Vol 8 (2011) - Issue 6

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Bulbinder Singh Sandhu (t/a Isher Fashions UK) v (1) Jet Star Retail Ltd (In Administration) (2) Michael Healy (3) Neil Bennett: The Enforceability of Retention of Title Clauses following Insolvency

Introduction

In the case of Bulbinder Singh Sandhu (t/a Isher Fashions UK) v (1) Jet Star Retail Ltd (In Administration) (2) Michael Healy (3) Neil Bennett1 (described here as the 'Isher Fashions' decision) the Court of Appeal reviewed the effect of a retention of title clause found in a contract for the supply of clothing between a manufacturer and a retailer. The court considered whether the retention of title clause could be enforced following the insolvency of the buyer where the buyer had re-sold the goods in question after entering into administration. In determining this, the court looked at the contract as a whole, taking into account the commercial conditions in which the parties were operating. In addition to the retention of title clause, the contract also contained a 'trigger clause' which gave the manufacturer the right to prevent the retailer reselling the goods following the insolvency of the retailer, but did not specify that the retailer’s right to resell terminated automatically on insolvency. It was held that following an insolvency event the retention of title clause did not prevent the retailer from disposing of the goods either through its normal course of business or through the sale of the business as a whole because the manufacturer had not taken any positive steps to terminate the retailer’s right to resell.

Retention of title clauses generally

It is common for parties to a supply contract to agree that the supplier will retain title over the supplied goods ensuring that:

'… although the buyer is entitled to possession of the goods, the property in the goods is not to pass until the price is paid or some other condition is performed. In such a case, it is a question of construction of the contract as to how the buyer may deal with the goods, for example by using them or reselling them.'

The first leading case on this type of clause was Aluminium Industrie Vaasen BV v Romalpa Aluminium Ltd. As title to the goods remains with the seller and does not pass to the buyer, those goods do not form part of the assets of the buyer in the event of insolvency and are not available for creditors of the buyer under the regime of the Insolvency Act 1986 and the Insolvency Rules 1986. However, as the Isher Fashions case shows, the validity and enforceability of retention of title clauses is decided on a case-by-case basis and will depend on the wording of the contract as a whole.

Enforcement of retention of title clauses after insolvency

On a practical level, insolvency practitioners will be reluctant to agree to release assets where title is retained until they can be certain that the clause under which it is claimed is valid.