Retention Of Title - 'A Maze If Not A Minefield'

Introduction and

Background

Romalpa clauses, so named after the decision in Aluminium

Industrie Vaassen VB v Romalpa Aluminium

Ltd1, and often referred to as retention of title

clauses or ROT clauses, are increasingly common in contracts for

the sale of goods. Such clauses are particularly beneficial to

non-retail sellers such as manufacturers, distributors and

wholesalers who sell goods as part of a chain of distribution.

The typical intended function of an ROT clause is to ensure that

payment is received for goods sold to the buyer or to retain

ownership of such goods until all monies owed by a buyer to the

seller are paid. In doing so, an ROT clause draws, and seeks to

maintain, the distinction between possession of goods and actual

title to such goods. In the absence of a valid ROT clause, title to

goods will typically transfer upon the formation of the contract or

alternatively upon delivery.2

Sale of Goods

Act

In New South Wales the Sale of Goods Act 1923, forms

the basic foundation for ROT clauses. In particular, clauses 21, 22

and 24 are of importance. Clause 21 deals with the ascertainment of

goods sold and reads:

21 Goods must be ascertained

Subject to section 25A, where there is a contract for the sale

of unascertained goods, no property in the goods is transferred to

the buyer unless and until the goods are ascertained.

Section 22, deals with the intention of the parties with respect

to the time of transfer of title and reads:

22 Property passes when intended to pass

(1) Where there is a contract for the sale of specific or

ascertained goods, the property in them is transferred to the buyer

at such time as the parties to the contract intend it to be

transferred.

(2) For the purposes of ascertaining the intention of the

parties regard shall be had to the terms of the contract, the

conduct of the parties, and the circumstances of the case.

Section 24 reads:

24 Reservation of right of disposal

(1) Where there is a contract for the sale of specific goods, or

where goods are subsequently appropriated to the contract, the

seller may by the terms of the contract or appropriation reserve

the right of disposal of the goods until certain conditions are

fulfilled. In such case, notwithstanding the delivery of the goods

to the buyer or to a carrier or other bailee for the purpose of

transmission to the buyer, the property in the goods does not pass

to the buyer until the conditions imposed by the seller are

fulfilled.

Types of Retention of

Title Clauses

The two types of retention of title clauses commonly used are

described as being either a "Simple" or "All

Monies" clause.

A Simple ROT

Clause

A 'simple' ROT clause retains title in specific goods on

behalf of the seller until such time as the seller has been paid

for those goods. For example purposes only, a rudimentary example

of a simple ROT clause is as follows:

Title to the goods that are the subject of this

invoice will not pass to the purchaser until payment in full for

such goods has been received by the vendor.

As is evident from the example above, a simple ROT clause will

protect and retain title only in those goods that are the specific

subject of the particular ROT clause. Accordingly, only those goods

that form part of the specific agreement that is covered by the ROT

clause, whether by way of a single delivery or invoice, will be

subject. In practice, this invariably leads to significant

difficulties.

By its very nature, a simple ROT clause will serve only to

retain title in the specific goods. As a result, a simple ROT

clause will not prove effective if the specific goods subject to it

cannot be identified from amongst all other goods that may be in

the possession of the purchaser.3 Therefore, it is

incumbent on the seller of such goods to ensure that the goods

claimed to be subject to the simple ROT clause are readily

identifiable. If the goods are not separately identifiable (whether

by way of separate labelling, coding or storage location) and

cannot be distinguished from other goods (including other goods

sold by the vendor and already paid for), the ROT clause is

unlikely to prove enforceable.

As a result of the requirement on suppliers to identify the

goods supplied, most ROT clauses will include a provision requiring

the purchaser to maintain the goods in a separate area thus

allowing for easy identification. Note however the difficulty that

arises where the same supplier provides identical goods at separate

times pursuant to separate simple ROT clauses. Suppliers must rely

upon the purchasers to give effect to the requirement and maintain

separate even these two identical but distinct goods. Failing to do

so can (and invariably does) lead to confusion in tracking the

goods to the respective invoices under which they were provided,

particularly where the goods are drawn upon in portions and used as

such goods typically can be.

An 'All Monies'

ROT Clause

An 'all monies' clause retains title in all goods

supplied by the vendor to the purchaser, provided at any time,

until the point at which all debts or other obligations owed by the

purchaser to the vendor have been satisfied4. For

example:

Title to all goods supplied by the vendor is retained

by the vendor until payment of the purchase price and all other

amounts owing are received by the vendor.

The intended effect of an all monies clause is to expand the

retention of title from the specific goods provided by any one

invoice or delivery and instead retain title in all goods

supplied until all outstanding amounts owing are paid. At

the point at which vendor has been paid in full for all goods,

title in all goods supplied to that point then passes to the

purchaser. At the point at which a purchaser has made payment to

the vendor in full, a vendor may thereafter only seek to retain

title in goods that it can be demonstrated were supplied after that

point and the vendor does not therefore have any recourse to the

earlier supplied goods.

The expansion of an all monies clause from specific goods to all

goods has the advantage of avoiding the necessity of identifying

specific goods that have not been paid for as opposed to those that

have. While a vendor must still be able to identify the goods that

it has supplied, as opposed to those supplied by others, an all

monies clause dispenses with the requirement that the vendor prove

non payment in relation to specific goods.

A further advantage of an all monies clause is that it expands

the pool of goods that may be repossessed in the event of default

by the purchaser. Thus, on the assumption that the purchaser is

indebted to the vendor, if the purchaser fails to pay for goods,

the vendor is not restricted to exercising its remedies against

only those specific goods but can instead seek to seize other goods

supplied by...