14 November 2013 #Dispute Resolution
Most companies in the business of selling physical goods of any sort will include a retention of title clause in their terms of business. The purpose of such a clause is to prevent title in the goods passing to the buyer unless and until payment has been received, and to enable the seller to recover the goods if payment is not made.
A case in the Court of Appeal on 17 October has highlighted the risk that retention of title clauses may, depending on the wording, actually prevent a seller suing a buyer for the price of goods. In this case, Caterpillar (NI Limited) –v- John Holt & Co, the Court of Appeal decided that the inclusion of a standard retention of title clause providing that property did not pass to the buyer until payment had been made to the seller meant that the contract fell foul of the often overlooked provisions of section 49 of the Sale of Goods Act. That section appears innocuous and provides that if a seller wants to sue for the price of goods the buyer must have failed to pay the purchase price. In addition it requires either that the property in the goods must have passed to the buyer or that the price must have been due irrespective of property passing.
Unfortunately for the seller in the Caterpillar case, property had not passed to the buyer since the retention of title clause stated that it did not do so. Because the contract did not provide that payment should be due irrespective of delivery, the seller’s claim for the price of the goods failed – even though it had not been paid!
That did not leave the seller without any remedies: it could still sue for the return of the goods. But it put a serious hurdle in the way of its claim and meant that its summary judgment application failed. It is a cautionary tale. Any business using terms of business that include a retention of title clause should ensure that there is also an obligation to pay the purchase price, irrespective of delivery and passing of title, which will trigger a right to sue under section 49.