The Gazette 1989

A pril 1989

GAZETTE

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 6 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. 1 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. In Fried Krupp Huttenwarke A.G. and Kruppstahl A.G. -v- Quitmann Products and Dermot Fitzgerald 3 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 9 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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