A High Court case arising out of various administrations has recently confirmed that it is possible for a seller to retain title to goods even where those goods have had their physical state changed and been mixed with other goods of the same description.

The company in administration ("A") was in the business of galvanising metal and possessed 265 tonnes of molten zinc at the time it went into administration. This had been obtained from various suppliers of zinc ingots; the largest single supplier, CKE (also in administration), had provided 217 of the 265 tonnes. All the zinc was sold for £60,000. The court had to decide whether CKE had retained ownership of some or all of the 217 tonnes of zinc, on the basis of a lengthy retention of title clause in the standard terms under which it had been supplied.

CKE relied upon the first part of the clause, which stated that ownership of the goods would remain with CKE until it had received full payment for everything supplied to A. The rest of the clause was not in the event relevant.

CKE claimed that its zinc had not been converted into a new product (despite being melted down and mixed with other zinc). A argued that the clause only applied to the original ingots, which were consumed and lost their identity when added to the tank and mixed with the molten zinc.

The judge upheld CKE’s claim. The key principles on which he relied were:

Whether the goods are still identifiable is a question of fact and degree in each case; and

Where goods are mixed by agreement, the owners have an interest in the bulk in proportion to their respective contributions.

It was clear from the contract that title was not to pass without payment in full. The parties could not have intended that this should only apply to the ingots, as both knew that the ingots would immediately be mixed with the zinc already in the tank. The judge found no conceptual difficulty with the parties sharing ownership of the molten zinc and no practical difficulty with treating this as being essentially the same material as that supplied (it could easily be reduced into solid zinc again, though this would be less pure and therefore less valuable). As CKE had supplied 217 of the 265 tonnes of zinc in the tank it could therefore claim ownership of 217/265ths of the zinc.

This judgment is, like many retention of title cases, very fact-specific, but it serves as a useful reminder of some of the principles involved in these often-complex situations. In particular, for a retention of title clause to be effective it is necessary (though not sufficient) that the goods in question remain identifiable. Whether this is so will depend on the facts. It does not matter that it is not possible to distinguish between one part of an inventory and another, because each party can retain ownership of a proportion of the whole.

This contrasts with the position where buyers have paid for goods but no stock has yet been allocated to them: here each buyer’s interest will be too uncertain, so they will be unprotected and rank as unsecured creditors.

Further reading:

In the matter of CKE Engineering Limited (in administration), High Court of Justice case 4275 of 2006, 14 September 2007.

Re London Wine Shippers Limited [1986] P.C.C. 121

Re Goldcorp Exchange Ltd (in receivership) [1994] 2 All ER 806

This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq

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The original publication date for this article was 24/10/2007.