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Handling a retention of title dispute: Guide for businesses
Having a retention of title agreement in place has several benefits for a supplier or seller, asserting that the goods you supply remain under your ownership until you receive payment provides the ability to either retrieve the goods or make a claim. However, Retention of Title (ROT) can be complex and challenging unless the clause is unambiguous in its content and delivered in a manner that cannot be disputed by the debtor.
It is essential that retention of title clauses are drafted by expert commercial lawyers who can provide clarity. You also need to know the course of action you should take if a dispute arises. In this guide we discuss the purpose of a retention of title agreement and the different types of agreements. We also examine common issues surrounding retention of title agreements and disputes, together with ways to prevent a dispute.
Click on a link to that section:
Find out why businesses have a retention of title agreement in place.
Read the different types of retention of title clauses.
Read the common causes of retention of title disputes.
We explain the steps to take to resolve a retention of title dispute.
Find out how Giambrone can assist you in making a retention of title dispute.
Read how to prevent retention of title disputes from occurring in future.
What is the purpose of a retention of title agreement?
When a supplier delivers goods to customers on credit, many companies believe that they are entitled to recover the goods in the event of non-payment. This is actually not the case, once an invoice has been issued, unless terms and conditions contain a retention of title clause, recovering the goods is not necessarily straightforward unless you have included a retention of title clause in the contract.
If you do not have such a clause in your contract, then you will find that your buyers are not legally obliged to return the goods they have received from you, even if they do not pay you. It can prove to be very difficult for you to obtain either payment or the goods you provided to your customer.
If you have major customers to whom you supply large amounts of goods and your customer becomes insolvent, this also can pose a major threat to the financial health and overall survival of your own business.
If you have concerns about your customer's ability to pay their debt to you, or if you are entering into uncertain trading conditions, a retention of title clause can be especially useful in providing you with increased security. If you do not obtain payment, at least the goods will still legally belong to you.
What are the different types of retention of title clauses?
There are four different types of retention of title clauses, and it is important to understand them in order to know which one to choose for your contract.
A Simple retention of title clause allows you to retain ownership of/entitlement to specific goods that have been supplied until such time as you receive full payment for these goods.
An All monies retention of title clause means that you retain the title of all and any goods you have supplied to a customer have been fully paid for.
A Proceeds of sale clause is when your customer or buyer is at liberty to sell goods on, but you will still be entitled to payment from the proceeds of your customer's sales.
A Mixed goods clause means that your buyer may combine goods that have been supplied to them in the manufacturing process and the supplier is entitled to payment resulting from the proceeds of sale from the new item that has been created. This is the most commonly found in manufacturing.
Causes of retention of title disputes
Common causes of disputes arise when a creditor assumes that they have a right to reclaim unpaid goods under a retention of title clause, but the debtor claims to know nothing about its existence or refuses to acknowledge the clause.
Often retention of title disputes focus on whether the unpaid seller has incorporated an adequate retention of title clause in the terms and conditions of the contract.
It can sometimes be difficult for debtor companies to identify goods, especially if the goods have been combined to create a new product or service.
Resolving retention of title disputes
Retention of title disputes will frequently turn on how successfully the seller has drafted its standard trading terms, including the retention of title clause,
If you are facing a retention of title claim, seeking legal advice from an expert commercial lawyer is an essential first step is to establish your legal position, your legal advisor will be able to review your contract and explain in detail the enforceability of your retention of title clause.
Having a detailed retention of title clause in your contract is essential providing it is appropriate to your specific goods and services. Your legal advisor may suggest that negotiation with your debtor through alternative dispute resolution (ADR) may be the best way to resolve the dispute. If this is not possible it may be that the matter will have to be heard before a court. Find out more about your options here.
How Giambrone & Partners can help
Are you concerned about a retention of title dispute? Our litigation and dispute resolution team has a wealth of experience in supporting clients through a wide range of contractual disputes. Our experienced commercial contract lawyers are highly skilled in resolving such disputes and will advise and guide you on your rights and responsibilities. get in touch and see how we can help you with your contractual dispute. We will always attempt to resolve a dispute through alternative dispute resolution, if this is at all possible, before recommending litigation.
Find out more about how we can assist with contract disputes here.
Preventing retention of title cases
The best way of ensuring that you do not face a complex retention of title dispute is by including a well-drafted retention of title clause in your terms of business.
When drafting a retention of title clause, clearly stating that the legal ownership of the goods will only be transferred from the seller to the customer on full payment of the invoice has been made, together with a caveat pointing out that you retain the right to repossess the goods in lieu of payment - this ensures you cannot be accused of trespassing.
You may also to advised to include the fact that the goods will be marked as belonging to you as the seller, also that the goods should be stored separately. by your customer in order to be able to easily identify the goods. However, this is not always practical in the case of manufacturing customers. Another action you can take is to verify that the customer is compliant with your retention of title clause within the agreement.
Clarity from the outset sets out the legal rights and responsibilities of all parties before any purchase is made.
Do you need advice on drafting your retention of title clause? Contact us here for assistance.
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