Perhaps more so now than at any time in the past 15-20 years, there is room for concern if goods are being held by someone else, whether they have been delivered to someone under a reservation of title or are hired to someone either on a straight hire or hire purchase contract.
This article looks at some options for getting them back and deals only with what, in Scotland, are called corporeal moveables (the roughly equivalent English term being ‘chattels’). Heritable property, or real estate, and incorporeal moveables, such as share certificates, contractual rights and so on, all have separate rules and are outside its scope. If the reader has in fact leased equipment or the like, the article may still be of interest to see how strong their position is when in possession of the goods.
First, what can be recovered? It is usually fairly easy to identify a hired or leased photocopier, JCB digger or car. More difficult, perhaps, is identifying goods that have been delivered to a construction site, for example. So long as they had been delivered subject to a retention of title clause, they can be identified by branding and/or serial numbers, and if they have not been incorporated into something else, such as a building, they can in general be recovered. In Scotland, if an object is used in the construction of something else, it becomes part of the new entity and any property rights the original owner of materials had is lost, subject to a claim for the value.
Now, how can they be returned?
Sequestration for rent/landlords hypothec
This rather complicated-sounding process has been effectively removed by the Bankruptcy and Diligence etc (Scotland) Act 2007. Indeed, it is unlikely that it could have survived a challenge under the European Convention on Human Rights. Prior to this, there was a right for a landlord to seize any moveable goods, including those belonging to a third party, on the let premises, and then obtain a warrant to sell them from the court. The theory was that anyone who allowed their property to be on the premises should have known about this legal right and therefore implicitly consented to those goods being included with any exercise of the power. However, it is unlikely that most suppliers would have had the matter on their radar when installing soft drinks fridges in local corner shops, for example.
What can be done to get the goods back? Most leases or hire purchase agreements will contain a clause giving the owner the power to enter onto a debtor’s premises to recover the goods, but the comfort of a court sanction may be preferred for any actions taken.
This contractual right is often used as the basis for the proverbial ‘white van’ turning up to remove equipment, and is often quite effective. Debtors often see sense in bringing an end to a steady increase of their debts and, in the case of a troubled construction firm, work may have ground to a halt on the site with little or no presence so it may be reasonably easy to take back the goods.
There are undoubtedly dangers with this. From past experience, the authorities are generally not terribly interested in disputes about ownership, which they regard as ‘civil’ matters and therefore are not something of concern. However, if there is any damage to property or people they will become involved. Taking the goods back can also leave the owner open to a claim for damages for such losses, which may be sizeable in the case of personal injury or consequential matters, and the threat of self-help may be used to found a court action seeking an order forbidding such steps, which would involve, no doubt, further expense.
If owners want their goods back, then they will be pleased to know that the Scottish courts will enforce owners’ rights, but this could be at the end of a long and expensive court action. What can be done, therefore, on an interim basis?
There are two types of order to consider here. The first are positive ones requiring the production of the item called an order ad factum praestandum, while an order forbidding someone to carry out an act, such as removing the property from a given set of premises, is called an interdict. Both may be available in certain circumstances on an interim basis.
The Scottish courts have always taken a dim view of people who have possession of goods without a contractual right against their true owners. Both the Sheriff Court and the Court of Session will generally immediately authorise an order requiring the production and handover of items in that category. The position is, however, rather different in the case of goods that are subject to some contractual right to possess, as is of course the case in leased goods, those on hire purchase or that have been delivered in implement of a contract.
In Scotland the court system for civil matters is split between the Court of Session, which sits only in Edinburgh but has Scotland-wide jurisdiction for disputes over £5,000, or the Sheriff Courts, which cover Scotland in a patchwork of different jurisdictions, each court having control within its own district. There is no upper limit to the size of a case in the Sheriff Court, although most high-value litigation ends up in the Court of Session, apart from places like Glasgow and Aberdeen where sizeable cases are tried in the Sheriff Courts. Generally, Sheriff Court actions are cheaper and quicker than those in the Court of Session.
The Sheriff Court does not have the power to grant an interim order during a case to return the owner’s goods if there is a contractual or legal basis for the goods to be in the possession of the other person that the owner is trying to get it back from. It does not matter that they are in breach of contract at the time through, for example, non-payment of rent or even if the agreement has been terminated under a contractual mechanism. The fact remains that they obtained possession in consequence of a legal right and therefore the courts treat them very differently to those who have stolen or come into possession of others’ goods without such a right.
The facts of the leading Sheriff Court case in this are quite extreme. In Clifford Finance Ltd v Hughes , Clifford Finance had provided three Mercedes-Benz coaches to John Hughes, who had failed to keep up payments. Two of the three coaches were taken back by agreement but the third was left with Hughes. After the action was raised, Clifford Finance was able to remove the remaining coach from the premises and this report relates to an attempt by Hughes to get that coach back. While hinting that the court was somewhat displeased with Clifford Finance, given the organisation had already started proceedings to obtain recovery of the coach, the Sheriff Principal decided that as the Sheriff Courts did not benefit from the particular statutory powers given to the Court of Session, it was unable to do so. If owners choose to litigate in the Sheriff Court, they must therefore realise that they will not get an order to simply have the debtor deliver the item to them and they will have to wait, potentially, some months for the court action to take its course.
There are some limited circumstances where, to safeguard a moveable item as evidence, rather than passing control of it back to the owner on a permanent or semi-permanent basis, the courts may make an order under s1 of the Administration of Justice (Scotland) Act 1972. An order under that section allows for the preservation, custody and detention of documents, and other property (including, where appropriate, land), which appear to the court to be property about which any question may relevantly arise in any existing civil proceedings before that court or in civil proceedings that are likely to be brought, and to order the production and recovery of any such property.
Court of Session
What then of the Court of Session? Here there is an express statutory power in terms of s47(2) of the Court of Session Act 1988 (the 1988 Act) to:
‘Make such order regarding interim possession of any property to which the cause relates, or regarding the subject matter of the cause as the court may think fit.’
Having previously drawn attention to the general approach that the court will adopt in deciding whether or not to make an interim order under this section (for more detail see p47, IHL184), the principles were set out in Scottish Power Generation Ltd v British Energy Generation (UK) Ltd & anor  and include:
- the need to establish a prima facie case;
- the balance of convenience; and
- the need to avoid significantly innovating on the parties’ contracts.
There are many cases where an item held on equipment lease or hire purchase agreement is crucial to the operation of a business. Indeed, it may be the business as with the coach in Clifford Finance. There will be several arguments put forward by solicitors acting for debtors advising that the cost to that business of losing the item or being unable to use the goods would be catastrophic to the business and therefore, effectively, determine the case. On the other hand, there will often be a large finance house, bank or company that may be hiring out a great many of these items and being unable to recover one on an interim basis may not be of similar moment. Owners may have an uphill struggle.
An example of the significance of s47(2) of the 1988 Act for regaining control of disputed goods was highlighted at the end of last year in Wilmington Trust Company & anor v Rolls-Royce plc & anor . The goods in question were two aero engines (worth around $4m each) removed from an Airbus aircraft to allow repairs to be carried out. The pursuers owned the aircraft and had leased them to another company, Mexicana, which, in turn, had instructed the repairs that were ultimately to be carried out by the defenders in East Kilbride. Mexicana got into financial difficulties and lease of the aircraft was terminated. Repairs had been completed in Scotland but had not been paid for, while the unusable aircraft were left sitting in Mexico.
The owners raised an action in the Commercial Court of the Court of Session and sought an early interim order under s47(2) of the 1988 Act to permit the owners to uplift the engines and related technical records from Rolls-Royce.
Unfortunately for the owners, matters were complicated by the assertion of a right of lien by International Aero Engines AG (IAE), over the engines that prevented Rolls-Royce delivering them, pending payment for the work carried out. The disputed lien combined with a separate plea of forum non conveniens led the court to conclude that the application should be refused in hoc statu, leaving it open to the pursuers to renew their application once full defences had been lodged.
Lord Hodge was satisfied that the pursuers had set out a prima facie case but more information was required before he was prepared to make an interim order. On the question of balance of convenience, Lord Hodge gave weight to the fact that granting an interim order would have the effect of determining the substance of the action since IAE would lose any right of security it may have. The pursuers were not offering to consign sums with the court as an alternative and, in the meantime, he was satisfied that Rolls-Royce was keeping the engines secure. He was not prepared to disturb the status quo, given the unresolved factual and legal disputes.
However, the owners’ lack of success in the particular circumstances of Wilmington should not deter others from pursuing a similar line. Each case turns on its own facts and, in other situations, the balance of convenience will favour the granting of an order.
Interim interdict, an equivalent remedy to injunctive relief, remains a possibility both in the Court of Session and the Sheriff Court, if the owner is unsuccessful in obtaining an order requiring the transfer of property in the Court of Session, or prefers to take action in the Sheriff Court. An interim interdict could, for example, require the hirer to:
- keep the property in question on certain premises;
- not include it within any other structure; or
- forbid them from taking any steps to otherwise dispose of it.
For example, there was an interim interdict in Whyte And Mackay Ltd v Capstone International Incorporated  (for more detail see p47, IHL184), which survived the recall of the interim order with which the court was mainly concerned.
An interim interdict can be a useful tool in attempting to cause the person in possession enough inconvenience that they decide the item ought to be returned voluntarily and certainly shows that the owner means business. Again, it will not allow the possession to be recovered on its own. The courts have also been loath to grant interdicts preventing someone from interfering with the contractual right to recover possession as these are viewed as being tantamount to a positive order having the effect of the order for the return of the item or items. There is also the very real question as to whether or not the other parties’ site is really the best place for the possessions, given that they have already held back payment and may be in financial difficulty themselves.
Clearly the easiest route is to arrange a consensual return of the goods with the hirer or prospective purchaser. If there are any other actions that can be reasonably taken as self-help, then that will usually be the quickest and cheapest way. There is at least one manufacturer of construction equipment that is able to switch off its vehicles remotely wherever they are and locate them using a secure GPS device!
If locked doors or the like mean that owners have to follow the court route, then the Court of Session has a wider suite of interim orders available to it than the Sheriff Court if the possession is of significant value.
No doubt the existence of the statutory powers contained in the 1988 Act were a factor in the pursuers’ choice of forum in Wilmington and it seems clear that, in the right circumstances, the Scottish courts will be willing to grant appropriate orders on an interim basis.
By Alisdair Matheson, associate, Brodies LLP.
Clifford Finance Ltd v Hughes  SLT (Sh Ct) 19