Sale and Lease‐Back Agreements in a World of Title Relativity: Michael Gerson (Leasing) Ltd v Wilkinson and State Securities Ltd

Abstract

Where there is misconduct, the courts are often faced with a choice between conflicting proprietary claims made by those who have innocently become caught up in the rogue's activities. Very rarely, there is a windfall profit and the court may have the relatively pleasant task of choosing who has the better claim to it;' however, usually the rogue is insolvent and one party may suffer as a result.2 In an insolvency, the first hurdle for a claimant will be to establish proprietary rights in relation to identifiable property in order to elevate himself above the position of an unsecured creditor. Yet there is always a danger that a claimant can be divested of these proprietary rights if another party can also establish proprietary rights over the same property and can successfully rely upon one of the exceptions to the nemo dat principle, that no-one can transfer a better title than they have themselves. The recent Court of Appeal decision in Michael Gerson (Leasing) Ltd. v Wilkinson and State Securities Ltd.3 is a significant case, which extends the protection offered to a second purchaser by the 'seller-in-possession' exception and exposes finance companies to unanticipated risks in relation to goods which they own but which are currently subject to sale and leaseback agreements.