#15497 - Retention Of Title - International Commercial Law

• Insolvency – goods come under control of liquidator, administrator; S unsecured creditor

• Risk (risk passes with ownership, SGA 20)

• Seller’s action for price only possible where ownership has passed (SGA 49)

Specific/ascertained goods

• Identifiable at time of contract

• SGA 17 – passes when parties intend it to pass

Unascertained goods

• SGA 16 – property cannot pass until goods ascertained

Default provisions SGA 18 (apply where parties do not make provision for passing of ownership)

• Ascertained/specific goods:

  • Rule 1 – unconditional contracts for sale of specific goods in deliverable state; property passes when contract made (e.g. chocolate in a shop)

  • Rule 2 – conditional contract where goods exist but S bound to do something to put goods into deliverable state; property passes when done and notice given to B (e.g. packaging)

  • Rule 3 – conditional contracts where goods in deliverable state but S must weigh/test/measure to ascertain price; as for Rule 2

  • Rule 4 – goods delivered on approval or sale + return; property passes when B approves or retains beyond fixed time (or reasonable time, if not fixed)

• Unascertained/future goods

  • Rule 5 – unascertained goods: property passes in two circs

    • Goods unconditionally appropriated to contract and the other expressly or impliedly assents;

    • S delivers goods and B expressly or impliedly assents

• Right granted over asset(s) to secure debt

• Gives priority over unsecured creditors

• Must be registered to be enforced against liquidator (CA 859A)

• ROT clauses do not generally create registrable charges over B’s assets; S would be charging own assets

• Highly problematic

• Where B sells goods on it will pay proceeds into separate bank account which it will hold on trust for S

• Problem; rarely complied with and of little use in insolvency

• Goods attached to other goods;

• If readily detachable it is appropriate to have a clause reserving the right of S to detach and remove

• E.g. diesel engines bolted to generators (Hendy Lennox [1984])

• If mixed together with other products of same type + specification, retain title to proportionate share of the bulk

• Distinct from ‘mixed goods’ above as products have not lost identifiable nature (of same type / grade / quality)

• E.g. oil – owners own in proportion (Glencore [2001])

• Essential clauses: required to ensure clause is legally effective

• Desirable clauses: provisions which are not essential but make clause work practically for S

• Bluff clauses: may not be legally effective but included for ‘bluff’ value

• All moneys clause

  • Ownership does not pass until B pays all amounts owing to S in respect of all goods /debts

  • All outstanding debts must be paid; avoids S having to identify particular goods from particular consignments

• Sales to sub-Bs

  • Title will pass when B sells goods on – acknowledges SGA 25 (innocent TP gets good title)

• Separate storage

  • ROT only effective if S can identify goods on collection

  • Can S maximise chances of recoverability, e.g. by separate storage, marking?

  • Clause to allow inspection to check compliance

• Passing of risk

  • Provide for passing of risk/accidental loss/damage

  • SGA 20 – remain at S’s risk until property passes, unless parties agree otherwise

  • Replace with clause passing risk on delivery and requiring B to insure + hold proceeds of policy on trust for S

• Insurance

  • If goods destroyed before they can be reclaimed S will want compensation

  • Include clause requiring B to insure goods and hold proceeds of sale on trust for S

• Detachable goods

  • Where goods are attached to other goods ownership shall not pass to B by virtue of attachment if goods remain identifiable and can be readily detached / removed

• See grid below

• Enforcement may be difficult for reasons below; should back up ROT with practical steps

  • Will depend on nature of goods

  • Clause will only take effect if incorporated into contract by signature, notice or course of dealings

  • S only remedy for breach is damages; useless where B insolvent

  • Experienced liquidators will use every opportunity to challenge clause

• Checks on B

  • Checks on B / credit control

    • S should run frequent checks on B creditworthiness, send invoices on time, chase debts, inform staff

    • Reducing credit period or demanding ‘cash up front’

    • Removing goods from premises at first sign of problem

    • Refusing to deal with Bs who frequently pay late

    • (Threat of) termination of contract

  • Debt factoring

    • Sell debts to a collector – discount depends upon creditworthiness of debtor

    • Alternative to ROT, not supplement

  • Credit risk insurance

    • Insure against risk of B not paying

  • Provide for interest

    • Incentive for B to pay on time and gives some recompense

    • Do not go over the top or struck down as penalty

    • LPCD(I)A 1998: implies that any ‘qualifying’ debt carries statutory interest (8% above BoE); can be replaced by contract term but not excluded entirely

    • If above do not apply, can claim interest in High Court or County Court through litigation

• No international harmonisation; variations may include:

  • Formalities: does clause need to be in writing?

  • Registration: does clause need to be registered, and what is procedure?

  • Does mixing/selling goods end retention rights?

• ‘All monies clauses’:

  • Enforceable in most jurisdictions

  • Qualifications

    • Germany: restrictions in standard form contracts – cannot secure > 120% of debt

• Mixed goods clauses:

  • Do not work in some jurisdictions

  • Some proportionate; e.g. Germany, Spain, Italy, Holland, France

• Processed goods

  • UK & France – cannot claim ownership of goods subject to manufacturing process and therefore identity lost

  • Germany – S can become co-owner of end product.

  • Spain – S can become sole owner if bad faith involved

• Proceeds of sale

  • UK: fails

  • Germany: possible but not if sub-B acts in ignorance of arrangement