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Contractual rights of suppliers to recover goods
A retention of title clause (ROT clause) in a contract for the sale of goods protects sellers from surrendering goods sold on credit if the buyer later becomes unable to pay for example, due to insolvency.
A ROT clause provides that ownership of goods does not pass to the buyer until they have paid for the goods in full. This means that the seller can reclaim unpaid goods that are in the possession of the buyer and defeat claims on the buyer’s assets from other creditors who may hold registered charges over the buyer’s assets.
In order for a ROT clause to be enforceable, the seller must be able to identify the actual goods that are the subject of the clause. Where possible, suppliers should use serial numbers or other identifying marks so that they are able to match goods to particular invoices. If the same type of goods have been supplied under more than one invoice but only one invoice remains unpaid, the supplier will have to identify the actual goods that were supplied under the unpaid invoice in order to reply on the ROT clause.
A supplier may seek to use an “all monies” clause in a contract to overcome the issue of matching the actual goods with an invoice. An “all monies” clause may provide that title to any goods does not pass to the buyer until all debts have been repaid to the supplier so that a supplier can reclaim any of their goods if there is any unpaid debt, regardless of whether the goods match the particular invoice.
Problems relating to identifying and reclaiming goods can arise when goods have been used or improved as part of a manufacturing process or if goods have been on-sold to a third party.
Goods that have been on-sold to a third party generally cannot be reclaimed by the supplier. To reduce a buyer’s incentive to re-sell goods, a ROT clause may be drafted so as to require that sale proceeds received by the buyer from an on-sale are held in trust for the seller.
If you have any questions on how or when to use retention of title clauses or the effect of such clauses on your business, please do not hesitate to contact Craig Pryor on (02) 9525 8688 or email This e-mail address is being protected from spambots. You need JavaScript enabled to view it .