1. What rules, if any, govern retention of title (RT) in your country? In the absence of rules, what are the principal mechanisms, if any, on which RT is based in your country?

In Finland, RT is a contractual instrument and is based on the freedom of contract. It is used primarily to secure payment of the goods but also to ensure that the owner may take care of the goods or give instructions as to its maintenance.

In Finnish doctrine, an RT clause is effectively an authorization to terminate the contract. Therefore, similar effects are achieved by naming the clause a termination clause or retake clause.

  1. Please describe the characteristics and scope of your country’s RT rules

There are no express statutory rules on RT clauses in contract law as they are developed by contract practice. However, the scope of RT is defined by case law, including the Supreme Court.

There are, theoretically, no form requirements as to the RT clauses for tangible goods as such but their becoming part of the contract so as to bind the buyer requires their incorporation into the contract so that the buyer has actually had an opportunity to verify their content, e.g. the clause has been marked on the invoice (KKO 1994:113)1 or it is part of general conditions that the buyer has had the chance to study for weeks (KKO 2001:126). However, a reference to general conditions in an order confirmation is not sufficient where the buyer did not have the conditions available (KKO 1993:45).

RT often becomes relevant in bankruptcy. Chapter 5 Section 7 of the Finnish Bankruptcy Code provides for the effects of an RT in the buyer´s bankruptcy. This provision contains requirements as to the validity of the clause to be effective in bankruptcy and its effects in that case. There are also provisions regarding restitution in the Instalment Payments Act.

  1. If RT is not regulated in your country, are there similar or commercially equivalent forms of security preserving seller’s rights to the goods?

It is fair to say that RT is regulated in Finland in the case law and, where applicable, the Bankruptcy Code. We may still take a look at commercially equivalent forms of security.

Immovable property may be pledged by handing over possession to pledgee. Theoretically, a pledge could probably exist even if the pledger retained possession of the goods, but this would apply only between the parties and not against third parties. It is also possible to mortgage
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chattels of an industrial or other plant separately.

  1. What is the relation of RT and passage of risk in your system? How may a seller protect its interest after the passage of risk?

There is no link between the two under Finnish law. RT clauses are not considered to essentially regulate the passing of property in the sense that the buyer would not obtain full owner´s possession of the goods as an RT clause is an authorization to terminate the contract. Passing of risk is linked to delivery pursuant to the CISG and the domestic Sale of Goods Act. Since freedom of contract prevails, the parties regulate passing of the risk by choosing one of the Incoterms® rules.

As long as the goods are under the seller´s risk, the seller may protect its interest with ordinary cargo insurance cover. After the passing of risk this is no longer possible. Therefore, should the seller have insured the goods against buyer´s risk (CIP, CIF) and the goods are lost or damaged, the insurance company is nevertheless obliged to pay the buyer. If the seller invokes the RT clause thereby terminating the contract, the seller has a claim for the price of the goods against the buyer.

There exist, however, other insurance options for a party not having the risk but other interests in the goods constituting an insurable interest. A seller´s interest insurance (or, under the Institute Clauses, a Seller´s Interest Clause) covers an unpaid vendor´s risk.

After the risk has passed but when the goods are still under transit, the seller may resort to stoppage in transit as provided for in Article 71(2) CISG.

  1. What are formal requirements, if any, including timing, to perfect the seller’s right?

There are no rules relating to the perfection of the security interest under Finnish law.

  1. Effectiveness
    1. Does sale to a third party break RT? What if the goods have been transformed or sold?

Yes, a sale to a third party generally breaks the RT in Finland.

Transformation or annexation of the goods into another property generally also breaks RT in Finland.

If yes, is there a possibility to transform the RT in case of a sale to a third party?

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The effects of a resale on the RT can be regulated in the first sale contract, or by its modification. In order to preserve the RT in the case of the first buyer´s bankruptcy, the parties need to agree that the first buyer may not sell the goods further with an effect on the first seller´s right. The resale buyer´s position then depends on its knowledge of the term in the first sale contract or, obviously, on a term in the resale contract. It is submitted that this applies also in other than bankruptcy situations.

  1. Enforcement of RT if delinquent buyer is not insolvent — What is the judicial procedure and what is its likely timeline?

The seller needs to invoke the clause and effectively terminate the contract for the breach on non-payment, which needs to be at hand by way of default.

Ordinary court procedure needs to be applied, potentially with the use of interim measures. The hearing may usually take up to one year in the first instance. In terms of conflict of laws, the law of the place where the goods are situated (lex situs) should be observed. Finnish courts may enforce RT clauses based on foreign law to the extent these are not in contravention of Finnish public policy.

  1. What happens in case of conflict between RT and a buyer’s creditors’ rights, including carrier’s liens?

The conflict with other creditors usually arises in bankruptcy. An unpaid vendor has a separatist´s right in bankruptcy and can take back its property. If there is execution outside bankruptcy, the unpaid vendor can file an execution complaint to protect its interests.

A carrier with a lien can retain the goods under RT and, depending on the nature of the lien, sell the goods to satisfy its claims, irrespective of the RT. A contractual lien may even extend to claims based on other grounds than the carriage in question (as in the Nordic NSAB 2015 freight forwarding conditions). A claim to the carrier to release the goods may be made by the consignee or the holder in due course of the bill of lading, where applicable. Reference is, however, made to the stoppage in transit under Article 71(2) CISG.

  1. Bankruptcy — interaction of RT (which is not contract law) and bankruptcy law
    1. Goods still with buyer

The seller as RT holder can claim the goods from the estate provided that 1) the clause was agreed on before the passing of the possession of the goods, 2) it is provided that the seller may not sell or dispose of the goods with effect to the seller´s rights, and 3) the buyer may not transform the goods or connect them to other property, e.g. a construction. If these conditions are not met, the seller is like any unprivileged creditor.
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  1. Goods already sold by buyer

If it is not provided in the clause that the buyer may not resell the goods with effect to the seller´s rights, the clause has no effect. Arguably, the seller may claim the goods back from the end buyer or the proceeds of sale substitute the goods in re-vindication.

  1. Time limits to declare title to receiver

No time limits apply as regards tangibles.

  1. Who pays storage, insurance and transport during discussions with receiver?

Unless otherwise expressly provided, it is for the seller to pay these costs in the first place but since the exercise of RT is a remedy for breach of contract (termination), the buyer is normally liable for damages for the breach, and the mentioned costs are typical direct damages.

  1. Model clause(s) — Drafting tips

NOTE: The following language is based on contractual provisions commonly seen in this country, but readers should always consult legal counsel before including an RT clause in a contract.

An RT clause may be part of general conditions of sale/purchase but attention needs to be paid to making the conditions available to the contracting partner before contracting. The clause should be agreed on before the delivery.

It may consist of a simple mention that the goods remain the property of the seller until fully paid. The clause may also be amended to include provisions of denial of resale, transformation or connecting to other property. If not, these will break the RT.

1
KKO stands for the Supreme Court of Finland followed by the year and case number