Exam (elaborations)
First Class Commercial Law Essay
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First Class Commercial Law Essay on the effectiveness of retention of title clauses.
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QUESTION:‘The protection provided by retention of title clauses to the unpaid seller of goods is more
effective than generally understood.’
Discuss.
ANSWER
Retention of title clauses (hereinafter ROT clauses) have great potential to provide unpaid sellers
with effective protection against a buyer’s insolvency or default.1 However, this potential has been
fettered by English law, with a “judicial disfavour” 2 causing a proliferation of uncertainty,
unpredictability, and inconsistency, rendering the clauses ineffective as means of protection unless
the current position is reformed.
This essay will first provide an overview of ROT clauses before examining their effectiveness
regarding admixture, claiming proceeds of sale and third parties, in light of New Zealand
comparators. Unintended consequences will then be examined, before exploring the issues of
incorporation and whether reform is needed. Finally, this essay will conclude the protection afforded
by ROT clauses to unpaid sellers is less effective than generally understood.
Overview
ROT clauses find their legal basis in sections 17 and 19 of the Sale of Goods Act 1979 (hereinafter
SGA), and can be defined as a “contractual agreement [where] the seller retains title to the goods in
1
Alumininium Industrie Vaassen v Romalpa Aluminium [1976] 2 All ER 552.
2
Angharad Ffion James, ‘An Exploration of the Legal Minefield of Retention of Title Clauses’ [2021] Prifysgol
Aberystwyth University
<https://pure.aber.ac.uk/portal/files/47295936/Final_Version_Angharad_F_James.pdf>.
Page 1 of 9
, question until the price has been paid in full,” 3 even once in the buyer’s possession.4 Generally, they
are used when buyers need to utilise goods to generate a profit to pay the purchase price, whilst
hypothetically securing the seller’s claims to not only the goods, but also cash proceeds, resulting
products, and claims against sub-buyers in cases of resell. 5 Combined with the equitable right to
trace, they have proven to be an “economic lifeline”6 during financial crises like the current recession
as they enable goods to “escape the hands of the liquidator”.7
Simple ROT clauses function effectively and have been consistently upheld since McEntire v.
Crossley.8 However, they have limited commercial utility which is why the recognition of extended
ROT clauses in Romalpa,9 giving sellers rights to proceeds of sale, saw clauses spread “like a dreadful
weed”.10 Whilst this expansion of ROT clauses had great potential, it has failed to be adequately
realised decades later due to a judicial retreat since, with courts eager to decide sellers’ claims to be
void as an unregistered charge, with Phillips J even suggesting Romalpa was wrongly decided.11 It will
be demonstrated that this leaves sellers in a vulnerable, unsecure position.
Mixed goods
3
Directive on Combating Late Payment in Commercial Transactions Art.2.(3).
4
S2(3).and.19(3).SGA.
5
L.S.Sealey and R.J.A.Hooley., Commercial Law: Text, Cases and Materials, (4th edn OUP Oxford, 2008),.468.
6
James (n 2).
7
ibid.
8
[1895] A.C..457.
9
Romalpa (n 1).
10
Iwan.Davies, Effective Retention of Title (1991).10.
11
Tatung (UK) Ltd. V Galex Telesure Ltd [1989].
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