Associated Alloys Pty Ltd v Acn 001 452 106 Pty Ltd (The Associated Alloys Case)

• Jurisdiction: Australia Federal only
• Judge: Gaudron,McHugh,Gummow,Hayne JJ
• Judgment Date: 11 May 2000
• Neutral Citation: [2000] HCA 25,2000-0511 HCA A
• Court: High Court
• Docket Number: S65/1999
• Date: 11 May 2000

[2000] HCA 25

HIGH COURT OF AUSTRALIA

Gaudron, McHugh, Gummow, Kirby and Hayne JJ

S65/1999

Associated Alloys Pty Limited

Appellant

and

ACN 001 452 106 Pty Limited (in Liquidation) (Formerly Metropolitan Engineering and Fabrications Pty Limited) & Anor

Respondents

Representation:

F M Douglas QC with W Haffenden and J A Springthorpe for the appellant (instructed by K J Minotti & Co)

B A J Coles QC with M J Cohen for the respondents (instructed by Brown & Partners)

CATCHWORDS

Associated Alloys Pty Limited v ACN 001 452 106 Pty Limited

Equity — Distinction between trust and charge — Seller supplied goods subject to retention of title clause — Total purchase price not paid — Buyer insolvent — Goods no longer ascertainable — Whether retention of title clause trust or charge — Whether trust constituted — Intentions of the parties — Relationship between trust and debt — Significance of beneficiary's qualified ability to draw upon trust property — Significance of lack of requirement in trustee to keep trust property separate — Equitable obligations of trustee — Evidentiary requirements to prove trust — Liability to account.

Corporations Law — Distinction between trust and charge — Lack of obligation in Corporations Law to register trust — Reservation of title or Romalpa clause — Effectiveness against liquidator of insolvent company.

Contracts — Romalpa clause — Construction of contractual terms — Implication of terms — Significance of considerations of inutility and commercial practicality — Relationship between contractual and equitable rights.

Words and phrases — ‘trust’ — ‘charge’ — ‘registrable charge’.

Corporations Law, ss 262, 263, 266.

ORDER

Appeal dismissed with costs.

1 Gaudron, McHugh, Gummow AND Hayne JJ. This appeal is brought from a decision of the Supreme Court of New South Wales sitting as the Court of Appeal (Sheller, Beazley and Stein JJA) 1 (‘the Court of Appeal’). It dismissed the appellant's appeal from the decision of Bryson J in the Equity Division 2. Bryson J had dismissed proceedings by the plaintiff (the appellant) which were instituted by summons.

The issues

2 The issues in this Court principally concern the construction and effect of a paragraph in a retention of title, or ‘Romalpa’ 3, clause. The text and scope of clauses which have come to be so described are not uniform 4. Reference to the vague and undifferentiated, such as the categorical phrase ‘Romalpa clause’, is no substitute for a particularised application of the relevant principles of law and equity to the construction and operation of the text at hand. It is possible to decide which of the submissions made to this Court is correct only by paying close regard to those matters.

3 In dismissing the appeal to the Court of Appeal, Sheller JA (with whom Beazley and Stein JJA concurred) held that the material paragraph of the retention of title clause, which is set out later in these reasons, was a ‘charge’ within the meaning of s 9 of the Corporations Law (‘the Law’). Section 9 defines ‘charge’ to mean ‘a charge created in any way and includes a mortgage and an agreement to give or execute a charge or mortgage, whether on demand or otherwise’. Part 3.5 (ss 261–282) of Ch 3 of the Law as it then stood 5 was entitled ‘CHARGES’ and contained a regime for the registration of those

‘charges’ identified by s 262. Bryson J held that the material paragraph was ‘a charge on a book debt’, the expression used in s 262(1)(f) and given an extended meaning by s 262(4) 6. It followed that the registration provisions were applicable.

4 Section 266(1) of the Law provides that, where the registration requirements have not been satisfied, such a charge on property of a company (here the first respondent) will be void as against the liquidator or administrator of the company or, where a deed of company arrangement has been executed, the administrator of the deed. On the hypothesis that the material paragraph of the retention of title clause was a registrable charge created by the first respondent in favour of the appellant, the relevant registration obligation was the lodgment of a notice under s 263 of the Law within the prescribed period (s 266(1)(c)). This was not done. It is the respondents' submission that the conclusions of the Court of Appeal and Bryson J were correct. These were that the material paragraph of the retention of title clause was a registrable ‘charge’ within s 262 of the Law and, as there was a failure to lodge the notice required by s 263, the charge created by that paragraph is void as against the administrators of the first respondent and its liquidator. The appellant asserts that there was no registrable ‘charge’ created by the first respondent in its favour and that the material paragraph was effective as an agreement for value to constitute trusts binding the first respondent in favour of the appellant in respect of certain after-acquired property.

5 The Law does not render a trust or agreement to constitute a trust void against the administrators or liquidator of the first respondent for want of registration. Nor does the legislation require the registration of trusts or agreements to create trusts. The distinction between the institutions of the trust and the charge is thus essential for this appeal. It is made essential by reason of the text of the Law and the particular criterion selected for its operation. The distinctions involved here have been seen by some as representing a sterile,

overly conceptualist approach to the solution of legal controversies 7. However, these distinctions serve to identify the various building blocks of the law of property. Moreover, distinctions between the two institutions have been adopted by legislatures, as here with the Law, to mark the ambit of various regulatory regimes.

6 In In re Bank of Credit and Commerce International SA (No 8)8, Lord Hoffmann, with whose speech the other Law Lords agreed, gave a description of an equitable charge in which he emphasised that the proprietary interest created thereby is held by way of security, so that the chargee may resort to the charged asset only for the purpose of satisfying some liability due to the chargee. The charge is subject to the equity of redemption retained by the owner. However, the beneficial interest held under an express trust is not so limited in nature. The remedy of the beneficiary is to proceed in equity for the performance of the trust, not for the sale of trust property to satisfy a secured liability 9.

The facts

7 The appellant, Associated Alloys Pty Ltd (‘the Seller’), sold steel to the first respondent, ACN 001 452 106 Pty Limited (In Liquidation) (formerly Metropolitan Engineering and Fabrications Pty Ltd) (‘the Buyer’), between 1981 and 1996. In about 1987 or 1988, the Seller began to issue invoices to the Buyer with the reservation of title clause, the subject-matter of this appeal, printed on the reverse side.

8 Invoices were issued by the Seller to the Buyer on 31 August, 26 September and 26 October 1995. Each individually numbered invoice recorded the details of the supply and shipment of steel by the Seller, in accordance with an individually numbered order of the Buyer. Each invoice also recorded a particular United States dollar sum owed by the Buyer to the Seller in respect of the particular shipment of steel supplied thereunder: Invoice No 583 for $US61,361.29 and Invoice No 592 for $US80,630.00, together in fulfilment of

Order No 37603; and Invoice No 598 for $US69,920.00, in partial fulfilment of Order No 37605 (‘the Invoices’). On the front of the Invoices was recorded, under the heading ‘PAYMENT TERMS’, ‘PAYMENT DUE APPROX MID/END NOVEMBER '95’. The bottom of the front of the Invoices was marked ‘Romalpa Clause set forth on the reverse side hereof applies’.

9 An identical clause was printed on the reverse side of the invoices numbered 592 and 598. Invoice No 583 omitted the clause. The significance of this omission will be considered later in these reasons. The clause provided:

‘RESERVATION OF TITLE

'[1] It is expressly agreed and declared that the title of the subject goods/product shall not pass to the [Buyer] until payment in full of the purchase price. The [Buyer] shall in the meantime take custody of the goods/product and retain them as the fiduciary agent and bailee of the [Seller].

[2] The [Buyer] may resell but only as a fiduciary agent of the [Seller]. Any right to bind the [Seller] to any liability to any third party by contract or otherwise is however expressly negatived. Any such resale is to be at arms length and on market terms and pending resale or utilisation in any manufacturing or construction process, is to be kept separate from its own, properly stored, protected and insured.

[3] The [Buyer] will receive all proceeds whether tangible or intangible, direct or indirect of any dealing with such goods/product in trust for the [Seller] and will keep such proceeds in a separate account until the liability to the [Seller] shall have been discharged.

[4] The [Seller] is to have power to appropriate payments to such goods and accounts as it thinks fit notwithstanding any appropriation by the [Buyer] to the contrary.

[5] In the event that the [Buyer] uses the goods/product in some manufacturing or construction process of its own or some third party, then the [Buyer] shall hold such part of the proceeds of such manufacturing or construction process as relates to the goods/product in trust for the [Seller]. Such part shall be deemed to equal in dollar terms the amount owing by the [Buyer] to the [Seller] at the time of the receipt of such proceeds'.’ (paragraph numbers and emphasis added)

It is the operation of the fifth paragraph of the clause (‘the Proceeds Subclause’) which is of prime importance for this appeal. It is unnecessary to determine the construction and effect of the other paragraphs of the...