The Gazette 1989

JULY 1989

GAZETTE

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

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