Retention of title clauses is currently a hot topic given the economic climate, with companies seeking to build maximum protection into supply chains. A recent case demonstrates that care should be taken to ensure that the wording of the relevant provision in the contract reflects the commercial arrangements between the parties, otherwise the clause may not be enforceable.
Under a basic retention of title clause, a supplier retains title to goods he has supplied to a buyer until full payment is received from that buyer. These provisions therefore offer a measure of protection if a buyer is affected by insolvency.
Retention of title clauses vary in length and complexity and it has become popular for an "all monies" clause to be included whereby the supplier retains title to the goods until it has received payment not only for those particular goods, but also payment in respect of any other sums of money owing to the supplier from that buyer.
A recent case before the mercantile court in Birmingham, Bulbinder Singh Sanddu (trading as Isher Fasions UK) v Jet Star Retail Limited (trading as Mark One) (in administration) and others, has however highlighted how important it is for companies to ensure that retention of title provisions match the commercial arrangements. In this matter the parties had an ongoing contractual arrangement for Isher to supply clothing stock. Upon Jet Star entering administration Isher tried to enforce its rights in accordance with an "all monies" retention of title provision. The court indicated that a retention of title clause with an "all monies" provision may not be enforceable where the overall business relationship between the parties involves rotating stock, as it is not practical for the buyer to discharge "all monies" to the supplier before selling the stock. The provision therefore contradicted the nature of the contractual arrangement.
While it is therefore not safe to assume that a retention of title provision will be enforceable if tested in court, it is important for suppliers to consider the following:
- whether the retention of title clause has been properly incorporated into the contract;
- whether the retention of title clause is consistent with the overall commercial arrangement between the parties; and
- whether contractual rights arising under a retention of title clause have been promptly exercised.