September 1994

63.1 Introduction

A retention of title clause, also referred to as a "reservation of title" or "Romalpa" clause, is a form of security used by a supplier of goods to protect himself against the possibility of the buyer’s default or insolvency. In this chapter it will be referred to as "the clause". Under section 17(1) of the Sale of Goods Act 1979, the ownership of goods passes between the supplier and the purchaser when the parties to the contract intend it to, and under section 17(2) of the same Act, regard should be given to the terms of the contract, the conduct of the parties and the circumstances of the case, in determining the timing of the transfer of ownership. In addition, section 19(1) of that Act states that in a contract for the sale of specific goods (or where goods are subsequently appropriated to the contract), the supplier can reserve the right of disposal until certain conditions are met. Thus the supplier may retain title to the goods until payment is received, by providing for this in the contract. The supplier’s claim to any unused goods will be valid against any subsequently appointed liquidator or trustee, provided the clause has been incorporated into the contract. For a summary of the principal matters to be considered in deciding the validity of a claim, reference should be made to paragraph 63.13. Where the goods subject to a clause have been sold to a third party, good title may be given to the third party, either by virtue of section 25(1) of the Sale of Goods Act 1979 or where a licence or agency to sub-sell has been granted by the supplier. In view of the official receiver’s duty to protect and, if he remains liquidator or becomes trustee, to realise the assets of the insolvent for the benefit of creditors, it is important that he is completely satisfied on all aspects of a retention of title claim before deciding that the clause is valid and allowing the supplier to remove goods or have the proceeds of their sale.

Notes: [s144(1) or 287(2)] [s143(1) or 305(2)]

63.2 Nature of supplier’s claim

The nature of the supplier’s claim will be for damages for wrongful interference with the goods. The claim will usually be for the market value of the goods, ie normally the amount of the unpaid invoices. Liability will arise if there is a refusal to return the goods or a disposal of the goods after the right to sell has been terminated, which will be the date of the insolvency order unless the contract provided for an earlier date. Providing any loss or damage resulting from the official receiver’s seizure or disposal of the goods is not caused by his own negligence, the supplier’s claim cannot exceed the invoice value of the goods.

Notes: [s234(3) and (4) or 287(4) or 304(3)]

63.3 Types of clauses

The wording of the clause in a contract will vary considerably. Each clause must be considered carefully by the official receiver to ascertain the extent of the supplier’s possible claim. The simplest type of clause has the sole intention of retaining ownership over the goods supplied under a contract of sale until payment is made for those goods. It could be worded: "Title in the goods shall not pass to the customer until they have been paid for in full". (Such a clause cannot be construed as creating a charge and therefore does not require registration as a charge under either the Companies Acts or the Bills of Sale legislation.) A second type of clause is often referred to as an "all sums" clause or "current account" clause. This is where the supplier seeks to retain ownership of the goods delivered to the insolvent until all debts have been paid and any other obligations have been met by the insolvent (see paragraph 63.25). The remaining types of clauses are sometimes collectively called multi-purpose clauses and are as follows:

1. a "tracing", "prolonged" or "proceeds of sale" clause, where the supplier seeks to retain ownership of the goods delivered until the full purchase price for those goods has been paid. If the insolvent sells the goods, the supplier may acquire ownership of the proceeds of sale or debts owed by the sub-buyer(s), but this depends upon the existence of a fiduciary relationship or a validly registered charge (see paragraph 63.26);
2. an "aggregation" or "enlarged" clause, where the supplier seeks to retain ownership of the goods delivered until the full purchase price has been paid by the insolvent, but if the goods are manufactured into some other property, with or without the addition of other goods, the supplier could acquire the ownership of the resulting property or a proportionate part of it equal to the contribution made to the manufacturing process by the original goods (see paragraphs 63.17 to 63.19). This will occur where there is a fiduciary relationship (see paragraph 63.26) or the contract expressly provides for the ownership of the finished goods to vest in the supplier. In the latter case a charge is likely to have been created, which in the case of a company purchaser would require registration under the Companies Acts to be effective, and in the case of an individual may be void (see paragraph 63.19).

63.4 Combined clauses

It is possible for a supplier to combine several types of clause, and if the official receiver decides that one part of the clause is invalid, the supplier may still be entitled to recover goods under another element of the clause. For example, the clause may refer to retention of title of goods supplied and may also seek the power to trace the sale proceeds of goods ((a) in paragraph 63.3 above). The tracing element of the clause may fail due to non-registration of the clause as a charge or bill of sale or because it is void in the case of an individual as a charge over future acquired chattels (see paragraph 63.27), but the supplier may still be able to recover goods with the insolvent at the date of the insolvency order.

63.5 Petitioner with clause in contract

It may be that a creditor with a clause in his contract with the insolvent has instituted recovery proceedings but has not sought to recover the goods under the clause prior to the insolvency order. Where the creditor informs the official receiver that he wishes to claim the purchase price of the goods subject to the clause (ie claim in the insolvency proceedings for that amount) and to recover those goods the official receiver should consult Technical Section at Headquarters.

 

[Back to Introduction] [On to Part 2 - Enquiries to be made by the Official Receiver]