What is stoppage in transitu? It can take a ‘toll’ on transport providers

An unpaid seller’s statutory right to reclaim goods in transit is called stoppage in transitu. Failing to comply with a notice of stoppage in transitu can have serious financial consequences for transport providers.

All Australian states have sale of goods legislation that, in certain circumstances, allows an unpaid seller to reclaim possession of goods in transit where the buyer becomes insolvent. The legislation is comparable, but not identical, in each state.

Background

Under the various state legislative provisions, an unpaid seller whose customer has become insolvent may reclaim possession of goods that are in transit by giving a notice of stoppage to the transport provider before the goods are delivered to the buyer.

Goods are considered ‘in transit’ from the time they are delivered to the transport provider until the customer (or the customer’s agent) takes delivery. Once the goods are delivered, the seller no longer has a right to reclaim possession.

The recent case of Toll Holdings Ltd v Stewart [2016] FCA 256, illustrates the pitfalls of failing to heed a notice under the stoppage in transitu provisions.

The facts

A Chinese supplier of electronics supplied goods to a retailer on 90 day credit terms. Various televisions were in transit with Toll Holdings on their way to the retailer when administrators were appointed to the retailer.

On the day after the appointment of the administrators, the supplier emailed Toll advising that goods being transported under 12 bills of lading were the property of the supplier and directing Toll to ‘hold’ the goods and help ‘recall’ those goods.

Toll did not follow the supplier’s instructions in respect of goods covered by seven of the bills of lading. Toll was concerned that significant storage costs would accrue if the goods remained at the container terminals.

To avoid the additional storage costs, Toll lodged requests with Customs for the underbond movement of the containers and issued delivery orders to the retailer’s unpacking contractor to enable it to collect the containers under the seven bills of lading. The goods were then placed into Australian Customs’ bonded warehouses.

Both the supplier and the retailer asserted a right to possession to the stored goods.

The Federal Court was asked to decide:

• whether the supplier or the administrators were entitled to the goods in bonded storage; and
• if the supplier was entitled to the goods, whether Toll were liable for damages in conversion to the supplier, because it released the goods despite receiving a notice under the stoppage in transitu provisions.

The decision

The Court decided that:

1. The supplier’s email to Toll was an effective notice of stoppage in transitu.
2. The retailer was entitled to possession of the goods held in bonded storage because the release of the goods to the retailer’s contractor meant that the goods were no longer in transit and, as a result, the supplier had lost its rights of stoppage in transitu.
3. By failing to comply with the notice and by instead releasing the goods to the retailer’s contractor, Toll had acted inconsistently with the supplier’s right to possession of the goods and was liable to the supplier for conversion.
4. The supplier was entitled to claim damages from Toll for the loss of the goods, with the value of that loss to be assessed. The supplier’s invoiced price for those goods was approximately $1.76 million.

Comment

This case is subject to an appeal that is yet to be heard. Regardless of the outcome of the appeal, the case serves as a warning to transport operators that any notice to hold goods needs to be carefully considered and legal advice should be sought to minimise the risks of becoming involved in legal proceedings.

If you would like further information about these issues, please contact Graham Roberts on 07 3231 2404 or Gillian Bristow on 07 3231 2925.