Buying rights

Each new day sees retailers large and small going to the wall. This article addresses the plight of customers who have ordered and paid for expensive goods – such as furniture or computer equipment – but not yet taken delivery when the shop goes into administration. Can they insist on the goods being delivered or get their money back? Or are they just unsecured creditors who will probably get nothing?

Geraldine Clark

Geraldine Clark

Claiming the goods

The first step is to find out whether title to the goods had passed to the customer before the retailer entered administration. If so, they are not part of its assets; they belong to the customer who can demand delivery. But if the customer has not yet become the owner of any goods, he or she has no enforceable right to have goods delivered, despite having paid for them.

The time when title passes depends on the terms of the sale contract. Most retailers who take orders have standard terms of sale by which they intend the customer to be bound when he or she signs the order.

If the sale contract does not incorporate written terms of sale, title to the goods passes under the rules for determining the parties’ intention found in sections 16 to 18 of the Sale of Goods Act 1979. Absent circumstances indicating a contrary intention:

·     Title to one-off goods ready for delivery such as artworks and antiques usually passes when the sale contract is made.

·     Title to off the shelf goods to be delivered to the customer from stock, such as wine, computers and home entertainment equipment, will usually pass when an item of the description ordered is picked out from the stock to fulfil the contract and labelled for delivery to the customer.

·     Title to goods which are to be made or adapted to the customer’s order before being delivered, such as new sofas, will probably pass when the work has been done and the customer has been notified.

If title has passed to the customer, he should make a written request to the administrator to deliver the goods to him. If the administrator fails to do so the buyer can claim an order for delivery up and/or damages for conversion.

Claiming the money

When a retailer goes into administration, the effect is to put a freeze on legal action against the company. Of the face if it, customers who have paid for goods which they do not yet own are mere unsecured creditors who are unlikely to recover any of their money. There are, however, two possible exceptions:

First, most of the customers who have used credit cards to pay for goods will be in a strong position. Customers who are individuals, whether buying for private or business use, or two or three partner firms and who paid for items worth £100 to £30,000 by credit card can recover the price from the credit card company if the shop defaults (Consumer Credit Act (1974)). Payment by debit card, charge card or internet bank payment does not confer the same advantage.

Second, it is possible that the customer may have a claim on a trust account set up by the retailer when it got into difficulties. Sometimes a retail company hoping to trade its way out of financial difficulties which have rendered it insolvent, will set up a trust account to hold new customers’ money until their goods are delivered to them. The company’s aim in setting up such an account is to protect new customers and to help its directors to avoid liability for wrongful trading if the company does not survive. The money in such an account is held by the company on trust for the relevant customers and is not part of the retailer’s assets.

Such customers are in a far better position than other creditors if the company goes into administration because they can claim repayment from the funds in the trust account. Customer trusts of this type have been upheld in Re Lewis’s of Leicester (1995) and OT Computers Ltd (in administration) v First National Tricity Finance Ltd(2003). It is unlikely that such arrangements are open to attack as preferences under section 239 of the Insolvency Act 1986 because the new customers were not existing creditors at the time the trust over their money was created (see Re Farepak Food and Gifts Ltd (2008)). Nor are they likely to `be transactions at under value falling foul of the Insolvency Act (1986) (see Re Lewis’s of Leicester).

In short, while there is little comfort on offer for customers who have ordered goods from a shop that goes into administration, it is sometimes possible to obtain the goods or the money when all appears lost. Given the parlous state of the economy, the best protection for most customers is to pay by credit card.

Geraldine Clark is a barrister at Serle Court