On 17 October, the Court of Appeal delivered its reserved judgment in Caterpillar (NI) Ltd v John Holt & Company (Liverpool) Ltd [2013] EWCA Civ 1232. The decision settled the longstanding debate as to whether section 49 of the Sale of Goods Act 1979 provides the exclusive remedy for the price of goods or simply a statutory alternative to a common law cause of action.

The case demonstrates the tension that can arise when a claim for the price is asserted in relation to goods that are sold subject to a retention of title clause. Anecdotally, it also demonstrated a difference of approach between the Chancery and Commercial Court judges.  

Popplewell J, at first instance, found that section 49 provided the exclusive remedy, but that notwithstanding a retention of title clause in Romalpa-type form, property passed from the seller (Caterpillar) to the buyer (Holt) for a scintilla of time prior to Holt selling on to the sub-buyer (Holt Nigeria). He regarded the contractual permission given to Holt to dispose of the goods in the ordinary course of Holt’s business as achieving this. Thus, as Holt was clothed with property, albeit for only an instant, section 49 was satisfied and Caterpillar’s claim for the price could be maintained.

Permission to appeal was refused by Popplewell J, and also by another former Commercial Court judge, Moore-Bick LJ. Tomlinson LJ granted permission to appeal upon an oral hearing, and directed that the appeal be heard by a mixed panel of Chancery and Commercial Court judges. The appeal was heard by two judges of Chancery background: Patten and Floyd LLJ, with Longmore LJ, a distinguished former Commercial Court judge, presiding.

Before looking further at the case, it will be appreciated that claims for the price have distinct advantages. Because they are debt claims, concepts such as remoteness, causation and mitigation do not arise, neither do questions of assessment or contributory negligence. The claim for the price can, in other words, be a quick and easy method of obtaining judgment for a liquidated sum. The defendant may then be wound up on the back of the claim.

In the instant case, Holt and its Nigerian subsidiary commenced proceedings in the Commercial Court for sums in excess of $54m, alleging breaches of an exclusive distribution agreement in relation to diesel and gas generators. Rather than counterclaim, Caterpillar’s response was to commence separate proceedings in the Commercial Court for the liquidated sum of $12m as the price of goods sold and delivered. This claim was advanced under both subsections of section 49. The first (subsection 1) permits the bringing of such a claim where property in the goods has passed to the buyer and it has failed to pay the price; and the second (subsection 2) permits such a claim where property in the goods is to pass on a day certain irrespective of delivery.

Caterpillar abandoned its reliance on subsection 2 and argued that, notwithstanding the Romalpa clause, property in the goods passed to Holt immediately before it then passed from Holt to Holt Nigeria, and argued in the alternative that a claim for the price could be brought at common law if the price was agreed, and had not been paid, on the contractual date. As noted, Popplewell J rejected the common law claim, holding that the same did not exist post the passing of the Sale of Goods Act 1893 and thus section 49 of the 1979 act was now the exclusive code for such a claim.

The reason why Caterpillar so argued, and commenced separate proceedings, was to try and sever any link between the significant unliquidated $54m claim for breach of contract, and the putative debt claim represented by the price. Caterpillar relied on an anti-set-off clause, which precluded the set-off of any sort against a claim for the price to achieve this insulation. It followed (and was accepted) that in order to prevent Holt’s breach of contract claim (accepted as an arguable transactional/equitable set-off) from being set off, Caterpillar had to demonstrate that it had a claim for the ‘price’.

Caterpillar relied very heavily on academic criticism of the exclusive remedy argument and the Australian decision of Minister of Supply v Servicemen’s Co-op Joinery Manufacturers [1951] CLR 621, and the somewhat obscure judgment of the Court of Appeal in Harry & Garry v Jariwalla [1988] WL 1608. The Australian decision concluded, on grounds somewhat difficult to discern, that a claim for the price could be maintained outside the Australian equivalent of section 49 (in identical terms), and the court in Harry & Garry obiter concluded that there was a claim outside the statutory code because the claimant might otherwise be left without a remedy. In the present case, the Court of Appeal, after considering the foregoing, concluded that section 49 was an/the exclusive remedy.

The significant difference between Longmore LJ on the one hand, and Patten and Floyd LLJ on the other concerned the effect of the Romalpa clause. Longmore LJ took the view (as did Popplewell J and Moore-Bick LJ) that the parties cannot have intended Holt not to have acquired property under circumstances where it was permitted to sell the goods on to a sub-buyer. It was commercially counterintuitive. The Chancery lord justices construed the clause in accordance with its plain language: it provided that, until the price was paid, Holt held the goods as fiduciary agent, and that prior to property passing, it could sell the goods in the ordinary course of its business, coupled with a duty to account.

Holt’s argument, accepted by Patten & Floyd LLJ, was that under such circumstances Holt only sold as agent, and was empowered to pass property direct from Caterpillar to the sub-buyer and thus it, Holt, never held property in the goods. This, Holt argued, accorded with the proper construction of the Romalpa clause, and also achieved its commercial purpose. Consistent with the foregoing, for example, the usual remedies afforded to the seller when a buyer in possession under section 25 of the 1979 act sells on, is not a claim for the price, but rather for ‘conversion’. The appeal accordingly was allowed.

In concluding, one can clearly note a difference in approach between the Commercial Court Longmore LJ, and the Chancery Patten and Floyd LLJ. It might be said that the Commercial Court judges, regarding the consequences as commercially counterintuitive, reverse engineered the necessary exercise, whereas on the other hand the Chancery judges applied ‘black-letter’ law. Such an observation is not fair either way.

Rather, the case throws up the fact that, doubtless because of an accumulation of ‘boiler plate’ clauses in commercial contracts, there is scope for irreconcilable tension between provisions that are inserted to protect the seller. This case is a classic illustration. By dint of preserving property so as to protect the seller in the event of the buyer’s insolvency, the seller, doubtless unwittingly, did so at the expense of giving up any statutory claim for the price. Furthermore, because the anti-set -off clause in the present case was widely drafted in relation to the type of counterclaim that could not be set off, but narrowly drafted in relation to the claim that was protected (that is, a claim for the price properly so called) the further consequence was that the anti-set-off clause – the ‘pay now, sue later’ clause – was redundant.  

The Court of Appeal gave permission to appeal to the Supreme Court. It is not yet known whether this permission will be used – particularly when the trial of Holt’s breach of contract claim may well have occurred before any appeal to the Supreme Court is finally dealt with.

One residual argument that the Court of Appeal did not have to deal with was whether, in any event, the contractual provisions relied upon by Caterpillar would have afforded it a non-statutory claim for the price. One thing academic writers are agreed upon is that if there is to be such a non-statutory claim, it would have to be specifically spelled out in the contract. Holt’s residual argument was that no such contractual provisions appeared in any event, rather there was simply just a date upon which payment was to be made, and even then time was not of the essence.

Stephen Cogley QC and Jeremy Richmond of Quadrant Chambers, instructed by DLA Piper, appeared for Holt; Charles Hollander QC and Jasbir Dhillon QC of Brick Court, instructed by Walker Morris, appeared for Caterpillar