In these times of COVID-19 we see it more and more: parties who sell their goods twice to different buyers, sometimes even before the sellers became actual owners of the goods. This is more common in the commodity trade and especially in the metal trade: at the height of price fluctuations it happens frequently. Unfortunately, in the Netherlands it is not necessarily the case that the owner or the first buyer has the strongest right.
Although a retention of title until payment is effected can offer a solution, this is not always the case under Dutch law. It is, for example, not of aid where the second buyer is a so-called bona fide acquirer who has purchased the goods in good faith.
The question of who is entitled to the goods is not regulated internationally. Each country has its own laws under which that question is to be answered. As a matter of Dutch private international law, this question is answered under the law of the State where the goods are located at the relevant time. Therefore, where the goods are located in the Netherlands, a Dutch court will in principle apply Dutch law to this question.
Dutch law provides that a sale to a bona fide acquirer cannot be challenged on the ground that the seller lacked the power of disposition. In other words, despite the fact that seller did not have the power to dispose of the goods, the bona fide buyer who was unaware of the lack of power will be protected. However, this only applies where the buyer obtained possession of the goods i.e. where the goods were delivered to that buyer in accordance with the law. In such case a second buyer will still obtain ownership.
Under Dutch law, delivery can also take place via a third party, for instance the party where the goods are located. This is based on an agreement, i.e. the agreement that the goods located at the third party will henceforth be held by that third party for the buyer. That agreement is sealed, and delivery is a fact, if the agreement is either communicated to the relevant third party or if that third party acknowledges the agreement. In Dutch law this form of delivery (which stems from Latin law) is called a delivery longa manu (Latin for: the long hand). Traders and warehouse operators who read this might immediately think of the traditional warehouse release: the warehouse holds the goods for party A and will usually only release them to party B by means of a declaration of release, on instruction of party A. One would think that as long as this release is not there, the buyer acting in good faith will not obtain the goods as delivery would not have taken place. In 2017, the Court in preliminary relief proceedings in the District Court of Rotterdam took a different view.
The case was as follows: Party A had sold a consignment of chocolate subject to retention of title to party B. B had left part of the cargo unpaid, but had already sold the entire cargo ex-warehouse Rotterdam to party C. In Rotterdam, notwithstanding A’s retention of title, the cargo was stored for B. B had informed the warehouse that the cargo could only be released to C after C had paid for the cargo. C actually paid, but B did not acknowledge that payment. It would go too far to explain why here, suffice to say here that there was an e-mail exchange between B, C and the warehouse in which B stated that as far as B was concerned, the cargo had not yet been paid for and that for this reason B could not instruct the warehouse to release the goods to C. C in its turn informed the warehouse with a copy to B that C did pay for the cargo and considered itself to be the owner of the cargo. C placed an arrest on the cargo and claimed its release to C in summary proceedings before the Rotterdam Court. The warehouse was also involved in the proceedings and claimed in these proceedings that it kept the cargo for B and would not release the cargo until B would instruct it do so, or at the court’s order.
As indicated above, a delivery longa manu is sealed by a communication from the parties to that effect to the third party holding the goods, who then has to hold it for the new acquirer or by the acknowledgment of the relevant third party of the agreement between parties for the third party to now hold the goods for the new acquirer. The Judge read in B’s instruction to the warehouse to not deliver the cargo to C until the latter had paid together with C’s email to the warehouse that the latter had paid, the notification referred to above. Thus, the Judge found that the goods had been delivered to C longa manu and that C had indeed become a bona fide acquirer who was to be protected against B’s lack of power of disposition. The cargo had to be handed over to C and A was left empty handed, despite of its retention of title.
In the absence of an appeal and substantive proceedings, we will not know whether the judgment of the Court in preliminary relief proceedings would have been upheld on all points. It is clear, however, that the first seller would do well to instruct the warehouse to keep the goods for the duration of the retention of title for the first seller and that one has to be careful with notifying the warehouse of the conditions agreed with a purchaser for the release, if those conditions have not yet been met. Such to prevent that you are left unpaid and without your goods.
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(published 15 May 2020)