Retention of Title clauses in Supply Contracts (including Conditions of Sale) serve the useful purpose that if a customer fails to pay, particularly in case of insolvency, the supplier can get his goods back, provided the contract makes it clear that title is not to pass until payment is made and the other requirements for an effective Retention of Title clause are in place.

But what if the customer is solvent, has a claim against the supplier and has on-sold the goods? Obviously, it might be possible for the supplier to counterclaim, but at the risk that progress of the overall action would lie in the control of the customer.

In principle, section 49 of UK's Sale of Goods Act 1979 (the relevant sub-sections of the Manx 1983Act are the same) would seem to provide an attractive solution by enabling the supplier to take proceedings independently for the price of the goods. The difficulty is that this remedy is available only if title in the goods has passed to the customer (or where title is to pass on a particular date irrespective of delivery).

It is the next question which was the subject of an appeal in Caterpillar (NI) Ltd v John Holt & Co (Liverpool) Ltd (2013). If the customer in possession of goods under a Retention of Title clause resells them, at the moment the resale takes place does the customer have title in the goods so as to transfer the same to his purchaser? The answer in the High Court was "Yes" but the Court of Appeal disagreed by a majority of 2:1, with the result that the claimant's action to recover the price of the goods failed.

This decision will be strongly persuasive in the Manx courts.The Court of Appeal has given the claimants permission to appeal to the Supreme Court and the case is expected to be heard in the Supreme Court in June 2014.

Whatever the outcome of the appeal it would be prudent for suppliers to review their conditions of sale and contracting procedures and if necessary amend them so that:

  • Time for payment of the price is of the essence,
  • The Retention of Title clause includes a contractual right to recover the price of the goods whether or not title has passed to the customer,
  • There is a "no-set off" clause to prevent a counterclaim by the customer, and
  • All other requirements for a Retention of Title clause to be effective are in place and it is effectively incorporated into the actual sale of the goods in question.

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.