Section 18 of the Sale of Goods Act 1895 (SA) sets out rules regarding when title to goods passes, including a rule that title passes if a contract is silent on the time of delivery or payment.
A well-drafted Retention of Title (ROT) clause ensures that title to goods is retained by the seller until the purchaser pays for them. Some ROT clauses include a right to enter onto premises and seize goods that have not been paid for, assuming that the goods can be identified. A lawyer should be retained to prepare an ROT clause, given that such clauses can be strictly construed and may have unintended consequences.
Since the commencement of the Personal Property Securities Act (PPSA) and Register (PPSR), retention of title clauses have taken on particular significance in business dealings.
If goods are supplied to businesses on an ROT basis, a supplier can obtain priority (known as a Purchase Money Security Interest or PMSI) over secured creditors as long as:
- the ROT arrangement is properly registered on the PPSR; and
- the ROT clause is well-drafted.
Registration of the ROT arrangement is particularly important to protect suppliers when purchasers of their goods default on payment, and prevents the default position under the PPSA where goods that are the subject of a security interest vest in the purchaser on the appointment of a liquidator, if the ROT clause is unregistered or if there is delay in registration [see s 588FL Corporations Act 2001 (Cth)].
The PPSA also creates a right to the proceeds where goods have been used and on-sold [s 32 PPSA], in cases where payment has not been made by the purchaser.
Given the importance of effective and timely registration of an ROT clause, professional advice should be sought to prepare supply terms and conditions, and then effect registration.
Further information can be obtained from the Personal Properties Securities Register at: ppsr.gov.au
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