NOTES OF CASES
| Date | 01 January 1986 |
| Published date | 01 January 1986 |
| DOI | http://doi.org/10.1111/j.1468-2230.1986.tb01680.x |
NOTES
OF
CASES
CLOUGH MILL LTD.
v.
MARTIN-A COMEBACK
FOR
ROMALPA?
THE
legal effect of reservation of title clauses in contracts for the
sale of goods is still a matter for debate. Such clauses first came to
the attention of the courts in
Aluminium lndustrie Vaasen BV
v.
Romalpa Aluminium Ltd.
'
However in that case the question
which has been at the heart of most subsequent litigation about
reservation of title clauses-namely, whether the clause constitutes
a charge on the goods which will be void if not registered under
Part
I11
of the Companies Act 1948*-was never raised. In the first
two reported cases in which this question was raised
(Re Bond
Worth Ltd.3
and
Borden
(U.K.)
Ltd.
v.
Scottish Timber Products
Ltd.4)
it was held that the reservation of title clause in the relevant
contract operated by way of charge and that since it had not been
registered under the Companies Act, it was void against the
liquidator of the buyer company. In the light of those decisions
Professor Gareth Jones and I wrote an article5 in which
we
forecast
the relegation of
Romalpa
to the limbo
of
cases treated as decided
on special facts.
Was our obituary of
Romalpa
premature? It seems now to be
established that, where the goods in question have lost their
identity by being incorporated into new products in the course of
manufacture, a clause which purports to reserve title over the new
products must be regarded as a charge over those products created
by the manufacturer. Dicta to this effect in
Borden
have been
applied by Vinelott J. in
Re Peachdart Ltd.'
and echoed by two
members
of
the Court of Appeal in
Clough
Mill
Ltd.
v.
Martin.'
On the other hand, it
is
clear that
so
long as goods remain separate
and identifiable and the buyer has not exercised any power to
resell thems the seller can, by an appropriately worded reservation
of title clause, retain for himself not merely a security interest in
the goods but full legal and beneficial ownership, subject to the
buyer's right, where appropriate, to re-sell the goods or to use
them in the course of manufacture. In such circumstances the
reservation
of
title clause is not a charge and does not require
registration under the Companies Act. Unregistered reservation of
'
119761
1
W.L.R.
676.
Now Part
XI1
of
the Companies Act 1985.
119801 Ch.
228.
[I9811 Ch.
25.
"The Infiltration
of
Equitable Doctrine
into
English Commercial Law" (1980) 43
11984 Ch. 131.
'
(19851
1
W.L.R.
111,
119-120 (Robert
Goff
L.J.),
125 (Sir John Donaldson M.R.).
Oliver
L.J.
was morc doubtful: 124.
"
On the question whether thc original seller may
become
entitled to a pro rietary
intcrcst
in
the procccds
of
sale,
see
Hendy Lennox Ltd.
v.
Graham
Putrick
Ltd.
fi984]
1
W.L.R.
485
and
Re
Andrabell Ltd.
[I9841
3
All
E.R. 407.
M.L.R. 489.
96
JAN.
19861
NOTES
OF
CASES
97
title clauses have been upheld in
Hendy Lennox Ltd.
v.
Graham
Puttick Ltd.9
and in
Clough Mill Ltd.
v.
Martin,
and
it
appears
from the latter case that
Re Band Worth Ltd.
may in
its
turn have
been relegated to “special facts” status.
“’
It is important to notice, however, that both
Hendy Lennox
and
Clough Mill
involved what may be called “single contract”
reservation of title clauses under which title was reserved until all
goods delivered under the contract in question had been paid for,
but title then passed even if there were outstanding liabilities under
other contracts.” In our article, Professor Jones and
I
argued that
there was a crucial distinction between single contract reservation
of
title clauses and “all liability” reservation of title clauses, such as
those considered in
Romalpa
and
Borden,
under which title to
goods is reserved to the seller
so
long as there
is
any balance due
from the buyer to the seller under any contract. We wrote:
“There are strong grounds for arguing that a clause of the
latter kind must be intended to operate by way of security. If
a true beneficial interest is reserved in goods supplied, it must
follow that if after payment of the
full
purchase price of those
goods the supplier recovers possession of them because of
non-discharge of some other liability, the supplier must refund
the purchase price to the customer on the ground of total
failure of consideration. But this would defeat the object of
the clause, as it will almost always be the intention of the
supplier that he should be entitled to recover the goods and
resell them elsewhere without having
to
refund the purchase
price. This, surely, can only be done
if
the clause is construed
as creating a security for the payment of the customer’s debts
to the supplier and not as a condition postponing the transfer
of the beneficial interest.”
The importance of distinguishing between single contract and all
liabilities reservation of title clauses, and the need to conclude that
the latter operate by way of charge rather than by way of retention
of full ownership, can be shown by the following examples. In the
first example, Company
A
enters into a single contract to sell
goods to Company B at a price of
$2,000.
Company B pays
$1,000
but fails to pay the balance as a result of which Company
A
terminates the contract, retakes the goods (all of which are still in
the possession of Company
B)
and re-sells them at a price of
$1,200.
If Company
A
has retained the ownership of the goods, it
will be entitled by way of damages
to
the purchase price of the
goods
(f2,000),
against which
it
must credit the money
it
has
obtained on resale
($1,200).
This leaves a balance of
$800,
but it
[1984]
1
W.L.R. 485.
”’
The “special facts” wcrc thc unusual form of thc rcscrvation of titlc clausc. as a
result
of
which (contrary
to
thc usual form of such a clausc)
regal
title passed
to
the
bu cr
scc
[I9851
1
W.L.R.
111,
115
(Robert Goff
L.J.).
122-123
(Olivcr
L.J.).
’
The clauses in
Bond Worth, Peachdart
and
Andrubefl
also appear
to
have been
“single contract” rcscrvation of titlc clauses.
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