With the downturn in the global economy, being only one on many challenges, receiving payment from your debtors has become a frustrating task, often leading to costly and time consuming legal process. Unfortunately there is no magic spell to invoke to make all your debtors pay as and when they should. However, using certain techniques can be just as effective.
The Right of Retention or a lien, if used wisely, is an extremely powerful tool which can legally be used to help ensure prompt payment.
In order to explain this concept we will use the example of a client who delivers a vehicle to a local workshop, in order to have the vehicle serviced or repaired. However when the client returns to collect his or her vehicle suddenly there is a problem with making the payment and/or making full payment. The simple solution and to some extent the logical solution is to retain possession of the vehicle until the client has paid the full outstanding invoice. But is this legal and if so, how does a business manage its legal risk?
There are no guarantees that a client will make payment, even if the vehicle is retained, and in most instances the terms and conditions on the Job-Card will, to a large extent, govern the relationship between the business and its customer. It cannot be over-emphasised how important these terms and conditions are to the contractual relationship between the parties.
There are primarily two kinds of Retention Rights namely:
(i) Special retention, which is the right to retain property, in terms of contract or agreement, until the person or entity, holding the property, has been compensated for the labour or financial expenditure to such property.
(ii) General retention is the right to withhold or detain the property of another, in respect of a debt, which is due by the owner of such property to the person who has the custody thereof.
From these definitions it becomes clear that the primary requirement, to exercise this right, is possession of the object and more specifically lawful possession, being the manner in which possession was obtained. In most instances possession is established by way of contract or agreement between the parties. A lien will not come into existence if possession of the object was obtained in an unlawful manner.
It should be remembered that the individual that elects to rely on this right has the obligation to prove how the possession of the object was obtained and that it was obtained lawfully. Loss of possession extinguishes the right or destroys the lien and recovery of the possession once lost will not revive the right.
Whilst there are a wide variety of liens, the lien created in our example would arguably be described as a “debtor and creditor” lien. This type of lien is dependent upon a debtor-creditor relationship between the parties. It is for this reason that this type of lien is only enforceable as between the parties to the agreement.
Once the debt and/or account has been paid in full the retention right falls away, through operation of law, and the possessor needs to make the property available to the owner thereof. This process becomes a little more complicated if there are two interested parties in the vehicle, for example the alleged owner and a banking institution. The retention right can be exercised against a banking institution, in specific circumstances.
In next months issue we will continue the above discussion and further explore the legality of Storage Fees.
Contributed by: Wesley Watson LLB (UNISA), Barnard Incorporated Attorneys