The Gazette 1989

GAZETTE

pril

1989

title clause which attempts to

retain title not only in the property

originally supplied but also to the

property in its newly manufactured,

mixed or processed form is likely to

cross the line between a valid

retention of title by the supplier and

a void creation of a charge by the

company.

This point came up for dis-

cussion in

Bernard Somers -v-

James Allen (Ireland)

Limited

where the

Borden

Case was cited

with approval by Carroll J. who held

that where goods are intended to

be used in a manufacturing pro-

cess, a reservation of title clause

which does not reserve title to the

goods in their newly processed

form is not prevented from being an

effective reservation of title so long

as the goods still exist in the state

in which they were supplied.

The view of the Courts that no

set of generalised rules should

apply to reservation of title clauses

was underlined by McWilliam J. in

Frigoscandia (Contracting) Limited

-v- Continental Irish Meat Limited

and Laurence Crowley.

In that

case the Plaintiff had supplied

machinery to the Defendant on the

basis that until all sums due were

paid, the machinery would remain

the property of the Plaintiff. When

a Receiver was appointed over the

Defendant, the Plaintiff claimed to

be entitled to recover possession of

the machinery.

McWilliam J. held that the

supplier was entitled to succeed in

its claim, emphasising the nature of

the machinery supplied which was

such that the parties could not

reasonably have contemplated its

conv ersion into any other form.

Fried Krupp Huttenwarke A.G.

and Kruppstahl A.G. -v- Quitmann

Products and Dermot Fitzgerald

an Irish Court was given the oppor-

tunity to decide on facts where the

parties did clearly contemplate the

conversion of the goods supplied

into another form. The Plaintiff

supplied steel to the Defendant to

be used in the manufacture of

pedal bins, bread bins and the like.

In the supply contract the Plaintiff

not only reserved title to the steel

but also provided that " . . . pro-

cessed goods are deemed to be

reserved goods . . . " and that in the

case of processing, blending and

mixing of the reserved goods with

other goods, the Plaintiff should

acquire a joint title to the new

goods in proportion to the ratio of

the invoice values of the goods

used.

Gannon J. followed

the

reasoning of Kenny J. in the earlier

Irish case of

Re Interview Limited

in holding t hat while the

contractual relationship between

the supplier and purchaser should

be governed by the law of the

country in which the contract was

executed (i.e. West Germany), other

contractual or statutory obligations

to third parties were to be decided

in accordance with Irish law.

The Judge then considered and

approved earlier case-law on this

matter and held that any of the

supplier's unworked steel in the

possession of the purchaser was

not the property of the purchaser.

In relation to the converted steel

the Judge held that the attempted

assignment could only be con-

strued as an equitable interest in

the nature of a floating charge and

as that charge has not been

registered it was void.

The Present Position

At the moment, the law relating

to Reservation of Title would seem

to be that as long as the goods

supplied remain in the form in

which they were delivered or as

long as the proceeds of sale of

those goods remain in the possess-

ion of the purchaser and are

separately identifiable, the supplier

on credit may obtain protection

against the insolvency of the

purchaser by reserving title to

those goods. But if at any time

those goods are mixed with other

goods or are consumed in some

process, then by reserving title a

charge is created which if un-

registered is void.

This means that not only are

suppliers of consumables unpro-

tected but so too are suppliers of

services. Once a service is supplied

it cannot normally be taken back

and so the facility of Reservation of

Title becomes irrelevant to a

supplier of services on credit. The

size of the problem is apparent

when one considers the large

number of suppliers of services,

from those who provide pro-

fessional consultancy advice to

building contractors.

It would seem therefore, that in

the absence of statutory guidelines

the law has been side-tracked onto

a course which protects a minority

to the detriment of the majority not

on the basis of any notions of legal

justice but on the factual nature of

that which was supplied.

This problem is manifest not only

before insolvency, at the supply

contract stage, but more import-

antly on the insolvency of the

purchaser. At that stage the sup-

plier of consumables or services

may often find that after reservors

of title have reclaimed possession

of their assets there is nothing left

and the liquidator has nothing to

administer.

The problem of course is a

practical one. Title to a service can

neither be reserved nor returned in

most cases. The dividing line

between an effective reservation of

title and the creation of a charge,

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