A ROT clause can protect you when customers go under

Philippa Dempster
Thursday, July 7, 2011

Every printer should have a Reservation of Title clause (ROT) in their contract. This simple device allows you to retain title to products that you have printed and that have left the premises, until you have been paid.

In practice, this means that if a customer becomes insolvent after receiving the goods and prior to making payment, the printer can either collect the goods or, more likely, barter with the insolvency practitioner for payment. In the latter case, a printer with an ROT clause will be able to demand payment in full rather than simply receiving a few pence in the pound as an unsecured creditor.

The recent case of Bulbinder Singh Isher (trading as Isher Fashions) vs Jet Star Retail Ltd, in which Freeth Cartwright acted, highlights the need to ensure that your ROT clauses also allow you to either terminate the right to re-sell the goods, once the customer becomes insolvent or the contract allows you to terminate on insolvency.

In this particular case, the clause was a pretty common one which allowed the customer to use and sell the products in the ordinary course of business. The administrator argued that he was simply selling in the ordinary course of business and therefore the ROT clause could not be used. The court decided that sales by the administrator were in the ordinary course of business and that the supplier really should have terminated the contract, which it had the right to do. Only if it had done this would the supplier have been entitled to the goods back or payment in full from the administrator.

So, what do you need to do?
Firstly, you will need to have a clause in your contract which reserves title until all monies owed to you are paid and that ensures that if you are not paid, or in the event of the onset of insolvency, you can require the return of the goods immediately. You also need a clause that allows you to terminate in the event of insolvency, or in impending insolvency you need to be sure you can cease supply.

Secondly, you need to ensure that this clause is included in your terms and conditions and make sure the customer has seen your terms, and agreed to them, before you accept the job. Putting it on invoices is generally too late; it may be acceptable if you have lots of dealings – and therefore a lot of invoices – but it’s still risky.

The third thing you need to do, if the customer becomes insolvent and you have already delivered the finished product to that customer’s premises, is to tell the administrator or liquidator that you have reserved title. Go and check your products are there, count them and require the insolvency practitioner to pay you in full or return the goods.

Finally, if the administrator or liquidator challenges your claim, take advice straight away.

So, it is time to look at the small print, dust down your clause and make sure you are fully covered.

If a customer becomes insolvent, tell the administrator or liquidator you are claiming title, go and see if your products are still there or with a customer who hasn’t as yet received title to them and consider terminating the contract.

Philippa Dempster is a partner at Freeth Cartwright

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