Protecting Your Rights to Retention of Title

In the recent case Blue Monkey Gaming v Hudson & Others the High Court held that the responsibility of identifying and proving title to goods under retention of title clause falls solely on the seller, not the administrators dealing with an insolvency.

Background

In a case originating out of the administration of one of the largest adult gaming operators in the UK, MDM Leisure Limited had supplied fruit machines prior to the administration but had not been paid for these machines. Blue Monkey Gaming Limited obtained, through assignment, the rights of MDM and asserted retention of title over the machines and when this proved fruitless, because the administrators had entered into an asset sale agreement selling on the gaming operation including the machines, issued a claim against the administrators directly.

Decision

The Court held that the administrators were not liable. It found that MDM and Blue Monkey had made several errors which prevented them from being able to claim retention of title over the machines. In particular the Court held:

• MDM had not clearly labelled their machines to show they were supplied subject to a retention of title clause;
• MDM did not have a clear list of the machines supplied, nor clarity on what had been paid;
• When the gaming operator became insolvent MDM never made an unequivocal demand for return of the machines;
• They did not go immediately to the gaming premises to mark up their machines and they made no attempt to identify the machines, arguing that this was the responsibility of the administrators;
• When the administrators continued to run the gaming operations during the administration, to preserve value in the business, MDM did not seek payment for the hire of the machines (they failed to make an application to have the use of the machines declared an expense of the administration);
• Overall they did not clearly assert title over the machines and did not act quickly enough to ensure their retention of title clause offered them the protection it should have provided.

The Court found that it was commercially impractical to expect administrators - newcomers having to oversee complex and often chaotic businesses fast - to identify all assets on administration premises subject to a retention of title claim. The Court found that the only obligation of the administrators was to allow those with a potential claim access to the goods and to assess the claim on the evidence the alleged owner put forward.

Commentary

How can you learn from MDM/Blue Monkey’s mistakes? If your company sells goods under contracts with retention of title clauses ensure that you have a process to follow should a buyer go into administration or otherwise act in breach of that clause. Key points to remember are:

• Draft your retention of title clause clearly and ensure that it is incorporated into the contract;
• During the contract clearly mark the goods you supply and identify that they are delivered subject to your retention of title;
• If payment is not made and an insolvency ensues, clearly assert retention of title at an early stage and demand delivery up of the goods (formally record service of the demand);
• Go early to the site and identify your goods;
• Ensure that you have a clear paper trail demonstrating (i) supply and a right to payment, (ii) non-payment, (iii) your contractual right to retention of title, and (iv) clearly identifying the goods;
• Act consistently with a right of ownership at all times - if the administrator uses the goods make an application to have them declared an expense of the administration and seek payment, if the administrator tries to sell on the goods resist this in advance of the sale.

Be prepared – assert your rights early and with detailed evidence to back them up, demonstrate a clear understanding of which of your goods are affected and ensure the goods are easily identifiable and promptly identified.

Further Reading

If you wish to read the case, the case reference is: Blue Monkey Gaming v Hudson & Others [2014] EWHC (Ch)