When buyers and sellers contract to ensure the purchase of goods, there are several clauses which the seller may include for their protection. These include clauses to protect the seller’s title pending payment and to allow undisputed claims to be settled summarily by excluding counterclaims (a ‘no set-off clause’).
The Court of Appeal has recently handed down a decision on the retention of title clause and it’s interaction with a seller’s action for price under section 49 of the Sale of Goods Act 1979. In Caterpillar (NI) Ltd (formerly known as FG Wilson (Engineering Ltd) v John Holt & Company (Liverpool) Ltd, the seller, Wilson, supplied goods and services to Holt. Holt then sold on these goods to its Nigerian subsidiary, Holt Nigeria.
It could do so under a Retention of Title Clause which held that while title could not pass to the buyer until they had paid in full for the goods and services the buyer could resell the goods as a fiduciary agent for the sale proceeds in the ordinary course of business. When Holt failed to pay the full amount Wilson attempted an action for price under section 49 for the amount owing. In order to succeed under this action title must have passed to the buyer.
The issue was whether the retention of title clause prevented this from operating by holding title with the seller pending full payment. The Court of Appeal, by a bare majority, held that this was the case, disagreeing with the High Court. In doing this it made two decisions.
Firstly when the goods passed onto Holt Nigeria, Holt was not acting as a principal with title but was merely a fiduciary agent for Wilson as principal with title. As title had not passed to the buyer the seller was excluded from pursuing a price for action under section 49. This was a 2-1 to majority, however in the first of many ironies, the court was only unanimous here that each of these clauses must be judged on their merits and that comparisons with other cases are irrelevant.
Secondly it was held that section 49 exclusively, not permissively, covered actions for price so that the seller could not pursue an action for price outside that statute. The court was unanimous on this.
This left the seller with no action, which Longmore LJ coined as an “ironical position” as effectively the title clause left the seller with no effective remedy against the buyer, despite that being the purpose of the clause in the first place. As Longmore LJ also warned, title clauses have “dangers as well as benefits” and here the contractors were trying to have their cake and eat it. So, unsurprisingly, the problem lies in the drafting.
The solution? It is to not try and have everything. The seller needs to be willing to make compromises. This could be easing the transition of title to the buyer by title passing notionally on resale via the buyer, or try and exclude or limit a fiduciary relationship to the amount left remaining to be paid under the contract rather than goods themselves. The uncomfortable irony here is that any certainty which helps the client does not, while creating much uncertainty in the process.