Editorial Committee of the Cambridge Law Journal

Restitution and AssigneesAuthor(s): Andrew TettenbornSource: The Cambridge Law Journal, Vol. 52, No. 2 (Jul., 1993), pp. 220-222Published by: Cambridge University Press on behalf of Editorial Committee of the Cambridge LawJournalStable URL: http://www.jstor.org/stable/4507804 .

Accessed: 10/06/2014 02:33

Your use of the JSTOR archive indicates your acceptance of the Terms & Conditions of Use, available at .http://www.jstor.org/page/info/about/policies/terms.jsp

.JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range ofcontent in a trusted digital archive. We use information technology and tools to increase productivity and facilitate new formsof scholarship. For more information about JSTOR, please contact support@jstor.org.

.

Cambridge University Press and Editorial Committee of the Cambridge Law Journal are collaborating withJSTOR to digitize, preserve and extend access to The Cambridge Law Journal.

http://www.jstor.org

This content downloaded from 62.122.72.76 on Tue, 10 Jun 2014 02:33:07 AMAll use subject to JSTOR Terms and Conditions

The Cambridge Law Journal The Cambridge Law Journal

involved circumstances where directors felt obliged to act contrary to a "best endeavours" clause in advising shareholders on the exercise of their voting rights. Furthermore, all three stressed that, when advising shareholders on the exercise of their voting rights, directors must do so truthfully in the company's best interests, irrespective of the existence of a "best endeavours" clause. It might be that distinctions should be drawn between different types of directorial activity, for example, advising shareholders on the exercise of their voting rights, as opposed to commercial activity that is routinely performed by directors in fulfilling pre-existing contractual obligations (such as issuing a cheque). Such distinctions might explain why cases such as Thorby and Fulham differ so fundamentally in result and

emphasis from cases such as Rackham, John Crowther, and Dawson. Covenants which purport to restrict a director's discretion in the exercise of directorial voting powers are manifestly invalid. Covenants purporting to restrict a director's discretion in advising shareholders on the exercise of shareholder voting rights will usually be subject to an implied term that the director's discretion will not be so restricted should a material change in circumstances compel directors to issue advice contrary to that envisaged by the covenant. Covenants which are in truth standard commercial transactions are to be governed by the principles expressed in Fulham and Thorby and should be fully binding in restricting directors in their range of business options and activities. Although the Court of Appeal in Fulham undoubtedly reached the correct result, the judgment is another missed opportunity to elucidate the principles that govern the topic of "fettering director- ial discretion".

STEPHEN KENYON-SLADE.

RESTITUTION AND ASSIGNEES

I AGREE to sell you my Rolls; you pay me now, and I promise to deliver the car next Thursday. Any law student will tell you that if you don't get the car you can have your money back. Quite apart from any question of breach of contract, this is a case of total failure of consideration; in plain English, if you pay for something and don't get it you can (and should) get your money back with no questions asked.

So far so good. But what if immediately after our agreement I sold my right to the price to my brother and he took your money? Must he repay you if the car is not forthcoming, or can he keep the price of the undelivered goods and politely refer you back to me when you ask for your money back? Oddly enough, the latter course

involved circumstances where directors felt obliged to act contrary to a "best endeavours" clause in advising shareholders on the exercise of their voting rights. Furthermore, all three stressed that, when advising shareholders on the exercise of their voting rights, directors must do so truthfully in the company's best interests, irrespective of the existence of a "best endeavours" clause. It might be that distinctions should be drawn between different types of directorial activity, for example, advising shareholders on the exercise of their voting rights, as opposed to commercial activity that is routinely performed by directors in fulfilling pre-existing contractual obligations (such as issuing a cheque). Such distinctions might explain why cases such as Thorby and Fulham differ so fundamentally in result and

emphasis from cases such as Rackham, John Crowther, and Dawson. Covenants which purport to restrict a director's discretion in the exercise of directorial voting powers are manifestly invalid. Covenants purporting to restrict a director's discretion in advising shareholders on the exercise of shareholder voting rights will usually be subject to an implied term that the director's discretion will not be so restricted should a material change in circumstances compel directors to issue advice contrary to that envisaged by the covenant. Covenants which are in truth standard commercial transactions are to be governed by the principles expressed in Fulham and Thorby and should be fully binding in restricting directors in their range of business options and activities. Although the Court of Appeal in Fulham undoubtedly reached the correct result, the judgment is another missed opportunity to elucidate the principles that govern the topic of "fettering director- ial discretion".

STEPHEN KENYON-SLADE.

RESTITUTION AND ASSIGNEES

I AGREE to sell you my Rolls; you pay me now, and I promise to deliver the car next Thursday. Any law student will tell you that if you don't get the car you can have your money back. Quite apart from any question of breach of contract, this is a case of total failure of consideration; in plain English, if you pay for something and don't get it you can (and should) get your money back with no questions asked.

So far so good. But what if immediately after our agreement I sold my right to the price to my brother and he took your money? Must he repay you if the car is not forthcoming, or can he keep the price of the undelivered goods and politely refer you back to me when you ask for your money back? Oddly enough, the latter course

220 220 [1993] [1993]

This content downloaded from 62.122.72.76 on Tue, 10 Jun 2014 02:33:07 AMAll use subject to JSTOR Terms and Conditions

Case and Comment

of action now seems open to him, courtesy of the Court of Appeal in Pan Ocean Shipping Co. v. Creditcorp Ltd., The Times, 28 January 1993.

Pan Ocean chartered the Trident Beauty from Trident Shipping Co., agreeing to pay hire of $93,600 twice monthly. Trident assigned the hire to its financiers, Creditcorp; Pan Ocean, as instructed, paid the instalment due on 31 May 1991 direct to Creditcorp. As luck would have it, however, the Trident Beauty was out of action in Singapore during all the period covered by this instalment (indeed, shortly afterwards Pan Ocean rightfully threw up the charter).

Pan Ocean, doubtless considering Trident worthless, claimed $93,600 from Creditcorp. This was on two bases: (a) that under the terms of the charter, hire was repayable if the vessel was not in fact available during the relevant period, and (b) that it had been paid for a consideration that had totally failed. They were unsuccessful on both. As regards (a) this was understandable. As the Court of Appeal made painfully clear, this claim of Pan Ocean's was a blatant attempt to do the legally impossible and make an assignee liable on the contract assigned. A valiant attempt by counsel for Pan Ocean to deflect the argument and hold Creditcorp liable on the principle of "benefit and burden" failed, and rightly so. However convincing in a case where the sum sought was exactly equal to the sum paid, such an argument must equally have applied had the contract provided for a larger sum to be repayable; and it would be disconcerting if assignees could, on a regular basis, find themselves with not only a worthless asset but a thoroughly damnosa hereditas.

Much less straightforward, with respect, is the court's rejection of (b). In relying on total failure of consideration Pan Ocean were not seeking to make Creditcorp do what Trident had promised; nor could they conceivably have asked Creditcorp for more than they had received. They were merely saying to Creditcorp, as they indubitably could have said to Trident, "We paid you for something we never got, and we would like our money back. If you were allowed to keep it you would be unjustly enriched."

So, what were the objections to this apparently sensible claim? Beldam L.J., who alone discussed the matter at length, saw two- neither of which, it is respectfully suggested, is convincing.

First, he argued, whatever the position vis-d-vis Trident, there was nothing unjust about Creditcorp's enrichment. He compared Creditcorp to the defendant in Aiken v. Short (1856) 1 H & N 210, to whom the plaintiff had paid money by mistake, but who was allowed to keep it because she had received it in bona fide discharge of a loan she had earlier made to a third party, X. Here too (it was said) Pan Ocean had paid Creditcorp at Trident's request, knowing

C.L.J. 221

This content downloaded from 62.122.72.76 on Tue, 10 Jun 2014 02:33:07 AMAll use subject to JSTOR Terms and Conditions

The Cambridge Law Journal

they were creditors of Trident and that payment would go to reduce Trident's indebtedness. But with respect, this is a doubtful analogy. To begin with, unlike Messrs Aiken, Pan Ocean never intended to discharge any liability of Trident whatsoever. The debt they paid was their own, for which-until it transpired that there was a total failure of consideration-Creditcorp could have sued them. Furthermore, Creditcorp's claim to hold on to what they got was (it is suggested) infinitely weaker than Mrs. Short's. At least Mrs. Short's borrower X, whose debt was discharged, had got his quid pro quo. By contrast, neither Pan Ocean nor anyone else received anything whatever from Trident in exchange for the $93,600 in question. Indeed, to allow Creditcorp to keep it comes perilously close to resurrecting the heresy in Chandler v. Webster [1904] 1 Q.B. 493, that money due and owing at the time it is paid cannot thereafter be recovered if something later goes wrong with the deal.

Beldam L.J.'s second objection was pragmatic. Everybody knew that Creditcorp, like 99 per cent. of assignees, had taken their assignment as security: to allow this sort of claim against them would, he argued, impugn that security so much as to undermine the whole basis of receivables financing. But this objection is surely overplayed. First, in dealing with this problem one must balance the interests of both debtor and assignee (eliminating, as one normally can, the assignor from the picture). However hard on the assignee to lose his security, does this really justify making the debtor pay for something he has not received? Especially since, as any assignee knows (or should know), his asset may in any event be flawed because he takes subject to equities. Take the facts of this case. If Pan Ocean had not paid this instalment and Creditcorp had sued them, they would- once the failure of consideration became clear-have had a good defence: Creditcorp's status as secured creditors and/or bona fide purchasers would not help them at all. It seems odd that it should make all the difference merely because Pan Ocean had paid on time.

In short, we come back to the fundamental question. Having paid Creditcorp for something they did not get, why should Pan Ocean not have got their money back? There is every reason in justice why they should: the Court of Appeal, it is suggested, has given no reason why they should not.

Incidentally, a further thought. If the Law Commission has its way and cuts back privity of contract, the liabilities of third party payees may well become a very live issue indeed. A little thought on this now could save untold thousands in litigants' costs later.

ANDREW TETTENBORN.

[1993] 222

This content downloaded from 62.122.72.76 on Tue, 10 Jun 2014 02:33:07 AMAll use subject to JSTOR Terms and Conditions