If you are a business that supplies goods to buyers on terms other than ‘net cash before delivery’, can you recover the price of your goods or are you limited to a claim in damages? Any claim in damages could be set-off by the return of your unsold goods. The latter position for a supplier dealing in perishable or innovative products may be less than desirable.
This answer must be addressed in the terms of your contract and cannot be retrospectively dealt with after your goods have been delivered.
The Case – Garmin Australasia Pty Ltd v B & K Holdings (Qld) Pty Ltd
In the case of Garmin v B & K Holdings, the watch supplier (“the Seller”) sought to recover a debt owed to it in respect of goods supplied to the defendant (“the Buyer”). In its defence, the Buyer alleged that the terms of the parties’ agreement meant that the goods were held as a bailee and the Seller had a right to take possession of the goods. Therefore, the Buyer argued, any debt claimed by the Seller should be reduced to the sum of the unsold goods held as bailee.
The Buyer argued that the bailor/bailee relationship was the result of a retention of title clause within the parties’ agreement causing the ownership in the relevant goods not to have passed from the Seller to the Buyer. The significance of that argument will become apparent below.
A Seller may sue a Buyer for price under statue or under contract . Aside from consumer rights legislation, parties can reach their own agreement as to when the price is payable. Therefore, contracting as to when price of goods supplied can be recovered as a debt is of great significance. This article will consider the rights afforded under the statute considered in the case of Garmin v B & K Holdings.
Right to sue for price under statute
The rights of Queensland consumers are generally governed by the Sale of Goods Act 1896 (Qld) (“SoGA”). Although the parties in the case of Garmin v B & K Holdings were governed by the NSW consumer rights legislation, the relevant sections considered in that case mirror that of the SoGA.
Under section 50(1) of the SoGA, if property rights in goods have passed from a Seller to a Buyer and the Buyer fails to pay for the goods according to the terms of the parties’ contract, the Seller may sue for the price of the goods.
In Garmin v B & K Holdings, the Buyer argued that because of the parties’ contractual terms, the title in the goods had not passed upon delivery to the Buyer, namely as a result of the retention of title clause and the status of bailee as asserted by the Buyer. Therefore, the NSW equivalent to section 50(1) of the SoGA could not apply to assist the Seller because the property rights in the goods had not passed to the Buyer.
In response, the Seller relied on the statutory exception, the Queensland equivalent being section 50(2) of the SoGA. That exception provides that where a contract of sale, the price is payable on a day fixed, irrespective of delivery, and the Buyer fails to pay for the goods, the Seller can sue for the price of those goods.
The parties’ contractual terms raised two prospective issues for Garmin in its attempts to rely on the statutory exception, being the wording of the retention of title clause and the construction of the clause by which the price was payable:
Retention of Title Clause
The retention of title clause in the parties’ contractual terms added a complication as it granted the Buyer the right to sell the goods, as long as it held the proceeds of sale on trust and accounted for them to the Seller.
The Court construed that retention of title clause as the parties contemplating the passing of title of the goods direct to the ultimate purchaser (i.e. the retail consumer). The definition of a contract of sale under the SoGA requires the title of property to pass from the Seller to the Buyer. The Court, therefore, wrestled with the concept that as the parties’ contractual terms never contemplated title of the goods passing to the buyer, the statutory exception could not be relied upon. However, the Court ruled that it would be contrary to commercial reality for a retention of title clause to render the consumer law inapplicable.
Price of goods payable on a certain day
Garmin’s reliance on the exception failed on the second consideration: that the price of its goods were not payable on a certain day irrespective of delivery. The Seller argued that payment was fixed as the parties’ contractual terms required payment within 45 days of invoice. The Court held that as the time for payment depended on the date of delivery, Garmin was unable to sue for price.
The case of Garmin v B & K Holdings should remind suppliers to be thorough in their contractual terms. If you want to know more about your rights in recovering debt, or have queries with respect to your contractual rights, please contact our Commercial Litigation team on (07) 3211 2233 or send us an enquiry using the form below.