Suppliers need to be careful in drafting retention of title
("ROT") clauses to ensure they operate
as intended. When making payment, financiers ought identify the
goods to which a payment relates to avoid disputes. Insolvency
practitioners should take note of how ROT clauses can be
challenged. In this case, the supplier's appeal was dismissed,
and a third party purchaser had good title.
In GE Commercial Corporation (Aust) Pty Ltd v Mell
Associates Pty Ltd & Ors  NSWSC 787, GE sought
declarations that it had title to 58 caravans which it bought from
Oakhurst. Oakhurst had purchased them from LMC, the only active
defendant. In its cross claim, LMC sought a declaration that it had
title due to ROT clauses. Oakhurst was in liquidation. We only
provide pertinent facts for simplicity.
LMC sold goods to Oakhurst pursuant to terms on each invoice. To
finance the purchases, Oakhurst entered into agreements with GE,
and warranted that upon purchase of the caravans, GE would have
clear title. The goods remained on Oakhurst's floor (under a
bailment agreement with GE), and GE paid LMC directly, without
identifying which caravans were being paid for. Oakhurst informed
LMC which caravans were being paid for. Discrepancies arose,
leading to this dispute. GE's records show it had paid for the
subject 58 caravans, whilst LMC's records show they had not
been paid for. The invoiced value of the caravans to LMC was over
Lower Court judgment
The Supreme Court of New South Wales held:
the terms on the back of the LMC invoices were incorporated as
terms of sale even though they were in German. Oakhurst never
objected or requested a translation.
ROT-1 and ROT-2 were on the front of the invoices. ROT-1
provided that title in the goods supplied by that invoice remained
with LMC until payment. ROT-2 provided that title passed only when
all moneys due to LMC during the course of the dealership was paid.
The Court held these two ROT clauses were merely reminders that
there were ROT clauses on the back, and were not intended to be
ROT-3 and ROT-4 were on the back of the invoices. ROT-3
provided that LMC retained title until all payments originating
from the business relationship from LMC were received. ROT-4
authorised the on-sale in the ordinary course of business and the
passing of title, and in effect, assigned to LMC the right to
receive the proceeds of sale (up to the value of LMC's
invoice). The Court held that in accordance with ROT-4, title in
the 58 caravans passed to GE when Oakhurst sold them in the
ordinary course of business. GE was entitled to possession.
Court of Appeal
The caravans were sold by GE. LMC relied on ROT-1 to claim it
had title to the proceeds as they had not been paid for. The issue
was the extent of the authority to on-sell in ROT-4, and whether it
applied to cases within ROT-1 (i.e. where goods had not been paid
for). In LMC Caravan GmbH & Co KG v GE Commercial
Corporation (Australia) Pty Ltd  NSWCA 120 (20 May
2010), the Court of Appeal dismissed the appeal with costs and
ROT-1 and ROT-2 have contractual force. However, ROT-1 should
not be read in a way which is entirely unconstrained and
uninfluenced by other contractual terms.
ROT-2 and ROT-3 extended the circumstances in which the ROT
ROT-4 meant that Oakhurst could on-sell the goods even if the
sale from LMC had not been paid for (and, prima facie, Oakhurst did
not have clear title to sell).
As between Oakhurst and LMC, Oakhurst has not paid for the 58
caravans. However, as between GE and Oakhurst, GE has paid for the
caravans. As such, there were no receivables from the sale to cede
to LMC by reason of ROT-4.
The Court held that GE was entitled to retain the proceeds of
sale. LMC's appeal was dismissed with costs.
LMC would be entitled to lodge a proof of debt in Oakhurst's
liquidation. However, the dividend, if any, may be minimal.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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This was an interlocutory decision about the appointment of a tutor for the child appellant, to carry on his proceedings.
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