A recent Victorian Supreme Court decision¹ held that a credit application agreement (CAA) did not include as a term a retention of title (ROT) clause written on the supplier’s invoice and, even if the ROT clause was a term of the CAA, the CAA did not constitute an overarching supply agreement governing the supply of goods by the supplier.
Central Cleaning Supplies (Australia) Pty Ltd (Central Cleaning) supplied cleaning equipment and products to Swan Services Pty Ltd (in liquidation) (Swan Services). In September 2009 the parties executed the CAA, which provided Swan Services with 30 days of credit for goods purchased from Central Cleaning. The CAA included a statement that the supply of goods was governed by Central Cleaning's "Standard Terms and Conditions".
Central Cleaning had no "Standard Terms and Conditions". Instead, each invoice issued to Swan Services included a ROT clause which stated that the goods remained Central Cleaning's property until Central Cleaning had been paid in full.
After 30 January 2012, Central Cleaning supplied cleaning equipment and products to Swan Services. On 22 May 2013 and before the goods had been paid for, administrators were appointed to Swan Services and on 27 June 2013, Swan Services went into liquidation.
Central Cleaning sought the return of the cleaning equipment and products in reliance on the ROT clause. The liquidators rejected Central Cleaning's claim on the basis that it had failed to register its security interest in the goods. Central Cleaning appealed the liquidators' decision.
Issues for the Court
The two issues for consideration by the Court were whether the ROT clause was a term of the CAA and, if so, whether the CAA constituted an overarching supply agreement and therefore a transitional security agreement (TSA), such that Central Cleaning was absolved from being required to register its security interest in the goods.
Findings of the Court
The Court found in favour of the liquidators and dismissed Central Cleaning's appeal. Justice Ferguson held that since Central Cleaning had no "Standard Terms and Conditions" (despite the reference in the CAA), the ROT clause recorded on each invoice was not a term of the CAA. At best, the ROT clause was a term of the individual contract of supply which arose between the parties in relation to each order of goods. Her Honour observed that this did not assist Central Cleaning as it meant that the security interest in the relevant goods was required to be registered on the PPSR.
Because of the finding that the ROT clause was not a term of the CAA, Her Honour considered that she was not required to decide whether the CAA constituted an overarching supply agreement (and by extension, a TSA). However, she held that if she had been required to decide the matter she was inclined to not view the CAA as an overarching supply agreement and that the better characterisation of the arrangements was that each sale of goods involved a separate contract of sale. In Her Honour's view, a key matter supporting this conclusion was that the conditions on the invoices, including the ROT clause, were expressed to only apply to the "goods the subject of this sale" (emphasis added).
Lavan Legal comment
While this case provides some guidance on what constitutes an overarching supply agreement, the reasoning in the judgment is very much focused on the relevant facts of that case, rather than laying down principles with broader application.
With that said, the following key matters emerge from the judgment.
In order to have the benefit of a ROT clause, the clause must be a term of the CAA – without more, it is unlikely to be sufficient that it is printed on later invoices issued to the customer. If the conditions printed on the invoice or CAA, including any ROT clause, are directed towards individual sales of goods rather than the overall contractual relationship between the parties, then this is likely to militate against a finding that a supply of goods was pursuant to the CAA rather than an individual contract of supply. If an overarching supply agreement does not provide for an obligation to supply a minimum quantity of goods, then it may be difficult to convince a court that the agreement constitutes a TSA. Her Honour expressly accepted that "in other circumstances [a CAA] might have [operated as an overarching supply agreement]" and that in alternative circumstances "it would not have mattered that steps were taken in connection with the supply of the Equipment after 30 January 2012 (for instance, the issuing of purchase orders and invoices)". Accordingly, the decision does not "close the door" on claims that a CAA operates as an overarching supply agreement (and a TSA) and each case will turn on the wording of the relevant contractual documents and the relevant factual matrix.
¹ Central Cleaning Supplies (Australia) Pty Ltd v Elkerton and Young (in their capacity as joint and several liquidators of Swan Services Pty Ltd (in liquidation))  VSC 61