Analysis of Clough Mill V Martin 1 WLR 111 and Its Importance to Commercial Law - Essay Example

Analysis of Clough Mill v Martin [1985 WLR 111 and its importance to commercial law Introduction The case Clough Mill v Martin [1985] 1 WLR 111 is related to the concept of retention of title for the goods supplied by the seller, until the buyer of such goods has completely paid the full price for the goods, when the ownership of the goods now passé over to the buyer1. Under the concept of retention of goods, the buyer is only allowed to take delivery of goods and thus to gain their possession, while the ownership of the goods still remain with the supplier, who can repossess the goods from the buyer if the buyer fails to pay for the goods in full2. Thus, under the provision of the retention of title, whenever the buyer becomes bankrupt or insolvent and thus is not able to pay for the goods obtained from the seller, it is within the seller’s right to repossess the goods. Nevertheless, the provision for the manner in which the seller may repossess the goods has had a wide nature of variance, since the repossession of the goods under the retention of title clauses is fully dependent on several factors. First, the manner in which the seller can repossess such goods is based on whether the goods are still existing and identifiable in the manner in which the seller delivered the goods to the buyer3. Secondly, the manner of repossession of the goods is dependent on whether the seller is recovering the full price or partial price for the goods, where part of the price for the goods has already been paid. Thirdly, the manner in which the seller can reposes the goods is dependent on whether there exist other debts and liabilities between the seller and the buyer, other than for the contract of goods in question4. Therefore, this analysis seeks to place the case Clough Mill v Martin [1985] 1 WLR 1115 in its historical, legal and social economic contexts, in order to fully understand its importance to commercial law. Historical context of the case Clough Mill v Martin [1985] 1 WLR 111 The history of the case Clough Mill v Martin [1985] 1 WLR 111 can be traced back to the rise of the concept of retention of title for the goods delivered to the buyer by the seller, which came into the fore under the case Borden (UK) Ltd v Scottish Timber Products Ltd [1979] 3 All ER 961 CA6, was in relation to the recovery of the goods supplied to the buyer by the seller, but had already been incorporated into new products in a form that could not be traced. The ruling in this case provided that under such circumstances, the seller can only lay claim to the charge on the new products for the recovery of the price of the goods sold, but cannot lay claim on the goods which have been incorporated into the new product, which cannot be traced7. The retention of title clause was further advanced under the subsequent case in Aluminum Industrie Vaassen BV v. Romalpa Aluminium Ltd [1976] 1 WLR 6768, where the seller of aluminium rolls, Vaasen BV, had supplied the rolls to Romalpa Aluminium Ltd under the provision of the retention of title clause, which provided that the ownership of the goods remained with the seller, until the buyer had paid the price of the goods in full. However, the buyer became bankrupt, and the receivers wanted to take hold of the properties of Romalpa Aluminium Ltd, including the Aluminium rolls that Vaassen BV had delivered to Romalpa. This led to litigation before the court, where both the ruling in the high court and the court of appeal held that the unused Aluminium rolls still belonged to Vaassen BV, courtesy of the retention to title clause which provided for the sellers retention of ownership9. Further, this case became a case of precedent in relation to the provision for the rights to goods, where the buyer had used the goods supplied by the seller to manufacture other finished products through mixing the supplies with other components to form an entirely different and new product, but the goods supplied by the seller could still be traced. In this respect, the case Aluminum Industrie Vaassen BV v. Romalpa Aluminium Ltd held that in such a case, the seller of the goods used to manufacture the products will have a priority claim to the proceeds of the sale of the goods, over the creditors, both secured and unsecured10. Nevertheless, the ruling under this case provided for the “all sum” reservation of title clauses, where the relationship between the seller and the buyer was considered not on the basis of the single contract in question at the time of insolvency or bankruptcy of the buyer, but in relation to all other debts and liabilities existing between the seller and the buyer. The title of the goods still remained with the seller, even where the full price for the goods supplied under the contract had been paid fully, but there still existed other liabilities owed to the seller by the buyer11. Therefore, the case Clough Mill v Martin was a follow up to the Aluminum Industrie Vaassen BV v. Romalpa Aluminium Ltd, with the only difference in the two cases being the different aspects of the contract, where one was in relation to a single contract where there was no outstanding liabilities between the buyer and the seller, and the other was considering “all sum”, where there were parties involved had other debt and liabilities12. The issue of retention of title was also addressed in the case Hendy Lennox (Industrial Engines) Ltd v Grahame Puttick Ltd [1984] 1 WLR 48513, which upheld the ruling in the Aluminum Industrie Vaassen BV v. Romalpa Aluminium Ltd . Under this case, the ruling provided that under circumstances where the buyer has not paid the seller the full price of the goods received, but has incorporated the seller’s supplies in the newly manufactured product, the seller still has the ownership title to the goods, and can lay claim to the product, where the supplies still incorporated could be reversed, without destroying them14. Legal context of the case Clough Mill v Martin [1985] 1 WLR 111 Under this case, the legal question of whether the failure to register a charge under section 95 of the Companies Act 194815, in relation to the new products that have been manufactured using the seller’s products that were not fully paid, effectively invoked the provisions of the retention of title clauses as had been established by the previous cases16. This is after the appellant had supplied yarn to the buyer for the manufacture of fabrics, under the provision of the retention of title clause, where the seller had to remain with the ownership of the yarn until the buyer paid the price in full. However, the receiver held that the seller had no claim to the subsequent products manufactured using his supplied after the buyer went bankrupt before paying the full price. Upon litigation before the appeal court, the ruling held that the seller had a better claim to the ownership of the goods sold to the buyer, and the mere fact that such charge was not registered did not negate the seller’s right to retention of title in the goods possessed by the buyer17. The appeal court held that; the purpose of the retention of title clause in the contract was to provide the seller of the goods with security against the non-payment of the price of the goods supplied to the buyer18. In the ruling, the appellate judge observed that there are three fundamental elements that would qualify the seller to still hold the ownership of the goods even where the charge against the new products produced using the goods was not registered as required under the law. First, the judge observed that, if the goods supplied by the seller were still identifiable, then the seller had the right to retain the title of the goods, even where the requisite charge registration was not done19. Secondly, the judge provided that the seller can retain the title of the goods, if the goods were unused by the buyer. Finally, the judge provided that; to the effect that the goods still remained unpaid for, the buyer could not have a better title over the goods than the seller who had delivered the goods under the retention of title claim20. Therefore, where the conditions of the goods fulfilled one of these conditions, then, the seller did not necessarily need to register a charge, and thus still remained with the ownership of the goods, making the seller have the first priority in relation to the claims on the proceeds of the products manufactured using the supplied goods, than both the secured and the unsecured creditors21. Social and economic context of the case Clough Mill v Martin [1985] 1 WLR 111 The natural operation of the economy, which is recognized by the rule of social justice is that; once a seller delivers their goods to the buyer and they are paid for such goods, then, the buyers gains the ownership of the goods and can use them for whatever purposes as it pleases22. For this reason, the possession of goods will pass over to the buyer, once the goods are delivered to the buyer by the seller. Nevertheless, the economic principle also recognizes the operation of the credit economy, where the buyer may not have the money to pay for the goods when delivered, but can pay for the same at a later date23. In recognition of the importance and the inevitability of the credit economy, the rule of social justice provides that it is expected that, where a seller advances goods to the buyer on credit and the buyer does not pay, it is only fair, and there is a reasonable expectation, that the seller will repossess the goods, to avoid running into a loss24. Therefore, to entrench this principle in law, the Sale of Goods Act 197925 was established, to entrench the principle of the seller offering credit to the buyer, but retaining the ownership of the goods sold, until the buyer has paid for the goods, when the full ownership now passes to the buyer. It is the same principle that has been recognized under the current European Union Laws, and the Late Payments Directive, 2011/7/EU, which provides that to enable the sellers avert a possible loss arising from the buyers failing to pay for the goods delivered, it is essential that the sellers retain the ownership of the goods and the ability to take repossession of the goods, on the event that the buyer fails to pay, or the ability of the buyer to pay is incapacitated by other factors such as bankruptcy or insolvency26. Finally, the social and economic laws recognize the fact that; the buyer can alter the form of the goods delivered to the buyer on credit by the seller, so as to prevent the seller from taking the repossession of the goods27. Therefore, to avert this occurrence which would eventually see the seller incur losses, the courts provided for the remedy through the Anton Piller order issued under the case of Anton Piller KG v Manufacturing Processes Limited [1976] Ch 5528. Under this order, the law provided the seller with the right to raid the buyer’s premises and search for and take away any material evidence that would help in the defense of the seller’s claim to the repossession of the property29. In providing for this order, the law sought to prevent the removal or destruction of evidence by the buyer or the individual in possession of goods, which they do not have the full ownership30. Importance of Clough Mill v Martin [1985] 1 WLR 111 to commercial law The first major importance of this case to commercial law is that, it was an important law of precedence, which introduced the principle of ‘single contract’ reservation of title. Under this new concept of commercial law, the ownership of the goods remained with the seller, until at the point where the buyer paid the full price of the goods received in that particular contract, when the full ownership of the goods now passes to the buyer, regardless of whether there exists other liabilities and debts between the seller and the buyer31. This was contrary to the earlier cases under the same legal consideration, which had only emphasized on the principle of ‘all sum’ retention of title. Secondly, this case is important to commercial law, in that it introduced the principle of the retention of title and laying claim to charges, even where the charges were not necessarily registered under the law as required by provisions of section 95 of the Companies Act 194832. Under this section, the law required that all charges meant to serve for the purpose of security should be registered with the registrar of companies within 21 days after the date of creation of the charge, after which such charge would be deemed null and void. Nevertheless, under Clough Mill v Martin [1985] 1 WLR 111, the ruling held that; to the extent that the goods supplied by the seller were identifiable, unused and not paid by the buyer, then the seller has a priority claim to charges in relation to the claims for the products sold, over the liquidator and the creditors33. Finally, the case Clough Mill v Martin [1985] 1 WLR 111 is important to commercial law, considering that it sought to clarify matters related to the repossession of partial payment of the goods supplied to the buyer in the ruling34. The ruling observed that; where the seller, in the exercise of the right to the retention of title to the goods, repossesses the goods when the contract between the buyer and the seller still subsists, the seller is only entitled to sell the goods at a price needed to offset the outstanding balance, and in case of surpluses, then, the seller will owe the buyer as much35. Thus, this case remains an outstanding case in commercial law, for setting legal principles that are applicable in commercial contracts, up to modern day. Bibliography 1. Goode R, Principles of Corporate Insolvency Law (Sweet & Maxwell, 2005) 2. Beale N & Mitchell R, ‘Retention of title clauses and the Sale of Goods Act 1979’, (CLJ, 2009) 3. Bradgate R, Commercial Law, Third Edition (Oxford University Press, 2005) 4. Mccormack G, ‘Reservation of Title – Past, Present and Future’, (CPL, 1994) 5. Clough Mill v Martin [1985] 1 WLR 111 6. Borden (UK) Ltd v Scottish Timber Products Ltd [1979] 3 All ER 961 CA 7. Parris J, Effective Retention of Title Clauses (Collins, 1986) 49 8. Aluminum Industrie Vaassen BV v. Romalpa Aluminium Ltd [1976] 1 WLR 676 9. Bradgate, R. ‘Retention of Title in the House of Lords: Unanswered Questions’, (MLR, 1991) 10. Guest A, et al., Benjamin’s Sale of Goods (Sweet & Maxwel, 2006) 11. Mccormack G, Registration of Company Charges (Jordans, 2005) 12. Sealy L & Hooley R, Commercial Law Text and Materials (4th ed, 2009, OUP). 13. Brown I, Commercial Law, (OUP, 2005) 14. Hendy Lennox (Industrial Engines) Ltd v Grahame Puttick Ltd [1984] 1 WLR 485 15. section 95 of the Companies Act 1948 16. McKendrick E, Goode on Commercial Law (4th ed, 2010, Penguin) 17. Davies W, ‘Romalpa Thirty Years Later – Still an Enigma?’ (HLJ, 2006) 2 18. Sale of Goods Act 1979 19. Shepherdson V, Whos knocking on my door? How to handle an Anton Piller order. (Find Law, April 23, 2013). 20. Anton Piller KG v Manufacturing Processes Limited [1976] Ch 55 Read More