Case law: Retention of title clause can mean loss of protections under sale of goods law
Parties to a contract containing a 'retention of title' clause saying goods remain the property of the supplier until paid for, may find they can't rely on the implied terms and other protections given by sale of goods laws, as there has been no sale, a court has ruled.
This update was published in Legal Alert - July 2016
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A simple retention of title clause in a contract will say that goods delivered by a supplier remain the property of the supplier until they have been paid for. If the buyer doesn't pay for them the supplier can go onto the buyer's premises and take its goods back.
Other retention of title clauses can be more sophisticated, for example, saying that the supplier can recover goods if the buyer owes it any money, whether for those goods or for some other reason. This is known as an 'all monies' retention of title clause.
In a recent case, a supplier supplied 'bunkers' (fuel) to a buyer under a chain of contracts. Each contained a standard retention of title clause intended to protect the supplier against non-payment. However, the parties all understood that there was nothing to stop the buyer using the fuel before payment became due. The buyer became insolvent and the supplier claimed the price for the fuel.
The Supreme Court ruled that the contracts were not 'contracts of sale' under the Sale of Goods Act 1979 because there is only a contract of sale if title to (ownership of) goods has passed from a supplier to a buyer. The effect of the retention of title clauses in the contracts - given that the fuel might not exist by the time payment was due - meant that title could not pass under those contracts. This meant that the buyer was not protected by the implied terms under the Act, and the supplier could not rely on the Act to recover the price of the fuel.
The Supreme Court also decided that even if the contracts had been contracts of sale under the Sale of Goods Act, payment may still have been required. This implies that a failure to pass title in goods is no longer a defence for a buyer trying to avoid paying the purchase price.
- Businesses should ensure they consider the potential consequences of including retention of title clauses in their terms of business and other contracts, including the possibility that sale of goods law does not apply and they cannot recover payment for their goods
Case law: PST Energy 7 Shipping LLC v O W Bunker Malta Limited  UKSC 23
Disclaimer: This article from Atom Content Marketing is for general guidance only, for businesses in the United Kingdom governed by the laws of England. Atom Content Marketing, expert contributors and ICAEW (as distributor) disclaim all liability for any errors or omissions.
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