INTRODUCTION
T HE ISSUE
In business transactions, it's common for sellers to provide goods to buyers on credit, assuming the risk of non-payment To mitigate this risk, sellers often use a retention of title clause, which ensures that ownership of the goods remains with the seller until the buyer has made full payment This arrangement incentivizes buyers to complete their payments in exchange for full ownership of the goods.
The passing of property is governed by two main principles: consent and delivery The consent principle dictates that ownership transfers upon the conclusion of a sale contract, while the delivery principle states that ownership passes when goods are delivered to the buyer Notably, the transfer of title does not hinge on the full payment of the purchase price Many national laws uphold party autonomy, allowing parties to customize title transfer arrangements Sellers often retain title to avoid the default transfer rule and registration requirements, ensuring they remain the owners of the goods until full payment is received, which protects them from insolvency risks However, in practice, title retention can be problematic, especially with personal property like consumer goods, as buyers may possess and use these items, complicating the seller's claim in insolvency situations As a result, various retention of title clauses are crafted to address the challenges faced by sellers who do not possess the goods.
1 See Davies I, Effective Retention of Title (Fourmat Publishing 1991) at pp 32-3
A basic retention of title clause ensures that the seller retains ownership of goods until the buyer pays the purchase price; however, this does not enable sellers to trace proceeds from sub-sales effectively In contrast, an all monies clause allows sellers to maintain title over goods until they recover all debts from past, present, and future transactions with the buyer Additionally, a proceeds of sale clause further protects the seller's interests in the event of a sub-sale.
A "tracing" or "prolonged" clause allows the seller to claim proceeds from a sub-sale to a third party This clause typically permits the buyer to sell the goods, including any manufactured products that incorporate the supplied goods, as part of their regular business operations, provided that the buyer's rights against the third party are transferred to the seller or that the proceeds are held in trust for the seller Additionally, a manufacturing clause stipulates that if the supplied goods are mixed or manufactured with other items, the seller retains ownership of the entire newly manufactured product A title retention clause can be structured to encompass both the proceeds and the newly manufactured goods, as well as all debts owed by the buyer to the seller.
A sale on credit serves as a crucial financing tool, allowing buyers to obtain credit from sellers while using retention of title as a means to secure payment This title retention acts as a security measure, prioritizing the supplied goods and their proceeds However, the increasing demand for fluid commerce raises important questions about how a title retention clause can effectively protect an unpaid seller without hindering the buyer's ability to conduct normal business operations.
The primary objective of financing is to create mutual benefits for both creditors and debtors; debtors secure loans to facilitate their business operations, while creditors earn profits from their investments However, title retention inherently fails to establish a security interest, as it is illogical for a seller to guarantee a buyer's obligations using the seller's own assets.
2 See Parris J, Effective Retention of Title Clauses (Collins 1986) at pp 44-6
Retention of title is a contractual arrangement that governs the transfer of property ownership, affecting not only the buyer but also third parties While the buyer may possess the asset, they cannot charge for items that have not yet belonged to them, leading to varying treatments of title retention.
English law treats title retention as the seller’s absolute proprietary right that allows the recovery of the goods when a buyer fails to pay the purchase price
Romalpa 6 is a striking case in this field since it recognized title retention extending to the proceeds of sub-sale by introducing fiduciary concepts into commercial law However, courts have distinguished their cases from Romalpa to dismiss the validity of the proceeds clause by the argument that this clause is equivalent to a void registrable charge Similarly, English courts do not acknowledge the first priority of title retention regarding newly manufactured products and their proceeds In recent days, title retention has an expected impact on the sale of goods law under the Bunkers’ ruling to the extent that the sale of consumable or workable goods subject to title retention is not a contract of sale within the scope of the Sale of Goods Act 1979
Article 9 of the American Uniform Commercial Code brings title retention into the scope of secured transactions in personal property under functionalism It is considered as “the most innovated part of the Uniform Commercial Code” 7 A security interest is defined as “an interest in personal property or fixtures which secures payment or performance of an obligation” 8 Security interests comprise any device that has a function to secure performance of obligation, regardless of the form of transaction, the type of collateral or the status of the debtor/secured party 9 All security interests subject to the Article 9 receive the same treatment regarding attachment, perfection, priority, default and enforcement Under this Article 9, title retention or conditional sales can be recognized and registered as a
6 Aluminium Industrie Vaassen B.V v Romalpa Aluminium Ltd [1976] 1 WLR 676, at pp 690, 693,
7 Warren WD and Walt SD, Secured Transactions in Personal Property (8th edn, Foundation Press
9 Nguyen X-T and Nguyen BT, Transplanting Secured Transactions Law: Trapped in the Civil Code for Emerging Economy Countries (2014) (Legal Studies Research Paper No 2014-39, Robert H
The McKinney School of Law at Indiana University discusses the concept of purchase-money security interests, which encompasses various title retention clauses, excluding all-monies clauses By promptly perfecting their security interests, title-retaining sellers can secure a priority position, as anticipated.
Article 9 of the American Uniform Commercial Code is noticeable to set a model that is transplanted in many jurisdictions The Australian Personal Property Securities Act (PPSA) brought into force in 2009 has put an end to the advantage of the Romalpa clause that was utilized with the expectation to create a device to secure payment without registration The PPSA is a good lesson of transplanting Article 9 into the domestic law of secured transactions in personal property
In Vietnam, sale and purchase transactions are primarily governed by customary practices rather than formal contracts, which are rarely reviewed by legal professionals The transfer of goods is equated with the transfer of ownership, particularly for personal property that does not require a title certificate Sellers often find it challenging to manage or monitor the goods delivered, as identifying specific items can be difficult Consequently, personal property is not regarded as valuable collateral compared to real property, leading to a lack of interest in title retention Although title retention clauses are included in sales contracts, disputes regarding this issue are infrequent in court Legal practitioners and scholars tend to view title retention merely as a contractual arrangement, overlooking its role as a secured transaction, a perspective primarily recognized by those familiar with foreign laws, including the drafters of the Civil Code.
In 2015, a revised Civil Code was enacted, categorizing retention of title as a secured transaction This code adopts the French approach, treating title retention as a security interest while omitting the concept of purchase-money security interest suggested in Article 9.
Title retention is gaining significant attention across various jurisdictions, particularly due to Article 9's substantial impact on secured transactions in personal property, treating title retention as a purchase-money security interest through a functionalism approach Many common law countries have embraced the Article 9 framework, and its influence is expected to grow further following UNCITRAL's 2009 Legislative Guide on Secured Transactions, which embodies the essence of the American model.
It leads to the tendency of legal transplant of the Article 9 in general and the concept of purchase-money security interest in particular.
R ESEARCH QUESTION
This research aims to examine the Vietnamese law of title retention and its integration as a security interest within the civil code through a comparative lens It will analyze the differing approaches to title retention in jurisdictions such as England, France, the United States, and Australia Additionally, the study will investigate the concept of legal transplantation, focusing on how Article 9 of the American Uniform Commercial Code has served as a model for various jurisdictions reforming their laws on secured transactions in personal property.
This article explores the recognition and treatment of retention of title as a security interest in Vietnam, England, France, Australia, and the United States It also examines the potential issues that could arise if retention of title were to be widely adopted in Vietnam.
R ESEARCH METHOD
This article presents a comparative study of title retention, utilizing doctrinal and comparative analysis alongside a critical approach Doctrinal research systematically outlines the rules within a specific legal category, examining the relationships between these rules, addressing areas of complexity, and potentially forecasting future developments In essence, doctrinal research seeks to clarify what the law is in a given area by gathering, analyzing, and synthesizing pertinent case law and legislation.
10 McCormack G, ‘American Private Law Writ Large? The UNCITRAL Secured Transactions Guide’
(2011) 60 International & Comparative Law Quarterly 597, at p 598
11 Definition by Pearce Committee cited in Hutchingson T, ‘Doctrinal Research’ in Watkins D and Burton M (eds), Research methods in law (Routledge 2013), at p 10
12 Dobinson I and John F, ‘Quantitative Legal Research’ in McConville M and Chui WH (eds),
Research methods for law (Edinburgh University Press 2007), at pp 18-9
Academics engage in doctrinal research not only to solve legal problems but also to assess the coherence and consistency of the law This involves a thorough examination of secondary sources, such as scholarly commentaries, to facilitate in-depth discussions Importantly, doctrinal analysis transcends simple legal research aimed at identifying applicable laws for specific cases, as it requires researchers to reflect critically on the law to uncover new insights.
The doctrinal method faces criticism for detaching legal rules from their broader social, political, and economic contexts, failing to consider the underlying factors that influence the law's impact Nevertheless, it remains a dominant approach in legal research, as understanding the essence of the law is essential regardless of the methods employed In light of this debate, the author will utilize doctrinal analysis as the primary method to investigate the law of title retention across different jurisdictions within this study.
Comparative analysis serves as the second research method in this study, defined as the examination of various legal systems worldwide Beyond being merely a research technique, comparative law is recognized as an academic discipline that offers a fresh perspective on legal studies By analyzing one or more legal systems or specific areas within these systems in relation to others, researchers aim to uncover new insights and understanding.
13 Pendleton M, ‘Non-empirical Discovery in Legal Scholarship - Choosing, Researching and Writing a Traditional Scholarly Article’ in McConville M and Chui WH (eds), Research Methods for
Law (Edinburgh University Press 2007), at pp 162 - 3
14 Hutchingson T, ‘Doctrinal Research’ in Watkins D and Burton M (eds), Research methods in law (Routledge 2013), at p 16
16 Zweigert K, Introduction to Comparative Law (Kửtz H ed, 3rd rev ed edn, Clarendon Press;
17 Watson A, Legal Transplants: An Approach to Comparative Law (2nd edn, University of Georgia
Press 1993), at pp 1–2; Legrand P, ‘Comparative Legal Studies and Commitment to Theory’
(1995) 58 The Modern Law Review 262, at p 264
18 Watson A, Legal Transplants: An Approach to Comparative Law (2nd edn, University of Georgia
Press 1993), at p 9; Legrand P, ‘Comparative Legal Studies and Commitment to Theory’ (1995)
A comparative study of law offers a unique perspective on legal subjects, distinguishing itself from other approaches like feminist legal studies, social legal studies, or economic analyses of law.
In legal research, comparing domestic law with foreign legal systems is essential, distinguishing between macro-comparison and micro-comparison Macro-comparison examines entire legal systems to understand their culture and procedures, while micro-comparison focuses on specific areas of law, assuming similarities to find the best solutions Conversely, macro-comparison presumes differences to highlight distinct legal mentalities The functional method of comparison seeks various solutions to identical legal problems and aligns with doctrinal analysis by isolating rules for study However, this method does not always lead to legal harmonization, as comparatists often uncover differences in solutions that inspire further comparative research, ultimately revealing diverse approaches to common legal challenges.
19 Frankenberg G, ‘Critical Comparisons: Re-thinking Comparative Law’ (1985) 26 Havard International Law Journal 411, at pp 413-4; Watson A, Legal Transplants: An Approach to Comparative Law (2nd edn, University of Georgia Press 1993), at p 9
20 Zweigert K, Introduction to Comparative Law (Kửtz H ed, 3rd rev ed edn, Clarendon Press;
Oxford University Press 1998), at p 2, at pp 4-5; Samuel G, An Introduction to Comparative Law
Theory and Method (Hart Publishing 2014), at p 50
In "An Introduction to Comparative Law Theory and Method," Samuel G discusses two approaches to comparative law, emphasizing their significance in understanding legal systems (Hart Publishing, 2014, pp 53-57) Additionally, Zweigert's influential textbook, "Introduction to Comparative Law," introduces the presumption of similarity, highlighting the foundational belief that legal systems share common principles (Zweigert K, supra, p XX).
40) Legrand argues that comparatists should acknowledge difference that emphasizes on socio- historical or socio-cultural context underpinning judicial decisions and legislation (See Legrand P,
‘Comparative Legal Studies and Commitment to Theory’ (1995) 58 The Modern Law Review 262, at pp 239-240)
22 See n 16, at pp 34-40 discussion Accordingly, the difference in solutions should be explained in the light of their context
A comparative research approach in law allows for the examination of legal systems across different contexts, revealing deficiencies and contradictions To address the limitations of traditional functional methods, a critical perspective is essential, as it helps to mitigate hegemonic thinking and cultural biases While a comparative researcher may possess expertise in their home legal system, their understanding of foreign laws is inevitably influenced by their own legal and cultural background Therefore, instead of claiming neutrality, comparatists should maintain a critical distance from their home jurisdictions, allowing them to evaluate their own legal frameworks in light of foreign laws Comparative law should be viewed not as isolated rules but as integral to social practices, fostering respect and appreciation for the legal cultures that shape foreign laws.
Legal culture refers to the integration of values, practices, and concepts within legal institutions and the interpretation of legal texts To fully understand the legal framework of different jurisdictions, it is essential for comparative law to incorporate additional research, such as social and economic studies, to examine the various influences on legal rules Hoecke proposes a legal culture paradigm for comparative law, which consists of six key elements: the concept of law, the theory of legal sources, and the methodology of legal analysis.
23 Frankenberg G, ‘Critical Comparisons: Re - thinking Comparative Law’ (1985) 26 Havard International Law Journal 411, at p 448
24 See more discussion in Frankenberg G, supra, at pp 445-8
In "Comparative Legal Studies and Commitment to Theory," Legrand (1995) emphasizes the significance of understanding law as a cultural construct, a perspective further explored by Van Hoecke and Warrington in their work on legal cultures and paradigms (1998) Their analysis advocates for a new model in comparative law that integrates cultural considerations into legal doctrine, highlighting the interplay between law and cultural contexts.
26 See more discussion on how civilians research the common law in Legrand P, ‘Comparative Legal Studies and Commitment to Theory’ (1995) 58 The Modern Law Review 262, at pp 237-8
The comparative analysis of Vietnamese law, particularly in the context of title retention, reveals significant insights into the influence of both Asian and socialist legal systems, as well as the adoption of Western legal concepts from jurisdictions like France and the USA While this integration aims to develop a legal framework suitable for a market economy amidst globalization, it does not necessarily align Vietnamese law with international standards A deeper examination of legal transplants highlights both the similarities and differences that exist, emphasizing the complexity of legal adaptation in Vietnam's unique legal and economic environment.
The case of Vietnam exemplifies the phenomenon of legal transplants, which involves transferring legal rules or systems from one country to another Watson argues that legal transplants are a significant source of legal change across jurisdictions and that this process is both common and socially accepted However, Legrand challenges the effectiveness of legal transplants, stating that the meaning of a rule changes through interpretation influenced by the host jurisdiction's language and socio-legal culture Consequently, once a rule is transplanted, it ceases to be the original, suggesting that true legal transplant does not occur Thus, Watson and Legrand present opposing views on the nature and impact of legal transplants.
28 Watson A, Legal Transplants: An Approach to Comparative Law (2nd edn, University of Georgia
Legal reform often involves borrowing from foreign law, a practice widely recognized among law reformers for its convenience However, the concept of "legal transplants" has faced criticism for misleadingly suggesting that legal rules can be seamlessly transferred like an organ from one system to another Alternative terms such as "legal transposition" or "legal irritant" have been proposed, with "transposition" being favored for its musical connotation, indicating that imported legal rules must be adapted to fit new contexts Ultimately, legal transplants represent not just the movement of laws across borders, but a complex process of adaptation to the socio-legal culture and needs of the host country.
Legal borrowing can stimulate active responses in the recipient's legal culture, leading to significant changes that differ from the original jurisdiction Despite ongoing debates about terminology, "legal transplant" serves as a broad term to describe the transfer of laws or legal systems between countries, as noted by Watson When studying law from a comparative perspective, it is essential for comparatists to explore not just similarities and differences, but also to address key questions regarding the implications of legal transplants.
- How is the transplanted set of rules changed to suit the legal system and legal culture of the host country?
- Is the role of the transplanted set of rules changed in this process?
- In turn, do the legal system and legal culture undergo any change to suit the transplanted set of rules?
Today, the trend of economic transition, integration and globalization has promoted the legal harmonization in which legal transplant plays a vital role As
32 ệrỹcỹ E, ‘Law as Transposition’ (2002) 51 International and Comparative Law Quarterly 205, at p 207
In his article, Teubner discusses how the transplantation of legal rules across countries can lead to a shared framework for addressing common legal issues However, he argues that the interpretation and application of these transplanted rules may evolve, resulting in what he terms "new dissonances from harmonization." This phenomenon highlights the complexities and divergences that can arise even when countries adopt similar legal principles.
C ONTRIBUTION TO KNOWLEDGE
This research aims to enhance the understanding of retention of title from a comparative perspective, focusing on Vietnam as the home country It explores the similarities and differences in legal treatment across various jurisdictions, emphasizing the importance of legal culture in shaping these distinctions While jurisdictions may exhibit comparable legal consequences, the study highlights that cultural factors significantly influence how title retention is approached Ultimately, the analysis seeks to contextualize legal rules to reveal the nuanced differences among jurisdictions.
This research offers a fresh perspective on title retention through the lens of legal transplant, highlighting its role in reforming legal systems Article 9 serves as a foundational model for secured transactions involving personal property, particularly in how it addresses title retention and conditional sales as purchase-money security interests However, the implementation of Article 9 varies significantly, and while its unitary approach provides a comprehensive framework, it does not simplify the complexities of secured transactions, especially concerning purchase-money security interests The rules for perfection and priority remain contingent upon the classification of collateral into categories such as inventory, capital equipment, and consumer goods Consequently, the regulations governing purchase-money security interests function somewhat independently of the broader Article 9 framework, suggesting that it may be feasible to focus solely on these interests without fully adopting Article 9.
This research aims to enhance Vietnamese law by exploring the concepts of title retention and legal transplants, which are not well-known among legal professionals and scholars in Vietnam Introducing title retention as a security interest is essential for aligning Vietnamese law with the demands of international trade, as Vietnamese companies increasingly engage in global business The author will examine key legal concepts and theories that influence the legislative process in Vietnam concerning title retention.
S TRUCTURE OF THESIS
The thesis comprises six chapters, starting with an introduction and concluding with a summary Chapter 2 focuses on the recognition and treatment of title retention in England, highlighting the orthodox approach that views simple title retention as not constituting a security interest, and discusses the implications of this view on priority rules and the need for legal reform in the sale of goods laws Chapter 3 delves into purchase-money security interests under Article 9 of the American Uniform Commercial Code, examining its formalism, unitary approach, and notice filing system Chapter 4 analyzes Australia's transition from the traditional English approach to the updated framework of Article 9 Chapter 5 investigates the status of title retention in Vietnamese law, which has been influenced by the French legal system, and discusses the potential for integrating Article 9 concepts into Vietnamese law, particularly regarding purchase-money security interests and the viability of reforming title retention laws.
HOW IS RETENTION OF TITLE TREATED IN ENGLISH LAW?
O VERVIEW
Retention of title in English law is likely to develop into three stages in which the
The Romalpa case marked a significant turning point in the use of title retention clauses in sales contracts, leading to their widespread adoption Before Romalpa, there were limited reported cases on title retention, despite the established concept of separating ownership from possession Notably, the case of McEntire v Crossley Brothers Ltd emphasized the viability of conditional sales, illustrating that even without a title retention clause, the conditions for property transfer could yield similar outcomes The ruling confirmed that the purchaser could not impose a charge on the supplied machine since the title remained with the supplier Interestingly, despite modern Irish law being based on English law, title retention was recognized in Ireland prior to Romalpa, as demonstrated by McEntire v Crossley Brothers Ltd, an Irish case that reached the House of Lords in 1895, and Re Interview, which addressed proceeds clauses a year before Romalpa.
Title retention was upheld in English law for the very first time in Romalpa 5 in
In 1975, a significant ruling established that, due to title retention and the implied authority to sub-sell, the buyer held fiduciary duties towards the seller This relationship granted the seller a tracing right to the proceeds from the sub-sale, highlighting the profound implications of fiduciary responsibilities in such transactions.
1 Aluminium Industrie Vaassen B.V v Romalpa Aluminium Ltd [1976] 1 WLR 676
The Romalpa case was initially judged in the Queen’s Bench Division on 11 February 1975, preceding the Re Interview case in the Irish High Court, which was decided on 7 March 1975 Subsequently, Romalpa appealed to the Court of Appeal, where the judgment was delivered on 16 January.
In the context of effective retention of title, it is essential to recognize that an unpaid seller's proprietary claim on the asset remains obscured from other parties, regardless of whether the sale was authorized or unauthorized Since the landmark case of Romalpa, title retention clauses have become increasingly complex, designed to encompass all derivatives of the original goods, including their proceeds and products, as well as extending to all debts owed to the seller Consequently, the term "Romalpa clause" has emerged as a common synonym for title retention clauses, reflecting their evolving nature in legal practice.
Romalpa to early 1990s has established the case law in this field The great variety of Romalpa clauses and concerned disputed issues make the relevant law
“a maze if not a minefield” – as in a frequently cited remark of Staughton J in
The case of Hendy Lennox (Industrial Engines) Ltd v Grahame Puttick Ltd highlights ongoing challenges in title retention law, particularly regarding conflicts between title-retaining sellers and bona fide sub-purchasers Recent developments indicate that the treatment of title retention significantly impacts the sale of goods law, prompting the need for a reconceptualization of title retention practices.
V ALIDITY UNDER THE S ALE OF G OODS A CT 1979
2.2.1 Simple retention of title: A quasi – security interest under formalism
The retention of title in its simplest form is clear, as property transfer relies on the agreement between the parties involved According to Section 17(1) of the Sale of Goods Act 1979, this principle is established as a fundamental rule.
In a contract for the sale of specific goods, ownership is transferred to the buyer at the time agreed upon by both parties involved in the contract.
6 Goode RM, Proprietary Rights and Insolvency in Sales Transactions (Sweet & Maxwell 1985), at p 84
8 Milman D, ‘Priority disputes on corporate insolvency: the current state of play’ (2008) 233 Company Law Newsletter 1, at p 4
Further, the Sale of Goods Act 1979 section 19(1) explicitly stipulates the reservation of the right of disposal that probably covers retention of title 9 :
In contracts for the sale of specific goods, or when goods are designated for the contract, the seller can retain the right to control the goods until specific conditions are met.
In a sales contract, parties have the discretion to determine the timing and method of property transfer Title retention imposes specific conditions on this transfer, remaining valid even when the risk is transferred at the time of delivery Typically, the transfer of risk occurs alongside the transfer of property, but this default rule can be modified through contractual agreements.
When a buyer faces insolvency, a seller can utilize title retention to reclaim goods that are identifiable and not fully paid for Generally, such claims are upheld, barring specific circumstances related to the wording of the retention of title clause, which will be explored in detail later Currently, receivers, administrators, or liquidators typically honor title retention claims for unpaid goods, returning them to the seller or paying the purchase price to maintain business operations This principle was highlighted in the case of Blue Monkey Gaming Ltd v David.
Hudson, Graham Bushby, Simon Bower, the burden of proof is on the seller who is
9 McCormack G, Reservation of Title (Sweet & Maxwell 1995) at p.16
10 Borden (UK) Ltd v Scottish Timber Products Ltd [1981] Ch 25 at p 30, Re Andrabell [1984] BCLC
522 at p 526, Hendy Lennox (Industrial Engines) Ltd v Grahame Puttick Ltd [1984] 1 WLR 485 at p 492, Clough Mill Ltd v Martin [1985] 1 WLR 111 at pp 121 - 2
11 Sale of Goods Act 1979 section 20
12 “equitable and beneficial ownership shall remain with” the seller See In Re Bond Worth Ltd
In the case of Compaq Computer Ltd v Abercorn Group Ltd & Ors [1991] BCC 484, it was emphasized that when asserting a retention of title claim, it is crucial to clearly identify the stock involved Similarly, in Re Weldtech Equipment Ltd [1991] BCC 16, the importance of precise identification of the stock subject to such claims was reiterated.
The seller's right to reclaim unpaid goods under a retention of title clause can be contested, as the buyer's possession may misrepresent ownership Contracts often grant buyers the authority to resell or utilize the goods in manufacturing, particularly for inventory like raw materials Buyers of capital equipment are also expected to use the goods immediately after delivery Although ownership technically remains with the seller until payment defaults, the buyer is allowed to treat the goods as their own This retention of title serves primarily as a security measure, influencing the seller's priority against other creditors The nature of the seller's interest in the goods—whether absolute ownership or a lesser security interest—can have significant legal implications, especially since a security interest is only enforceable against third parties when registered.
14 2014 WL 4355075 See more discussion in Stephens E, ‘Clarification for administrators dealing with ROT claims: Blue Gaming Monkey v Hudson and others’ - (2014) 5 Corporate Rescue and
15 Aluminium Industrie Vaassen B.V v Romalpa Aluminium Ltd [1976] 1 WLR 676 at p 679,
Borden (UK) Ltd v Scottish Timber Products Ltd [1981] Ch 25 at p 32, Clough Mill Ltd v Martin
[1985] 1 WLR 111 at p 113, Re Peachdart Ltd [1984] Ch 131 at p 138, E Pfeiffer Weinkellerei-
Weineinkauf GmbH & Co v Arbuthnot Factors Ltd [1988] 1 WLR 150 at pp 154–5, Tatung (UK) Ltd v Galex Telesure Ltd (1989) 5 BCC 325 at p 328, Re Weldtech Equipment Ltd [1991] BCC 16 at pp
16 – 7, Compaq Computer Ltd v Abercorn Group Ltd & Ors [1991] BCC 484 at p 491
16 Bradgate JR, ‘Reservation of Title Ten Years On’ [1988] Conveyancer and Property Lawyer 434 at p 438
A retention clause can diminish the appeal for sellers aiming for secure payment of the purchase price in commercial transactions, as highlighted by Davies, McCormack, and Worthington in their respective works.
The debate surrounding simple title retention as a registrable charge has been impractical since the establishment of the rule in Hendy Lennox and Clough Mill Under the retention of title clause, an unpaid seller maintains an ownership interest in the unused and identifiable goods in the buyer's possession until the purchase price is fully paid This arrangement differs from a security interest, as the buyer cannot grant a security interest in goods that have not yet become their property Consequently, full ownership of the goods remains with the seller, governed by the contractual terms regarding the passing of title.
The Hendy Lennox and Clough Mill cases exemplify the formalism principle in English law regarding secured transactions, where the nature of a transaction—whether a sale or charge—is determined by party autonomy Title retention serves as a contractual mechanism for transferring property in goods within a sale contract, rather than creating a charge or mortgage for the buyer While English secured transactions do not strictly adhere to a "form over substance" approach, extended title retention clauses that encompass proceeds or products derived from original goods are treated as disguised charges, regardless of their sale contract context The critical distinction in English common law lies between ownership and lesser proprietary interests, as extended title retention lacks the robust legal backing provided by sections 17 and 19(1) of the Sale of Goods Act 1979, which support simple title retention clauses.
18 A security interest has five characteristics See Goode RM, Goode on Legal Problems of Credit and Security (Fourth edition edn, 2009), at p 11
19 Clough Mill Ltd v Martin [1985] 1 WLR 111, at pp 119 C-E, 122 B-C, 123 B-D, 125 B-D
21 See discussion in detail in sub-section 2.3.3.1
The functional approach to the retention of title clause as a security interest was not embraced in Clough Mill, as the focus was on the seller retaining an interest rather than the buyer conferring one In contrast, the case of Re Bond Worth Ltd highlighted a functional perspective on security transactions, establishing a debtor's equitable right to redeem property subject to a retention of title This right allows a debtor to reclaim interests in property once their obligation is fulfilled, indicating that sellers maintain a proprietary interest in goods until full payment is made However, this raises a critical question regarding ownership: if the seller retains ownership, the buyer does not simply redeem an interest but acquires a new one upon payment The author challenges this notion, arguing that buyers possess significant rights over the goods, including possessory interests, which allow them to use the goods in commerce without seller restrictions While the buyer's control over the goods is substantial, it is deemed a contractual interest rather than a proprietary one, as it exists with the seller's consent while the title remains retained.
24 Worthington S, Proprietary Interests in Commercial Transactions (New York: Clarendon Press
25 Goode RM, Goode on Legal Problems of Credit and Security (Fourth edition edn, 2009), at p 4; Gough WJ, Company Charges (2nd ed edn, Butterworths 1996), at p 549
26 Clough Mill, see n 19, at pp 116 G-H, 124 E-G For further discussion, see Worthington S, see n
The argument regarding the disposition of goods is debatable, as various proprietary interests, similar to absolute ownership, can be established through agreements These interests can be effective against third parties concerning the specific subject matter involved.
The buyer's control over goods under retention of title, despite lacking full ownership, presents an apparent proprietary claim to third parties This functional perspective not only emphasizes the security aspect but also addresses the separation of ownership and possession Under the theory of new value, retention of title does not adversely affect the economic standing of previously secured parties, as the title-retaining seller only claims the supplied goods, leaving other assets untouched However, this arrangement grants the seller a hidden advantage over subsequent buyers and creditors Unlike a security interest, this claim does not yield surplus value for the buyer or other creditors, and the likelihood of increased value upon repossession is low The title-retaining seller's position is less favorable than expected due to the rapid depreciation of capital equipment and the brief lifespan of inventory Furthermore, extending title retention to sales proceeds or new products does not enhance the seller's situation For secured parties and other creditors, title retention poses minimal risk, as its common usage can signal potential creditors and buyers without the need for formal registration.
27 Gough WJ, Company Charges (2nd ed edn, Butterworths 1996), at p 549
28 Gullifer L, ‘Retention of Title Clauses: A Question of Balance’ in Burrows AS and Peel E (eds),
Contract Terms (Oxford University Press 2007), at pp 287-9
29 Gullifer L, ‘"Sales" on Retention of Title Terms: Is the English Law Analysis Broken?’ (2017) Apr
30 Bridge MG and others, ‘Formalism, Functionalism, and Understanding the Law of Secured Transactions’ (1999) 44 McGill Law Journal 567, at pp 638-640
32 Gullifer L, see n 29, at p 247 separation of ownership and possession arising out of title retention is not sufficient to initiate reconceptualization thereof
The simple retention of title clause is legally valid without needing to be registered as a charge, ensuring that the buyer does not gain ownership of the goods until payment is made This clause serves as a form of security for the payment obligation, functioning as a quasi-security interest in the transaction.
2.2.2 “Retaining beneficial and equitable ownership”: Beyond the problem of wording
Re Bond Worth presents a compelling case by adopting a functional approach that aligns closely with the concept of purchase-money security interest While simple title retention allows sellers to validate their claims under the Sale of Goods Act 1979, the specific wording of the clause stating that “equitable and beneficial ownership shall remain…” ultimately did not support the seller's position in this instance.
Slade J started his argument by finding the existence of a charge as a legal consequence of the said retention of title clause 34
C ONSTRUCTION OF FIDUCIARY RELATIONSHIP
Title retention serves as an effective strategy for sellers to avoid being classified as general creditors in the event of a buyer's insolvency while the goods remain in the buyer's possession Typically, the standard creditor/debtor relationship is not anticipated, yet it may arise if the goods are resold In such cases, the plaintiff may pursue a proprietary remedy based on the fiduciary relationship, specifically the equitable right to trace The landmark Romalpa case is significant for introducing equitable principles into commercial law and is recognized as the first case to support the title retention clause Subsequent cases have further explored this legal framework.
95 Low KFK and Loi KCF, see n 92, at pp 253-4
96 ibid Low KFK and Loi KCF base on the argument of Professor Gullifer for the correct analysis of
Caterpillar in Gullifer L, see n 82 following or distinguishing the Romalpa decision and, combined with Romalpa, contributing to the law of title retention in England
The retention of title clause in Romalpa revealed a significant imbalance between its two components: the all-monies part and the manufactured part The all-monies section imposed an obligation on the buyer to maintain the goods as the seller's property, without granting the buyer the authority to sell or the seller the right to the proceeds from any sub-sale In contrast, the manufactured part permitted the buyer to create new products from the original goods and sell them, designating the seller as a fiduciary owner of these new products and entitled to any claims against the sub-purchaser This disparity highlighted the complexity of the second part compared to the first The dispute arose when the plaintiff sought a proprietary claim on the proceeds from the sub-sale of the goods, revealing that the seller could claim proceeds without a formal agreement on the sub-sale The second part indicated a fiduciary relationship concerning the manufactured products, leading the Court of Appeal to determine that this relationship also extended to the proceeds of sale The primary authority referenced in Romalpa, Re Hallett’s Estate, established the necessity of a fiduciary relationship for the right of tracing.
That the buyer had an authority to sell was the common ground in this case 100 Thus, the question presented was whether there was a fiduciary relationship
In the case of Romalpa, the first instance judge and the Court of Appeal judges had differing views on the fiduciary relationship between the seller and buyer The first instance judge emphasized the bailment relationship, suggesting it extended beyond a simple creditor/debtor dynamic Conversely, Roskill LJ in the Court of Appeal identified an agency relationship that imposed fiduciary obligations on the defendant towards the plaintiff Meanwhile, Goff LJ and Megaw LJ refrained from explicitly labeling the fiduciary relationship but ultimately agreed that it existed, allowing the plaintiff to trace the proceeds from the sub-sale Despite their varying interpretations of the retention of title clause, all judges recognized the establishment of a fiduciary relationship that supported the tracing remedy for the plaintiff.
The nature of the fiduciary relationship between the seller and buyer in Romalpa raises important questions, as there is currently no universal definition of this relationship Additionally, the categories of fiduciary relationships are not exhaustive and may not adhere to the same set of rules.
In a fiduciary relationship, the authority to sell must be coupled with the buyer's duty to account for the proceeds, ensuring the clause's purpose is fulfilled The ownership of the goods does not transfer to the buyer until a sub-sale takes place, meaning the seller retains an interest in the proceeds that originates from the original goods Consequently, the seller's beneficial interest in the proceeds remains intact and is fundamentally linked to the original transaction.
103 Ulph J, ‘Equitable Proprietary Rights in Insolvency: The Ebbing Tide?’ [1996] Journal of Business Law 482, at p 498
104 Finn P, ‘Contract and the Fiduciary Principle’ (1989) 12 UNSW Law Journal 76, at p 85, Sealy
LS, ‘Fiduciary Relationships’ (1962) 20 CLJ 69 at p 73, Weinrib EJ, ‘The Fiduciary Obligation’
(1975) 25 The University of Toronto Law Journal 1, at p 7
105 Sealy LS, ‘Fiduciary Relationships’ (1962) 20 CLJ 69 at pp 73-4 duty to account for the proceeds to the seller was undoubtedly a fiduciary obligation allowing the seller to have the right of tracing
Establishing a fiduciary relationship in construction poses challenges, particularly because the obligation to account for proceeds lacks the requirement to segregate those proceeds as trust money for the seller In the Romalpa case, the retention of title clause failed to mandate that proceeds from sub-sales be kept in a separate account The clause related to the sale of manufactured goods only allowed the seller to claim any rights the buyer had from the sub-sale transaction It is generally recognized that requiring segregation of proceeds would undermine the benefits of credit terms, as argued by the defendant in Romalpa Consequently, the buyer can freely utilize the proceeds during the credit term The Court of Appeal acknowledged that the buyer was not restricted from using the proceeds for their own business during this period, yet maintained that this could still align with the fiduciary relationship.
In practice, the plaintiffs permitted the defendants to utilize the sale proceeds in their business as long as operations were successful However, when circumstances changed and difficulties arose, it became necessary to clarify the exact rights of both parties involved.
Dr de Lacy's analysis presents the doctrine of waiver, indicating that the duty to account to the seller is not a strict fiduciary relationship; it can be waived during the buyer's normal business operations and reinstated in cases of buyer insolvency Consequently, the obligation to account differs from the obligation to segregate funds received This duty is seen as a concession from the seller, particularly when they cannot control the proceeds held by the buyer However, in practice, sellers often overlook the source of these funds.
109 de Lacy J, ‘Romalpa Theory and Practice under Retention of Title in the Sale of Goods’ (1995) Anglo-American Law Review 327, at p 347
110 ibid, at pp 335-9, for further discussion on doctrine of waiver in retention of title
The Court of Appeal clarified that title retention in commercial transactions effectively applies during a buyer's insolvency The doctrine of waiver regarding fiduciary obligations is deemed reasonable, addressing key arguments against agency construction Notably, it highlights the lack of a duty to segregate funds received on behalf of the seller and establishes that the tracing right is contingent upon credit terms, as exemplified by the 75-day period in Romalpa.
The complexities surrounding agency construction raise critical questions about the fiduciary relationship between buyers and sellers Key inquiries include the extent of the duty to account and whether a buyer must remit all proceeds to the seller, especially when proceeds exceed outstanding debts If the proceeds do not cover all debts, should the buyer retain the surplus? While the fiduciary obligation suggests the buyer should account for all proceeds, in commercial contexts, this could result in an unintended windfall for the seller, which may not align with the intentions of both parties The Romalpa case did not address these issues, but subsequent cases like Caterpillar have explored agency relationships, particularly when goods are sub-sold before full payment is made.
The Caterpillar title retention clause mandates that the buyer act as a fiduciary agent for the goods, permitting their sub-sale in the regular course of business, provided that the proceeds are accounted for to the seller The court clarified that this obligation to account is interpreted as a requirement to report the entire proceeds from the sale.
The Irish case Re Interview 114 focused on the proceeds of a sub-sale governed by a retention of title clause, adopting a security interest perspective Notably, this case was not referenced in the Court of Appeal's earlier decision in Romalpa.
(1980) 43 The Modern Law Review 489, at p 507
112 de Lacy J, see n 109, at pp 337-8
113 See more discussion on criticisms on agency construction of title retention in Gullifer L, see 82, at pp 567-572
Disputes regarding the proceeds of sub-sales arose in two cases, each featuring differently drafted title retention clauses In Re Interview, the clause explicitly granted the seller entitlement to all debts from the sub-sale as security, aligning with the Companies Act 1963, sections 99(1) and (2)(e), which parallels the English Companies Act 1948, sections 95(1) and (2)(e), mandating the registration of any company-created charges, including those on book debts, to remain valid against liquidators and creditors Conversely, the Romalpa case involved a title retention clause that did not reference sub-sale proceeds but included a manufacturing clause, emphasizing fiduciary responsibilities such as storing original goods and new products, establishing the seller as a "fiduciary owner" of these items This distinction in wording is crucial in determining the nature of title retention.
After the Re Interview case, Irish courts embraced and expanded the Romalpa argument regarding retention of title In the case of Sugar Distributors Ltd v Monaghan Cash and Carry Ltd, the court upheld a straightforward clause, allowing the plaintiff to trace the proceeds from a sub-sale The judge referenced the interpretation of Romalpa as seen in other Irish cases, including Re Stokes.
In the context of simple title retention, the right to trace is established on the premise that the seller retains ownership of the goods, with the purchaser acting on the seller's behalf to sell and account for the proceeds In the case of Re Hickey (WJ) Ltd, the incorporation of an express trust for the goods and their proceeds, along with the obligation to maintain the trust money in a separate account, granted the seller the entitlement to trace these proceeds effectively.
118 Re Stokes and McKiernan, unreported, High Court, 12 December 1978
C ONCLUDING REMARKS
The law of title retention in England, as discussed in this thesis, is based on common law principles and does not have specific statutory regulations It relies primarily on general rules concerning the sale of goods, fiduciary duties, and company charges.
The formalism approach does not recognize title retention as a security interest, despite its widespread acceptance and practical use in securing payment for the purchase price However, title retention is firmly grounded in the Sale of Goods Act (SGA).
1979 to enforce the seller’s right particularly in the insolvency context where the administrator is refrained from treating the unpaid goods subject to title
The article explores the evolving judicial perspectives on the prioritization of liquidation expenses in relation to claims secured by a floating charge, as discussed in Rajak H's 2005 publication, "Liquidation Expenses Versus a Claim Secured by a Floating Charge," featured in Insolvency Intelligence.
In accordance with Gullifer L's discussion, retention refers to the seller's right to reclaim goods that have not been paid for, ensuring these items remain outside the buyer's assets that are available to other creditors This allows the seller to call for repossession of unpaid goods, safeguarding their interests against preferential and unsecured claims.
Under common law, title retention for proceeds of sale and newly manufactured products is viewed as a registrable charge, often rendered void against liquidators and creditors due to non-registration This framework benefits long-term and receivable financiers while balancing the interests of title-retaining sellers concerning original goods However, cases like Romalpa and Caterpillar classify title-retaining sellers as absolute beneficiaries under the fiduciary doctrine rather than mere charge holders Consequently, title retention for proceeds may be interpreted differently under these approaches, despite their similar functions, leading to inconsistencies and unpredictability in English law on this issue.
The English law of title retention may require reform to align it with registration systems for public notice Although the treatment of proceeds clauses may be inadequate, the urgency for registration is questionable, even for financiers who have priority over title-retaining sellers regarding proceeds and new products For sellers, the need for transaction-based registration can be seen as a burden, as it complicates the effectiveness of title retention against third parties.
The Bunker, Caterpillar, and Re Highway Foods rulings have led to unforeseen legal challenges regarding the sale of goods law To mitigate these impacts, it is advisable to treat title retention for inventory sales as a title retention floating charge This approach may diminish the effects of the Romalpa decision by rendering the authority to sell and the beneficial interest in proceeds irrelevant However, pressing policy issues remain, including the unfavorable priority position of floating charges and the registration system for sellers, as well as the exclusion of title retention for capital equipment from the charge scheme.