The Gazette 1989

JULY 1989

GAZETTE

Reservation of Title

balance due under either contract, until the full £35,000 is paid, title to goods supplied under Contract B remains with the supplier. In such a case, the purchaser has a choice of either paying the full £35,000 or fighting a claim for any balance due under Contract A and forfeiting possession of the goods supplied under Contract B together with any deposit or payments made on account of those goods. As well as possessing this in terrorem capacity, 'all sums due' clauses, by their very nature, can help to create a relationship which is more fiduciary in character than that of a debtor to a creditor. No longer are the parties dealing with a series of simple debts arising from contracts which may or may not call their relationship a fiduciary one. When reservations and debts are inter-linked and dependant on one another, the relationship obtains a fiduciary character, which is essential where possession, t hough not title, has been transferred. The Fiduciary Relationship Before a reservation of title clause can be enforced the supplier must establish that a fiduciary re- lationship exists between supplier and purchaser. Once this relation- ship is found to exist and once it is possible to identify and locate the goods supplied or the property representing those goods, the Courts will allow the supplier to trace his proprietary interest. In Aluminium Industrie Vaassen B. V. -v- Rom a!pa Aluminium Limited 3 the Plaintiff Company had supplied a consignment of foil to the Defendant Company subject to reservation of title. When the Defendant Company went into liquidation the suppliers claimed to be entitled to trace into the proceeds of sale of the foil which the Defendant Company had sold on to third parties. The Defendant Company argued that where any of the foil had been bought by bona fide purchasers,

This essay was recently awarded the Professional Books (Butterworths) Prize by the Law Society. A natural consaquenca of tha growth in tha area of "Insolvency" in the commercial world is that those who do business at a commercial level seek to protect themselves as much as possible from the potential insolvencies of those with whom they deal. One way in which this protection can often be achieved is by what is known as "Reservation of Title". The aim of this essay is firstly to examine the development of and raison d'etre behind Reservation of Title, secondly to point out the shortcomings in the law governing this area and finally to explore proposed reforms, their implications and repercussions. From a supplier's point of view goods are paid for, e.g. "The goods

that which is owed to him is an asset. However, until it is realised, it is also a worry, for once owner- ship of that which is supplied passes, the supplier is to a greater extent than he would probably wish, at the mercy of the debtor's bona fides, good sense and solvency. If the debtor were to become insolvent the goods supplied would be part of his assets. They would be sold and the proceeds would be divided amongst his creditors. Meanwhile, the unpaid supplier would merely rank pari passu with the other ordinary creditors and would obtain only a share of the proceeds after preferential and secured creditors had been paid in full. The Sale of Goods Act, 1893 1 together with a line of case-law 2 enable a supplier to insert into a contract for the supply of goods on credit what is k nown as a reservation or retention of title clause, the effect of which is to delay the passing of title in those goods until the supplier has been paid, thus enhancing his prospects of recovery. To put it another way, the supplier still owns the goods in the possession of the purchaser and the purchaser holds those goods as bailee for the supplier and so acts under a fiduciary duty to him. In general terms there can be said to be t wo kinds of reservation of title clause. The first kind reserves title to goods supplied until those specific

sold by t he supplier to the purchaser under this contract, shall be and shall remain the property of the supplier until the full purchase

price thereof has been paid to the supplier". The second kind reserves title to the goods supplied until all sums due by the purchaser to the supplier have been discharged, e.g. "Property in goods supplied here- under will pass to the purchaser when all goods, the subject of any contract between the supplier and the purchaser, have been paid for in full." An advantage of using this second kind of clause is that if, for whatever reason, a reservation of title clause in Contract A were to be omi t t ed or were to become ineffective, then there should be no reason why such a clause in Con- tract B should not protect the supplier in relation to goods supplied under both Contracts, at least to the extent of the value of the goods supplied under Contract B. For example, if £15,000 worth of goods were supplied under Contract A (which is without any reservation of title clause) and £20,000 worth of goods were supplied under Contract B, (which includes a reservation of title clause) then irrespective of the

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