The Proprietary Nature of Title-based Financing Interests

Abstract

The recent work on secured transactions, conducted separately by two expert groups, the Secured Transactions Law Reform Project and the City of London Law Society, makes it clear there is a case for reform in this area. While a consensus exists in relation to a number of aspects of the future regime, one unresolved debate concerns the legal relationships arising through retention-of-title clauses in contracts of sale, hire-purchase and lease agreements and their variants such as lease-back or buy-back agreements. Their common feature is that an owner of an asset (A) delivers possession of the asset to another – the buyer, lessee or the hirer (B) whilst retaining ownership of the asset. Such relationships are often used functionally as security interests because they enable B to raise finance (typically, to acquire goods on credit) from A while protecting A from the credit risk through the retention of ownership. The interests created in A through contracts of sale with retention-of-title clauses, hirepurchase and finance lease agreements will be referred to in this chapter as ‘title-based financing interests’. The functional similarity between such interests and security interests has led to a debate as to whether title-based financing interests ought to be governed by rules similar to those that apply to security interests. English law has traditionally resisted functionalism in favour of a more conceptual approach. One of the arguments against regulating title-based financing interests in a way similar to security interests is that the former are created through retention of a right A already has, not a grant of a new property right by B in favour of A. But this does not say much about nature of A’s interest. In discussion on the future of the law, it would be helpful to gain a better understanding of the right that A obtains. This chapter contributes to this understanding. In so doing, it also hopes to cast new light on the list of property rights in English law. While the list may generally be closed (numerus clausus), this papers seeks to make a case, based on the current law, for the recognition of a new type of property right. The purpose of this chapter is to examine the proprietary nature of title-based financing interests and their place in property law. It explores whether title-based financing interests confer as much protection on the owner as absolute ownership, i.e., whether it is correct to say that A simply retains title to an asset, so no new property right is involved. If a new form of property right is created, which is distinct from ownership, but has not been granted by B to A, it is necessary to consider whether the law regulates it appropriately, taking into account the interests of third parties on whom the right impacts. The chapter does not seek to debate the