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Are your retention of title (ROT) clauses effective?

19 July 2011

Retention of title clauses (ROT clauses) are commonly included in standard terms of business. They provide that ownership of goods only transfers to the buyer once he has paid for them. But how effective are such clauses?

 

One limitation is that the ROT clause will only cover the goods supplied under a specific consignment. If the supplier cannot prove whether certain goods are from a previously-paid delivery or from the unpaid delivery, he may be unable to recover them.

Case law has restricted the effectiveness of these clauses to the right to enter the customer’s premises to recover identifiably unpaid goods and possibly to sue a receiver or liquidator for damages if they have sold such goods. Clauses may be struck out by the courts if suppliers try to go beyond this.

So what are the options for suppliers? First, try to find ways to prove which delivery goods belong to. Second, try to identify and minimise the commercial risk: check company accounts and even request a meeting if concerns arise.

Ultimately, suppliers may feel that they need to reduce the deliveries they provide on credit. This will clearly depend on the respective negotiating power of the parties. Another method could be to take an alternative form of security such as a bank guarantee or letter of credit.

Before writing off debts for unpaid goods, it is always worth checking the latest case law on retention of title – it has changed before and can do so again at any time.

If you need clear and pragmatic legal advice, we’re here to help so please get in touch.

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Chris Wills LLB (Hons)
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