Insolvency practitioners are routinely asked to adjudicate on claims to retention of title of goods supplied. This task often involves an analysis of whether the goods in question have become fixed to land, irreversibly mixed with other goods or whether they remain as identifiable items.
In the recent case of Re Moormac Developments Limited (in receivership), the High Court gave further clarity to this area of the law.
Gearoid Costello of BDO had been appointed as receiver and manager of Moormac Developments Limited (the Company) as well as receiver of certain interests of Michael McKenna in May 2010.
Ardfert Quarry Products (the Supplier) supplied the Company with stones and other materials in April 2008 to be used in the construction of roads by the Company on lands owned by Mr McKenna. These materials were subject to a retention of title clause in favour of the Supplier and had not been paid for by the Company.
The Supplier claimed title to the goods supplied and sought to recover them from the receiver. The receiver rejected the claim on the grounds that the goods in question had been mixed with other materials.
The Supplier then sought the directions of the Court with a view to retrieving the materials supplied. Whilst directions applications are typically brought by receivers, creditors and certain other parties can bring such applications provided they can show that they are being unfairly prejudiced by the acts or omissions of the receiver.
Ultimately, the decision hinged on whether the goods in question had become fixed to the McKenna lands and therefore subject to the bank’s security and the receiver’s appointment.
"True Rule" Test
Using the “true rule” test set out in a UK case from 1872, the Court examined the degree and object of the annexation. The test provides that even if an object is attached to the land by nothing more than its own weight, it will become part of the land if the intention is apparent to make it part of the land.
Applying this test, the court held that the goods supplied had become part of the McKenna lands and rejected the Supplier’s application.
This decision provides further clarity to the law on retention of title; a supplier no longer retains title in goods if the goods have been used in such a way as to evidence an intention for them to form part of the lands even if they are attached to the lands by nothing more than their own weight.
For more information, please contact a member of our Insolvency & Restructuring team.