What is a retention of title (ROT) clause?

In commercial transactions involving the sale of goods, including intellectual property (IP), a seller should consider protecting themselves against the risk that a buyer may default on payment.  In Queensland, one such protection method is provided by section 22 of the Sale of Goods Act 1896 (Qld) (SGA), which states that a seller may reserve the right to transfer title to the property.  At common law, such a clause is known as a Romalpa clause after the case of Aluminium Industrie Vaassen BV v Romalpa Aluminium Ltd [1976] 2 All ER 552 (Romalpa case).

What is a Romalpa clause?

The rules for ascertaining exactly when ownership of goods passes from the seller to the buyer depend on the type of goods being sold.  For “specific goods” (those which are identified and agreed on at the time of contract), section 20 of the SGA provides that property is transferred to the buyer when the parties intend it to be transferred, which often is at the time the contract is made or the goods are delivered.  A retention of title (ROT) clause, or Romalpa clause, prevents title to the goods passing to the buyer until stated conditions are fulfilled (usually the payment of a specified sum), notwithstanding the delivery of the goods to the buyer.

Why is a Romalpa clause useful?

Such a clause protects the seller if the buyer becomes insolvent, as the seller is able to retake possession of the goods or proceeds of the sale of the goods if they have already been on-sold by the buyer.  However, it is important to note that under section 23 of the SGA, risk of loss or damage to the goods remains with the seller until property is passed to the buyer (unless delivery is delayed through the fault of either party, in which case risk lies with the party at fault).

In the Romalpa case, the seller sold aluminium foil to the buyer under a contract which reserved property rights until payment.  The buyer entered into liquidation whilst owing the seller £122,000.  The seller was able to retake possession of the foil which remained in the buyer’s possession and trace and recover funds in the buyer’s bank account which were attributable to the sale of the seller’s product.

What contracts could benefit from a Romalpa clause?

Romalpa clauses are typically contained within the terms of sale of goods and are included in the seller’s standard terms of business.  The clause will often contain provisions that specify that until the specified conditions are fulfilled, the buyer must keep the seller’s goods separate from their general stock, and any proceeds of sale from on-selling the seller’s goods must be kept in a separate bank account.

What is the interaction between Romalpa clauses and the PPSA?

To be effective against third parties, retention of title clauses must be registered on the Personal Property Securities Register (PPSR), as they are likely to constitute a security interest under the Personal Property Securities Act 2009 (Cth) (PPSA).  If registered within the relevant time limit under the PPSA, the Romalpa clause has the potential to create a perfected purchase money security interest (PMSI), which would grant the seller “super priority” over other creators.  IP is considered personal property for the purposes of the PPSA.

Further references

Legislation

Goods Act 1958 (Vic) s 24

Personal Property Securities Act 2009 (Cth)

Sale of Goods Act (NT) s 24

Sale of Goods Act 1895 (SA) s 19

Sale of Goods Act 1895 (WA) s 19

Sale of Goods Act 1896 (Qld) s 22

Sale of Goods Act 1923 (NSW) s 24

Sale of Goods Act 1954 (ACT) s 24

Cases

Aluminium Industrie Vaassen BV v Romalpa Aluminium Ltd [1976] 2 All ER 552

Associated Alloys Pty Ltd v Metropolitan Engineering & Fabrication Pty Ltd (1998) 16 ACLC 1633

Hardy Wine Co Ltd v Tasman Liquor Traders Pty Ltd (in liq) [2005] SASC 398

Rondo Building Services Pty Ltd v Casaron Pty Ltd [2003] QCA 78

Related articles by Dundas Lawyers

Purchase Money Security Interests (PMSIs) and super priority

Vesting of unperfected security interests on liquidation – register or perish!

Priority issues and the Personal Property Securities Register

Further information

If you need assistance drafting a commercial contract which includes a retention of title clause please telephone me for an obligation free and confidential discussion.

Brisbane Lawyers
Malcolm Burrows B.Bus.,MBA.,LL.B.,LL.M.,MQLS.
Legal Practice Director
Telephone: (07) 3221 0013 | Mobile: 0419 726 535
e: mburrows@dundaslawyers.com.au

Disclaimer
This article is not legal advice. It is general comment only.  You are instructed not to rely on the commentary unless you have consulted one of our Lawyers to ascertain how the law applies to your particular circumstances.

Dundas Lawyers
Street Address Suite 12, Level 9, 320 Adelaide Street Brisbane QLD 4001

Tel: 07 3221 0013

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