|
www.ipsofactoJ.com/archive/index.htm
[1988] Part 2 Case 15 [CA,S'pore] |
|
www.ipsofactoJ.com/archive/index.htm
[1988] Part 2 Case 15 [CA,S'pore] |
|
|
COURT OF APPEAL, SINGAPORE |
Gebrueder Buehler AG
- vs -
Peter Chi
|
Coram CJ WEE CJ KC LAI J FA CHUA J |
9 MARCH 1988 |
Judgment
CJ Wee, CJ
(delivering the judgment of the court)
This is an appeal by the appellants against the judgment of the High Court dated 13 August 1986 dismissing the appellants’ claim that they retained all their rights, title and interest in certain items of machinery and spare parts (the equipment) delivered by them to Allied Cocoa Industries Pte Ltd, Singapore (the company) and installed by the company at its factory.
The appellants are a Swiss engineering company which manufactures machinery and equipment, and which also provides for their erection and installation for the manufacture of cocoa and chocolate. The respondents are the receivers and managers of the company (the receivers), and were appointed on 27 February 1984 by Bank of America National Trust and Savings Association (the bank) pursuant to two deeds of debenture dated 9 April 1980 and 2 September 1981.
The company was a Singapore registered company engaged in the business of making cocoa butter and cocoa powder. They erected their factory-premises at 342, Boon Lay Road, Singapore — a piece of land leased from Jurong Town Corporation for a term of 30 years commencing from 1 January 1980. The company was, however, let into possession of the land only on or before 13 June 1980 and the formal agreement was not executed until 16 September 1983. Nothing, however, turns on this. The company clearly had had an agreement for a lease, and, since 13 June 1980, an equitable leasehold interest in the land.
On 9 April 1980, the company executed a deed of debenture in favour of the bank to secure the payment of all moneys and liabilities agreed to be paid under the deed of debenture, charging:
|
Firstly |
— |
All the freehold and leasehold property of the company both present and future and the fixed plant machinery and fixtures (including trade fixtures) from time to time thereon. |
|
Secondly |
— |
.... |
|
Thirdly |
— |
The undertaking and all other property and assets of the company both present and future. |
|
The charge hereby created shall as regards the premises first described be a first fixed charge and as to the premises secondly and thirdly described shall be a floating charge. |
It is also relevant to recite the provisions of cll 3 and 10(k) relating to express covenants by the company not to create any charge or lien on the property charged by the debenture, or to remove any fixtures:
|
3. |
Pari Passu Charges The company shall not without the consent in writing of the bank create any mortgage debenture or charge upon and so that no lien shall in any case or in any manner arise on or affect any part of the undertaking and property charged hereunder ranking either in priority to or pari passu with or ranking after the charges hereby created. |
||
|
10. |
Covenants The company hereby covenants with the bank that until the full and final payment of all its indebtedness to the bank, the company will — ....
|
On 2 September 1981, a second deed of debenture was executed by the company with the bank for additional credit facilities. The terms of this debenture are, for all practical purposes, identical to the first and need not therefore be set out here. Clause 14 of each of those deeds, insofar as material, provides as follows:
|
14. |
Powers of Receiver A receiver so appointed shall be the agent of the company and the company shall be solely responsible for his acts and defaults and remuneration. Such receiver shall have power:
|
Particulars of the debentures were duly registered pursuant to the Companies Act.
From the beginning of 1981 and at various times thereafter up to 18 January 1982, the company ordered the equipment from the appellants under six separate contracts of sale for its installation in the factory premises. From November 1981 or thereabout, it was assembled and installed — together with machinery and equipment purchased elsewhere — to make up one entire processing and manufacturing plant for the manufacture of cocoa butter and cocoa powder. Each of those contracts of sale made between the appellants and the company contained the following provision:
|
4. |
Preservation of Rights of Property Buehler Brothers Ltd shall remain proprietors of all their deliveries (machines spare parts and accessories) until payment of the full purchase price as well as any costs of erection which are to be charged to the customer and interest on arrears etc has been completed. The buyer authorizes Buehler Brothers Ltd to have registered the reservation of ownership at the buyer’s expense on public registers or records under observation in the form and within the terms and limitations set forth by the laws of the respective countries and the buyer is obliged to give promptly any signatures requested from him for this purpose. (‘Retention of title’ clause) |
In October 1982, the company started production but it felt into financial difficulties and defaulted in payment to the bank of monies secured by the debentures. On 27 February 1984, the respondents were appointed receivers and managers of the company by the bank pursuant to the two debentures. They took possession of the factory and all the properties and assets of the company, including the equipment, and carried on the business of the company. At this juncture, it has to be observed — as this is a point strongly relied upon by the appellants in argument before us — that the bank which appointed them had never at any time been in the position of a mortgagee in possession.
By a purchase and sale agreement dated 14 May 1984, the receivers purported to sell to the purchaser a company known as WR Grace & Co, with effect from the ‘completion date’ (defined in cl 5(a) as ‘the date on which the completion of the purchase and sale shall occur’), the following properties and assets:
|
(a) |
all that right, title and interest of the company in the property described in the First Schedule hereto, and held by the company under an agreement to lease with the Jurong Town Corporation .... dated 16 September 1983 .... together with all buildings erected therein and fixtures comprised therein (hereinafter referred to as ‘the property’); |
|
(b) |
those assets listed in the Second, Third and Fourth Schedules hereto and all other physical assets .... of the company, including but not limited to all plant and machinery together with available spare parts, electrical and air-conditioning installations, furniture and fixtures, office, factory and laboratory equipment, tools, implements, utensils, all motor and other vehicles, all documents of title relating thereto, and ail other available books and records relating thereto, .... together with the benefit of all such suppliers’ and manufacturers’ warranties and guarantees in respect thereof as are in force on the completion date and are assignable (hereinafter together referred to as the assets’); |
By cl 2(a) of this agreement, the purchase price, stated to be $31,300,000 for the property and assets, was apportioned as follows:
for the property (viz the leasehold interest in the land with the factory) the sum of $13,200,000;
for the assets (viz all the machinery and equipment, including the equipment) the sum of $18,099,999; and
for the benefits referred to in cl 1(c) hereof (viz the purchase orders listed therein) the sum of $1.
It is also to be observed that the Sixth Schedule thereof gave notice of the retention of the title clause as follows:
|
The conditions of sale of the suppliers of the equipment supplied under the following contract numbers contain or may contain provisions for retention of title to the supplier until the full purchase price is paid .... |
By a deed of assignment dated 28 June 1984, made between the receivers, the bank and the assignee, De Zann Far East (a subsidiary of WR Grace & Co), and expressed to be in consideration for the sum of $13,200,000, the bank:
|
(1) |
Assigns unto the assignee all the right title and interest under the agreement for lease in respect of the said land and premises described in the Schedule hereto .... |
The Schedule refers, in technical language, to the piece of land on which the factory premises were situated ‘together with the buildings erected thereon and fixtures comprised therein’.
On 19 November 1984, the appellants, not having been paid the full purchase price of the equipment under the various contracts of sale, filed an originating summons seeking the determination of the court on the following question:
Whether in the events which have happened the plaintiffs retained all rights, title and interest in:
machinery, and
spare parts
delivered to Allied Cocoa Industries Pte Ltd, Singapore, pursuant to various contracts of sale made between Allied Cocoa Industries Pte Ltd and Gebrueder Buehler AG by virtue of cl 4 of the general terms and conditions of sale of the said contracts, which the defendant’s subsequently purported to sell.
And claiming that:
In the event the above question is answered in the affirmative an order that:
judgment be given against the defendants for loss and damage sustained and costs; and
a reference be made to the Registrar to assess damages.
LP Thean, who dealt with the originating summons, dismissed the appellants’ claim, holding that the appellants had lost their title to the equipment. In his judgment dated 13 August 1986, the learned judge first considered the issue whether, for the purposes of the retention of title clause, the equipment had become so ‘integrated’ with the plant such that it was no longer ‘identifiable’, thus defeating the retention of title clause. His conclusion on this issue was that ‘the equipment, though they formed a part of the entire processing plant, remained unaltered and are clearly identifiable’. This part of his judgment — which is adverse to the respondents — is not under appeal.
The learned judge then went on to consider — and it is his conclusion on this issue which is under appeal — whether (as counsel for the respondents had argued before him) the equipment, when installed in the factory, had been so ‘permanently fixed to the land or the building and become part of the land: quicquid plantatur solo, solo cedit (whatever is affixed to the soil belongs to the soil)’ and that ‘the equipment had ceased to be chattels and passed with the land to the chargee, the bank’. On this issue, he held that the equipment had become so affixed and that the appellants had lost their title to it.
In arriving at his conclusion on this issue, the learned judge treated the equipment as having become a fixture and so part of the land at the time(s) when it was supplied and incorporated into the plant and machinery and therefore passed by the mortgage to the bank. In this connection, he relied on a number of leading English cases, the most helpful of these being Holland v Hodgson [1872] LR 7 CP 328, Hobson v Gorringe [1897] 1 Ch 182 and Reynolds v Ashby & Son [1904] AC 466. The basic principle of these cases, as succinctly stated in Megarry & Wade’s Law of Real Property (5th Ed) at p 738, is that ‘if A hires machinery from B and fixes to the floor of A’s factory, and the factory is mortgaged (whether prior to the fixing or not), the machinery becomes subject to the mortgage as against B’. This primary rule governing fixtures, namely, that they become the property of the owner of the land, applies irrespective of the title of the person who affixes them. As Lord Lindley observed in Reynolds v Ashby [1904] AC 466 at p 475: ‘The title to chattels may clearly be lost by being affixed to real property by a person who is not the owner of the chattels.’
On the basis of these authorities, the learned judge essentially treated the question of the title, and therefore ownership, of the equipment between the competing parties as one which depended upon the question whether the equipment had become a fixture and so part of the land to which it had been affixed. Whether a chattel has become so affixed to land as to become part of it turns on the particular circumstances of each case, mainly, though not decisively, on the degree of annexation and the object of annexation — see the classic statement of the law by Blackburn J in Holland v Hodgson [1872] LR 7 CP 328 (at p 334) cited by the learned judge. The learned judge found, as a fact and after a personal inspection of the plant, that the ‘cocoa processing plant .... was installed in the factory as an ‘adjunct’ to the factory and to improve its usefulness as a factory for manufacturing cocoa butter and cocoa powder’. On this finding, therefore, his conclusion that the equipment had become a fixture and, therefore, part of the land was, as a matter of law, inevitable.
The finding of fact by the learned judge was, to a material extent, based on the judge’s own inspection of the plant in operation, an inspection which convinced him that the object of fixing the equipment securely to the factory was not merely to keep it in a definite position and prevent it from being dislodged but was essential in order to enable the plant to function properly. It was on the basis of the inspection that he rejected the evidence to the contrary put forward on behalf of the appellants and expressed ‘complete agreement’ with the evidence on this point by the respondents. The learned judge was in our view, clearly entitled, on the basis of the affidavit evidence and on his own inspection, to find as he did, and this court would be loath — and it has not been suggested otherwise — to interfere with those findings, particularly since those findings were, to a large extent, based on the evidence of the judge’s inspection of the plant in operation.
In this appeal, the appellants advanced a number of grounds of appeal. The first ground is that as the bank chose to appoint receivers instead of going into possession itself, this affects the undoubted ‘superior title’ it would otherwise have had in relation to the proceeds of sale of the equipment. The second ground is that the effect of the retention of title clause meant that the company had no power or right to annex the equipment to the land so as to make it a fixture and that the receivers, because they were agents of the company by cl 14 of the debentures, had no power or right to sell the equipment. The third is that the receivers were estopped by reason of the sale and purchase agreement dated 14 May 1984 from denying, as against the appellants, that the title was to remain in the appellants.
THE FIRST GROUND
The first ground of appeal is that the bank as mortgagee in the present case, unlike the mortgagees in the cages relied on by the learned judge, was never in the position of a mortgagee in possession, but instead chose to appoint receivers under the power in that behalf conferred by the debentures. It was conceded by the appellants that the learned judge’s view of the matter might have been tenable had the bank entered into possession of the land as mortgagee. So the whole of the appellants’ argument on this point depends upon the fact that instead of going into possession itself, the bank chose to appoint receivers. It was contended that because the bank chose that method of enforcing its security, it lost the ‘superior title’ it would otherwise have had in relation to the proceeds of sale had it gone into possession itself. It therefore becomes necessary to examine the two leading authorities on this point, namely, Hobson v Gorringe [1897] 1 Ch 182 and Reynolds v Ashby [1904] AC 466; to see if they could be distinguished on the ground suggested by the appellants.
Hobson v Gorringe [1897] 1 Ch 182, the plaintiff let a gas engine to King under a hire purchase agreement which provided that it should not become the property of the hirer until the payment of all instalments and should be removable by the plaintiff upon default of any instalment. King affixed the engine to his land in such a way as to make it a trade fixture. He mortgaged the land to the defendant, who, when King became bankrupt, entered upon the land and took possession of the engine. The plaintiff sued to recover the engine or the proceeds of its sale. His claim was dismissed.
The primary ground for the decision is to be found in the following passage in the judgment of AL Smith LJ (at p 192):
|
It seems to us that the true view of the hiring and purchase agreement, coupled with the annexation of the engine to the soil which took place in this case, is that the engine became a fixture — i.e. part of the soil — when it was annexed to the soil by screws and bolts, subject as between Hobson (the owner) and King (the hirer) to this, that Hobson had the right by contract to unfix it and take possession of it if King failed to pay him the stipulated monthly instalments. In our opinion, the engine became a fixture — i.e. part of the soil — subject to this right of Hobson which was given him by contract. But this right was not an easement created by deed, nor was it conferred by a covenant running with the land. The right, therefore, to remove the fixture imposed no legal obligation on any grantee from King of the land. Neither could the right be enforced in equity against any purchaser of the land without notice of the right, and the defendant Gorringe (the mortgagee) is such a purchaser. The plaintiff’s right to remove the chattel if not paid for cannot be enforced against the defendant, who is not bound either at law or in equity by King’s contract. |
The court thus proceeded on the basis that the hire purchase agreement, conferring as it did only a contractual right against the hirer to remove the engine, could not affect the position of the mortgagee, for, although it might not be the intention of the owner of the engine that it should become a fixture, at least until the agreement was completed, the agreement was unknown to the mortgagee of the land and could not be enforced against him. It is true that in this case, the mortgagee entered into possession of the mortgaged property, but this had the effect only of determining any implied authority the mortgagee might have given to the plaintiff to remove the engine by leaving the mortgagor in possession. This is made clear by the following obiter statement of AL Smith LJ (at p 189):
|
Even if in the present case a licence had, been granted by Gorringe to King to remove the gas engine during the continuance of a term, neither of which conditions in fact existed, Gorringe, by entering and taking possession of the land and engine, would have determined such licence. |
In Reynolds v Ashby [1904] AC 466 , the facts as set out in the headnote are as follows:
|
Machines were supplied by the owner, (the appellant) of them to the lessee (Holdway) of a factory upon the hire purchase system, the machines to remain the property of the owner till they had been wholly paid for; upon default in payment the owner to have power to determine the hiring and remove the machines. They were affixed, as the owner knew, to concrete beds in the floor of the factory by bolts and nuts, and could have been removed without injury to the building or the beds. The lessee made default in payment, and the owner brought an action to recover the machines or their value from a mortgagee of the premises who had taken possession. |
In his judgment, Lord Lindley said (at pp 472–473):
|
The question is whether they passed by the mortgage. But for the fact that the mortgagor had not paid for them the question would not in my opinion be open to the slightest doubt. There is a long series of decisions of the highest authority shewing conclusively that as between a mortgagor and a mortgagee machines, fixed as these were to land mortgaged, pass to the mortgagee as part of the land. The decisions in question .... include Hobson v Gorringe .... it is quite impossible to overrule these decisions. |
At p 474, he dealt with the actual case as follows:
|
I pass now to consider whether in this case the fact that the mortgagor Holdway had not acquired the ownership of the machines by paying for them entitles the appellant to recover their value from the defendants. The title to chattels may clearly be lost by being affixed to real property by a person who is not the owner of the chattels .... Holdway agreed to buy the machines; but the appellant knew what he wanted them for, and that before paying for them he intended to put them up in his factory and to use them. The appellant knew that the factory was mortgaged, and ran the risk of the machines being claimed as fixtures. In effect, Holdway was authorized by the appellant to convert the chattels into fixtures, subject to the right of the appellant to enter and retake them if Holdway did not pay for them. |
Lord Lindley then went on — and this is the crucial passage — to give a further ground for his decision (at p 475):
|
But, apart from this knowledge and authority, the result would be the same, although not so obvious. After the machines were fixed and before the appellant claimed them, the second mortgagee took possession; the appellant’s right to enter and remove the machines, resting as it did on his contract with Holdway, ceased to be exercisable. The appellant has no greater rights against the defendants than he had against the second mortgagee, whose rights the defendants have acquired. The machines had ceased to be chattels belonging to the appellant, they were not chattels wrongfully detained by the defendants. The machines had become fixtures which the appellant was not entitled to remove from the possession of the mortgagees. |
These cases show that once the mortgagee has entered into possession under his security, the previous owner is no longer entitled to sever and remove chattels which are attached to premises such that they had become trade fixtures, as the property in the chattels has passed to the mortgagee. It is, however, equally clear that if the mortgagee can be presumed to have authorized the removal of trade fixtures by the mortgagor, the owner will be entitled to sever and remove them whilst the mortgagor is still in possession, but not after the mortgagee has taken possession, as any such licence to remove is terminated by the act of taking possession. As Fletcher-Moulton LJ put it in Ellis v Glover & Hobson Ltd [1908] 1 KB 388 when considering the effect of Gough v Wood [1894] 1 QB 713, Hobson v Gorringe [1897] 1 Ch 182 and Reynolds v Ashby [1904] AC 466.
|
.... these cases decide that in general a mortgagor in possession has the right to permit trade fixtures to be fixed and unfixed on the premises, provided that they are unfixed before the mortgagee takes possession, but that the right to unfix them ceases when possession is taken by the mortgagee .... it is undoubted law that the mortgagor would have been entitled to fix and unfix trade fixtures, provided only that they were unfixed by him before he had been turned out of possession. This no doubt accounts for the importance attached in the later cases to the mortgagee having taken possession while the fixtures were still on the premises. |
As Ellis’s case [1908] 1 KB 388 itself shows, any such presumption of authority from the mortgagee to the mortgagor is a question of fact depending upon all the circumstances of the case and will clearly be displaced by an express covenant by the mortgagor not to remove.
In the present case, the appellants relied heavily on the fact that the bank as mortgagee was never in possession of the mortgaged property as a factor serving to distinguish these cases from the present case. But, as the above analysis shows, this factor is only relevant to the argument that by leaving the mortgagor in possession, the mortgagee impliedly authorizes him to remove trade fixtures, not to the argument whether chattels which have been fixtures pass to the mortgagee as part of the land. Indeed, in the present case, no argument was advanced that the mortgagee has impliedly authorized the removal of fixtures, nor, in our opinion, could it be advanced in view of the express prohibition against removal of trade fixtures (save on replacement terms) found in cl 10(k) of the debentures as set out earlier (supra). The present case is thus indistinguishable from the cases relied on by the learned judge and, in our view, the learned judge was entirely right to apply the principles laid down in those cases in reaching his decision that the equipment had ceased to be chattels and as fixtures had passed by the mortgage to the bank.
THE SECOND GROUND
The second ground of appeal advanced by the appellants concerns the effect of the retention of title clause on (a) the company’s right or power to seer the equipment. With regard to (a), the appellants argued that the retention of title in the appellants meant that the company had no right or power so to annex the equipment so as to deprive the company of its ability to honour or give effect to (and/or the appellants of the benefit of) the contractual retention of title clause. This argument amounts, in effect, to saying that the effect of the retention of title clause is to prevent the equipment from ever becoming a fixture and thus becoming part of the realty by annexation (since, as was said by Lord Lindley in Reynolds v Ashby [1904] AC 466 at p 475, ‘the title to chattels may clearly be lost by being affixed to real property by a person who is not the owner of the chattels’). In this context, the judgments in Hobson v Gorringe [1897] 1 Ch 182 and Reynolds v Ashby [1904] AC 466 make it clear that the mere fact that the chattel is let on hire on terms that it shall not be the property of the hirer until that is paid for is not sufficient to prevent it from being a fixture. The test of annexation, in the words of AL Smith LJ in Hobson v Gorringe [1897] 1 Ch 182 at p 193, depends ‘not (upon) circumstances of a chance agreement that might or might not exist between an owner of a chattel and a hirer thereof’ but rather upon ‘circumstances which shewed the degree of annexation and the object of such annexation which were patent for all to see’. ‘How a de facto fixture becomes not a fixture or is not a fixture as regards a purchaser of land for value without notice by reason of some bargain between the affixers we do not understand, nor has any authority to support this contention been adduced’ (per AL Smith LJ at p 159). Similarly, in Reynolds v Ashby [1904] AC 466 at p 472, Lord James rejected the argument that ‘as Holdway (the hirer) had not paid for the machines they remained the property of the appellant, and could not by any act of Holdway (the hirer) be dealt with as fixtures’. In our view, these rules as to affixation of chattels owned by a third person to land owned by a company are general in character and, equally, affect a seller of chattels sold on terms that the seller shall remain the owner of the chattels until they are paid for. The appellants cannot, therefore, pray in aid the retention of title clause as preventing the company from annexing the equipment in a manner which made it a fixture.
With regard to (b), the appellants argued that since, by cl 14 of the debentures, the receivers were agents of the company, they did not have the power or right to sell the equipment, since the company itself lacked power or right to sell by reason of the retention of title clause. If this argument is correct, it would of course produce alarming results for mortgagees and receivers alike. But it is, in our view, fallacious for the following reasons. In the first place, the argument is based on the premise that the company acted in breach of its contract towards the appellants in selling the equipment. But this overlooks the fact that the sale was concluded by the receivers appointed under the debentures, by the terms of which the company had agreed that the receivers properly appointed could take possession of its assets and could bind the company to sell those assets — see, in particular, cl 14(a) and (d). In the second place, the argument is based on a misapprehension of the true object and purpose of the agency clause in cl 14. The receivers’ agency for the company does not place the receivers appointed by the debenture holder on the same footing as the chargor company. They are appointed primarily to realize the debenture holder’s security, not to run the company for the benefit of the mortgagor, or for that matter, the creditors. As Donovan LJ said in Windsor Refrigerator Co Ltd v Branch Nominees Ltd [1961] 1 Ch 375, quoted by Goff J (as he then was) in RA Cripps & Son v Wickenden [1973] 1 WLR 944: ‘What the debenture holder wants to do is to levy equitable execution, and for that purpose to have some person in being clothed with the necessary authority to take possession of the company’s property .... and the company has to submit to the exercise of these powers by the person having such authority.’ The power therefore to bind the company (by acting as its agents) is given for this primary purpose of enabling the receivers to realize the debenture holder’s security. As Evershed MR said in Re B Johnson & Co (Builders) Ltd [1955] Ch 634 ‘that is the whole purpose of his appointment, and the powers which are conferred upon him, .... are really ancillary to the main purpose of the appointment, which is the realization by the mortgagee of the security (in this case, as commonly) by the sale of the assets’. Indeed, it may even be said that in those cases in which a power of sale is expressly conferred upon a receiver, the duties in connection with the exercise of this power may be equated to those of a mortgagee exercising his power of sale. So, for example, in Re B Johnson & Co (Builders) Ltd [1955] Ch 634 at p 662, it was said, obiter, ‘his power of sale is, in effect, that of a mortgagee’ (per Jenkins LJ). In the third place, the method of enforcement of the security cannot, on principle or authority, affect the extent of the property charged. That would be flatly contrary to the principle that so long as a chattel which is affixed to the land remains a fixture, the title to it must remain in the owner of the land.
THE THIRD GROUND
The third and final ground of appeal concerns the effect of the sale of the equipment by the receivers. The sale and purchase agreement dated 14 May 1984 treated the equipment as chattel, not as land or fixtures and, in the Sixth Schedule, gave notice of the retention of title in the appellants. It was therefore argued that the receivers were estopped from asserting, as against the appellants, that title did not remain in the appellants. This was expressed, as in argument before the learned judge, that the receivers cannot approbate (assert title to act as the company’s agents) and reprobate (assert power as such agents to do what the company and its agents as such could not do) or simply as an example of estoppel by convention (the convention obliging the receivers to adhere to a state of facts which they have declared to be assumed as true for the purposes of a particular transaction).
The learned judge had no difficulty in rejecting the argument. He said:
|
The equipment had become put of the land long ago, at least since October 1982 when the factory became operational and production began. Therefore, the plaintiff had lost their title to the equipment long before the sale and what they had lost they could not and did not regain. It follows that in whatever manner the defendants treated the equipment in the sale in May 1984 could not possibly revive the plaintiffs title to the equipment. |
In argument before us, the appellants sought to contend that as the equipment was sold as machinery and not part of the land, it was sold as if severed from the land. We are unable to accept this submission.
In the first place, physical severance is clearly necessary in order for a fixture to revert to the character of chattel. It is common ground that no such physical severance took place. The most that can be said is that there could, in law, be some form of ‘notional severance’, for which there is no authority in support. In our opinion, such a proposition is clearly untenable. In Bain v Brand (1875–1876) 1 App Cas 762, Lord Chelmsford said: ‘As the personal character of the chattel ceases when it is fixed to the freehold, it can never be revived as long as it continues so annexed.’
In the second place, as the learned judge found, the equipment had clearly become a fixture long before the sale, at least sometime in October 1982 when production in the factory began. By the time of the sale, therefore, the appellants’ title to the equipment had been entirely extinguished when it turned into land and, accordingly, the receivers were free to deal with the property of the company (which included the equipment) in accordance with the debentures. The form of documentation employed by the receivers to dispose of the property of the company could not, therefore, possibly ‘revive’ the appellants’ title to the equipment in any way.
In the third place, it cannot be assumed that the receivers intended to deal with the equipment in a way which would be outside their powers and contrary to law. The receivers’ intention must have been to enforce the bank’s security — not to convert fixtures into chattels. There is clearly no evidential basis for any assertion to the contrary. Indeed, the receivers’ intention must have been to pass title to the fixtures by the assignment dated 28 June 1984 (which is expressly made by the bank in the exercise of its statutory power of sale as mortgagee) by which the title to the fixtures passed and could only have passed. This was always intended, as the sale of the equipment by the sale and purchase agreement was to be completed by the assignment (see, for example, cl 5(a) of the sale and purchase agreement).
For all these reasons, we would dismiss the appeal with costs.
Judgment below
LP Thean J
The plaintiffs are a Swiss engineering company which manufacture machinery and equipment and provide services for erection and installation of machinery and equipment for the manufacture of cocoa and chocolate. The defendants are the receivers and managers of Allied Cocoa Industries Pte Ltd (the company) appointed on 27 February 1984 by Bank of America National Trust & Savings Association (the Bank) under the deeds of debenture dated 9 April 1980 and 2 September 1981. The company was incorporated in Singapore and was engaged in the business of making cocoa butter and cocoa powder. It erected a factory at 342 Boon Lay Road, Singapore, which is on a piece of land marked as Government Survey Lot 1644 of Mukim, VI, Peng Kang. The land was leased from Jurong Town Corporation for a term of 30 years commencing from 1 January 1980.
On 9 April 1980, the company executed a deed of debenture in favour of the Bank, whereby the company, among other things, charged by way of fixed charge ‘all the freehold and leasehold property of the company both present and future and the fixed plant and machinery (including trade fixtures) from time to time thereon’ and by way of floating charge ‘the undertaking and all other property and assets of the company both present and future’ to secure the payment of all moneys and liabilities agreed to be paid under the deed of debenture. About one-and-half years later, on 2 September 1981, a further deed of debenture was executed in favour of the Bank whereby the company charged, among other things:
by way of fixed charge ‘all the freehold and leasehold property of the company wheresoever situate and the fixed plant and machinery thereon’,
by way of fixed charge ‘all future freehold and leasehold property of the company and fixed plant and machinery from time to time thereon’, and
by way of floating charge ‘all other the undertaking and assets of the company whatsoever and wheresoever both present and future’.
Since the beginning of 1981 the company had purchased from the plaintiffs under six separate contracts various machinery and equipment including spare parts for installation at the company’s factory. It also purchased machinery and equipment from other sources. The machinery and equipment purchased from the plaintiffs started arriving from about April 1981 and from November 1981 or thereabout they were assembled and installed together with machinery and equipment purchased from other sources, including some fabricated locally, to make up one entire processing and manufacturing plant for the making of cocoa butter and cocoa powder. Production commenced only in October 1982. From time to time, spare parts for the machinery and equipment were also ordered from the plaintiffs and were delivered. All the machinery and equipment delivered by the plaintiffs to the company were sold subject to a provision reserving to the plaintiffs their title thereto until full payment was made, and the provision (Retention of Title Clause) is as follows:
|
Reservation of rights of property: Buhler Brothers Ltd shall remain proprietors of all their deliveries (machines, spare parts and accessories) until payment of full purchase price as well as of any costs of erection which are to be charged to the customer and interest on arrears, etc, has been completed. The buyer authorises Buhler Brothers Ltd to have registered the reservation of ownership at the buyers’ expense on public registers or records under observation in the form and within the terms and limitations set forth by the laws of the respective country and the buyer is obliged to give promptly any signatures requested from him for this purpose. |
The company subsequently fell into financial difficulties and on 27 February 1984, the defendants were appointed receivers and managers of the company by the Bank under the two deeds of debenture. In exercise of the powers contained in the deeds of debenture, the defendants took possession of the factory and all the property and assets of the company, including the machinery and equipment and spare parts supplied by the plaintiffs (such machinery, equipment and spare parts being hereinafter collectively called the equipment). They then carried on the business of the company for a period of time and subsequently sold the whole of the property and assets of the company, including the equipment, as a going concern to WR Grace & Co. The plaintiffs have not been paid the full purchase price of the equipment under the various contracts of sale thereof; they are at least creditors of the company. This the defendants admit. But the plaintiffs claim more; they assert their claim on the equipment. Relying on the Retention of Title Clause they claim that they were the owners of the equipment which the defendants had sold and are therefore entitled to be paid out of the proceeds of sale the balance of the purchase price of the equipment. The plaintiffs are not seeking to impeach the sale and recover possession of the equipment. The defendants agree that should the plaintiffs establish their claim, the defendants would make payment to the plaintiffs of the amount still owing. The defendants, however, contend that the plaintiffs did not have any title to the equipment at the time when they took possession of the company’s factory and in consequence at the time when all the property and assets of the company including the equipment were sold.
It is common ground that the sales of the equipment by the plaintiffs to the company were subject to the Retention of Title Clause, which generally is known as the Romalpa clause, deriving its name from the case of Aluminium Industries Vaassen BV v Romalpa Aluminium Ltd [1976] 1 WLR 676. There is no dispute as to what the equipment were at the material time; they were identifiable and were assembled and installed together with other machinery and equipment in the factory. Mr. Karthigesu for the plaintiffs submitted that as the equipment were identifiable and could be dismantled and removed from the factory, on which there was evidence before me, the Retention of Title Clause was effective and retained the ownership of the plaintiffs in the equipment. Hence, they belonged to the plaintiffs when the defendants took possession of the factory and all the machinery and equipment therein. He relied on Romalpa (supra) and Mill v Martin [1984] 3 All ER 982. There is really no dispute as to the meaning or effect of the Retention of Title Clause. The provision, though couched in Swiss style, is tolerably clear and does not give rise to any problem on construction. As a contractual provision it is effective to reserve to the plaintiffs their title to the equipment until the full purchase price therefor, the costs of erection which are to be charged to customers and the interests on arrears are paid. There is no doubt that at the time when the equipment were delivered to the company and before they were assembled and installed in, the company’s factory the plaintiffs had under this clause retained their title to the equipment. This was conceded by Mr. Goh for the defendants. But Mr. Goh submitted that in the events that had happened, the plaintiffs had lost their title to the equipment. His arguments on this point are two-pronged.
First, he argued that the equipment when installed in the factory were-permanently affixed or attached to the land or building and became part of the land: quicquid plantatur solo, solo cedit (whatever is affixed to the soil, belongs to the soil). The equipment therefore had ceased to be chattels and passed with the land to the chargee, the Bank.
Secondly and in the alternative, he argued that the equipment had been assembled with the other plant, machinery and equipment (not supplied by the plaintiffs) in the factory so as to form one integrated cocoa processing plant, and by reason thereof the equipment had lost their identity.
Either of these arguments, if it succeeds, will defeat the plaintiffs’ claim and I propose to deal with them in the inverse order.
EQUIPMENT HAD LOST ITS IDENTITY?
There is no dispute as to the installation at the material time of the various components or pieces of the equipment in the factory; they were fitted up and installed with machinery and equipment from other suppliers. The whole plant in the factory comprised;
the equipment,
machinery and equipment from other suppliers,
special fabrications made locally and
wirings, pipings, conveyers and ducts.
Practically all the machines and equipment in the factory were inter-connected by pipes, hoppers, conveyers, ductworks and supporting structures. All these formed the entire integrated processing plant. The removal of any major component of the plant would bring the operation of the entire plant to a grinding halt. There is no doubt that the whole plant installed in the factory was a very advanced and sophisticated one and the installation was obviously well planned and designed to provide the maximum efficiency in cocoa processing and the manufacture of cocoa butter and cocoa powder. It was not, as Mr. Goh pointed out, a haphazard assembling of assorted pieces of equipment. The equipment, he submitted, had been so well incorporated and integrated into this entire plant that they had lost their identity. In support, he relied on Borden (UK) Ltd v Scottish Timber Products [1981] Ch 25. In that case, the plaintiff supplied resin to the defendants for manufacture of chipboard subject to a retention of title clause. It was held by the Court of Appeal in England that once the resin had been used in the manufacture of chipboard, it ceased to exist, and the plaintiff ceased to have any title thereto. That case, in my view, is entirely different and is of no assistance to me. In this case the subject matter is the equipment used to process or manufacture goods from raw material, i.e. producing cocoa butter and cocoa powder from cocoa beans.
Mr. Karthigesu on the other hand relied on the case of Hendy Lennox (Industrial Engines) Ltd v Grahame Puttick [1984] 1 WLR 485 which, he submitted, was more in point. I agree. In that case Staughton J held that diesel engines supplied for incorporation into generating sets were unaltered in substance and did not lose their identity and therefore the ownership in the engines by reason of a retention of title clause was effectively reserved to the supplier. There is of course a factual difference between an engine in a generating set and the equipment in the cocoa processing plant. It seems to me, however, that, on analogy, that case is applicable. The equipment though installed and incorporated into the processing plant have not lost their identity and are identifiable: machinery by machinery and equipment by equipment as supplied by the plaintiffs.
I have examined the photographs of certain parts of the equipment taken by Mr. Edwin Lim, a licensed appraiser of machinery and equipment. I have also, in the company of both counsel, visited the factory (now in the possession of the new owner) and looked at the equipment as assembled and installed there. At the time of our visit the plant was in operation. I was informed that certain parts of the equipment and other machinery and equipment had been re-positioned and some modifications had been made to the plant, but substantially the equipment remained as they were before taken over by the new owner. This fact is again not really in dispute. The equipment, though they form a part of the entire cocoa processing plant, have remained unaltered and are clearly identifiable. This argument of Mr. Goh (i.e. the second argument) therefore fails.
QUICQUID PLANTATUR SOLO, SOLO CEDIT?
I now turn to the first argument of Mr. Goh. In connection with this, it is necessary to examine
first the interest the company had in the land on which the factory was built, and
secondly the nature of the security created by the company in favour of the Bank.
The land belongs to Jurong Town Corp which had agreed to lease it to the company for a term of 30 years, commencing from 1 January 1980. The company was let into possession of the land on or before 13 June 1980 but the formal agreement was not executed until 16 September 1983. Presumably, on the date when the company was let into possession a firm agreement had been reached between the company and Jurong Town Corp as regards the leasing of the property. Effectively, therefore, as from 13 June 1980, the company had a leasehold interest in the land. The first deed of debenture was executed on 9 April 1980 and created a first fixed charge on all the freehold and leasehold property of the company both present and future and on the fixed plant and machinery and fixtures, including trade fixtures, from time to time thereon and also a floating charge on the undertaking and all other property and assets of the company. The second deed of debenture was executed on 2 September 1981 and, though the wordings of the charging clause are slightly different, it also created a fixed charge on the freehold and leasehold property of the company, present and future. The charges created by the two debentures were duly registered under the Companies Act and there is no question that the charges are valid and enforceable.
The contracts for the purchase of the equipment from the plaintiffs were entered into on diverse dates, between 16 January 1981 and 18 January 1982. They were therefore made after the first deed of debenture, but some of them were made before the second deed of debenture. There is no evidence that the Bank at any time were aware that the contracts of sale of the equipment contained the Retention of Title Clause. It appears that the installation of the plant and machinery commenced from November 1981 or thereabout and the factory became operational as from October 1982.
The question whether the equipment had become fixtures and therefore part of the land depends on the intention of the company at the time they were installed in the factory. If it was intended that the equipment should form a permanent part of the factory then in law they became fixtures upon annexation thereof to the factory and such intention is to be gathered mainly from:
the degree of annexation and
the object or purpose of annexation.
Blackburn J said in Holland v Hodgson (1871–72) LR 7 CP 328 p 334:
|
There is no doubt that the general maxim of the law is, that what is annexed to the land becomes part of the land; but it is very difficult, if not impossible, to say with precision what constitutes an annexation sufficient for this purpose. It is a question which must depend on the circumstances of each case, and mainly on two circumstances, as indicating the intention, viz the degree of annexation and the object of the annexation. |
On the question of the degree of annexation attention has been drawn to the affidavit of Mr. Edwin Lim affirmed on 20 September 1985. He had visited the factory on instruction of the defendants, examined the plant and prepared a detailed report; he also took photographs of various parts of the plant. According to him all the equipment in the factory, including the equipment, were bolted, welded, affixed or embedded in some way to the ground or to silos or steel girders or other structures which were themselves embedded to the floor of the factory or to other equipment which itself was affixed to silos, girders or other structures. All the equipment were connected to each other by ductwork, bucket, elevators and other connections so as to form one integrated plant. The net result is that all, or substantially all, parts of the plant were affixed either directly to the factory or indirectly thereto, i.e. affixed to other equipment or structures which were themselves affixed directly to the factory. This was not seriously challenged by the plaintiffs. But in response Mr. Franze H Koffer, the regional manager of a subsidiary of the plaintiffs, said in his affidavit affirmed on 12 November 1984 that the equipment though affixed to the land or building, directly or indirectly, could be easily detached. He said in para 14 of his affidavit:
All the equipment listed in the aforementioned Second Schedule as the plaintiffs’ equipment may be easily removed and detached from other equipment and from the premises. The plaintiffs’ equipment is (wherever it is attached to other equipment, brackets, other supports or the premises) attached only by the use of bolts, flanges, clips, flexible connecting parts or minor welding. The Plaintiffs’ equipment may be removed merely by loosening the bolts, clips, flanges or other connecting parts, or by grinding off minor welds, if any. The brackets or other supports which are not part of the Plaintiffs’ equipment may be welded to the steel supports of the factory, but this does not in any way impair the removal of the Plaintiffs’ equipment from such brackets or other supports.
He then proceeded to show how some of the components or pieces of the equipment could be detached and prepared an elaborate schedule showing the modes of detachment and the approximate time involved for each detachment. However, I think one must look at the equipment as they were in the factory. They were installed in the factory as a part of the cocoa processing plant and were affixed direct or indirectly to the land or the building. They functioned in that state and condition and were not used as separate pieces of machinery lying loose and free standing on their own. They were securely fixed and attached. Mr. Koller appeared to suggest that the purpose of attachment to the factory of the bulk of the equipment was merely to keep them in a definite position and to prevent them from being dislodged, for instance, during cleaning and maintenance and that the purpose was not to prevent movement resulting from vibrations during the operation because, so he said, those pieces of machinery which vibrated were either damped internally or were set on vibro-dampers. This, in my view, is an over-simplified statement and does not portray the position realistically. An inspection of the processing plant while in operation would convince anyone (as it did to me) of the tremendous amount of noise and vibration generated and that the bulk of the equipment cannot function as part of the processing plant without being so securely affixed to the factory. I am in complete agreement with Mr. Edwin Lim's observation in para 5 of his affidavit affirmed on 11 January 1986 that if the equipment had not been so filmy affixed they would not be able to operate as part of the integrated manufacturing process.
Insofar as the object or purpose of annexation is concerned, one must look at the building in which the equipment were attached at the material time. It seems to me obvious that the company negotiated and acquired the land from Jurong, Town Corp for the purpose of setting up a factory to manufacture cocoa butter and cocoa powder, and the factory was designed and built for the purpose of housing an integrated processing and manufacturing plant and took into consideration the machinery and equipment required for the purpose. Substantial capital investments in building, machinery and equipment were made by the company resulting in the company having a modern and advanced factory for the purpose of manufacturing cocoa butter and cocoa powder. The machinery and equipment, including the equipment, installed in the factory served the factory for such purpose, and enhanced the value of the factory and in consequence the leasehold interest of the company in the land. In Holland v Hodgson (supra) Blackburn J after referring to the case of Walmsley v Milne (1859) 7 CB (NS) 115; 29 LJ (CP) 97; 141 ER 757 said:
|
This case and that of Wiltshear v Cotterill 22 LJ (QB) 177 seem authorities for this principle, that where an article is affixed by the owner of the fee, though not affixed by bolts and screws, it is to be considered as part of the land, at all events where the object of setting up the articles is to enhance the value of the premises to which it is annexed for the purposes to which those premises are applied. The threshing machine in Wiltshear v Cotterill was affixed by the owner of the fee to the barn as an adjunct to the barn, and to improve its usefulness as a barn, in much the same sense as the hay-cutter in Walmsley v Milne was affixed to the stable as an adjunct to it, and to improve its usefulness as a stable. |
The cocoa processing plant in this case was installed in the factory as ‘an adjunct’ to the factory and to improve its usefulness as a factory for manufacturing cocoa butter and cocoa powder.
In Hobson v Gorringe [1897] 1 Ch 182 a gas engine was let out to a hirer on hire-purchase terms under which it was not to become the property of the hirer until the payment of all the instalments and was to be removed by owner on failure of the hirer to pay any instalment. The engine was affixed to land by bolts and screws to prevent it from rocking and was used by the hirer for the purpose of his trade. The Court of Appeal in England held that the engine was sufficiently annexed to the land to become a fixture and any intention expressed in the hire purchase agreement that it should remain a chattel did not prevent it from becoming a fixture, and consequently it passed to the mortgagee as part of the land. Again, in Reynolds v Ashby & Son [1904] AC 466 machines were supplied to a lessee of a factory on hire-purchase terms, under which they were to remain the property of the supplier until full payment. The machines were affixed to concrete beds in the floor of the factory by bolts and nuts and could be removed without injury to the factory. It was held by the House of Lords that the machines had been so affixed to the land that they passed to the mortgagee who had taken possession of the factory. Lord Lindley said, at p 472:
|
The appellant knew that the machines were wanted in order to fit up a factory which Holdway was building. The purpose for which the machines were obtained and fixed seems to me unmistakable; it was to complete and use the buildings as a factory. It is true that the machines could be removed if necessary, but the concrete beds and bolts prepared for them negative any idea of treating the machines when fixed as movable chattels. |
In my opinion, there was physical annexation of the equipment to the land and the annexation was for the better enjoyment of the factory. In law they had become fixtures and formed part of the land to which they were affixed.
EQUIPMENT TREATED AS CHATTELS?
There is one further point raised by Mr. Karthigesu. By an agreement dated 14 May 1984 the defendants sold to WR Grace & Co the whole of the factory together with the cocoa processing plant as a going concern for a total sum of $31,300,000, which was apportioned as follows:
$13,200,000 for the leasehold interest in the land with the factory thereon;
$18,099,999 for all the machinery and equipment, including the equipment, and
$1 for the benefit of purchase orders listed therein.
Upon completion of the sale the leasehold interest in the land was assigned by a deed of assignment dated 28 June 1984 to De Zaan Far East Pte Ltd, a subsidiary of WR Grace & Co. The machinery and equipment were not included in the deed of assignment. The parties to the contract presumably treated them as chattels the title of which passed to the purchasers upon their taking possession of the factory with everything therein or thereat. However, none of the machinery and equipment were detached or severed from the factory and sold separately as chattels. Obviously the apportionment of sale price in the sale agreement and the exclusion of the machinery and equipment in the deed of assignment were an exercise to avoid or minimise stamp duty on the deed. Mr. Karthigesu submitted that the defendants had thereby treated the machinery and equipment (including the equipment) as chattels and not as part of the land, and could not therefore say that they were part of the land. In other words, the defendants cannot approbate and reprobate. To such an argument the short answer is this. The equipment had become part of the land long ago, at least since October 1982 when the factory became operational and production began. Therefore the plaintiffs had lost their title to the equipment long before the sale, and what they had lost they could not and did not regain. It follows that in whatever manner the defendants treated the equipment in the sale in May 1984 could not possibly revive the plaintiffs title to the equipment.
For the reasons I have given, I am of the opinion that the plaintiffs had lost their title to the equipment, and accordingly, I dismiss the claim of the plaintiff's with costs.
Cases
B Johnson & Co (Builders), Re [1955] Ch 634; Bain v Brand 1 App Cas 762; Ellis v Glover & Hobson [1908] 1 KB 388; Gough v Wood [1894] 1 QB 713; Hobson v Gorringe [1897] 1 Ch 182; Holland v Hodgson [1872] LR 7 CP 328; RA Cripps & Son v Wickenden [1973] 1 WLR 944; [1973] 2 All ER 606; Reynolds v Ashby & Son [1904] AC 466; Windsor Refrigerator Co v Branch Nominees [1961] 1 Ch 375
Authors and other references
Megarry & Wade’s Law of Real Property (5th Ed)
Representation
Leolin Price QC and AJ Thambaiyah (Cooma Lau & Loh & M Karthigesu) for the appellants.
Jonathan Parker QC & HL Goh (Allen & Gledhill) for the respondents.
|
|
all rights reserved taiking.thing pte ltd |
|
|
