19th January 2015

Protecting your rights to retention of title


19th January 2015

Protecting your rights to retention of title

Many suppliers include so called retention of title clauses in their supply terms, under which they retain title to the goods supplied until they have been paid for by the customer. Typically such clauses allow the customer to resell the goods supplied in the ordinary course of business.   A recent case highlights that including such a clause in your supply terms is just the first step.  If the customer becomes insolvent without having paid, a supplier needs to act decisively and proactively in order to ensure that it can rely on and enforce the retention of title clause.

The case (Blue Monkey Gaming v Hudson & Others) arose out of the administration of the Agora Group, one of the largest adult gaming operators in the UK. MDM Leisure Limited had supplied fruit machines to Agora prior to its administration but had not been paid.

Upon the administration of the Agora Group, MDM had written to the administrators reasserting their title to machines supplied but not yet paid for, but they did not specify which machines or attempt to collect the machines.  Indeed, they continued supplying new machines to the Agora Group.  In truth they were hoping that Agora Group’s business would be purchased by a third party and that they would be repaid with funds from the eventual purchaser.  However, when the administrators sold the business MDM was not paid.

MDM issued a claim against the administrators for the tort of conversion, on the ground that its property had been used for the benefit of the administration without its consent.  MDM itself went into administration prior to the hearing of MDM’s claim and Blue Monkey Gaming obtained, through assignment, the rights of MDM.

The administrators were held not to be liable with the judge confirming that the administrators were not under a duty to compile an inventory of the assets held at each of the arcades, nor “on their own set about identifying machines owned by individual third parties, including MDM.” It was commercially impractical to expect administrators to have to do so. In his view the administrators’ only obligation in these circumstances was “to permit and supervise access to an alleged owner to enable it to identify its own goods and then to adjudicate on any claim arising on the basis of all evidence supplied.”

Upon administration, MDM did not take any steps to identify or locate its machines on Agora premises. They did not clearly assert title over the machines and did not act quickly enough to ensure their retention of title clause offered them the protection it should have provided.

The judgment places the responsibility for the location and identification of goods firmly with the party in whose commercial interests it is to recover them.

If you sell goods under contracts with retention of title clauses ensure that you have a process to follow should a buyer go into administration or otherwise act in breach of that clause. Key points to remember are:

  • Draft your retention of title clause carefully and ensure that it is properly incorporated into the contract;
  • Clearly mark the goods you supply and identify that they are delivered subject to your retention of title;
  • If payment is not made and an insolvency situation ensues, clearly assert retention of title at an early stage and demand delivery up of the goods;
  • Go early to the site and identify your goods;
  • Ensure you have a clear paper trail demonstrating (i) your supply and right to payment, (ii) the buyer’s non-payment, (iii) your contractual right to retention of title, and (iv) clearly identifying the goods.