Suppliers of goods can no longer rely on a retention of title clause alone to recover goods supplied but not yet paid for.

The introduction of the Personal Property Securities Act 2009 (PPSA) now means that a supplier who wishes to protect their interest in goods supplied before payment must ensure that they take steps to create and register their interest in accordance with the PPSA, a process known as ’perfection’.  If a supplier fails to perfect their interest, they risk losing their claim to the goods.

The recent case of Crossmark Asia v Retail Adventures [2013] NSWSC 55 highlights the importance of the PPSA for suppliers.  The case concerned the administration of a purchaser that commenced while awaiting a very large order of goods en route by sea. 

A dispute arose as to which terms were applicable to the supply of the goods.  In a common scenario, the parties exchanged conflicting documentation purporting to set out the contract between them.  The conflict on the documents was not resolved before the goods were shipped and a ’battle of the forms’ ensued.

The supplier argued that the terms and conditions of its initial pro-forma invoice were the only applicable terms of the contract, while the purchaser argued the terms and conditions attached to its purchase order supplemented and varied the terms of the contract.  Importantly, the supplier had not perfected its security interest in the goods in accordance with the PPSA requirements before the goods were shipped and the dispute arose.

The Supreme Court ultimately decided that the terms contained in the supplier’s pro-forma invoice were the only applicable terms and that, as provided for within those terms, the contract had been terminated after shipment but before delivery of the goods.  By reason of this, the purchaser was deemed to have no rights in the goods at the time of its insolvency.

This was an extremely important finding for the supplier because, had the purchaser been found to have possession of the goods at the time of its insolvency, the supplier’s failure to perfect its interest under the PPSA would have left it with no more than an unsecured claim in the insolvency of the purchaser.

Lessons for suppliers

This case highlights, once again, the importance of being absolutely clear as to the terms of the contract that will govern the supply of goods.  It is not sufficient for either party to assume that their own standard forms will prevail.  It is important to note that, had the court accepted the argument that the contract included the purchaser’s terms, we understand that legal title in the goods would have transferred to the purchaser at the point of delivery and before payment.  If the contract contained no effective retention of title by the supplier, not even compliance with the PPSA would have saved them. 

Most importantly, the case highlights the necessity for suppliers to now take the steps required by the PPSA to perfect their security if they wish to maintain their interest in goods supplied before payment.   In particular, a supplier will lose its security interest in the goods supplied under the retention of title arrangement if it has failed to take steps to perfect its security at the time of a purchaser’s insolvency.

Suppliers need to familiarise themselves with the PPSA and must be prudent in registering their security interests.  Systems and procedures should be put in place to ensure this occurs in a timely and effective manner.

Suppliers should also be aware that retention of title clauses, on their own, will no longer provide adequate protection without registration.  To ensure your interests are protected and to ensure you do not fall into the pool of unsecured creditors, ensure your PPSA procedures are in order.