If I was all sweetness and light in the last amendment that will not be the case with this one. What is being suggested in this amendment is that a reservation of title clause should be implied in every single contract for the sale of goods to a company. Section 17 of the Sale of Goods Act, 1893, which is referred to in the amendment provides that the title to goods should transfer to the buyer when the parties to the goods intend it to be transferred. The wording of section 17 is as follows:
Where there is a contract for the sale of specific or ascertained goods, the property in them is transferred to the buyer at such time as the parties to the contract intend it to be transferred.
This provision reflects both legislative and common law trends in the area of contract law for a very long time; in other words, respect for the freedom of parties to decide the terms of their contract. The Oireachtas, in particular, has traditionally only intervened where the balance between the contracting parties is uneven and possibly unfair. This is particularly evident in the area of consumer protection law where the consumer may very often be in a weaker position than the supplier of goods or services, particularly where standard form contracts are in operation.
The amendment suggests that the Oireachtas should intervene by inserting a provision in companies legislation to the effect that where goods are sold to a company, title to the goods will never pass until the seller of the goods has been paid for them. The intention of the proposed provision seems to be to protect ordinary trade creditors in the event of the insolvency of the company.
However, there seems to be no good reason such a clause should be deemed, by virtue of statute, to be implied in every contract for the sale of goods to a company. Indeed, the amendment is proposing an unwarranted and unnecessary incursion in the area of contract law.
The reason for the proposed amendment is difficult to understand. The law has recognised for some 200 years the right of a seller to stipulate that the property in goods sold passes only on payment in full. This principle was, as I have mentioned, given statutory approval by section 17 of the 1893 Sale of Goods Act.
Furthermore, reservation of title clauses were given specific judicial approval in a number of cases over the last 15 years. The most celebrated case is that which is known as the Romalpa case, a United Kingdom case in 1974. This case showed clearly that it is possible for a supplier to guard against the insolvency of his purchaser, by creating an enforceable claim to recapture goods supplied and to be paid the proceeds of any sub-sale of them. Since this case, reservation of title clauses have commonly become known as "Romalpa clauses". Although the Romalpa case is regarded as the most important case on the question of retention of title clauses, the Irish courts had, two years prior to Romalpa, in 1972, declared a retention of title clause to be enforceable. This was in the case of Interview Limited. It is surprising, therefore, that an amendment is being suggested which would, in fact, introduce a restrictive element in this area of law which, of its nature, requires considerable flexibility.
There is another reason the proposed amendment is undesirable. While the Government have no plans to introduce any restrictions on the use of retention of title clauses, we are not convinced that the proliferation of such clauses is a good thing in itself. The UK Cork Committee on Insolvency noted that such clauses could strike at the roots of the system of credit. When banks lend without security, they look to the assets in the balance sheet or, more frequently, in periodical statements of assets by the customer to the banker. If a large portion of those assets, such as stock, work in progress and book debts, were all effectively earmarked for one section of creditors, being the suppliers, or there was a risk that this was so, they would not be so ready to advance money in the first place.
Equally, when banks lend on the security of floating charges, they look to the cover provided by the assets within their security. If, again, a substantial portion of stocks, work in progress and debtors were the property of supply creditors — or there was the possibility that they were — banks would be less inclined to lend.
There is a further difficulty; those concerned with the rescue or reconstruction of companies in financial difficulties, argued to the Cork Committee that receivers would have difficulty in keeping businesses operating if stocks, work in progress and debtors, in whole or in part, belonged to or were claimed by supply creditors and could be seized by them. The receiver would not have the means to keep a business in action while attempts were made to sell it as a going concern or to reorganise it.
While I would not want to enshrine something in the statute that would create difficulties of this kind for receivers, I would be even more worried about the effect it would have on the regime for company rescues being proposed in Part IX of the Bill. The committee will already be aware what that Part of the Bill is trying to do, and indeed our proposals there have been fairly widely welcomed. The amendment would play ducks and drakes with the examiner under Part IX — the examiner would not — indeed could not — know where he stood from one day to the next. I do not think that would be a desirable situation.
The net effect of the proposed amendment would be to take the risk out of commercial transactions. If the provision proposed were translated into law, then everybody who supplied goods and was not paid for them would, in the event of a liquidation — (a) have the automatic right to have them returned, or (b) where this was not possible, to insist on payment in full out of the company's assets. Such a provision would make a total nonsense of the whole business of credit and would take any risk there is out of commercial transactions.
In conclusion, therefore, freedom of contract should not be curtailed by statute more than absolutely necessary. Given the many different trading circumstances that can arise, the problems in this area, if they exist, would be better resolved by ordinary market forces rather than by a modification of the law — a modification which would have universal application. In these circumstances and because of the general effect it would have on companies in receivership and under the protection of the court, by virtue of Part IX of the Bill, I could not accept the amendment.
In response to the Deputy's remarks in relation to farmers as creditors, the same can be said about any other creditors. I accept that the mention of farmers might be somewhat emotive but the amendment does not refer specifically to farmers. It would include everybody and the person who is owed for stationery or whatever would have the same entitlements as farmers. In insolvency all creditors — big and small — suffer and they would all have to be on the same footing.
