Welsh Development Agency v Export Finance Co Ltd: CA 1992

The court was asked whether a transaction relating to goods between an exporter and the defendant, as a financier, associated with sales by the exporter to third-party purchasers, amounted to a true sale by the exporter to the defendant or was merely a loan by the defendant to the exporter secured on the goods or their proceeds, in which case it would have been void as an unregistered charge over book debts. The court referred to ‘external’ and ‘internal’ routes to the construction of commercial documents.
Dillon LJ considered a possible case on the proposition that the written agreement was a sham intended to mask the true agreement: ‘But the question can also arise where, without any question of sham, there is some objective criterion in law by which the court can test whether the agreement the parties have made does or does not fall into the legal category in which the parties have sought to place their agreement.’ As to whether the authorities established conclusively what was to count as a charge: ‘In my judgment there is no one clear touchstone by which it can necessarily and inevitably be said that a document which is not a sham and which is expressed as an agreement for sale must necessarily, as a matter of law, amount to no more than the creation of a mortgage or charge on the property expressed to be sold. It is necessary therefore to look at the provisions in the master agreement as a whole to decide whether in substance it amounts to an agreement for the sale of goods or only to a mortgage or charge on goods and their proceeds.’
Staughton LJ: ‘There are in my opinion two routes by which this principle [the principle that transactions take the effect that they appear to have] can be overcome. The first, which I will call the external route, is to show that the written document does not represent the agreement of the parties. It may, if one wishes, then be called a sham, a cloak or a device. The second is the internal route, when one looks only at the written agreement in order to ascertain from its terms whether it amounts to a transaction of the legal nature which the parties ascribe to it.’


Staughton LJ, Dillon LJ, Gibson LJ


[1992] BCLC 148, [1992] BCC 270


England and Wales

Cited by:

CitedNational Westminster Bank plc v Spectrum Plus Limited and others HL 30-Jun-2005
Former HL decision in Siebe Gorman overruled
The company had become insolvent. The bank had a debenture and claimed that its charge over the book debts had become a fixed charge. The preferential creditors said that the charge was a floating charge and that they took priority.
Held: The . .
CitedDutton and Another v Davis and Another CA 4-May-2006
The appellant had transferred his property with the intention that it should be subject to a right on his part to repurchase it. He now said the sale was in practice merely a charge.
Held: The appeal failed. The legal nature of the transaction . .
AppliedLavin v Johnson CA 31-Jul-2002
A landowner sought repossession of land from his agricultural tenant for failure to pay his rent. The tenant alleged that a charge was an extortionate credit bargain. The landlord appealed.
Held: The Court must have regard to the evidence and . .
CitedBrighton and Hove City Council v Audus ChD 26-Feb-2009
The claimant was the proprietor of a fourth legal charge on a title. It sought a declaration that a second charge in favour of the defendant was void as a clog on the proprietor’s equity of redemption. An advance secured by a first charge, also in . .
CitedVTB Capital Plc v Nutritek International Corp and Others SC 6-Feb-2013
The claimant bank said that it had been induced to create very substantial lending facilities by fraudulent misrepresentation by the defendants. They now appealed against findings that England was not clearly or distinctly the appropriate forum for . .
Lists of cited by and citing cases may be incomplete.


Updated: 18 July 2022; Ref: scu.228304