Recover Whats Rightfully Yours

1
Recover Whats Rightfully Yours!

• Funke Abimbola
• Paul Kite
• Simon Hobbs
• Commercial Services

2
Types of Retention of Title Clause

• Funke Abimbola
• Senior Solicitor
• Corporate Commercial

3
Whats a ROT clause?

• Title in goods passes on full payment i.e. not
  delivery
• Sellers perspective
• Why might a Seller need one?
• Sellers ranking
• Sellers right to reclaim

4
Types of ROT clauses

• 1. Simple clause
• The Seller remains the owner of the goods until
  the purchase price is paid in full by the Buyer
• Label goods
• Separate storage

5
Types of ROT clauses

• 2. All sums/all monies clause
• The Seller remains the owner of the goods until
  the purchase price and all other sums owing by
  the Buyer to the Seller are paid in full
• Pros
• House of Lords approval
• Need not identify goods
• Retain title if any debt remains unpaid
• Cons
• Creates charge? Void unless registered?

6
Types of ROT clauses

• 3. Proceeds of sale clause
• The Seller remains the owner of the goods and
  any proceeds of their sale until the purchase
  price is paid in full by the Buyer
• i.e. goods to be sold on
• Cons
• Generally fails
• Creates charge? Void unless registered?
• Series of deliveries? Register each delivery
  (impractical)
• Acting as agent? Unclear

7
Types of ROT clauses

• 4. Mixed or processed goods clause
• If the goods are mixed with or
  incorporated in other goods before the purchase
  price is paid, the Seller shall have ownership of
  the whole of the goods until payment is made in
  full by the Buyer
• i.e. goods used in manufacturing process
• Pros
• Acquire ownership of part of resulting
  property/proceeds of sale
• Cons
• Depends on fiduciary relationship or registered
  charge
• Fiduciary relationship only by specific agreement
• Creates charge? Void unless registered?
• Rarely effective

8
Miscellaneous examples

• Tracing clause
• Trace proceeds of sale
• Separate bank account
• Insurance clause
• Buyer insures goods
• Proceeds of claim held on trust for Seller

9
Solution?

• Combine part invalid, rest effective
• Tailor to circumstances
• Model clause-
• - Retain title until full payment
• - All other sums
• - Proceeds of sale/trace proceeds
• - Insurance
• - Ownership of part of whole (processed goods)
• - Enter/seize/resell

10
Further considerations

• Goods fixed to rented premises? Fixtures
  (landlords property)
• Prior charge holders? Priority
• Buyer in administration? Courts consent
• Perishable goods/low scrap value
• Rapidly changing area of law
• Incorporation is key

11
Incorporation

• Notified to and accepted by Buyer
• Buyers agreement is key e.g.
• Contractual agreement signed by Buyer or
• Unsigned document with terms Buyer knew or
• Quotation, invoice etc.. and Buyers attention
  drawn to terms (especially 1st invoice)
• Subsequent changes written/oral - agreement of
  both parties

12
Retention of Title how does it work (or not) in
practice?

• Paul Kite
• Partner
• Commercial Dispute Resolution

13
Case study I other goods made with the goods
supplied

• Supplier farmer/seller of beef cattle and ewes
• Customer abattoir onward sale of carcasses and
  smaller joints to butchers
• Contract terms included
• only way we would be able to trade with you for
  the purchase of livestock.would be for us to
  retain ownership until all goods invoiced paid
  for in full
• Issue effect of process of change of goods

14
Case Study II claim to proceeds of (onward)
sale of incorporated goods

• Supplier manufacturer of resin
• Customer manufacturer of chipboard
• Contract terms included
• property in all goods supplied will pass to the
  customer when (a) the goods and (b) all other
  goods which, at the time of payment of the full
  price of the goods sold under this contract, have
  been delivered to the customer but not paid for
  in full, have been paid for in full.
• Issue was the supplier entitled to trace its
  resin product into the chipboard product and any
  proceeds of sale thereof?

15
Case Study III onward sale of suppliers
product and credit terms

• Supplier supplier of diesel engines
• Customer manufacturer of diesel generating sets
  (incorporating the engines)
• Contract terms included
• all goods sold to the purchaser shall be and
  remain the property of the company until the full
  purchase price shall be paid to the company.
• Issues (1) effect of sub-sale
• (2) effect of credit terms

16
Summary ROT clauses

• Effective if (1) the identity of the goods
  remains readily identifiable and (2) remain in
  possession of the customer
• Difficult to successfully go beyond this for (1)
  mixed goods or (2) proceeds of sale as such
  attempts will be vulnerable to attack, not least
  for want of registration
• To do so is likely to require an express
  provision stipulating that

17
Summary ROT clauses (continued)

• The goods are advanced under a bailment
  arrangement
• The customer has permission to manufacture the
  goods/incorporate them and sell them as a trustee
  for the supplier
• The sale proceeds are to be held in a separate
  bank account for the benefit of the supplier,
  with no obligation for the supplier to account to
  the customer
• Commercially unrealistic?

18
Practical Tips

• Simon Hobbs
• Partner
• Corporate Recovery

19
Introduction

• Your customer goes into liquidation holding your
  goods
• Your supplier goes into liquidation and you are
  holding his goods
• Your supplier goes into liquidation holding your
  money but without having supplied your goods

20
If youve got a ROT clause

• Does it do what you want it to do?
• Register it
• Bring it to the buyers attention
• Stay on good terms with your buyer
• Act quickly
• Insure the goods
• Decide if you want the goods back
• If the liquidator rejects your claim

21
If no ROT clause

• Sellers lien
• Right of stoppage in transit
• Credit checks
• Adjust credit levels
• Personal guarantees

22
Your supplier becomes insolvent

• You are holding his goods
• He is holding your money

23
Questions?