B S Sandhu t/a Isher Fashions UK v Jet Star Retail Ltd t/a Mark One) & Others [2010]
I supplied clothing to J under I’s standard terms and conditions which included an “all monies” ROT clause. The contract also gave I the right to terminate the contract if J became insolvent or entered administration. J went into administration holding stock purchased from I.
I did not terminate the contract nor did it attempt to recover any stock. Subsequently, the administrators sold the stock and I made a claim in damages against the administrators for the value of the goods, alleging unlawful conversion.
The court dismissed the claim on the grounds that the administrators acted in accordance with the established terms of contract which provided for on-sale. I had not exercised its rights to terminate the contract nor had it taken steps to identify the stock. I could therefore not prove an immediate right to possession of any of the stock.
The High Court decided that an “all monies” retention of title (ROT) clause was unenforceable by the supplier creditor because it was inconsistent with the agreed course of dealings that the goods were supplied for immediate on-sale by the debtor.
This case highlights two important lessons for suppliers who seek to rely on ROT clauses when their debtors go into administration:
- ROT clauses should be drafted to safeguard the supplier creditor’s rights where stock is to be re-sold by the debtor.
- The creditor should proactively exercise rights to terminate the contract if appropriate and, in any event, should identify stock following the appointment of administrators or liquidators.