George sells 100,000 litres of milk each month to Dave’s Bakeries Limited which it uses in the manufacture of bread and cakes which it sells through a number of retail shops. Dave’s Bakeries Limited also buys milk from several other suppliers. A clause in the contract between George and Dave’s Bakeries Limited provides:

“Goods are supplied on the condition that the supplier shall retain legal and equitable ownership of them until full payment has been received by them for all sums owing. Any money from the sale of the goods shall be paid into a separate bank account noting on it the supplier’s name. All goods shall be clearly labelled as belonging to the supplier until all sums owing have been paid”.

Dave’s Bakeries Limited has now gone into administration owing £20,000 to George. In total, they owe in excess of £1million to other suppliers. They have 50,000 litres of milk stored in their cold stores and £10,000 worth of bread and cakes in their freezers. £5,000 is left in the company’s general bank account and £1,000 in the specially designated account in accordance with the contract.

Advise George.

Answer

This question requires a detailed discussion of retention of title clauses and clear specific advice to George.

You should point out that the retention of title clause that Dave’s Bakeries will seek to rely on goes further than a simple retention of title clause (that does not need registering under s 859A of the Companies Act 2006) and therefore the administrators are likely to argue that it ought to have been registered under s 859A and would be invalid if not so registered.

However, a clause not too dissimilar to this was upheld by the Court of Appeal in Aluminium Industrie Vaassen BV v Romalpa Aluminium Ltd [1976] 1 WLR 676 and although that case turned on its own specific facts it is certainly arguable that this clause will also be held to be valid for similar reasons as Romalpa.

You should emphasise that George potentially has bigger problems than this. Even if the clause is held to be valid, he can only recover the milk he has actually sold. This might prove difficult for George because we are told that Dave’s Bakeries buys milk from several other suppliers. George will not be able to take possession of just any milk left in Dave’s Bakeries: only the specific milk he sold. If George’s milk has been mixed with the other milk purchased, George will not be able to recover any of it.

George will not be entitled to take possession of any of the finished bread and cakes because these are not the goods he sold: see cases such as Re Peachdart Ltd [1984] Ch 131, Re Bond Worth Ltd [1980] 1 Ch 228, Borden (UK) Ltd v Scottish Timber Products Ltd [1981] 1 Ch 25 and Modelboard Ltd v Outer Box Ltd [1993] BCLC 623.

It does not appear possible from the question to separate the milk from the finished goods and therefore the principle noted in Hendy Lennox (Industrial Engines) Ltd v Grahame Puttick Ltd [1984] 1 WLR 485 is unlikely to be of any assistance to him.

Subject to the s 859A point noted above or to the case proceeding along the same lines as in Romalpa, George should be able to recover the £1,000 that is held in the specially designated bank account.