Commercial Law - Tutorial 4 PDF

Commercial Law – Tutorial 4 The operation of Retention of Title clauses has been problematic for the Irish and the UK courts. Critically discuss how the Irish and UK courts have dealt with these clauses and the potential for reform in this area of law. Retention of Title clauses are contractual mea...

Commercial Law – Tutorial 4 The operation of Retention of Title clauses has been problematic for the Irish and the UK courts. Critically discuss how the Irish and UK courts have dealt with these clauses and the potential for reform in this area of law. Retention of Title clauses are contractual measures used to ensure payment for goods sold on credit. These provisions provide that unless the buyer satisfies certain requirements, usually complete payment, ownership of the item stays with the vendor. Despite being designed to safeguard sellers, ROT clauses have presented substantial legal difficulties in Irish and UK courts, particularly when it comes to insolvency and conflicting creditor claims. This essay investigates the possibility for legal change in this field and critically evaluates the ways in which Irish and UK courts have handled these issues. In general, ownership of definite commodities is transferred to the buyer at the signing of the sale agreement, while ownership of undetermined goods is transferred upon their appropriation to the contract. Certain clauses in the contract that specify when the buyer will become the owner may supersede these basic principles. The Sale of Goods Act 1893, section 19(1), acknowledges that the transfer of ownership of the items to the seller may be contingent upon certain requirements, such as full payment. The enforceability of ROT clauses was established in the seminal case of Aluminium Industrie Vaassen BV v Romalpa Aluminium Ltd in the UK. According to the Court of Appeal, if such conditions were correctly drafted and expressly agreed upon, they might effectively maintain ownership of the goods and earnings from their resale. This ruling promoted the broad application of ROT clauses. ROT clauses were recognised as legitimate under common law standards by Irish courts, who took a similar stance, as displayed in Re Interview Ltd. The Court of Exchequer Chamber in Ireland authorised the use of a retention of title clause in Bateman v Green and King. In the Irish case of McEntire v Crossley Brothers Ltd , the House of Lords upheld a seller’s claim under a ROT clause to a petrol engine that the seller had supplied to a buyer who went bankrupt before paying the price. However, practical challenges immediately arose over the interpretation, use and enforceability of these clauses, particularly in insolvency settings. Differentiating ROT provisions as methods of ownership retention against security interests has proven difficult for both Irish and UK courts. As a result, intricate ROT clauses that resemble security agreements have been contested. In the UK, cases like Re Bond Worth Ltd clarified that ROT clauses that apply to manufactured goods or revenues may be considered registrable charges in the UK. Similar to this, Irish courts have examined provisions to determine whether they actually retain title or establish an equitable charge, as demonstrated in Dairygold Co-Operative Society Ltd v O’Reilly. ROT clauses frequently contain terms that allow for the tracking of sale revenues. However, there has been controversy around the enforcement of these laws. According to the UK courts’ ruling in Compaq Computer Ltd v Abercorn Group Ltd , a distinct and identifiable fund was necessary for claim tracing. Similar challenges have been encountered by Irish courts, highlighting the importance of drafting with specificity. When products covered by ROT provisions are sold to other parties or integrated into other products, another problem occurs. The enforceability of ROT provisions has been restricted by the principle of accession, which states that commodities lose their distinct character. The challenges sellers encounter in recovering products or profits after they have been converted were brought to light in the Irish case Monea v Permanent TSB. A ROT clause may be added to a contract in three different ways; by signature, by providing reasonable notice and by course of dealings. As seen in L’Estrange v Graucob Ltd , even if the buyer does not read an ROT provision, it will be presumed to be part of the contract when the buyer signs a document that contains it. The case of Sugar Distributors Ltd v Monaghan Cash and Carry demonstrates how a ROT may be added to a contract by giving reasonable notice. The ROT clause was first included in 1977, about 15 months before the dispute arose. In addressing the incorporation point, Carroll J, in the HC, noted that such clauses were becoming very common. We recognise the course of dealings aspect in McCutcheon v David MacBrayne Ltd , where it is said that there is a requirement of consistent dealing before this argument will work. Proposals for change in the law relating to retention of title have been made in a number of other jurisdictions and in some instances implemented. The Law Reform Commission suggests that legislation should stipulate that; (a) If a ROT clause is not supported by a written note or memorandum signed by the buyer, it should not be enforced, and  (b) Unless specifically stated at the time the sale contract is signed by the parties, such a clause should not be interpreted as creating any kind of charge over the products, the earnings from the sale of the items, or over any other interests in real or personal property. ROT clauses continue to present challenges in both Irish and UK courts. Although these provisions theoretically protect sellers, the intricacies of the law and uneven judicial treatment make them less useful in practice. To improve their efficacy and ensure fair results for all stakeholders, reform in this area is crucial, whether it takes the shape of procedural simplification or statutory codification. In addition to resolving current issues, these modifications would increase trust in the application of ROT clauses in business dealings.