Vol 4 (2007) - Issue 6

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CKE Engineering Ltd (in administration) v Coseley Galvanising Ltd [2007] LTL 3/10/2007

Introduction

In starting his judgment in the above case, HHJ Norris QC noted that ‘The one thing that is clear in this case is that it is extremely difficult to make money by galvanising metal fabrications. The rest is factual and legal uncertainty.’ The case required the court to revisit the legal uncertainty of the effectiveness of reservation of title clauses in circumstances where the goods supplied under the ROT clause were said to have lost their original identity such that it was impossible to trace into them.

Facts

The parties

The application was brought by the administrators of CKE Engineering Limited (‘CKE’), seeking a declaration against the administrators of a galvanising company to whom it had supplied zinc, Coseley Galvanising Limited (‘CGL’), as to the ownership of monies representing the proceeds of sale of zinc.

CGL was the owner of a galvanising business based in Coseley in the West Midlands (‘the Business’). In June 2004 the Business was sold to a company called Beachcase Galvanising Limited (‘Beachcase’). Beachcase received supplies of zinc from companies that included CKE and Boulton Ltd (‘Boulton’), and used this zinc in order to galvanise metal products. Beachcase went into administration on 15 September 2005, and on 21 September 2005 the Business was sold to CGL.

CGL’s operation of the Business was short-lived and ultimately unsuccessful. Like its predecessors it received zinc from CKE, but it suffered financial difficulties and entered administration on 17 November 2005. As at that date, CGL was in possession of a zinc tank containing some 265 tonnes of zinc. A proportion of that zinc had been supplied by CKE, and in December 2005 CKE submitted a Retention of Title Questionnaire claiming title over the zinc remaining in the tank. The administrators of CGL rejected the retention of title claim, and in due course the matter came before the court.

By the time the case was heard, the zinc tank and its contents and certain other assets had been sold for the sum of GBP 60,000 plus VAT, and the application sought a declaration as to the appropriate division of the proceeds of this sale.

Galvanising process

The galvanising process conducted by CGL comprised three main stages. First, metal items were dipped into acids in order to clean the metal’s surface. Second, the items were dipped into a flux tank containing chemicals in order to coat the surface of the metal. Finally the items were immersed in the tank of molten zinc which resulted in a series of zinc-iron alloy layers being formed on them.

As regards the contents of the zinc tank itself, three different grades of zinc were supplied and added to the tank: (i) ‘Special High Grade’ zinc, being some 99.5% pure; (ii) ‘Good Ordinary Brand’ zinc, being approximately 98% pure, and (iii) ‘High NI’ zinc, which had some 2% of nickel added to the zinc. In addition, certain other chemicals were added to the tank in small quantities (principally nickel but also a chemical ‘brightener’). The whole tank was heated and kept in a molten state.

The judge found it ‘obvious that once an ingot is added to the tank it loses its individual identity and the zinc molecules become mixed with molecules of zinc from other ingots of possibly different grades, and with other chemicals’.

Zinc was used up in the galvanising process in one of two ways. Either it was attached to a metal item and left the tank as part of the zinc-iron alloy coating, or it became contaminated as part of the process of passing the flux-coated item through the zinc. At full production the tank was found to ‘consume’ some 5% of its contents every week. When contamination occurred the zinc became heavier and sank to the bottom of the tank as ‘dross’. This dross was drawn off from the bottom of the tank and could be used for reprocessing, having a value of some 50% of a pure zinc ingot.