| Date | 11 April 2007 |
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| Judgment | P4 Limited v Unite Integrated Solutions plc |
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| The Issue | Retention of title clauses in the context of the JCT provisions. |
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| Implication |
When paying for unfixed materials, make sure that you are able to identify “with particularity” just what you are paying for. |
print“Take care to identify unfixed materials, or you could pay for something without owning it”. In a previous article I considered the case of P4 Limited v Unite Integrated Solutions plc to discover what lessons could be learned concerning the incorporation of standard terms and conditions on the reverse of quotations and orders. The case concerned materials supplied by P4 to a mechanical and electrical contractor (Tudor) who subsequently went into liquidation. P4 believed it had the benefit of a retention of title provision whereby it retained ownership of the goods until they were paid for in full. Such provisions are sometimes known as “Romalpa” clauses after the 1976 case of Aluminium Industries v Romalpa Aluminium. If there had been an effective retention of title clause then, as P4 had not been paid by Tudor, it was entitled to either recover the goods from, or be paid for them by, Unite who was Tudor’s main contractor. Although the judge found that P4 had not actually had been successful in incorporating a retention of title provision, he went on to consider the arguments that had been advanced by Unite as to why, if a retention of title provision had existed, it would not have been effective in the context of the contractual framework existing on this project where Tudor had been engaged on the basis of a DOM/2 subcontract. In the light of the Romalpa case and others in a similar vein, employers and contractors on building contracts became concerned that they might find themselves paying for materials on site which were the subject of retention of title provisions. The risk was that if the supplier was unpaid then those materials (which the employer had paid for) could be reclaimed by the supplier. To counter this concern, amendments were made to the JCT standard forms and also to the relevant subcontracts. Thus DOM/2 says that once materials have been placed on site they can not be removed without the consent of the main contractor (clause 21.4.5.1); once the value of any materials or goods has been included in a certificate issued under the main contract which has been paid by the employer then the materials become the property of the employer and the subcontractor shall not deny that they have become the property of the employer (clause 21.4.5.2); and if the contractor pays the subcontractor for the goods before the employer has made a corresponding payment to the contractor then the goods become the property of the contractor (clause 21.4.5.3). The provisions in DOM/1 are identical, and similar conditions are found in the JCT main contracts (clause 16.1 of JCT 98 and clause 2.24 of SBC05). For Unite’s argument to succeed it needed to establish that these provisions had the intended effect (i.e. that they would prevail over any retention of title provision), and that payment had been made by either the employer or the contractor. As regards the first point, section 25(1) of the Sale of Goods Act 1979 provides that where a person who has agreed to buy goods (in this case Tudor) is in possession of those goods and transfers them to another person (in this case Unite) “… under any sale, pledge or other disposition thereof …” without giving notice of any rights retained by the original seller (in this case P4) then the final recipient (i.e. Unite) can obtain title to those goods. In this case the court considered that the provisions of clause 25.4.5.1 of DOM/1, whereby Tudor gave up the right to remove the materials from site without Unite’s permission, amounted to a “disposition” sufficient to make section 25(1) applicable. Having established that there had been a “disposition”, the court then needed to consider whether clauses 21.4.5.2 and/or 21.4.5.3 had been complied with, such as to transfer the materials to Unite or its employer. In this regard the situation initially considered was not dissimilar from that which occurs on many construction projects where lump sums had been allowed in respect of materials on site. Typically this is done either as a total figure or in respect of generic groups of materials. In this case Unite said that as it was obliged to pay for all materials on site, and as payment had been made, it must follow that it had paid for the materials supplied by P4. The judge was not convinced by this approach and, after considering the various authorities, observed that if property was to pass “… it is necessary to identify with particularity the materials and goods which are the subject of payment … . A general lump sum interim valuation is insufficient …”. These words should be a warning to all those making interim valuations and payments under JCT forms of contract that if they want to ensure property passes in the manner envisaged by the contract (and that is a very worthwhile safeguard to be achieved), then they must ensure that they are able to identify “with particularity” which items of equipment have been included in any particular interim payment. For large items (e.g. a chiller or prefabricated module) this is likely to be straightforward, but in situations where materials are constantly being delivered to site, incorporated in to the works and then further deliveries of similar materials made (e.g. reinforcement or suspended ceiling components) this is likely to prove challenging and demand clear procedures and record keeping.
CJ-0714
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