The unsecured trader's clause for thought

David Dhanoo, of Euler Trade Indemnity, highlights the importance of retaining title of your goods when your buyer runs into trouble.

You have supplied generic hardware and related goods to a major buyer on credit terms. This buyer's insolvency or failure to pay its debts could cripple your business.

However, you have not obtained any security or credit insurance, or even reviewed your terms of business to ensure that you have an effective Retention of Title clause (or Romalpa, as they are commonly known) in every sales contract.

A Romalpa clause is an effective weapon held by an otherwise unsecured creditor, but you must get it right. Section 17 of the Sale of Goods Act 1979 states that title to your goods passes to the buyer when the parties intend.

This allows you to stipulate in your sales contract that title passes only when you have been paid (this is the 'simple' Romalpa clause).

Better still, you could insist that title passes only when the buyer has paid for those goods and all others you have supplied (this is the 'all monies' Romalpa clause).

But the latter is worthless if it is not incorporated into the sales contract, or if you cannot identify your goods.

You can pass the 'incorporation test' by printing your terms of business on all of your paperwork, including price lists, brochures, credit applications, order forms and invoices. The buyer must be aware of your terms before the contract is signed.

To pass the 'identification test' you must be able to ensure that you can identify your products in the possession of the buyer. The best way is to attach labels with your company name to the products and keep a list of the serial numbers.

Now you have done the groundwork and have a well drafted 'all monies' Romalpa clause, and can identify your goods.

Here are some practical steps to enforce your rights when the buyer fails to pay or goes into insolvency:

• Immediately contact the buyer or insolvency practitioner verbally and in writing.
• Say that you have retained the title of your goods and refer to your Romalpa clause.
• Revoke the buyer's right to resell your goods and demand that the products are segregated and marked as yours, and an inventory is drawn up.
• Advise the buyer/insolvency practitioner that further dealing with your goods will result in its liability for wrongful interference or conversion under the Torts (Interference with Goods) Act 1977.
• Arrange a date to recover your goods or, if you are dealing with an insolvency practitioner, get its assurance that you will be paid for your goods.

David Dhanoo is head of legal and secretariat at Euler Trade Indemnity.