Retention of title claims - gambling on success?

Following the decision in a recent case involving the supplier of fruit machines, we are able to provide helpful guidance and advice on the obligations of administrators and liquidators when assisting a supplier in retaining ownership of goods supplied prior to insolvency.

Following the decision in a recent case involving the supplier of fruit machines, we are able to provide helpful guidance and advice on the obligations of administrators and liquidators when assisting a supplier in retaining ownership of goods supplied prior to insolvency.

The recent case of Blue Monkey Gaming Limited v Hudson & Others [2014] EWCH (Ch) will provide administrators and liquidators with some much-needed comfort that they are unlikely to be held personally liable in classic retention of title disputes. The decision was not only a ruling in favour of common-sense principles but also provided helpful guidance on an office holders’ duties and obligations when faced with retention of title claims. It upholds the principle that office holders are not obliged to identify the supplier’s property for it but are merely required to permit and supervise access to enable identification. 

The case

The Agora Group, which operated adult gaming centres across the UK, went into administration in December 2009. In June 2011, MDM Leisure Limited (“MDM”) who supplied fruit machines to the Agora Group asserted retention of title claims over the machines supplied prior to the administration. The claims were subsequently assigned to Blue Monkey Gaming Ltd (“BMG”) in December 2012 following MDM entering into a creditors’ voluntary liquidation. BMG pursued a claim for damages in excess of £7 million against the administrators personally on the grounds that the administrators had:

  • Caused MDM’s machines to be used to make money for the administration outside the agreed supply terms
  • Failed to deliver up the machines after a demand for their return.

The court dismissed the claim and held that the administrators had not wrongfully interfered with MDM’s machines.

Implications for a supplier

The court made a number of helpful comments in respect of a supplier’s role in making a claim for goods:

1. The obligation is on the supplier to identify its own goods

The extent of the administrators’ obligations were to “permit and supervise access” to enable a supplier to identify its goods. A supplier should therefore take steps as soon as possible, after appointment, to identify its goods using stickers or markers, and segregate them away from other suppliers’ goods. 

2. A supplier should make a clear, genuine or unequivocal demand for the delivery up of the goods

A letter from MDM’s solicitor was inadequate as it failed to sufficiently identify the property. A list which requests “all property supplied” or which does not specify the goods being claimed is unlikely to be acceptable. 

3. A supplier should avoid indirectly consenting to continued use of the goods

MDM was held to have consented to continued use of the goods, which was reinforced by its failure to make an application requiring the administrators to make payment to MDM for the continued use. A supplier should therefore seek to agree terms in respect of continued usage of the goods as early as possible after appointment.

Clarification for administrators and liquidators

The decision clearly defined the extent of an administrator’s duties and obligations to a party claiming ownership under a retention of title agreement by concluding that:

1. Administrators are not required to identify a supplier’s property for it.

They should permit access to enable a supplier to identify its own goods and then act as an adjudicator in respect of any claim that subsequently arises. An administrator remains entitled to reject a claim, but should proceed with caution with such an approach.

2. An administrator should adopt a standard procedure for dealing with retention of title claims which is communicated to all suppliers at the outset of the administration.

This should set out the administrator’s role and the extent of its obligations in respect of any retention of title claim. It should also set out what it is not obligated to do.

3. An administrator should be careful not to make an offer to identify a supplier’s property for it.

This may be enough for an administrator to subsequently be held to perform to this standard.

There has been much debate in the past over what constitutes an effective retention of title clause, and in particular whether the wording will result in it being construed as a charge and ultimately unenforceable unless registered as such. 

Perhaps this case will act as a warning to all - that whilst the time spent constructing a well thought out retention of title clause remains as important as ever, it is ultimately the supplier’s actions after appointment (as opposed to the administrator’s inactions) that will impact on the likelihood of a supplier retaining ownership to its goods supplied prior to the insolvency. 

Author: Sarah Jennings

This information is intended as a general discussion surrounding the topics covered and is for guidance purposes only. It does not constitute legal advice and should not be regarded as a substitute for taking legal advice. DWF is not responsible for any activity undertaken based on this information.

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Richard Holmes

Senior Associate

I am a specialist in real estate finance and restructuring acting for a variety of stakeholders on solvent, distressed and insolvent matters.