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Whose goods are you storing?

6th August, 2012

Many of you will be well aware that the goods which you are handling and storing do not belong to your customer. For instance, your customer may be a freight forwarder or other logistics provider to whom you are providing subcontractor services. However, what happens if your customer does not pay?

If the customer is the owner of the goods and you advised your customer that you trade under the UKWA conditions before you began carrying out work for them, the answer is straightforward (unless the customer is in administration in which case you need to take legal advice). You could exercise the lien that the UKWA terms provides for and therefore refuse to release the goods unless you were paid and, if payment was not forthcoming, you could sell the goods and apply the sale proceeds against the debt, subject to giving the correct notices.

Where your customer is not the owner of the goods the position is less straightforward. Your customer might not be the owner for a variety of reasons, for instance because it has bought the goods subject to retention of title by the seller and has not yet paid for them; because it has already sold them on to a third party; or because the customer is a freight forwarder or another logistics provider who is subcontracting to you. In the first two of these scenarios, providing you were unaware of the third party’s interest in the goods when they came into your possession your lien should take precedence. However, in the final scenario the situation is more complicated.

The owner of the goods may be aware that part of the services your customer has agreed to provide will be subcontracted but they will rarely be aware of the terms on which the goods will be put into your possession. Unless the owner of the goods is aware that they will be put into the possession of a third party i.e. you, and is aware that the terms on which they are put into your possession provide for a lien, you will not be able to exercise the lien against the owner of the goods. In practice, therefore, while you could refuse to release the goods to your customer if they owe you money, if the owner of the goods requires you to release the goods to them, you could be on the wrong end of court proceedings if you refuse and they were unaware of the potential for you to apply a lien.

So what can be done to avoid this situation? The first thing is where you know the goods do not belong to your customer and you know who the goods do belong to, you can advise the owner of your involvement and provide them with a copy of the UKWA terms confirming that these are the terms applying between you and the customer. The owner probably won’t read the terms but that should amount to sufficient notice if you ever do need to rely on a lien in the future.

Your customer may not react too well to you contacting the goods owner though. If you think your customer might object you can ask him beforehand if he is agreeable to you notifying the owner of the terms applying between you and the customer. If the customer does object, you need to reassess the level of credit you are prepared to extend to that customer to avoid taking a hit if the debt gets too large and you are ultimately unable to exercise the lien. Either way, if the customer takes offence then maybe you are better off without a potential problem customer. There is little point storing or handling goods if you are not getting paid and ultimately unless your customer has something to hide or thinks he might not be able to pay it is difficult to see why he should object to the goods owner knowing the terms on which you trade.

Finally, if you know you are storing goods which do not belong to your customer, ask to see the terms applying between the customer and the owner of the goods. If those terms entitle the customer to subcontract any part of the services they have agreed to provide and to do so on any terms, then you may be able to argue that your lien should apply against the goods owner i.e. because they have consented to a third party being involved and to them being involved on any terms, which would clearly include the possibility of a lien. However, the best advice is not to a take a chance and make sure that the goods owner knows that you trade under UKWA terms if possible. If your customer will not let you see the terms between him and the goods owner it may be a sign that he has something to hide and you should consider limiting your exposure to that customer accordingly.

If you do find yourself trying to apply a lien against a goods owner who is not your customer, you must take advice urgently as it could be very costly if you get it wrong.

For further advice or assistance in relation to liens, contact Nick Clarke on 01244 405558 or email him here.

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