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Purchasers and suppliers of goods should look carefully at the terms of the contracts they are entering into.

A clause commonly included in contracts for the sale of goods is retention of title ("RoT"). An RoT clause alters the usual position that ownership (or "title") of goods passes on delivery. Instead, the supplier retains ownership until certain obligations (usually payment) are fulfilled.

In theory, the benefit for the supplier is that they have some protection against insolvency: if the purchaser goes into liquidation or administration before the goods are paid for, then the supplier can claim the goods back (rather than being left with an unsecured debt claim against the insolvent purchaser). However, there are two areas to examine before the theory will succeed.

Is the RoT clause properly incorporated into the contract?
The terms and conditions of contract must have been communicated to the purchaser before the goods were delivered. This is a very subjective matter, dependent on the facts of the case and requires careful examination by your lawyer. As a general rule, you should ensure that RoT clauses and other standard terms and conditions are within your contractual paperwork at the right time. The best drafted RoT clause will not help you at all if it is buried in small print which has not come to form part of the contract, for example if the first time a buyer sees it is on the back of an invoice (a post-contractual document).

Are there any other relevant circumstances that might render an RoT clause ineffective?
Even if a supplier is able to establish that their terms and conditions contain an RoT clause, there still might be circumstances where it might not be effective. It may prove to be ineffectual if:

1. The suppliers' goods have been used in the manufacturing process and are no longer identifiable. That said, RoT clauses can succeed where goods are identifiable (for example through the use of bar codes or serial numbers) and can be removed without major damage.
2. There is a regular supply of goods from the supplier to the purchaser, making it difficult to identify which goods are attributable to a particular invoice. However, if the contract contains an "all monies" clause (which provides that title passes only when the account between the parties is paid off), the RoT clause might still be effective.
3. The goods have been sold on, as it will be very difficult for the supplier to enforce the RoT clause against someone buying in good faith without notice.