The defendant supplied steel to a manufacturing company under a contract which contained a retention of title clause. The contract was governed by German law. The plaintiffs, who had been appointed as receivers, brought proceedings against the supplier seeking a declaration that property in the steel had passed to the company, despite the fact that payment had not been made. The suppliers argued that the retention of title clause, which was valid under German law, was effective to prevent title passing, either because the steel in question had been in Germany when the contract had been entered into so that German law was the lex situs, or because the passing of title was governed by German law as the proper law of the contract. The receivers agreed that the passing of property was governed by the lex situs, but argued that, once the goods reached Scotland, Scots law governed the question and that the retention of title clause was ineffective under Scots law. They also argued that cutting the steel into strips in preparation for use in manufacture had created a new species of goods, title to which vested in the company.
The House considered a retention of title clause in the context of whether a stock of steel was held as a security.
Held: Clauses which provide that title to goods supplied does not pass to a buyer until monies on all account have been paid are effective to retain title. The decision was made despite the fact that such clauses do in a sense give the sell security for unpaid debts.
Lord Jauncey said: ‘a right in security is a right over property given by a debtor to a creditor whereby the latter in the event of the debtor’s failure, acquires priority over the property against the general body of creditors of the debtor . . which right must be retransferred to him upon payment of the debt.’
Judges:
Lord Jauncey
Citations:
[1991] 2 AC 339, [1990] 3 WLR 810, [1990] 3 All ER 481, [1990] SLT 891
Jurisdiction:
Scotland
Citing:
At OHCS – Armour v Thyssen Edelstahlwerke AG OHCS 1986
. .
At IHCS – Armour v Thyssen Edelstahlwerke AG 1989
. .
Cited by:
Cited – PST Energy 7 Shipping Llc and Another v OW Bunker Malta Ltd and Another SC 11-May-2016
Parties had entered into a bunker supply contract which contained a retention of title clause in favour of the supplier. It purported to allow the buyer to use the goods before title came to be passed.
Held: The owner’s appeal failed. It did . .
Lists of cited by and citing cases may be incomplete.
Contract
Updated: 18 May 2022; Ref: scu.617939
