INTERESTSIN GOODS

Edited by

PROFESSOR NORMAN PALMERRowe and Maw Professor of Commercial Law, University College London

AND

PROFESSOR EWAN McKENDRICKProfessor of English Law, University College, London

SECOND EDITION

LLPLONDON HONG KONG

1998

CONTENTS

Foreword vPreface ixContributors xxvTable of Cases xxvii

Table of Legislation, International Conventions, etc. lxxiii

PARTI DEFINING PROPERTY

CHAPTER 1 INFORMATION AS PROPERTY PAUL KOHLER andNORMAN PALMER 3

Introduction 3Authority favouring the proprietary analysis 6Qualifications upon the proprietary analysis 7Authority rejecting a proprietary analysis 9The commercial significance of a proprietary analysis 10

Priorities, bona fide acquisitions and the nemo dat rule 11Bailments of information 15Software as goods 17Industrial espionage 19

Criteria for a proprietary analysis 21Conclusion 22C H A P T E R 2 P R O P R I E T A R Y R I G H T S I N H U M A N T I S S U E ROGERS.

MAGNUSSON 251. Introduction 252. Proprietary rights in human corpses 27

2.1 English authorities 272.2 Australian decisions 312.3 The American position 322.4 The nature of an executor's rights in Anglo-Australian law 342.5 The "proprietary" quality of an executor's rights 35

3. Proprietary rights in cadaveric specimens 383.1 Why the issue is relevant 383.2 The theoretical basis for protection 39

4. Transplants and proprietary rights in living tissue samples 414.1 Human tissue legislation 424.2 Anglo-Australian authorities 444.3 The application of "sales of goods" conditions to donated human tissue 46

5. Proprietary rights in the products of biotechnological engineering 485.1 The broader context 495.2 Biotechnology and human tissue 505.3 Moore v. Regents of the University of California 52

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xil CONTENTS

5.4 The Anglo-Australian context 536. Proprietary rights in foetal and embryonic tissue 55

6.1 Advisory reports dealing with the status of embryonic tissue 566.2 Legislation regulating human reproductive technology 586.3 Implications for human foetal tissue transplantation 61

7. Conclusion 62

CHAPTER 3 POSSESSORY TITLE NORMAN PALMER 631. Ambit of the inquiry 632. Some questions about possessory title 64

2.1 What does it mean? 642.2 How far does it go? 65

3. Damages for wrongs to chattels 663.1 When possession counts as title 663.2 Does an immediate right of possession count as title? 683.3 Does a deferred right of possession count as title? 71

4. The threshold requirement: standing to sue 714.1 Immediate right to possession as the qualification to sue in conversion 714.2 Pedigree and scope of the "proprietary right" rule 744.3 Proprietary right and the bailee's estoppel 774.4 Possessory title in negligence claims 78

5. Enforcing a right of possession against third parties 816. The possessory title holder as bailor 827. Deferred rights of possession 858. Conclusions 88

CHAPTER 4 INSURABLE INTERESTS JOHN BIRDS 91The nature of insurable interest 91More than one interest in goods 96

The third party's claim 97The third party responsible for a loss 101Further co-insurance problems 107

CHAPTER 5 THE LEGAL NATURE OF A SHARE GLEN BARTON 111Introduction 111Shares and company assets 113The legal nature of a share 114

CHAPTER 6 GLOBAL CUSTODY—A TENTATIVE ANALYSIS OFPROPERTY AND CONTRACT ANTONY W. BEAVES 117

1. Global custody service 1172. Operational features of global custody 1183. Traditional analysis of custody 1204. Bailment and global custody 1215. A new approach to bailment 1236. The search for guiding principles 1267. Conclusion 135Annexes 139

CHAPTER 7 INTERESTS IN WRECK SARAH DROMGOOLE andNiCHOLASGASKELL 141

1. Introduction 1411.1 Definitions of "wreck" 1411.2 International law and wrecks 143

CONTENTS xiii

1.3 The receiver of wreck service 1492. Proprietary interests 152

2.1 Ownership 1522.1.1 Methods of acquiring ownership 1522.1.2 Establishing owner's identity 1532.1.3 Government ownership 1552.1.4 Buyers' rights 1582.1.5 Personal possessions and human remains 159

2.2 Abandonment of rights 1622.3 Insurers' interests 168

2.3.1 Notice of abandonment 1682.3.2 Title of underwriter to sue 1702.3.3 Loss of right to take over property 1732.3.4 Reinsurance and war risks 176

3. State rights in relation to wreck 1783.1 Crown rights to unclaimed wreck 178

3.1.1 History and development 1783.1.2 Statutory basis 180

3.2 State rights of intervention 1834. Salvors' rights 187

4.1 Salvage principles 1874.2 The salvors' maritime lien 1884.3 Salvors' possessory interests 189

4.3.1 Possession against owner 1904.3.2 Competing salvors 190

4.4 Interests under salvage or raising contracts 1944.5 Salvage conventions and wreck 1954.6 Salvage and funding 196

5. Conclusions 202

PART II ORIGINATING AND TRANSFORMING PROPERTY

CHAPTER 8 BONAVACANTIA ANDREW BELL 207I. The general law relating to bona vacantia 207

1. The specific instances of the Crown's right to bona vacantia 207(a) Intestacy 207(b) Dissolution of a company 207(c) Failure of a trust 208(d) Contested heads of bona vacantia 208

2. The rationale of bona vacantia 2103. General principles 211

(a) The meaning of "ownerless" property 211(b) Not all ownerless property belongs to the Crown 211(c) The distinction between ownerless property and property whose owner is

unknown 212(d) The extent to which real property can be claimed as bona vacantia 213(e) The extent to which intangible property can be claimed as bona vacantia 214(f) Third party rights 215

II. The main heads of bona vacantia 2161. Intestacy 216

(a) Prior claims under the Administration of Estates Act 1925 216(b) Orders under the Inheritance (Provision for Family and Dependants) Act

1975 219

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(c) Ex gratia payments 2202. Dissolution of a company or other corporation 221

(a) Registered companies 221(b) Unregistered companies 223(c) Building societies and friendly societies 223

3. Failure of a trust 223(a) In general 223(b) Charitable trusts 224(c) Pension funds 225(d) Unincorporated associations 225

III. Conclusions 226

CHAPTER 9 MIXTURES PETER BIRKS 2271. Mixtures distinguished from other events 227

(1) Accession 227(2) Specification 228(3) Executory division 228(4) Substitution 230

2. Mixtures: main issues 2323. An outline of the Roman solutions 2324. English law and the Roman distinctions 2345. Consensual mixtures in English law 235

(1) Consensual mixing in an irregular deposit 2356. Fluid mixtures in English law 2367. Granular mixtures in English law 2388. Evidential problems 2469. Conclusion 248

CHAPTER 10 JOINT OWNERSHIP OF CHATTELS JUDITH HILL andELIZABETH BOWES-SMITH 251

1. Types of joint ownership 2511.1 Joint tenancy 2511.2 Tenancy in common 2511.3 Particular cases 252

2. Possession of jointly-owed chattels 2543. Death of a joint owner 2554. Bankruptcy of a joint owner 2555. Disposal of an interest in a jointly-owned chattel 2566. Disposal of a jointly-owned chattel 2567. Rights and remedies between joint owners 256

7.1 Conversion 2567.2 Trespass 2587.3 Other torts 2597.4 Remedies 2597.5 Criminal liability 261

8. Rights and remedies against third parties 2619. Section 188 of the Law of Property Act 1925 262

10. Taxation 26210.1 Inheritance Tax 26210.2 Capital Gains Tax 26310.3 Value Added Tax 264

CONTENTS XV

CHAPTER 11 ATTACHMENT OF CHATTELS TO LAND HOWARD N.

BENNETT 267

I. What is a fixture? 267A. Permanent annexation to the land 267B. Attachment as a fixture 268C. Attachment so as to leave chattel status unchanged 273

II. Fixtures in selected areas of the law 274A. Fixtures in the law of landlord and tenant 274B. Fixtures and the law of succession 278C. Retention of title to fixtures 281D. Dispositions of fixtures 291E. Levying execution of judgment upon fixtures 296F. Distress and fixtures 297

PART III TRANSMITTING AND DISTRIBUTING PROPERTY

CHAPTER 12 THE TITLE OBLIGATIONS OF THE SELLER OFGOODS MICHAEL G. BRIDGE 303

1. Introduction 3032. The enquiry 308

The right to sell and the nemo dat rule 308The scope of quiet possession 310Limited title sales and exclusions 314The Rowland v. Divall problem 318

CHAPTER 13 SELLER AND BUYER IN POSSESSION MICHAEL

KERSHAW 329

Introduction 329Section 48 rescission 329Resale to second buyer by unpaid seller who has exercised right of lien, etc 333Appendix Sale of Goods Act 1979 335

CHAPTER 14 MARKET OVERT BRIAN DAVENPORT and ANTHONY ROSS 337Introduction 337A brief history of market overt 338The rationale of the rule of market overt when it was a living rule of the common law 341The rule, as stated by Coke 342The exceptions, as stated by Coke 343Sales in statutory markets 349Outstanding questions 351

Sales to shopkeepers 351Sales by individuals who are not traders 351

The abolition of the rule 352Conclusion 352

CHAPTER 15 TITLE TO GOODS, MATERIALS AND PLANTUNDER CONSTRUCTION CONTRACTS PETER BARBER 353

1. Introduction 353

xvi CONTENTS

2. Fixed goods and materials 354(a) General rule as to passing of property 354(b) Retention of title by third parties 356

3. Unfixed goods and materials 359(a) General rule as to passing of property 359(b) Effect of retention of title clauses 360(c) Vesting clauses—general analysis 363(d) Vesting clauses—standard forms 369(e) Effect of interim payments 371

4. Plant 374(a) General rule as to passing of property 374(b) Vesting and forfeiture clauses—general 376(c) Vesting and forfeiture clauses—standard forms 378

5. Effect of privity of contract 380

CHAPTER 16 THE PASSING OF PROPERTY IN PART OF A BULKEWAN McKENDRICK 385

1. Introduction 3852. The general rule—property cannot pass 3863. The exceptions 3874. Why was the law thought to be unsatisfactory? 3935. The Sale of Goods (Amendment) Act 1995 3956. Conclusion 400

CHAPTER 17 GOOD FAITH AND DUE DILIGENCE JANET ULPH 4031. Introduction 4032. The common law and statute 404

Nemo dat quod non habet 404Onus of proof in relation to nemo dat 406The development of the good faith concept 407Relationship between good faith and ordinary course of business 409Relationship between good faith and without notice 410Constructive notice from documents 412Notice and registration of an interest 413Commercial loans and guarantees 415Agency 418Payment to an agent 419Imputed knowledge 419

3. In equity 4204. Defences and the burden of proof 4245. Conclusions 426

CHAPTER 18 CONDITIONAL GIFTS ROBERT CHAMBERS 4291. Property interests created by conditional gifts 429

Conditional ownership 430Bailment 431Money had and received 432Conditional gifts in equity 433

2. Construction of conditions 433Motive or condition 433Condition precedent or subsequent 437

CONTENTS xvii

3. Limits on conditional giving 439Perpetuities 440Restraint on alienation 440Interference with donees' lives 441Other illegal conditions 441

4. Conditions on the use of the gift 442Trust or gift 443Quistclose trust 445

5. Conditions unrelated to the use of the gift 446Benefits to third parties 447Performance within a specified time 448Mode of living 451Engagement presents 451Donationes mortis causa 452Other events 457

6. Failure of conditions 458

CHAPTER 19 THE PLACE OF BAILMENT IN THE MODERN LAWOF OBLIGATIONS ANDREW BELL 461

A. Definition 4611. The consensual model of bailment 4622. Assimilation to contract? 4623. The deficiencies of the consensual model 4644. The modern definition: The Pioneer Container 4655. Assimilation to tort? 471

B. Bailment as an independent source of obligations 4711. The meaning of the claim 4722. The obligations of the bailee 4733. The obligations of the bailor 485

C. Conclusions 488

CHAPTER 20 THE PROPRIETARY EFFECT OF A HIRE OF GOODSWILLIAM SWADLING 491

I. Introduction 491II. Covenants generally 492

(a) Non-possessory covenants over land 492(b) Non-possessory covenants over chattels 495

III. The relevance of specific enforceability 504IV. Possessory covenants 509

(a) Possessory covenants over land 509(b) Possessory covenants over chattels 514(c) The possessory covenantee's remedies in tort 518

V. Conclusion 524

CHAPTER 21 ART LOANS NORMAN PALMER 5271. Introduction 5272. The legal character of art loans 5313. Universality of the loan concept 5334. Matters of common provision 534

(i) Security and the duty of care 534

xviii CONTENTS

(ii) Insurance 535(iii) State indemnities 536(iv) General subjects of express provision 537

5. Matters not commonly provided for 537(i) Title 537

(ii) Duty to exhibit 540(iii) Authenticity and attribution 541(iv) Choice of governing law 542

6. Further incentives to art loans: should lawyers interfere? 544

CHAPTER 22 THE BILL OF LADING AS A DOCUMENT OF TITLESARAH DROMGOOLE and YVONNE BAATZ 547

Introduction 5471. Why, and how, does the bill of lading give control? 548

1.1 Recognition of the bill of lading as a document of title 5481.2 The bill of lading distinguished from other documents 558

2. What are the benefits of the control provided? 5692.1 The sale contract 5692.2 Financing the sale contract 5712.3 The carriage contract 574

3. How can the control be undermined? 5773.1 Holder vis-d-vis true owner 5773.2 Right of stoppage in transitu 5783.3 Delivery without production of the bill of lading 5803.4 Bills of lading given gratuitously 590

4. When does the control function come to an end? 5915. Conclusion 593

C H A P T E R 23 A B A N D O N M E N T ANTHONY HUDSON 595Divesting abandonment 596Criminal law 602Wreck 606Trespass to goods and trover or conversion 612Miscellaneous cases of abandonment 614

Maritime law 615Waifs 616Estrays or strays 617Property in an abandoned state 617An open question 617

Conclusions 618

C H A P T E R 24 P L E D G E NORMAN PALMER and ANTHONY HUDSON 621Introduction 621Disadvantages of pledges 623Basic incidents of pledge 624The central role of possession 625

Subject matter of pledge 625Further functions and aspects of possession in pledge 628Identifying the change of possession 629Elasticity of the modern requirement of possession 629

Special property 631Problems and implications 631Registration 634

Pledge of intangibles 635

CONTENTS xix

Pledge distinguished from other forms of security 635Some problems 635Redemption 637Sale 638Survival of the debt 639Right to surplus 639Implied terms as to title, quality and fitness for purpose 639Deviation, delegation, detention and misuse 640Contractual designations 641The role of equity and conscience 642

Conclusion 646

CHAPTER 25 SOLICITORS'LIENS ANTHONY HUDSON 649The retaining lien 649The particular liens or charges 653

The common law lien 653The statutory lien or charging order 656

PART IV SECURITY AND PAYMENT

CHAPTER 26 SHIP MORTGAGES ALISON CLARKE 663Introduction 663I. Nature of the ship mortgage 665

Property interests in British ships 665The present registration system 667Fully registered ships 670Effect of full registration on the nature of property interests 671Effect of full registration on ship mortgages 672Ship mortgages: the traditional view 673Questioning the traditional view 674Evolution of the mortgage 675The modern statutory provisions 681Priority mortgages of fully registered ships 684Property in unregistered ships 684Property in ships registered with simple registration 686

II. Rights and remedies of the mortgagee 687Possession and freight 688Control and management 688Sale 689Foreclosure 690

III Exercise of the mortgagee's rights and remedies 690Effect of paragraph 10 on exercise of rights and remedies 690Action by charterer to restrain exercise of the mortgagee's rights and remedies 693

IV. Conclusion 695

CHAPTER 27 AIRCRAFT MORTGAGES PETER THORNE 697Introduction 697Types of security interest in aircraft 698

(a) Mortgage 698(b) Charge 699(c) Pledge 699(d) Liens, statutory liens and statutory charges 700

xx CONTENTS

Contents of an aircraft mortgage 700(a) Description of an aircraft 700(b) Security 700(c) Covenants and undertakings (general) 701(d) Engines and parts 701(e) Registration 703(f) Maintenance 703(g) Encumbrances 703(h) Sub-leasing etc 704(i) Nameplates 704(j) Total loss and insurances 705(k) Indemnities 707(1) Enforcement 708(m) Governing law and jurisdiction 708

Choice of law 708Practical steps to ensure validity/priority of mortgage security interest 710Perfection of security and priority 711Recognition of rights 713Enforcement 717

(a) Will there be a "political" problem in repossessing, etc. the aircraft and/or inobtaining remittance of enforcement proceeds? 717

(b) Is self-help available? If it is not, how can a mortgagee enforce its security? 719(c) What is the impact upon enforcement of a mortgagee's security interest if a lien

exists over a mortgaged aircraft? 720(d) Will a lessee of a mortgaged aircraft be entitled to continue to lease that aircraft

notwithstanding enforcement by a mortgagee? 724(e) How will a mortgagor's insolvency impact upon the enforcement of a

mortgagee's rights 725Conclusion 725

C H A P T E R 28 T I T L E R E T E N T I O N A N D T H E C O M P A N Y C H A R G ER E G I S T R A T I O N SYSTEM GERARD M.CORMACK 727

Terminology 727Types of reservation of title clause 728Reasons for the use of reservation of title clauses 728Company charge registration—some general observations 729Part IV of the Companies Act 1989 and the Diamond Report 731Defects in the existing registration scheme 734"Simple" clauses 735Current account clauses 738Proceeds of sale clauses 742

Some conclusions on tracing clauses 749Aggregation clauses 751

Mixture or "manufacture" of goods without loss of physical identity 757Conclusion—a brief resume 759

C H A P T E R 29 R E T E N T I O N M O N I E S IN UK B U I L D I N G C O N -T R A C T S A. J. M. BLACKLER 761

1. Introduction 7612. The present position 762

CONTENTS xxi

3. Deficiencies in the standard contracts? 773(a) Retention too vulnerable? 773(b) Employer's rights of deduction uncertain 774(c) Rights of deduction under JCT 81 denied 775(d) Dangers of amending the standard forms 776(e) The fundamental flaw—the defective trust 776

4. Are there any alternatives to the retention trust? 778(a) Retention bonds 778(b) Statutory reform? 780(c) The way forward? 783

Appendix 1 Form of guarantee 784Appendix 2 Trust fund 784

C H A P T E R 30 G O O D S LEASING AND INSOLVENCY NIGEL FUREY 787Terminology relevant to insolvency procedures 787Effect of insolvency on the continuation of goods leases 787Disclaimer of leases in liquidation and bankruptcy 789Termination of leases on the insolvency of lessee 791Recovering rentals and/or repossession during insolvency 792

Liquidation or bankruptcy 792Administrative receivership 793Administration 793Voluntary arrangements 797

Power of administrator to dispose of leased goods 798Automatic termination on administration 799

Effect of a charge over sub-rentals 800Registration requirements 800Fixed or floating charge 800Enforcement of security during insolvency procedures 802

Recovery of insurance proceeds where leased goods are lost or damaged 803Goods insured against loss or damage 803Lessee insured against liability for loss or damage 804

PART V CLAIMS, INDEMNITIES , R E M E D I E S AND WRONGS

C H A P T E R 31 TRESPASS TO GOODS ANTHONY HUDSON 809Introduction 809Elements of trespass to goods 809Possession 811Actionability per se 813Reconciliations and possible developments 818Defences and justifications 819Remedies 819Torts (Interference with Goods) Act 1977 820Conclusion 820

C H A P T E R 32 C O N V E R S I O N , T O R T AND R E S T I T U T I O N ANDREW

TETTENBORN 825Tort 826

(a) The level of fault 826(b) The measure of damages 831

Restitution 833Conclusion 836

xxn CONTENTS

CHAPTER 33 MONEY CLAIMS FOR MISUSE OF CHATTELSANTHONY HUDSON 837

Tort 838Destruction and damage 838Misappropriation 843

Special cases 853Improvement of goods 853Double liability 854Jus tertii or competing claims to goods 856Co-ownership 857Uncollected goods 857Redelivery 858Consequential losses 858

Trespass to goods 859Miscellaneous torts 860

Wrongful distress 860Replevin 860Rescous (rescue) and pound breach 860Distress damage feasant 861Damage to reversionary interest 861

Breach of bailment 862Breach of contract 862Conclusion 865

C H A P T E R 34 D A M A G E S F O R D I S T R E S S A N D LOSS O FE N J O Y M E N T IN C L A I M S I N V O L V I N G C H A T T E L S NORMANPALMER and ANTHONY HUDSON 867

Introduction 867(a) New Zealand 869(b) Australia 872(c) Conclusion 874(d) Causes of action 875(e) Insurance 879

Specific categories of wrongdoing 880(a) Deliberate theft or destruction 880(b) Breach of bailment 883(c) Wrongful repossession by bailor 886(d) Supply of defective goods 887(e) Negligent damage 889

Damages 891Conclusions 894

CHAPTER 35 RESTITUTION AND THE MISUSE OF CHATTELS—THE NEED FOR A PRINCIPLED APPROACH EWAN MCKENDRICK 897

1. Introduction 8972. The structure of an independent restitutionary claim 8973. The case of the mistaken improver 898

(a) Was Mr Bennett enriched? 900(b) At the expense of 904(c) The unjust factor 904

CONTENTS xxiii

(d) Defences 905(e) Some further arguments 905

4. A more controversial distinction 908(a) An exercise in classification 909(b) Does the classification matter? 914

5. Conclusion 916

CHAPTER 36 IMPROVING STOLEN CHATTELS NORMAN PALMERand ANTHONY HUDSON 919

General matters 919Dividing the benefit 919The concept of uniqueness in relation to chattels 920Drawing the distinction 921The equivalent question on sales 921The practical difference for improvers 922

The position regarding ordinary articles of commerce 922Where conversion precedes improvement 922Where conversion either follows improvement or (exceptionally) precedesimprovement but damages fall to be assessed at the date of judgment or at some otherpost-conversion date 923

Special articles repossessed by or judicially restored to their owner 929Accession, specification, mixtures and fixtures 931

Accession 931Specification 934Mixtures 935Fixtures 936

CHAPTER 37 TIME LIMITS IN ACTIONS TO RECOVERCHATTELS RUTH REDMOND-COOPER 937

Introduction 937The English law of limitations 938Protection of the possessor at the expense of the owner 942Protection of the owner at the expense of the possessor 944Balancing the relative merits of the parties 949Adverse possession 949Due diligence 950Rejection of due diligence in New York 951Legal nature of the due diligence rule 952Fraud, concealment and mistake 952Actions in contract or bailment 953

CHAPTER38 LIQUIDATED DAMAGES AND RELATED CLAUSESIN CLAIMS INVOLVING CHATTELS EWAN M.KENDRICK 955

Distinguishing between a liquidated damages clause and a penalty clause 956The importance of the label used by the parties 956A genuine covenanted pre-estimate of damage 957Assessment at the date of formation 959Guides in the process of construction 960

Evading the penalty clause rule 963Acceleration clauses 964

xxiv CONTENTS

Sums payable other than on breach 966Creation of conditions 968

Relief against forfeiture 970Forfeiture of instalments 970Forfeiture of chattels 972

C H A P T E R 39 E Q U I T A B L E LIENS—A S E A R C H F O R A U N I F Y I N GP R I N C I P L E JOHN PHILLIPS 975

(1) Some general characteristics 975(2) Problems of classification 977(3) Hewett v. Court 980(4) Special performance—a necessary requirement? 983(5) Is the equitable lien applicable to all types of contract? 984(6) The relationship between the indebtedness and property 986(7) The issue of identification 987(8) Unconscientious or unfair dealing 989(9) "Equitable" liens—or are they? 991

Index 995