Retention of Title (ROT) clauses are often used in contracts for the supply of goods. The effect of the ROT clause is that the goods which have been supplied remain the property of the supplier until paid for in full by the purchaser. If the buyer goes broke or fails to pay for the items, the vendor has the right to recover its property.
For discrete items such clauses are relatively straightforward, as the items which are the subject of the ROT clause are easily identifiable. Problems arise, however, when the goods subject to the ROT clause are incorporated into something else. Clearly the vendor does not own the other goods, so is the ROT clause valid?
Normally, in such cases, if the goods subject to ROT have been converted into a new product or products, the ROT clause fails. However, a recent case showed an exception to the rule. It involved a company that supplied 217 tonnes of zinc in the form of ingots to another company. Zinc is normally supplied in ingot form. The company which purchased the zinc ingots melted them and mixed them in a tank with zinc from another supplier. There was a total of 265 tonnes of zinc in the tank.
The supplier claimed that 217 tonnes of the molten zinc in the tank belonged to it under the ROT clause. Despite the fact that the actual zinc it had supplied could not be distinguished from that supplied by others, the judge agreed. Crucially, the zinc in the tank was essentially the same material (though slightly less pure) than the material originally supplied. The zinc was still identifiable and thus the ROT clause held good.
Says <<CONTACT DETAILS>>, “When selling goods, retention of title clauses are almost always worth including if there is a risk of non-payment and the goods themselves will be identifiable enough for the clause to be enforceable. If you supply goods, it might be worth checking that your current terms of trade incorporate best legal practice. We will be pleased to advise you.”
Partner Note
CKE Engineering Ltd. (in administration) – UKHC 4275 of 2006, 24 Sept 2007.