Materials and equipment delivered and on site - what you need to know
You might think it’s common sense that you keep ownership of goods and materials that you have delivered to site, and can always lawfully get them back until you have been paid.
This is an area that lawyers call “Retention of Title” (or keeping ownership of materials and equipment, when delivered, until they are paid for)
What’s the problem, then?
You’ve supplied goods to someone else, they go bust or just will not pay, and you can neither get your goods back nor get paid.
So what’s the basic position on ownership?
Once you deliver goods or equipment to someone else, intending to sell them (and this includes as part of a contract for work), “title” (or “ownership” in plain English) passes to that other person.
It doesn’t matter whether or not you have been paid. Once you have parted with possession, as a starting point, then that other person owns them legally from that point on and all you have got is the right to sue for your money and if the company/person you are suing has no money, then you have lost your money.
What else in terms of basic principles?
Well, and this might seem a good thing, the risk passes to that other person as well. So if they get stolen, damaged or destroyed, that’s their problem and not yours.
Isn’t that good news, then?
If that other person is solvent and reputable and was always going to pay you anyway, yes. It wouldn’t matter if the goods were destroyed or stolen because the customer would be insured; he would get the cash and reimburse you for the value of what you had supplied. But that may not always be the case. It’s not unknown for people to be less than straight!
Hang on, though. Isn’t there also a problem if they go bust?
Ah yes. Now you put your finger on it.
Although you have given them the kit, and they had the responsibility for it before they went bust, you now have nothing to show. If you are lucky, you might get a few pence in the pound in two or three year’s time when everyone else has had their money out of the insolvency.
Ok, but insolvency was a problem in the recession. People aren’t going bust now are they?
You would be surprised.
Those of you old enough to remember previous recessions will know that insolvencies actually increase as the economy picks up. No industry shows this trend more than construction.
Fraser Brown have had a number of jobs since Christmas 2014 where a company owing money has become insolvent.
So is that it? Can’t I protect myself against not getting paid in these circumstances?
Well, yes you can.
Get a “retention of title clause” in your contracts.
This says that ownership doesn’t pass until you have been paid. A well drawn clause might well give you a bit of help in those circumstances. It should also say something along the lines of “title to goods not passing until all sums payable in respect of those goods have been paid”.
So, it’s as simple as that, then. All I have to do is to find words like that from someone else’s paperwork and copy them in to my contract wording?
Not quite. The wording really needs to be thought about to cover your particular situation.
What if you can’t get access to a locked site?
What if you have supplied kit similar to that which the employer has been buying elsewhere and you can’t tell yours apart?
What if materials you have supplied have been incorporated in something else? A good example is you have supplied cement which has been mixed with water and then made into concrete footings. You would have no chance.
But I’m an electrician/electrical contractor. I’m ok. I can always show what’s mine
You’d be surprised.
Granted, you might have supplied a generator and there it is, sitting there with your label on it in the corner of the site and you go in there with a friendly and cooperative liquidator of the company that owes you money. He/she says “of course, do, please, take your equipment away”
Now, the real world.
The liquidator says “I am not letting you into these premises. Why should I make your life easier?“
Or “Prove it. I have got three generators here. Prove this one is yours. Prove that the conditions you have cover all the supplies you have made to this company”. More likely, “all that specialised conduit is now fixed to the building and can’t be separated”
Well, just what are you saying?
Like everything else in life, there are no guarantees. There is no way of giving you a cast iron promise of getting paid, or your property back, in all circumstances.
However, if you get your contracts worded so that
- your goods remain yours until paid for
- your goods are kept properly marked and separate from everyone else’s until used
- you have right of access to your customer’s premises at any time to see where your materials/goods are stored
then you will have a fighting chance of maximising your payment even if your customer becomes insolvent.
So how confident are you all this will work?
We all trade in the real world. There are many situations where no amount of words will cover you.
However, one guarantee we can give is that if you do nothing you can wave goodbye to your money in virtually all situations if your customer goes bust.
Do something, (and by “something” we mean spend a few hundred and get some decent terms of contract), then the chances of getting any unfixed material back from an insolvent customer can be massively increased.
For more information, please contact Richard Brackenbury in our Construction Law department.