26; 236 CLR 1 has made it plain that intermediate appellate courts should consider whether or not they should deal with other arguments raised that are unnecessary for the disposition of the matter. I have given consideration to this. I do not propose, subject to some very brief comments, to deal with the other alternative arguments put by the respondents and the answers to them. If I were to deal with the arguments in relation to the Sale of Goods Act 1923 (NSW) and the restitution claim these business people would be delayed in their answer from this Court for some weeks. 40 There is no suggestion that the primary judge has not dealt with all relevant facts. If the parties wish to take this dispute further there will in my view be no difficulty in the High Court dealing with those further matters should I be wrong. Therefore, subject to the one comment that I will make below, I do not think it appropriate for this Court to delay these commercial parties from the receipt of an answer to their dispute for the elucidation of obiter dicta unnecessary for the resolution of the dispute. 41 I would say this. In relation to the restitutionary claim that was propounded in the alternative, based on the asserted mistake of fact by GE in that it paid the moneys to LMC on the assumption or mistake about what it was paying for, the use of restitution in those circumstances to attack the receipt by a third party of payment would appear to have its difficulties. 42 There was a contractual bilateral arrangement between Oakhurst and GE. GE protected itself, for good or ill, by reference to its terms and conditions in that contract. If there has been a failure of Oakhurst to comply with those terms and conditions referable to title that is a matter to be sorted out and worked out through the bilateral rights of GE and Oakhurst and in this respect I would refer to the various judgments in the High Court in Lumbers v W Cook Builders Pty Ltd (in liq) [2008] HCA 27; 232 CLR 635. These are not concluded views, but are an indication of the difficulty I think the respondent would face in relation to the restitution argument. 43 Those being the substantive matters argued today, for those reasons I would dismiss the appeal with costs. 44 Before finishing I would only repeat my expression of gratitude to the parties for the clarity and skill with which the matter was argued. 45 HODGSON JA: I agree with the order proposed by the President and with his reasons. I will just add a few comments of my own. 46 The contention of the appellant was that while the authority to sell in term 3 of the sale and delivery terms, which has been called ROT 4, had the effect of qualifying what has been called ROT 2 and ROT 3, it did not qualify the effect of ROT 1. 47 In considering this argument, in my opinion, it is important to note that the authority to sell is itself expressed in unqualified terms. The only basis within the authority itself on which it could be said that it did not apply to cases within ROT 1 is the expression "on-sell". However, in my opinion, those words suggest only that a contract of sale has been entered into from LMC to Oakhurst. It is not a requirement from those words that payment must have been made in respect of that contract. 48 The position of the appellant then depended on implying some qualification into the authority to sell. It was contended that this qualification should be implied because the authority to sell is within term 3, which also contained ROT 3, which is effectively to the same effect as ROT 2 whereas ROT 1 is in different terms and itself unqualified. It was also contended that otherwise, ROT 1 would be otiose. 49 In my opinion the consideration that otherwise ROT 1 would be otiose has limited weight, because on this approach at least ROT 2 is otiose. 50 In my opinion ROT 1 is insufficient to imply some qualification into the otherwise unqualified authority to sell, essentially for the reasons given by the President. Matters that weigh particularly with me are:

(1) Words on the face of the invoice direct attention to the sale and delivery terms, which contain the authority to sell but not ROT 1.

(2) This contract is a standard form produced by LMC, so that in my opinion it is appropriate to ask whether its wording as a whole is apt to bring home to a reasonable business person that an apparently unqualified authority to sell is qualified by some other term.

(3) In my view the difference of language between ROT 1 and ROT 2 is not apt to bring home to a reasonable business person the significance and effect of that difference, and in particular to make it clear to such a person that what is expressed as an unqualified authority is in fact qualified by ROT 1. 51 MACFARLAN JA: I agree with both judgments that have been delivered. 52 ALLSOP P: The orders of the court are the appeal be dismissed with costs.

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