The High Court

Between
Fried Krupp Huttenwerke AG
 and 
as amended Kruppstahl AG 
Plaintiffs
and 
Quitmann Products Ltd 
and 
Dermot Fitzgerald:
Defendants
High Court 1979 No. 5033P [14 July 1982]
Status: Reported at [1982] ILRM 551

GANNON J. 

This is a claim for goods sold and delivered brought by a German company, hereinafter referred to as ‘Krupps’ against a company in Ireland, hereafter referred to as ‘Quitmann’, whose business and affairs have been taken over by a receiver who is the second named defendant. The receiver was appointed on 20 July 1979 pursuant to the power reserved by a debenture granted by Quitmann to another creditor in Ireland. The assets of Quitmann have been realised but, by reason of the terms as alleged of the contracts between Krupps and Quitmann, Krupps seek declaratory orders which, if made, would determine whether, and if so to what extent, Krupps’ claim has priority over the claims of the debenture holder. It has been agreed that the sterling value of the amount unpaid by Quitmann for goods sold and delivered prior to 20 July 1979, in £82,194.09. Krupps seek to rely upon what has been called a ‘retention of title clause’ set out in German on confirmation of orders documents which also provide for payment of interest on overdue payments and that the contracts are governed by German law. Quitmanns contest the claim on the grounds that such documents were not contract documents, and the terms thereof, in particular the interest clause and the ‘retention of title clause’, were not terms of contract, and that if the retention of title clause was applicable it is unenforceable for want of registration as a charge pursuant to ss 99 and 100 of the Companies Act, 1963.

The first issue to be resolved is whether or not the condition of trading set out in German on the back of the documents sent by Krupps to Quitmann as confirmations of orders were conditions of contract binding on both parties.

The facts relating to the trading between the two companies as disclosed by the evidence are as follows. Gregory Marcar Ireland Ltd is a company which acts as marketing agents for steel and the principal in Ireland is Mr. Terry Stewart the other two directors being members of a corresponding English company. Mr. Stewart was engaged by Krupps, who are steel manufacturers in Germany, to find a market in Ireland for their products. Quitmann had a factory in Portumna at which they manufactured goods made from steel and in particular pedal bins and bread bins for which they required stainless steel. The chairman and managing director of Quitmann was Herr H. Harding a German, and the company described itself as a member of the Quitmann group. It is of significance that Herr Gunther Ehring, the export sales manager of Krupps, had done business in 1976 in Germany with a company of which Herr Harding was managing director and which was engaged in the manufacture of the same sort of products out of the same sort of materials as Quitmann in Portumna. Mr Stewart made contact with Quitmann through a Mr. Fox of Quitmann in August or September 1977 and Herr Ehring came to Ireland and with Mr. Stewart met Mr. Fox at Portumna but did not then meet Herr Harding.

Mr. Stewart conducted all the business of Gregory Marcar Ltd from his own home from which lie made enquiries and conducted negotiations and placed orders by phone calls and did his own typing and posting and he personally called upon clients to collect accounts and to get renewal of orders. He acted as an agent only and transmitted documents but did not have nor exercise any authority in relation to terms of contracts. After initial contact was made negotiations took place with a view to orders for the supplying of stainless steel and price, quality, quantities and terms for payment were discussed. The goods required by Quitmann from Krupps consisted of quantities of stainless steel in sheet form of weight, quality and dimensions convenient for use in the manufacture by machine in conjunction with other components of finished articles such as bread bins and pedal bins which could be supplied in quantities to wholesale market outlets. Quitmann expected to receive regular monthly deliveries but the quantities would vary according to the rate of output. For the purpose of making grading and preparing for transport and delivering the goods requested, Krupps required a reasonable period of notice and some latitude of time. As the materials were produced to order their delivery was subject to fluctuations. For both parties the interval between the placing of an order and the delivery at Portumna would be significant and would require reasonable estimation.

Mr. Stewart had discussions from time to time with Herr Harding by whom the first order was given in the course of verbal discussions on 21 April 1978. Following this conversation Mr. Stewart wrote on that date to Herr Harding and informed him of enquiries made about production and the expected time of delivery and asking for confirmation of an order for the goods of the nature and quantities discussed. Herr Harding replied by letter of 27 April 1978 stating his requirements including delivery in June and invited further arrangements for a delivery order for July. Mr. Stewart dispatched the order to Krupps in Germany having previously conveyed the order by phone. Krupps sent a confirmation of order document to Mr. Stewart for transmission to Quitmann which was dated 22 May 1978 and, for some reason not adverted to in the evidence was remitted to the English Marcar Ltd agency. It reached Mr. Stewart who sent it on to Portumna addressed to Herr Harding who could not have received it before sending his letter dated 23 May 1978.

When Herr Harding wrote in his letter dated 23 May 1978 ‘I would appreciate if you would please confirm this order’ he had not then received Krupps’ confirmation of his order given by letter of 27 April 1978 but expected to receive such. It did reach him before delivery and was expressed entirely in the German language save for some minor confirmation of order document which relates to the order by letter dated 23 May 1978 is dated 7 June 1978 and most probably was received by Herr Harding before delivery had been taken of the goods the subject of the first order of the 21 April 1978. According to Mr. Stewart confirmation documents generally arrived within two weeks or up to eight weeks after order placed, and might arrive one or two weeks before shipment or up to two or three months before actual delivery of goods depending on when delivery was required. Delivery of the goods was within two or three weeks of leaving the works. These and all subsequent confirmation of orders documents which followed each order notifying expected dispatch and delivery dates were expressed in the German language and had set out on them what are described in English as general conditions of sale and payment. On the top of the page setting out the requested details of goods quantities, qualities, prices and expected dates of delivery there appeared in red print a notice drawing attention to the conditions on the reverse side of the page.

The staff of Quitmann at Portumna included Herr Harding who was German, a Mr. Fox production manager who left in late summer 1978, a Mr. Cleak who was the factory manager, a Mr. Sparks who was financial controller, a Mrs. Mitchell who was secretary and book-keeper and a stock control clerk who was not named. Of these the only one who gave evidence was Mr. Gregory Sparks who had no knowledge of German and who said he did not know what the confirmation of order document was, and that the invoices which he recognised as such did not have terms or conditions on them. No documents which could be described as invoices were put in evidence. I infer from Mr. Sparks’ evidence that none of the staff other than Herr Harding knew German, and neither did Mr. Terry Stewart of Gregory Marcar Ltd the agent for Krupps. According to Mr. Sparks meetings were regularly held in Portumna by Quitmann for the purpose of planning and laying out production schedules at which Herr Harding attended and for which it would be necessary to know times of expected shipments and delivery of raw materials and quantities and prices, and for these he would have all documents relating to orders and deliveries. He did not recall having had any discussions with Herr Harding about terms and conditions save on two matters. He said he discussed with Herr Harding whether or not Quitmann would pay Krupps by bill of exchange and that it was decided not to pay by bill of exchange at the commencement of business with Krupps although this is inconsistent with what Herr Harding actually did according to the orders signed by him. He also recalled that a question arose of interest being charged on overdue payments when debit notes for interest had come in and that Herr Harding had said it was normal in Germany to which Mr. Sparks replied ‘this is Ireland’. Herr Ehring from Krupps came to Ireland early in 1979 and met Herr Harding in Portumna and had discussions with him in the German language. This was shortly after Krupps had raised the first debit notes for late payments and the conversation was mostly about financial matters and Krupps’ claim for interest under the conditions which were mentioned and quoted.

Having regard to the evidence it seems to me to be the necessary and correct conclusion that Quitmann was aware of the terms set out as general terms and conditions on the back of the confirmation of orders documents received from Krupps and understood their meaning. I also consider that on the balance of probabilities Quitmann expected to find such or the like general terms and conditions on the confirmation of order documents from the time the first order was transmitted as this was the normal practice of German business firms as then known to both Quitmann and Krupps. I have no doubt that Quitmann accepted the terms and conditions set out on Krupps’ confirmation of order documents as being the terms and conditions governing the business transactions entered into by these two companies and in all respects as binding on Quitmann. Mr. Geoghegan urged that as the confirmation of order document on each occasion came into existence only after an order had been placed and accepted the parties had already created a contract of sale and purchase to which such terms could not then nor thereafter be imported. I do not accept that from the time Quitmanns’ first order was transmitted to Krupps nothing more remained to be done to constitute a binding enforceable contract between the parties. But taking the test Mr. Geoghegan proposed namely, whether and when and upon what terms the parties were ad idem it seems to me that because the principals acting on each side of negotiations were Germans, and both were accustomed to making contracts in this manner, and were entering into contracts in relation to goods to be manufactured in and to be exported from Germany, and continued to do business without demur to these terms and conditions I must conclude that upon and from the delivery of the first consignment to Quitmann the first and all subsequent contracts were validly and effectively made incorporating these terms and conditions. I have come to this conclusion upon application of the principles elicited by D’Arcy J. from the authorities reviewed by him in his judgment in Cripps Warburg v Cologne Investment Ltd [1980] IR 321 relative to whether or not a contract existed before considering the terms thereof or the law applicable in accordance with those terms.

According to the translation into English used for the purpose of this hearing the first term of the conditions as given at A.I paragraph I is as follows:

All our, including future, supplies and services, including proposals, consultancy and other ancillary services, are based exclusively on the conditions below, also in the case of all compensating transactions. The buyer’s conditions of purchase are hereby rejected. Nor are the latter recognised, if we do not object to them once again following receipt by ourselves. The present conditions of sale and payment are deemed to be accepted latest on acceptance of our goods.

I have no doubt that as Quitmann had contracts for the purchase of steel from other suppliers at the time these conditions were first read by Herr Harding he would have rejected these conditions promptly if he was unwilling to accept them. The terms and conditions set out on Krupps’ confirmation of order documents set out the entire and exclusive terms and conditions governing the transactions the subject matter of this claim.

It follows that Krupps are entitled to claim interest on overdue payments in accordance with clause 6 of paragraph A.II which, in the agreed English translation reads as follows

6.	In the case of overdue payments, interest and commission are charged as from due date, in accordance with bank overdraft interest rates, but not less than 3% over and above the discount rate of the German Federal Bank.

It follows also that the construction of the contract and the means of performance and of enforcement are governed by German law as it is provided in paragraph D.V as follows, according to the agreed English translation:

As regards the legal relationship between ourselves and the buyer, only the law at our registered office covering the legal relationship between home market parties is applicable.

It would be impractical to attempt to deal with the terms of the contract relating to ‘retention of title’ without quoting paragraph A.III of the English translation in its entirety. It is as follows:

RETENTION OF TITLE

1.	All goods supplied remain our property (reserved goods) until all claims are met, particularly also balances due to us on any legal grounds whatsoever. This also applies, if payments are effected in respect of specific claims.

2.	Handling and processing of the reserved goods are performed on our behalf, in the capacity of manufacturers within the meaning of Article 950 German Civil Code, without any obligation on ourselves. The processed goods are deemed to be reserved goods within the meaning of paragraph I.
In the case of processing, blending and mixing of the reserved goods with other goods by the buyer, we acquire a joint title to the new goods in accordance with the ratio of the invoice value of the reserved goods to the invoice value of the other goods used. If our title lapses due to blending or mixing, the buyer assigns to us already at this stage his title to the new goods in accordance with the invoice value of the reserved goods, and holds them in trust for us, without charge. The thus arising joint title is the equivalent of reserved goods within the meaning of paragraph I.

3.	The buyer is only entitled to sell the reserved goods within the normal course of his business, subject to his standard terms, and as long as his payments are not overdue, provided the claims on account of the resale in accordance with paragraphs 4 to 6 revert to us. The buyer is not authorised to dispose of the reserved goods in any other way.

4.	The buyer’s claims on account of the resale of the reserved goods are assigned to us already at this stage. They serve as security to the same extent as the reserved goods.

5.	If the reserved goods are sold by the buyer together with other goods not sold by us, the assignment of the claim on account of the resale only applies at the rate of our invoice value of the reserved goods sold.
In the case of sale of goods to which we have joint title in accordance with paragraph 2, the assignment of the claim covers the value of this joint title.

6.	If the reserved goods are used by the buyer to fulfil a works or works supply contract, paragraph 4 and 5 apply accordingly to the claim on account of this contract.

7.	The buyer is authorised to collect claims on account of the sale in accordance with paragraphs 3 and 6, unless revoked by us, which we are entitled to do at any time. We undertake only to avail ourselves of the right of revocation in the cases mentioned by Chapter A.II.7. The buyer is under no circumstances authorised to assign the claims. Following demand by us, he is compelled immediately to notify his buyers of the assignment in our favour - unless we do so ourselves - and to furnish to us the information and documents required for collection.

8.	If the value of the existing guarantees exceeds the whole of the secured claims by more than 10%, we are compelled, following demand by the buyers to releaseguarantees to this extent, at our option. The buyer is compelled to inform us immediately of any seizure or other intervention by third parties.

9.	If the retention of title or assignment is not effective in accordance with the law in whose territory the goods are located, the security corresponding to the retention of title or assignment in this territory applies. If this calls for intervention by the buyer, he is compelled to take all necessary steps to substantiate and protect such rights.

Evidence of German law was given by Herr Schurig who said that as a general statement if full price has not been paid on delivery of goods sold the title to the goods is retained by the seller. He quoted s. 455 of the German Civil Code and gave its meaning in English by saying that:

If the seller has retained title until payment of the purchase price then in case of doubt it shall be assumed transfer of title is made under the conditions precedent of complete payment of the purchase price and the seller is entitled to withdraw from the contract if the buyer is in default of such payment.

Herr Schurig also quoted s. 950 of the German Civil Code and gave its meaning in English as follows:

The possessor of materials who converts them into a new article himself becomes the owner of the new article except where the value of the processing work is much less than the value of the raw materials used whether purchased by him or not.

He found difficulty in understanding or giving a legal interpretation to the second part of pargaraph 2 of Clause A.III but he agreed that to recover goods unpaid for under a retention of title clause it would be necessary to identify the materials if used in other articles made for resale. His comment upon paragraph 4 as translated of Clause A.III of the conditions was that the security referred to was not in the nature or sense of a pledge or mortgage for which the German word ‘pfand’ would have been used, but is a means of enabling payment to be recovered by proceeding against the sub-buyer to whom the goods may be resold for money due by the latter to the buyer. At an interval during the course of the evidence in chief of Herr Schurig he was given an opportunity of reading and discussing with counsel the judgment of Kenny J in In Re Interview Ltd [1975] IR 382. Having read and considered it Herr Schurig adopted it as a correct statement of German law in relation to the contract under consideration in this case. The passage referred to and so adopted is as follows:

German law distinguishes between a contractual relationship to sell goods and the property relationship involved in the sale. There is a contract for sale and a contract for the transfer of the title to the merchandise, though these two contracts may be in one document. If a person makes an unconditional agreement for sale he may agree that the passing of title will take place only on payment and that until that date, the ownership of or title to the goods remains in the vendor. He said that clause 18 of the terms for deliveries abroad which is headed ‘reservation of ownership’ is a very common clause in contracts in Germany where it is known as a ‘current account clause’. The first part of the clause is a reservation of title and the effect of it under German law is that the vendor or supplier remains the owner though possession has the German law about reservation of ownership or title prevails. The purchaser is entitled to retain the goods until the vendor can prove delay in payment, and then the vendor may serve a notice of rescission. The vendor cannot take the goods back until he has served the notice of rescission but until he does this, the goods remain his and the purchaser has possession or custody only. The notice of rescission brings about a change in the legal relationship in that the vendor is entitled to take the goods back. However, when the goods are in the custody of a purchaser but the title to them is in the vendor the effect of a sale by the purchaser is governed, under German law, by the lex loci rei sitae, which in this case is Irish law. Therefore the validity of a sale by the purchaser would be governed by Irish law. Similarly an assignment of the debt arising out of a sale by the purchaser to another person of the goods would be governed by Irish law and not by German law. (at 392).

The clause 18 to which Kenny J made reference in the above extract from his judgment is as follows:

Reservation of ownership — 18. The product supplied shall, unless otherwise agreed, remain the property of the supplier until all debts owing to the supplier or to be created in the future and arising from the business connections with the purchaser have been paid in full. With respect to a case of resale of the goods ... in any condition whatsoever ... the purchaser agrees to assign and assigns to the supplier, at the conclusion of the supply contract and effective up to the time of payment of all debts owing by the purchaser to the supplier, any claims against the purchaser’s customers which may have arisen or arise in future from the resale, by way of security, and undertakes to notify the supplier at his request of the names of third party debtors and of the amount of the debts owing by these to the purchaser. So long as the purchaser complies with his payment obligation and no detrimental change occurs in his financial standing, the supplier will not collect the debts assigned. If the reservation of ownership in the foregoing form is not effective under the law of the country of destination, the purchaser must co-operate in establishing a similar security right complying with the provisions of his country, in favour of the supplier. (at 388).

Having regard to the evidence of the terms and conditions of the contract and of German law it is necessary to determine the relationship between Krupps and Quitmann as of 20 July, 1979 with respect to the liability for money payments and the physical possession of goods delivered to Quitmann by Krupps in accordance with such contracts. It would seem to follow from the judgment of Kenny J in In Re Interview Ltd [1975] IR 382 that such determination in accordance with German law of the contractual relationship between Quitmann and Krupps does not preclude the court from determining in accordance with Irish law the relationship between Quitmann and other parties pursuant to contractual or statutory obligations incurred by Quitmann in Ireland relative to property in the lawful possession of Quitmann on 20 July 1979.

On 20 July 1979 Quitmann were indebted to Krupps under the terms of the contract as set out in Clauses at All of the general conditions for the total amount then unpaid for all steel delivered to Portumna by Krupps and for interest at bank overdraft rates not less than 3% over and above the then discount rate of the German Federal Bank on payments more than one month overdue. Pursuant to Clauses at A.III paragraphs I, the first part of paragraph 2 and paragraph 3 arid in accordance with German law as between Krupps and Quitmann all steel delivered to Quitmann for which payment was more than one month overdue and still in the possession of Quitmann was the property of Krupps and so was recoverable by Krupps from Quitmann in default of payments pro tanto for the amount of Quitmann’s liability to Krupps for overdue payments. Paragraphs 2 to 7 inclusive of Clause A.III of the general conditions provide that as between Krupps and Quitmann in relation to steel delivered by Krupps to Quitmann which had been used b the latter in a manufacturing process whatever rights Quittmann might have to sell or receive or enforce payment for such goods were thereupon vested in and exercisable by Krupps to the extent of the value of Krupps’ steel used in the goods proportioned to the value of the finished article, subject also to the right (restricted to clause A. II paragraph 7) of Krupps to enter Quitmanns premises and take possession of any such finished products found there as security for payments of overdue amounts. By paragraph 9 of Clause A.III of the general conditions of contract Quitmann were obliged to take whatever steps in accordance with Irish law, as would protect for Krupps the security for overdue payments provided for in paragraphs 2 to 7 inclusive if such provisions are not affective as such intended security in accordance with Irish law.

The first aspect of security for overdue payments to be considered under Irish law as between Quitmann and other parties, such as a debenture holder or creditor, is the effect of paragraph I of Clause A.III of the conditions. According to Irish law if the parties agreed by their contract, as they did by Clause D.V, that the contract is to be construed in accordance with German law the interpretation performance and enforcement of the contract are governed by German law. According to s. 455 of the German Civil Code and Clause A.III I of the conditions the possession by Quitmann in Ireland of steel delivered by Krupps of which payment has not been made by Quitmann to Krupps does not confer on Quitmann any right of ownership save the limited rights of a nature akin to ownership as conferred by s. 950 of the German Civil Code. It follows therefore that as between Quitmann and other parties, including a debenture holder or other creditor, the unworked steel in the possession of Quitmann at Portumna which was delivered there by Krupps pursuant to the German contract in respect of which payment was more than one month overdue is, according to Irish law, not the property of Quitmann.

The next stage is to consider what are the requirements of Irish law in relation to any of the steel the property of Krupps in the possession of Quitmann at Portumna which was put to use by Quitmann with the agreement of Krupps in accordance with the German conditions and law in a manufacturing process notwithstanding Quitmann’s liability for overdue payments to Krupps in respect thereof. This involves also a consideration of what effect, if any, can be given in Irish law to the agreement between Krupps and Quitmann in their conditions in relation to manufactured goods incorporating Krupps’ steel (that is for which payments were overdue) which were sold by Quitmann to other parties. As paragraphs 2 to 7 inclusive of Clause A.III, as construed in accordance with German law, constitute an immediate assignment of future interests and an agreement for security for whatever indebtedness on the part of Quitmann to Krupps might later arise paragraph 9 gives recognition to the applicability of Irish law relative to the enforcement of the security. In so far as the steel (the subject of overdue payment account) is put to use by Quitmann in the manufacturing process, although the property of Krupps, such use is with the consent of Krupps as limited by the conditions. To that extent therefore Quitmann are constituted trustees of property of Krupps for which Quitmann are accountable to Krupps in the manner prescribed by the contract. The accountability is limited to the extent only of the indebtedness and the manner of securing payment is a form of ‘tracing’ conforming to the equitable principles as expounded by Jessel MR in In Re Hallet’s Estate 13 Ch D 696. As such it is in the nature of a charge upon the property as a means of security for the discharge of an indebtedness which is the primary factor in that agreement. But the agreement goes beyond the scope of mere tracing goods for their value. On the basis that German law permits the possessor of goods which are not his own property to sell and recover the value of his workmanship in converting them to other marketable articles Krupps and Quitmann have agreed that the property and the interest therein so conferred by German law upon Quitmann in processed goods incorporating Krupps’ steel (the subject of overdue payment account) are by this contract assigned in anticipation to Krupps. Such agreement relates in part to an existing quantity of steel delivered by Krupps but to the extent only that it may later be incorporated in a finished manufactured article not then in existence nor identifiable and only if and when such article should have been manufactured. Any such assignment can be construed only as an equitable interest in the nature of a floating charge manifestly created only as a means of security for a potential indebtedness. I have arrived at this conclusion after careful consideration of the judgment of Kenny J in In Re Interview Ltd [1975] IR 382, of Mocatta J and of the three Lords Justices of Appeal in Aluminium Industrie Vaassen BV v Romalpa Ltd [1976] WLR 676, of Slade J in Re Bond Worth Ltd [1980] Ch 321, and of the Lord Justices of Appeal in Borden(UK) Ltd v Scottish Timber Products Ltd [1981] Ch 25 and the arguments thereon in the course of the hearing.

The realisation or enforcement of any such security granted by way of charge created by a company will not be permitted in Ireland unless the particulars of the charge have been registered with the registrar of companies pursuant to s. 100 of the companies Act, 1963. Having regard to the comprehensive definitions in s. 4 of the Bills of Sale (Ireland) Act, 1879 of the expressions ‘bills of sale’, ‘personal chattels’, and ‘apparent possession’ there cannot be any doubt that the quantities of steel delivered to and in the possession of Quitmann at Portumna, the subject matter of the general conditions of sale accepted from Krupps, are ‘personal chattels’ to which the provisions of that Act would apply. Having regard to the interpretation in accordance with German law of clause A.III paragraphs 2 to 7 inclusive of these general conditions as shown by the evidence those clauses upon acceptance would constitute charges such that, had the parties been individuals and not companies, they would have required registration as bills of sale under the 1879 Act in respect of any steel authorised to be used in the making of articles to be sold to other persons. As such they come within the class of charge referred to at s.99 (2) (c) of the Companies Act, 1963, having been created by Quitmann after 1908 and so should have been registered pursuant to s. 100 of the Act. The provisions of s. 99 of the Companies Act, 1963 declare such charges to be void as against the claims against Quitmann of other creditors such as a debenture holder unless registered in accordance with s. 100 of the 1963 Act. It has been agreed by the parties that no charge in favour of Krupps to which s. 99 of the Companies Act, 1963 applies has been registered with the registrar of companies. Accordingly any claims by Krupps against Quitmann in respect of overdue payments for any such steel used in manufacturing process must be deferred to the claims of the debenture holder and of the receiver, although such overdue payments still remain payable to Krupps by Quitmann.

In the result I will make, subject to amendment of the sterling sum as indicated above, the declarations sought at paragraphs A, B, C and D and at K, but confined to matters within paragraphs A, B, C and D, of the statement of claim. I decline to make the declarations sought at the remaining paragraphs in the statement of claim.