Are Retention of Title Clauses Controversial? What Would Be Your Optimal Reform Proposal?

Are Retention of Title Clauses Controversial? What Would Be Your Optimal Reform Proposal?

1.0 Introduction

Retention of title (“RoT”) clauses have created many legal and conceptual problems over the years and much time has been spent litigating the parameters around which these clauses can operate.[1] In essence, the litigation has involved claims by unpaid suppliers of goods to insolvent companies to recover either the goods or proceeds resulting from those goods after their delivery to the buyer. Use of RoT as a quasi-security device to protect the supplier against the risk of the non-paying buyer's insolvency have been resisted by liquidators, generally on the basis that RoT clauses amount to the creation of a real security interest arising by way of registrable charge under the Companies Act[2] and would be void if registration were not made It has resulted in much uncertainty in the law and the approach of the courts has drifted from outright hostility to such clauses to favourable findings upholding them as fully enforceable.

The decision of the Court of Appeal in Aluminium Industrie Vaasen BV v Romalpa Aluminium Ltd[3] (“Romalpa”) resulted in the realisation that unsecured creditors could have an advantage over secured creditors in the event of corporate insolvency.[4] Controversy has abounded over the scope and effectiveness of such clauses. Many matters have been cleared up but other issues are still shrouded in obscurity. [5]

This essay submits that this area of the law is indeed controversial and seeks to:
• Discuss the controversies expounded by case law with respect to the use RoT clauses.
• Determine the advantages of adopting the codified system such as Article 9 of the United States Uniform Commercial Code in replacement of the current law.
• Propose that there needs to be a reform of the area of law regarding RoT clauses under in the commercial law through a statutory system of protection for both the buyer and seller.
2.0 Controversies
Although conceptually very simple, RoT clauses have become...

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