Retention of Title for Grape Suppliers

1.       This article raises an issue from a recent  Marlborough Express article by Greg King a director of Winstanley Kerridge, Chartered Accountants, Blenheim, on the up and coming 2013 grape harvest.

2.       In the article he counsels the importance to grape growers of having a retention of title provision in contracts for supply until paid.  That is a wise precaution but the reservation of title may not be without issue.

3.       If Mr King means reservation of title clauses, in the sense of  a Romalpa clause (named after an English case on reservation of title),   then the following needs to be noted and legal advice should be sought.  This email is not a  substitute for legal advice but is merely to flag the issue.

4.       First, the Personal Property Securities Act 1999 (PPSA 1999) has displaced the effectiveness of common law Romalpa Clauses by having a system of registered charges.    Thus a purchaser of grapes may have a registered general security agreement (GSA) to its bankers or suppliers.  The registered charge(s)  will have priority over the unregistered Romapla clause contained in a contract.  That means the secured party gets first “dibs” on the proceeds and/or plant and/or stock.  In a  liquidation the grower may be left at the end of the line.

5.       Secondly, in theory  it would be wise for the grape grower to have a PMSI- a registered purchase money security interest under the PPSA 1999.  In practice given the inequality of bargaining power a grape purchaser  may not willingly agree to a PMSI and grower may not wish to be bothered with the registration process.

6.       Thirdly, in my experience it is the winery/grape purchaser that supplies the contract.  Some companies will not permit  amendment of their standard form contacts.  Thus the grower/ grape supplier has little input into the terms it supplies grapes on.  Contacts usually have a point at where property (title)  in the grapes passes to the purchasing company- at time before crushing with an escape mechanism if the juice is not up to scratch for say excess spray residue.    The passing of property in the contract is pursuant to the Sale of Goods Act 1908 and can then be in conflict with a Romapla clause.  Legal advice  should be sought on this point.

7.       Fourthly, a question arises of whether retention of title is effective given the fact that the grapes are crushed and transformed into a new product wine.  Legal advice  should be sought on this point.

8.       Lastly, many but not all  contracts provide for installment payments  and the issues raised in the third and fourth points above  arise. Legal advice  should be sought on this point.

9.       Ideally, a PMSI should be registered and legal advice  should be sought on this point. 

10.   Suppliers, some service providers (a boat builder’s  contract for example)  and indeed some wineries (in wine distribution contracts)  make reference to reservation of title clauses (Romapla clauses) in their contracts.  The use of them may not be clear cut as people seem to think and the may not deliver what was intended by them.  A rethink of the issue is required.

Disclaimer and Exclusion of Liability:  This blog is to raise a general issue concerning Mr King’s article about security for payment for the supply of grapes.  It is not to be relied upon as being legal advice  and is not a substitute for the obtaining of legal advice of the grower's particular contract and circumstances of supply.  Graham Hill does not accept any liability for the  content of this blog which is provided as information to raise an issue on which advice should be sought.

Graham Hill Barrister & Solicitor,  email: graham@grhill.co.nz