The Court of Appeal has observed that there are dangers as well as benefits in retention of title clauses. It then proceeded to demonstrate how obscure those dangers are in a range of confused and inconsistent judgments from the three judges in FG Wilson v John Holt.
The Claimant is the European arm of Caterpillar (now renamed Caterpillar (NI) Limited) famous for its diggers and builder-chic footwear. It sold some generators to its Nigerian exclusive distributor: Holt (Liverpool) on terms for payment some time after invoice. As permitted by Caterpillar's sale terms, Holt (Liverpool) on-sold them to its Nigerian subsidiary Holt (Nigeria) before Caterpillar's invoices were paid.
Caterpillar (=Wilson)'s terms and conditions contained two provisions, no doubt intended to protect them should payment not be received:
- a set off clause which prevented any set off being raised to prevent payment of the price for the generators;
- a retention of title clause (similar but subtly different to the clause in the famous Romalpa case) providing that title in the generators would not pass to Holt (Liverpool) until payment in full of Caterpillar's invoices.
Holt (Liverpool) refused to pay, raised a counterclaim for breach of the exclusivity agreement and sought to rely upon transactional or equitable set off to prevent payment being due on the invoices. It argued that the set off clause in the sale contract was only relevant to 'legal set off' and not applicable to 'equitable' and 'transactional' set offs. This at least was something first instance judge (Popplewell) and all the Court of Appeal judges could reject for the same reason: i.e. 'any set off' means any set off.
However, in an odd reversal of apparent self interest, Holt also argued that the retention of title clause continued to apply at the time of on-sale to its subsidiary and, consequently, title in the goods had never passed to it (the parent). Combined with the fact that the date for payment of Caterpillar's invoices was not made 'certain', this meant under s49 Sale of Goods Act, Caterpillar had no claim to payment of the price of the generators.
On 17 October the Court of Appeal judges duly fell over themselves in contrived and confused legal analysis and rationalisation. All three disagreed on the detail, but Patten and Floyd outvoted Longmore in supporting Holt's position that it didn't have to pay the price for the generators.
The outcome, so far as it is ascertainable, and the points to take away are:
- s49 Sale of Goods Act prevents a claim for price except where title has passed or a specific obligation to pay on a certain date has been missed. Retention of title clauses can therefore seriously damage your chances of being paid.
- Retention of title clauses can, depending upon contractual construction, either be a form of security (which might be registerable against the interests of third parties) or a fiduciary arrangement like bailee/bailor or principal/agent.
- If a (contractually permitted) subsale takes place of goods held on a fiduciary basis, the seller never owns the goods. As a matter of practicality - the judges were unable to agree what that actually means. Longmore suggested that the only action available to the manufacturer would be an action for failure to accept the goods which might be worthless, Patten and Floyd seemed to be satisfied that an account of sale proceeds in full was possible although this would in principle be different (greater or less) than the original sale price. Floyd and Patten disagreed about whether the subsale was as agent i.e. whether the end buyer had a direct contract (including Sale of Goods obligations etc) with the manufacturer.
- On a majority, in this case, the existence of the retention of title clause meant that Caterpillar could not recover the unpaid price of the generators and (at the very least) will have to find a new cause of action.
This is messy and unsatisfactory and leaves the whole area of retention of title clauses obscure. If you're dealing with them, take great care. I only hope it goes to the Supreme Court to sort out.