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You are here: BAILII >> Databases >> England and Wales High Court (Commercial Court) Decisions >> Glencore International AG v Metro Trading International Inc [2000] EWHC 199 (Comm) (12 October 2000) URL: https://www.bailii.org/ew/cases/EWHC/Comm/2000/199.html Cite as: [2000] EWHC 199 (Comm) |
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IN THE HIGH COURT OF JUSTICE 1998 FOLIO No.273
QUEEN’S BENCH DIVISION
COMMERCIAL COURT
THE HONOURABLE MR. JUSTICE MOORE-BICK
BETWEEN
Claimant
Defendants
AND in the following actions: 1998 Folio No.219, 1998 Folio No.248, 1998 Folio No.513, 1998 Folio No.1091, 1998 Folio No.1598;
AND in the interpleader actions set out in the Schedule to the Order of Rix J. dated 16th November 1999;
AND also in the following actions: 1998 Folio No. 654 and 1998 Folio 1588.
Mr. Alistair Schaff Q.C. and Mr. Richard Southern instructed by Clyde & Co. appeared for Glencore International A.G.
Mr. Stephen Hofmeyr Q.C. appeared for Mobil Export Corporation, Caltex Trading Pte Ltd and Texaco International Trader Inc. instructed by Rayfield Mills, Holman Fenwick & Willan and Hill Taylor Dickinson respectively.
Arexco International Ltd did not appear and was not represented.
Mr. Steven Gee Q.C. and Mr. Michael Davey instructed by Holmes Hardingham appeared for the Purchasers.
Mr. Andrew Smith Q.C. and Mr. Paul McGrath instructed by Barlow Lyde & Gilbert appeared for Metro Trading International Inc.
Mr. Andrew Smith Q.C., Mr. Paul McGrath and Mr. Rory McAlpine instructed by Denton Wilde Sapte appeared on behalf of Credit Lyonnais.
Credit Agricole Indosuez and Banque Bruxelles Lambert (Suisse) S.A. did not appear and were not represented.
Pursuant to the Practice Statement issued by the Master of the Rolls on 9th July 1990 I hereby certify that the attached text records my judgment in this matter and direct that no further record or transcript of the same need be made.
Foreword
Background
Phase 1 of the litigation
(a) what system of law governs the transfer of title to oil delivered by the Oil Claimants to MTI and by MTI to the Purchasers and any non-contractual liabilities which MTI and the Purchasers may have incurred to the Oil Claimants?
(b) what are the relevant rules of the law of Fujairah?
(c) what are the relevant rules of English law?
These questions were to be decided on the assumption
(a) that the Oil Claimants’ relationships with MTI are governed by the contracts which they allege in their pleadings;
(b) that title to the oil was vested in the Oil Claimants immediately prior to the arrival of the carrying vessel in the territorial waters of Fujairah;
(c) that the storage vessels were at all times within the territorial waters of Fujairah and that all acts of commingling, blending, sale and delivery took place within Fujairah;
(d) that everything done by the Purchasers in relation to the purchase, delivery, consumption and disposal of the oil was done in Fujairah;
(e) that the oil products due for delivery by MOC to Texaco were stored in the storage vessels operated by MTI and that title to them was vested in Texaco prior to their delivery to MTI.
These assumptions are fundamental to the determination of the issues arising under Phase 1, but it is right to emphasise that they are no more than assumptions and that they do not call for further elaboration at this stage. It is particularly important that I should emphasise this in relation to the first assumption, both because it might be understood as requiring the court to consider the specific terms of the contracts on which the Oil Claimants rely and because the precise nature and terms of the contracts under which oil was delivered to MTI may well be of great significance. However, the precise terms of the contracts between the parties and the nature of the relationships to which they gave rise lie at the heart of the dispute and will be the subject of decision in Phase 2. It is therefore undesirable in my view to say more about them at this stage than is absolutely necessary. In fact, for the purposes of Phase 1 it is necessary to assume in relation to Glencore, Caltex, Mobil and Arexco no more than that each of them entered into a contract with MTI and under which oil was delivered to MTI, that in the case of Glencore, Caltex and Mobil the contract is governed by English law and that in the case of Arexco there is no express choice of law. In Texaco’s case it is necessary only to assume that it entered into a contract with MOC for the refining of crude oil, that the contract is governed by the law of New York, and that products belonging to Texaco under that contract were delivered by MOC to MTI for storage.
The Conflict of laws issues
Issue A.1 - Whether, as a matter of English conflict of law principles, questions as to who, as between MTI and the respective Oil Claimant, acquired and/or retained and/or lost title to the relevant oil (upon and after the arrival of the oil within Fujairah territorial waters) are governed by English law (as the proper law of the relevant contracts) or Fujairah / UAE law (as the lex situs of the oil).
“Rule 116 – The validity of a transfer of a tangible movable and its effect on the proprietary rights of the parties thereto and of those claiming under them in respect thereof are governed by the law of the country where the movable is at the time of the transfer (lex situs).
(1) A transfer of a tangible movable which is valid and effective by the law of the country where the movable is at the time of the transfer is valid and effective in England.
(2) Subject to the Exception hereinafter mentioned, a transfer of a tangible movable which is invalid or ineffective by the law of the country where the movable is at the time of the transfer is invalid or ineffective in England.”
and by Cheshire & North’s Private International Law (13th ed.) in this way at page 942:
“. . . . . . . . it is now established that the proprietary effect of a particular assignment of movables is governed exclusively by the law of the country where they are situated at the time of the assignment. An owner will be divested of his title to movables if they are taken to a foreign country and there assigned in circumstances sufficient by the local law to pass a valid title to the assignee.”
He submitted, however, that some limits to this principle have already been recognised and that a further exception ought to be recognised where goods are transferred by one person to another under a contract. In matters of contract English law gives effect to the proper law of the contract and through it to the parties’ intentions as expressed in the contract. Mr. Schaff submitted that when issues relating to the passing of property arise as between the immediate parties to the contract English law ought to resolve any conflict between the terms of the contract and the lex situs by recognising and giving effect to the contract in accordance with its proper law in preference to the lex situs. He submitted that none of the decided cases precluded such an approach which, he said, would accord with the commercial expectations of the parties, although he recognised that this approach would have to be modified if the interests of a third party were involved.
"if personal property is disposed of in a manner binding according to the law of the country where it is, that disposition is binding everywhere."
That principle received general approval in Castrique v Imrie (1870) L.R. 4 H.L. 414, and by 1929 Maugham J. could say 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 law of the country where the movable is situate.”
“I think it is convenient to begin by considering what is the general principle of our law with regard to foreign legislation affecting property within our territory. There is little doubt that it is the lex situs which as a general rule governs the transfer of movables when effected contractually.”
Diplock L.J. went rather further in Hardwick Game Farm v Suffolk Agricultural Poultry Producers Association [1966] 1 W.L.R. 287 in explaining the practical consequences of the rule. He said at page 330
“The proper law governing the transfer of corporeal movable property is the lex situs. A contract made in England and governed by English law for the sale of specific goods situated in Germany, although it would be effective to pass the property in the goods at the moment the contract was made if the goods were situate in England, would not have that effect if under German law (as I believe to be the case) delivery of the goods was required in order to transfer the property in them.”
“the application of the law of the situs rule must prevail on practical grounds of business convenience”.
“When a moveable fund, situated in Scotland, admittedly belongs to one or other of two domiciled Englishmen, the question to which of them it belongs is prima facie one of English law, and ought to be so treated by the Courts of Scotland.”
“there is no apparent reason why the parties should find it attractive that rights under the contract with regard to deposited property should vary according to the place where that property might be at the time; and should, so long as that property was deposited abroad, be settled by a law with which the parties were perhaps unfamiliar.”
It is important to bear in mind, however, what the issues were, both in that case and in Kahler v Midland Bank. In each case the action was brought in detinue to obtain the delivery up of securities held by the bank, and as Slade J. pointed out in Winkworth v Christie, in order to succeed in such an action the claimant must establish an immediate right to possession of the goods. Property in the goods may carry with it an immediate right to possession, but not if that right has been qualified, either under a contract with a third party to whose order the goods are directly held (as in Kahler v Midland Bank), or under the contract between the claimant and the defendant (as in Zivnostenska Banka v Frankman). In such cases the contract effectively determines whether the claimant has a good possessory title (in the sense of an immediate right to possession) as against the defendant, but it has no bearing on the question of proprietary title. Neither of these cases seems to me, therefore, to provide any support for this part of the argument.
“Security of title is as important to an innocent purchaser as it is to an innocent owner whose goods have been stolen from him. Commercial convenience may be said imperatively to demand that proprietary rights to movables shall generally be determined by the lex situs under the rules of private international law.”
“Two decisive considerations are, firstly, that the country of the situs has the effective power over the chattel; secondly, that the exclusive application of the law of the situs alone can fulfil the need for security in international property transactions.”
“The application of the lex situs at the time of the act in question will also determine ownership upon the making of a new thing (specificatio), or after the incorporation of the thing into another (accessio).”
Issue A.2 - Whether, as a matter of English conflict of law principles, questions as to whether any claims against MTI are governed by Fujairah/UAE law, English law or some other law as the applicable law of the claim.
Issue B - In the event that as a matter of English conflict of law principles, the answer to question A.1 would be Fujairah / UAE law, whether as a matter of Fujairah / UAE conflict of law principles and/or Fujairah / UAE domestic law, questions as to who, as between MTI and the respective Oil Claimant, acquired and/or retained title to the relevant oil are governed or otherwise affected by English law (as the proper law of the relevant contracts) or Fujairah / UAE law (as the lex situs of the oil) alone.
“Article 18 - (1) Possession, ownership and other rights over property shall be governed by the lex situs in the case of real property and movable property shall be subject to the law of the place in which such property is at the time when the cause resulting in the acquisition or loss of possession, ownership or other rights over the property arose.
(2) The law of the state in which property is located shall determine whether such property is real or movable.
Article 19 - (1) The form and the substance of contractual obligations shall be governed by the law of the state in which the contracting parties are both resident if they are resident in the same state, but if they are resident in different states the law in which the contract was concluded shall apply unless they agree, or it is apparent from the circumstances that the intention was, that another law should apply.”
Issue C.1 - Whether, as a matter of English conflict of law principles, questions as to who, as between the respective Oil Claimant and the respective shipowning or purchasing co-defendant, acquired and/or retained title to the relevant oil are governed by English law (as the proper law of the relevant contracts between the Oil Claimant and MTI and between MTI and the respective co-defendant) or Fujairah / UAE law (as the lex situs of the oil).
Issue C.2 - Whether, as a matter of English conflict of law principles, questions as to whether any claims against the relevant co-defendant are governed by Fujairah law, English law or some other law as the applicable law of the claim.
Issue D - In the event that as a matter of English conflict of law principles, the answer to question C.1 would be Fujairah / UAE law, whether as a matter of Fujairah / UAE conflict of law principles and/or Fujairah / UAE domestic law, questions as to who, as between the respective Oil Claimant and the respective co-defendant acquired and/or retained title to the relevant oil are governed or otherwise affected by English law (as the proper law of the relevant contracts between the Oil Claimant and MTI and between MTI and the respective co-defendant) or Fujairah / UAE law (as the lex situs of the oil) alone.
Issue E - In relation to Texaco, in the event that English law is held to have any application as between any of the Oil Claimants, the ship-owning or purchasing co-Defendants and MTI, whether as a matter of English and/or Fujairah conflict of law principles questions between Texaco and those other parties as to who acquired and/or retained and/or lost title to the relevant oil (including refined product) and/or whether the respective ship-owning or purchasing co-Defendants have a good defence to Texaco’s claims are governed or otherwise affected by English law.
Issues of Fujairah law
Issue F - Whether and to what extent title would pass to MTI in respect of any relevant oil or whether and to what extent the respective Oil Claimant would retain ownership of the oil (if necessary as a co-owner of any commingled or blended bulk) in or notwithstanding each or any of the following assumed circumstances, namely, . . . . . . . .
“The general rule of English private international law, that foreign law is in our Courts a question of fact, is fundamental, although it does not inhibit the Court from using its own intelligence as on any other question of evidence. The material proposition of foreign law must be proved by a duly qualified expert in the law of the foreign country and the burden of proof rests on the party seeking to establish that law. The Court is free to scrutinise both the witness and what he says, as on any other issue of fact. The translation from the foreign language must be proved by a duly qualified interpreter, but even when a proved or agreed translation takes the place of the foreign document, it is still primarily the function of the expert witness to interpret its legal effect in order to convey to the English Court the meaning and effect which a Court of the foreign country would attribute to it if it applied correctly the law of that country to the questions under investigation by the English Court. His function necessarily extends to interpretation as well as application in the light of the general law of that country. The degree of freedom which the English Court has in putting its own construction on the written translation of foreign statutes before it, arises out of, and is measured by, its right and duty to criticise the oral evidence of the witness.”
With these principles in mind I turn to consider the evidence relating to the law of Fujairah.
Deposit and Loan
“Article 962 - (1) Deposit is a contract whereby the depositor authorises another person to keep his property and obligates such person to keep such property and return it in specie.”
“Article 849 - A loan [I’aara] is the conferring of ownership upon another of the use of a thing without consideration for a specified period or for a specified purpose, with a condition that that thing should be returned after use, and the thing lent shall mean the thing the use of which ownership has been conferred.”
Characteristics of an I’aara include the following:
“Article 850 - A loan shall be effected by taking delivery of the thing lent, and a loan shall be of no effect prior to such taking of delivery.
Article 851 - A loan must be of a particular thing, suitable for use without the substance thereof being destroyed . . . .”
“Article 710 - A loan [qardh] is the granting of ownership of property or fungible things to another with the condition that that other should return its like in amount, kind and description to the lender upon the expiry of the period of the loan.”
The incidents of a qardh are set out in the following articles. They include the following:
“Article 711 - The borrower shall obtain full ownership of the property lent under the contract even if he does not take possession of it from the lender and he may obtain an order in respect of it if the lender refuses to deliver it to him. . . . . . . . .
Article 713 - Property borrowed must be fungible and consumable.
Article 719 - (1) The borrower shall be bound to return the like of what he has borrowed in amount type and description upon the expiry of the period of the loan, notwithstanding any difference occurring in the value of the property, at the time and place agreed.”
In this context Article 992 is also of importance because, although it falls within the section of the Code dealing with bailment, it defines the boundary between simple bailment, or simple deposit, and qardh. It provides as follows:
“Article 992 - If the property bailed is a sum of money or a thing which can be destroyed by use and the bailor permits the bailee to use it, it shall be regarded as a contract of loan [qardh].”
It follows logically from these provisions that property in goods delivered under a qardh passes to the borrower regardless of what he subsequently does with the goods and although there is apparently no decision on the point, this conclusion was supported by both Mr. Barahim and Prof. Ballantyne.
Authorised commingling and blending
“Article 971 - (1) If the bailee lends or trades in the property bailed without the consent of the bailor, he shall be liable for it and his liability shall not be discharged save by returning like property to the place at which the bailment was made if it is a fungible, or by returning the value thereof to the bailor, and not at the place of bailment if it is a non-fungible, and any profit shall belong to the bailee in the event that he has traded with it.
(2) If he lends or trades in it with the consent of the bailor, then the property shall change its status from being bailed to being a debt owed by the bailee, and he shall not be discharged from it save by returning similar property if it is fungible or the value thereof if it is non-fungible to the bailor, and not to the place at which the bailment was made.
(3) If he lends or trades in part of the property bailed, he shall be liable as aforesaid in accordance with the circumstances, and the remainder of the property shall retain its status as property bailed.”
“Article 975 - (1) If the bailee mixes the property bailed with something else from which it is impossible to distinguish it and the other goods are not similar to the goods bailed in type or description, he shall be liable therefor as soon as it becomes mixed, but if it is not impossible to distinguish it or if the mixture is with goods of a similar type and description, he shall not be liable therefor.
(2) In that event, if part of the mixed goods are destroyed, they shall be divided between the two parties in the proportion owned by each of them until the good has become separated from the damaged, and the loss shall be borne by the owners (in their respective proportions).”
Once again we are here concerned with that section of the Civil Code which deals with bailment as defined in Article 962. Unlike Article 971 there is no reference in Article 975 to mixing occurring with the consent of the bailor, and therefore on the face of it this article is concerned with liability for unauthorised acts. It is fair to say, however, that paragraph (2) appears to have proprietary effect, or at least that it supports the conclusion that property in the mixed bulk is owned by the contributors in common.
Unauthorised commingling and blending
“Article 974 - If the property bailed is damaged [itlaf] in the hands of the bailee through his fault, he shall be liable [dhaman] therefor.”
Itlaf is generally translated as ‘damage’ and Prof. Ballantyne accepted that this article is apt to cover both partial damage and damage amounting to total destruction. In the light of that he confirmed that dhaman as used here simply means an obligation to make compensation. The provisions of Articles 300 and 301 of the Civil Code which deal with the general principles of compensation for damage are also relevant in this context. They provide as follows:
“Article 300 - Whoever destroys or damages property of another shall be obliged to make it good in kind if it can be so made good, and to pay the value thereof otherwise, subject to the general provisions relating to indemnification.
Article 301 - If the damage is partial, the person causing it shall be bound to make good the decrease in value, and if the decrease in value is serious (gross) the owner of the property may elect between taking the equivalent of the decrease in value, or abandoning the damaged property and taking the (full) value thereof, subject to the general provisions relating to indemnification.”
One can see that in cases of serious damage the injured party is given the right to choose between treating the loss as total or partial. However, if the property is destroyed, this choice does not exist.
“Article 1218 - Property guaranteed shall become owned by virtue of the guarantee [dhaman], such ownership being retrospective to the time at which the cause of ownership arose, provided that the subject matter must have been capable of being owned at the commencement of such period.”
The Explanatory Memorandum, after providing an explanation of the concept in terms which suggest that the acquisition of ownership is a consequence of indemnity, states that this is a ground of ownership derived from the Shariah and directs the reader to the commentary on dhaman by Sheikh Ali Al Khafif in Dar Al Fikr Al Arabi (1997) vol.1, page 213. One can see from this that dhaman has given rise to the concept of exchange of one property for another and this forms the basis for the acquisition of title in exchange for payment of the full value.
“Article 1274 - If movables belonging to two different owners become joined in such a way that they cannot be separated without damage and there is no agreement between the owners, the court shall decide upon the dispute in accordance with custom and the rules of equity, having regard to any damage which may occur, the state of both parties and the good faith of each of them.”
Recognition of the parties’ agreement
Whether and to what extent title would pass to MTI in respect of any relevant oil or whether and to what extent the respective Oil Claimant would retain ownership of the oil (if necessary as a co-owner of any commingled or blended bulk) in or notwithstanding each or any of the following assumed circumstances, namely
1. upon arrival of the carrying vessel in Fujairah territorial waters and/or delivery of the oil into storage, (or in the case of Texaco by virtue of MTI receiving and storing the relevant oil) by virtue of MTI being entitled under the arrangements identified in paragraph (1) above (or in the case of Texaco under the arrangements set out in paragraph (5) above), or any of them, to do any of the following acts, namely
a. to commingle the oil with other oil owned either by itself or by persons other than the respective Oil Claimant;
b. to blend the oil with other oil owned either by itself or by persons other than the respective Oil Claimant;
c. to agree to sell the oil to third parties;
d. to sell and/or deliver the oil to third parties;
Whether and to what extent title would pass to MTI in respect of any relevant oil or whether and to what extent the respective Oil Claimant would retain ownership of the oil (if necessary as a co-owner of any commingled or blended bulk) in or notwithstanding each or any of the following assumed circumstances, namely
2. by virtue of MTI being entitled under the arrangements identified in paragraph (1) above (or in the case of Texaco, paragraph (5) above), or any of them, to do any of the following acts, upon subsequently doing any of the following acts, namely
a. commingling the oil with other oil owned either by itself or by persons other than the respective Oil Claimant;
b. blending the oil with other oil owned either by itself or by persons other than the respective Oil Claimant;
c. agreeing to sell the oil to third parties;
d. selling and/or delivering the oil to third parties;
Whether and to what extent title would pass to MTI in respect of any relevant oil or whether and to what extent the respective Oil Claimant would retain ownership of the oil (if necessary as a co-owner of any commingled or blended bulk) in or notwithstanding each or any of the following assumed circumstances, namely
3. upon MTI doing any of the following acts, albeit that MTI were not entitled under the aforesaid arrangements to do any of the same, namely
a. commingling the oil with other oil owned either by itself or by persons other than the respective Oil Claimant;
b. blending the oil with other oil owned either by itself or by persons other than the respective Oil Claimant;
c. agreeing to sell the oil to third parties;
d. selling and/or delivering the oil to third parties;
Issue G - Assuming that title did not pass to MTI but was retained by the respective Oil Claimant up until MTI wrongfully sold and/or delivered the relevant oil to the respective shipowning and/or purchasing co-defendant, whether the respective co-defendant acquired title to the said oil on each or any of the following assumptions, . . . . . . . .
“Article 1325 - (1) No claim of ownership shall be heard against a person in possession of a movable or a right in rem over a movable or a bearer bill if his possession is based on a valid cause and he is acting in good faith.
(2) Possession shall of itself be indicative evidence of ownership unless the contrary is proved.
Article 1326 - (1) By way of exception to the provisions of the foregoing Article, the owner of a movable or a bearer bill may, if he has lost it, or it has been stolen or misappropriated from him, recover it from the person in possession of it in good faith within a period of three years from the date of the loss, theft or misappropriation, and the provisions relating to misappropriated movables shall apply to the recovery.
(2) If the person in possession of the stolen, lost or misappropriated thing has bought it in good faith in the market, by public auction, or by a person trading in similar things, he may require the person recovering that thing from him to pay the price which he has paid.”
“the taking of property openly by an act to remove or curtail the rightful hand of the owner and establish his wrongful hand without the owner’s permission or the permission of law that is by way of contestation”.
According to Ali Haider, one of two co-owners of property may become a misappropriator of that property as against the other if he takes it entirely for himself. Having set out the definition of ghasb, Ali Haider proceeds to discuss extensively each aspect of it. In relation to taking he says that the taking required for ghasb is taking for oneself, whether by simple handling or by force. Importantly, he divides taking into two kinds: ‘real’ taking and ‘constructive’ taking which, he says, occurs when a bailee denies the title of his bailor.
“Article 309 - If a person has goods in his possession by way of trust and he is guilty of a default in preserving them, or is guilty of a wrong-doing in respect of them or refuses to return them to the owner without right, or if he wrongfully asserts that they are his own, or if he dies and it is not known where the goods are, he shall be liable to return similar goods or the value thereof as the case may be.”
Another article which must be considered in this context is Article 312 which provides as follows:
“Article 312 - Any act of the same nature as misappropriation shall be treated as misappropriation.”
A more literal translation might be
“Equal to ghasb shall be treated as ghasb”.
“Article 1307 - (1) Possession is actual control by a person through himself over a thing or a right which may be dealt in.
(2) Possession by an intermediary shall be valid if the intermediary exercises it in the name of the possessor and if his relationship with the possessor binds him to comply with his directions in connection with such possession.”
Mr. Edge was constrained to accept that Article 1307(2) does recognise possession exercised through a bailee and that such possession may even be sufficient to support the acquisition of a good possessory title, for example when one person buys goods acting expressly on behalf of another. In these circumstances it is difficult to say that the words “stolen or misappropriated from him” in Article 1326(2) must be limited to a case where the goods were in the physical possession of the owner. Moreover, the introduction of ghasb raises another difficulty. Whereas loss and theft are primarily concerned with loss of possession, the essence of ghasb is misappropriation in the sense of denial of title which may or may not involve a loss of physical possession. This makes it that much more difficult to accept that the legislature intended to limit the operation of these Articles in the manner suggested by Mr. Edge. Recognising some of these difficulties Mr. Gee eventually accepted that Article 1326 could not sensibly be confined to cases of theft or misappropriation from the owner himself but must include theft or misappropriation by a third party from the bailee. He continued to maintain, however, that misappropriation by the bailee himself would fall outside it. His difficulty, however, is that there is nothing in the language of Article 1326 or the Explanatory Memorandum to support a distinction of that kind.
Issue G - Assuming that title did not pass to MTI but was retained by the respective Oil Claimant up until MTI wrongfully sold and/or delivered the relevant oil to the respective shipowning and/or purchasing co-defendant, whether the respective co-defendant acquired title to the said oil on each or any of the following assumptions, namely
1. at the time of purchase and/or taking of delivery and/or of any other subsequent acts of retention and/or consumption and/or resale and/or delivery, the respective co-defendant was acting in good faith within the meaning of Article 1325 of the UAE Civil Code;
“Article 304 - (1) The hand shall be bound to restore that which it has taken and shall remain bound until it does so.
(2) Whoever misappropriates property belonging to another must restore it to that other in the condition it was in when, and at the same place where, the misappropriation took place.
(3) If [the tortfeasor] has consumed or damaged the goods or if they have diminished or been damaged either with or without a wrongful act on his part, he must make good in kind or in value as at the day and place of misappropriation.
(4) He must also hand over any benefits or increase he has obtained from such property.”
The primary obligation of the misappropriator is to return the property in question to the owner, but the Explanatory Memorandum also states that things which naturally accrue to the misappropriated property, such as the milk of an animal, fruit in a garden or honey from bees, are to be treated in the same way as the property itself, and the same applies to the benefits of use since they too are an attribute of property. This is the purpose of Article 304(4). Under Article 971(1), on the other hand, a bailee who uses goods deposited with him in trade is permitted to keep any resulting profit, although he is still bound to restore the property or its value to the owner.
2. at the time of purchase and/or taking of delivery and/or of any other subsequent acts of retention and/or consumption and/or resale and/or delivery, the respective co-defendant was acting in good faith within the meaning of Article 1325 of the UAE Civil Code but the respective co-defendant subsequently received notice of the respective oil claimant’s interest in the relevant oil and the fact that it had been supplied or delivered to the respective co-defendant without that oil claimant’s consent;
3. at the time of purchase and/or taking of delivery and/or of any other subsequent acts of retention and/or consumption and/or resale and/or delivery, the respective co-defendant was acting in good faith within the meaning of Article 1325 of the UAE Civil Code but the respective co-defendant subsequently received notice of the respective oil claimant’s interest in the relevant oil and the fact that it had been supplied or delivered to the respective co-defendant without that oil claimant’s consent, at which time it had still not paid MTI for the respective goods;
4. the respective co-defendant received notice of the respective oil claimant’s interest in the relevant oil and the fact that it had been supplied or delivered to the respective co-defendant without that oil claimant’s consent and thereafter continued in possession of and/or dealt with the relevant oil notwithstanding such notice.
Issue H - Assuming that title did not pass to MTI but was retained by the respective Oil Claimant up until MTI wrongfully sold and/or delivered the relevant oil to the respective shipowning and/or purchasing co-defendant, whether the respective co-defendant is liable on each or any of the assumptions set out in paragraph G above.
Issue K - The effect of certain “admissions” made by MTI
“Article 63 - A person shall be bound by his admissions.”
On this basis he said that in his view MTI was prevented by admissions contained in those three messages from asserting that it has a better title to the oil than the Oil Claimants. However, other enactments also deal with admissions and these provide an important part of the context in which Article 63 falls to be considered. In particular, Article 51 of the Law of Evidence in Civil and Commercial Transactions contains provisions relating to ‘judicial admissions’ which are admissions of a more formal kind made before a court, and Article 53 of the same law expressly provides that a person cannot resile from a judicial admission. These provisions do not apply to the present case but they do, of course, suggest that a person may be able to resile from a non-judicial admission. Indeed when I pressed him on the point Mr. Barahim accepted that that was so, although only in limited circumstances. He also accepted that it would be possible to correct a mistake if one were found in a message of the kind under consideration. Finally Mr. Barahim agreed that in the case of an informal, that is, a non-judicial, admission, the judge is entitled to decide what weight ought to be given to it.
Issues of English law
Issue I - Whether and to what extent title would pass to MTI in respect of any relevant oil or whether and to what extent the respective Oil Claimant would retain ownership of the oil (if necessary as a co-owner of any commingled or blended bulk) in or notwithstanding each or any of the following assumed circumstances, namely . . . . . . . .
Authorised commingling and blending
“Now it is no doubt true that, where A’s material is lawfully used by B to create new goods, whether or not B incorporates other material of his own, the property in the new goods will generally vest in B, at least where the goods are not reducible to the original materials: see Blackstone’s Commentaries, 17th ed. vol. 2, pp. 404-405. But it is difficult to see why, if the parties agree that the property in the goods shall vest in A, that agreement should not be given effect to. On this analysis, under the last sentence of the condition as under the first, the buyer does not confer on the seller an interest in the property defeasible upon payment of the debt; on the contrary, when the new goods come into existence the property in them ipso facto vests in the plaintiff, and the plaintiff thereafter retains its ownership in them . . . . . . . .”
Oliver L.J. expressed the same view, albeit provisionally. He said at page 123H-124B
“I have had the advantage of reading the judgment of Robert Goff L.J. and for the reasons which are there set out I am not convinced that it necessarily follows that the plaintiff’s proprietary interest in a manufactured article must derive from a grant by the buyer. English law has developed no very sophisticated system for determining title in cases where indistinguishable goods are mixed or become combined in a newly manufactured article and, to adopt the words of Lord Moulton in Sandeman & Sons v Tyzack & Branfoot Steamship Co [1913] AC 680, 695, “the whole matter is far from being within the domain of settled law”; and though like Sir John Donaldson M.R., I prefer to reserve my opinion, I am not sure that I see any reason in principle why the original legal title in a newly manufactured article composed of materials belonging to A and B should not lie where A and B have agreed that it shall lie.”
The New Zealand Court of Appeal in Coleman v Harvey [1989] 1 NZLR 723 adopted a similar approach, seeking to identify and give effect to the intention of the parties in a case where the plaintiff had delivered silver coins to the defendant for refining together with scrap belonging to the defendant himself.
Unauthorised commingling and blending
“Seeing that none of the authorities is binding on me, although many are certainly persuasive, I consider that I am free to apply the rule which justice requires. This is that, where B wrongfully mixes the goods of A with goods of his own, which are substantially of the same nature and quality, and they cannot in practice be separated, the mixture is held in common and A is entitled to receive out of it a quantity equal to that of his goods which went into the mixture, any doubt as to that quantity being resolved in favour of A. He is also entitled to claim damages from B in respect of any loss he may have suffered, in respect of quality or otherwise, by reason of the admixture.
Whether the same rule would apply when the goods of A and B are not substantially of the same nature and quality must be left to another case. It does not arise here. The claim based on a rule of law that the mixture became the property of the receivers fails.”
“But I am quite content to assume that this is wrong and to suppose that up to the moment when the resin was used in manufacture it was held by the defendants in trust for the plaintiffs in the same sense in which a bailee or a factor or an agent holds goods in trust for his bailor or his principal. If that was the position, then there is no doubt that as soon as the resin was used in the manufacturing process it ceased to exist as resin, and accordingly the title to the resin simply disappeared. So much is accepted by Mr. Mowbray for the plaintiffs.”
He then turned to discuss the question whether the plaintiffs were entitled to trace into the chipboard and it is in this context that the rest of his judgment must be read. Having considered in some detail the decision in In re Hallett’s Estate (1880) 13 Ch D 696 he said at page 41A
“What are the salient features of the doctrine that Sir George Jessel M.R. there expounds? First, it will be observed that in all cases the party entitled to trace is referred to as the beneficial owner of the property, be it money or goods, which the "trustee," in the broad sense in which Sir George Jessel M.R. uses that word, including all fiduciary relationships, has disposed of. In the instant case, even if I assume that so long as the resin remained resin the beneficial ownership of the resin remained in the plaintiffs, I do not see how the concept of the beneficial ownership remaining in the plaintiffs after use in manufacture can here possibly be reconciled with the liberty which the plaintiffs gave to the defendants to use that resin in the manufacturing process for the defendants' benefit, producing their own chipboard and in the process destroying the very existence of the resin.
Secondly, the doctrine expounded by Sir George Jessel M.R. contemplates the tracing of goods into money and money into goods. In the latter case it matters not that the moneys represent a mixed fund of which a part only is impressed with the relevant trust. The cestui que trust has a charge on the mixed fund or the property into which it has passed for the amount of the trust moneys. It is at the heart of Mr. Mowbray's argument to submit that the same applies to a mixture of goods with goods, relying in particular on Sir George Jessel M.R.'s illustration of the mixed bag of sovereigns. Now I can well see the force of that argument if the goods mixed are all of a homogenous character. Supposing I deposit a ton of my corn with a corn factor as bailee, who does not store it separately but mixes it with corn of his own. This, I apprehend, would leave unaffected my rights as bailor, including the right to trace. But a mixture of heterogeneous goods in a manufacturing process wherein the original goods lose their character and what emerges is a wholly new product, is in my judgment something entirely different.
Some extreme examples were canvassed in argument. Suppose cattle cake is sold to a farmer, or fuel to a steel manufacturer, in each case with a reservation of title clause, but on terms which permit the farmer to feed the cattle cake to his herd and the steelmaker to fuel his furnaces, before paying the purchase price. Mr. Mowbray concedes that in these cases the seller cannot trace into the cattle or the steel. He says that the difference is that the goods have been consumed. But once this concession is made, I find it impossible to draw an intelligible line of distinction in principle which would give the plaintiffs a right to trace the resin into the chipboard in the instant case. What has happened in the manufacturing process is much more akin to the process of consumption than to any simple process of admixture of goods. To put the point in another way, if the contribution that the resin has made to the chipboard gives rise to a tracing remedy, I find it difficult to see any good reason why, in the steelmaking example, the essential contribution made by the fuel to the steel manufacturing process should not do likewise.
These are the principal considerations which have led me to the conclusion that the plaintiffs are not entitled to the tracing remedy which they claim.”
“When the resin was incorporated in the chipboard, the resin ceased to exist, the plaintiffs' title to the resin became meaningless and their security vanished. There was no provision in the contract for the defendants to provide substituted or additional security. The chipboard belonged to the defendants.
We were not invited to imply in the contract between the plaintiffs and the defendants an agreement by the defendants to furnish substituted security in the form of an interest in the chipboard; we were invited to allow the plaintiffs to trace their vanished resin to the chipboard and thence to the proceeds of sale of chipboard and property representing those proceeds of sale. I agree that in a commercial contract of this nature no agreement should be implied for the furnishing of additional security. In the absence of any implied or express agreement to provide substitutional security, equity has nothing to trace; the resin and the title and the security disappeared without trace.”
Buckley L.J. said at page 46
“It is common ground that it was the common intention of the parties that the defendants should be at liberty to use the resin in the manufacture of chipboard. After they had so used the resin there could, in my opinion, be no property in the resin distinct from the property in the chipboard produced by the process. The manufacture had amalgamated the resin and the other ingredients into a new product by an irreversible process and the resin, as resin, could not be recovered for any purpose; for all practical purposes it had ceased to exist and the ownership in that resin must also have ceased to exist.
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Common ownership of the chipboard at law is not asserted by the defendants; so the plaintiffs must either have the entire ownership of the chipboard, which is not suggested, or they must have some equitable interest in the chipboard or an equitable charge of some kind upon the chipboard. For my part, I find it quite impossible to spell out of this condition any provision properly to be implied to that effect.
It was impossible for the plaintiffs to reserve any property in the manufactured chipboard, because they never had any property in it; the property in that product originates in the defendants when the chipboard is manufactured.”
“the mixer, whether he be one of the proprietors or a third party, must, as the maker of the new species, become the sole proprietor of the subjects mixed. (Erskine, II. 1, 17)”
Lord Ardwall, concurring, agreed (also at page 192) that the case must be decided in accordance with the well-established doctrine of specification. Similarly, Lord Dundas at page 194 considered that the case was a pure type for the application of the Roman doctrine of specificatio which he considered to be undoubtedly part of the law of Scotland. It is to be noted that the purchaser in this case, although acting wrongfully, was acting in good faith.
“It is a principle settled as far back as the time of the Year Books that, whatever alteration of form any property may undergo, the true owner is entitled to seize it in its new shape if he can prove the identity of the original material: see Blackstone, vol. ii. p. 405, and Lupton v. White. But this rule is carried no farther than necessity requires, and is applied only to cases where the compound is such as to render it impossible to apportion the respective shares of the parties”.
The editors of the current (21st) edition of Salmond & Heuston on the Law of Torts refer to the decisions in Indian Oil v Greenstone and Coleman v Harvey which they suggest are inconsistent with the views expressed by Salmond, but those cases are concerned with the consequences of mixing goods of a similar kind and do not in my view bear directly on this question.
“In my view the time has come to state unequivocally that English law has no such rule [sc. that in the case of a mixed substitution the beneficiary is confined to a lien]. It conflicts with the rule that a trustee must not benefit from his trust. I agree with Burrows that the beneficiary’s right to elect to have a proportionate share of a mixed substitution necessarily follows once one accepts, as English law does, (i) that a claimant can trace in equity into a mixed fund and (ii) that he can trace unmixed money into its proceeds and assert ownership of the proceeds.
Accordingly, I would state the basic rule as follows. Where a trustee wrongfully uses trust money to provide part of the cost of acquiring an asset, the beneficiary is entitled at his option either to claim a proportionate share of the asset or to enforce a lien upon it to secure his personal claim against the trustee for the amount of the misapplied money.”
And a little later, having pointed out that this branch of the law is concerned with vindicating rights of property and not with reversing unjust enrichment, he said at page 1327D
“The tracing rules are not the result of any presumption or principle peculiar to equity. They correspond to the common law rules for following into physical mixtures (though the consequences may not be identical). Common to both is the principle that the interests of the wrongdoer who was responsible for the mixing and those who derive title under him otherwise than for value are subordinated to those of innocent contributors. As against the wrongdoer and his successors, the beneficiary is entitled to locate his contribution in any part of the mixture and to subordinate their claims to share in the mixture until his own contribution has been satisfied. This has the effect of giving the beneficiary a lien for his contribution if the mixture is deficient.”
“Similar principles apply to following into physical mixtures: see Lupton v White (1808) 15 Ves. 432; and Sandeman & Sons v Tyzack and Branfoot Steamship Co Ltd [1913] AC 680, 695 where Lord Moulton said: “If the mixing has arisen from the fault of ‘B’, ‘A’ can claim the goods.” There are relatively few cases which deal with the position of the innocent recipient from the wrongdoer, but Jones v De Marchant (1916) 28 D.L.R. 561 may be cited as an example. A husband wrongfully used 18 beaver skins belonging to his wife and used them, together with four skins of his own, to have a fur coat made up which he then gave to his mistress. Unsurprisingly the wife was held entitled to recover the coat. The mistress knew nothing of the true ownership of the skins, but her innocence was held to be immaterial. She was a gratuitous donee and could stand in no better position than the husband. The coat was a new asset manufactured from the skins and not merely the product of intermingling them. The problem could not be solved by a sale of the coat in order to reduce the disputed property to a divisible fund, since (as we shall see) the realisation of an asset does not affect its ownership. It would hardly have been appropriate to require the two ladies to share the coat between them. Accordingly it was an all or nothing case in which the ownership of the coat must be assigned to one or other of the parties. The determinative factor was that the mixing was the act of the wrongdoer through whom the mistress acquired the coat otherwise than for value.
The rule in equity is to the same effect, as Sir William Page Wood V.-C. observed in Frith v Cartland (1865) 2 H.&M. 417, 420: “if a man mixes trust funds with his own, the whole will be treated as the trust property, except so far as he may be able to distinguish what is his own.” This does not, in my opinion, exclude a pro rata division where this is appropriate, as in the case of money and other fungibles like grain, oil or wine. But it is to be observed that a pro rata division is the best that the wrongdoer and his donees can hope for. If a pro rata division is excluded, the beneficiary takes the whole; there is no question of confining him to a lien. Jones v De Marchant, 28 D.L.R. 561 is a useful illustration of the principles shared by the common law and equity alike that an innocent recipient who receives misappropriated property by way of gift obtains no better title than his donor, and that if a proportionate sharing is inappropriate the wrongdoer and those who derive title under him take nothing.”
“It has long been settled in our law, that, where goods are mixed so as to become undistinguishable, by the wrongful act or default of one owner, he cannot recover, and will not be entitled to his proportion, or any part of the property, from the other owner.”
Similarly, in Sandeman & Sons v Tyzack and Branfoot Steamship Co. Ltd [1923] A.C. 680 Lord Moulton said at pages 694-695
“My Lords, if we proceed upon the principles of English law, I do not think it a matter of difficulty to define the legal consequences of the goods of "A." becoming indistinguishably and inseparably mixed with the goods of "B." If the mixing has arisen from the fault of "B.," "A." can claim the goods. He is guilty of no wrongful act, and therefore the possession by him of his own goods cannot be interfered with, and if by the wrongful act of "B." that possession necessarily implies the possession of the intruding goods of "B.," he is entitled to it (2 Kent's Commentaries, 10th ed., 465).”
It is not clear that Lord Moulton had in mind the case where the mixture had produced an entirely new thing, but the approach is the same, namely, that the interests and the proprietary rights of the wrongdoer are subordinated to those of the innocent party. At the same time he recognised that the law in this area could not be regarded as settled and might need to be developed to meet the requirements of substantial justice in other types of cases. Similarly, in Re Oatway Joyce J. recognised that the “settled principle” that the innocent party is entitled to recover his property in an altered form might have to give way where the nature of the goods permitted a fair distribution between the wrongdoer and the innocent party. In the passage in his judgment which follows that which I cited earlier he said at page 359
“But this rule is carried no farther than necessity requires, and is applied only to cases where the compound is such as to render it impossible to apportion the respective shares of the parties. Thus, if the quality of the articles that are mixed be uniform, and the original quantities known, as in the case of so many pounds of trust money mixed with so many pounds of the trustee's own money, the person by whose act the confusion took place is still entitled to claim his proper quantity, but subject to the quantity of the other proprietor being first made good out of the whole mass: 2 Stephen's Commentaries (13th ed.), 20.”
Meaning of the ‘bulk’
Whether and to what extent title would pass to MTI in respect of any relevant oil or whether and to what extent the respective Oil Claimant would retain ownership of the oil (if necessary as a co-owner of any commingled or blended bulk) in or notwithstanding each or any of the following assumed circumstances, namely
1. upon arrival of the carrying vessel in Fujairah territorial waters and/or delivery of the oil into storage, (or in the case of Texaco by virtue of MTI receiving and storing the relevant oil) by virtue of MTI being entitled under the arrangements identified in paragraph (1) above (or in the case of Texaco under the arrangements set out in paragraph (5) above), or any of them, to do any of the following acts, namely
a. to commingle the oil with other oil owned either by itself or by persons other than the respective Oil Claimant;
b. to blend the oil with other oil owned either by itself or by persons other than the respective Oil Claimant; and/or
c. to agree to sell the oil to third parties; and/or
d. to sell and/or deliver the oil to third parties;
2. by virtue of MTI being entitled under the arrangements identified in paragraph (1) above (or in the case of Texaco paragraph (5) above), or any of them, to do any of the following acts, upon subsequently doing any of the following acts, namely
a. commingling the oil with other oil owned either by itself or by persons other than the respective Oil Claimant;
b. blending the oil with other oil owned either by itself or by persons other than the respective Oil Claimant;
c. agreeing to sell the oil to third parties; and/or
d. selling and/or delivering the oil to third parties.
3. upon MTI doing any of the following acts, albeit that MTI were not entitled under the aforesaid arrangements to do any of the same, namely
a. commingling the oil with other oil owned either by itself or by persons other than the respective Oil Claimant;
b. blending the oil with other oil owned either by itself or by persons other than the respective Oil Claimant;
c. agreeing to sell the oil to third parties; and/or
d. selling and/or delivering the oil to third parties.
Issue J - Assuming that title did not pass to MTI but was retained by the respective Oil Claimant (if necessary as a co-owner of any commingled or blended bulk), then
1. to the extent that withdrawals were made from any commingled or blended bulk by MTI, whether
a. MTI are deemed or presumed to have withdrawn their own share (if any) first;
b. the shares of the respective Oil Claimant owning in common with MTI are deemed or presumed to have been retained in the commingled or blended bulk last; and
c. there are any circumstances, and if so, what circumstances in which any such rule or presumption will not apply;
2. Whether, in seeking to establish title to the balance or remainder of any commingled or blended bulk on any given date in circumstances where the balance or remainder of the bulk was insufficient on that date to satisfy the proprietary claims of the respective Oil Claimant owning in common therein, it is sufficient for the respective Oil Claimant
a. to prove the difference between the amount owned by them which should have remained in the bulk and the lesser amount which was all that was left in the bulk in fact on any given date; and
b. to rely on any principle or presumption of law as set out in J.1 above,
or
whether it is necessary for the respective Oil Claimant to trace the provenance of the bulk (and each and every part thereof) on any given date right back to a specific cargo or specific cargoes previously owned by them.