Back in the early ‘90’s I remember acting for receivers and liquidators who received floods of claims from creditors wanting to call at the premises to collect their goods on the basis of their retention of title clause. In the early days we were able to avoid many of them. By 1993 or 1994 though, many creditors had become more sophisticated and were able to overcome my standard defences.
I remember in particular one of my clients who manufactured zips. He grew so tired of the rejection of his claims on the grounds that the zips could not be identified to the invoice that he started to number every zip he produced so he could identify his zips!
You probably have a retention of title clause in your standard terms and conditions but do you know what it means, what it says and if can you use it?
What is retention of title?
A retention of title (ROT) clause is used in a contract for the sale of goods to give the seller the right to take back his goods if they have not been paid for those goods.
What should a ROT clause say?
- Ensure that the seller retains title to the goods after they have been delivered until the invoice is paid;
- Give the seller the right to enter the buyer’s property to take the goods back;
- Require the buyer to keep the seller’s goods separately and mark them as the seller’s property;
- Allow the seller to go on the buyer’s property to check that the goods are so marked;
- Specify when the seller is able to demand immediate payment for the goods and repossess them; and
It should also include an “all monies clause” – enabling the seller to retain ownership of all the goods which it has supplied until the buyer has paid all monies due to the seller not just those relating to the particular invoice;
Can you use it?
As a practical example, suppose you manufacture walking sticks and umbrellas. One of your customers buys his stock of both from you. It has been a terrible summer and he has bought 20 umbrellas from you and 10 walking sticks. All the umbrellas sold and you were paid for both the umbrellas and walking sticks. It is too wet to go walking and there is no interest in the walking sticks. You deliver another 20 umbrellas and the invoice remains unpaid. You trade on terms that include a retention of title clause but when you go to claim your umbrellas there are only 5 there but the 10 walking sticks are there too. If you can identify the umbrellas as yours your retention of title clause will allow you to take them but what about the walking sticks? Your terms should allow you to retain ownership of goods delivered until all monies due to you have been paid so you should be able to take those too!
What did I learn?
So, if these hardened times are signs of the first recession in 15 years setting in, what did I and my client with the zips learn from our experience back in the ‘90’s that may save you from some early pain of rejected claims:
- Make sure you can identify your products.
- Ensure that your terms and conditions apply to the contract.
- Check that your terms and conditions include a retention of title clause and make sure it applies to your contracts.
- Act quickly if a customer is insolvent or looks likely to become so.
- Insolvency practitioners are commercial animals; be bold to assert your claims and prepare to negotiate hard but realistically.
Check now to see if you have a ROT clause as it has not really been needed for years. Make sure your procedures ensure that your standard terms and conditions apply to the contract. A little effort now could save you a significant write off in the future.