Romalpa (Retention of title) clauses

If you are in the business of selling goods to another party before receiving payment, you probably already have a clause in your standard terms and conditions stating when ownership of the goods transfer from yourself to the other party.  It is therefore useful to know what your rights are and how you can enforce these rights under this sort of clause which is known as a Romalpa or "retention of title" clause.

A little history

The Romalpa clause is named after the defendant in an English case from 1976, Aluminium Industrie Vaasen BV v Romalpa Aluminium Ltd[1].  The scenario in that case is one that's probably familiar to many business people.  The vendor, a Dutch company, had supplied aluminium foil to the purchaser, an English company.  In their contract there was a clause saying that ownership of the foil didn't transfer to the purchaser until the purchaser had paid all payments owing to the vendor and, that until the date of payment, the purchasers had to store the foil in such a way that it was clearly still the property of the vendor.  If the foil was mixed with other materials to create new objects then the vendor would have ownership of those new objects until full payment had been received.  The purchaser had a duty to look after the goods in such a way as to protect the interests of the vendor. If the purchaser sold the objects to a third party but still owed the vendor money then the vendor would get the benefit of any sub-claim against the third party.

When the purchaser got into financial trouble and a receiver was appointed, the vendor asserted its rights under this clause in the contract and claimed that, because of the clause, it had priority over secured and unsecured creditors. The Queen's Bench and Court of Appeal agreed with the vendor and so the Romalpa clause became a way to protect a vendor's ownership of goods which had been delivered to the purchaser and used but had not yet been paid for.

A recent example[2]

A landscaping business supplied a quotation to a contractor who was overseeing construction of a tavern in Perth's southern suburbs.  The contractor accepted the quotation which included the following term:

"The ownership of the goods supplied by the contractor to the customer shall remain with the contractor until payment in full has been received by the contractor.  If such payment is overdue in whole or in part the contractor shall have every right (without prejudice to any other rights) and is hereby authorised by the client to enter into and upon the premises (between 8am and 5pm) where the goods may be stored or in use (with or without others) to retake possession and remove the same.  The customer hereby indemnifies the contractor against any claim, action or damages arising out of any such action against the cost of the same."

Unfortunately for the landscaper, the contractor went into liquidation leaving a large portion of the goods and services unpaid for. In addition, many of the goods supplied were attached to the land which belonged to a third party, the owner of the site. Because of this, the landscaper could not assert his right to retake possession of the goods he had supplied and instead placed caveats on the owner's land.

In conventional building arrangements, any contract the contractor enters into with a sub-contractor, binds the contractor but not the owner unless the wording of the contract is such that the owner is also bound. 

In this case, the owner was bound so the landscaper had permission to enter the owner's property and remove the goods that had been supplied as part of the subcontract and for which payment had not been received in full.  Because some of the goods had been attached to the land, they had changed in status from personal property to real property which meant that the landscaper could no longer use the Romalpa clause to retake possession in order to retain his title in the goods. 

The landscaper lodged two caveats with the Registrar of Titles claiming an interest in the owner's land.  He said that the Romalpa clause meant that he had an interest in the land, and that he had a right to protect his interest which amounted to the price of the unpaid invoices. The landscaper was not able to persuade two of the three judges that the owner of the land was aware of the contact, let alone the Romalpa clause.  This meant that the owner was not a party to the contract and could not be bound by the clause. 

Lessons to learn

A Romalpa clause is a useful tool for vendors to use to protect their interests when supplying goods to purchasers who will be paying for the goods some time after delivery.  It is especially useful when the goods supplied are likely to be used to make different objects or are going to become fixed to the land and are no longer retrievable by the vendor if the purchaser does not pay.

Following this recent case, it is evident that a vendor could still use a caveat to enforce an interest in the land to which goods have been affixed. However, this will only be effective if the original contract under which the payment fell due was made with the owner or the owner's agent.  Because the landscaper's contract was with the contractor, he couldn't assert his right under the Romalpa clause by lodging a caveat on the owner's land.

If you use a Romalpa clause in your standard terms and conditions, you should:

• Make sure you know who you want to be bound by the clause; and
• Check with a lawyer skilled in contract law that your clause is as effective as possible.

If you have a Romalpa clause you want to enforce, it is worthwhile getting expert legal advice just to make sure you comply with your own terms and conditions.  If the purchaser challenges your right to enforce the clause it will be useful if you can demonstrate that you have complied exactly with what the contract says.

There may be times when you supply goods that become attached to the land and are therefore not removable if the purchaser doesn't pay.  One way to protect your interests is to lodge a caveat over the purchaser's land to which you have attached your goods.  But a word of caution - this is not the end of the process.  If you are going to take this step, it is recommended that you seek legal advice to ensure that you can really achieve what it is that you want to achieve.

A Romalpa clause is a useful tool in contract with purchasers but, as with any tool, it will only be effective if it is used  properly.

[1] [1976] 2 All ER 552

[2] Perron Investments Pty Ltd v Tim Davies Landscaping Pty Ltd [2009] WASCA 171