Preserving 'Retention of Title' Rights Over Products Sold On Credit

Many businesses supply goods on credit subject to 'retention of title' provisions in their sales agreements. This article discusses the effect of the Personal Property Securities Act 2009 registration system (effective 30 January 2012) on the enforceability of such provisions.

What is a 'retention of title' provision?

In normal circumstances, title (more commonly referred to as ownership) in relation to goods sold passes to the buyer immediately. A typical transaction might take place in a shop, involving the exchange of money for a product, with the buyer becoming the owner of that product when the money has been given to the shop assistant.

Even if payment is not made immediately, contract law says that in most circumstances the buyer becomes the owner of a product when the agreement for sale is made. From the seller's perspective, ownership of the product is replaced by a debt owed to the seller by the buyer.

However, an agreement for sale can include a provision whereby the seller retains ownership until the agreed price for the product has been paid in full.

Are 'retention of title' provisions still effective?

Prior to 30 January 2012, such provisions were generally effective against other creditors of the buyer, subject to the agreement being proved... ie, subject to the seller having evidence of the arrangement. It is important to note that such provisions were not generally effective against a subsequent purchaser in good faith, such as where the initial buyer fraudulently on-sold the product to an innocent third party.

Now, from 30 January 2012, retention of title provisions can also be defeated by another creditor of the buyer, where that creditor registers their interest on the Personal Property Securities Register (the PPSR).

For example, you may sell a product on the basis that you retain title until payment has been made in full. The buyer takes possession of the product and takes it to their office. The next day the buyer enters into a credit agreement with a finance company, giving that company security over all of the assets of the buyer's business. The finance company registers a financing statement on the PPSR. A few weeks later the buyer's business goes into liquidation. According to the PPSR and the Act, the finance company is entitled to priority in relation to the product, and may therefore have possession of it... your 'retention of title' provision becomes worthless.

If you had registered your own interest in the product on the PPSR (within 15 days of the sale) that would have 'perfected' your security interest. The finance company's interest would then have been secondary to yours, and upon the buyer going into liquidation you would most likely have been able to recover your product from the liquidator.

What is a financing statement?

This is a standard form document described in section 153(1) of the Personal Property Securities Act 2009, that includes the following information:

- Details of the secured party (eg, the seller)

- Details of the grantor (eg, the buyer)

- The secured party's address for notices, and any relevant 'identifier'

- Description of the collateral (eg, the product supplied) and proceeds

- The date when the registration ends

- Indication of subordination... where some other interest has priority

- Whether the secured party's interest is a 'purchase money security interest'

- Other details prescribed in the Personal Property Securities Regulations 2010

What about products sold subject to 'retention of title' before 30 January 2012?

Section 322 of the Act provides that a security interest arising from a 'transitional security agreement' - eg, an agreement which was in force before 30 January 2012 in relation to collateral - is perfected without registration for up to 24 months.

However, as a transitional security interest is not recorded on the PPSR, it will not show up in a search of the PPSR. This raises the possibility of a liquidator selling or disposing of secured property because he or she is unaware of a relevant security interest. Recoverability of that property will then depend on whether the transitional security agreement complies with the Act's requirements in relation to signature/acceptance of the agreement and description of the collateral. The right to recover some items, such as inventory, may be lost once those items have been sold or disposed of by a liquidator.

Although this new regime addresses many shortcomings of the previous state laws, failure to perfect title by registration on the PPSR may now have disastrous consequences for a seller or lender. In particular, professional advice should be sought where it is intended to rely on the transitional arrangements in relation to significant transactions.

Stephen Bourne is a lawyer in Australia (see profile ), and also contributes articles and case summaries to the Ekupu Law Library website. Stephen has law and business qualifications, and is a Fellow of the Australian and New Zealand Institute of Insurance and Finance.

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Client Retention - The Key to Success

Can clear communication with your client base promote your business?

The answer is of course a resounding "Yes"

Competition for clients has never been so intense. Following on from the D Day scenario that from the 6th October this year non-lawyers are now allowed to offer legal services; law firms will need to be much more client focused in their approach than ever before. One way to ensure that clients are kept within a law firm is ensure that clear communication with the client is paramount in the mind of all staff who deal with clients. That could be from your reception area to general staff working within your firm, and of course the fee earner who deals with their case load.

Some key ways to ensure that the client stays with your firm and do not stray to any of your competitors would be to implement the following:

Retaining clients through clear communication?

Rapport: Rapport with clients making their cases individual to them. Asking them how they are and how they are doing always gets a positive response. This tends to immediately create rapport which is a powerful tool when dealing with clients. This way the client does not feel that they are simply a number in a persons case work load and the service becomes much more personalised.
Specific: Knowing what you need in terms of information from the client and explaining to the client the process and what will happen next. Clarity about the clients' responsibility in relation to providing instructions and why certain forms have to be completed and returned. Being knowledgeable about their case and answering queries with clarity and without hesitation, this increases the clients' confidence in the handling of their claim.
Voice mail messages: Leaving clear contact details such as direct dial, e-mail and willingness to answer queries should they have any problems or concerns. Inviting clients to call at any time to discuss their case (office hours need to be specified of course); consider the tone of voice used as this can have a profound effect if the message left sounds disinterested. Being enthusiastic about clients' claims will also encourage the clients to be motivated to provide any instructions that are needed. If interests in the clients cases is shown then it follows that the clients will also be interested and motivated to progress their cases.
Understanding: Checking to make sure that the client understands the information provided, this entails listening and feeding back to ensure that clients have understood all that has been said.
Reassurance: Explaining and reassuring the clients that their claims are under control that sound legal advice is provided. Providing clear, accurate and concise information; this can further seek to increase rapport which will encourage the clients to stay with a firm and will also reduce any client complaints. A client is unlikely to complain if they like the person they are dealing with!
Promoting awards and services: The Lexcel accreditation backs up your credentials as a law firm, and this is something that the non-law based firms may lack at the outset. Promoting other membership bodies will also boost confidence with clients and this will lead to retaining their business. This should also lead to repeat business which will also enhance reputation.

Advising clients of your other services will encourage clients to stay with your firm if they have some other type of legal need. This promotes the firm as being able to handle all their legal needs and will reduce the need for the client to shop around if they have had a good experience.

The client experience: If the client has had a good experience then they will come back to your firm, this will also lead to further referrals by word of mouth and to law firms this should be considered to be very valuable. The reason for this is that it does not cost in terms of advertising, a good reputation in terms of customer service can soon lead to much more repeat business, as a personal recommendation is a trusted lead.

Retention of your clients is of paramount importance and communication is a key factor. Analysing communication as to how information is delivered and the accuracy therefore, leads to more clients being retained which will overall lead to a more profitable practice.

Established in 2001, MTA Solicitors provides a wide range of legal services including personal injury, employment, debt, corporate law, general and commercial litigation and dispute resolution (including arbitration), IT and e-commerce, banking and finance, trusts, wills and probate, trust litigation and contentious probate.

MTA has offices based in London, Kent and Manchester. Please visit: http://www.mtasolicitors.com/ for further information

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