Question: I have recently purchase goods worth £12,000.00 from a supplier, the goods have been damaged during transit and before delivery.
Answer: Unless otherwise agreed, Section 20 of the Sale of Goods Act 1979 provides that “risk” in goods (the responsibility for loss or damage to them) passes to the customer when “property” (ownership in them) passes to the customer. This is the default position of risk in contract law.
However, in modern commercial transactions, it is common for suppliers to include a retention of title clause (sometimes referred to as a Romalpa clause, after the first leading case on the subject). The purpose of a retention of title clause is to ensure that whilst the supplier is awaiting payment of the goods, property in them remains with the supplier and therefore, if the customer was to go insolvent, the supplier would be able to recover possession of the goods and rank priority over secured and unsecured creditors of the customer.
The problem that arises is in the absence of a specific provision, whilst the customer is in control of the unpaid goods, risk, under the Sale of Goods Act, still remains with the supplier.
A supplier will want risk in the goods to pass to the customer at the earliest possible stage. Risk is commonly linked to the delivery of the goods but an aggressive supplier may wish risk to pass as soon as the goods leave its control e.g. once given to a third party courier. This is, of course, the opposite position with the customer who will want the risk to pass at the latest possible stage.
If a supplier does provide that risk passes on delivery, whilst payment is still outstanding, it may also require a customer to insure the goods and note the supplier’s interest. This would, therefore, protect the supplier for damage or loss to the goods whilst they remain unpaid and at the risk of the customer (for any reason they do not recover possession under the retention of title clause). It may be impractical to insure every delivery from a supplier and the supplier’s ultimate remedy may be to sue the customer for breach of contract, however, if the customer is in financial difficulty trying to recover damages may prove to be futile.
The risks above outline the necessity to read any terms and conditions carefully, particularly if the goods in question are of very high value. If you are a supplier it is very important to scrutinise and update your standard terms and conditions to ensure they are fit for purpose, in the event a dispute arises. If you are a customer who regularly deals with a supplier you may wish to review the terms with the supplier to ensure you are in compliance.
If you are a supplier or customer concerned about your standard terms and conditions, please contact the corporate and commercial team at Talbot Walker on 01264 363 354 or email simonw@talbotwalker.co.uk or roberth@talbotwalker.co.uk.