Makes sure your contract fits the bill

Following November’s article on warehouse construction, this month we flag up a cautionary tale from the courts on financing the fit-out. It concerns Wincanton which was to provide warehouse management services for Jenks Sales Brokers in Milton Keynes (see May 2009 edition of Wholesale News). The intention was that Wincanton would pay for the work initially and then recover the cost over the life of the contract. Wincanton agreed to start the fit-out work on the basis of a letter of indemnity from Jenks pending entry into the detailed warehouse management agreement.

It turned out that Jenks, rather than Wincanton, purchased the racking from the supplier identified by Wincanton, using funds provided by Wincanton. Under the purchase agreement, ownership would transfer when the supplier had been paid in full. However, a balance owing to the supplier went unpaid because Wincanton had concerns about the financial viability of Jenks and declined to put it in funds. Jenks later went into administration and a dispute arose as to who owned the racking. The supplier gave up its claim in exchange for a modest payment from Wincanton, leaving Jenks to fight it out with Wincanton.

The outcome in court earlier this year was that Wincanton never acquired ownership, because the supplier never got paid in full. Wincanton therefore lost out; it had taken the risk of Jenks not being able to pay. Jenks, despite going into administration, acquired the racking at no cost.

So, a company financing a fit out must ensure that it has (a) a bullet-proof claim to the ownership of the goods it pays for (b) access to their removal if necessary, and (c) a clear set of rules governing the interplay between ownership and the resolution of any fit-out issues with the supplier.

copy; S Calnan 2012

Sebastian Calnan is a consultant solicitor for EMW LLP in Milton Keynes, specialising in supply chain and distribution law. He can be contacted at sebastian.calnan@emwllp.com or 0845 070 6000.

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