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All is not rotten: how might I use an RoT clause?

Last week, I looked at how a retention of title (RoT) clause can catch a contractor out, even if it complies with its building contract. This week, I want to look at this issue from the point of view of the supplier.

I Googled “RoT” and it is (we are assured) used as a reference to “Right on Time”, in which the Red Hot Chili Peppers told us that “it’s time to get on top of this“, so here we go…

Generally speaking we are talking about retaining title to goods. But what else, besides an RoT clause, might you protect by retention of title?

  • Intellectual property rights. It is possible to create and retain similar rights using the law of intellectual property. An architect or engineer can, using the law of copyright, prevent their clients (and others) from using drawings and designs if their fees have not been paid. They can also retain ownership of paper drawings – if there are any.
  • Liens. I briefly mentioned liens in my previous post, using the example of what I called a “dry cleaner’s lien”, which would also apply to those who assemble free issue materials or take plant off site to repair or maintain it. There is certainly an element of overlap between a lien and an RoT clause. (While we are on the subject, in adjudication, we know from Cubitt Building & Interiors v Fleetglade that an adjudicator cannot have a lien over an award pending payment. However, the Scottish authority cited in that case relies on the fact that a lien would delay a statutory process. In other cases, perhaps in a bespoke adjudication agreement where the Construction Act 1996 did not apply, the answer might be different…)

Practicalities

If you want to make an RoT clause stick, there are a number of useful points in this Practice note. I would pick out a few others as well:

Make sure that your contractual procedures are in order

A lien or RoT clause is of no use if it has not been incorporated into the contract with your customer because you have lost the “battle of the forms” and your customer’s terms expressly say that there is no lien or RoT clause.

Don’t assume that one size fits all

I remember having a very pedantic, but surprisingly useful, discussion about the difference between owning a drawing and having the right to use it:

  • The context was the supply of equipment with a very long design life. The profit margin on the equipment was relatively modest.
  • The manufacturers expected to make most of their money by supplying consumables and spares over a long period of time. The equipment was bespoke and so were most of the consumables and spares. The manufacturers were happy for the purchaser to own the drawings but only to use them for operation and maintenance and a few other activities such as getting insurance and regulatory permits. What the manufacturers were worried about was that the purchaser would get somebody to reverse-engineer the consumables and spares.
  • The deal that was reached involved a “value for money” deal in relation to spares and a right to reverse-engineer, in the event that the manufacturers either refused to supply consumables and spares or went bust.

Behave like an owner

  • Don’t allow people to put notices on your equipment (especially if the equipment is on your premises) saying that it is owned by somebody else. Date stamped photographs of these notices will not impress the Judge if you are in court arguing that you have retained title. Think about telling people “up the line” that you have retained title to avoid them releasing money on the strength of a vesting certificate which turns out not to be effective (see my previous post).
  • Watch out for section 25 of the Sale of Goods Act 1979. Subject to the complications of case law on this section, if the goods you supplied are in the possession of a third party buyer, who bought them in good faith without knowing of your lien or RoT clause, they are likely to have equivalent rights to those they would have had if you had delivered the goods to them yourself.
  • If you are relying on a lien, don’t part with possession unless you have been paid or take some security for payment.

Bear in mind that this is one of the most difficult areas of the law to get your head round

However, lawyers have a saying that the best way to get round an unhelpful bit of law is by relying on a helpful bit of fact. If your contracts are clear, your goods clearly marked and you have proclaimed your ownership to all those who are prepared to listen (and a few who are not), then you are ahead of the pack.

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