What contractors and employers need to know about 'Retention of Title'

After recently breaking down the Retention of Title Clause for subcontractors, Sarah Fox of Enjoy Legal Learning is back to help employers understand the effects and limitations of the clause.

Sarah does this in the wake of the recent Alstom Power Limited v SOMI Impianti SRL case, which is an interesting example of the clause in action.

The case involved the main contractor (Alstom) and its Italian subcontractor (Somi) for a mechanical and piping works package on a power station. In order to carry out its role the subcontractor had to bring various items of plant and equipment to the site, which were critical to their works.

The subcontract included a standard retention of title clause for goods and materials, which said that ownership passed with delivery to site or payment, whichever was the earlier. There was a similar clause in relation to equipment, which said that the subcontractor’s equipment was deemed to be intended for the execution of the works, deemed to be the property of the contractor, and the subcontractor could not remove it.

When the subcontractor encountered financial difficulties, Alstom terminated the contract as permitted. The subcontractor returned to site and attempted to forcibly remove their equipment from the site, and the police had to be called. The contractor asked the court to decide who owned the equipment, who had selling rights and whether Somi could remove its equipment.

Understanding the complex decision.

To break down and clarify the case, and it’s verdict, Sarah Fox provided her expert analysis.

She commented: “Although there are many complex issues in this case, not least involving injunctions and fines for other bad behaviour by the subcontractor, the case clarifies that the effect of the standard retention of title clause, is to pass ownership to the payer. It also states that the effect of the deemed title clause is not to pass ownership, except where the wording is crystal clear that this is the intended effect. The court found there was no good commercial reason why the subcontractor would give such equipment to the contractor permanently”.

“But Somi was not entitled to return to site to remove the equipment, as the contract clearly said such repossession had to wait until the contract works were complete. The contract also permitted the contractor (and this would also apply to an employer) to sell the equipment if the additional costs of completing the works were not paid”.

Sarah concluded: “The moral of this sorry story is for both parties to really understand what happens to ownership of equipment, goods and materials on a construction project, before the police get called in!”

Sarah has been Highly Commended in the SCL Hudson Prize competition in 2011 for papers on construction law. If you wish to contact her, please email Sarah via: sarah@enjoylegallearning.co.uk