231 / 482
GAZETTE
JULY 1989
however flatly refused from the
outset to explore any proposals
wh i ch if implemented wou ld
supposedly clarify the murky
waters of Reservation of Title,
believing " t hat certainty is un-
obtainable except perhaps by
enactment covering the whole area
of credit sales and security
interest".
16
The idea that such an exhaustive
enactment could be possible pre-
supposes that the present status of
reservation of title clauses could be
frozen, a pre-supposition which
rests on doubtful grounds due to
the wide variety of reservation of
title clauses, the constantly chang-
ing nature of goods to which
reservation of title clauses might
relate and the general confusion
surrounding the law relating to
security in respect of goods.
The principle submission made
to the Committee was that all
reservation of title clauses should
be void on insolvency. Although
this is beautiful in its simplicity it is
unfortunately akin to curing an
aching toothache by way of a
beheading.
The arguments submitted in
favour of this proposition are firstly
that it is unfair for a company
which is financially insecure and
which has been supplied on a
reservation of title basis to be
allowed to give the misleading im-
pression that it owns what it pos-
sesses. Secondly, it was submitted
that in the interests of society and
of employees, it would be easier for
a Receiver to revive an insolvent
company's businesss and to sell it
as a going concern, in the absence
of reservors of title coming like
vengeful Shylocks to reclaim their
goods.
The Committee rejected this
submission stating that:-
" It seems to us that a reservation
of title clause is in substance a
means whereby a supplier obtains
protection similar to that obtained
by a formal security. It would be
anomolous for us to countenance
the continuation of security in its
ordinary form of fixed or floating
charge, but to deny the continu-
ation of the quasi-security of the
reservation of title clause".
17
A more substantial argument
against the abolition of reservation
of title clauses is the fact that it
would be the owners of floating
charges who would benefit the
most. Remember that the reason
why reservation of title clauses
developed was that there was
nothing left to be distributed after
floating charges crystallised and
were realised. The abolition of
Reservation of Title therefore would
be unlikely to benefit unsecured
creditors. Instead it would mean
that there would be more assets
available to satisfy the owners of
floating charges.
In dealing with the misleading
impressions which could be given
to actual and prospective creditors
by a company's accounts, the
Committee echoed the professional
recommendation to Auditors that
they should have regard to the
substance and not the form of each
transaction in giving a true and fair
view of the company's affairs.
Having refused to recommend
the curtailment or abolition of
reservation of title clauses and
thereby to tamper with the notion
of freedom to con t r ac t, the
Committee recommended that to
keep the balance right, the parties
who have exercised that freedom
should be obliged to disclose what
they have done.
The Committee referred to
Article 9 of the Uniform Com-
mercial Code in the U.S.A. which
has introduced the practice of
notice filing. Essentially this is a
register of purchasers against
whose names appear firstly the
name of the supplier imposing
Reservation of Title, secondly a
generic description of the types or
classes of goods being supplied
and to be supplied and thirdly the
maximum amount which at any
one time can be secured by
Reservation of Title.
If implemented, this recom-
mendation would indeed appear to
close the existing loop-hole in
Section 99 of the 1963 Act in
relation to notice to third parties.
However, if this new register
were to be kept separate from the
existing registration of charges, the
problem would still - remain of
having to distinguish between a
reservation of title and a charge. As
we have seen, the line is not an
easy one to draw and it is more
than likely that some reservations
of title would be registered as
charges and vice versa.
It would therefore be necessary
to link the two registers in such a
way that if a mis-categorisation
were made its rectification would
be merely procedural.
In relation to the desire that a
business should be kept going in
the interests of society and of
employees, the Committee recog-
nised that a Receiver would have
little chance of success if
immediately upon insolvency all
reservors of title were entitled to
reclaim their goods at will.
The Committee therefore recom-
mended that a statutory mora-
torium of up to one year from the
commencement of a receivership
should be placed on the contractual
right of reservors of title. In other
words a Receiver should be allowed
to deal with the goods in a manner
inconsistent with the title of the
supplier for one year, at the end of
which the Receiver would be
obliged to account for the goods.
The Committee calls this a small
penalty on those who have taken
the benefit of Reservation of Title.
The Cork Committee's Report is
of course merely a guideline for the
benefit of the British Government
but its recommendations if imple-
mented here would seem bound to
remove many of the uncertainties
surrounding Reservation of Title
together with some of the tensions
which arise between supplier and
purchaser when the latter goes into
receivership.
Conclusion
It is clear from the foregoing that
w i t h the rising profile of
Reservation of Title in Irish law,
some sort of legislative reforms are
necessary. Judicial techniques can
only go so far in attempting to oil
the machinery of the law governing
Reservation of Title.
And when the Courts are put in
the impossible position of having to
balance the conflicting rights of
suppliers, purchasers, third party
purchasers, existing and pros-
pective creditors etc. so that the
avoidance of inequity to some,
impinges on the rights of others, it
is time for the machinery to be
changed; a change which can be
brought about only by legislative
intervention.
Footnotes
1. Section 19 of the Sale of Goods Act,
1893.
2. Starting with
Bateman -v- Green and
King.
(1868) I.R. 2 C. L. 166, 607.
3. [1976] 1 W.L.R. 676; 11976] 2 All E.R.
552.
217