Isher Fashions UK ("Isher") supplied Jet Star Retail Limited ("Jet Star") with goods. The contract for the supply of the goods contained retention of title provisions, but it was agreed between the parties that the contract implicitly gave Jet Star the right to deal with the goods despite Isher's claim to retention of title. The contract also gave Isher a right, by notice, to prevent Jet Star from selling or parting with possession of any goods supplied if Jet Star became the subject of formal insolvency proceedings.

Jet Star entered administration. Isher failed to serve a notice preventing the sale of the goods supplied and Jet Star's administrators continued to sell goods supplied by Isher. Isher brought proceedings against Jet Star and the administrators alleging that the sale of goods after Jet Star entered administration amounted to wrongful interference of its title to those goods. In the Court of Appeal, Isher contended that Jet Star's right to deal with the goods was limited to dealings in the ordinary course of its business. An analogy was drawn to the treatment of floating charges by the High Court. Isher argued that trade or dealings by a company in administration were not "in the ordinary course of business".

The Court of Appeal disagreed and found that there was no limitation on Jet Star's right to deal with the goods "in the ordinary course of business". The contract expressly allowed Isher to serve a notice terminating Jet Star's right to deal with the goods after it had entered administration. The existence of this provision meant that the parties could not have intended that Jet Star's right to deal with the goods terminated on the event of insolvency. Further, the Court did not accept any analogy between retention of title clauses and floating charges - a floating charge is security over assets and it is inherent that those assets are only dealt with in the course of business, but it is open to the parties themselves to negotiate the terms of retention of title provisions and the Court will not imply terms into such contracts for them.

It is, however, likely that the Court would have reached a different conclusion if the retention of title clause had expressly provided that Jet Star could deal with goods in the ordinary course of business. The Court accepted that trade by a company in insolvency proceedings was not in the ordinary course of its business. Parties should be careful when drafting clauses such as retention of title to ensure that they adequately cover all possible situations, including the insolvency of one party.

Case: Sandhu (t/a Isher Fashions UK) v Jet Star Retail Limited & Others [2011] EWCA Civ 459