GOOD FAITH INTERMEDIATION IN THE LAW OF CONVERSION

• Date: 01 December 2014
• Published date: 01 December 2014
• Author: TAN Yock Lin BSc (eng), Acgi (london), Dip Econ Devt, Ba, Bcl (oxford); Professor, Faculty Of Law, National University Of Singapore.

The authorities and textbooks alike support a broad common law proposition to the effect that an innocent “handler” of goods without notice of his consignor's lack of title is not liable for conversion to the true owner. The authenticity of the proposition is questionable, the principle supposedly underlying it is obscure, and the case law is argued to be best understood and rationalised in terms of a principle of just compensation.

I. Introduction

1 Two recent decisions (both of the courts in Singapore) draw attention to a well-known but surprisingly little-developed proposition that a good faith bailee or custodier of goods apparently belonging to or in the unauthorised custody of his consignor is excused from liability in conversion if all that he does is change the custody of those goods (hereinafter the good faith excuse).1 The first decision, Tat Seng Machine Movers Pte Ltd v Orix Leasing Singapore Ltd2 (“Tat Seng Machine Movers”), involved carriers who typically intermediate in a non-transactional manner between sellers and buyers, donors and donees, or owners and repairers, by carrying the goods from the one to the other. It does not appear to differentiate between a carrier who carries goods from a thief who appears to him to be the owner and a sub-carrier who carries goods under a sub-bailment from an intermediate carrier whom he reasonably believes is in authorised custody of the goods.

2 According to the books, the same good faith excuse describes and governs the liability of a broker, dealer or other non-employee agent who intermediates a sale from a non-owner to a good faith purchaser if this is no more than a “ministerial” intermediation. These, unlike the bailee, are intended “transactional” intermediaries. They seek to facilitate, and if they succeed cause, alterations in title; however, it is maintained that they do not convert the goods of the true owner if what they have

done is no more than a ministerial intermediation. The second decision, Antariksa Logistics Pte Ltd v McTrans Cargo (S) Ltd3 (“Antariksa Logistics”), appears to affirm this.

3 Both decisions, it is argued, do not hold up well under scrutiny. The first fails to reflect a vital distinction between protecting non-transactional intermediaries such as carriers against ownership-related risks and authority-related risks. The second is puzzling since an agent who merely has custody but not possession when intermediating should hardly be guilty of conversion in the first place. The more fundamental problem is that the extensions suggested in both cases are the product of an ill-defined proposition. The authorities and textbooks alike support a broad common law proposition to the effect that an innocent “handler” of goods without notice of his consignor's lack of title is not liable for conversion to the true owner. The authenticity of the proposition is questionable, the principle supposedly underlying it is obscure, and the case law is argued to be best understood and rationalised in terms of a principle of just compensation.

II. Carrier for ostensible owner

4 The good faith excuse as it applies to carriers who are bailees at will needs to be situated against a larger backcloth. More often than not, a bailee will be a convertor if his bailor is a non-owner and his bailment is not merely a deposit but a bailment for his own use or use on behalf of another.4 Liability for conversion is strict and it is immaterial whether or not such a bailee knows that he is committing a conversion. In particular, it is immaterial whether or not he has acted in good faith in taking possession subject to the bailor's reversionary interest. Having possession of the property, the bailee for a term will inevitably be interfering with the true owner's right to possession since his intention to use the property must be to exclude all others from possession.5 The

private carrier as a bailee at will is also bound to be a convertor since he is in possession, even if his possession is determinable at the will of his bailor, for the purposes of asportation for the use of another. This act of asportation necessarily derogates from the immediate right to possession of the true owner; and in any case, no positive act of withholding is necessary for his possession to be inconsistent with the true owner's immediate right to possession when he is entitled to an immediate and enforceable lien over the goods being carried against the non-owner bailor.6 Against this backcloth, the excuse which singles out the bailee for carriage operates as a qualification which favours the non-transactional bailee with an innocent mental state.

5 The excuse which postulates that good faith carriage7 is an excuse to conversion can be traced back to a dictum of Blackburn J in Hollins v Fowler.8 Blackburn J in laying down the rule spoke of excusing the bailee for the sake of the bailee's protection. He said:9

[O]n principle, one who deals with goods at the request of the person who has actual custody of them, in the bona fide belief that the custodier is the true owner, or has the authority of the true owner, should be excused for what he does if the act is of such a nature as would be excused if done by the authority of the person in possession, if he was a finder of the goods, or intrusted with their custody.

6 There is much that is obscure about the supposed principle contained in these remarks. The principle could hardly be a principle of representation, namely, that the carrier of goods from a non-owner nevertheless acts for the true owner. There would be considerable if not insuperable difficulty in accepting a putative representation of the true owner who is unknown to the carrier, certainly when the non-owner does not purport to act as the owner's agent. Nor is it any easier to ascribe the excuse to a principle of deemed representation. Under a principle of deemed representation, what is done for the benefit of the true owner consistent with the minimal rights of a finder or authorised custodier will not involve the doer in liability in conversion to the

true owner. The carrier, however, invariably acts for his own benefit so as to earn the fees of intermediation, and not for the benefit of the non-owner, let alone the true owner.10

7 The remarks of Blackburn J also clearly do not indicate that a principle of estoppel is involved. A principle of estoppel requires that the true owner must have consented to the non-owner taking possession or custody in circumstances which mislead a third party including the carrier into supposing that the non-owner is the true owner or his authorised custodier. However, in the circumstances postulated by Blackburn J, consent on the part of the true owner to actual custody in the non-owner is inconsequential.

8 The principle as formulated involves in reality more equiparation than representation. A possible basis for equiparation could be recommended but must in the end be rejected. This is that a true owner who has failed to keep his goods securely in possession must be taken to approve of all things done to those goods that could have been done by a notional finder. If the person in actual custody as an apparent owner were a finder he would have had putative authority to carry the goods to the true owner or his order or to change their custody; and so any such carriage by a bona fide carrier for these purposes would be excusable.11 This principle of equiparation contains a hint of disapprobation of the failure of the true owner to keep his goods securely. While ordinarily the true owner can be as careless as he likes with his own goods in the sense that his negligence in safekeeping them will not disentitle him from recovering them from any convertor, he should not be in a better position than if his goods had been found and held for him on an involuntary bailment by a finder.

9 The problem, however, with this basis is that it bites off more than it can chew. It will not readily accommodate the case of a custodier notionally authorised to be in custody of the true owner's goods. The finder knows that the goods are lost, claims no title to the goods, and stands ready to return the goods to the true owner or his order. However, while the custodier likewise claims no title, he can never cede custody to the true owner's order without specific authority. Any logical equivalence between the hypothesised and notional situation where a true owner has lost his goods which are found by a finder and where he has entrusted the custody of the goods to a custodier is only superficial.

In the latter case, the owner notionally can or may investigate the suitability of the person whom he will place in custody of his goods. Even if it seems right to posit that the true owner cannot complain if all the non-transactional intermediary has done is what a finder could do, it seems wrong to apply the notional attribution of authorised custody to the intermediary where the custodier who engaged the intermediary is an intermeddler. The true owner cannot choose his finder but may choose the person he will authorise as custodier. Consequently, he ought not to be precluded from complaining that the intermeddling notional custodier was not one he would have chosen or from contending that the custodier he would have chosen would not have engaged an intermediary in the first place.

10 Shedding some of these difficulties, Lord Nicholl's formulation of the notion of conversion in Kuwait Airways Corp v Iraqi Airways Co (Nos 4 and 5)12 may seem at first blush to offer a stronger foundation for the good faith excuse. Instead of conceiving the good faith excuse as an exoneration, one could cite it as being a case of insufficient encroachment or an insufficiently extensive encroachment of the true owner's right to possession.13 This was the view taken by the Court of Appeal in Marcq v Christie Manson & Woods Ltd.14 Good faith handling which is a mere...