The Gazette 1978

MARCH 1978

GAZETTE

but he has also the right to follow or trace the trust property into the hands of persons other than bona fide purchasers for value without notice. Thus if the sub- purchasers do not pay No. 2 the property may be traced into their hands. If they then subsequently deal with the goods to yet further parties who are bona fide and give value then the right to trace into their hands is lost provided they have no notice of the trust. While in the short term Sellers may be frustrated by this, in the long term, as the commercial world becomes more and more familiar with such clauses it is only a matter of time before the Courts hold that constructive notice of the rights of beneficiaries under such trusts appertain to all dealing with companies in receipt of goods and materials and not just associated companies as in the Interview case. THE RETENTION OF TITLE CLAUSE AND VAT Under section 2 of the 1972 VAT Act (insofar as is relevant) tax is charged on the delivery of goods by an accountable person in the course of business. In the Act "delivery" in relation to the goods includes the transfer of ownership of the goods by agreement. "Ownership" is not defined, but a trustee for sale of goods who sells to a third party is transferring both legal and equitable title and so muct be a transfer of "ownership" within the meaning of the section. Section 3 (4) seems to place beyond doubt that a trustee for sale who makes a delivery in the course of business is an accountable person. All accountable persons must issue VAT invoices. Those that issue the invoices are liable to account to the Revenue for VAT. Thus there appears to be no danger of sellers incurring liability for VAT on the subsale as the Buyers are seperate accountable persons. It is arguable that sellers, far from being liable for the VAT on sub-sales, are not even themselves liable for VAT on "sales" made by them to Buyers under their conditions of sale. We have seen that under the conditions of sale the Buyers do not get beneficial ownership, and so it is arguable that there has been no "delivery" to them by the Seller and they are mere trustees. On the other hand, it could be argued that section 3(4) equates the position of the Trustee with that of an agent of an undisclosed Principal and he is thereby deemed to have made a delivery to the Buyer. However, there has certainly been a transfer of possession between trustee and beneficiary and as such there has been a delivery within the meaning of the Sale of Goods Act 1893. Thus, one may conclude by saying that the transaction made by the sub-sale operatively fixes both the Seller and the Buyer with VAT liability, each dor their respective deliveries. In theory then, the sellers do not become liable for VAT uhtil a sub-sale is made by the Buyer but in practice they will invoice the Buyer with BAT at the time of transfer of possession to the Buyer and the Buyer will invoice his VAT on his sub-sale. In this way I hope some of the problems now associated with such clauses will disappear; the threat of being bound by warranties recedes with agency, accounting is rendered much more certain as the distinction does not now have to be made between accounts done on the basis, of a going concern and those done on a strict legal basis, and the Revenue may look for the V.A.T. on the "sale" at least when sub-sales have been made.

quality. (See per Roskill L. J. p. 53 paragraph j). The principle that operated between No. 1 and No. 2 vis a vis No. 3 was that of Bilment. The Court found no difficulty in splitting the transaction in this way but I think that such a solution must be without precedent and the judgment must have adversely affected the Law of Bailment and Agency by trying to fit a square peg into a round hole. SOLUTION It is time we approached these clauses with fresh eyes. We should not feel bound to follow the conclusions of either the Romalpa or Interview cases in determining the rights and duties of the parties under these clauses for at least two reasons:— (i) We should draw up a standard clause universally acceptable (given a desire for the same objectives) using different wording making it free from ambiguities. (ii) Even if it is a clause creating a fiduciary relationship we are not bound to admit that such relationship arises from the relationship between Bailor and Bailee. One does not have to resort to this complex construction of bailment and agency in order to achieve the desired results from the Sellers' point of view. If we use the already familiar concept of trust the same results may be achieved at nothing like the sacrifice of legal principle otherwise involved. As it appears to me the simple solution is to constitute the Buyer (No. 1) as trustee with power of sale of the goods (with the right to make a profit) in favour of the Seller (No. 1). The way to do this is to retain the beneficial interest only. This may be done quite simply. Prima facie this is a sale and so unless the contrary intention appears both legal and equitable ownership vest in the buyer. Thus no mention need be made of legal title. Indeed, it is probably the case that the trust as such need not be spelt out as such will be inferred as flowing naturally and consequentially from the retention of equitable ownership. It would seem superfluous to spell out the rights of the beneficiary in the second limb of the clause as we are all familiar with such rights, but perhaps it would serve to alert the unwary. Thus the question becomes purely one of Trust. The second part of the clause then merely spells out the rights that any beneficiary under a trust for sale has after sale in the proceeds of the trust property, namely, the right to have them paid over by the Trustee. Such right is also good as against 3rd parties with or without notice of the Trust who may make a claim to the proceeds under a debenture or in a liquidationn because the proceeds do not form part of the assets of the company. So,, once payment has been received by No. 2 No. 1 has good security. Now, let us examine the situation where payment has not been received. Here we must ask ourselves what are the rights of No. 1 (the bene-ciary) against the original trust property when such has been sold in accordance with the trust with power of sale. One of the duties of a Trustee for sale is to receive payment for the property sold so that he may hand it on to the Beneficiary, thus, if payment is not received there has been a breach of trust. Where there has been a breach of trust the beneficiary has not only his personal rights against the trustee which in this case may prove worthless, the No. 2 company probably being insolvent,

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