IN THE HIGH COURT OF JUSTICE	1998 FOLIO No.273
QUEEN’S BENCH DIVISION
COMMERCIAL COURT
THE HONOURABLE MR. JUSTICE MOORE-BICK

BETWEEN
GLENCORE INTERNATIONAL A.G.
	Claimant
and

METRO TRADING INTERNATIONAL INC
(formerly Metro Bunkering and Trading Company)
and others
	Defendants

AND in the following actions: 1998 Folio No.219, 1998 Folio No.248, 1998 Folio No.513, 1998 Folio No.1091, 1998 Folio No.1598;
AND in the interpleader actions set out in the Schedule to the Order of Rix J. dated 16th November 1999;
AND also in the following actions: 1998 Folio No. 654 and 1998 Folio 1588.

THE METRO LITIGATION – PHASE 1

JUDGMENT
_________________________________
Mr. Alistair Schaff Q.C. and Mr. Richard Southern instructed by Clyde & Co. appeared for Glencore International A.G.
Mr. Stephen Hofmeyr Q.C. appeared for Mobil Export Corporation, Caltex Trading Pte Ltd and Texaco International Trader Inc. instructed by Rayfield Mills, Holman Fenwick & Willan and Hill Taylor Dickinson respectively.
Arexco International Ltd did not appear and was not represented.
Mr. Steven Gee Q.C. and Mr. Michael Davey instructed by Holmes Hardingham appeared for the Purchasers.
Mr. Andrew Smith Q.C. and Mr. Paul McGrath instructed by Barlow Lyde & Gilbert appeared for Metro Trading International Inc.
Mr. Andrew Smith Q.C., Mr. Paul McGrath and Mr. Rory McAlpine instructed by Denton Wilde Sapte appeared on behalf of Credit Lyonnais.
Credit Agricole Indosuez and Banque Bruxelles Lambert (Suisse) S.A. did not appear and were not represented.

Pursuant to the Practice Statement issued by the Master of the Rolls on 9th July 1990 I hereby certify that the attached text records my judgment in this matter and direct that no further record or transcript of the same need be made.

The Hon. Mr. Justice Moore-Bick

Foreword

1.	This matter comes before the court as Phase I of what has become known as the ‘Metro Litigation’ which arose out of the collapse in 1998 of an oil storage facility operated in Fujairah by Metro Trading International Inc. (“MTI”), formerly known as Metro Bunkering and Trading Company. The Metro Litigation as a whole comprises 35 separate actions involving over 50 different parties. What follows is a brief description of the background to the litigation and the nature of the claims being made by various groups of parties. It is not to be taken as involving anything other than an introduction to the issues which I have to determine in this Phase of the litigation. Findings of fact, except for such facts as fall within the scope of Phase 1, and decisions on the rights and obligations of the parties will be made in later Phases and nothing which I say in this part of the judgment is intended to encroach on them.

Background

2.	Until early February 1998 MTI was engaged in the business of buying, blending and selling fuel oil. It bought fuel oil of various grades and other oil products from a variety of sources which it stored temporarily and then re-sold, after carrying out any necessary blending, either to vessels as bunker fuel for their own consumption or to traders on the international oil market as cargoes or part-cargoes of fuel oil. These activities were carried on in Fujairah itself and in the waters off Fujairah using four large vessels, the Metrotank, the Nafkratis, the Athenian Splendour and the Sea Giant as floating storage tanks. MTI also used these vessels to provide a floating storage facility for parcels of fuel oil deposited by a number of oil companies. Parcels of oil received by MTI, whether for its own account or for storage on behalf of a third party, were generally not kept in segregated tanks but were commingled with oil of the same specification already held in storage. Although MTI’s operations were conducted in Fujairah, its head office, from which most of its administration was carried on, was in Athens.
  
3.	Glencore International A.G. (“Glencore”), Caltex Trading Pte Ltd (“Caltex”), Mobil Export Corporation (“Mobil”) and Arexco International Ltd (“Arexco”) all entered into agreements at one time or another with MTI under which they delivered oil products to MTI for storage. The terms under which those companies delivered products to MTI are in dispute and the nature and effect of their arrangements with MTI will be the subject of a later Phase of the litigation.

4.	Metro Oil Corporation (“MOC”), an associated company of MTI,  operated a refinery and oil storage facilities in Fujairah. In February 1995 Texaco International Trader Inc. (“Texaco”) entered into a processing agreement with MOC for the processing of crude oil. Under that agreement Texaco was to deliver certain quantities of crude oil to MOC and was to receive in return stipulated quantities of refined products. Products delivered to Texaco under the agreement were usually supplied from the storage vessels operated by MTI and Texaco maintains that MOC used MTI’s facilities to store product belonging to Texaco.
 
5.	In February 1998 it became clear that MTI was insolvent and could not continue its operations. An inventory taken in early March that year showed that there remained in the possession of MTI about 750,000 metric tons of fuel oil, far less that the depositors calculated that it should have been holding. For example, Glencore alleges that MTI should have been holding over 2.5 million metric tons of oil products to its order. Glencore, Caltex, Mobil, Texaco and Arexco (the “Oil Claimants”) have all asserted proprietary claims to the remaining oil held by MTI. They form one identifiable group of litigants whose interests coincide in relation to the issues arising under Phase 1, but whose interests conflict insofar as it would have been impossible to satisfy all their claims out of the oil remaining in MTI’s possession. 

6.	In the light of the competing claims to the remaining oil and of the fact that MTI was insolvent a number of orders were made to preserve the oil and dispose of it in an orderly way. On 3rd March 1998 Tuckey J. made a receivership order under which the oil remaining in the possession of MTI was sold and the proceeds held for the benefit of the competing claimants. In addition the receivers were empowered to get in outstanding amounts due by way of the price of five cargoes of fuel oil which had been sold by MTI and delivered out of storage at a time when the buyers had already been warned that MTI’s title to sell it was disputed. Four of the buyers, those who had purchased the cargoes on the Gyoko, the Ouranos, the SC Breeze and the Athenian Horizon, remitted the price of the cargo to the receivers who hold it on the same terms as the proceeds of sale of the oil which remained in store. The fifth cargo, which was carried on the vessel Cherry, was disposed of otherwise than in accordance with the court’s direction. This has given rise to proceedings against the vessel’s owners to which it is unnecessary to refer in any detail for present purposes. 

7.	In order to run its business MTI obtained finance from four banks, Credit Lyonnais S.A. (formerly Banque Trad Credit Lyonnais), Credit Agricole Indosuez, Banque Bruxelles Lambert (Suisse) S.A. and Banque Nationale de Paris (“the Banks”). The Banks, who represent another identifiable group in the litigation with certain common interests, claim that they are entitled to a first charge over various sums of money due to MTI from purchasers of fuel oil and over the products remaining in storage as security for amounts outstanding under loans to MTI. However, that claim is disputed by the Oil Claimants. Taken together the Banks’ claims exceed the amount in the hands of the receivers.

8.	During January and February 1998 MTI sold various parcels of fuel oil to third parties in the form of bunkers and whole‑cargo parcels.  The receivers were authorised to get in the amounts due in respect of the sale of these goods. These amounts, which have become known as “the receivables”, are subject to competing claims from MTI, the Banks and the Oil Claimants who assert that the proceeds of sale now represent the oil sold by MTI which was their property. Some purchasers paid the price due under their contracts with MTI to the receivers and one paid it into an escrow account to abide the outcome of the proceedings. Others brought interpleader proceedings in order to have the competing claims against them determined. In these cases the amounts in question have also been paid to the receivers. Others again have failed to make any payment and have been joined as parties to the litigation. These purchasers of oil from MTI together form another identifiable group of litigants. Their case depends on MTI’s ability to give a good title to the oil in its possession and their interests are therefore opposed to those of the Oil Claimants and the Banks. They have been referred to as “the co-defendants”, but in the interests of clarity I propose to refer to them in this judgment as “the Purchasers”.

9.	At the end of February 1998 the court in Athens made a bankruptcy order against MTI and on 26th March a Greek lawyer, Mr. Grigoriadis, was appointed provisional Official Receiver. His position, which is broadly equivalent to that of a provisional liquidator in English law, was confirmed by the court  in November 1998. However, the bankruptcy order was set aside on appeal and a further appeal from that decision is still pending.

10.	  Finally, in order to complete the picture I should mention the position of the insurers of the oil. Glencore has made a claim against its insurers in respect of the loss of oil products held in storage by MTI. The insurers have not accepted liability and Glencore has therefore commenced proceedings against them. As far as Phase 1 is concerned, the insurers have adopted a neutral position, being content to abide by the outcome of the proceedings. Insofar as there remain issues on which there is a conflict of interest between Glencore and their insurers, these do not arise in this Phase of the litigation and it is unnecessary, therefore, to say more about them at this stage.

Phase 1 of the litigation

11.	The management of litigation of this magnitude and complexity posed enormous problems. In November 1999 at the conclusion of a very lengthy case management conference Rix J. gave directions for the conduct of the actions. These included the service of abbreviated pleadings in “bullet” form by those parties who had not already served pleadings in order to identify the essential nature of the cases they wished to advance. Also on that occasion the judge directed that the litigation should be disposed of in a series of separate phases, each dealing with a limited group of issues. The choice of the issues to be dealt with in each phase reflected a desire on the court’s part to dispose of the litigation in an economical and orderly manner. Since MTI is insolvent, the litigation largely revolves around the question of title to the oil which remained in MTI’s possession at the time the receivership order was made and to the oil and receivables which had been intercepted in the hands of the Purchasers. The oil itself was delivered to and disposed of by MTI in Fujairah, but it was not suggested that any of the contracts under which that took place were governed by the law of Fujairah. MTI and the Purchasers alleged that questions of the passing of title to oil situated in Fujairah was governed by the law of Fujairah under which property had passed from the Oil Claimants to MTI and from MTI to the Purchasers. The Oil Claimants disputed that, relying on the terms of the contracts between themselves and MTI and upon a different understanding of the effect of the law of Fujairah.

12.	Since it was clear that issues relating to the passing of title to the oil which remained in MTI’s possession and the oil which MTI had delivered to the Purchasers turned in part on the application of the English rules of the conflicts of laws as regards the choice of the lex causae and on the substantive rules of the proper law of the contract (in most cases English law) or the law of Fujairah, as case might be, as the lex causae itself, Rix J. directed that Phase 1 of the litigation should comprise a number of issues of law which should be decided on the basis of certain assumptions. The issues were chosen with a view to determining the correct legal basis on which questions of title to the oil as between the Oil Claimants, MTI and the Purchasers were to be determined, leaving those questions themselves to be finally decided in Phase 2. The issues forming Phase 1 were later supplemented by an order of Timothy Walker J. made in May this year. The full text of the issues and the assumptions on which they are based, together with a summary of my answers to the questions which they raise, are set out in an appendix to this judgment. In essence the issues are designed to enable comprehensive answers to be given to the following broad questions:
(a)	what system of law governs the transfer of title to oil delivered by the Oil Claimants to MTI and by MTI to the Purchasers and any non-contractual liabilities which MTI and the Purchasers may have incurred to the Oil Claimants?
(b)	what are the relevant rules of the law of Fujairah?
(c)	what are the relevant rules of English law?
These questions were to be decided on the assumption
(a)	that the Oil Claimants’ relationships with MTI are governed by the contracts which they allege in their pleadings;
(b)	that title to the oil was vested in the Oil Claimants immediately prior to the arrival of the carrying vessel in the territorial waters of Fujairah;
(c)	that the storage vessels were at all times within the territorial waters of Fujairah and that all acts of commingling, blending, sale and delivery took place within Fujairah;
(d)	that everything done by the Purchasers in relation to the purchase, delivery, consumption and disposal of the oil was done in Fujairah;
(e)	that the oil products due for delivery by MOC to Texaco were stored in the storage vessels operated by MTI and that title to them was vested in Texaco prior to their delivery to MTI.
These assumptions are fundamental to the determination of the issues arising under Phase 1, but it is right to emphasise that they are no more than assumptions and that they do not call for further elaboration at this stage. It is particularly important that I should emphasise this in relation to the first assumption, both because it might be understood as requiring the court to consider the specific terms of the contracts on which the Oil Claimants rely and because the precise nature and terms of the contracts under which oil was delivered to MTI may well be of great significance. However, the precise terms of the contracts between the parties and the nature of the relationships to which they gave rise lie at the heart of the dispute and will be the subject of decision in Phase 2. It is therefore undesirable in my view to say more about them at this stage than is absolutely necessary. In fact, for the purposes of Phase 1 it is necessary to assume in relation to Glencore, Caltex, Mobil and Arexco no more than that each of them entered into a contract with MTI and under which oil was delivered to MTI, that in the case of Glencore, Caltex and Mobil the contract is governed by English law and that in the case of Arexco there is no express choice of law. In Texaco’s case it is necessary only to assume that it entered into a contract with MOC for the refining of crude oil, that the contract is governed by the law of New York, and that products belonging to Texaco under that contract were delivered by MOC to MTI for storage.

13.	The limited scope of the issues to be determined under Phase 1 meant that it was unnecessary for all the parties interested in the litigation to be separately represented at the hearing. In the end representation was confined to four groups, although not all of them maintained a full complement of counsel and solicitors at all stages. In this way it was possible to ensure that the interests of all parties in the issues arising under Phase 1 were protected while keeping costs to a minimum. Although all parties to the Metro litigation will be bound by the outcome, the parties formally represented at the hearing were Glencore, three of the four other Oil Claimants, MTI, the Purchasers and Credit Lyonnais. 

The Conflict of laws issues

Issue A.1  -  Whether, as a matter of English conflict of law principles, questions as to who, as between MTI and the respective Oil Claimant, acquired and/or retained and/or lost title to the relevant oil (upon and after the arrival of the oil within Fujairah territorial waters) are governed by English law (as the proper law of the relevant contracts) or Fujairah / UAE law (as the lex situs of the oil).

14.	Since these actions are proceeding in England the starting point for all questions relating to title to oil in the possession of MTI in Fujairah must be the English rules on the conflict of laws. Issue A.1 is designed to raise the question whether, as between the immediate parties to a contract under which goods are delivered by one party to the other, the passing of property is governed by the intention of the parties as expressed in the contract (the proper law) or by the law of the place where the property is situated (the lex situs) where these do not coincide in their effect. At this point a distinction must be drawn between the position of Texaco and that of the other Oil Claimants because no contract is alleged to have existed between Texaco and MTI. The position of Texaco must therefore be put on one side for the purposes of this issue. As far as Arexco is concerned, it is convenient simply for the purposes of the discussion to proceed on the assumption that its contract with MTI was also governed by English law, although the contract contains no choice of law clause. I should also mention at this stage that the footnote to paragraph (2) of the assumptions states that where the context so requires ‘title’ includes possessory as well as proprietary title. However, since neither the Oil Claimants nor MTI seeks to assert a possessory title otherwise than as an incident of property it is unnecessary to give separate consideration to the question of possessory title. 

15.	Mr. Schaff Q.C. on behalf of Glencore recognised that the general rule in English law is that the passing of property in movables is governed by the lex situs. The position is summarised in Dicey & Morris, The Conflict of Laws, (13th ed.) at page 963 as follows:

“Rule 116 – The validity of a transfer of a tangible movable and its effect on the proprietary rights of the parties thereto and of those claiming under them in respect thereof are governed by the law of the country where the movable is at the time of the transfer (lex situs).
(1) A transfer of a tangible movable which is valid and effective by the law of the country where the movable is at the time of the transfer is valid and effective in England.
(2)  Subject to the Exception hereinafter mentioned, a transfer of a tangible movable which is invalid or ineffective by the law of the country where the movable is at the time of the transfer is invalid or ineffective in England.”

and by Cheshire & North’s Private International Law (13th ed.) in this way at page 942:

“. . . . . . . . it is now established that the proprietary effect of a particular assignment of movables is governed exclusively by the law of the country where they are situated at the time of the assignment. An owner will be divested of his title to movables if they are taken to a foreign country and there assigned in circumstances sufficient by the local law to pass a valid title to the assignee.”

He submitted, however, that some limits to this principle have already been recognised and that a further exception ought to be recognised where goods are transferred by one person to another under a contract. In matters of contract English law gives effect to the proper law of the contract and through it to the parties’ intentions as expressed in the contract. Mr. Schaff submitted that when issues relating to the passing of property arise as between the immediate parties to the contract English law ought to resolve any conflict between the terms of the contract and the lex situs by recognising and giving effect to the contract in accordance with its proper law in preference to the lex situs. He submitted that none of the decided cases precluded such an approach which, he said, would accord with the commercial expectations of the parties, although he recognised that this approach would have to be modified if the interests of a third party were involved.

16.	The line of authority which establishes the lex situs rule finds its earliest expression in Cammell v Sewell (1858) 3 H&N 617, 5 H&N 728.  That case concerned a cargo of timber being carried from Onega to Hull which was sold by the master in Norway after the vessel on which it was being carried struck rocks and was unable to continue the voyage. Such a sale to a bona fide purchaser was effective to pass a good title under Norwegian law even though the master had exceeded his authority in disposing of it in that way. The cargo later found its way to England and the merchant to whom it had originally been consigned attempted to recover it. The court held that title to the goods passed to the purchaser under Norwegian law and that his title was not divested by bringing the goods into this country. It expressly approved the statement of principle made by Pollock C.B. in the court below that 

"if personal property is disposed of in a manner binding according to the law of the country where it is, that disposition is binding everywhere."

That principle received general approval in Castrique v Imrie (1870) L.R. 4 H.L. 414, and by 1929 Maugham J. could say in Re Anziani [1930] 1 Ch. 407, 420

“I do not think that anyone can doubt that with regard to the transfer of goods, the law applicable must be the law of the country where the movable is situate.”

17.	One can find similar expressions of opinion in subsequent cases. Thus in Bank voor Handel en Scheepvaart N.V. v Slatford [1953] 1 Q.B. 248, 257 Devlin J. said 

“I think it is convenient to begin by considering what is the general principle of our law with regard to foreign legislation affecting property within our territory. There is little doubt that it is the lex situs which as a general rule governs the transfer of movables when effected contractually.”

Diplock L.J. went rather further in Hardwick Game Farm v Suffolk Agricultural Poultry Producers Association [1966] 1 W.L.R. 287 in explaining the practical consequences  of the rule. He said at page 330

“The proper law governing the transfer of corporeal movable property is the lex situs. A contract made in England and governed by English law for the sale of specific goods situated in Germany, although it would be effective to pass the property in the goods at the moment the contract was made if the goods were situate in England, would not have that effect if under German law (as I believe to be the case) delivery of the goods was required in order to transfer the property in them.”

18.	This area of the law has been considered in two more recent cases, Winkworth v Christie, Manson & Woods Ltd [1980] 1 Ch. 496 and MacMillan Inc. v Bishopsgate Investment Trust (No.3) [1996] 1 W.L.R. 387, in both of which the court applied the principle stated in Cammell v Sewell. In Winkworth v Christie works of art were stolen from the plaintiff in England and taken to Italy where they were sold to the second defendant. He later brought them back to England and delivered them to Christie’s for auction. The plaintiff brought an action seeking a declaration that the works of art remained his property. Slade J. considered, among others,  the cases to which I have referred and held that as a general rule the validity of a transfer of movables is governed by the lex situs. He recognised, however, as did Mr. Smith Q.C. in the present case, that there are exceptions to that general rule, and it will be necessary to return to these at a later point. 

19.	It is quite true that none of the decided cases deals directly with the passing of property between two contracting parties, although the dictum of Diplock L.J. in Hardwick Game Farm which has been generally regarded as a correct statement of the law does do so. It is interesting to note that in the 7th edition of his Private International Law published in 1965 Professor Cheshire noted that there was then no English authority preferring the lex situs over the proper law of the transfer when the dispute was limited to the two parties to the transfer. He suggested that in such a case the proper law of the transfer was to be preferred on the grounds of principle and convenience, but that view was not repeated in the 8th edition published in 1970 or in subsequent editions in which some prominence is given to the dictum of Diplock L.J. in Hardwick Game Farm. The current (13th) edition of Cheshire and North’s Private International Law simply states that

“the application of the law of the situs rule must prevail on practical grounds of business convenience”.

20.	In support of his submission that a different rule applies to what he called a ‘two-party situation’, Mr. Schaff referred me to a number of Scottish cases in which the courts have considered the effect of security arrangements made in England in relation to goods situated in Scotland. The first of these was North Western Bank v Poynter, Son & MacDonalds [1895] A.C. 56, a case concerning a pledge by a merchant in Liverpool, C. Page & Co, to the North Western Bank in Liverpool of goods in transit to Scotland by deposit of the bills of lading. The bank returned some of the bills of lading to Page & Co in trust to enable them to sell the relevant goods and remit the proceeds to it. The goods were duly sold but part of the purchase price remaining in the hands of the buyer was arrested by Poynters who were creditors of Page & Co. The Court of Session held that under Scots law by redelivering the bills of lading to Page & Co the bank had put an end to the pledge. Accordingly,  the debt in respect of the outstanding price of the goods belonged to Page & Co and could be arrested by their creditors. The House of Lords agreed that the whole question turned on the nature of the transaction between Page & Co and the bank which in their Lordships’ view was governed by English law. Under English law the redelivery of the bills of lading by the bank to Page & Co for a limited purpose did not determine the pledge or the bank’s interest in the proceeds of sale. The leading speech was delivered by Lord Herschell L.C. with whom the other members of the committee agreed. The only passage in the speeches which provides any support for Mr. Schaff’s submission is to be found in the speech of Lord Watson at page 75 where he said

“When a moveable fund, situated in Scotland, admittedly belongs to one or other of two domiciled Englishmen, the question to which of them it belongs is prima facie one of English law, and ought to be so treated by the Courts of Scotland.”

21.	Such support as Mr. Schaff obtains from that case, however, is undermined by Inglis v Robertson [1898] A.C. 616. That case concerned goods deposited by an English wine merchant, Goldsmith, in a warehouse in Glasgow for which he obtained delivery warrants to his order from the warehouse-keeper. Goldsmith subsequently obtained a loan from Inglis as security for which he handed to him the delivery warrants which he had also indorsed in his favour. Inglis, however, did not give notice to the warehouse-keeper of his rights in relation to the goods. The goods in the warehouse were arrested by one of Goldsmith’s creditors, Robertson & Baxter. The House of Lords held that the competing rights of the creditors and the pledgee were governed by the law of Scotland and that the rights of the creditors prevailed because the pledgee had failed to give the warehouse-keeper notice of his rights. Lord Watson, who on this occasion gave the leading speech, pointed out that the goods were situated in Scotland and expressed the view that it would be contrary to elementary principles of international law to hold that the rights of a creditor could be defeated by a transaction between the debtor and the citizen of a foreign country which would be effective to create a real right in the goods according to the law of that country, but not according to the law of Scotland. He explained the decision in North Western Bank v Poynter as turning on the relative rights of the pledgor and pledgee, and in that case, of course, both the original pledge and the redelivery of the bills of lading, which was the transaction by which those rights were said to have been altered, had taken place in England. 

22.	The other decisions to which Mr. Schaff referred were much more recent. In Armour v Thyssen Edelstahlwerke A.G. [1986] S.L.T. 452, [1991] 2 A.C 339 the court was concerned with a retention of title clause in a contract of sale of steel by German sellers to Scottish buyers. The contract was governed by German law. The court considered that the real question between the parties was whether a security over the goods had been created in favour of the sellers, rather than whether the sellers had retained title. Lord Mayfield held that there was clear authority in Scotland that the lex situs governs the creation of real rights in corporeal movables and that since the clause was an attempt to constitute a security without possession it was unenforceable under Scots law. The decision was upheld on appeal but reversed by the House of Lords on the grounds that property had at no point passed to the buyers under the terms of the contract of sale. Insofar as the decision at first instance proceeds upon the principle that questions of property are to be determined in accordance with the law of the place where the goods are situated at the time when the claim is asserted, rather than their situs at the time of the transaction which is said to give rise to the interest asserted, it is inconsistent with numerous decisions from Cammell v Sewell onwards and does not represent the law of England. On the other hand, insofar as it proceeds on the assumption that the buyers were seeking to create a proprietary interest in the goods in favour of the sellers, the application of the lex situs rule is understandable but does not seem to me to carry the argument any further. Equally, insofar as it proceeds on the footing that the relevant rule of German law, being the lex situs of the goods at the time when the contract was made, should not be recognised in Scotland as being contrary to public policy, the decision, although perhaps surprising, again does not carry the argument any further. Ultimately, therefore, I do not find this decision to be of any great assistance.

23.	Finally Mr. Schaff referred me to Zahnrad Fabrik Passau G.m.b.H. v Terex Ltd [1986] S.L.T. 84, another case concerning a German law contract for the sale of goods to a Scottish buyer which contained a reservation of title clause. The goods in question were vehicle components and the main argument for the defendants was that they had acquired title under the doctrine of accessio when the components were incorporated into earth-moving equipment which they had manufactured. Lord Davidson held that the facts alleged by the defendants were not sufficient to cause title to pass by virtue of the doctrine of accessio, either under the general principles of Scots law or under the rather stiffer test laid down by the contract, but he expressed the view, obiter, that whether or not title had passed was a matter to be determined by reference to the contract. As I read his judgment he would have reached that conclusion on the grounds that the lex situs itself in the form of section 17 of the Sale of Goods Act 1979 made it possible for the parties to determine by their agreement when property passed. Dicey & Morris para. 33-111 refer to the decision as supporting the proposition that the proper law of the transaction is relevant only insofar as the lex situs recognises it.

24.	Although it is useful to see how this problem has been approached in Scotland, for the reasons I have already given I do not think that any of the cases to which Mr. Schaff drew my attention provide any solid support for the proposition that as between the immediate parties to the transaction the passing of property is governed by the proper law rather than the lex situs. The most that can be said of them is that Zahnrad v Terex provides some support for the view that the lex situs itself may recognise the effect of the transaction and hence its proper law, but that is a different thing altogether.

25.	Mr. Schaff also drew my attention to two of the Czech bank cases as examples of situations in which questions relating to the existence of a possessory title were held to be governed by the proper law of the contract. The first was Kahler v Midland Bank Ltd [1950] A.C. 24. In that case the Midland Bank held certain shares to the order of the Zivnostenska Bank in Czechoslovakia as bankers for the plaintiff, Kahler. In order to obtain permission to leave Czechoslovakia in 1939 Kahler was required to deposit all his securities, including the shares in question, with the Bohemian Bank. Two weeks later the Zivnostenska Bank asked the Midland Bank to withdraw the shares from its account and to hold them for the Bohemian Bank, but without any change of ownership. Kahler’s ownership of the shares was not challenged and he brought an action in detinue to recover them from the Midland Bank. Under the currency control legislation of Czechoslovakia it was illegal for the Bohemian Bank to part with securities to a person such as Kahler without the permission of the Czechoslovak National Bank which was not forthcoming. The House of Lords held that the Midland Bank held the shares to the order of the Bohemian Bank, that the proper law of the contract between Kahler and the Bohemian Bank was the law of Czechoslovakia and that Kahler could therefore not show that he was entitled to immediate possession of the shares. His action therefore failed.

26.	The second case was Zivnostenska Banka National Corporation v Frankman [1950] A.C. 57. In that case the plaintiff as administrator of the depositor’s estate sought to recover from a Czechoslovak bank certain securities held by the bank at its branch in London. The proper law of the contract between the bank and the depositor was the law of Czechoslovakia under which it was illegal for the bank to release securities to the plaintiff without the permission of the National Bank of Czechoslovakia which had been refused. The plaintiff’s claim failed on the grounds that the delivery of the securities to the plaintiff would involve the doing of an illegal act.

27.	Mr. Schaff suggested that these cases could be seen as illustrating the limitations of the lex situs rule in cases where the court is concerned only with the passing of property between the immediate parties to the transaction. In particular he drew my attention to a passage in the speech of Lord Reid in Zivnostenska Banka v Frankman where he said at page 83

“there is no apparent reason why the parties should find it attractive that rights under the contract with regard to deposited property should vary according to the place where that property might be at the time; and should, so long as that property was deposited abroad, be settled by a law with which the parties were perhaps unfamiliar.”

It is important to bear in mind, however, what the issues were, both in that case and in Kahler v Midland Bank. In each case the action was brought in detinue to obtain the delivery up of securities held by the bank, and as Slade J. pointed out in Winkworth v Christie, in order to succeed in such an action the claimant must establish an immediate right to possession of the goods. Property in the goods may carry with it an immediate right to possession, but not if that right has been qualified, either under a contract with a third party to whose order the goods are directly held (as in Kahler v Midland Bank), or under the contract between the claimant and the defendant (as in Zivnostenska Banka v Frankman). In such cases the contract effectively determines whether the claimant has a good possessory title (in the sense of an immediate right to possession) as against the defendant, but it has no bearing on the question of proprietary title. Neither of these cases seems to me, therefore, to provide any support for this part of the argument. 

28.	Both the authorities and the commentators, therefore, clearly support the adoption of the lex situs rule as a rule of general application. However, in the absence of direct authority I think it right to examine the basis of the rule and to consider whether as a matter of principle Mr. Schaff is right in saying that there are grounds for adopting a proper law rule in cases which concern only the immediate parties to the transaction. The lex situs rule has been justified on two main grounds. The first is that it accords with the natural expectations of reasonable men and facilitates business. In Re Anziani Maugham J. pithily observed that “business could not be carried on if that were not so”. This reflects the natural expectation that a transaction which is effective to transfer title to goods by the law of the country in which they are situated will vest a good title in the transferee which will be recognised generally. Any other rule would require extensive and probably fruitless enquiries into the provenance of the goods and expose the transferee to great uncertainty. As Slade J. pointed out in Winkworth v Christie at page 512G,
“Security of title is as important to an innocent purchaser as it is to an innocent owner whose goods have been stolen from him. Commercial convenience may be said imperatively to demand that proprietary rights to movables shall generally be determined by the lex situs under the rules of private international law.”

29.	The second main ground is that it reflects the practical realities of control over movables. The editors of Cheshire and North, while recognising the apparent oddity of applying a lex situs rule to the transfer of property in goods temporarily situated abroad under a contract made between two Englishmen in London, nonetheless suggests that there are good policy reasons for preferring it. Quoting Professor Lalive they say

“Two decisive considerations are, firstly, that the country of the situs has the effective power over the chattel; secondly, that the exclusive application of the law of the situs alone can fulfil the need for security in international property transactions.”

30.	Mr. Schaff’s answer to these points was that where property is disposed of by contract, as between the parties to the transaction the natural expectation of reasonable men is that property will pass in accordance with the contract, and that where no third party interests are involved practical control over the goods is of relatively little importance because contractual remedies will usually be sufficient to ensure that the goods are delivered or title is perfected. These arguments have their attractions, but ultimately I do not find them persuasive. In the first place, I do not think that questions of title to movables can properly be considered simply by reference to the positions of the parties to the transaction under which they are intended to be transferred. Consistency of principle requires that the same rule should apply whether or not third party interests are involved. In a situation of the kind posed by Diplock  L.J. in Hardwick Game Farm it would be highly anomalous if questions of title to the goods were to be governed by English law as the proper law of the contract if the seller had not purported to re-sell the goods to a third party, but by German law as the lex situs if he had. Questions of title are most likely to be of importance when one party to the transaction is insolvent. The interests of third parties in the form of a general body of creditors may clearly be affected in such a case, but  it would be equally anomalous if the law governing the passing of property depended on considerations of this kind. The reason for this difficulty is not hard to find: the very nature of title to movables is that it gives the person in whom it is vested rights which can be maintained against all other parties.

31.	Secondly, I think Mr. Schaff’s argument fails to pay sufficient regard to the practical considerations of control over movables. It assumes that the transaction has given rise to rights in personam which the courts can and will enforce in a manner which will give effect to the parties’ intentions. However, as the editors of Dicey & Morris point out in paragraph 24-006, there may be cases where the transaction does not give rise to any such rights. Practical control over movables can ultimately only be regulated and protected by the state in which they are situated and the adoption of the lex situs rule in relation to the passing of property is in part a recognition of that fact. That is just as much true in relation to the passing of property between the parties to the transaction as it is in relation to the passing of property between one or other of them and a third party. Some recognition of the practical control exercised by the state in which goods are situated is no doubt reflected in the expectation that a transaction which would be effective by the law of that state to pass a good title will in fact do so. 

32.	These considerations together with the practical considerations of trade and commerce provide strong support in my view for the adoption of a lex situs rule in all cases. I should say, moreover, that if one puts on one side, as Mr. Schaff accepted one must,  cases where third parties’ interests are involved, including cases where one or other party to the transaction has become insolvent, I am not persuaded that such a rule is likely to prove unsatisfactory in many cases, even where the issue arises only between the parties to the transaction. In almost all cases the parties will have acquired rights and obligations under a contract which are capable of being enforced in accordance with its proper law. In general I see no reason why there should be difficulty in enforcing those rights in such a way as to perfect title to the property or to compel delivery in accordance with the parties’ agreement. If that is so, in most cases very little is likely to turn on the difference between the lex situs and the proper law of the contract and I can see no satisfactory basis for seeking to depart from the general rule.

33.	In the course of his submissions Mr. Schaff submitted that even if the lex situs rule applies to the passing of property between the immediate parties to the transaction, the court will not give effect to the relevant rules of the lex situs where they would be regarded as contrary to English public policy or where the person seeking to rely on them has acted in bad faith. Both these exceptions appear to have been accepted by Slade J. in Winkworth v Christie. That the court might refuse to recognise a transfer of property under the lex situs on public policy grounds if it regarded the relevant rules of foreign law to be morally repugnant is implicit in the majority judgment in Cammell v Sewell and has been recognised by many commentators. The editors of Cheshire and North at page 945 describe it as no more than the application of a general rule of private international law. I can say at once, however, that there is nothing about the relevant rules of the law of Fujairah which in my view would justify the court in treating them as morally repugnant or refusing to recognise them on any other grounds of public policy. The second of these exceptions, that of a want of good faith on the part of the person acquiring title, is to my mind more doubtful. I mention it only because it was suggested by Mr. Schaff in the course of argument that there may have been a want of good faith on the part of MTI  in some respects. No such case has yet been made on the pleadings and it would not arise for consideration in Phase 1 in any event. For my own part, however, I would regard the absence of good faith as essentially a matter for the lex situs, subject only to the right of the English court to refuse to recognise the transfer on well established public policy grounds if it regarded its effect as morally repugnant. 

34.	It is necessary to mention two further points at this stage. The first concerns the requirement for a ‘transaction’ in respect of the goods to which the lex situs can relate. Mr. Schaff submitted that although English law may recognise the effect which the lex situs gives to a transaction, it does not recognise any attempt by the lex situs to re-characterise a transaction which occurred when the goods were situated within another country. Thus, he submitted, in the present case English law would not recognise any attempt by the law of Fujairah to impose its own characterisation on transactions which occurred in relation to the oil before it entered that country’s territorial waters. In my view that must be right, and indeed the contrary view would be inconsistent with the line of authority from Cammell v Sewell to Winkworth v Christie. However, I think that Mr. Smith was also right in his submission that what constitutes a transaction for these purposes is generally a matter for the lex situs. This, it seems to me, is a necessary corollary of the principle that the lex situs governs the passing of property. Any residual element of control is to be found in the public policy exception. Mr. Schaff submitted that acts done in performance of an antecedent contract are not recognised by English law as constituting relevant ‘transactions’ or ‘events’ for the purpose of the lex situs rule, but I think that is to mistake the nature of the rule itself which is concerned to identify the law by which the effect of the transaction or event alleged to transfer title is to be judged. Leaving aside questions of public policy, I can see nothing in authority or principle which would support the view that English law will decide for itself whether a transaction is intrinsically capable of passing title or not. 

35.	The second point concerns the creation or acquisition of a new title. The discussion so far has been concerned entirely with the acquisition of title by transfer, but part of the debate in this case has been about the acquisition of title to newly created goods. As far as the English rules of conflicts of laws are concerned, it seems to me that in principle such questions are also to be determined by reference to the lex situs, that is, the law of the country in which the goods are brought into existence. I would therefore agree with Dicey & Morris (paragraph 24-010) that

“The application of the lex situs at the time of the act in question will also determine ownership upon the making of a new thing (specificatio), or after the incorporation of the thing into another (accessio).”

36.	My answer to the question raised by issue A.1, therefore, is that questions as to who, as between MTI and the respective Oil Claimant, acquired, retained or lost title to the oil upon and after its arrival within Fujairah territorial waters are governed by the law of Fujairah as the lex situs of the oil.

Issue A.2  -  Whether, as a matter of English conflict of law principles, questions as to whether any claims against MTI are governed by Fujairah/UAE law, English law or some other law as the applicable law of the claim.

37.	In the end this issue gave rise to no substantial dispute. It was accepted by all concerned that claims by the Oil Claimants against MTI in contract are governed by the proper law of the contract which, in the case of Glencore, Caltex and Mobil is agreed to be English law. The same principle applies in the case of Arexco, but in the absence of an express choice of proper law or of agreement between the parties, the identity of the proper law will have to be determined at a later stage in the litigation. It was also common ground that claims by the Oil Claimants against MTI arising otherwise than in contract are also to be determined by reference to the same system of law as the proper law of the contract in each case, whatever that may be, because they arise out of the relationship created by the contract and are closely related to the contractual claims. In the case of these parties, therefore, it was accepted that this case falls within section 12 of the Private International Law (Miscellaneous Provisions) Act 1995 so far as concerns claims in tort. Texaco’s position is different inasmuch as it did not have a contractual relationship with MTI. However, it was in contractual relations with MOC and in this case too it was common ground that the liability of MTI was to be determined by the same system of law as that governing the contract, in this case the law of New York. My answer to the question raised by issue A.2, therefore, is that, subject to the application of the law of Fujairah in relation to the passing of property, the law applicable to determine claims by the Oil Claimants against MTI is that system of law which is identified as the proper law of the relevant contract in each case. 

Issue B  -  In the event that as a matter of English conflict of law principles, the answer to question A.1 would be Fujairah / UAE law, whether as a matter of Fujairah / UAE conflict of law principles and/or Fujairah / UAE domestic law,  questions as to who, as between MTI and the respective Oil Claimant, acquired and/or retained title to the relevant oil are governed or otherwise affected by English law (as the proper law of the relevant contracts) or Fujairah / UAE law (as the lex situs of the oil) alone.

38.	This issue raises a question relating to the conflict of laws rules of the law of Fujairah, but in doing so it also by implication raises a question of English law, that is, whether, having identified the lex situs as the law governing the transfer of proprietary rights, the English court should have regard to the domestic law of the situs alone or should also have regard to its conflicts rules. This question, which concerns the applicability of the doctrine of renvoi, was adverted to but left open in Winkworth v Christie. A similar question arose in Macmillan v Bishopsgate in which there was a dispute as to priority of interests in shares in a company incorporated in New York. Millett J. at first instance declined to apply the doctrine of renvoi on the grounds that a decision reached in accordance with the English conflicts of laws rules that a foreign law is to apply to a question of that kind reflects a policy decision on the part of English law that the policy adopted by the foreign law should be applied in place of that of English law. He described the doctrine of renvoi as “largely discredited”. Despite that, however, the editors of the current editions of both Dicey & Morris and Cheshire & North suggest that when considering rights to property in movables the English courts should apply the doctrine of renvoi so as to apply the conflicts rules of the lex situs as well as its domestic rules of law: see Dicey & Morris, 13th ed. paragraph 27‑007 and Cheshire & North, 13th ed. pages 948-950. The arguments put forward by Millett J. for not applying the doctrine of renvoi in the case of issues of title to shares can be said to apply with equal force to issues of title to movables. However, if the lex situs rule in relation to movables rests, at least in part, on a recognition of the practical control exercised by the state in which the are situated, there is something to be said for applying whatever rules of law the courts of that state would actually apply in determining such questions: see Dicey & Morris, paragraph 4-023. 

39.	Three expert witnesses were called to give evidence of the law of Fujairah, Mr. Fuad Barahim, Professor William Ballantyne and Mr. Ian Edge. It will be necessary in due course to say something about their different backgrounds and experience when I come to consider the main body of their evidence, but their evidence on this part of the case was uncontroversial. The Emirate of Fujairah is one of the seven emirates forming the federation of the United Arab Emirates which was established in December 1971. The UAE is established under a written constitution, Article 148 of which provides that laws in force in the individual emirates at the time of coming into force of the constitution shall continue to be applicable unless amended or replaced in accordance with the provisions of the constitution. However, it was common ground that the issues which arise in the present case are governed by the Civil Code enacted in 1985 which is applicable throughout the UAE and none of the experts suggested that any of the local laws of Fujairah was relevant to the issues which I have to decide. When dealing with the Civil Code it is often convenient therefore simply to refer to the law of the UAE. 

40.	There was no dispute between the experts as to the relevant conflicts of law rules of the UAE. These are to be found in Articles 18 and 19 of the Civil Code which provide as follows:

“Article 18  -  (1)  Possession, ownership and other rights over property shall be governed by the lex situs in the case of real property and movable property shall be subject to the law of the place in which such property is at the time when the cause resulting in the acquisition or loss of possession, ownership or other rights over the property arose.

(2)	The law of the state in which property is located shall determine whether such property is real or movable.

Article 19  -  (1)  The form and the substance of contractual obligations shall be governed by the law of the state in which the contracting parties are both resident if they are resident in the same state, but if they are resident in different states the law in which the contract was concluded shall apply unless they agree, or it is apparent from the circumstances that the intention was, that another law should apply.”

41.	On this basis Mr. Barahim and Prof. Ballantyne (Mr. Edge was not asked to deal with this part of the case) at their meeting prior to the trial agreed that the law of the UAE as the lex situs applied to determine the proprietary effects of any transactions relating to the oil while it was within Fujairah. Neither of them suggested that it would be necessary to refer the question to another system of law and in these circumstances I do not think that any question of renvoi in the conventional sense arises. It is unnecessary, therefore, to reach any final conclusion on whether under English conflicts of laws rules the doctrine of renvoi applies to issues of this kind.
 
42.	However, the fact that questions of title to oil situated in Fujairah are governed by the law of the UAE as the lex situs does not mean that other systems of law are entirely irrelevant. Article 19 of the Civil Code reflects the fact that as a general rule the law of the UAE respects the will of the parties to a contract and allows them to contract by reference to the law of another state. It is important for these purposes to distinguish between the parties’ intentions as expressed in their contract and the effect of the contract (e.g. on the passing of title) under its proper law. It follows both from the English conflict of laws rules and the law of the UAE, each of which chooses the lex situs as the law governing the passing of property, that the effect which the contract would have under its proper law on the passing of property can have no place in determining that question when the property is situated in the UAE and the proper law is the law of some other country. However, the position is different when it comes to ascertaining the intention of the parties insofar as that may be a relevant matter under the law of the UAE itself. Mr. Smith accepted that if under the law of the UAE the passing of property in goods depends on the intention of the parties, the court will have regard to the proper law of the contract in accordance with Article 19(1) of the Civil Code insofar as it may be necessary to do so in order to ascertain their intention. My answer to issue B, therefore, is that under the law of the UAE questions arising between MTI and the Oil Claimants in relation to title to the relevant oil are governed by the law of the UAE as the lex situs. However, to the extent that in determining such questions the law of the UAE seeks to give effect to the parties’ intentions as expressed in a contract between them, the law of the UAE would apply the proper law of the contract in order to ascertain their intentions.

Issue C.1 -  Whether, as a matter of English conflict of law principles, questions as to who, as between the respective Oil Claimant and the respective shipowning or purchasing co-defendant, acquired and/or retained title to the relevant oil are governed by English law (as the proper law of the relevant contracts between the Oil Claimant and MTI and between MTI and the respective co-defendant) or Fujairah / UAE law (as the lex situs of the oil).

43.	Mr. Schaff accepted that ordinarily questions of title arising between the true owner and a third party purchaser would be governed by the lex situs, but he pointed out that in this case the contracts under which the Purchasers bought bunkers from MTI were not subject to Fujairah law but contained an express choice of English law and jurisdiction. To that extent they could be said to have been aware of the fact that the passing of property was intended to be governed by English law rather than by the law of Fujairah. Similarly, MTI was well aware that the oil was deposited with it under contracts which were governed by English law.

44.	Whatever the attraction of these arguments, one thing is clear: even if the contracts on both sides were governed by English law, the relationship between the Oil Claimants and the Purchasers was indirect and at one remove from that between the Oil Claimants and MTI itself. Moreover, although the transactions in question can in one sense be viewed as part of a single chain, the interposition of MTI means that the choice of English law to govern the transaction between MTI and the Purchasers was entirely fortuitous as far as the Oil Claimants were concerned. There is in reality no link between them and the Purchasers of a kind which would justify treating them as if they were parties to an agreement governed by English law. My answer to this question, therefore, is that as between the Oil Claimants and the Purchasers questions of title are governed by the law of Fujairah as the lex situs.

Issue C.2  - Whether, as a matter of English conflict of law principles, questions as to whether any claims against the relevant co-defendant are governed by Fujairah law, English law or some other law as the applicable law of the claim.

45.	The claims being made by the Oil Claimants against the Purchasers are for wrongful interference with goods; as such they proceed on the footing that property in the oil remained in the Oil Claimants at the time it was delivered to the Purchasers. The rules governing the choice of law for determining issues relating to tort are now contained in Part III of the Private International Law (Miscellaneous Provisions) Act 1995. By section 11 of the Act the applicable law is generally the law of the country in which the events constituting the tort occurred. In the present case all the relevant acts occurred in Fujairah where the goods were situated at the relevant time. However, this general rule is displaced if factors connecting the tort with some other country indicate that it is substantially more appropriate to take as the applicable law the law of that country: see section 12.

46.	Mr. Schaff submitted that a comparison between the factors connecting the case with Fujairah and those connecting it with England indicated that it was substantially more appropriate for the applicable law in the present case to be English law. However, the only basis for that submission was the fact that in each case the Purchaser agreed to buy the goods on English law terms. As I have already pointed out, there was no direct relationship between the Oil Claimant and the Purchaser in any of these cases and I am quite unable to accept that the mere fact that MTI agreed to sell bunkers on English law terms is sufficient to displace the general rule in section 11. The fact that all the events in question occurred in Fujairah where the goods themselves were situated seems to me to provide the strongest possible connection with that country. My answer to the question raised by issue C.2 is that such claims are governed by the law of Fujairah.  

Issue D  -  In the event that as a matter of English conflict of law principles, the answer to question C.1 would be Fujairah / UAE law, whether as a matter of Fujairah / UAE conflict of law principles and/or Fujairah / UAE domestic law, questions as to who, as between the respective Oil Claimant and the respective co-defendant acquired and/or retained title to the relevant oil are governed or otherwise affected by English law (as the proper law of the relevant contracts between the Oil Claimant and MTI and between MTI and the respective co-defendant) or Fujairah / UAE law (as the lex situs of the oil) alone.

47.	This issue raises the question whether the law of Fujairah would itself refer to the law of some other country as determining questions of the title to the relevant oil as between the Oil Claimants and the Purchasers. Mr. Schaff accepted that it would not, although he submitted that decisions on the passing of title between the Oil Claimants and MTI and between MTI and the Purchasers might call for a consideration of the proper law of the relevant contract insofar as the intention of the parties was a relevant factor. The answer to this issue must be that such questions are governed by Fujairah law, but that if the intentions of the parties to a contract are relevant to the passing of property, the law of Fujairah will  have regard to the proper law of the contract in determining their intentions.

Issue E  -  In relation to Texaco, in the event that English law is held to have any application as between any of the Oil Claimants, the ship-owning or purchasing co-Defendants and MTI, whether as a matter of English and/or Fujairah conflict of law principles questions between Texaco and those other parties as to who acquired and/or retained and/or lost title to the relevant oil (including refined product) and/or whether the respective ship-owning or purchasing co-Defendants have a good defence to Texaco’s claims are governed or otherwise affected by English law.

48.	This issue was included in order to determine whether, if questions between the other Oil Claimants and MTI relating to the passing of property were governed by the proper law of the relevant contracts,  Texaco’s position was materially affected by the fact that its relationship with MTI could be characterised as one of bailment on terms. However, no issue of this kind has yet been raised on the pleadings and the assumptions made for the purposes of Phase 1 do not deal with the basis on which oil belonging to Texaco was put into the storage vessels. Mr. Hofmeyr and Mr. Smith therefore agreed that it was not possible to deal with this issue in a satisfactory way at this stage.

Issues of Fujairah law

Issue F  -  Whether and to what extent title would pass to MTI in respect of any relevant oil or whether and to what extent the respective Oil Claimant would retain ownership of the oil (if necessary as a co-owner of any commingled or blended bulk) in or notwithstanding each or any of the following assumed circumstances, namely, . . . . . . . . 

49.	Issue F concerns the passing of title between the Oil Claimants and MTI under the law of Fujairah in a variety of circumstances. Its three sections all raise similar issues but require them to be considered in different factual and legal contexts. The questions which they raise are, however, closely related and it is convenient, therefore, to begin by considering the position under the law of Fujairah generally before dealing with each section separately.

50.	It is necessary to begin by saying something about the expert witnesses. Mr. Barahim is a resident of Dubai, one of the states making up the UAE, where he has been a practitioner in commercial law for the past 30 years. Arabic is his first language and he has a fluent command of English. He was an impressive witness, combining an extensive knowledge of the modern law of the UAE with an understanding of its historical background. He also had the advantage of being fully immersed in the current climate of legal thinking in the UAE. He had clearly given careful thought to the wider questions of principle raised in this case and in the course of cross-examination was generally able to debate them confidently and in a helpful manner. Mr. Smith suggested that some of Mr. Barahim’s evidence displayed a certain want of impartiality in that he was at times willing to be more categorical in his opinions than was justified by the material on which they were based. There are some respects in which those criticisms were justified, but they were not of such a number or significance as to undermine the weight of his evidence to any marked degree. Mr. Barahim gave evidence for the best part of five days, mainly under cross-examination, during which he covered the whole range of issues fully and fairly. 

51.	Professor Ballantyne has had a distinguished career, both as a practising commercial lawyer in the Gulf states and as an academic lawyer in this country specialising in the laws of that region. He has practised as an advocate, particularly in the courts of Bahrain and Kuwait, and maintained an office in Bahrain until 1986. He is a fluent speaker of Arabic and has first-hand experience of the courts of the region and of their approach to  problems of the kind which arise in this case. However, he has not maintained a permanent presence in the Gulf since 1986 and inevitably did not have quite the same intimate knowledge of current attitudes and thinking as did Mr. Barahim. Despite his wide knowledge of UAE law, there were a number of occasions on which Prof. Ballantyne felt unable to express an opinion on questions of principle without the opportunity for further research and in this respect he appeared less confident of the subject matter than Mr. Barahim. To some extent I think that was due to the significance which he attached to the role of an expert witness and to a laudable desire to avoid any form of misleading answer, but in some cases I was left with the impression that he did not have quite the same working familiarity with the Civil Code as did Mr. Barahim.

52.	Mr. Edge is a practising barrister and a member of the Law Department of the School of Oriental and African Studies in London. He describes himself as having a working knowledge of Arabic, but the ability to deal with Arabic texts which he displayed in the course of giving evidence suggests that that does not really do him justice. He has not himself practised in any of the Gulf states and his knowledge of the law of Fujairah is therefore essentially academic in nature, but he has studied the law of countries in the region extensively and is well-versed in current developments. However, he could not bring to bear the same familiarity with the law as Mr. Barahim and to that extent could not speak with the same authority.

53.	Having made these general comments, I wish to express my gratitude to all the expert witnesses both for the way in which they gave their evidence and for the efforts which they all made to assist me in coming to grips with some difficult questions. Each of them sought to deal with the issues on which he gave evidence fully and fairly and each made a substantial contribution to my understanding of the issues. Where the witnesses were in disagreement I have reached my decision only after giving careful consideration to their different opinions in the context of any relevant legislation and commentaries, preferring the views which seemed to me to be most consistent with a carefully constructed system of the kind which one can discern in the Civil Code as a whole. In a few cases I have preferred the evidence of Mr. Barahim because I considered that his long experience of practice and familiarity with the law of the UAE carried particular weight in relation to the issue under consideration. 

54.	It was common ground between the experts that the Civil Code of the UAE published in 1985 was much influenced by the codes of other countries in the region, in particular those of Jordan and Egypt. The Egyptian Civil Code of 1948 is based on the European codes, particularly the French Civil Code, and many of its concepts are therefore derived from the civil law. The eminent jurist Dr. Abdul Razzak Al Sanhoury played a prominent part in the formulation of the Egyptian Code and subsequently produced a commentary on it entitled Al Wasit. This civil law influence can be seen in the Civil Code of the UAE. The Jordanian Civil Code also reflects many aspects of the civil law but also draws heavily on the Mejelle, a codification of Shariah principles developed by the Hanafi school of jurists which was promulgated by the Ottoman Turks in 1876. The Civil Code of the UAE has its closest affinity with the Jordanian Code, but departs from it in some respects. When the Civil Code was enacted there was published with it an Explanatory Memorandum containing a separate commentary on each article. This does not form part of the Code itself, but is treated by the courts as an authoritative guide to the intention of the legislature. It frequently identifies the origin of a legislative provision and in some cases refers the reader to other sources for a fuller understanding of its intended effect. In many cases this source is the Mejelle. The two primary sources outside the Explanatory Memorandum to which a judge in Fujairah would turn for assistance on the exposition of the Civil Code are therefore the Mejelle and Al Wasit. 

55.	The Code itself, the commentaries and other sources of jurisprudence are naturally written in Arabic and the concepts with which they deal are drawn either from the civil law or from the Shariah. For an English lawyer this presents both a language and a cultural barrier. I have been provided with translations of the relevant material, but the experts all emphasised the need to resort to the Arabic text for an accurate understanding of its meaning and the difficulties of translation soon became apparent. It was probably just as well, therefore, that at the outset of his submissions Mr. Gee Q.C. reminded me of the proper approach to take to evidence of foreign law as found in the following observation of Scott L.J. in A/S Tallinna Laevauhisus v Estonian State Steamship Line (1947) 80 Ll. L. Rep. 99, 107:

“The general rule of English private international law, that foreign law is in our Courts a question of fact, is fundamental, although it does not inhibit the Court from using its own intelligence as on any other question of evidence. The material proposition of foreign law must be proved by a duly qualified expert in the law of the foreign country and the burden of proof rests on the party seeking to establish that law.  The Court is free to scrutinise both the witness and what he says, as on any other issue of fact. The translation from the foreign language must be proved by a duly qualified interpreter, but even when a proved or agreed translation takes the place of the foreign document, it is still primarily the function of the expert witness to interpret its legal effect in order to convey to the English Court the meaning and effect which a Court of the foreign country would attribute to it if it applied correctly the law of that country to the questions under investigation by the English Court. His function necessarily extends to interpretation as well as application in the light of the general law of that country. The degree of freedom which the English Court has in putting its own construction on the written translation of foreign statutes before it, arises out of, and is measured by, its right and duty to criticise the oral evidence of the witness.”

With these principles in mind I turn to consider the evidence relating to the law of Fujairah.

	Deposit and Loan
 
56.	At the heart of this dispute there lie the distinctions which must be drawn between a simple deposit under which one person delivers goods to another for safe keeping and return at a later date, a loan under which one person delivers a chattel to another for the purposes of use and return in specie at a later date, and a loan under which one person delivers goods to another in return for an undertaking to return the same quantity of goods of the same type at a later date. The word ‘loan’ is used in English, perhaps loosely, to describe both the loan of an object such as a bicycle for use and return in specie and a loan of consumable goods which is intended to be repaid in kind (for example, a loan of a pint of milk), although the essential nature of the two transactions is very different. However, English law has no difficulty in analysing these different transactions or in recognising that under the latter property passes whereas under the former it does not.

57.	These distinctions are explicitly recognised in the Civil Code of the UAE which uses different words to identify the two different types of loan. Simple deposit, or bailment, (ida) is defined in Article 962 of the Civil Code which provides (in a translation agreed between Mr. Barahim and Prof. Ballantyne) as follows:

“Article 962  -  (1)  Deposit is a contract whereby the depositor authorises another person to keep his property and obligates such person to keep such property and return it in specie.”

58.	Lending in the sense of a gratuitous delivery of chattels for the purpose of use, but without any intention to transfer property, is denoted by the Arabic word I’aara. (Lending for reward, i.e. hire, is dealt with separately). In this case the property must be capable of being used without being consumed because it is inherent in the concept of I’aara that the original chattel be returned in specie. This is dealt with in Article 849 which provides as follows:

“Article 849  -  A loan [I’aara] is the conferring of ownership upon another of the use of a thing without consideration for a specified period or for a specified purpose, with a condition that that thing should be returned after use, and the thing lent shall mean the thing the use of which ownership has been conferred.”

Characteristics of an I’aara include the following:

“Article 850  -  A loan shall be effected by taking delivery of the thing lent, and a loan shall be of no effect prior to such taking of delivery.

Article 851  -  A loan must be of a particular thing, suitable for use without the substance thereof being destroyed . . . .”

59.	A ‘loan’ under which property in the goods is intended to pass to the borrower is called a qardh; it is defined in Article 710 of the Civil Code as follows:

“Article 710  -  A loan [qardh] is the granting of ownership of property or fungible things to another with the condition that that other should return its like in amount, kind and description to the lender upon the expiry of the period of the loan.”

The incidents of a qardh are set out in the following articles. They include the following:

“Article 711  -  The borrower shall obtain full ownership of the property lent under the contract even if he does not take possession of it from the lender and he may obtain an order in respect of it if the lender refuses to deliver it to him. . . . . . . . .
Article 713  -  Property borrowed must be fungible and consumable.

Article 719  -  (1)  The borrower shall be bound to return the like of what he has borrowed in amount type and description upon the expiry of the period of the loan, notwithstanding any difference occurring in the value of the property, at the time and place agreed.”

In this context Article 992 is also of importance because, although it falls within the section of the Code dealing with bailment, it defines the boundary between simple bailment, or simple deposit, and qardh. It provides as follows:

“Article 992  -  If the property bailed is a sum of money or a thing which can be destroyed by use and the bailor permits the bailee to use it, it shall be regarded as a contract of loan [qardh].”

It follows logically from these provisions that property in goods delivered under a qardh passes to the borrower regardless of what he subsequently does with the goods and although there is apparently no decision on the point, this conclusion was supported by both Mr. Barahim and Prof. Ballantyne.
 
60.	One finds in these provisions of the Civil Code, as one would expect, a logical exposition of the different relationships represented by simple bailment (ida), bailment for use (simple loan, I’aara) and loan in the nature of exchange (qardh). The two defining characteristics of qardh are that the lender transfers property in the goods to the borrower and the borrower is not obliged to redeliver the goods in specie. These are two sides of the same coin. As Article 992 makes clear, if the nature of the goods deposited is such that they are consumed by use and the depositor agrees that the depositee should make use of them, the law presumes that he intended property in them to pass to the depositee. This reflects both the fact that the depositee is free to consume the goods as his own and the necessary corollary that he is not obliged to return them in specie. It also follows that when one is considering the nature of a deposit it is necessary to have regard not only to the nature of the goods themselves, but to the intention of  the parties. Mr. Barahim was at pains to point out, therefore, that it is possible to have a simple loan for a limited purpose of goods of a kind which can only be enjoyed in the fullest sense by consumption, even when the borrower derives some benefit from the loan. The example he gave was a loan of coins for exhibition; another might be the loan of a cake or prize fruits for a display. I accept what he said on this point and it follows, of course, that when considering whether the lender has given consent to the use of the goods it is necessary to take account of the parties’ intentions and to the particular use to which the lender has agreed that the goods should be put. 

Authorised commingling and blending

61.	In the light of these provisions of the Civil Code Mr. Smith submitted that if the Oil Claimants deposited oil with MTI on terms which allowed MTI to use or consume it, the transaction was one of qardh and property in the oil therefore passed to MTI under Article 992. He contended that both the commingling of oil for the purposes of common storage and the use of oil as a blending feedstock amounted to “use” or “consumption” within the meaning of Article 992. He did accept, however, that permission or consent for this purpose would need to be effective consent not subject to any pre-condition which remained unsatisfied.

62.	Before embarking on a discussion of these issues it is necessary to define a little more closely what is meant by “commingling” and “blending” where these expressions are used in the Phase 1 issues. In this context “commingling” is used to mean the mixture of two or more parcels of oil of the same grade and specification. Commingling therefore results in the production of a single bulk any part of which is commercially indistinguishable from its original constituents. “Blending” is used to mean the mixture of two or more parcels of oil of different grades or specifications which results in the production of a single bulk which differs in grade or specification from any of its original constituents and is thus commercially distinct from them. Whether the grades or specifications of different parcels of oil are to be regarded as the same or different may well depend in part on the context in which the question is asked. I have used the expressions “commercially indistinguishable” and “commercially distinct” because in the present case these questions arise in a commercial context. In other contexts different criteria might be appropriate. Essentially it is a question of fact in each case.

63.	Distinctions of this kind are recognised in the law of the UAE, but in slightly different terms. The Civil Code distinguishes between mixing goods of the same type and goods of different types and between mixing goods which can easily be separated and mixing those which cannot be separated or which can be separated only with difficulty. The latter distinction is not one which calls for consideration in the present case because it was accepted that oil products of the kind with which this litigation is concerned are fully miscible and cannot for practical purposes be separated once they have been mixed. The distinction between goods of the same type and goods of different types is relevant, however, because it represents the essential distinction between commingling and blending. On this question the evidence of the experts was that the law of the UAE takes a pragmatic approach similar to that taken by English law and that it is a question of fact in each case. It may also be helpful to mention at this stage that it was common ground between the experts that the law of the UAE recognises co‑ownership of property and that such co‑ownership may arise through mixing as well as in other ways. They also agreed that co‑owners can deposit property under a simple bailment without affecting their existing proprietary rights. 

64.	Mr. Barahim and Prof. Ballantyne agreed on the general principles relating to bailment and the different types of loan about which I have already made findings, but they were not entirely in agreement as to the scope of Article 992 and exactly what is there meant by the words ‘use’ and ‘destruction’. In particular, they were unable to agree whether in the case of goods, as opposed to money, Article 992 covers the situation in which the depositor has consented to their sale, treating that as a form of legal, as opposed to physical, consumption. The distinction between consumables and non‑consumables is set out in Article 100 of the Civil Code and the concept of legal consumption is recognised in the Explanatory Memorandum to that Article, particularly in relation to money, the primary function of which is consumption by spending.

65.	Mr. Barahim was of the opinion that Article 992 is only concerned with the use of the deposit in a manner consistent with its nature, for example, by spending money, eating food, burning fuel and so on. Only in the case of money, therefore, does it contemplate legal as opposed to physical consumption. His reason for saying that was that the word ‘use’ in this context naturally refers to the manner in which such goods are ordinarily consumed and that disposal in other ways, such as by lending or selling, are expressly covered by Article 971. This article provides as follows:

“Article 971  -  (1)  If the bailee lends or trades in the property bailed without the consent of the bailor, he shall be liable for it and his liability shall not be discharged save by returning like property to the place at which the bailment was made if it is a fungible, or by returning the value thereof to the bailor, and not at the place of bailment if it is a non-fungible, and any profit shall belong to the bailee in the event that he has traded with it.

(2)  If he lends or trades in it with the consent of the bailor, then the property shall change its status from being bailed to being a debt owed by the bailee, and he shall not be discharged from it save by returning similar property if it is fungible or the value thereof if it is non‑fungible to the bailor, and not to the place at which the bailment was made.

(3)  If he lends or trades in part of the property bailed, he shall be liable as aforesaid in accordance with the circumstances, and the remainder of the property shall retain its status as property bailed.”

66.	Prof. Ballantyne took a different view of Article 992. He considered that the word ‘use’ was not limited to consumption in the ordinary manner but could cover any form of dealing with the goods by which their identity is destroyed. That would include commingling them for the purpose of storage in a common bulk, blending them or selling them. He recognised that on this view of the matter there was a conflict between Article 992 and Article 971(2) and (3) because under a transaction of qardh envisaged by Article 992 property in the whole of the goods passes to the bailee as soon as consent to its use is given, whereas under Article 971 property only passes to the bailee in those goods actually sold and does so (and the consequent relationship of qardh is established) only from the time of sale. 

67.	Although there is a certain logic to Mr. Smith’s submission that whenever the bailor permits the bailee to use the goods in a way which prevents him from redelivering them in specie the transaction is to be treated as one of qardh, no one suggested that Article 992 actually says that. It is in fact couched in much narrower terms, so the mere fact that a sale or other disposition of the goods would prevent their redelivery in specie does not dispose of this question of construction. The Civil Code has clearly been constructed with great care in order to produce a consistent set of rules and I would find it surprising, therefore, to find a serious inconsistency between different articles within the same section dealing with the same subject matter. It is necessary to bear in mind that the section in which both these articles are found is concerned with simple bailment. Article 992 can be read without distorting its language or limiting its efficacy as dealing with one rather limited area of contact between the principles relating to simple bailment and those relating to qardh.  There is no reason to be surprised that other aspects of bailment should be dealt with in other Articles. The language of Article 971(2) deals explicitly with a sale of the goods with the consent of the bailor and provides for the consequent change in the relationship between the parties which in substance becomes pro tanto one of qardh as from the time the goods are disposed of. According to Prof. Ballantyne, the effect of Article 971 is that even if the bailor consents to the sale of the whole of the goods, the relationship remains one of bailment in relation to any goods which are not in fact sold. As Mr. Barahim made clear, special considerations attach to money and I doubt, therefore, whether one gets much help from that quarter. Although Mr. Barahim accepted that Article 971 applies to a deposit of money, it could only do so in the rather unusual case where the bailee was a mere custodian of the specific coins or notes because otherwise the transaction would necessarily be one of qardh from the outset. I am not persuaded, therefore, that the fact that Article 971 is capable of applying to a deposit of money carries the matter very far. Nor do I think that in this instance one can gain very much from a comparison between the UAE Civil Code and the Egyptian and Jordanian Codes. Although the UAE Civil Code draws heavily on those two codes, it represents a further stage in the formulation of a modern civil law in which the legislature has adopted, but with amendments, principles to be found both in other codes and in the Shariah. In any event, there is no evidence that the word ‘use’ in the corresponding articles of the Egyptian and Jordanian Codes is construed more widely than Mr. Barahim suggested it should be in Article 992. 

68.	So far I have not said anything about the terms of Article 992 itself, mainly because I am conscious of the importance of not attempting to construe the language for myself, particularly when it is available to me only in translation. However, I think it is relevant to note that it was Mr. Barahim’s evidence that the Arabic text draws a distinction between money, on the one hand, and things which are naturally destroyed by use, on the other. (He said that money was treated separately because of its peculiar character as a medium of exchange, although he did not put it in quite those words.) The choice of the two expressions “a thing which can be destroyed by use” and “the bailor permits the bailee to use it” which are to be found in the translation of Article 992 accepted as accurate on all sides does therefore in my view lend a certain amount of support to the view that the use contemplated by the Article is the same as that by which the thing would normally be destroyed or consumed. If the legislature had simply had in mind any disposition which would prevent the goods in question from being redelivered to the depositor, it is difficult to see why it should have chosen to express itself in this particular way. For all these reasons I prefer the evidence of Mr. Barahim on this point and find that Article 992 is limited to the case in which the bailor gives the bailee permission to consume the property deposited with him. It does not deal with the situation in which he gives the bailee permission to sell the property, whether that permission is given at the time the deposit is made or at a later date. However, it does not follow in my view that a transaction under which goods are delivered by one person to another with permission to sell them cannot be one of qardh. That, on the evidence, depends entirely on whether, viewing the matter as a whole, it was the intention of the parties that property in the goods was to pass in any event from one to the other. If, for example, one bookseller were to ‘lend’ another several copies of a recently published book for a week as stock in trade that would be a transaction of qardh within Article 710 of the Civil Code if, as is likely, the parties intended from the outset that property in the books was to pass from one to the other in any event. 

69.	However, although the expression ‘use’ in Article 992 does not include legal consumption, it is capable of covering any form of ordinary use which involves the physical consumption of the goods in question. Mr. Smith submitted, therefore, that any form of mixing of the goods by the bailee amounts to their consumption or destruction with the result that the expression ‘use’ in Article 992 includes in the case of oil products both commingling and blending.

70.	Mr. Smith began this part of his argument by submitting that there was in fact no dispute between the experts that irreversible mixing of any kind is regarded by the law of the UAE as the equivalent of destruction, but I am unable to accept that that was so. He relied on passages to be found in a number of commentators in which the effect of  the irreversible mixing by a bailee of the goods bailed to him with other goods or materials is discussed by various eminent jurists. It is unnecessary to discuss these passages in any detail. They show that different views have been expressed as to the effect of commingling, the majority favouring the view that it is equivalent to destruction, and that there is a general consensus that blending is to be regarded as a form of destruction. It would not be fair, however, to say that Mr. Barahim accepted those views as correctly representing the current law of the UAE. Prof. Ballantyne was of the view that Article 992 is apt to include commingling and blending because in each case the goods lose their physical identity. Mr. Barahim, on the other hand, said that neither commingling nor blending fall within Article 992 because neither operation involves the physical destruction of the goods. He said that the parties’ intention is one important factor to be taken into consideration when considering this question because it has an important bearing on the essential nature of the transaction. He acknowledged that there was a school of jurisprudence which held that goods are destroyed by commingling, but said that the Civil Code had not adopted that view.

71.	I can see some force in both Mr. Barahim’s and Prof. Ballantyne’s positions. Where goods are delivered to a warehouse keeper for storage in bulk with similar goods belonging to one or more other depositors against the warehouse keeper’s undertaking to redeliver a like quantity and quality out of the bulk when called upon to do so, the commingling of the parcels inevitably results in each one losing its physical identity. To that extent redelivery in specie is rendered impossible and indeed was never contemplated, but the goods are not destroyed or consumed in any meaningful sense. The views of the jurists to which I referred a little earlier tend to support the opinion of Prof. Ballantyne, but it is not easy to reconcile them fully with the concepts which one finds enacted in the Civil Code. Whenever he was taxed with their views Mr. Barahim pointed out that what he called the ‘strict view’ of the old schools, namely that any irreversible mixing of goods deposited with the bailee amounts to their destruction, had been discarded in favour of the more ‘liberal’ (for want of a better word) view embodied in Article 975.

72.	Article 975 of the Civil Code provides as follows:

“Article 975  -  (1)  If the bailee mixes the property bailed with something else from which it is impossible to distinguish it and the other goods are not similar to the goods bailed in type or description, he shall be liable therefor as soon as it becomes mixed, but if it is not impossible to distinguish it or if the mixture is with goods of a similar type and description, he shall not be liable therefor.

(2)  In that event, if part of the mixed goods are destroyed, they shall be divided between the two parties in the proportion owned by each of them until the good has become separated from the damaged, and the loss shall be borne by the owners (in their respective proportions).”

Once again we are here concerned with that section of the Civil Code which deals with bailment as defined in Article 962. Unlike Article 971 there is no reference in Article 975 to mixing occurring with the consent of the bailor, and therefore on the face of it this article is concerned with liability for unauthorised acts. It is fair to say, however, that paragraph (2) appears to have proprietary effect, or at least that it supports the conclusion that property in the mixed bulk is owned by the contributors in common. 

73.	The Explanatory Memorandum to Article 975, to which Mr. Barahim drew attention in his report, states that mixing the goods bailed with other material from which they cannot thereafter be separated is viewed as an act of damage for which the bailee is liable. However, it also states that a bailee is not liable merely for mixing the goods with other material from which they can be separated (the example given is mixing gold coins with silver coins) or for mixing the goods with other goods of a similar type and description (the example given is gold coins with gold coins) because “fungibles replace each other.” This can only be because in such cases the law does not consider any damage to have been caused to the bailor. This in my view fully bears out Mr. Barahim’s evidence that the ‘strict view’ of mixing has not been adopted by the Civil Code. In these circumstances it would be wholly anomalous to treat commingling by consent as ‘use’ for the purposes of Article 992 on the grounds that it involves the consumption or destruction of the goods.
 
74.	There are, however, yet further considerations which point to the same conclusion. It is common ground that the law of the UAE generally respects and gives effect to the intention of the parties and Articles 710 and 992 are consistent with that. This is an aspect of the matter to which I shall have to return at a later stage. However, one reason why the intention of the parties is important in this context is that it represents an essential element in characterising the transaction, as Mr. Barahim pointed out. I am unable to accept, therefore, that by entering into an arrangement for common storage depositors give the warehouse keeper permission to ‘use’ them in the sense in which that word is used in Article 992, or that they intend to pass property in the goods to him as is required to constitute a qardh.  The position might be different if the law of the UAE did not generally respect the parties’ intentions and forced upon them a relationship different from that which they intended, or if it did not recognise co-ownership, but neither of those is the case. For these reasons I am satisfied that commingling of goods delivered for storage does not involve ‘use’ within the meaning of Article 992, nor does it result in the transaction becoming one of qardh. Accordingly, I accept Mr. Barahim’s evidence that it does not result in property passing to the bailee unless the parties so intend. Nothing in the evidence of either expert witness would support the conclusion that the result would be different if the bailee were permitted to store the goods in common with goods belonging to himself.

75.	Blending, on the other hand raises different problems because the essential purpose of the operation is to produce a new commodity different from the original constituents. In this case it can be said with greater justification that the original goods have been consumed or destroyed and indeed the primary purpose for which some goods are produced is to be used as blending stock. I find it difficult, therefore, to accept Mr. Barahim’s evidence that Article 992 does not apply to blending. Delivery of goods to a bailee with permission to use them in his own blending process is in my view a classic case of qardh since it must ordinarily be the intention of the parties that they will be used or consumed in the process and replaced by similar goods. It is not difficult, therefore, to find an intention that property in the goods is to pass to the bailee. 

Unauthorised commingling and blending

76.	 Unauthorised commingling is covered by Article 975 of the Civil Code. For the reasons I have already given I am satisfied that it does not give rise to liability on the part of the bailee, nor does it involve the destruction of the goods. Property in the goods does not pass to the bailee under Article 992, or otherwise. The owners of the goods which made up the bulk become co-owners of the bulk. 

77.	The position in relation to unauthorised blending is different. Under Article 975 of the Civil Code the bailee is liable to indemnify the bailor in respect of the value of the goods if, without the consent of the bailor, he irreversibly mixes the goods with other goods or materials of a dissimilar type or description. That was common ground after Mr. Barahim withdrew a passage in his original report in which he had suggested otherwise. The word used to denote the bailee’s liability in Article 975 is dhaman which has been variously translated as ‘indemnify’, ‘indemnity’, ‘liability’, ‘liable [sc. to indemnify]’ and even ‘guarantee’. For an English lawyer these expressions carry important differences of meaning, but the precise meaning to be attached to the word dhaman in different contexts proved difficult to ascertain. This is unfortunate because it is a word which is widely used in the Civil Code. For present purposes, however, one need look no further than Article 974 for an illustration of the breadth of its meaning. That Article deals with the general principle of the bailee’s liability and provides as follows:

“Article 974  -  If the property bailed is damaged [itlaf] in the hands of the bailee through his fault, he shall be liable [dhaman] therefor.”

 Itlaf is generally translated as ‘damage’ and Prof. Ballantyne accepted that this article is apt to cover both partial damage and damage amounting to total destruction. In the light of that he confirmed that dhaman as used here simply means an obligation to make compensation. The provisions of Articles 300 and 301 of the Civil Code which deal with the general principles of compensation for damage are also relevant in this context. They provide as follows:

“Article 300  -  Whoever destroys or damages property of another shall be obliged to make it good in kind if it can be so made good, and to pay the value thereof otherwise, subject to the general provisions relating to indemnification.

Article 301  -  If the damage is partial, the person causing it shall be bound to make good the decrease in value, and if the decrease in value is serious (gross) the owner of the property may elect between taking the equivalent of the decrease in value, or abandoning the damaged property and taking the (full) value thereof, subject to the general provisions relating to indemnification.”

One can see that in cases of serious damage the injured party is given the right to choose between treating the loss as total or partial. However, if the property is destroyed, this choice does not exist. 

78.	Under Article 1218 of the Civil Code dhaman is a ground of ownership. Mr. Smith submitted that the obligation on the bailee under Article 975 to indemnify the bailor in the full amount of the value of the original goods reflects the fact that title in the new product created by blending automatically vests in the bailee to the exclusion of the bailor as from the moment of mixing. If it were not so, he said, and the bailor became owner or co‑owner of the mixture, the obligation to indemnify would depend on whether the value of the mixture, or his share of it, was less that that of the original goods; or, if the bailor were entitled to elect between full indemnity and co-ownership, on his election.

79.	Article 1218 of the Civil Code provides as follows:

“Article 1218  -  Property guaranteed shall become owned by virtue of the guarantee [dhaman], such ownership being retrospective to the time at which  the cause of ownership arose, provided that the subject matter must have been capable of being owned at the commencement of such period.”

The Explanatory Memorandum, after providing an explanation of the concept in terms which suggest that the acquisition of ownership is a consequence of indemnity, states that this is a ground of ownership derived from the Shariah and directs the reader to the commentary on dhaman by Sheikh Ali Al Khafif in Dar Al Fikr Al Arabi (1997) vol.1, page 213. One can see from this that dhaman has given rise to the concept of exchange of one property for another and this forms the basis for the acquisition of title in exchange for payment of the full value.

80.	One question which was debated at some length, but on which Prof. Ballantyne and Mr. Barahim were unable to agree, was whether under Article 1218 property passes to the wrongdoer at the moment when the obligation to indemnify arises, or only at the moment when indemnification actually occurs. This may be an important question in some circumstances because a person who has the right to abandon property which has been badly damaged, though not totally destroyed, in order to claim its value under Article 301 would need to be confident of the wrongdoer’s solvency before deciding to do so if the effect of doing so were to cause property in the goods to pass immediately, with or without retrospective effect. The language of the Explanatory Memorandum to Article 1218 itself supports the view that as a general rule ownership in damaged goods passes with retrospective effect on indemnification and this is consistent with the concept of the exchange of one property for another. Prof. Ballantyne’s opinion that the exchange is satisfied by a personal obligation on the part of the wrongdoer to pay the value of the goods does not seem to me to fit as well with the nature of the concept. It is clear from the commentary of Sheikh Al Khafif, however, as the witnesses agreed, that different schools of jurisprudence have provided different answers to this question and that there was not always unanimity even within the different schools. 

81.	Article 975(1) says nothing in terms about the proprietary effect of mixing; it simply states that the bailee is liable to compensate (dhaman) the bailor in some cases and not in others. The effect on property rights is therefore left to be collected from other parts of the Code or the general principles of law. Mr. Schaff submitted that in the light of Articles 300, 301 and 974 the use of the word dhaman in Article 975 did not of itself establish that the bailee is liable for the full amount of the goods or that property in the goods passes to him as a result of the mixing. I think that must be right, because, as Article 974 demonstrates, dhaman is not limited to a case where the goods are a total loss. However, I do not think that this takes the matter very much further. If from the bailor’s point of view the admixture of some foreign substance has not altered the essential nature or description of the goods, the mixing will amount to partial damage. In that case no question of paying the full value of the goods will arise and there will be no basis on which property might pass by virtue of the payment of compensation. If the goods have been rendered worthless by contamination but there has been no significant change in their essential nature or description, there will be a total loss and the bailee will be liable for their full value. Property will pass in accordance with the principles of indemnification if the bailor elects to abandon the goods, but the question is likely to be academic. The difficult problem arises where the goods have been mixed with something else to create a new product different in nature or description from either of its original constituents. This will involve the destruction in one sense of the original constituents and the creation of new goods. It differs from the physical destruction of the original goods only in the fact that there remains in existence a commodity which has been derived in part from the bailor’s goods. The question then is whether property in the new commodity vests in the owners of the original constituents or solely in the bailee who has produced it, albeit wrongfully. 

82.	Prof. Ballantyne was of the opinion that the fact that Article 975 requires the bailee to indemnify the bailor carries with it the implication that property in the mixture vests in him as from the moment of mixing. Mr. Barahim, on the other hand, was of the view that property vests initially in the bailor who can elect whether to claim compensation as for a partial loss, giving credit for any value derived from the goods the bailee has contributed to the mixture. Consistently with that view he was of the opinion that the amount of compensation payable depends on the degree of damage.

83.	According to Mr. Barahim, whose evidence on this point was not challenged, the Arabic word for mixing used in Article 975, khalt, denotes an intentional act and except in the rare cases of malicious damage the bailee is unlikely to have deliberately mixed the goods with others without intending to change their nature or description in some material respect. For practical purposes, therefore, I can confine myself to considering the case of the creation of a new commodity. The difference between the views of Mr. Barahim and Prof. Ballantyne seem to me essentially to reflect different ways of characterising the mixture: as a new commodity or as the original commodity in a damaged or altered condition. This emerged most clearly when Mr. Schaff was cross-examining Prof. Ballantyne about the application of the concepts of damage (itlaf) and dhaman in the context of mixing. Although Prof. Ballantyne could accept that mixing might in some cases involve no more than simple damage without affecting rights of property, he was unable to accept that that could be the case where the mixing produced a new product. His reason for saying that in those circumstances property passes to the bailee was that the original goods disappear to be replaced by something entirely new. 

84.	At this point it is convenient to refer to Article 1274 of the Civil Code which deals with acquisition of property by accession. It provides as follows in a translation prepared by Mr. Barahim and agreed by Prof. Ballantyne:

“Article 1274  -  If movables belonging to two different owners become joined in such a way that they cannot be separated without damage and there is no agreement between the owners, the court shall decide upon the dispute in accordance with custom and the rules of equity, having regard to any damage which may occur, the state of both parties and the good faith of each of them.”

85.	In his original report Mr. Barahim placed some reliance on Article 1274 as providing some support for his opinion that in a case of wrongful blending the bailor is entitled to elect whether to retain title in the mixture. In his commentary on Article 931 of the Egyptian Code, which is worded in the same terms as Article 1274, Sanhoury states that where two liquids are mixed the owners of the original constituents become co‑owners of the mixture. However, Prof. Ballantyne was unwilling to accept that Article 1274 had any application to a case which fell within Article 975 and I prefer his evidence on this point. Article 975 is derived from the Shariah and has no equivalent in the Egyptian Civil Code. One can understand why Egyptian jurists should have used Article 931 of their Code to develop rules relating to proprietary interests in mixtures. I doubt, however, whether it provides a reliable basis for understanding the effect of Article 975 of the UAE Code which deals specifically with the problem of mixing. In any event, as Mr. Smith pointed out, Article 1274 does not itself determine where ownership in the mixture resides; it simply gives the court jurisdiction to determine how ownership should be allocated and on what terms. I am unable to accept, therefore, that the answer to the problem lies in the application of Article 1274 or a development of principles it embodies.

86.	As Mr. Barahim pointed out, the question is further complicated by the fact that the mixing with which Article 975 is concerned constitutes a wrongful act on the part of the bailee. It was common ground that there is a general principle in the law of the UAE that a person may not profit from his own wrong, but I would accept Prof. Ballantyne’s evidence that this may give way to provisions in the Code which deal with specific situations and I think he was right in saying that Article 975 is one of these. I doubt, however, whether this Article really can be seen as enabling the wrongdoer to profit from his wrong since the bailee is liable to pay the full value of the property he has taken.

87.	Whether mixing has produced a commodity different in type or description from its constituents is ultimately a question of fact, but if a new commodity has come into existence, the allocation of rights of ownership is a matter of legal policy. The Code does not deal specifically with this question and no direct assistance is to be gained from the Explanatory Memorandum to Article 975. It is therefore necessary to resort to the writings of the jurists in order to identify the relevant principles. 

88.	Mr. Barahim said in his original report that Article 975 had been derived from sources including Al Shareh Al Kabir from which he quoted at length. This commentary takes the form of a discussion as to the circumstances in which a bailee becomes liable for mixing the goods entrusted to him with other goods and demonstrates the importance attached to the ability to return the goods in specie. Other Islamic commentators to whom the experts referred appear to have taken a similar approach. This is the ‘strict’ view of bailment to which Mr. Barahim referred when giving evidence about the effect of Article 992. It has, as he said, been abandoned by the UAE in Article 975 of the Civil Code in relation to the mixing of goods of a similar type and description, but there is nothing to suggest that it has been abandoned in relation to the mixing of dissimilar goods.

89.	The weight of opinion among Islamic jurists is in favour of the view that where wrongful mixing has produced a new commodity, property in the mixture passes to or vests in the bailee as manufacturer of the new commodity at the time when the mixing occurs. That, as Mr. Barahim acknowledged, is the principle recognised by the Mejelle and although the Explanatory Memorandum to Article 975 does not refer the reader to the Mejelle, I am unable to accept that that amounts to a positive indication that the legislature intended to apply a contrary principle. If the original goods are regarded as having ceased to exist, that effectively rules out any question of election on the part of the owner. It is also significant, in my view, that neither Article 975 itself nor the Explanatory Memorandum makes any reference to the bailor’s having a right to elect to whether to retain property in the whole of the mixture, or of his enjoying a right of co-ownership. Having seen the detail in which the Code is drafted, I think it likely that if the legislature had intended the bailor to have such rights it would have made the position clear. Viewing the evidence as a whole, therefore, I have reached the conclusion that Article 975 is to be approached on the footing that mixing which produces a product which is distinct in type or description from its original constituents involves the destruction of the original constituents. The bailee’s consequent liability to indemnify the bailor in respect of the full value of the goods reflects both the fact that those goods have been destroyed and the fact that property in the mixture has become vested in the bailee to the exclusion of the bailor. It is unnecessary in those circumstances to resolve the interesting question whether under Article 1218 property generally passes at the time of the event giving rise to the liability to indemnify, or, as I am inclined to think, only on indemnification being made. 

90.	Article 975 deals with the question of wrongful mixing in quite general terms; it does not distinguish, for example, between the case where the bailee mixes his own goods with the those of the bailor and that where he mixes the goods of two different bailors, or even two or more different parcels of goods belonging to the same bailor. However, if Article 975 rests on the proposition that the mixing involves the destruction of the original constituents, the result should be the same in each case. That was Prof. Ballantyne’s evidence and for the reasons I have just given I find it persuasive. How the law deals with the acquisition of title in a new commodity brought into existence by a wrongful act is largely a matter of policy on which systems of law may differ. Article 975 is seeking to enact Shariah principles and one can see from the commentators that many Islamic jurists considered that even a wrongdoer is entitled to the benefit of his work, though he must compensate the original owner for the value of any goods taken from him. One can see a similar principle at work in Article 971(1).

Recognition of the parties’ agreement

91.	So far I have been considering the proprietary effects of loan, bailment and mixing under the provisions of the UAE Civil Code where the parties to the transaction have not made any alternative provision for passing of property in the goods in question. To that extent the articles of the Code to which I have referred define the ordinary incidents of such transactions. I am required to assume for the purposes of Phase 1, however, that, except in the case of Texaco, the relationship between the Oil Claimants and MTI was governed by contract. It is necessary to consider as a matter of principle, therefore, to what extent the law of the UAE will recognise and give effect to the intentions of the parties to the transaction in relation to the retention or passing of property where they are inconsistent with the provisions of the Code. This question is of some considerable importance in this case because Mr. Smith’s argument depended essentially on three propositions. The first is that there is a complete dichotomy under the law of the UAE between bailment, or regular deposit, on the one hand, under which the bailee’s obligation is to return the goods in specie, and qardh, or loan in the form of an irregular deposit, on the other, under which property in the goods passes to the borrower whose obligation is only to redeliver to the lender goods of the same description on the agreed date. The second is that the law of the UAE does not recognise a transaction under which goods are deposited for storage as part of a common bulk on terms that the bailee may satisfy his obligation by redelivering an equivalent amount out of the common bulk with the consequence that the bailor becomes a  co‑owner of the bulk to which he has contributed. The third, which is closely related to the second, is that although, as he accepted, the law of the UAE generally gives effect to the intentions of the parties to a contract, there comes a point at which it will impose on them the incidents of qardh, even though that may be contrary to their intentions. 

92.	The first of Mr. Smith’s propositions was not controversial in the sense that there was no dispute that under the law of the UAE a clear distinction is drawn between simple bailment and qardh. That is necessarily the case because under the first type of transaction property does not pass and under the second it does. It is really the second and third propositions which were the cornerstones of his argument and these ultimately turn on the extent to which the law gives effect to the parties’ intentions with regard to the creation and transfer of proprietary interests and so recognises and gives effect to transactions which are not expressly defined by the Civil Code. 

93.	The Civil Code, as one might expect, identifies a great variety of basic transactions and defines their ordinary incidents. Sale, qardh, and bailment are just three examples. However, one finds nothing in the Code which suggests that all transactions must correspond in every respect to one or other of those it describes. Nor does one find any provision which ostensibly prevents the parties to a transaction of a particular kind from varying the incidents which in the absence of agreement the law would impose. On the contrary, it was the evidence of Mr. Barahim, with which Prof. Ballantyne agreed, that the law of the UAE generally respects and gives effect to the will of the parties to a contract, subject only to mandatory rules of public order. As a result it permits them to determine, as between themselves, whether, and if so, how and under what conditions, property is to pass in goods which are the subject of their contract. Indeed, it goes further than that because at one point in his evidence Prof. Ballantyne accepted in terms that the parties to a contract under which oil was to be commingled or blended could effectively determine how property in the commingled or blended bulk was to be held, although it is fair to say that at a later stage he seemed less definite about that. Neither expert suggested that any of the provisions of the Code with which I am presently concerned are provisions of public order.

94.	In the light of this evidence I have no doubt that if a court in Fujairah were faced with the question whether property in a particular parcel of oil had passed from one of the Oil Claimants to MTI it would look first and foremost to the contract between them to ascertain their intentions and would give effect to those intentions, whether express or implied. Mr. Smith submitted, however, that although in principle the parties were free to contract out of the effects of Article 992, they were not free to contract out of the provisions of Article 710 and that the defining characteristic of qardh is an obligation on the part of the borrower to return goods of the same type. He submitted that an intention to pass property in the goods was merely incidental to, and no more than a necessary consequence of, that fundamental obligation undertaken by the borrower. In support of that submission he sought to rely on a passage in Mr. Barahim’s evidence in which he accepted that Article 710 is not expressly or by implication subject to the contrary agreement of the parties. He also relied on certain passages in the evidence of Prof. Ballantyne in which he appeared to say that if a contract for the storage of goods permitted them to be held in a commingled bulk, the law of the UAE would not recognise a term in the contract that property in the goods should not pass to the bailee.

95.	As far as Mr. Barahim’s evidence is concerned, the passage on which Mr. Smith sought to rely does not in my view support his argument when set in the context of that evidence as a whole. Mr. Barahim was quite clear that UAE law respects and gives effect to the will of the parties to a contract who are free to contract in terms of their own choosing, subject only to matters of public order. It was not suggested to him that Article 710 was a matter of public order, nor was any such suggestion made by Prof. Ballantyne. It would therefore have been quite inconsistent on his part to accept that Article 710 imposes a legal constraint on contracting parties which they are powerless to avoid and on a fair reading of his evidence I do not think that he did so. The comparison which Mr. Smith sought to draw between Article 511 of the Code, which deals with the time when property passes under a contract for the sale of goods and which is expressly subject to agreement to the contrary, and Article 710, which defines the essential nature of qardh, is in my view a false one. It may well be that one cannot by contract alter the legal definition of qardh, but that does not mean that parties are precluded from entering into legally binding transactions of a similar, though in some important respects different, kind. Prof. Ballantyne’s evidence on this aspect of the case was less clear. Early in his cross-examination he agreed in terms that parties are free to contract in terms of their own choosing, subject only to matters of public order, and that the law would recognise and give effect to a contract under which goods were delivered to a bailee for commingling or blending on terms that property would not pass to the bailee. At a later stage, however, he appeared to resile from that, though he did not suggest that any of the provisions of the Code which bear on the question contained rules of public order and did ultimately accept that the operation of Article 992 is subject to the terms of the contract between the parties. In the end, therefore, the evidence as a whole weighs heavily in favour of the conclusion that the law of the UAE does recognise and give effect to a contract between the parties even if that contract does not fall squarely within one of the types of transaction described by the Civil Code.   

96.	I have already said that I prefer Mr. Barahim’s evidence that commingling of goods in storage by agreement between the bailor and bailee does not result in property passing to the bailee and in the light of the evidence to which I have just referred I find it impossible to accept the second and third limbs of Mr. Smith’s argument. Article 710 describes qardh as the granting of ownership of property or fungible things to another on certain conditions. I do not see how it can be said, therefore, that the passing of property is merely an incident and not one of its essential attributes. However, that does not really matter. What really matters is whether under UAE law a transaction under which goods are delivered to a bailee for storage in common or blending is necessarily characterised as one of qardh with the consequence that property in the goods passes to the bailee even if the parties have agreed otherwise. I can see no reason why that should be the case and the evidence of both Mr. Barahim and Prof. Ballantyne is to the contrary. Moreover, such a conclusion is impossible to reconcile with the fact that the Civil Code recognises a contract for work (muqawala) under which goods are delivered to a third party to carry out some process on them before returning them to the owner without any effect on their ownership. I doubt myself whether it is right to regard contracts for common storage or blending as examples of the parties’ contracting out of Article 710; in my view they are better viewed as examples of agreements which do not conform to the definition of qardh contained in that Article. (Article 711 on which Mr. Smith also placed some reliance does not seem to me to take the matter any further since it merely deals with certain consequences of the fact that under a transaction of qardh property passes to the borrower.) In any event, however, the evidence does not support the conclusion that either Article 710 or 711 is a matter of public order and it is therefore open to the parties to contract out of them if they so wish. For completeness I should say that the commentary of Sanhoury on Article 726 of the Egyptian Civil Code (which is in the same terms as Article 992 of the UAE Civil Code) on which Mr. Smith also relied does not really deal with this particular question at all. It clearly proceeds on the assumption that there has been a deposit of goods with the intention, express or implied, of transferring property and is dealing with the position as it would be in the absence of any contrary agreement.

97.	Accordingly I am satisfied that the Oil Claimants and MTI were free to contract for the storage, blending or sale of oil in whatever terms they chose, that under the law of the UAE their intentions as to the retention and passing of property would be ascertained by reference to the contracts between them and that their intentions as so ascertained would determine whether, and if so to what extent and under what conditions, property in the resultant mixture vested in MTI. 

98.	At this point I can deal in specific terms with the questions raised by Issue F.

Whether and to what extent title would pass to MTI in respect of any relevant oil or whether and to what extent the respective Oil Claimant would retain ownership of the oil (if necessary as a co-owner of any commingled or blended bulk) in or notwithstanding each or any of the following assumed circumstances, namely

1. 	upon arrival of the carrying vessel in Fujairah territorial waters and/or delivery of the oil into storage, (or in the case of Texaco by virtue of MTI receiving and storing the relevant oil) by virtue of MTI being entitled under the arrangements identified in paragraph (1) above (or in the case of Texaco under the arrangements set out in paragraph (5) above), or any of them, to do any of the following acts, namely

	a.  to commingle the oil with other oil owned either by itself or by persons other than the respective Oil Claimant;

99.	Neither the arrival of the carrying vessel in the territorial waters of Fujairah nor the mere delivery of the oil to MTI would have any effect on property in the oil under the general law of Fujairah. Although delivery would in these circumstances be made under a transaction which did not contemplate redelivery of the oil in specie in the fullest sense, it would contemplate redelivery of a similar quantity of oil of the same type and description out of the commingled bulk. Since property would not pass to MTI on actual commingling it would not pass on mere delivery. As between the Oil Claimant and MTI, the law of Fujairah would give effect to the contract between them insofar as it provided for the retention, creation, or passing of property rights in the oil delivered for storage.

b.  to blend the oil with other oil owned either by itself or by persons other than the respective Oil Claimant; 

100.	The mere the arrival of the carrying vessel in the territorial waters of Fujairah would have no effect on property in the oil under the general law of Fujairah. Delivery of the oil to MTI under a contract which allowed it to be used for blending would be significant, however, because the use of the oil for such purposes would result in its consumption. The relationship between the parties could not therefore remain one of bailment as understood by the general law of Fujairah. If MTI was entitled to consume the oil against payment, the contract would be one of sale; if MTI were obliged to redeliver the same quantity and quality of oil at a later date, the transaction would be one of qardh. It was common ground that under the law of Fujairah in the case of a contract for the sale of unascertained goods property passes, subject to any agreement to the contrary, at the time when goods are appropriated to the contract. In either case, therefore, under the general law property in the oil would pass to MTI on delivery. However, the parties to a contract of that kind may agree that property in the goods is to pass otherwise than in accordance with the general rules of law. If, therefore, they had agreed that property was not to pass until certain conditions had been satisfied, it would not do so and the delivery of oil to MTI would give rise, at least in the first place, to a relationship of bailment.

c.  to agree to sell the oil to third parties;

101.	The mere the arrival of the carrying vessel in the territorial waters of Fujairah would have no effect on property in the oil under the general law of Fujairah. When one person delivers goods to another with permission to enter into contracts for the sale of them to third parties on his own behalf there is ordinarily to be implied, as a matter of business common sense and in the absence of agreement to the contrary, permission to give delivery to the buyers. An arrangement of that kind is therefore inconsistent with an obligation to redeliver the goods in specie and the transaction would therefore be characterised as one of sale or qardh depending on whether the goods are to be paid for or restored in kind. The consequences in this case, therefore, would be the same as under b above. 

d.  to sell and/or deliver the oil to third parties;

102.	The position is the same as under c above.

Whether and to what extent title would pass to MTI in respect of any relevant oil or whether and to what extent the respective Oil Claimant would retain ownership of the oil (if necessary as a co-owner of any commingled or blended bulk) in or notwithstanding each or any of the following assumed circumstances, namely

2.	by virtue of MTI being entitled under the arrangements identified in paragraph (1) above (or in the case of Texaco, paragraph (5) above), or any of them, to do any of the following acts, upon subsequently doing any of the following acts, namely

	a.  commingling the oil with other oil owned either by itself or by persons other than the respective Oil Claimant;

103.	Commingling of the oil in storage with similar oil belonging to another Oil Claimant or to MTI itself would not cause property to pass to MTI unless the parties had agreed otherwise. The contributors to the bulk would become co-owners of the bulk in proportion to the quantities of oil which they had contributed to it.

b. blending the oil with other oil owned either by itself or by persons other than the respective Oil Claimant; 

104.	Under the general law of Fujairah property in the oil would already have passed to MTI on delivery and therefore the act of blending itself would have no effect on it. However, that is subject to the intentions of the parties as contained in their contract.  

c.  agreeing to sell the oil to third parties;

105.	Under the general law of Fujairah property in the oil would already have passed to MTI on delivery and therefore entering into contracts for the sale of the oil to third parties would have no effect as between the relevant Oil Claimant and MTI. Again, however, that is subject to the intentions of the parties as contained in their contract.  

d.  selling and/or delivering the oil to third parties;

106.	Under the general law of Fujairah property in the oil would already have passed to MTI on delivery and therefore entering into contracts for the sale of the oil to third parties would have no effect as between the relevant Oil Claimant and MTI. Again, however, that is subject to the intentions of the parties as contained in their contract.  

Whether and to what extent title would pass to MTI in respect of any relevant oil or whether and to what extent the respective Oil Claimant would retain ownership of the oil (if necessary as a co-owner of any commingled or blended bulk) in or notwithstanding each or any of the following assumed circumstances, namely

3.  upon MTI doing any of the following acts, albeit that MTI were not entitled under the aforesaid arrangements to do any of the same, namely

a.  commingling the oil with other oil owned either by itself or by persons other than the respective Oil Claimant;

107.	Commingling of the oil by MTI in storage would not result in a transfer of property to MTI. The contributors to the bulk would become co-owners of the bulk in proportion to the quantity of oil which each had contributed to it. 

b.  blending the oil with other oil owned either by itself or by persons other than the respective Oil Claimant;

108.	The use of the oil by MTI for blending would be considered to result in its destruction. Under the general law of Fujairah property in the blended product would vest in MTI. If by their contract the parties had expresed an intention that property in the blended product brought into being under such circumstances was to vest in one or other of them, the law of Fujairah would respect and give effect to that intention.

c.  agreeing to sell the oil to third parties;  

109.	Merely agreeing to sell the oil to a third party would have no effect on title to it.

	d. selling and/or delivering the oil to third parties;

110.	An unauthorised sale of the oil would have no effect on title, but delivery of the oil to a third party under a contract of sale, albeit unauthorised, would pass property to the third party in accordance with Article 1325 of the Civil Code which is discussed under Issue G. It does not follow, however, that property would thereby pass from the Oil Claimant to MTI. Article 971(2) which deals with sale by a bailee with the consent of the bailor treats the relationship between them as changing from one of bailment to one of qardh. Article 971(1), on the other hand, which deals with a sale by the bailee without the consent of the bailor treats the disposal as wrongful and the bailee’s obligation as one to indemnify (dhaman) the bailor. For the moment it is sufficient to say that in my view Articles 1325 and 1326 of the Civil Code which deal with the acquisition of title by a bona fide purchaser treat this as a case where the bailee can give a good title (subject to the provisions of the Code) without ever having one himself. 

Issue G  -  Assuming that title did not pass to MTI but was retained by the respective Oil Claimant up until MTI wrongfully sold and/or delivered the relevant oil to the respective shipowning and/or purchasing co-defendant, whether the respective co-defendant acquired title to the said oil on each or any of the following assumptions, . . . . . . . . 

111.	Issue G concerns the acquisition of title by the Purchasers as a result of unauthorised sales made by MTI. In contrast to the common law rule that, subject to certain exceptions, a person cannot pass title to goods which he does not himself own (‘nemo dat quod non habet’), the law of the UAE, in common with other systems which draw on the civil law, has adopted the general principle that in the case of chattels possession is title (‘en fait de meubles la possession vaut titre’). This principle is reflected in Articles 1325 and 1326 of the Civil Code which provide as follows:

“Article 1325  -  (1)  No claim of ownership shall be heard against a person in possession of a movable or a right in rem over a movable or a bearer bill if his possession is based on a valid cause and he is acting in good faith.

(2)  Possession shall of itself be indicative evidence of ownership unless the contrary is proved.

Article 1326  -  (1)  By way of exception to the provisions of the foregoing Article, the owner of a movable or a bearer bill may, if he has lost it, or it has been stolen or misappropriated from him, recover it from the person in possession of it in good faith within a period of three years from the date of the loss, theft or misappropriation, and the provisions relating to misappropriated movables shall apply to the recovery.

(2)  If the person in possession of the stolen, lost or misappropriated thing has bought it in good faith in the market, by public auction, or by a person trading in similar things, he may require the person recovering that thing from him to pay the price which he has paid.”

112.	It was common ground between the Oil Claimants and the Purchasers that a person who takes possession of goods in good faith under a contract of sale obtains a good title to them, subject only to the provisions of Article 1326, whether or not the seller has title to them or authority to sell them. The critical time at which good faith must be exercised is when the buyer takes delivery and he will be presumed to have acted in good faith unless it is proved otherwise. 

113.	The dispute between the parties turns on the effect of Article 1326, which, as its wording indicates, operates as an exception to the general principle set out in Article 1325, and in particular on the meaning of the word ‘misappropriation’ (ghasb). The Egyptian Civil Code contains a provision similar to Article 1326, but it is limited to cases of loss and theft. Ghasb is a concept developed by the Islamic jurists and the inclusion of loss by ghasb in Article 1326 is one manifestation of a general policy of Islamicisation, the impact of which can be seen at various points throughout the Civil Code. Mr. Gee Q.C. on behalf of the Purchasers submitted that the policy of Article 1325, as of the comparable provisions of the Egyptian and French Civil Codes, is to protect the bona fide purchaser at the expense of the true owner by imposing on the owner the risk of dishonesty on the part of the person to whom he entrusts his property. It is for this reason, he submitted, that in the French and Egyptian Civil Codes exceptions are made for theft and accidental loss of possession, but not for misappropriation by a bailee to whom the owner has chosen to entrust his property. He submitted that the inclusion of loss by ghasb in Article 1326 was intended merely to clarify the position rather than to extend the range of circumstances in which an owner could recover his goods.

114.	It may well be that considerations of the kind described by Mr. Gee underlie the more limited exceptions to be found in other codes, but it is clear that the legislature of the UAE has taken a deliberate decision to include loss by ghasb in Article 1326. Whether that was intended merely to clarify the position or to extend substantively the scope of the exception is a matter that will have to be considered in due course. The Explanatory Memorandum to Articles 1325 and 1326, to which I shall have to return later, refers to ghasb in general terms without giving any express indication that it is intended to bear a more limited meaning than would ordinarily be the case. In these circumstances I think that the enquiry must begin with the concept of ghasb in Islamic jurisprudence.

115.	There was a certain amount of disagreement between Mr. Barahim and Mr. Edge about the precise nature of ghasb and that may not be altogether surprising in view of the fact that the opening sentence of the Explanatory Memorandum to Article 304 of the Civil Code which deals in general terms with misappropriation (ghasb) and trespass (ta’adi) states that “there are differences of opinion on the scope of ghasb among Muslim legal experts”. The Memorandum then refers to the views of various jurists stretching back over many hundreds of years. One thing on which the jurists appear to be united is that ghasb involves the idea of usurpation or misappropriation. That is, it involves the taking of another person’s property for oneself, as opposed to merely causing damage to the property of another. The expression “removing the rightful hand” is sometimes used to describe the concept. Beyond that, however, there is the nature of the taking which ghasb involves. Mr. Barahim said that it is sufficient if goods are taken against the will of the true owner, but not necessarily by the use of force. He was therefore of the view that misappropriation or breach of trust by a bailee could constitute ghasb. Mr. Edge took a different view. In his original report he gave as examples of ghasb stealing, seizing goods by violence and taking goods, but he did not specifically mention any requirement of violence or the use of force as an essential element of ghasb. In his supplementary report, however, he drew attention to a number of commentaries which, he said, showed that the use of force is in fact essential to the concept. This was the main ground on which he sought to distinguish ghasb from misappropriation by a bailee which he said should be characterised as breach of trust only.

116.	Ghasb is not defined in the Civil Code nor in any section of the Explanatory Memorandum published with it. The legislature has thus left it to the judges to determine whether the circumstances of any given case amount to ghasb in the light of the legal materials, including the writings of jurists, available to them. The nearest one comes to a definition of ghasb in the Explanatory Memorandum is to be found in the Memorandum to Article 304. The view of two of the jurists cited, as set out in the translation provided by Mr. Edge, do support the view that ghasb involves forcible deprivation of possession, but Mr. Barahim did not accept the accuracy of that translation. The two key words are mujaharah and mughalaba which in Mr. Barahim’s opinion should be translated “openly” and “against [his] will” respectively, rather than “by means of strife” and “struggle”. (This would reflect a distinction which was generally admitted to exist between the concepts of theft, which involves furtive taking without the knowledge of the owner, and ghasb which involves open taking against his will.) There is nothing in the rest of the Explanatory Memorandum to Article 304 which directly touches on this point, but there is a reference to Article 881 of the Mejelle in which ghasb is defined as taking and keeping the property of another without his consent. In a commentary on the Mejelle by Ali Haider (in a translation prepared by Mr. Barahim) the legal definition of ghasb is given as

“the taking of property openly by an act to remove or curtail the rightful hand of the owner and establish his wrongful hand without the owner’s permission or the permission of law that is by way of contestation”.

According to Ali Haider, one of two co-owners of property may become a misappropriator of that property as against the other if he takes it entirely for himself. Having set out the definition of ghasb, Ali Haider proceeds to discuss extensively each aspect of it. In relation to taking he says that the taking required for ghasb is taking for oneself, whether by simple handling or by force. Importantly, he divides taking into two kinds: ‘real’ taking and ‘constructive’ taking which, he says, occurs when a bailee denies the title of his bailor. 

117.	The Civil Code does not simply adopt the definition of ghasb found in the Mejelle which is only one of the sources to which judges in the UAE would be expected to turn for guidance. It is also necessary to bear in mind that the Mejelle represented an attempt by the Ottomans to codify the Shariah while at the same time selecting from available sources to make it more responsive to the needs of the times. Although it was based on the work of Islamic jurists, it was not based on the work of the Maliki or Hanbali schools which the UAE has chosen as the primary sources of Islamic law. Nonetheless, the frequency with which the Mejelle is referred to in the Explanatory Memorandum, and indeed was referred to by all three expert witnesses, indicates that it remains a powerful influence in the absence of more direct authority.  I accept Mr. Barahim’s evidence that in cases where the Explanatory Memorandum refers expressly to the Mejelle it is likely to carry a good deal of weight. Another work to which both Mr. Barahim and Mr. Edge referred is a modern commentary on a mediaeval work, Bada’i Al-Sana’i, one section of which deals with ghasb. This was generally referred to as ‘The Book of Ghasb’. Again, the editors refer at some length to the differing views of jurists as to the essential elements of ghasb from which they deduce the following four essential requirements: that it applies only to property which a Muslim is permitted to own; that there must be a taking without the permission of the owner; that the taking should occur openly; and that the owner should be deprived of his dominion over the property. They do not regard force as an essential element, although no doubt a taking by force would normally satisfy these requirements.

118.	Finally I should mention a work which was introduced at a rather late stage in the trial when Mr. Edge began his evidence. This is a summary in English by F.H. Ruxton of a French translation of the Mukhtasar of Sidi Khalil which Mr. Edge described as a famous Maliki work. It contains a definition of ghasb as “the wilful seizure and appropriation of another’s property without the use of arms”. It was introduced in order to explain the basis on which Mr. Edge had said in his original report that ghasb did not require the use of force (although on reflection he no longer adhered to that view). It became of greater interest to the Oil Claimants, however, when it was discovered that it also appears to support the view that a bailee who denies the title of his bailor commits ghasb. It is regrettable that this material was not made available to Mr. Barahim for his comment, but since it tends to support his opinion rather than contradict it, no real harm was done. In any event, having regard to the niceties of translation which have emerged elsewhere, I think a particular degree of caution must be exercised when considering a text which is a translation of a translation.

119.	In support of his evidence that ghasb does not require force of any kind and is wide enough to include misappropriation by a bailee Mr. Barahim relied both on the Mejelle and the commentary of Ali Haider and on the views expressed by the editors of The Book of Ghasb in their commentary. He did so because he considered that a judge in Fujairah would naturally turn to this material when seeking to determine what meaning to give to the word ghasb under the Civil Code. Mr. Edge, on the other hand, was of the view that a judge faced with this problem would confine himself to the Maliki sources to the exclusion of everything else, although he did agree that the essential purpose of the court is to identify the intention of the legislature.

120.	Although the Civil Code provides that the Maliki school of jurisprudence is to take precedence over other schools, I can see little to support the conclusion that judges in the UAE are, or are expected to be, as limited in their approach to the development of their own jurisprudence as Mr. Edge suggested. One can see from many of the different sections of the Explanatory Memorandum which have been referred to in this case that the development of the Civil Code has in practice drawn on many sources, including most notably the Mejelle. Moreover, the evidence does not suggest that the courts are blind to the need to develop the law in ways which suit modern conditions. Mr. Barahim has very extensive experience of practice in the UAE and on a matter of this kind I prefer his evidence as to the approach which the court would take. I am satisfied, therefore, that the judge would consider the Mejelle as well as the other sources to which I have referred before reaching any conclusion.

121.	Although there is support among some jurists of the Maliki school for the view that ghasb requires some forcible seizure of property, it is not one which appears to have been universally held and is not supported by jurists of other schools. Nor is it the approach adopted by the Mejelle. The essential characteristic of ghasb is the taking of another person’s property for oneself. In this respect it differs from mere wrongful damage or trespass (ta’adi), and, as Mr. Barahim pointed out towards the end of his cross-examination, there is a difference between simply losing possession and being deprived of the rights of ownership. In this context ‘misappropriation’ is therefore a very apt translation of ghasb. If the court were simply to take account of all the sources mentioned earlier, I have little doubt that it would hold that as a matter of general law any dealing with the goods of another in a way which involved a denial of title amounts to ghasb. That would include misappropriation by a bailee. 

122.	It was suggested, however, that there are indications within the Civil Code itself that the legislature did not intend ghasb to be given such a wide meaning. The general rules of law relating to ghasb and ta’adi are to be found in Articles 304 to 312. As one might expect, most of these articles lay down general principles. Some of the articles in this section refer expressly to ghasb, but some do not. In particular, Article 309 deals specifically with the case of a person who is holding goods in trust without mentioning ghasb. It provides as follows:

“Article 309  -  If a person has goods in his possession by way of trust and he is guilty of a default in preserving them, or is guilty of a wrong-doing in respect of them or refuses to return them to the owner without right, or if he wrongfully asserts that they are his own, or if he dies and it is not known where the goods are, he shall be liable to return similar goods or the value thereof as the case may be.”

Another article which must be considered in this context is Article 312 which provides as follows:

“Article 312  -  Any act of the same nature as misappropriation shall be treated as misappropriation.”

A more literal translation might be 

“Equal to ghasb shall be treated as ghasb”.

123.	The Explanatory Memorandum to Article 309 refers to the fact that both the Mejelle and the Iraqi Civil Code provide that any act which is the equivalent of ghasb in that it involves a denial of the owner’s right of disposition in relation to property is to be treated as ghasb. The Explanatory Memorandum to Article 312 simply refers the reader back to the Explanatory Memorandum to Article 309. I would accept that, as Mr. Barahim suggested, this is a clear indication that the object of Article 309 is to treat a denial of title by a bailee as ghasb because in substance that is what it amounts to, even though it might not be held to fall within the ordinary definition of ghasb, perhaps because no actual taking was involved. I do not think, however, that it provides much support for the view that the legislature did not intend ghasb to include the wrongful taking and disposal of goods by a bailee if the jurisprudence would otherwise point to that conclusion. On the contrary, I accept Mr. Barahim’s evidence that the object of Article 1312 is to ensure that any act which involves a denial of the owner’s title to goods is to be regarded as ghasb for the purposes of the Code. That, if anything, would tend to support the adoption of a wider, rather than a narrower, definition of ghasb itself.

124.	The other provision of the Civil Code which Mr. Gee relied on in this context was Article 971. This is another provision which deals with the liability of a bailee in specific terms rather than in terms of general principles. The liability incurred by a bailee who wrongfully disposes of the goods by lending them or trading with them is not in all respects the same as that which he would incur as a result of an act of ghasb. Additional factors, including the concept of usury (riba) come into play in this context, as Mr Barahim pointed out. I do not think that one can infer from this that a wrongful taking of goods by a bailee for his own use or a wrongful disposal of them is not generally to be regarded as ghasb.

125.	In the light of the evidence as a whole I am satisfied that a judge in Fujairah, having taken account of the works of the Islamic jurists and the provisions of the Civil Code itself would reach the conclusion that under the general law the wrongful disposal by a bailee of goods deposited with him does amount to ghasb.

126.	Mr. Gee submitted, however, that whatever might be the meaning of ghasb in general, it was intended to bear a more limited meaning in Article 1326. In this he relied on the evidence of Mr. Edge who said that the court would look to the legislative intention behind the Article in order to decide whether the word should be given the same, or a different, meaning in that context. Mr. Barahim, on the other hand, was unable to accept that a word such as ‘ghasb’ could have different meanings in different places. Although I can well see that the same word may bear different meanings in different contexts, that is less likely to be the case where the word in question has a specific legal meaning, even if the precise limits of that meaning are unclear in some respects. A greater difficulty, perhaps, is identifying with sufficient certainty the intention of the legislature where that is not spelled out either in the Article itself or in the Explanatory Memorandum. It is not enough simply to point, as Mr. Gee did, to a general policy of stabilising transactions because on any view Article 1326 establishes exceptions to the principle that possession is title. The question at issue here concerns the extent of the exception where there has been ghasb.

127.	This question can conveniently be considered in conjunction with Mr. Gee’s other submission based on the policy of the legislation, namely, that the references to ‘loss’, ‘theft’ and ‘misappropriation’ in Article 1326 are intended to relate only to the circumstances in which the owner himself parted with possession of the goods. Both arguments depend on the proposition that the intention of the legislature was to protect the bona fide purchaser of goods at the expense of the owner who had voluntarily parted with  possession. The basis for this submission is the acknowledged fact that Articles 1325 and 1326 were derived in part from the civil law. 

128.	Much of Mr. Edge’s evidence on the meaning and effect of Article 1326 was based on his understanding of the rationale behind the   comparable provisions of French and Egyptian law, namely, that a person who chooses to part with possession of goods by delivering them to another must take the risk, as between himself and a third party who obtains possession of them in good faith under a valid transaction, of any dishonesty or failure to keep them safe on the part of the person to whom he entrusted them. Since neither Mr. Edge nor Mr. Barahim was called as an expert in either French or Egyptian law, there was limited possibility of investigating the precise scope of this principle. However, I was invited to consider commentaries on the comparable legislation in both systems which generally supported his evidence and I am prepared to assume for present purposes that what he said does fairly represent the position.  

129.	Article 1326 itself represents an inroad into the general principle contained in Article 1325. Although it operates by way of exception, that is not the same as saying that it is only intended to deal with exceptional cases. It simply makes exceptions from the general principle. On any view, the introduction of ghasb into Article 1326(1) involves a departure from the position which obtains under the Egyptian Civil Code. The real question, therefore, is how great a departure did the legislature of the UAE intend to make? In my view any appeal to the policy of the legislation is likely to be of limited assistance in answering this question unless one can gain some reliable insight into the intention of the legislature, either from the terms of the legislation itself or from other material such as the Explanatory Memorandum.

130.	In my judgment little assistance is to be gained from the terms of the legislation itself. Mr. Edge accepted that there is nothing in the language of Articles 1325 and 1326 which directly supports his view. Some guidance can be obtained from the Explanatory Memorandum to these Articles. This states that although no explicit concept of ownership by possession is to be found in Islamic jurisprudence, similar principles have been recognised by various writers in the context of defective contracts of sale. It also states by way of explanation of Article 1326(2) that in the interests of giving effect to commercial transactions a person who has purchased goods in good faith, either at a public auction, or from a person who normally deals in goods of that kind, or in a market, is entitled to recover the price he paid from the true owner if it is subsequently discovered that the goods were misappropriated or stolen. The Explanatory Memorandum finally notes that these two articles correspond to certain articles of the Jordanian, Syrian, Egyptian and Iraqi Civil Codes.

131.	The Explanatory Memorandum seems to me to be significant in two respects. The first is that although it notes the corresponding provisions of other Codes, it makes no mention of the principle on which Mr. Edge relied. There is the reference to “stabilising transactions” (the phrase used in Mr. Barahim’s translation), but only in the context of Article 1326(2) which in certain circumstances requires the original owner who recovers his property to compensate the purchaser. Insofar as an attempt was made to explain the nature and origin of these provisions the draughtsman referred only to the Islamic sources. In this context I think that some caution should be exercised before assuming that the legislature intended simply to adopt wholesale the French or Egyptian approach to this problem. The second thing one notices is that there is nothing to suggest that the words of Article 1326 are to be understood in a restrictive sense. Article 1326 states that the owner of a chattel which has been lost, stolen or misappropriated may under certain circumstances recover it from the person in possession of it. There is nothing either in the language of Article 1326 itself, or in the Explanatory Memorandum, to suggest that it is concerned only with the circumstances in which the owner himself parted with possession. Nor is there anything to suggest that in this context ghasb is to be construed in a way which would limit its application to such cases.

132.	The absence of any indications of this kind might be more easily reconciled with Mr. Edge’s evidence if immediate physical possession were the only form of possession recognised by the Civil Code. In that case the words “stolen or misappropriated from him” would naturally be read as referring to some interference with the owner’s physical possession. However, I think it is clear that the Code does in fact recognise possession through an agent or bailee provided that he holds at the will and direction of the owner. Article 1307 of the Civil Code which is the first in a series of general provisions concerning possession provides, inter alia, as follows:

“Article 1307  -  (1)  Possession is actual control by a person through himself over a thing or a right which may be dealt in.

(2)  Possession by an intermediary shall be valid if the intermediary exercises it in the name of the possessor and if his relationship with the possessor binds him to comply with his directions in connection with such possession.”

Mr. Edge was constrained to accept that Article 1307(2) does recognise possession exercised through a bailee and that such possession may even be sufficient to support the acquisition of a good possessory title, for example when one person buys goods acting expressly on behalf of another. In these circumstances it is difficult to say that the words “stolen or misappropriated from him” in Article 1326(2) must be limited to a case where the goods were in the physical possession of the owner. Moreover, the introduction of ghasb raises another difficulty. Whereas loss and theft are primarily concerned with loss of possession, the essence of ghasb is misappropriation in the sense of denial of title which may or may not involve a loss of physical possession. This makes it that much more difficult to accept that the legislature intended to limit the operation of these Articles in the manner suggested by Mr. Edge. Recognising some of these difficulties Mr. Gee eventually accepted that Article 1326 could not sensibly be confined to cases of theft or misappropriation from the owner himself but must include theft or misappropriation by a third party from the bailee. He continued to maintain, however, that misappropriation by the bailee himself would fall outside it. His difficulty, however, is that there is nothing in the language of Article 1326 or the Explanatory Memorandum to support a distinction of that kind.

133.	I also think it is difficult to accept that ghasb was intended to bear a narrower than normal meaning in Article 1326(2). As I have said, there is nothing in the language of the Code itself or in the Explanatory Memorandum to suggest that the legislature had that intention. Once again the Purchasers sought to rely on what they said was the policy of the legislation, but that merely begs the question. I see no reason to think that when the legislature introduced an exception for ghasb it did not intend it to apply in all cases which the law would recognise as ghasb. Mr. Gee submitted that the legislature could not have intended to allow an owner to recover his goods whenever they had been misappropriated by his bailee because this would run counter to the fundamental policy of the legislation and would be fundamentally unjust. I have already dealt with the policy question insofar as that might be discerned from the legislation and its surrounding material. As far as the broader question of justice is concerned, I find it difficult to accept that a system which provides substantial protection to rights of ownership can be described as fundamentally unjust. Where and how to strike a balance between the interests of owners and the interests of bona fide purchasers seems to me to be essentially a matter of policy. Historically the common law systems have tended to prefer the interests of owners and the civil law systems the interests of purchasers, in each case subject to exceptions, but neither can be said to be fundamentally unjust. It may be that the legislature of the UAE has moved somewhat in favour of the interests of owners, but in Article 1326(2) it has still sought to provide a substantial measure of protection for purchasers, especially in the commercial context.

134.	In reaching these conclusions I have not overlooked the fact that a profound familiarity with a particular system of law may enable a person to say with confidence that a particular piece of legislation is likely to be construed in one way rather than another. Sometimes it is possible to identify clear grounds for such a view, but sometimes it is a result of general familiarity with the system as a whole combined with a knowledge of the approach which the courts bring to bear on problems of the kind under discussion. It is significant, therefore, in my view that the Oil Claimants’ case on the meaning and effect of Articles 1325 and 1326 were supported by the evidence of Mr. Barahim. I have already referred to his evidence concerning the meaning of ghasb, but it is right also to say that he was unable to accept that the construction of Articles 1325 and 1326 was to be limited by wider considerations of policy of the kind which Mr. Edge suggested. He was of the view that as part of its general policy of Islamicisation the legislature had decided to provide protection to owners of property in cases of ghasb and that these articles were to be read in their natural sense. Mr. Barahim has a great deal of experience of the practice of law in the UAE and is therefore particularly well placed to understand the attitude of the courts to questions of this kind. I do not think that his evidence is at odds with the material before the court and on this matter I prefer it to that of Mr. Edge. I have therefore relied on his evidence in preference to that of Mr. Edge in reaching my conclusions on this question.

135.	In the light of these conclusions I  can turn to the specific questions raised by issue G. 

Issue G  -  Assuming that title did not pass to MTI but was retained by the respective Oil Claimant up until MTI wrongfully sold and/or delivered the relevant oil to the respective shipowning and/or purchasing co-defendant, whether the respective co-defendant acquired title to the said oil on each or any of the following assumptions, namely

1.  at the time of purchase and/or taking of delivery and/or of any other subsequent acts of retention and/or consumption and/or resale and/or delivery, the respective co-defendant was acting in good faith within the meaning of Article 1325 of the UAE Civil Code;

136.	 If, as I must assume for this purpose, title in the oil had not passed to MTI at the time of sale and delivery to the Purchaser, then it remained a bailee of the oil. An unauthorised sale by MTI to a third party would therefore fall within Article 971(1) of the Civil Code. In principle it would also involve a misappropriation of the goods. The question which remains to be answered, however, is whether this particular form of wrongdoing is to be characterised as ghasb under the Civil Code. The answer might seem obvious were it not for the fact that the extent of the bailee’s liability under Article 971(1) differs from the ordinary liability of one who misappropriates goods as set out in Article 304(4).

137.	The general rules concerning liability for ghasb are to be found in Article 304 of the Civil Code which provides as follows:

“Article 304  -  (1)  The hand shall be bound to restore that which it has taken and shall remain bound until it does so.

(2)  Whoever misappropriates property belonging to another must restore it to that other in the condition it was in when, and at the same place where, the misappropriation took place.

(3)  If [the tortfeasor] has consumed or damaged the goods or if they have diminished or been damaged either with or without a wrongful act on his part, he must make good in kind or in value as at the day and place of misappropriation.

(4)  He must also hand over any benefits or increase he has obtained from such property.”

 The primary obligation of the misappropriator is to return the property in question to the owner, but the Explanatory Memorandum also states that things which naturally accrue to the misappropriated property, such as the milk of an animal, fruit in a garden or honey from bees, are to be treated in the same way as the property itself, and the same applies to the benefits of use since they too are an attribute of property. This is the purpose of Article 304(4). Under Article 971(1), on the other hand, a bailee who uses goods deposited with him in trade is permitted to keep any resulting profit, although he is still bound to restore the property or its value to the owner.
 
138.	As I have already observed, it was the evidence of both Mr. Barahim and Prof. Ballantyne that this difference in treatment is a reflection of the importance of the concept of riba in Islamic jurisprudence. Riba, or usury, is prohibited under Islamic law and this prohibition extends beyond the taking of interest on money to obtaining the fruits of another person’s labour. The profits derived by the bailee from trading with the goods deposited with him are viewed as having been derived from his efforts. He must be allowed to retain them in order that the owner of the goods should not infringe the prohibition on riba. In the light of this I think it is possible to discern a clear distinction between the profits from trade to which Article 971(1) refers and increase which accrues naturally to property of the kind described by the Explanatory Memorandum to Article 304 and which is the subject of paragraph (4) of the article. Such produce is not produced by the effort of the person in possession of the property and returning it to the rightful owner of the property does not infringe the prohibition on riba. It follows in my view that the difference between the treatment of increase in Article 304(4) and the treatment of profit in Article 971(1) tells one nothing about whether the act of the bailee in trading with the goods is or is not ghasb. That is a matter to be decided in accordance with general principles of law. For the reasons already given I am satisfied that under the general principles of law the wrongful disposal of the goods by a bailee is ghasb and the fact that under Article 710(1) the bailee is under an obligation to restore the goods or their value is consistent with that view. 

139.	It follows from what I have said already that if the Purchaser was acting in good faith at the time when he took delivery of oil from MTI  under a contract of sale, he will have acquired a good title to that oil, subject only to the right of the relevant Oil Claimant, within a period of three years from the date of delivery, to recover it from him if it still remains in his possession. 

2.  at the time of purchase and/or taking of delivery and/or of any other subsequent acts of retention and/or consumption and/or resale and/or delivery, the respective co-defendant was acting in good faith within the meaning of Article 1325 of the UAE Civil Code but the respective co-defendant subsequently received notice of the respective oil claimant’s interest in the relevant oil and the fact that it had been supplied or delivered to the respective co-defendant without that oil claimant’s consent;

140.	It was common ground among the experts that in order to obtain title under Article 1325 the buyer must take delivery of the goods in good faith. Provided that requirement were satisfied the Purchaser would  acquire good title by virtue of his possession of the goods, subject to the provisions of Article 1326. The fact that it subsequently learned of a defect in the title of MTI would not affect title acquired in that way.

3.  at the time of purchase and/or taking of delivery and/or of any other subsequent acts of retention and/or consumption and/or resale and/or delivery, the respective co-defendant was acting in good faith within the meaning of Article 1325 of the UAE Civil Code but the respective co-defendant subsequently received notice of the respective oil claimant’s interest in the relevant oil and the fact that it had been supplied or delivered to the respective co-defendant without that oil claimant’s consent, at which time it had still not paid MTI for the respective goods;

141.	Subsequent knowledge of a defect in the seller’s title has no effect on the acquisition of title under Article 1325 which depends on delivery and not on payment. The fact that the Purchaser had not paid for the goods at the time it learned of the defect in the MTI’s title would therefore be irrelevant. 

4.  the respective co-defendant received notice of the respective oil claimant’s interest in the relevant oil and the fact that it had been supplied or delivered to the respective co-defendant without that oil claimant’s consent and thereafter continued in possession of and/or dealt with the relevant oil notwithstanding such notice.

142.	By taking delivery in good faith under an apparently valid and effective contract for the sale of the goods the Purchaser would have acquired a good title, subject only to being deprived of that title under Article 1326. Subsequent knowledge of a defect in MTI’s title would not affect title acquired in that way, although the Purchaser would be put on notice that he might be required to return the goods or their value to the Oil Claimant if it were entitled to invoke Article 1326. Remaining in possession of the goods or dealing with them after receiving notice of a defect in MTI’s title would not itself affect the Purchaser’s title.

Issue H  -  Assuming that title did not pass to MTI but was retained by the respective Oil Claimant up until MTI wrongfully sold and/or delivered the relevant oil to the respective shipowning and/or purchasing co-defendant, whether the respective co-defendant is liable on each or any of the assumptions set out in paragraph G above.

143.	It must be clear from what I have already said that a bona fide purchaser does not incur any liability by taking delivery of goods under an apparently valid and effective contract. On the contrary, he acquires a good title to the goods, subject only to the right of the original owner  to recover them under the terms of Article 1326. Although this question was not canvassed specifically with the witnesses, it would be contrary to the tenor of their evidence and to the principles underlying Article 1325 to suggest that a buyer might incur liability as for a civil wrong by retaining possession of the goods or dealing with them as his own, even after receiving notice of a defect in the seller’s title. However, if the owner could satisfy the requirements of Article 1326 the buyer would be liable to return the goods or their value to him and to that extent it might be said that he incurs a contingent liability. A liability of that kind arises, however, not from any dealing with the goods as such, but from the fact that he has taken possession of goods belonging to another. None of the circumstances described in Issue G would affect that.

Issue K  -  The effect of certain “admissions” made by MTI

144.	For the purposes of Issue K I am required to assume that the following messages were sent by or on behalf of MTI confirming that it held certain quantities of oil to the order of the relevant Oil Claimant: (a) a telex dated 8th February 1998 sent to the master of the Athenian Splendour and copied to Glencore, London, advising him that title to cargo on board his vessel had been transferred to Glencore; (b) a telex dated 15th January 1998 sent to Caltex, Singapore, advising it that the balance of its inventory of 380 cst. fuel oil held at Fujairah on 31st December 1997 was 52,339.115 metric tons; (c) a facsimile dated 18th  February 1998 sent to Mobil advising it that MTI would issue an inventory report for 131,755 metric tons of unspecified product owned by Mobil.

145.	Glencore, Caltex and Mobil have all asserted that if the passing of title to oil which they delivered to MTI under their respective contracts is governed by the law of Fujairah, and if title to that oil would otherwise be considered to have passed from them to MTI, MTI and any person claiming under it is prevented from asserting its title to the oil referred to in those communications by virtue of certain provisions of the UAE Civil Code. 

146.	Issue K is concerned with the effect of the admissions said to be contained in these three messages. The Oil Claimants set out to show that under the law of Fujairah they are sufficient of themselves either to vest title to the oil in them or to preclude MTI and anyone claiming under it from denying their title. This assertion raises a number of questions in the realm of conflicts of law as well as under the domestic law of Fujairah, but in the end the parties chose to confine their submissions to the position under the domestic law of Fujairah and I need not take time therefore to consider questions of characterisation and choice of law. 

147.	In his report Mr. Barahim referred to Article 63 of the Civil Code which provides as follows:

“Article 63  -  A person shall be bound by his admissions.”
On this basis he said that in his view MTI was prevented by admissions contained in those three messages from asserting that it has a better title to the oil than the Oil Claimants. However, other enactments also deal with admissions and these provide an important part of the context in which Article 63 falls to be considered. In particular, Article 51 of the Law of Evidence in Civil and Commercial Transactions contains provisions relating to ‘judicial admissions’ which are admissions of a more formal kind made before a court, and Article 53 of the same law expressly provides that a person cannot resile from a judicial admission. These provisions do not apply to the present case but they do, of course, suggest that a person may be able to resile from a non-judicial admission. Indeed when I pressed him on the point Mr. Barahim accepted that that was so, although only in limited circumstances. He also accepted that it would be possible to correct a mistake if one were found in a message of the kind under consideration. Finally Mr. Barahim agreed that in the case of an informal, that is, a non-judicial, admission, the judge is entitled to decide what weight ought to be given to it.

148.	In his written report Prof. Ballantyne said that he did not think that any of these messages could be regarded as constituting a binding admission under the law of Fujairah; in his view they were matters of evidence which the judge would have to evaluate in the context of any other evidence before him. Mr. Schaff accepted that insofar as these messages might have some purely evidential significance that was a matter for the trial judge applying the lex fori. In the course of cross-examination Prof. Ballantyne said that the approach taken by the law of Fujairah to admissions was underpinned by a rule of substantive law, but I am uncertain exactly what he meant by that. He agreed that an informal admission of this kind could be contradicted by other evidence in certain cases, including mistake, and did not think that any of these messages was of itself capable of creating rights in favour of the Oil Claimants which did not otherwise exist. On the other hand he considered that if an admission were made in the context of contractual relations the court would look to the proper law of the contract to see what, if any, substantive effect it had. 

149.	In the light of this evidence I can see no satisfactory basis for finding that any of these messages would be effective under the law of Fujairah to vest title to the oil in the Oil Claimants if it would otherwise be vested in MTI. Both Mr. Barahim and Prof. Ballantyne accepted that such messages are essentially evidential in nature and therefore open to contradiction by other evidence, at least in certain circumstances. They also both accepted that it is for the court to evaluate them and decide how much weight to give to them. That, it seems to me, is consistent with the position which one finds in the codified rules on evidence. Article 63 of the Civil Code is to be found in a section which draws together what are described as “certain jurisprudential maxims and rules of interpretation”. These are no doubt sound basic principles by which to approach legal problems in general, but there is nothing to indicate that they are to be regarded as overriding rules of law. Neither of the experts suggested that Article 70, which is to be found in the same section, and which provides that “No person may resile from what he has conclusively performed”, had any application in this case. To say that where an admission is made by one party to a contract the law of Fujairah will look to the proper law of the contract to determine the effect of that admission is no more than to say that the law of Fujairah will apply the proper law of the contract to determine disputes arising under it.

150.	In view of the way in which Issue K has been formulated I should perhaps confirm that the parties did not seek to persuade me that there exists under the law of Fujairah a doctrine equivalent to the English doctrine of estoppel, nor were the experts invited to consider that question. Their evidence was limited to whether the statements to be found in the messages to which I have referred were of themselves sufficient to cause title to the oil to vest in the Oil Claimants, or at least to prevent MTI and those claiming under it from asserting otherwise. They were not asked, therefore, to say whether such statements could have become binding if, for example, the Oil Claimants had relied on them in some way. In these circumstances, although Issue K raises a number of different questions, I think that it can be answered sufficiently for the purposes of Phase I by saying that the statements in the messages relied on by Glencore, Caltex and Mobil are not binding on MTI under the law of Fujairah and would not prevent MTI or anyone claiming under it from asserting that it had a better title to the oil to which they refer. 

Issues of English law

151.	I now turn to the issues of English law set out in paragraphs I and J of the Preliminary Issues. Paragraph I mirrors the issues of Fujairah law set out in paragraph F; paragraph J raises questions relating to the identification of proprietary interests in the remaining mixed bulk of goods held by MTI.

Issue I  -  Whether and to what extent title would pass to MTI in respect of any relevant oil or whether and to what extent the respective Oil Claimant would retain ownership of the oil (if necessary as a co-owner of any commingled or blended bulk) in or notwithstanding each or any of the following assumed circumstances, namely . . . . . . . .

152.	As in the case of Issue F, it is convenient to consider the law relating to commingling and blending generally before dealing with the individual questions posed in this paragraph.

Authorised commingling and blending

153.	It is trite law that delivery of goods to a bailee for storage has no effect on the general property in the goods which remains at all times with the bailor. The bailee’s duty is to redeliver the goods to the bailor in accordance with the terms of the bailment. So long as the goods retain their original identity no difficulties arise, but questions of property do arise once that original identity is lost, and one way in which that may occur is by the storage of goods in a mixed bulk. Until recently this question had received relatively little attention in English law, although it had been considered in a number of cases in the United States where grain is often stored in common silos. Where several people deliver goods of the same kind to a warehouse keeper to be stored in a mixed bulk the storage agreements may all be in the same standard terms and may indicate clearly where property lies. If that is the case, then in addition to the individual contracts between each bailor and the warehouse keeper, it may be possible to find that a separate contract of the kind which in Clarke v Dunraven [1897] A.C. 59 was held to have come into existence between the competitors in the yacht race has come into existence between all the bailors and the warehouse keeper which regulates their property rights in the bulk. 

154.	If the goods have been delivered to the warehouse keeper simply for the purposes of storage, the depositor is unlikely to have intended that property should pass to the warehouse keeper. In these circumstances in the absence of any agreement to the contrary the mixed bulk will be owned in common by those whose goods have contributed to it, each depositor becoming an owner in proportion to the amount of his contribution. As goods are added to or drawn from the bulk the interests of the contributors will vary to reflect the quantity of goods still held to their order. These principles, which were developed in the American cases, in particular Sexton & Abbott v Graham (1880) 44 Iowa 181, Nelson v Brown, Doty & Co (1880) 44 Iowa 555 and Savage v Salem Mills Co (1906) 85 Pac. 69, were approved by the House of Lords in Mercer v Craven Grain Storage Ltd [1994] CLC 328. In these circumstances since no property passes to the warehouse keeper it is appropriate to describe him as a bailee, even though his obligation is to redeliver to each depositor not the identical goods deposited with him but the same quantity of goods of the same description drawn from the mixed bulk of which they formed part.

155.	The same principles apply whether the mixed bulk is composed entirely of goods owned by individual bailors or includes goods owned by the warehouse keeper himself, provided there is no intention to pass property or dominion over the goods to him. However, if the warehouse keeper is entitled to treat the goods as his own, the contract will be regarded as one of sale and property will pass on delivery, subject to any agreement to the contrary. Thus in South Australian Insurance Co v Randell (1869) L.R. 3 P.C. 101 farmers delivered wheat to millers who stored it in common as part of their current stock from which they would draw either for sale or for grinding in their mill. The terms on which the farmers delivered wheat gave them the right to demand the return of an equivalent quantity of wheat of the same quality, or the market price, and gave the millers the option of delivering wheat or paying the market price. The transaction therefore amounted to a contract of sale because it gave the millers the right to dispose of the goods entirely as they chose.

156.	The essential distinction between blending and commingling is that where blending has taken place the resultant product is different in nature from both its original constituents. This creates certain conceptual difficulties in the case of unauthorised blending to which I shall return, but should not ordinarily create difficulties where the blending is carried out pursuant to a contract. In such a case the general rule is that the parties are free to decide for themselves at what stage, if any, in the process property in the original goods shall pass to the blender and on what terms. This includes the right to decide who is to own the resultant blend. In Clough Mill Ltd v Martin [1985] 1 W.L.R. 111 the plaintiff supplied yarn to a manufacturer of fabric under a contract which provided that if any of the yarn were incorporated into other goods the property in those goods should remain in the plaintiff until all the yarn supplied had been paid for. Robert Goff L.J. described the effect of a term of that kind as follows at page 119G

“Now it is no doubt true that, where A’s material is lawfully used by B to create new goods, whether or not B incorporates other material of his own, the property in the new goods will generally vest in B, at least where the goods are not reducible to the original materials: see Blackstone’s Commentaries, 17th ed. vol. 2, pp. 404-405. But it is difficult to see why, if the parties agree that the property in the goods shall vest in A, that agreement should not be given effect to. On this analysis, under the last sentence of the condition as under the first, the buyer does not confer on the seller an interest in the property defeasible upon payment of the debt; on the contrary, when the new goods come into existence the property in them ipso facto vests in the plaintiff, and the plaintiff thereafter retains its ownership in them . . . . . . . .”

Oliver L.J. expressed the same view, albeit provisionally. He said at page 123H-124B

“I have had the advantage of reading the judgment of Robert Goff L.J. and for the reasons which are there set out I am not convinced that it necessarily follows that the plaintiff’s proprietary interest in a manufactured article must derive from a grant by the buyer. English law has developed no very sophisticated system for determining title in cases where indistinguishable goods are mixed or become combined in a newly manufactured article and, to adopt the words of Lord Moulton in Sandeman & Sons v Tyzack & Branfoot Steamship Co [1913] A.C. 680, 695, “the whole matter is far from being within the domain of settled law”; and though like Sir John Donaldson M.R., I prefer to reserve my opinion, I am not sure that I see any reason in principle why the original legal title in a newly manufactured article composed of materials belonging to A and B should not lie where A and B have agreed that it shall lie.”

The New Zealand Court of Appeal in Coleman v Harvey [1989] 1 NZLR 723 adopted a similar approach, seeking to identify and give effect to the intention of the parties in a case where the plaintiff had delivered silver coins to the defendant for refining together with scrap belonging to the defendant himself.

157.	In most cases where there is agreement to the use of goods in a manufacturing process the parties will have made specific provision for these matters, but even if they have not, it will usually be possible to determine from the terms of the contract as a whole what their intention was. In the absence of agreement to the contrary, the likelihood is that property will pass on delivery because the supplier intends to give the manufacturer complete dominion over the goods: see South Australian v Randell. In the present case these are questions which will arise for decision at a later stage in the litigation. However, I would respectfully adopt the comments of Robert Goff and Oliver L.J.J. and would hold that in a case where title to newly manufactured goods would otherwise vest solely in the manufacturer, there is no reason in principle why the manufacturer and a supplier should not by agreement cause title to vest originally in the supplier rather than the manufacturer. Other considerations would clearly arise if more than one supplier had entered into an agreement of that kind with the same manufacturer, but that is not a matter which calls for discussion in the present case and I do not propose to say anything about it. However, Mr. Smith’s submission that in all cases title must necessarily vest for an instant in the manufacturer before passing to the supplier is in my view contrary to both principle and authority. 
 
Unauthorised commingling and blending

158.	The effect on proprietary interests of the unauthorised commingling of one person’s goods with those of another was considered by Staughton J. in the case of Indian Oil Corporation Ltd v Greenstone Shipping S.A. (Panama) [1988]1 Q.B. 345 following a detailed review of the earlier authorities. The case concerned the mixing on board a vessel of a cargo of crude oil with a quantity of crude oil belonging to the shipowners which represented the residues of cargoes carried on previous voyages. The receivers made a claim for short delivery of cargo on the grounds that they were entitled to receive all the pumpable cargo on board, including previous cargo residues. When the cargo was loaded the residues were distributed among a number of cargo tanks and this raised the question whether the shippers had consented to the mixing taking place. There was some uncertainty about that, but in the end Staughton J. approached the matter on the assumption that there had been no such consent. Having considered the authorities on mixing from Stock v Stock (1594) Poph. 37 to Jones v De Marchant (1916) 28 D.L.R. 561 Staughton J. expressed his conclusion as follows:

“Seeing that none of the authorities is binding on me, although many are certainly persuasive, I consider that I am free to apply the rule which justice requires. This is that, where B wrongfully mixes the goods of A with goods of his own, which are substantially of the same nature and quality, and they cannot in practice be separated, the mixture is held in common and A is entitled to receive out of it a quantity equal to that of his goods which went into the mixture, any doubt as to that quantity being resolved in favour of A. He is also entitled to claim damages from B in respect of any loss he may have suffered, in respect of quality or otherwise, by reason of the admixture. 
Whether the same rule would apply when the goods of A and B are not substantially of the same nature and quality must be left to another case. It does not arise here. The claim based on a rule of law that the mixture became the property of the receivers fails.”

159.	This solution to the problem of wrongful mixing of goods of the same kind seems to me, with respect, to be correct both as a matter of justice and principle. None of the parties before me sought to suggest that I should not follow it and I have no hesitation in accepting it as a correct statement of the law.

160.	This brings me to the question which was left open in Indian Oil v Greenstone, namely, the effect on proprietary interests of the wrongful and irreversible mixing of goods of different kinds. Mr. Schaff submitted that the leading cases on mixing do not draw any distinction between mixing goods of the same kind and mixing goods of different kinds. He therefore argued that in this case also the contributors must at worst become owners in common of the mixture in proportion to their contributions and that if for some reason that were not possible, the innocent contributor would acquire sole title to the mixture. Mr. Smith, however, submitted that the effect of the blending is to produce a new commodity different in kind from either of its constituents. The original goods cease to exist altogether and new goods are created in their place, title to which vests in the person who produced them. It is at this point that the rules relating to mixing and the rules relating to the creation of new commodities come into contact.

161.	The authorities considered by Staughton J. in Indian Oil v Greenstone all concern the effect of mixing goods of similar kinds. They all deal with the consequences of the plaintiff’s inability to identify his own property, but none of them considers the effect of a change in the essential nature of the goods for the simple reason that it was unnecessary to do so. The old authorities tended to favour the view that even in the case of mixture of similar goods property in the mixture vests entirely in the innocent party; in those cases, therefore, there was no need for a debate of the kind which one sees in South Australian v Randall about the effect of loss of identity consequent on mixing which might have shed some light on the present question. To that extent it can be said that those cases do not draw any distinction between mixing similar and dissimilar goods, but it is also true to say that they do not directly consider the implications of creating a new commodity.

162.	The fact that blending produces a new commodity lay at the heart of Mr. Smith’s submissions. This aspect of the matter raises difficult questions on which different views have been held as is apparent from the discussion of this subject by McCormack in Reservation of Title, 2nd ed. at pages 59-62. The authority on which Mr. Smith principally relied was Borden (U.K.) Ltd v Scottish Timber Products Ltd [1981] 1 Ch. 25.  The plaintiffs in that case supplied resin to the defendants for use in the manufacture of chipboard. The contract provided that property in the resin was to pass to the defendants only when all the goods supplied by the plaintiffs had been paid for, although it also contemplated that the resin would be used in the manufacturing process before payment had in fact been made. In the course of that process the resin was mixed with other materials in such a way as to lose its separate identity. On the appointment of a receiver of the defendants the plaintiffs brought an action for money still owing to them in respect of the price of the resin. They contended that any chipboard manufactured using the resin was charged with the payment of the outstanding amount. The Court of Appeal rejected that argument, holding that once the resin had been used in the manufacture of chipboard it had ceased to exist and with it the plaintiffs’ title. The chipboard was a wholly new product, property in which vested in the defendants as manufacturers.

163.	The leading judgment in Borden was delivered by Bridge L.J. As he made clear at page 32E-F, this was a case in which despite the reservation of title clause the contract permitted the defendants to use the goods before they had paid for them. It was not a case, therefore, in which the defendants were acting as wrongdoers. It may also be worth noticing that the plaintiffs had contended in the court below that they were part-owners of the chipboard. The judge decided that point against them and it was not pursued before the Court of Appeal (see page 33G-H). The appeal was argued, therefore, on the basis that title to the chipboard had vested in the defendants and no one else. The only question before the court was whether the reservation of title clause operated to create a charge over the goods in favour of the plaintiffs.

164.	In a passage at page 35F-G on which Mr. Smith relied in support of his argument Bridge L.J. considered the legal relationship between the parties up to the moment at which the resin was used in the manufacturing process. He said

“But I am quite content to assume that this is wrong and to suppose that up to the moment when the resin was used in manufacture it was held by the defendants in trust for the plaintiffs in the same sense in which a bailee or a factor or an agent holds goods in trust for his bailor or his principal. If that was the position, then there is no doubt that as soon as the resin was used in the manufacturing process it ceased to exist as resin, and accordingly the title to the resin simply disappeared. So much is accepted by Mr. Mowbray for the plaintiffs.”

He then turned to discuss the question whether the plaintiffs were entitled to trace into the chipboard and it is in this context that the rest of his judgment must be read. Having considered in some detail the decision in In re Hallett’s Estate (1880) 13 Ch. D. 696 he said at page 41A

“What are the salient features of the doctrine that Sir George Jessel M.R. there expounds? First, it will be observed that in all cases the party entitled to trace is referred to as the beneficial owner of the property, be it money or goods, which the "trustee," in the broad sense in which Sir George Jessel M.R. uses that word, including all fiduciary relationships, has disposed of. In the instant case, even if I assume that so long as the resin remained resin the beneficial ownership of the resin remained in the plaintiffs, I do not see how the concept of the beneficial ownership remaining in the plaintiffs after use in manufacture can here possibly be reconciled with the liberty which the plaintiffs gave to the defendants to use that resin in the manufacturing process for the defendants' benefit, producing their own chipboard and in the process destroying the very existence of the resin. 
Secondly, the doctrine expounded by Sir George Jessel M.R. contemplates the tracing of goods into money and money into goods. In the latter case it matters not that the moneys represent a mixed fund of which a part only is impressed with the relevant trust. The cestui que trust has a charge on the mixed fund or the property into which it has passed for the amount of the trust moneys. It is at the heart of Mr. Mowbray's argument to submit that the same applies to a mixture of goods with goods, relying in particular on Sir George Jessel M.R.'s illustration of the mixed bag of sovereigns. Now I can well see the force of that argument if the goods mixed are all of a homogenous character. Supposing I deposit a ton of my corn with a corn factor as bailee, who does not store it separately but mixes it with corn of his own. This, I apprehend, would leave unaffected my rights as bailor, including the right to trace. But a mixture of heterogeneous goods in a manufacturing process wherein the original goods lose their character and what emerges is a wholly new product, is in my judgment something entirely different. 
Some extreme examples were canvassed in argument. Suppose cattle cake is sold to a farmer, or fuel to a steel manufacturer, in each case with a reservation of title clause, but on terms which permit the farmer to feed the cattle cake to his herd and the steelmaker to fuel his furnaces, before paying the purchase price. Mr. Mowbray concedes that in these cases the seller cannot trace into the cattle or the steel. He says that the difference is that the goods have been consumed. But once this concession is made, I find it impossible to draw an intelligible line of distinction in principle which would give the plaintiffs a right to trace the resin into the chipboard in the instant case. What has happened in the manufacturing process is much more akin to the process of consumption than to any simple process of admixture of goods. To put the point in another way, if the contribution that the resin has made to the chipboard gives rise to a tracing remedy, I find it difficult to see any good reason why, in the steelmaking example, the essential contribution made by the fuel to the steel manufacturing process should not do likewise. 
These are the principal considerations which have led me to the conclusion that the plaintiffs are not entitled to the tracing remedy which they claim.”

165.	Templeman L.J. expressed similar views. He said at page 44:

“When the resin was incorporated in the chipboard, the resin ceased to exist, the plaintiffs' title to the resin became meaningless and their security vanished. There was no provision in the contract for the defendants to provide substituted or additional security. The chipboard belonged to the defendants. 
We were not invited to imply in the contract between the plaintiffs and the defendants an agreement by the defendants to furnish substituted security in the form of an interest in the chipboard; we were invited to allow the plaintiffs to trace their vanished resin to the chipboard and thence to the proceeds of sale of chipboard and property representing those proceeds of sale. I agree that in a commercial contract of this nature no agreement should be implied for the furnishing of additional security. In the absence of any implied or express agreement to provide substitutional security, equity has nothing to trace; the resin and the title and the security disappeared without trace.”

Buckley L.J. said at page 46

“It is common ground that it was the common intention of the parties that the defendants should be at liberty to use the resin in the manufacture of chipboard. After they had so used the resin there could, in my opinion, be no property in the resin distinct from the property in the chipboard produced by the process. The manufacture had amalgamated the resin and the other ingredients into a new product by an irreversible process and the resin, as resin, could not be recovered for any purpose; for all practical purposes it had ceased to exist and the ownership in that resin must also have ceased to exist.

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Common ownership of the chipboard at law is not asserted by the defendants; so the plaintiffs must either have the entire ownership of the chipboard, which is not suggested, or they must have some equitable interest in the chipboard or an equitable charge of some kind upon the chipboard. For my part, I find it quite impossible to spell out of this condition any provision properly to be implied to that effect. 
It was impossible for the plaintiffs to reserve any property in the manufactured chipboard, because they never had any property in it; the property in that product originates in the defendants when the chipboard is manufactured.”

166.	I have cited extensively from the judgments in this case because they provide the bedrock for Mr. Smith’s argument. He is clearly right in saying that insofar as they proceed on the footing that title in the resin ceased to exist when the resin itself ceased to exist they do not depend on the fact that the plaintiffs consented to the use of the resin in the manufacturing process. However, I do not think that one can entirely ignore the fact that this was a case of consensual, as opposed to wrongful, consumption (as indeed was Clough Mill v Martin). It might well be said in this sort of case, therefore, that the plaintiffs had by implication agreed not only that the resin should be used, but that title in the resulting product should vest solely in the defendant. Since by the time of the appeal the plaintiffs had given up any attempt to assert title of any kind in the chipboard, the court did not have to enquire closely into the basis on which title had vested in the defendants, much less whether title would have vested in them if their use of the resin had been unauthorised. 

167.	The next authority which Mr. Smith drew to my attention was Hendy Lennox (Industrial Engines) Ltd v Grahame Puttick Ltd [1984] 1 W.L.R. 485. This case concerned the sale of diesel engines by the plaintiffs to the defendants for incorporation into generator sets. The contract contained a retention of title clause. One of many questions which arose in that case is of relevance to the present case, namely, whether property in the engines passed to the buyers at the time they were incorporated into the generator sets. The engines were attached to the generators by mechanical means which could easily be undone without causing any damage either to the engine or the generator. Staughton J. held that the proprietary rights of the sellers were not affected by the incorporation of the engines into the generator sets, distinguishing the case from those such as Borden in which the goods had been transformed into a new commodity. This case is really concerned with the doctrine of accession rather than mixing. 

168.	The next case was Chaigley Farms Ltd v Crawford, Kaye & Grayshire Ltd [1996] BCC 957 which concerned title to livestock delivered by the plaintiff farmers to an abattoir under a contract containing a retention of title clause and title to the carcasses following slaughter. One question which arose was whether the slaughter of the animals and dressing of the carcasses extinguished the plaintiffs’ title because it created a new commodity. Garland J. considered that there was an essential difference between a live animal and a dead one, particularly one from which all the parts which were not to be sold on as butchers’ meat had been removed. I do not find that surprising, but the case is not of great assistance because it turned essentially on whether the word ‘goods’ in the retention of title clause should (as the judge in fact held) be construed as referring only to livestock.

169.	Mr. Schaff sought to obtain support for his position from the Australian case of Farnsworth v Federal Commissioner of Taxation [1949] 78 C.L.R. 504. That case concerned the delivery of dried fruits by a grower to a packing company to be sold in accordance with the rules of a marketing association. The packing company mixed the plaintiff’s fruit with fruit supplied by other growers in such a way that its identity was lost. A question arose whether the grower had a sufficient  interest in the stock held at the packing company to constitute “trading stock on hand” for the purposes of calculating her liability to income tax. Different views were expressed about the interest which the growers held in unsold stock. Latham C.J. and Webb J. considered that pending its sale the growers were owners in common of the fruit in proportion to their contributions, although they did not think that the grower held “trading stock on hand” within the meaning of the relevant legislation. Rich, Dixon and McTiernan JJ. considered that the nature of the operation meant that property in the fruit had passed to the packing company. This appears to have been a case of consensual mixing of similar goods under carefully prescribed conditions and it was unnecessary for the court to consider the problem with which I am concerned. I do not, therefore, derive any real assistance from this case.

170.	 More nearly in point is the Scottish case of The International Banking Corporation v Ferguson, Shaw & Sons 1910 S.C. 182. In that case the defendant bought in good faith a quantity of oil to which the seller did not have title and used it for the manufacture of lard compound by blending it with materials of his own. The pursuers brought an action to recover the oil or damages in lieu, although by that time the lard had already been sold. Lord Low who delivered the leading judgment pointed out at page 192 that in this case a new substance had been created to which the doctrine of specificatio applied by which

“the mixer, whether he be one of the proprietors or a third party, must, as the maker of the new species, become the sole proprietor of the subjects mixed. (Erskine, II. 1, 17)”

Lord Ardwall, concurring, agreed (also at page 192) that the case must be decided in accordance with the well-established doctrine of specification. Similarly, Lord Dundas at page 194 considered that the case was a pure type for the application of the Roman doctrine of specificatio which he considered to be undoubtedly part of the law of Scotland. It is to be noted that the purchaser in this case, although acting wrongfully, was acting in good faith.

171.	In Jones v De Marchant (1916) 28 D.L.R. 561 the plaintiff’s husband took eighteen beaver skins which she owned and, together with four additional skins which he himself provided, had them made up into a coat which he gave to his mistress, the defendant. The plaintiff sought to recover the coat from the defendant on the grounds that it was her property. Richards J.A. considered the case to be governed by the principles of accession and held that the coat as a whole belonged to the plaintiff. In discussing the principle of accession, however, the judge referred to a line of authority which suggests that where goods are wrongfully used to create a new commodity English law is more concerned with the origin of the new commodity than with the fact that a new commodity has come into existence. In the first edition of his work on the law on torts Sir John Salmond stated that the true principle of English law is that property in chattels is not lost simply because they are processed into another form, for example, if corn is ground into flour, or trees cut down and sawn into timber, even though one would ordinarily say that flour is essentially different from corn and sawn timber different from standing trees. Certainly there is old authority for this view, as one can see from the Case of Leather Y.B. 5 Hen.VII fol.15, referred to by Richards J.A. in Jones v De Marchant, in which leather had been wrongfully taken and turned into shoes, and in In re Oatway [1903] 2 Ch. 356 Joyce J. said 

“It is a principle settled as far back as the time of the Year Books that, whatever alteration of form any property may undergo, the true owner is entitled to seize it in its new shape if he can prove the identity of the original material: see Blackstone, vol. ii. p. 405, and Lupton v. White. But this rule is carried no farther than necessity requires, and is applied only to cases where the compound is such as to render it impossible to apportion the respective shares of the parties”.

The editors of the current (21st) edition of Salmond & Heuston on the Law of Torts refer to the decisions in Indian Oil v Greenstone and Coleman v Harvey which they suggest are inconsistent with the views expressed by Salmond, but those cases are concerned with the consequences of mixing goods of a similar kind and do not in my view bear directly on this question. 

172.	One of the more extreme examples of this principle in operation is to be found in the American case of Silsbury & Calkins v McCoon & Sherman (1850) 3 N.Y. 379 which is also referred to in Jones v De Marchant. In that case corn was taken from its owner and turned into whisky. Despite such a radical alteration in the characteristics of the original goods, the majority held that the whisky belonged to the owner of the corn. The case is interesting for a number of reasons. It appears from the report of the argument that the court was treated to a careful analysis of the Roman law principles of specificatio and accessio as well as having its attention drawn to many of the early English authorities and commentators. It is also interesting in that it suggests that a distinction is to be drawn between an innocent wrongdoer and a wilful wrongdoer, although, as the court accepted, that is not one which has been recognised in any of the English authorities. The case is also notable for the quality of the dissenting judgment which draws attention to the dangers inherent in being too ready to ignore changes in the essential nature of the goods.

173.	I come finally to the case of Foskett v McKeown [2000] 2 W.L.R. 1299 in which money was used in breach of trust to assist in paying premiums under a life insurance policy. The question for decision was whether the beneficiaries were entitled to recover a share of the proceeds of the policy proportionate to the contribution which the trust funds had made to the premiums or were limited to a restitutionary charge over the proceeds of the policy to recover, with interest, the amount which the trust had contributed. Their Lordships held by a majority that the beneficiaries were entitled to a share of the proceeds of the policy because they could trace their assets into the policy and were entitled to enforce their proprietary  rights against it. 

174.	The leading speech in this case was given by Lord Millett with whom Lord Browne-Wilkinson and Lord Hoffmann agreed. Having referred to the case of In re Hallett’s Estate; Knatchbull v Hallett (1880) 13 Ch. D. 696 Lord Millett said at page 1326H

“In my view the time has come to state unequivocally that English law has no such rule [sc. that in the case of a mixed substitution the beneficiary is confined to a lien]. It conflicts with the rule that a trustee must not benefit from his trust. I agree with Burrows that the beneficiary’s right to elect to have a proportionate share of a mixed substitution necessarily follows once one accepts, as English law does, (i) that a claimant can trace in equity into a mixed fund and (ii) that he can trace unmixed money into its proceeds and assert ownership of the proceeds.
	Accordingly, I would state the basic rule as follows. Where a trustee wrongfully uses trust money to provide part of the cost of acquiring an asset, the beneficiary is entitled at his option either to claim a proportionate share of the asset or to enforce a lien upon it to secure his personal claim against the trustee for the amount of the misapplied money.”

And a little later, having pointed out that this branch of the law is concerned with vindicating rights of property and not with reversing unjust enrichment, he said at page 1327D

“The tracing rules are not the result of any presumption or principle peculiar to equity. They correspond to the common law rules for following into physical mixtures (though the consequences may not be identical). Common to both is the principle that the interests of the wrongdoer who was responsible for the mixing and those who derive title under him otherwise than for value are subordinated to those of innocent contributors. As against the wrongdoer and his successors, the beneficiary is entitled to locate his contribution in any part of the mixture and to subordinate their claims to share in the mixture until his own contribution has been satisfied. This has the effect of giving the beneficiary a lien for his contribution if the mixture is deficient.”

175.	Then at page 1328A Lord Millett said this:

“Similar principles apply to following into physical mixtures: see Lupton v White (1808) 15 Ves. 432; and Sandeman & Sons v Tyzack and Branfoot Steamship Co Ltd [1913] A.C. 680, 695 where Lord Moulton said: “If the mixing has arisen from the fault of ‘B’, ‘A’ can claim the goods.” There are relatively few cases which deal with the position of the innocent recipient from the wrongdoer, but Jones v De Marchant (1916) 28 D.L.R. 561 may be cited as an example. A husband wrongfully used 18 beaver skins belonging to his wife and used them, together with four skins of his own, to have a fur coat made up which he then gave to his mistress. Unsurprisingly the wife was held entitled to recover the coat. The mistress knew nothing of the true ownership of the skins, but her innocence was held to be immaterial. She was a gratuitous donee and could stand in no better position than the husband. The coat was a new asset manufactured from the skins and not merely the product of intermingling them. The problem could not be solved by a sale of the coat in order to reduce the disputed property to a divisible fund, since (as we shall see) the realisation of an asset does not affect its ownership. It would hardly have been appropriate to require the two ladies to share the coat between them. Accordingly it was an all or nothing case in which the ownership of the coat must be assigned to one or other of the parties. The determinative factor was that the mixing was the act of the wrongdoer through whom the mistress acquired the coat otherwise than for value.
	The rule in equity is to the same effect, as Sir William Page Wood V.-C. observed in Frith v Cartland (1865) 2 H.&M. 417, 420: “if a man mixes trust funds with his own, the whole will be treated as the trust property, except so far as he may be able to distinguish what is his own.” This does not, in my opinion, exclude a pro rata division where this is appropriate, as in the case of money and other fungibles like grain, oil or wine. But it is to be observed that a pro rata division is the best that the wrongdoer and his donees can hope for. If a pro rata division is excluded, the beneficiary takes the whole; there is no question of confining him to a lien. Jones v De Marchant, 28 D.L.R. 561 is a useful illustration of the principles shared by the common law and equity alike that an innocent recipient who receives misappropriated property by way of gift obtains no better title than his donor, and that if a proportionate sharing is inappropriate the wrongdoer and those who derive title under him take nothing.”

176.	In the light of the discussion in Foskett v McKeown I think it right that I should state clearly that I am not concerned at this stage of the litigation with the effect of any fiduciary relationships which may have existed between the parties. Whether any such relationships existed and, if so, what significance they have in the overall context of this case will fall for determination in a later Phase. In this judgment I am confining myself to the position at common law.

177.	‘Mixing’ and ‘mixture’ are ordinary words, not terms of art. They are apt to describe a range of different operations from the addition of a small quantity of one type of material to a large bulk in order to make a slight adjustment to one of its characteristics without changing its essential nature (e.g. the addition of sugar to tea or anti-knock compounds to petrol) to the blending of substantial quantities of different materials in order to produce something which in commercial, terms, and perhaps also in terms of its structure and chemical composition, is different from the original ingredients (e.g. flour, eggs, milk etc. to make a cake, or resin, glues and woodchips to form chipboard). This part of the Phase 1 issues is concerned with the latter type of mixing, that is the deliberate blending of two or more oils of different grades or specifications in order to produce oil of a grade or specification commercially different from any of its ingredients.
  
178.	Mr. Smith’s submission was essentially a simple one: if goods have ceased to exist because they have been turned into something completely new, the person who made that new thing automatically acquires title to it by virtue of the fact that he made it, is in possession of it and can exercise dominion over it. There is much to be said for that proposition and the doctrine of specificatio is well established in Scots law: see The International Banking Corporation v Ferguson, Shaw & Sons. However, it is less clear that it forms part of English law, at any rate in its full rigour. The principle for which Mr. Smith contended would, I think, offend many people’s sense of justice in a case where the original materials belonged entirely to someone other than the maker of the new commodity, even if he were unaware of the fact; it is even more likely to do so in a case where the maker of the new commodity knew that he had no right to take and use them. It was for this reason that from early times English law allowed the original owner to recover his goods even though in one sense they had been turned into something new, for example, leather into shoes (Case of Leather Y.B. 5 Hen.VII fol.15) or standing trees into sawn timber (Anon. Moore 20, 72 E.R. 411). These cases, which were followed and applied in the American cases of Betts and Church v Lee 5 Johns. 348 (timber wrongfully cut down and turned into shingles), Curtis v Groat 6 Johns. 169 (timber cut down and turned into charcoal) and Silsbury v McCoon itself, are reflected in the passage from the judgment of Joyce J. in Re Oatway to which I referred earlier.  The courts did recognise, however, that there would come a point at which the original materials could not be sufficiently identified in the new article to permit recovery by the owner. None of the examples I have given are cases involving mixing, of course, but they do show that it is necessary to approach the proposition that a new commodity automatically belongs to its manufacturer with some care. The old authorities support the conclusion that merely working the original materials to produce a new article is not enough to vest title in the manufacturer if he is a wrongdoer; nor, in the light of Jones v De Marchant and Silsbury v McCoon, is the mere addition of other materials belonging to the manufacturer himself. 

179.	The cases to which I have referred proceed on the principle that the owner of goods which are wrongfully taken and used to make a new commodity can recover them from the wrongdoer, even in their altered form, if he can identify them in that new commodity and show that it is wholly or substantially composed of them. In such cases the work carried out on the goods by the wrongdoer, as well as additions of small amounts of the his own materials, are treated as attaching to the goods by accession. This appears most clearly from the judgment in Jones v De Marchant. Under this approach title depends not on the creation of a new commodity, but on the ability of the original owner to identify his goods in the new commodity. Viewed in that way it is difficult to see why the owner of the leather should be able to recover the shoes, or the owner of the trees the boards, but the owner of the stolen ingredients should not be entitled to recover the cake into which they have wrongfully been made, even if their physical presence is less obvious. There are, of course, limits to the extent to which it is possible to identify the original materials in the new commodity, but in my view that is essentially a matter of fact in each case. The examples of the cattle cake and the fuel oil canvassed in Borden can, I think, properly be treated as cases where the goods can no longer be regarded as remaining in existence as a substantial component of the product with the result that property in them must be considered to have passed to the farmer or the steelmaker, as the case may be, by accession. Historically English law has not considered that a wrongdoer who has improved the goods by his labour or by providing additional materials of a relatively minor nature, such as the thread used to turn leather into shoes, should be entitled to property in the new commodity or compensation for his labour or materials. The position would probably be different, however, if the new commodity substantially represented work or materials provided by the wrongdoer. 

180.	As I have already said, the court in Borden was not concerned with questions of this kind. The resin had been consumed in the process of manufacture so no title could remain in it and although it could be identified as a constituent of the chipboard, the sellers were not contending that any property in the chipboard had passed to them. Foskett v McKeown is a case of mixed substitution. It is concerned, therefore, with the ability of the claimant to trace his property into a substituted fund and with his proprietary rights against that fund, not with whether his goods could be identified in a new commodity into which they had been turned or with his proprietary rights against it. However, the speech of Lord Millett in particular does provide some helpful insight into those questions. Both Lord Steyn at page 1308H-1309C and Lord Millett at page 1322 D-G were at pains to point out that a clear distinction must be drawn between the rules of following and tracing, which are essentially evidential in nature, and rules which determine substantive rights. The former are concerned with identifying property in other hands or in another form; the latter with the rights that a claimant can assert against the property in its present form. In a case such as Borden, where the buyers were permitted to use the resin in their manufacturing process, there was no difficulty in identifying the resin as a constituent of the chipboard, but it is difficult to see how the sellers could have acquired any rights of ownership over the chipboard in the absence of specific agreement for the reasons given by Robert Goff L.J. in Clough Mill v Martin. And even if the buyers’ use of the resin had been wrongful, the principles of accession would almost certainly have proved an insurmountable obstacle. In Jones v De Marchant, on the other hand, the plaintiff had no difficulty in showing that the skins which belonged to her formed the major part of the coat. She became the owner of the whole coat because it could not be divided and because it had been brought into being by the act of the wrongdoer. As a result the additional skins belonging to her husband, together with any lining, trimming and thread for which he had paid, became her property by accession. This was despite the fact that, as Lord Millett observed, the coat was a new asset manufactured from the skins and not merely the product of intermingling them. 

181.	I can now return to the case of wrongful blending of oil products. Two cases call for consideration: the first is where a wrongdoer takes oil belonging to two or more persons which he then blends for his own purposes. In such a case I have no doubt that the two contributors become owners in common of the blended bulk. Each can identify his own oil as a constituent of the bulk and as a wrongdoer the blender cannot acquire title as against the previous owners. This appears clearly from the passage I have already referred to in Lord Millett’s speech in Foskett v McKeown at page 1327D. In the paragraph immediately following Lord Millett pointed out that innocent contributors are entitled to be treated equally as between each other. This does not, I think, mean that in cases of mixed goods the contributors are always entitled to equal interests in the bulk, simply that there must be equality of treatment. In my view that would require the court to take account not only of the quantity of goods which each had contributed but also of the value of those goods. 

182.	The second case is where a wrongdoer takes oil belonging to another which he then blends with his own oil. Again, the innocent contributor is able to identify his oil as a substantial constituent of the bulk and as a wrongdoer the blender is unable to override his property. The position is very similar to that of Jones v De Marchant, with this exception, that, unlike the coat in that case, the blended bulk is capable of division. Lord Millett did not consider that the fact that the goods had become mixed by the action of the wrongdoer excluded the possibility of a pro rata division where the nature of the bulk would permit that, as in the case of a fungible like oil. He did, however, make it clear that in a case of this kind pro rata division of the bulk was the best that the wrongdoer could hope for.

183.	The authorities on mixing do not in my view point to any different conclusion. They start from the proposition that where one person wrongfully mixes his goods with those of another so that they cannot be separated, the innocent party is entitled to recover the whole of the mixture. Thus in Spence v Union Marine Insurance Co. Ltd (1868) L.R. 3 C.P. 427 Bovill C.J. said at page 437-8

“It has long been settled in our law, that, where goods are mixed so as to become undistinguishable, by the wrongful act or default of one owner, he cannot recover, and will not be entitled to his proportion, or any part of the property, from the other owner.”

Similarly, in Sandeman & Sons v Tyzack and Branfoot Steamship Co. Ltd [1923]  A.C. 680 Lord Moulton said at pages 694-695

“My Lords, if we proceed upon the principles of English law, I do not think it a matter of difficulty to define the legal consequences of the goods of "A." becoming indistinguishably and inseparably mixed with the goods of "B." If the mixing has arisen from the fault of "B.," "A." can claim the goods. He is guilty of no wrongful act, and therefore the possession by him of his own goods cannot be interfered with, and if by the wrongful act of "B." that possession necessarily implies the possession of the intruding goods of "B.," he is entitled to it (2 Kent's Commentaries, 10th ed., 465).”

It is not clear that Lord Moulton had in mind the case where the mixture had produced an entirely new thing, but the approach is the same, namely, that the interests and the proprietary rights of the wrongdoer are subordinated to those of the innocent party. At the same time he recognised that the law in this area could not be regarded as settled and might need to be developed to meet the requirements of substantial justice in other types of cases. Similarly, in Re Oatway Joyce J. recognised that the “settled principle” that the innocent party is entitled to recover his property in an altered form might have to give way where the nature of the goods permitted a fair distribution between the wrongdoer and the innocent party. In the passage in his judgment which follows that which I cited earlier he said at page 359

“But this rule is carried no farther than necessity requires, and is applied only to cases where the compound is such as to render it impossible to apportion the respective shares of the parties. Thus, if the quality of the articles that are mixed be uniform, and the original quantities known, as in the case of so many pounds of trust money mixed with so many pounds of the trustee's own money, the person by whose act the confusion took place is still entitled to claim his proper quantity, but subject to the quantity of the other proprietor being first made good out of the whole mass: 2 Stephen's Commentaries (13th ed.), 20.”

184.	In Indian Oil v Greenstone Staughton J. considered that justice required that in a case of wrongful mixing of similar goods the mixture should be held in common and that each party should be entitled to receive out of the bulk a quantity equal to that of his goods which went into the mixture, any doubt as to that quantity being resolved in favour of the innocent party. He reached that conclusion on the grounds that the proprietary interest of the innocent party could thereby be adequately protected without overriding the proprietary interests of the wrongdoer to a greater extent than was necessary in order to do so. This is also the principle which Lord Millett seems to have had in mind in Foskett v McKeown at page 1328E-G. In my judgment it applies with equal force in the case where the wrongdoer mixes or combines two or more commodities to produce something new, provided that the new thing is a fungible which is capable of being shared between the contributors pro rata without destroying its identity. In some cases, of course, a pro rata division will not be possible: the coat in Jones v De Marchant is one example. In such cases the court may need to resort to other principles in order to do substantial justice, as Lord Moulton recognised in Sandeman v Tyzack.

185.	In the light of the authorities I have therefore reached the conclusion that when one person wrongfully blends his own oil with oil of a different grade or specification belonging to another person with the result that a new product is produced, that new product is owned by them in common. In my view justice also requires in a case of this kind that the proportions in which the contributors own the new blend should reflect both the quantity and the value of the oil which each has contributed. As in other cases of mixing, any doubts about the quantity or value of the oil contributed by the innocent party should be resolved against the wrongdoer. The innocent party is also entitled to recover damages from the wrongdoer in respect of any loss which he has suffered as a result of the wrongful use of his oil.

Meaning of the ‘bulk’

186.	In any discussion of the effects of commingling and blending frequent reference is necessarily made to the ‘bulk’ or ‘mass’ which represents the product of that operation.  In many cases the identification of the relevant bulk will present no difficulty; it will simply be the contents of a single storage compartment such as a tank, hold or hopper. In other cases the position may not be so simple. In Sexton & Abbott v Graham, for example, the court recognised that where grain is deposited for storage in a warehouse containing many separate bins, the whole stock of grain of any one type and grade may be regarded as a single bulk notwithstanding the fact that it is held in separate bins and moved around from time to time. In a case of consensual mixing some pointer to the identification of the bulk is likely to be found in the contract between the parties. In a case of wrongful mixing it will be a matter to be determined on the particular facts of the case. I do not think that this question can usefully be taken any further at this stage.

187.	I can now turn to the specific questions raised by Issue I.

Whether and to what extent title would pass to MTI in respect of any relevant oil or whether and to what extent the respective Oil Claimant would retain ownership of the oil (if necessary as a co-owner of any commingled or blended bulk) in or notwithstanding each or any of the following assumed circumstances, namely

1. 	upon arrival of the carrying vessel in Fujairah territorial waters and/or delivery of the oil into storage, (or in the case of Texaco by virtue of MTI receiving and storing the relevant oil) by virtue of MTI being entitled under the arrangements identified in paragraph (1) above (or in the case of Texaco under the arrangements set out in paragraph (5) above), or any of them, to do any of the following acts, namely

a.  to commingle the oil with other oil owned either by itself or by persons other than the respective Oil Claimant;

188.	Neither the arrival of the carrying vessel in the territorial waters of Fujairah, nor the delivery of oil to MTI for storage in commingled bulk would cause title in the oil to pass to MTI.

b.  to blend the oil with other oil owned either by itself or by persons other than the respective Oil Claimant; and/or
c.  to agree to sell the oil to third parties; and/or
d.  to sell and/or deliver the oil to third parties;

189.	The arrival of the carrying vessel in the territorial waters of Fujairah would not itself have any effect on property in the oil, unless the parties had agreed otherwise. However, delivery of goods to another person with permission to use them in a way which will result in their consumption or destruction will normally justify the inference that property in them was intended to pass to that person. The same inference may be drawn if there is permission to dispose of them irrevocably, such as by sale to third parties, though in all these cases the parties may agree otherwise – e.g. where goods are delivered on sale or return. Much will turn, therefore, in each case on the agreement itself and the context in which it was made. I mention this because I am aware that some of the Oil Claimants rely on reservation of title clauses in their contracts with MTI and that Mr. Smith on behalf of MTI did not contend, perhaps for this reason, that property would pass to MTI on delivery. However, I should make it clear that I am not concerned at this stage with the terms of the contracts between the parties which will arise for consideration in a later Phase. The issues which form Phase 1 must therefore be decided by reference to general principles of law. Perhaps the only satisfactory answer to give to the other questions raised in these sub-paragraphs, therefore, is that in the absence of any agreement to the contrary (which may be express or implied), delivery of oil to MTI under a contract which entitled it to make use of the oil in its own blending operations, or to sell and deliver it to third parties would cause title to pass to MTI. 

2.  by virtue of MTI being entitled under the arrangements identified in paragraph (1) above (or in the case of Texaco paragraph (5) above), or any of them, to do any of the following acts, upon subsequently doing any of the following acts, namely

a.  commingling the oil with other oil owned either by itself or by persons other than the respective Oil Claimant;

190.	It follows from what I have already said that the commingling of oil in storage with oil belonging to other persons or to MTI itself  would not cause property to pass to MTI, unless the parties had agreed otherwise.

b.  blending the oil with other oil owned either by itself or by persons other than the respective Oil Claimant;

191.	In the absence of agreement to the contrary property in the oil would have passed to MTI on delivery. However, the parties to the contract are in principle free to decide for themselves when property in the constituents is to pass and who is to acquire title to the resultant blend.

c.  agreeing to sell the oil to third parties; and/or
d.  selling and/or delivering the oil to third parties.

192.	The position in these cases is essentially the same. In the absence of any agreement to the contrary, property in the oil would have passed to MTI on delivery, so the subsequent sale and delivery to a third party would have no effect. However, the parties to the contract are in principle free to decide for themselves when and under what circumstances property in the goods is to pass. I should perhaps make it clear that the circumstances under which a buyer in possession of goods is able give a good title to a purchaser under English law even though he is not himself the owner of the goods do not arise for consideration in this Phase of the litigation.

3.  upon MTI doing any of the following acts, albeit that MTI were not entitled under the aforesaid arrangements to do any of the same, namely 

a.  commingling the oil with other oil owned either by itself or by persons other than the respective Oil Claimant;

193.	Wrongfully commingling the oil with other oil in its possession would not cause title to pass to MTI. All those who had contributed to the bulk, including MTI, would become owners in common of the bulk in proportion to their contributions. However, any doubt as to the amount contributed by MTI and other contributors would be resolved in favour of the other contributors, even if that meant in an extreme case that MTI had to be treated as making no contribution at all.

b.  blending the oil with other oil owned either by itself or by persons other than the respective Oil Claimant;

194.	The relevant Oil Claimant and MTI (or any other person whose oil had been used to produce the blend) would become owners in common of the new product in proportions which reflected the quantity and value of the oil they had each contributed to the blend.

c.  agreeing to sell the oil to third parties; and/or
d.  selling and/or delivering the oil to third parties.

195.	It was not suggested that a wrongful disposal by MTI would cause title to pass to it. As I have already indicated, the question whether, and if so under what circumstances, MTI could give a good title to third parties does not arise in Phase 1.  

Issue J  -  Assuming that title did not pass to MTI but was retained by the respective Oil Claimant (if necessary as a co-owner of any commingled or blended bulk), then
	1.  to the extent that withdrawals were made from any commingled or blended bulk by MTI, whether
		a.  MTI are deemed or presumed to have withdrawn their own share (if any) first;
		b.  the shares of the respective Oil Claimant owning in common with MTI  are deemed or presumed to have been retained in the commingled or blended bulk last; and
		c.  there are any circumstances, and if so, what circumstances in which any such rule or presumption will not apply;

196.	Issue J is concerned with the effect which the drawing of oil by MTI for its own purposes from the commingled or blended bulk has on title to the oil which remains. Paragraph 1 did not give rise to any serious dispute because, while not conceding the point, Mr. Smith was inclined to accept that if MTI drew oil from a bulk in which it had a proprietary interest it would normally be right to treat it as having drawn its own oil rather than oil belonging to another owner. At any rate, he did not suggest that there were any circumstances arising in the context of this litigation in which that would not be right to take that view and for my own part I find it difficult to imagine any since MTI could hardly be permitted to rely on its own wrongful act in order to enable it to assert title to what remained. In these circumstances the only proper answer to this group of questions is that MTI is presumed to have withdrawn its own share first and that there are no circumstances in the context of the present litigation in which this presumption does not apply.

2.  Whether, in seeking to establish title to the balance or remainder of any commingled or blended bulk on any given date in circumstances where the balance or remainder of the bulk was insufficient on that date to satisfy the proprietary claims of the respective Oil Claimant owning in common therein, it is sufficient for the respective Oil Claimant

	a.  to prove the difference between the amount owned by them which should have remained in the bulk and the lesser amount which was all that was left in the bulk in fact on any given date; and
	b.  to rely on any principle or presumption of law as set out in J.1 above,
or 
	whether it is necessary for the respective Oil Claimant to trace the provenance of the bulk (and each and every part thereof) on any given date right back to a specific cargo or specific cargoes previously owned by them.

197.	This question is directed to the steps which a bailor is required to take in order to establish its interest in a mixed bulk where the quantity of goods remaining in the possession of the bailee falls short of the bailor’s contribution. This question may arise in two fundamentally different situations. The first is where the bailee has simply drawn from the bulk goods to which he was not entitled leaving a shortfall. The second is where, having drawn from the bulk goods to which he was not entitled, the bailee contributes additional goods of his own. 

198.	The first of these situations occurred in Mercer v Craven Grain and does not pose great difficulties. If the bailee contributed to the bulk he is presumed to have drawn his own goods first. Any drawing in excess of his entitlement represents a wrongful taking of goods belonging to the other owners. What effect that will have on the position of the bailors as between themselves may depend on the particular facts of the case. It does not arise for decision at this stage and since I have heard no argument on that question I do not propose to express any view on it. However, each of the bailors who had suffered loss as a result would have a corresponding right to recover that loss from the bailee. 

199.	The second situation raises more difficult problems and I am not sure that paragraph J.2 actually requires me to consider it. However, it is so closely related to the issues which are raised by paragraph J that I think it desirable to say something about it in the hope that that will assist the parties in preparing for the next stage of the litigation. One of the reasons why this situation gives rise to difficulty is that much will depend on the relationship between the parties under which goods are withdrawn and replaced. Insofar as deposits, withdrawals and replacements are all made pursuant to a contract, there is no difficulty in principle in holding, if this be the intention of the parties, that property in the bulk remains in the original depositors as owners in common, that property passes from the bailors to the bailee when he draws from the bulk for his own use and that property passes from the  bailee to the bailors when he restores goods to the bulk. This is really no more than a case of consensual substitution and involves no wrongful act on the part of the bailee.

200.	Where the depositors have not agreed that the bailee may withdraw goods for his own use the position is obviously different because any such withdrawal involves a wrongful act on his part as against the bailors whose stock is thereby depleted. The question then is whether any goods which the bailee subsequently returns to the bulk are to be regarded as taking the place of those which he wrongfully withdrew, or whether they are simply to be regarded as a contribution on his own behalf.

201.	In James Roscoe (Bolton) Ltd v Winder [1915] 1 Ch. 62 the plaintiff sold its business to W who was to get in the book debts and pay the plaintiff an amount equal to the sum of the book debts owing on a certain date. These amounted to just over £623. W got in £455.18.11d. which he paid into his private account. He subsequently drew on that account for his own purposes reducing the balance to £25.18s.0d. Afterwards he paid in money of his own and drew on the account for his own purposes. At his death £358.5s.5d. remained in the account which the plaintiff sought to recover. Sargant J. held that the plaintiff had a charge on the account, but only for the sum of £25.18s.0d. which represented the lowest intermediate balance. The plaintiff had argued that by paying money of his own into the account W had impressed that money with the same charge in favour of the plaintiff as had been impressed on the money which he had originally collected, but that argument was rejected on the grounds that the mere fact of paying money into his private account was not enough to attribute to W an intention to create a charge over that money in favour of the plaintiff. The principle on which this decision rests, namely, that in circumstances of this kind the creation of a trust or charge in favour of a third party requires positive evidence of an intention to do so on the part of the wrongdoer, was applied by the Privy Council in In re Goldcorp Exchange Ltd [1995] 1 A.C. 74 and by the Court of Appeal in Bishopsgate Investment Management v Homan [1995] 1 All E.R. 347.

202.	In my view the same principle must apply to the substitution of goods in a mixed bulk, and indeed Mr. Schaff did not contend otherwise, although he did submit that in some cases the replacement of goods by the bailee could itself be sufficient evidence of an intention to transfer property to the bailors. I would not rule that out as a possibility, but it would depend very much on the facts of the individual case. The assent of the bailors to a transfer of property in substitution might easily be inferred from the fact that they understood the bailee to be holding a mixed bulk of which they were owners in common and from the fact that they could be presumed to be indifferent to the precise origin of the goods comprising the bulk provided that they remained of the same type and description. An interesting and illuminating discussion of these and related questions in the context of the bulk storage of grain is to be found in an article entitled ‘Grain Elevators’ attributed to Oliver Wendell Holmes published in The American Law Review 1871-1872, vol. VI, p.450.

203.	Apart from identifying the main principles involved in relation to wrongful withdrawal and substitution, I do not think that it is possible at this stage to provide an answer to the question contained in paragraph J.2, save in one respect. The whole of this paragraph proceeds on the assumption that oil belonging to one or more of the Oil Claimants has been mixed with oil belonging to other Oil Claimants, and perhaps to MTI as well, to produce a single bulk. One possibility which it contemplates is that in a case where wrongful drawing by MTI has rendered the bulk too small to satisfy the legitimate claims of all the contributors, a contributor may have to prove by evidence in the ordinary way what part of the remaining bulk represents goods which he contributed. In many cases this would be an impossible task and the work that has already been carried out in this case demonstrates how burdensome it would be even if it were possible. However, in my view that is not what is required and indeed Mr. Smith did not suggest that it was. The amount which each person has contributed to the bulk determines the proportions in which the contributors as a whole become owners in common of that bulk and therefore any claimant must be able to show both that he was a contributor to the bulk and how much he contributed to it. Similarly, a contributor’s share of the bulk will be reduced in proportion to the amount of his drawings from it. However, where there is a shortfall as a result of unauthorised drawing by the bailee or loss of any other kind, the source of the goods which make up the residue of the bulk is irrelevant to determining the proprietary interests of the contributors in what remains. 

204.	I think the question raised in paragraph J.2 can therefore best be answered by saying that questions of title to the remaining bulk are to be determined in accordance with the general principles set out in this judgment and that provided an Oil Claimant can show that it contributed to the bulk and has not drawn the whole of its entitlement it is not necessary for it to trace the provenance of the remaining bulk to a cargo which it previously owned in order to establish a proprietary interest in it.

205.	The answers to the questions posed by the preliminary issues are collected in the appendix. They should, of course, be read and understood in the context of the judgment as a whole.