Retention of Title
In times when suppliers of goods are not always certain whether they will receive payment from customers, one strategy worth considering is a ‘retention of title’ clause. Such clauses should be included in standard terms and conditions of trading and may enable you to retain ownership of the goods until full payment is received.
A clause like this does not allow you to simply march in to your buyer’s premises and take back your goods. However, as long as your goods can be clearly identified and separated from any others at your customers’ premises you can make a claim on the goods and have them returned to you in the absence of payment of your invoice.
The success of these clauses will depend on good drafting and the type of goods in question. If you are producing goods which are a raw material which your purchaser then uses to create another product, it is much more difficult to be able to identify your goods from other suppliers’ or even separate your goods from others in your customer’s finished product. In this situation a retention of title clause is not usually of practical use.
It is worth thinking about whether it is possible to identify your product with your company stamp for example, without changing the product. This may help identify the product against others, where you have not been paid.
These clauses can be particularly beneficial if the purchaser is insolvent. In that situation you are likely to be dealing with an Insolvency Practitioner, rather than your customer. You will need to produce copies of the contract documents including orders, despatch notes, and invoices (which clearly identify your products), plus proof of the debt. These notes should correspond with batch numbers and product numbers on the goods in your customer’s premises.
The Insolvency Practitioner will make a thorough check of the documentation you produce and will want to satisfy themselves of the validity of the clause in your contract. Once satisfied, the Insolvency
Practitioner’s representative will physically separate your goods from others and store them in a separate area of the warehouse for collection to be arranged.
You must remember however that the Insolvency Practitioner will want to scrutinise any documentation as their responsibility will be to preserve your customer’s assets to improve the cash flow of the company that is in difficulty.
These are the legal issues to be considered carefully to maximise the chance of the clause being enforceable:
- Professional drafting of terms and conditions
- Advice to ensure the clauses form part of the contract with your customer
- Advice in respect of registration of the clause in certain cases
- Advice in respect of enforcement of your rights