If your terms of trade documents don’t have the correct provisions, you can lose goods supplied to a customer that becomes insolvent, even though you may have title to the goods.

A recent Supreme Court decision highlights the need for retention of title suppliers to have adequate terms of trade documents and to register security interests on the Personal Property Securities Register (PPSR) to avoid losing assets if a customer becomes insolvent.

The decision of In the matter of Swan Services Pty Ltd [2014] VSC 61 concerned a dispute between a cleaning equipment supplier (Central) and the liquidator of its insolvent customer (Swan).

When Swan went into liquidation in 2013, Central sought to recover equipment delivered between November 2012 and April 2013, which Swan hadn’t paid for. Central relied on a retention of title clause printed on separate invoices provided when equipment was supplied. Central argued that the retention of title clauses formed part of the 2009 credit application, which Swan signed.

In so arguing, Central sought to rely on the 24 month temporary ‘perfection’ for transitional security interests provided for by an agreement existing prior to the PPSA’s commencement.

The effect of the Court’s decision was that:

  1. Wording in the credit application stating that supply was governed by Central’s ‘Standard Terms and Conditions’ suggested that the parties intended the terms to be incorporated were recorded in a separate document existing at the date of the credit agreement.
  2. As each supply of equipment after the credit application was signed was intended to be a separate contract, the credit application was not an overarching supply agreement.
  3. The credit application did not give rise to any of the security interests.
  4. The retention of title clause on each invoice meant that each separate supply gave rise to a security interest that needed to be ‘perfected’ by registration on the PPSR in order for Central’s interest to gain priority over security interest holders already registered on the PPSR or the liquidator.

As Central had not registered any security interests on the PPSR, Central lost its equipment to the liquidators.

Update your terms of trade documents before it’s too late

If you have not yet updated your terms of trade documents to take account of the PPSA or identified and registered your security interests on the PPSR, please contact a member of our team for assistance.

You should also seek advice as to whether your terms of trade adequately address the Competition and Consumer Act 2010 (Cth) or the amendments to the Privacy Act 1988 (Cth) that recently took effect.