In commercial transactions, goods are commonly supplied and delivered in advance of payment. Ordinarily, title to those goods will pass to the buyer on delivery, unless a retention of title clause is incorporated into the contract.
Retention of title clauses provide that title to goods does not pass to the buyer until payment is made. Therefore, if the buyer becomes insolvent before paying for the goods, theoretically the supplier may reclaim the goods (as it still owns them) rather than being treated as an unsecured creditor in the buyer’s insolvency, where the chances of meaningful recovery are slim, particularly in the current economic climate.
An Insolvency Practitioner may try to resist a retention of title clause as it is their duty to realise assets for the insolvent estate. Consequently, suppliers may face difficulties in seeking to enforce such a clause.
Here are some tips to minimise the pitfalls:
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Incorporation
The clause must be ‘incorporated’ into the contract. Terms and conditions printed on the back of an invoice will not be effective unless there has been a course of dealings between the parties such that the buyer is deemed to have become familiar with those terms. If your clause appears on your invoices only, change this so that it appears on your contractual documents.
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All Monies
Consider whether you should have an ‘all monies clause’ so that title to your goods does not pass until the buyer has paid all sums due to you.
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Avoiding Trespass
You should reserve the right to recover the goods and to enter the buyer’s premises to do this.
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Identification
If the buyer has bought the same type of goods from a variety of different sources, you should include a clause requiring the buyer to store your goods separately. You should ensure that your goods can be identified, for example, by a seal/batch number or by colour coding.
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Good Practices
Continue to use good credit control checks and regularly assess the financial viability of your customers.
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Advice
Review your terms and conditions frequently with your solicitor. If you intend to enforce a retention of title clause, notify the Insolvency Practitioner immediately and take legal advice.
For advice on drafting of Retention of Title clauses please contact Richard Bailey or another member of the company commercial team at
commercial@steeleslaw.co.uk
or on 01603 598000.
For advice on enforcing Retention of Title clauses or any related disputes please contact Marcus Chapman or another member of the dispute resolution team at
disputeresolutions@steeleslaw.co.uk
or on 01603 598000.