Retention of title clauses, their legal effect and remedies available

1. Retention of
Title
Lyla Latif, PhD

2. Content
What are RoT clauses
Their extent
Their purpose
When can an action based on RoT clauses arise?
Rules guiding the judicial interpretation of RoT clauses
Who has the right to bring a claim on a RoT clause?
RoT forms under SOGA, 1979
Legal cases recognizing RoT clauses
Different types of RoT clauses
RoT restrictions
Drafting a comprehensive RoT clause

3. What are RoT clauses?
• A RoT clause is also referred to as a reservation of title or Romalpa clause.
• Retention of title clauses in essence are conditions in contracts for the sale of goods which purport
to retain ownership or property in goods until the occurrence of one or more specified events,
usually, the payment to the seller of the purchase price or other monies owing.
• Permits the seller to retain the legal title in the goods after delivering the goods to the buyer, and
until the buyer pays the entire price of the goods.
• FG Wilson (Engineering) Ltd v John Holt & Co (Liverpool) Ltd (2014) -W was a manufacturer
and seller of generators and parts. W in signing a contract with J inserted a RoT clause providing
that title to the purchased goods did not pass until Holt had paid in full.

4. Extent of RoT
clauses
• A RoT can take several forms: the contract may
include a clause entitling the seller to either
retain title in:
 the goods he supplies
 any product manufactured from the goods -
Clough Mill v Martin (1985)
 be entitled to the proceeds of the
subsequent sale of the goods - Aluminium
Industrie Vaesen BV v Romalpa
Aluminium (1976)

5. Purpose
General
Protects the seller against the
buyer’s default
Enables a seller to deliver
goods to a buyer on the
terms that the seller retains
ownership of the goods until
the buyer has paid the price
Allows physical delivery of
goods to a buyer without
transferring legal ownership
until they have been paid for
Buyer is therefore, in
possession, but does not own
them (what could be the
implications of this? recall sec
18, sec 12)
Gives seller priority over
secured and unsecured
creditors of the buyer who
becomes insolvent by
reclaiming possession of the
goods
Allows the seller to retake
possession of goods from the
buyer
Specific
• Other obligations can be included in a RoT
clause to ensure that repossession, if
necessary, is made as easy as possible. These
could include obligations for the buyer to:
• store the goods separately from goods
belonging to third parties;
• mark the goods as the seller's property;
• allow the seller access to the buyer's
premises to verify that the obligations are
being complied with.

6. When can an action based on RoT clause
arise?
First, it would depend on whether the clause has been incorporated into the contract as an express term (RoT is
NOT an implied term)
The buyer has defaulted on payment of the purchase price, or is insolvent
Crucial to the enforceability of every retention of title clause is that the party claiming the goods is able to
identify them. If it cannot do so, then the claim will fail. It is for the seller to identify which individual items held
by the buyer have not been paid for and if the seller cannot pick out the particular items then he or she will be
unable to claim them.

7. Rules guiding the judicial interpretation of RoT
clauses
• When it comes to interpreting retention of title clauses the following should be borne in
mind:
a. The court will generally give effect to the plain meaning of the words - Hendy
Lennox (Industrial Engines) Ltd v Grahame Puttick (1984).
b. The court will not discard the plain meaning of the words unless within the four
corners of the contract it can find other language and stipulations to deprive a term of
its plain meaning – Re: Bond Worth Ltd (1979).
c. The court is bound to look at the entire retention of title clause – Re: Bond Worth
Ltd (1979).
d. The purpose of a retention clause will not predetermine the legal form of protection
agreed upon or its legal consequences. Consequently, the purpose of providing
security does not necessarily mean that a security interest is created – Clough Mill v
Martin (1985)
e. Equity will look at the substance and reality of the transaction to determine whether a
charge has been created - Compaq Computers Ltd v Abercorn Group Ltd (1991)

8. Who has the right to bring a claim based on a RoT
clause?
Section 38 (1) The seller of goods is an unpaid seller within the meaning of
this Act—
(a) when the whole of the price has not been paid or tendered;
(b) when a bill of exchange or other negotiable instrument has been
received as conditional payment, and the condition on which it was
received has not been fulfilled by reason of the dishonour of the
instrument or otherwise.
(2) In this Part of this Act “seller” includes any person who is in the position
of a seller, as, for instance, an agent of the seller to whom the bill of lading
has been endorsed, or a consignor or agent who has himself paid (or is
directly responsible for) the price.

9. RoT forms under SOGA, 1979
Section 39 Unpaid seller’s rights
(1) Subject to this and any other Act, notwithstanding that the property in the goods may have passed to the
buyer, the unpaid seller of goods, as such, has by implication of law—
(a) a lien on the goods or right to retain them for the price while he is in possession of them;
(b) in case of the insolvency of the buyer, a right of stopping the goods in transit after he has parted with
the possession of them;
(c) a right of re-sale as limited by this Act.
(2) Where the property in goods has not passed to the buyer, the unpaid seller has (in addition to his other
remedies) a right of withholding delivery similar to and co-extensive with his rights of lien or retention and
stoppage in transit where the property has passed to the buyer.

10. Sections 17, 19
 It starts with section 17 – intention – what have the parties intended? That
property will pass only at the payment of the price? Is this what they
intended? If so, then look to section 19
 Section 19 – contract of sale of specific goods or where goods are later
appropriated to the contract, the seller may reserve the right of disposal of
the goods until certain conditions are fulfilled. In this instance, even if
goods are delivered to the buyer, property is retained by the seller

11. Key cases: Romalpa
• Aluminium Industrie Vaesen BV v Romalpa Aluminium (1976)
• In that case, aluminium foil had been sold subject to a clause that provided:
‘that the goods remained the property of the seller until all sums due to them where discharged, that goods manufactured by the
buyer from the seller’s foil would become the property of the seller as surety for full payment and that until full payment had been
made, the sellers would keep such articles in their capacity of fiduciary owners for the sellers and they had the power to sell such
articles to third parties in the normal course of their business’
• It was anticipated that the foil would be used in the buyers manufacturing process but in fact it was sold onto a third party. The
Court of Appeal held that a fiduciary relationship existed between the seller and the buyer. On the basis of this relationship
Romalpa was entitled to trace into the proceeds of the sale and the buyer was obliged to account for those monies. The decision in
the Romalpa case is less one on retention of title than on a claim to the proceeds of sale. But it is our starting point. Romalpa
only succeeded because:
 There was a fiduciary relationship between the seller and the buyer
 That the buyer as a result held the goods as the seller’s bailee

12. Key cases: Clough Mill
• The leading case on retention of title is probably the
Court of Appeal case Clough Mill v Martin (1985).
• In this case the seller had sold yarn to the buyer who
intended to make fabric from it. The contract of sale
provided that the property in the yarn remained with the
seller until paid for. The buyer was however permitted to
use the yarn in its manufacturing process and the seller
was accordingly to become the owner of any product
made from the yarn supplied by them.

13. Different types of RoT
BASIC CLAUSE/SIMPLE
CLAUSE
ALL MONIES CLAUSE (ALL
LIABILITIES CLAUSE)

14. Basic/simple
clauses
• A simple clause provides that property shall be retained pending
payment for the particular goods.
• Simple clauses will only be effective if they reserve the right thing.
That is, the words employed must make clear that both beneficial
and legal property and or ownership is retained and not one or the
other.
• In the absence of clarity the court may conclude that the parties
intended property to pass on delivery, subject to an immediate grant
of a security interest, which may be void against a liquidator or lose
priority for want of registration. The importance of the warning was
well illustrated in:
Re Bond Worth in which the seller sought to reserve equitable
and beneficial ownership. The use of this term was interpreted by
Slade J to conclude that the legal title was conveyed to the buyer
with a grant back of security by way of charge. Whilst it was
open to the court to conclude from the circumstances that the
clear intention was to retain property and ownership the fact
remains that the failure to use appropriate words may result in the
clause being ineffective.

15. All monies clause
• These clauses go into further detail than simple/basic RoT clauses. They
state:
• B will not get ownership of the goods bought until purchase price is paid, as well as all monies
or liabilities owed to the seller have been paid
• Such clauses are usually seen in the context of delivery by instalment or
where the B is a regular purchaser of the seller’s product and receives
consignments intermittently.
• An all monies clause means that where a buyer had paid in full for a
particular delivery of goods, they would not own them if they still owed
money in respect of another consignment of goods. All monies clauses do
not lead to the creation of a charge over the goods – Armour V Thyssen
(1991).
• The problem centres around whether the RoT clause can allow the seller to
repossess the goods, in our example: the sofas that have been manufactured
using the nylon. A retention of title clause does in a sense give security, it
does so by a legitimate retention of title and not by virtue of any right being
conferred by the buyer upon the seller.

16. RoT restrictions
• Goods losing their identity
• Ambiguous RoT clauses can result in the
creation of a charge
• Sub sales by the buyer
• Creation of a fiduciary relationship
• Fixtures

17. Goods losing
their identity
1/4
• Raw materials supplied will lose their identity in the course of
manufacture. If this should happen the sellers title may be extinguished.
• Borden (UK) v Scottish Timber Products (1981), resin was supplied for
the manufacture of chipboard. This was subsequently combined with
wood chips to make the chipboard. It was held that pursuant to the
intention of the parties, the seller’s title ceased once it was used in the
manufacturing process.
• Hendy Lennox (Industrial Engines) v Grahame Puttick (1984),
engines were attached to generate a unit and while it took several hours to
separate the two they were separately identifiable and hence the sellers
title was not extinguished. This is because an action based on RoT clause
can only arise where the party claiming the goods is able to identify
them. If it cannot do so, then the claim will fail. It is for the seller to
identify which individual items held by the buyer have not been paid for
and if the seller cannot pick out the particular items, then he or she
will be unable to claim them.

18. Goods losing
their identity -
2/4
Mixed goods
• Issues usually crop up over RoT clauses with respect to goods that have been
sold to the buyer and have subsequently been mixed so that the original goods
partially or totally lose their identity by becoming a component or ingredient
in a larger or new item. Examples of a few cases:
• Resin being incorporated into chipboard- Borden (UK) Ltd versus Scottish Timber Products
Ltd (1979)
• Leather being made into handbags – Re Peachdart Ltd (1984): S sold leather to P. P used it to
manufacture handbags. The contract stated that ownership of the leather and of any mixed goods
using this leather would remain with S until full payment. P became broke and went into
liquidation. Held: although S could reserve title over the leather sold, they could not do so over
the finished goods as the leather sold had changed its identity once it had been made into
handbags.
• Sheets of cardboard used in manufacturing cardboard boxes – Modelboard Ltd v Outer Box
Ltd (1993)
• Yarn into fabric – Re Andrabell limited
• Grapes into wine - Winegrapes Marketing Board for the City of Griffith v Griffith Vintner's
Ltd (1989)

19. Goods losing
their identity
3/4
Exceptions
• Engines attached to generators - Hendy Lennox (1984):
engine sold had been incorporated into the buyer’s generating
set, the engine could be repossessed by seller after buyer went
into liquidation because:
o It remained an engine throughout
o Could be easily identified by its serial number as
belonging to the seller
o Could be dismantled with ease from the finished product
• The issue with mixed goods is whether the seller can
effectively retain title to the mixed goods without creating a
security interest by the way of charge? The short answer seems
to be that S cannot, although it is often a question of degree of
admixture.

20. Goods losing their identity 4/4
Right to mixed goods
 First, where there is no reference to mixed
goods in the clause – the answer would
depend on analysing:
o Resin being incorporated into chipboard-
Borden (UK) Ltd versus Scottish
Timber Products Ltd (1979)
o Engines attached to generators - Hendy
Lennox (1984)
o Leather being made into handbags – Re
Peachdart Ltd (1984)
o Yarn into fabric – Re Andrabell limited
o Grapes into wine - Winegrapes
Marketing Board for the City of
Griffith v Griffith Vintner's Ltd (1989)
 Secondly, where the clause specifically seeks to retain property in the newly
manufactured product.
 Provided a fiduciary relationship can be established then the seller may be able to
trace the goods into the new products. If however as a result of the mixing process
the goods have lost their identity, then they have ceased to exist and S has nothing
to trace - Borden UK Ltd.
 Consequently, the question is whether the identity of the goods has been lost, the
answer to which will of course, depend on the circumstances of the case and
maybe a question of degree.
o What can be said is that if the goods are simply affixed, the items do not lose
their identity, they will be recoverable - Hendy Lennox (1984)
o However, where they become inseparable components, with identity being
partially or substantially lost, then the claim will be unlikely to succeed. Re
Peachdart Ltd (1984) - might be regarded as a borderline case and involved
leather being converted into handbags. It was held that the seller did not
retain property in the handbags. In Hendy Lennox, the court allowed
property to be retained in engines which were affixed to generator sets but
could be removed by a straightforward mechanical process.

21. Ambiguous RoT clause can
result in the creation of a
charge
• The importance of this was well illustrated in Re Bond Worth (1979)
in which the seller sought to reserve equitable and beneficial
ownership. The use of this term meant that the legal title was
conveyed to the buyer with a grant back of security by way of charge.
• In the Clough Mill case it was held that the clause in question did not
create a charge all over the company's property, since the property
never passed to the buyer in the first place. Accordingly, it seems that
on the bare facts of it a clause providing that the property in goods
shall not pass until payment of the price will be operative as a RoT
clause and not a charge.

22. Sub sales by the buyer
• In many cases RoT clauses will relate to contracts with a buyer who onsells
the goods in the ordinary course of business. The clause will either be
silent on this aspect or expressly provide that goods can be sold in the
ordinary course of business.
• In the latter case, the seller will have no claim against the sub purchaser
and the issue will remain as to whether property passed at the time of sub
sale or if not whether the seller has any entitlement to the proceeds.
• Where the RoT clause is silent on this issue the courts will readily imply a
term allowing the buyer to onsell the goods in the ordinary course of
business. Hendy Lennox Ltd v Grahame Puttick Ltd (1984).

23. Creation of a fiduciary relationship
When does it arise
 By the use of the word fiduciary – Aluminium Industrie v
Romalpa
 Having a requirement to store goods separately – Re
Andrabell Ltd Airborne Accessories v Goodman (1984)
 The requirement to keep proceeds separate – Re Andrabell
(1984)
 The use of the word bailee/bailor (this indicates that the
buyer is not selling on its own account. Bailments create
fiduciary relationships. The presumption of a bailment can
be displaced by the existence of a credit period).
When does it not exist
 The terms of the contract are against existence of a fiduciary
relationship
 Existence of a credit period – Re Andrabell (1984)
 Absence of separate storage requirements and separate
proceeds – Re Country Stores Pty Ltd (1987)
 Specific reference to proceeds of sale in the contract –
Hendy Lennox Ltd v Grahame Puttick (1984)
 Allowing profits to be retained by the buyer. If the clause
allows profit on sub sales to be retained by the buyer then it
suggests that the sale was not for the sellers account but that
the clause created a security over the proceeds only to the
extent of the purchase price and is therefore a charge.

24. Fixtures
• A seller will not be entitled to recover a chattel which has become a fixture
despite an effective RoT clause being in place. Instead, such a retention
clause is held to be a security interest (section 3 of the Chattel Securities
Act).

25. Drafting a
comprehensive
RoT clause

26. Next: Transfer of Title by Non-Owner